TWENTY YEARS OF GROWTH AND PROFITABILITY
Dear Stockholders:
1997 was another exceptional year for D.R. Horton, Inc. New records in
revenues and earnings allowed the Company to achieve its 20th consecutive year
of growth and profitability. Based on Builder Magazine's May 1997 ranking, D.R.
Horton, Inc. was the 18th largest homebuilder in the United States. Today, we
believe D.R. Horton is among the 10 largest homebuilders. More important than
our past, we have set the stage for continued success in 1998 and beyond.
SINCE OUR JUNE 1992 INITIAL PUBLIC OFFERING, D.R. HORTON, INC. HAS:
o Expanded from 8 to 28 markets
o Grown revenues from $153 million to over $837 million
o Increased net income from $8.1 million to $36.2 million
o Increased stockholders' equity from $50.2 million to $262.8 million
o Provided stockholders with an annual return on average stockholders'
equity of 18.5%
o Acquired and successfully integrated six homebuilding companies
o Improved liquidity in our stock by increasing public float from
4.4 million shares to 22.5 million shares
1997 WAS AN EXCEPTIONAL YEAR IN WHICH WE:
o Acquired three companies:
"Trimark" Communities in Denver (October 1996)
"SGS" Communities in New Jersey (December 1996)
"Torrey" Group with operations in Atlanta, Charlotte,
Raleigh, and Greenville, S.C. (February 1997)
o Commenced startup operations in Nashville and Tucson
o Raised $40 million of additional equity through the sale of common
stock
o Placed $150 million in public debt for a 7 year term. This issue was
rated Ba2 by Moody's and BB by Standard & Poors
o Restructured our bank facilities to aggregate $650 million with terms
up to 5 years at reduced borrowing rates
o Initiated a quarterly cash dividend of $.02 per common share
o Expanded our mortgage operations to provide mortgage services to our
homebuyers in Texas, Arizona, North Carolina, Nevada, Colorado and
Florida
ADDITIONALLY, IN 1997 WE INCREASED:
o Pretax income 35% to $59.9 million
o Revenues 53% to $837.3 million (5,018 homes)
o New sales orders 47% to $863.2 million (5,177 homes)
o Year end sales backlog 49% to $312.2 million (1,793 homes)
<PAGE>
ANNUAL AWARDS
Each year, D.R. Horton formally recognizes outstanding achievements through
its individual and division awards. We congratulate our 1997 recipients of these
awards who were:
o The Dallas/Fort Worth East Division managed by Leon Horton, was named
"Division of The Year" by his peer group within the Company.
o Judy Dougherty, of our Atlanta-Torrey Division, led the Company by
selling the highest dollar volume of homes and is our "Sales Person of
the Year".
o Tom Lombardi, of our San Diego Division, is our "Construction Person
of the Year" for supervising construction of the most homes in 1997.
Tom also won this award last year.
1998 AND BEYOND
We look forward to a highly successful year ahead and anticipate D.R.
Horton will enjoy its 21st year of growth and profitability. Some of our goals
for 1998 are to exceed $1 billion in revenues and be one of the largest and most
profitable companies in the homebuilding industry. We invite you to follow our
progress and become more familiar with our Company by accessing our website at
http://www.DRHORTON.com.
Our rapid growth requires that we attract, develop, and retain very
talented personnel. We commend all of our employees for their assistance in
making 1997 an exceptional year and ask their help in making 1998 even better.
Our history demonstrates not only our ability to grow by starting operations
in new markets, but also our success in acquiring homebuilding companies that
make immediate contributions to our earnings. We continuously explore
acquisition candidates and new markets and plan to enter three to four markets
annually. The continuous growth of our Company through geographic expansion is
unmatched by anyone in the industry.
/s/ DONALD R. HORTON
Donald R. Horton
Chairman of the Board and President
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File number 1-4112
----------
D.R. HORTON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2386963
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 ASCENSION BLVD, SUITE 100 76006
ARLINGTON, TEXAS (Zip Code)
(Address of principal executive offices)
(817) 856-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 per share The New York Stock Exchange
8 3/8% Senior Notes due 2004 The New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
------
As of November 30, 1997, there were 37,346,343 shares of Common Stock, par
value $.01 per share, issued and outstanding, and the aggregate market value of
these shares held by non-affiliates of the registrant was approximately
$406,607,000. Solely for purposes of this calculation, all directors and
executive officers were excluded as affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 22, 1998, are incorporated herein by
reference in Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is engaged primarily in the construction and sale of
single-family homes in metropolitan areas of the Mid-Atlantic, Midwest,
Southeast, Southwest, and West regions of the United States. The Company offers
high-quality homes with custom features, designed principally for the
entry-level and move-up market segments. The Company's homes generally range in
size from 1,000 to 5,000 square feet and range in price from $80,000 to
$600,000. For the year ended September 30, 1997, the Company closed homes with
an average sales price approximating $166,700.
The Company is one of the most geographically diversified homebuilders in
the United States, with operating divisions in 21 states and 28 markets. These
markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago,
Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Greenville S.C., Houston,
Kansas City, Las Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, New
Jersey, Orlando, Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San Diego,
South Florida, St. Louis, Tucson and Suburban Washington, D.C.
The Company was incorporated in Delaware on July 1, 1991, to acquire all of
the assets and businesses of 25 predecessor companies, which were residential
home construction and development companies owned or controlled by Donald R.
Horton.
The Company's principal executive offices are located at 1901 Ascension
Blvd., Suite 100, Arlington, Texas 76006, and its telephone number is (817)
856-8200.
Operating Strategy
The Company believes that there are several important elements to its
operating strategy which have enabled it to achieve consistent growth and
profitability. The following are important elements of this strategy:
Geographic Diversification. From 1978 to late 1987, the Company's
homebuilding activities were conducted exclusively in the Dallas/Fort Worth
area. The Company then instituted a policy of diversifying geographically,
entering the following markets in the years indicated:
<TABLE>
<CAPTION>
Year Entered Markets
------------ -------
<S> <C>
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, Kansas City, Las Vegas
1995................. Birmingham, Denver, Greensboro, St. Louis
1996................. Albuquerque, Pensacola
1997................. Greenville S.C., Nashville, New Jersey, Tucson
</TABLE>
The Company continually monitors the sales and margins achieved in each of
the subdivisions in which it operates as part of an overall evaluation of the
employment of its capital. While the Company believes there are significant
growth opportunities in its existing markets, it intends to continue its policy
of diversification by seeking to enter new markets. The Company believes that
its diversification strategy mitigates the effects of local and regional
economic cycles and enhances its growth potential. Typically, the Company will
1
<PAGE>
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
the Company and its products.
Acquisitions. As an integral component of the Company's operational strategy
of continued expansion, the Company continually evaluates opportunities for
strategic acquisitions. The Company believes that expansion of its operations
through the acquisition of existing homebuilding companies affords it 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 homebuyers in the market. In evaluating potential
acquisition candidates, the Company seeks homebuilding companies that have an
excellent reputation, a track record of profitability and a strong management
team with an entrepreneurial orientation. The Company has limited 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 the Company believes should have an immediate
positive impact on the Company's earnings.
The Company has acquired six homebuilding companies since March 1994:
<TABLE>
<CAPTION>
Acquired Entities Acquired Markets
-------- ----------------- -------
<S> <C> <C>
April 1994 Joe Miller Homes, Inc. and Minneapolis/St. Paul
Argus Development, Inc.
July 1995 Arappco, Inc. Greensboro
September 1995 Regency Development, Inc. Birmingham
October 1996 "Trimark" Communities, L.L.C. Denver
December 1996 "SGS" Communities, Inc. New Jersey
February 1997 The "Torrey" Group Atlanta, Charlotte,
Greenville S.C., and
Raleigh/Durham
</TABLE>
In both existing and new markets, the Company anticipates that it will
continue to evaluate potential future acquisition opportunities that satisfy its
acquisition criteria.
The Company made three acquisitions during fiscal 1997. In October, 1996,
the Company completed the acquisition of the principal assets (approximately
$7.6 million, primarily inventories) of Trimark for $7.0 million in cash and the
assumption of approximately $1.0 million in trade accounts and notes payable
associated with the acquired assets. In December, 1996, the Company purchased
the principal assets (approximately $19.5 million, primarily inventories) of SGS
for $10.6 million in cash and the assumption of $10.1 million in accounts and
notes payable associated with the acquired assets. In February, 1997, the
Company completed the acquisition of all the outstanding capital stock of the
entities comprising Torrey and purchased assets from affiliated entities. The
Company paid consideration consisting of $37.6 million in cash, 844,444 newly
issued, restricted shares of the Company's common stock, valued at $9.2 million,
and assumed $90.0 million in accounts and notes payable.
Torrey, the largest acquisition the Company has made, has been the leading
builder of single-family homes in the large and growing Atlanta, Georgia market
for the past three years as reported in Builder Magazine. Atlanta has been the
largest housing market in the United States for the past three years based on
single-family building permits. Torrey targets both entry-level and first time
move-up buyers. In addition to building homes in the Atlanta market, Torrey has
homebuilding operations in Charlotte and Raleigh/Durham, North Carolina, and
Greenville, South Carolina.
Market Focus--Custom Features. The Company typically positions itself
between large volume homebuilders and local custom homebuilders by offering a
broader selection of homes that have more amenities and greater design
flexibility than homes offered by volume builders, at prices that are generally
2
<PAGE>
more affordable than those charged by local custom builders. The Company
generally offers between five and ten home designs that it believes will appeal
to local homebuyers at each of its subdivisions, but is prepared to offer
additional building plans and options that may be more suitable or desirable to
homebuyers. The Company also is prepared to customize such designs to the
individual tastes and specifications of its homebuyers. While most design
modifications are significant to homebuyers, such changes typically involve
relatively minor adjustments including, among other things, modifying the
interior or exterior dimensions of the home and changing exterior materials.
Such changes generally improve the Company's gross margins. Consequently, the
Company believes that it is able to maintain the efficiencies of a volume
builder while delivering high-quality, personalized homes to its customers. The
Company believes that its ability to cater to the design tastes and desires of
the prospective homebuyer at competitive prices, even at the entry-level,
distinguishes it from many of its competitors.
Decentralized Operations. The Company's homebuilding activities are
decentralized to give more operating flexibility to its local division managers.
The Company's homebuilding activities are conducted through 34 operating
divisions, some of which are in the same general market area. Generally, each
operating division consists of a vice president, an office manager and staff, a
sales manager, one to eleven sales people and one construction manager, who
oversees one to nine construction supervisors. The Company believes that
division managers, who are intimately familiar with local conditions, make
better decisions regarding local operations than do the centralized, corporate
management teams who make such decisions for many of its competitors. Each
operating division is responsible for preliminary site selection, negotiation of
option or similar contracts, and overseeing land development activities. Site
selection and lot acquisition typically involve a feasibility study by the
operating division, including soil and environmental reviews, a review of
existing zoning and other governmental requirements, and a review of the need
for and extent of offsite work and additional lot preparation required to meet
local building codes. Each operating division also plans its homebuilding
schedule, selects the building plans and architectural scheme for its
subdivisions, obtains all necessary building approvals, and develops a marketing
plan for its homes. Division managers receive performance bonuses based upon
achieving targeted operating levels in their operating divisions.
The Company's corporate office controls key risk elements by retaining
oversight and responsibility for final approval of all land and lot
acquisitions, inventory levels, financing arrangements, accounting and
management reporting, payment of subcontractor invoices, payroll and employee
benefits.
Cost Management. The Company strives to control its overhead costs by
centralizing its administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management positions.
The Company also attempts to minimize advertising costs by participating in
promotional activities, publications and newsletters sponsored by local real
estate brokers, mortgage companies, utility companies and trade associations,
and, in certain instances, by positioning its subdivisions in conspicuous
locations that permit it to take advantage of local traffic patterns.
The Company attempts to control construction costs through the efficient
design of its homes and by obtaining favorable pricing from certain
subcontractors based on the high volume of work they perform for the Company.
The Company's management information systems, including the purchase order
system, also assist in controlling construction costs by allowing corporate and
division management to monitor expenditures on a home-by-home basis. In
addition, the Company's management information systems allow the Company to
monitor its inventory composition and levels, thereby controlling capital and
overhead costs.
Limited Real Estate Exposure. The Company frequently acquires developed
building lots pursuant to lot option and similar contracts after all zoning and
other governmental entitlements and approvals are obtained. By utilizing lot
option contracts, the Company purchases the right, but not the obligation, to
buy building lots at predetermined prices on a takedown schedule commensurate
with anticipated home closings. The lot option contracts generally are on a
nonrecourse basis, thereby limiting the Company's financial exposure to earnest
money deposits given to property sellers. This practice enables the Company to
control significant lot positions with minimal up front capital and
substantially reduces the risks associated with land ownership and development.
The Company attempts to control a two to four year supply of building lots
within each market based on current and expected absorption rates. At September
30, 1997, the Company held lot option and similar contracts for 12,569 lots with
3
<PAGE>
an estimated aggregate purchase price approximating $408.5 million. These
options are secured by cash deposits of approximately $8.0 million, standby
letters of credit approximating $2.5 million and promissory notes of
approximately $1.7 million.
Markets
The Company's homebuilding activities are conducted in five geographic
regions, comprised of the following markets:
<TABLE>
<CAPTION>
Geographic Region Markets
----------------- -------
<S> <C>
Mid-Atlantic.................... Charlotte, Greensboro, Greenville S.C.,
New Jersey, Raleigh/Durham, Suburban
Washington, D.C.
Midwest......................... Chicago, Cincinnati, Kansas City,
Minneapolis/St. Paul, St. Louis
Southeast....................... Atlanta, Birmingham, Nashville,
Orlando, Pensacola, South Florida
Southwest....................... Albuquerque, Austin, Dallas/Fort Worth,
Houston, Phoenix, Tucson
West............................ Denver, Las Vegas, Los Angeles, Salt
Lake City, San Diego
</TABLE>
The Company's operations in each of its markets differ based on a number of
market-specific factors. These factors include regional economic conditions and
job growth, land availability and the local land development process, consumer
tastes, competition from other builders of new homes and secondary home sales
activity. The Company considers each of these factors when entering new markets
or conducting operations in existing markets.
Revenues for the Company by geographic region are:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
1995 1996 1997
----------- ----------- ----------
(In millions)
<S> <C> <C> <C>
Mid-Atlantic.......................... $ 113.3 $ 116.4 $ 180.5
Midwest............................... 69.9 88.5 95.9
Southeast............................. 49.3 87.2 193.0
Southwest............................. 153.1 173.8 206.1
West.................................. 51.8 81.4 161.8
-------- -------- --------
Total............................... $ 437.4 $ 547.3 $ 837.3
======== ======== ========
</TABLE>
Land Policies
While the Company expects to continue to use lot option and similar
contracts to secure developed lots, it will pursue land acquisition and
development opportunities to augment its inventory of low-cost, quality building
lots and to maximize profit opportunities. Substantially all of the land
acquired by the Company is purchased only after necessary entitlements have been
obtained so that the Company has the right to begin development or construction.
The Company generally limits its acquisitions to smaller tracts of entitled land
that will yield under 200 lots when developed and, where possible, obtains
options to acquire adjacent parcels for later development. By limiting its
acquisition and development activities to smaller parcels of land, the Company
reduces the financial and market risks associated with holding land during the
development period. Before it acquires tracts of land, the Company 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 September 30,
1997, about 48.3% of the Company's total lot position of 24,300 lots was being
or had been developed by the Company. Although the Company purchases land and
engages in land development activities primarily to support its own homebuilding
activities, lots and land are occasionally sold to other developers and
homebuilders.
4
<PAGE>
A summary of the Company's land/lot positions at September 30, 1997 is:
<TABLE>
<S> <C>
Finished lots owned by the Company................................... 2,051
Lots under development owned by the Company.......................... 9,680
------
Total lots owned..................................................... 11,731
Lots available under lot option and similar contracts................ 12,569
------
Total land/lot position.............................................. 24,300
======
</TABLE>
The Company also seeks to limit its exposure to real estate inventory risks
by (i) 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; (ii) limiting the number of speculative homes
(homes started without an executed sales contract) built in each subdivision;
and, (iii) 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.
Construction
The Company's home designs are prepared by architects in each of the
Company's markets to appeal to local tastes and preferences of the community.
Optional interior and exterior features also are offered by the Company to
enhance the basic home design and to promote the custom aspect of the Company's
sales efforts.
Substantially all of the Company's construction work is performed by
subcontractors. The Company's 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 the Company's subcontractors and
suppliers generally are negotiated for each subdivision. The Company competes
with other homebuilders for qualified subcontractors, raw materials and lots in
the markets where it operates.
Construction time for the Company's homes depends on the weather,
availability of labor, materials and supplies, and other factors. The Company
typically completes the construction of a home within four months.
The Company does not maintain significant inventories of construction
materials, except for work in process materials for homes under construction.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company does not have any long-term
contracts with suppliers of its building materials. In recent years, the Company
has not experienced any significant delays in construction due to shortages of
materials or labor.
Marketing and Sales
The Company markets and sells its homes through commissioned employees and
independent real estate brokers. Home sales are typically conducted from sales
offices located in furnished model homes used in each subdivision. At September
30, 1997, the Company owned 282 model homes. These models homes generally are
not offered for sale until the completion of the respective subdivision. The
Company's sales personnel assist prospective homebuyers by providing them with
floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by the Company and
kept informed as to the availability of financing, construction schedules and
marketing and advertising plans.
In addition to using model homes, the Company typically builds a limited
number of speculative homes in each subdivision to enhance its marketing and
sales activities. Construction of these speculative homes also is necessary to
satisfy the requirement of relocated personnel and independent brokers, who
5
<PAGE>
often represent homebuyers requiring a completed home within 60 days. A majority
of these speculative homes are sold 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 the Company has built
in the market. Depending upon the seasonality of each of its markets, the
Company seeks to limit its speculative homes in each subdivision. At September
30, 1997, the Company was operating in 362 subdivisions and averaged 4.2
speculative homes in each subdivision.
The Company advertises on a limited basis in newspapers and in real estate
broker, mortgage company and utility publications, brochures, newsletters and
billboards. To minimize advertising costs, the Company attempts to operate in
subdivisions in conspicuous locations that permit it to take advantage of local
traffic patterns. The Company also believes that model homes play a significant
role in its marketing efforts. Consequently, the Company expends significant
efforts in creating an attractive atmosphere in its model homes.
Sales of the Company's homes generally are made pursuant to a standard sales
contract which requires a down payment approximating 5% of the sales price. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates is unobtainable
within a specified period, typically four to six weeks, and may include other
contingencies, such as the sale of an existing home. The Company includes a home
sale in its sales backlog upon execution of the sales contract and receipt of
the initial down payment. The Company does not recognize revenue upon the sale
of a home until it is closed and title passes. The Company estimates that the
average period between the execution of a sales contract for a home and closing
is approximately three to five months.
Customer Service and Quality Control
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customer's post-closing needs. The Company
believes that prompt and courteous response to homebuyer's needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business from the real estate community and homebuyers. The Company
provides its homebuyers 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 the Company, and
generally are prepared to respond to the Company and homeowner promptly upon
request. In most cases, the Company supplements its one-year warranty by
purchasing a ten-year limited warranty from a third party. To cover its
potential warranty obligations, the Company accrues an estimated amount for
future warranty costs.
Customer Financing
In 1996, the Company formed D.R. Horton Mortgage Company, Ltd., a joint
venture with a third party, to provide mortgage financing services, principally
to purchasers of homes built and sold by the Company. D.R. Horton Mortgage
presently provides services in Texas, Arizona, North Carolina, South Carolina,
Nevada, Colorado and Florida.
In its other markets, the Company does not provide mortgage financing, but
works with a variety of mortgage lenders that make available to homebuyers a
range of conventional mortgage financing programs. By making information about
these programs available to prospective homebuyers and maintaining a
relationship with such mortgage lenders, the Company is 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 its wholly-owned subsidiaries, DRH Title Company of Texas, Ltd. and
DRH Title Company of Florida, Inc., the Company serves as a title insurance
agent by providing title insurance policies and closing services to purchasers
of homes built and sold by the Company in the Dallas/Fort Worth, Austin and
Orlando markets. The Company assumes no underwriting risk associated with these
title policies.
6
<PAGE>
Employees
At September 30, 1997, the Company employed 1,160 persons, of whom 357 were
sales and marketing personnel, 382 were executive, administrative and clerical
personnel, 405 were involved in construction, and 16 worked in title operations.
Fewer than 10 of the Company's employees are covered by collective bargaining
agreements. Some of the subcontractors which the Company uses are represented by
labor unions or are subject to collective bargaining agreements. The Company
believes that its relations with its employees and subcontractors are good.
Competition
The single family residential housing industry is highly competitive, and
the Company competes in each of its markets with numerous other national,
regional and local homebuilders, some of which have greater resources than the
Company. The Company's homes compete on the basis of quality, price, design,
mortgage financing terms and location.
Regulation and Environmental Matters
The housing, mortgage and title insurance industries are subject to
extensive and complex regulations. The Company and its subcontractors must
comply with various federal, state and local laws and regulations including
zoning and density requirements, building, environmental, advertising and
consumer credit rules and regulations, as well as other rules and regulations in
connection with its homebuilding and sales activities. These include
requirements as to building materials to be used, building designs and minimum
elevation of properties. The Company's homes are inspected by local authorities
where required, and homes eligible for insurance or guarantees provided by the
FHA and VA, respectively, are subject to inspection by the FHA or VA.
The Company is also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning protection of health and
the environment ("environmental laws"). The particular environmental laws which
apply to any given homebuilding site vary greatly according to the site's
location, environmental condition and present and former uses. These
environmental laws may result in delays, may cause the Company to incur
substantial compliance and other costs, and can prohibit or severely restrict
homebuilding activity in certain environmentally sensitive regions or areas.
The Company's mortgage joint venture and title insurance agencies must also
comply with various federal and state laws, consumer credit rules and
regulations, and 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.
ITEM 2. PROPERTIES
The Company owns a 52,000 square foot office complex, consisting of three
single-story buildings of steel and brick construction, located in Arlington,
Texas, that serves as the Company's principal executive offices and houses two
of the Company's Dallas/Fort Worth divisions. The Company also leases
approximately 87,000 square feet of space for its operating divisions under
leases expiring between December, 1997 and July, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
Management does not believe such matters could have a material adverse effect
upon the financial condition of the Company, if the litigation were decided
adversely to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (the "Common Stock") is listed on the New York
Stock Exchange under the symbol "DHI". The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated, as reported
on the NASDAQ National Market (through December 13, 1995) and on the New York
Stock Exchange on and after December 14, 1995, adjusted for the 8% stock
dividend of May 1996.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
1996 1997
------------------------- -----------------------
HIGH LOW HIGH LOW
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Quarter Ended December 31... $ 11 $ 8 15/16 $ 11 3/8 $ 8 5/8
Quarter Ended March 31...... 11 15/16 8 15/16 13 10 1/8
Quarter Ended June 30....... 10 5/8 8 5/8 12 1/2 9
Quarter Ended September 30.. 10 3/8 7 1/2 17 1/4 10 3/16
</TABLE>
As of November 30, 1997, there were approximately 223 holders of record.
The Company has declared cash dividends of two cents per share for the last
three quarters of fiscal 1997. Prior thereto, no cash dividend had been
declared.
The declaration of cash dividends is at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
cash flows, capital requirements, the general financial condition of the Company
and general business conditions. The Company is required to comply with certain
covenants contained in its bank agreements and the Senior Notes indenture. The
most restrictive of these requirements allows the Company to pay cash dividends
on its common stock in an amount, on a cumulative basis, not to exceed 50% of
consolidated net income, as defined, after June 4, 1997, subject to certain
other adjustments. Pursuant to the most restrictive of these requirements, the
Company had approximately $31.3 million available for the payment of dividends
at September 30, 1997.
On February 26, 1997, the Company acquired the equity interests of a group
of corporations known as the "Torrey" Group. As consideration, the Company paid
$37.6 million in cash, assumed $90.0 million in accounts and notes payable and
issued 844,444 shares of its Common Stock, par value $ .01 per share (the
"Torrey Shares"), valued at $9.2 million. The consideration was paid to the five
owners of the interests acquired (the "Sellers"). The Sellers were four
executive officers of Torrey who were active in the business acquired and a
trust, the trustee and grantor of which was one of the four executive officers.
Exemption from registration under the Securities Act of 1933 was claimed
pursuant to Section 4(2) thereof in reliance upon (i) representations of the
Sellers as to their investment intent, sophistication, knowledge and experience;
(ii) disclosure by the Company of its Securities Exchange Act of 1934 reports
and access of the Sellers to the Company's executives to ask questions, receive
answers and obtain additional information from the Company; and (iii) resale
restrictions on the Torrey Shares, including restrictive legends on the
certificates representing the Torrey Shares and stop transfer orders placed with
the Company's transfer agent as to the Torrey Shares.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data elsewhere herein. These historical results are not necessarily indicative
of the results to be expected in the future.
In 1993, the Company changed its fiscal year end to September 30, thus
operating information for the nine months then ended represents the Company's
fiscal period.
<TABLE>
<CAPTION>
Periods Ended September 30,
-----------------------------------------------------
Nine
Months Years
------- -------------------------------------------
1993 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:(2)
Revenues ................ $ 190.1 $ 248.2 $ 393.3 $ 437.4 $ 547.3 $ 837.3
Net income .............. 8.9 12.2 17.7 20.5 27.4 36.2
Net income per share(1).. .32 .44 .63 .74 .87 1.01
Cash dividends declared
per common share ....... -- -- -- -- -- .06
<CAPTION>
As of September 30,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:(2)
Inventories.............. $ 129.0 $ 204.1 $ 282.9 $ 345.3 $ 604.6
Total assets............. 158.7 230.9 318.8 402.9 719.8
Notes payable............ 62.2 108.6 169.9 169.9 355.3
Stockholders' equity..... 65.9 84.6 106.1 177.6 262.8
</TABLE>
- ----------
(1) Adjusted for stock dividends of 6% in 1994, 9% and 40% in 1995, and 8% in
1996.
(2) See Note C to the audited financial statements for details concerning
acquisitions by the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The following tables set forth certain information regarding the Company's
operations.
<TABLE>
<CAPTION>
Percentages of Revenue
Year Ended September 30,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Costs and Expenses:
Cost of sales.................................... 82.2% 82.0% 81.9%
Selling, general and administrative expenses..... 10.2 9.8 10.7
Interest expense................................. 0.3 0.3 0.6
---- ---- ----
Total costs and expenses............................ 92.7 92.1 93.2
Other (income)...................................... (0.1) (0.2) (0.3)
---- ---- ----
Income before income taxes.......................... 7.4 8.1 7.1
Income taxes........................................ 2.7 3.1 2.8
---- ---- ----
Net income.......................................... 4.7% 5.0% 4.3%
==== ==== ====
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
Homes Homes Homes
Homes Closed Closed Percent Closed Percent Closed Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mid-Atlantic (Charlotte,
Greensboro, Greenville S.C.,
New Jersey, Raleigh/Durham,
Suburban Washington D.C.)...... 436 17.6% 547 16.7% 843 16.8%
Midwest (Chicago, Cincinnati,
Kansas City, Minneapolis/-
St. Paul, St. Louis)........... 348 14.1 457 13.9 500 10.0
Southeast (Atlanta, Birmingham,
Nashville, Orlando,
Pensacola, South Florida)...... 303 12.2 519 15.8 1,259 25.1
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix, Tucson)...... 1,131 45.7 1,239 37.7 1,387 27.6
West (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego................ 256 10.4 522 15.9 1,029 20.5
----- ----- ----- ----- ----- -----
2,474 100.0% 3,284 100.0% 5,018 100.0%
===== ===== ===== ===== ===== =====
<CAPTION>
Year Ended September 30,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
Homes Homes Homes
New Sales Contracts Sold $ Sold $ Sold $
----- ------- ----- ------- ----- -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Mid-Atlantic (Charlotte,
Greensboro, Greenville S.C.,
New Jersey, Raleigh/Durham,
Suburban Washington D.C.)...... 403 $103.9 495 $106.9 849 $173.0
Midwest (Chicago, Cincinnati,
Kansas City, Minneapolis/-
St. Paul, St. Louis) .......... 339 68.7 527 101.0 496 96.6
Southeast (Atlanta, Birmingham,
Nashville, Orlando,
Pensacola, South Florida) ..... 371 64.7 493 80.1 1,293 197.5
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix, Tucson) ..... 1,148 155.2 1,311 190.0 1,343 201.2
West (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego................ 292 56.8 662 107.5 1,196 194.9
----- ----- ----- ----- ----- -----
2,553 $449.3 3,488 $585.5 5,177 $863.2
===== ===== ===== ===== ===== =====
<CAPTION>
Year Ended September 30,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
Year End Sales Backlog Homes $ Homes $ Homes $
----- ------- ----- ------- ----- -------
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Mid-Atlantic (Charlotte,
Greensboro, Greenville S.C.,
New Jersey, Raleigh/Durham,
Suburban Washington D.C.)...... 198 $ 43.9 146 $ 34.4 334 $ 68.9
Midwest (Chicago, Cincinnati,
Kansas City, Minneapolis/-
St. Paul, St. Louis)........... 114 22.3 184 34.9 180 35.5
Southeast (Atlanta, Birmingham,
Nashville, Orlando,
Pensacola, South Florida)...... 190 33.6 164 26.5 414 62.9
Southwest (Albuquerque,
Austin, Dallas/Fort Worth,
Houston, Phoenix, Tucson)...... 417 58.1 489 74.3 445 69.4
West (Denver, Las Vegas,
Los Angeles, Salt Lake
City, San Diego)............... 81 12.8 221 38.8 420 75.5
----- ----- ----- ----- ----- -----
1,000 $170.7 1,204 $208.9 1,793 $312.2
===== ===== ===== ===== ===== =====
</TABLE>
10
<PAGE>
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
Revenues increased by 53.0% to $837.3 million in 1997 from $547.3 million
in 1996. The number of homes closed by the Company increased by 52.8% to 5,018
homes in 1997 from 3,284 homes in 1996. Home closings increased in all of the
Company's market regions, with percentage increases ranging from 142.6% in the
Southeast region to 9.4% in the Midwest region. The increases in both revenues
and homes closed were due in part to the February 1997 acquisition of Torrey.
Since the date of the acquisition, Torrey closed 962 homes, with revenues
totaling $140.8 million. For the year, Torrey comprised 19.2% of homes closed
and 16.8% of the revenues generated. Excluding Torrey, revenues increased by
27.2% to $696.5 million. The average price of homes closed in 1997 was $166,700,
relatively unchanged from 1996.
New net sales contracts increased 48.4% to 5,177 homes in 1997 from 3,488
in 1996. Percentage increases in the dollar value of new net sales contracts
ranging from 146.5% to 5.9% were achieved in four of the Company's five market
regions, with a 4.4% decline experienced in the Midwest region. Since the date
of its acquisition, Torrey's new net sales contracts amounted to $153.8 million
(1,049 homes). Excluding Torrey, the Company's new net sales contracts were
$709.4 million (4,128 homes), a 21.2% increase over 1996. The average selling
price of new sales contracts in 1997 was $166,700, down 0.7% from the 1996
average selling price of $167,900, mainly due to a lower average sales price for
homes sold by Torrey.
The Company was operating in 362 subdivisions at September 30, 1997,
compared to 184 at September 30, 1996. At September 30, 1997, the Company's
backlog of sales contracts was $312.2 million (1,793 homes), a 49.5% increase
over the comparable figure at September 30, 1996. At September 30, 1997, Torrey
held a sales contract backlog of $61.8 million (413 homes). Excluding Torrey,
the Company's sales contract backlog at September 30, 1997, was $250.4 million
(1,380 homes), up 19.9% from the prior year. The average sales price of homes in
backlog increased to $174,100 at September 30, 1997, from $173,500 at September
30, 1996.
Cost of sales increased by 52.6% to $685.3 million in 1997 from $449.1
million in 1996. The increase in cost of sales accompanied the increase in
revenues. Cost of sales as a percentage of revenues decreased by 0.1% to 81.9%
in 1997 from 82.0% in 1996, as slightly better gross margins were realized for
the year, despite the effects of purchase accounting adjustments requiring the
Company to increase its basis in inventory acquired with Trimark, SGS and
Torrey.
Selling, general and administrative (SG&A) expenses increased by 66.1%
to $89.5 million in 1997 from $53.9 million in 1996. As a percentage of
revenues, SG&A expenses increased to 10.7% in 1997 from 9.8% in 1996. Absent the
SG&A costs associated with integrating the three acquisitions in 1997, SG&A
costs would have increased by 0.2% of revenues.
Interest expense increased to $5.2 million in 1997 from $1.5 million in
1996, since average interest-bearing debt grew at a faster pace than average
amounts of inventory under construction and development. This is partially due
to the three acquisitions during the year. The increased interest expense
occurred despite a 49 basis point decline in the effective interest rate during
the year. The Company follows a policy of capitalizing interest only on
inventory under construction or development. During both 1997 and 1996, the
Company expensed the portion of incurred interest and other financing costs
which could not be charged to inventory. Capitalized interest and other
financing costs are included in costs of sales at the time of home closings.
Other income, which consists mainly of interest income and the pretax
earnings of the DRH Title Companies and DRH Mortgage Company, Ltd., increased to
$2.6 million in 1997 from $1.5 million in 1996. The increase was partially due
to 1997 comprising a full year of operations for DRH Mortgage Company, Ltd.,
compared to only six months in 1996.
The provision for income taxes increased 38.9% to $23.7 million in 1997 from
$17.1 million in 1996, due in part to the corresponding increase in income
before income taxes. The effective tax rate increased to 39.6% in 1997 from
38.4% in 1996 due to greater earnings in states with higher tax structures. As a
percentage of revenues, the income tax provision decreased by 0.3% to 2.8% in
1997.
11
<PAGE>
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
Revenues increased by 25.1% to $547.3 million in 1996 from $437.4 million
in 1995. The number of homes closed by the Company increased by 32.7% to 3,284
homes in 1996 from 2,474 homes in 1995. Home closings increased in all of the
Company's market regions, with percentage increases ranging from 9.5% in the
Southwest region to 103.9% in the West region. Of the 32.7% increase in 1996
home closings, 13.4% was the result of acquisitions made in Greensboro and
Birmingham in the last quarter of 1995. The 1996 increase in revenues was
achieved in spite of a 4.1% decrease in the average price of homes closed, to
$166,600 in 1996 from $173,700 in 1995. The decrease was due to changes in the
geographic mix of homes closed within the Company and different price points in
certain markets.
New net sales contracts increased 36.6% to 3,488 homes in 1996 from 2,553
in 1995. Percentage increases in new net sales contracts ranging from 126.7% to
14.2% were achieved in the Company's market regions. The 1996 average sales
price was $167,900 compared to $176,000 in 1995.
The Company was operating in 184 subdivisions at September 30, 1996,
compared to 162 at September 30, 1995. At September 30, 1996, the Company's
backlog of sales contracts was 1,204 homes, a 20.4% increase over the comparable
figure at September 30, 1995. The average sales price of homes in backlog
increased to $173,500 at September 30, 1996, from $170,700 at September 30,
1995.
Cost of sales increased by 24.8% to $449.1 million in 1996 from $359.7
million in 1995. As a percentage of revenues, cost of sales decreased by 0.2% to
82.0% in 1996 from 82.2% in 1995. This improvement resulted from good market
conditions during the year, proactive efforts to maintain sales prices and
control costs, and higher margins on homes closed on internally developed lots.
The Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 20.9% to
$53.9 million in 1996 from $44.5 million in 1995. The increase in SG&A expense
was due largely to the increases in sales and construction activity required to
sustain the higher levels of revenues. SG&A expense as a percentage of revenues
decreased by 0.4% to 9.8% in 1996 from 10.2% in 1995, as the Company was
successful in controlling its variable overhead costs while the revenue increase
offset more fixed costs.
Interest expense increased to $1.5 million in 1996, from $1.2 million in
1995, caused by average interest-bearing debt growing at a slightly faster pace
than the average amount of inventory under construction and development. The
Company follows a policy of capitalizing interest only on inventory under
construction or development. During both 1996 and 1995, a portion of incurred
interest and other financing costs could not be charged to inventory and was
expensed. Capitalized interest and other financing costs are included in cost of
sales at the time of home closings.
Other income, which consists mainly of interest income, pretax earnings from
the Company's title operations and, in 1996, pretax earnings from the Company's
mortgage operations, increased to $1.5 million in 1996, from $0.6 million in
1995. The increase was due primarily to the fact that 1996 comprised a full year
of operations for DRH Title Company of Texas, Ltd., compared to only six months
in 1995. Additionally, DRH Title Company of Florida, Inc. and DRH Mortgage
Company, Ltd. commenced operation in 1996 and provided pretax earnings.
The provision for income taxes increased 41.9% to $17.1 million in 1996 from
$12.0 million in 1995, due in part to the corresponding increase in income
before income taxes. The effective tax rate increased to 38.4% in 1996 from
36.9% in 1995. As a percentage of revenues, the income tax provision increased
0.4% to 3.1% in 1996. The increases in the effective tax rate and in the tax
provision as a percentage of revenues were due primarily to higher expected
rates of state and local income taxes.
12
<PAGE>
Financial Condition, Liquidity and Capital Resources
At September 30, 1997, the Company had available cash and cash equivalents
of $44.0 million. Inventories (including finished homes and construction in
progress, developed residential lots and other land) at September 30, 1997,
increased by $259.3 million from September 30, 1996, due to the acquisitions of
selected assets (including inventories) of Trimark, SGS and Torrey. Inventories
also increased due to a general increase in business activity and the expansion
of operations, including new markets in Tucson and Nashville. Because the
inventory increase and the acquisitions were financed largely by borrowings, the
Company's ratio of notes payable to total capital increased to 57.5% at
September 30, 1997 from 48.9% at September 30, 1996. The equity to total assets
ratio decreased to 36.5% at September 30, 1997, from 44.1% at September 30,
1996.
The Company's financing needs depend upon the results of its operations,
sales volume, inventory levels, inventory turnover, and acquisitions. The
Company has financed its operations through borrowings from financial
institutions, through funds from earnings and from the public sale of Common
Stock in 1992, 1996 and 1997. In June 1997, the Company sold to the public under
its shelf registration statement $150,000,000 of 8 3/8% Senior Notes due 2004,
realizing net proceeds of $147.2 million.
The Company made three acquisitions during fiscal 1997. In October, 1996,
the Company completed the acquisition of the principal assets (approximately
$7.6 million, primarily inventories) of Trimark for $7.0 million in cash and the
assumption of approximately $1.0 million in trade accounts and notes payable
associated with the acquired assets. In December, 1996, the Company purchased
the principal assets (approximately $19.5 million, primarily inventories) of SGS
for $10.6 million in cash and the assumption of $10.1 million in accounts and
notes payable associated with the acquired assets. In February, 1997, the
Company completed the acquisition of all the outstanding capital stock of the
entities comprising Torrey and purchased assets from affiliated entities.
Consideration was $37.6 million in cash, 844,444 newly issued, restricted shares
of the Company's common stock, valued at $9.2 million, and the assumption of
$90.0 million in accounts and notes payable.
In June 1997, the Company increased and restructured its major unsecured
bank credit facility to $625 million. The restructured facility consists of a
$200 million five year term loan, a $400 million four year term revolving loan,
and a $25 million four year letter of credit facility. The restructured
facility, along with another $25 million unsecured bank credit facility, brings
the Company's total borrowing capacity from banks to $625 million.
At September 30, 1997, the Company had outstanding debt under the unsecured
bank facilities, senior notes, and other credit agreements of $355.3 million, of
which $201.0 million represented advances under existing bank credit facilities.
Based upon the most restrictive of existing debt covenants, at September 30,
1997, the Company had additional borrowing capacity of $135.5 million.
The Company is required to comply with certain covenants contained in its
bank agreements and its Senior Notes indenture. The most restrictive of these
requirements allows the Company to pay cash dividends on its common stock in an
amount, not to exceed, on a cumulative basis 50% of consolidated net income
subject to certain other adjustments. Pursuant to the most restrictive of these
requirements, at September 30, 1997, the Company had approximately $31.3 million
available for the payment of dividends and for the acquisition by the Company of
its common stock.
The Company's rapid growth requires significant amounts of cash. It is
anticipated that future home construction, lot and land purchases and
acquisitions will be funded through internally generated funds and borrowings.
The Company continuously evaluates its capital structure and in the future may
seek to further increase unsecured debt and obtain additional equity to fund
ongoing operations and to pursue additional growth opportunities.
Except for ordinary expenditures for the construction of homes and, to a
limited extent, the acquisition of land and lots for development and sale of
homes, at September 30, 1997, the Company had no material commitments for
capital expenditures.
13
<PAGE>
Inflation
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. Inflation also increases the Company's financing,
labor and material costs. In addition, higher mortgage interest rates
significantly affect the affordability of permanent mortgage financing to
prospective homebuyers. The Company attempts to pass through to its customers
any increases in its costs through increased sales prices and, to date,
inflation has not had a material adverse effect on the Company's results of
operations. However, there is no assurance that inflation will not have a
material adverse impact on the Company's future results of operations.
Safe Harbor Statement
Certain statements in this Annual Report to Shareholders, which includes the
Company's Form 10-K, as well as statements made by the Company in periodic press
releases, and oral statements made by the Company's officials to analysts and
stockholders in the course of presentations about the Company, may be construed
as "Forward-Looking Statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements may involve unstated risks, uncertainties
and other factors that may cause actual results to differ materially from those
initially anticipated. Such risks, uncertainties and other factors include, but
are not limited to, changes in general economic condition, fluctuations in
interest rates, increases in costs of material, supplies and labor and general
competitive conditions.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. 16
Consolidated Balance Sheets, September 30, 1996, and 1997.................. 17
Consolidated Statements of Income for the three years ended September 30,
1997...................................................................... 18
Consolidated Statements of Stockholders' Equity for the three years
ended September 30, 1997.................................................. 19
Consolidated Statements of Cash Flows for the three years ended
September 30, 1997........................................................ 20
Notes to Consolidated Financial Statements................................. 21
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
D.R. Horton, Inc.
We have audited the accompanying consolidated balance sheets of D. R.
Horton, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of D. R. Horton,
Inc. and subsidiaries at September 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Fort Worth, Texas
November 7, 1997
16
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-------------------
1996 1997
--------- --------
(In thousands)
ASSETS
<S> <C> <C>
Cash...................................................... $ 32,467 $ 43,984
Inventories:
Finished homes and construction in progress........... 216,264 342,911
Residential lots - developed and under development.... 127,707 260,198
Land held for development............................. 1,312 1,482
------- -------
345,283 604,591
Property and equipment (net).............................. 5,631 13,124
Earnest money deposits and other assets................... 15,247 29,502
Excess of cost over net assets acquired (net)............. 4,285 28,593
-------- -------
$402,913 $719,794
======= =======
LIABILITIES
Accounts payable.......................................... $ 34,391 $ 55,499
Accrued expenses and customer deposits.................... 21,011 46,200
Notes payable............................................. 169,873 355,315
------- -------
225,275 457,014
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 30,000,000 shares
authorized, no shares issued.......................... -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 32,362,036 shares in 1996 and
37,319,184 in 1997, issued and outstanding............ 324 373
Additional capital........................................ 159,714 210,742
Retained earnings......................................... 17,600 51,665
------- -------
177,638 262,780
------- -------
$402,913 $719,794
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1995 1996 1997
---------- ---------- ----------
(In thousands, except net income per share)
<S> <C> <C> <C>
Revenues.......................... $437,388 $547,336 $837,280
Cost of sales..................... 359,742 449,054 685,341
------- ------- -------
77,646 98,282 151,939
Selling, general and
administrative expense........... 44,549 53,860 89,457
------- ------- -------
Operating income.................. 33,097 44,422 62,482
Other:
Interest expense................ (1,161) (1,474) (5,150)
Other income.................... 621 1,484 2,562
------- ------- -------
(540) 10 (2,588)
------- ------- -------
INCOME BEFORE INCOME TAXES..... 32,557 44,432 59,894
Provision for income taxes........ 12,018 17,053 23,690
------- ------- -------
NET INCOME..................... $ 20,539 $ 27,379 $ 36,204
======= ======= =======
Net income per share.............. $ 0.74 $ 0.87 $ 1.01
======= ======= =======
Weighted average number of
shares of common stock
outstanding, including common
stock equivalents................ 27,849 31,420 35,871
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Additional Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Balances at October 1, 1994.......... $165 $ 73,547 $ 10,841 $ 84,553
Net income......................... -- -- 20,539 20,539
Exercise of stock options
(116,400 shares)................. 1 772 -- 773
Issuances under D.R. Horton, Inc.
employee benefit plans
(20,549 shares).................. -- 208 -- 208
Nine percent stock dividend........ 15 17,181 (17,196) --
Seven for five stock split......... 73 (73) -- --
--- ------- ------- -------
Balances at September 30, 1995....... 254 91,635 14,184 106,073
Net income......................... -- -- 27,379 27,379
Stock sold through public
offering (4,375,000 shares)...... 44 43,149 -- 43,193
Exercise of stock options
(124,619 shares)................. 1 696 -- 697
Issuances under D.R. Horton, Inc.
employee benefit plans
(29,300 shares).................. 1 296 -- 297
Eight percent stock dividend....... 24 23,938 (23,963) (1)
--- ------- ------- -------
Balances at September 30, 1996....... 324 159,714 17,600 177,638
Net income......................... -- -- 36,204 36,204
Stock sold through public
offering (3,838,800 shares)...... 38 39,908 -- 39,946
Stock issued as partial
consideration for acquisition
(844,444 shares)................. 8 9,142 -- 9,150
Exercise of stock options
(240,554 shares)................. 3 1,668 -- 1,671
Issuances under D.R. Horton, Inc.
employee benefit plans
(33,350 shares).................. -- 310 -- 310
Cash dividends paid at
$.02 quarterly................... -- -- (2,139) (2,139)
--- ------- ------- -------
Balances at September 30, 1997....... $373 $210,742 $ 51,665 $262,780
=== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income....................................... $ 20,539 $ 27,379 $ 36,204
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 2,025 2,583 4,411
Expense associated with issuance of stock
under employee benefit plans.............. 208 229 306
Changes in operating assets and liabilities:
Increase in inventories...................... (56,401) (62,375) (145,148)
Increase in earnest money deposits and
other assets.............................. (910) (4,271) (10,670)
Increase in accounts payable, accrued
expenses and customer deposits............ 2,197 12,567 31,763
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES............ (32,342) (23,888) (83,134)
------- ------- -------
INVESTING ACTIVITIES
Net purchase of property and equipment......... (2,414) (2,667) (5,342)
Net cash paid for acquisitions................. (4,577) (1,370) (55,650)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (6,991) (4,037) (60,992)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from notes payable.................... 232,964 238,987 200,309
Repayment of notes payable..................... (188,857) (239,289) (231,389)
Issuance of Senior Notes payable............... -- -- 147,241
Proceeds from common stock offerings and
stock associated with certain
employee benefit plans....................... -- 43,260 39,950
Proceeds from exercise of stock options........ 773 697 1,671
Cash dividends paid............................ -- -- (2,139)
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,880 43,655 155,643
------- ------- -------
INCREASE IN CASH 5,547 15,730 11,517
Cash at beginning of year...................... 11,190 16,737 32,467
------- ------- -------
Cash at end of year............................ $ 16,737 $ 32,467 $ 43,984
======= ======= =======
Supplemental cash flow information:
Interest paid.................................. $ 11,689 $ 14,628 $ 19,414
======= ======= =======
Income taxes paid.............................. $ 11,336 $ 16,143 $ 24,759
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: The Company is engaged primarily in the construction and sale of
single-family housing in 21 states in the United States. The Company designs,
builds and sells single-family houses on finished lots which it purchases ready
for home construction. The Company also purchases undeveloped land to develop
into finished lots for future construction of single-family houses and for sale
to others. The Company also provides title agency and mortgage services in
selected markets; however, such activities are not material to the consolidated
operating results of the Company.
Principles of Consolidation: The consolidated financial statements include
the accounts of D.R. Horton, Inc. (the Company) and its wholly-owned
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.
Accounting Principles: The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
Statements of Financial Accounting Standards: Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS
123"), issued in October 1995, establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company adopted this
Standard in fiscal 1996. As permitted by FAS 123, the Company has elected to
continue to use Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations, in accounting
for its Stock Incentive Plan. Refer to Note F.
FAS 128 "Earnings Per Share", issued in March 1997, supersedes previous
authoritative guidance in this area. FAS 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997,
and requires restatement of all prior-period earnings per share ("EPS") data
presented. The new Statement modifies the calculations of primary and fully
diluted EPS and replaces them with basic and diluted EPS. The adoption of FAS
128 is not expected to have a material impact on the Company's previously or
currently reported EPS data.
FAS 131 "Disclosure about Segments of an Enterprise and Related
Information", issued in June 1997, establishes annual and interim reporting
requirements for an enterprise's operating segments and related disclosures
about its products and services, geographical areas in which it operates and
major customers. FAS 131 is effective for fiscal years beginning after December
15, 1997, with earlier application permitted. Adoption of FAS 131 is not
expected to materially impact the Company.
Cash: The Company considers all highly liquid investments with an initial
maturity of three months or less when purchased to be cash equivalents. Amounts
in transit from title companies for home closings are included in cash.
Cost of Sales: Cost of sales includes home warranty costs, purchased
discounts for customer financing, and sales commissions paid to third parties.
Excess of Cost Over Net Assets Acquired: The excess of amounts paid for
business acquisitions over the net fair value of the assets acquired and
liabilities assumed is amortized using the straight-line method over twenty
years. Additional consideration paid in subsequent periods under the terms of
purchase agreements are included as acquisition costs. Amortization expense was
$114,000, $188,000 and $977,000 in 1995, 1996 and 1997, respectively.
Accumulated amortization was $344,000 and $1,321,000 at September 30, 1996 and
1997, respectively.
21
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Estimated Fair Value of Financial Instruments: The estimated fair value of
financial instruments is determined by reference to various market data and
other valuation techniques as appropriate. The carrying amounts of cash and cash
equivalents and trade payables approximate fair value because of the short
maturity of these financial instruments. At September 30, 1997 the estimated
fair value of the Company's debt approximated $359.4 million and the fair market
value of the net obligation under the interest rate swap agreement approximated
$1.9 million.
Fair value estimates are made at specific points in time based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature, involve matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect estimates.
Interest: The Company capitalizes interest during development and
construction. Capitalized interest is charged to cost of sales as the related
inventory is delivered to the home buyer. Interest costs are (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Capitalized interest, beginning of year...... $ 4,325 $ 7,118 $ 11,042
Interest incurred............................ 12,002 14,835 23,992
Interest expensed:
Directly................................... (1,161) (1,474) (5,150)
Amortized to cost of sales................. (8,048) (9,437) (11,889)
------- ------- -------
Capitalized interest, end of year............ $ 7,118 $ 11,042 $ 17,995
======= ======= =======
</TABLE>
Inventories: Inventories are stated at the lower of cost (specific
identification method) or net realizable value. In addition to direct land
acquisition, land development and direct housing construction costs, inventory
costs include interest and real estate taxes, which are capitalized in inventory
during the development and construction periods. Residential lots are
transferred to construction in progress when building permits are requested.
Land and development costs, capitalized interest and real estate taxes incurred
during land development are allocated to individual lots on a prorata basis.
Net Income Per Share: Net income per share is based upon the average number
of shares of common stock outstanding during each year and the effect of common
stock equivalents related to dilutive stock options.
Property and Equipment: Property and equipment, including model home
furniture, are stated on the basis of cost. Major renewals and improvements are
capitalized. Repairs and maintenance are expensed as incurred. Depreciation
generally is provided using the straight-line method over the estimated useful
life of the asset. Accumulated depreciation was $5,000,000 and $8,213,000 as of
September 30, 1996 and 1997, respectively.
Revenue Recognition: Revenue generally is recognized at the time of the
closing of a sale, when title to and possession of the property transfer to the
buyer.
22
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
NOTE B - NOTES PAYABLE
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Banks (unsecured):
$200 million syndicated term credit facility,
maturing June, 2002, variable interest rates...... $100,000 $200,000
$400 million syndicated revolving credit facility,
maturing June, 2001, variable interest rates...... 58,600 --
$25 million revolving line of credit, payable on
demand with six months notice, variable
interest rates.................................... 4,000 1,000
Other.................................................... 7,273 6,945
8 3/8% Senior Notes (unsecured), due 2004, net........... -- 147,370
------- -------
$169,873 $355,315
======= =======
</TABLE>
On May 21, 1997, the Company filed a universal shelf registration statement
with the Securities and Exchange Commission for up to $250 million of the
Company's debt and equity securities. The universal shelf registration provides
that securities may be offered from time to time in one or more series and in
the form of senior, senior subordinated or subordinated debt, preferred stock,
common stock, and/or warrants to purchase such securities. On June 9, 1997, the
Company utilized this universal shelf registration to issue $150 million of
8 3/8% senior unsecured notes at 98.419%. The Senior Notes, which are due June
15, 2004, with interest payable semi-annually, represent unsecured obligations
of the Company. The Senior Notes are not redeemable except that 35% of the
amount originally issued can be redeemed with proceeds of a public equity
offering by the Company at a redemption price of 108.375% through June 15, 2000.
Maturities of notes payable, assuming the revolving lines of credit are not
extended, are $5.2 million in 1998, $2.0 million in 1999, $0.7 million in 2000,
$200.0 million in 2002 and $147.4 million in 2004. The weighted average interest
rates of the unsecured bank debt at September 30, 1996 and 1997 were 7.5% and
7.1%, respectively.
The Senior Notes are senior obligations of the Company and rank pari passu
in right of payment to all existing and future unsecured indebtedness of the
Company. These Notes are guaranteed by essentially all of the Company's
subsidiaries.
The bank credit facilities and the Senior Notes indenture 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. At September 30, 1997, these covenants limit the additional debt the
Company could incur to $135.5 million.
The Company is required to comply with certain covenants contained in its
bank agreements and its Senior Notes indenture. The most restrictive of these
requirements allows the Company to pay cash dividends on its common stock in an
amount not to exceed, on a cumulative basis, 50% of consolidated net income, as
defined, after June 4, 1997, subject to certain other adjustments. Pursuant to
the most restrictive of these requirements, the Company had approximately $31.3
million available for the payment of dividends and for the acquisition by the
Company of its common stock at September 30, 1997.
Upon a change of control of the Company, holders of the Senior Notes have
the right to require the Company to redeem the Senior Notes at a price of 101%
of the par amount, along with accrued and unpaid interest.
23
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In addition to the stated interest rates, various bank credit facilities
require the Company to pay certain fees. The syndicated revolving credit
facility also provides $25 million for use as standby letters of credit.
The Company uses an interest rate swap agreement to help manage a portion of
its interest rate exposure. The agreement converts from a variable rate to a
fixed rate on a notional amount of $100 million. The agreement expires April
2001. The Company does not expect non-performance by the counterparty, a major
U.S. bank, and any losses incurred in the event of non-performance would not be
material. Net payments or receipts under the Company's interest rate swap
agreement are recorded as adjustments to interest incurred. As a result of this
agreement, the Company incurred net interest expense of $0.4 million and $0.7
million during 1996 and 1997, respectively.
NOTE C - ACQUISITIONS
In 1995 and 1997, the Company made the following acquisitions:
<TABLE>
<CAPTION>
Company Acquired Date Acquired Consideration
- ---------------- ------------- -------------
<S> <C> <C>
Arappco, Inc.
(Greensboro)........................... July 1995 $ 12.2 million
Regency Development, Inc.
(Birmingham)........................... September 1995 $ 12.3 million
Trimark Communities, L.L.C.
(Denver)............................... October 1996 $ 8.1 million
SGS Communities, Inc.
(New Jersey)........................... December 1996 $ 20.7 million
Torrey Group
(Atlanta, Raleigh, Charlotte,
Greenville S.C.)....................... February 1997 $136.7 million
</TABLE>
Consideration includes cash paid, Company stock issued, and assumption of
certain accounts payable and notes payable which were repaid subsequent to the
acquisitions.
Except for the Torrey Group, where stock was a component of the acquisition
price, the above acquisitions contain provisions for additional consideration to
be paid annually for up to four years subsequent to the acquisition date. The
additional consideration is based upon subsequent pretax income, adjusted for a
preferential return to the Company. Such additional consideration will be
recorded when paid as excess cost over net assets acquired, which is amortized
using the straight line method over 20 years. All of the acquired companies are
involved in homebuilding and land development. The Company has accounted for
these acquisitions under the purchase method and has included the operations of
the acquired businesses in its Consolidated Statements of Income since their
acquisition.
The following unaudited pro forma summaries of combined operations were
prepared to illustrate the estimated effects of the 1997 acquisitions of
Trimark, SGS and Torrey as if such acquisitions had occurred on the first day of
the respective periods presented.
24
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The pro forma information should be read in conjunction with the historical
financial statements and notes thereto. The pro forma financial information is
provided for comparative purposes only and is not necessarily indicative of the
results which would have been obtained if the acquisitions had been affected
throughout the period. The pro forma financial information is based upon the
purchase method of accounting.
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------
1996 1997
--------------- -------------
(In thousands, except
net income per share)
<S> <C> <C>
Revenues..................................... $780,438 $ 926,355
Net income................................... 38,447 37,108
Net income per share......................... 1.19 1.02
</TABLE>
NOTE D - STOCKHOLDERS' EQUITY
On April 20, 1995 and April 22, 1996, the Board of Directors declared
common stock dividends of 9% and 8%, respectively. On August 15, 1995, the Board
of Directors declared a seven-for-five stock split effected in the form of a 40%
stock dividend on its common stock. Accordingly, the $.01 par value for the
additional shares issued, in respect of the seven-for-five stock split, was
transferred from additional paid-in-capital to common stock. Net income per
share and weighted average shares outstanding for all periods presented have
been restated to reflect the stock dividends and the stock split.
NOTE E - PROVISION FOR INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. These differences
primarily relate to the capitalization of inventory costs, the accrual of
warranty costs, and depreciation. The Company's deferred tax assets and
liabilities are not significant.
The difference between income tax expense and tax computed by applying the
federal statutory income tax rate to income before taxes is due primarily to the
effect of applicable state income taxes.
Income tax expense consists of:
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal................................. $ 11,767 $ 17,650 $ 26,126
State................................... 1,274 1,829 2,338
------- ------- -------
13,041 19,479 28,464
------- ------- -------
Deferred:
Federal................................. (923) (2,198) (4,385)
State................................... (100) (228) (389)
------- ------- -------
(1,023) (2,426) (4,774)
------- ------- -------
$ 12,018 $ 17,053 $ 23,690
======= ======= =======
</TABLE>
25
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
NOTE F - EMPLOYEE BENEFIT PLANS
The D.R. Horton, Inc. Profit Sharing Plus plan is a 401(k) plan for Company
employees. The Company matches 50% of employees' voluntary contributions up to a
maximum of 3% of each participant's earnings. Additional employer contributions
in the form of profit sharing are at the discretion of the Company. Expenses for
this Plan were $233,000, $327,000 and $569,000 for 1995, 1996 and 1997,
respectively.
The Company's Supplemental Executive Retirement Plans (SERP's) are
non-qualified deferred compensation programs that provide benefits payable to
certain management employees upon retirement, death, or termination of
employment with the Company. SERP No. 1 provides for voluntary deferral of
compensation which is invested under a trust agreement. All salary deferrals
under this Plan have been accrued and the investments are recorded as an other
asset. Under SERP No. 2, the Company accrues an unfunded benefit, as well as an
interest factor based upon a predetermined formula. The Company recorded
$347,000, $313,000 and $543,000 of expense for SERP No. 2 in 1995, 1996 and
1997, respectively.
Effective January 1, 1994, the Company adopted the D.R. Horton, Inc. Stock
Tenure Plan (an Employee Stock Ownership Plan), covering those employees
generally not participating in certain other D.R. Horton benefit plans.
Contributions are made at the discretion of the Company. Expenses related to
Company contributions of common stock to the plan of $106,000, $229,000 and
$309,000 were recognized for 1995, 1996 and 1997, respectively.
In 1996, the Company adopted the D.R. Horton, Inc. Employee Stock Purchase
Plan, which allows employees to purchase stock directly from the Company at
market value.
At September 30, 1997, 219,150 shares of common stock have been reserved for
future issuance under the stock tenure and stock purchase plans.
The D.R. Horton, Inc. 1991 Stock Incentive Plan provides for the granting of
stock options to certain key employees of the Company to purchase shares of
common stock. Options have been granted at exercise prices which approximate the
market value of the Company's common stock at the date of the grant. Options
generally expire 10 years after the dates on which they were granted and vest
evenly over the life of the option. At September 30, 1997, 3,145,060 shares of
common stock have been authorized for future issuance under this plan. Activity
under the plan is:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Prices Options Prices Options Prices
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Options
Outstanding at be-
ginning of year.. 992,713 $ 8.60 1,782,517 $ 6.56 2,240,784 $ 7.11
Granted........... 313,000 12.15 559,000 10.15 976,000 10.44
Exercised......... (116,400) 3.84 (124,619) 3.24 (240,554) 4.14
Cancelled......... (19,940) 9.80 (122,022) 8.54 (95,177) 8.71
Effects of stock
dividends........ 613,144 6.87 145,908 6.69 -- --
------- ----- --------- ----- --------- -----
Outstanding at
end of year...... 1,782,517 $ 6.56 2,240,784 $ 7.11 2,881,053 $ 8.41
========= ===== ========= ===== ========= =====
Exercisable at
end of year...... 565,551 $ 4.44 659,615 $ 4.74 648,353 $ 5.76
========= ===== ========= ===== ========= =====
</TABLE>
Exercise prices for options outstanding at September 30, 1997, ranged from
$1.804 to $10.6875.
26
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For stock options outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------ -----------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Price Exercise Maturity Exercise Maturity
Range Options Price (Years) Options Price (Years)
- --------------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Less than $4... 85,987 $ 1.90 4.0 85,987 $ 1.90 4.0
$4 - $8........ 1,070,486 6.14 6.0 463,672 5.66 5.6
More than $8... 1,724,580 10.13 9.0 98,694 9.62 7.8
--------- ----- ---- ------- ----- ----
Total........ 2,881,053 $ 8.41 7.7 648,353 $ 5.76 5.7
========= ===== ==== ======= ===== ====
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25 in accounting for its employee stock options. The exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, and therefore no compensation expense is recognized. FAS
No. 123 requires disclosure of pro forma income and pro forma income per share
as if the fair value based method had been applied in measuring compensation
expense for option awards granted in fiscal 1996 and 1997. Management believes
the fiscal 1996 and 1997 pro forma amounts may not be representative of the
effects of option awards on future pro forma net income and pro forma net income
per share because options granted before 1996 are not considered in these
calculations. Application of the fair value method, as specified by FAS 123,
would decrease net income by $78,000 and $250,000 in 1996 and 1997,
respectively.
The weighted average fair values of grants made in 1996 and 1997 were $5.13
and $4.77, respectively.
The fair values of the options granted were estimated on the date of their
grant using the Black-Scholes option pricing model based on the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Risk free interest rate...................... 6.33% 6.12%
Expected life (in years)..................... 7.0 7.0
Expected volatility.......................... 36.21% 34.69%
Expected dividend yield...................... -- .59%
</TABLE>
27
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company is involved in lawsuits and other contingencies in the ordinary
course of business. Management believes that, while the ultimate outcome of the
contingencies cannot be predicted with certainty, the ultimate liability, if
any, will not have a material adverse effect on the Company's financial
position.
In the ordinary course of business, the Company enters into option
agreements to purchase land and developed lots. Cash deposits of approximately
$8.0 million, standby letters of credit approximating $2.5 million and
promissory notes approximating $1.7 million at September 30, 1997, secure the
Company's performance under these agreements.
The Company leases office space under noncancelable operating leases.
Minimum annual lease payments under these leases at September 30, 1997, are
approximately:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1998..................................... $ 758
1999..................................... 489
2000..................................... 285
2001..................................... 40
-----
$ 1,572
=====
</TABLE>
Rent expense approximated $989,000, $1,140,000, and $1,883,000 for 1995,
1996 and 1997, respectively.
In the normal course of its business activities, the Company provides
standby letters of credit and performance bonds, issued by third parties, to
secure performance under various contracts. At September 30, 1997, outstanding
standby letters of credit were $7.1 million and performance bonds were $46.8
million.
28
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
NOTE H - SUMMARIZED FINANCIAL INFORMATION
The 8 3/8% Senior Notes due June, 2004, in the aggregate principal amount of
$150,000,000, are fully and unconditionally guaranteed, on a joint and several
basis, by all of the Company's direct and indirect subsidiaries other than
certain inconsequential subsidiaries. Each of the guarantors is a wholly-owned
subsidiary of the Company. Summarized financial information of the Company and
its subsidiaries is presented below. Separate financial statements and other
disclosures concerning the guarantor subsidiaries are not presented because
management has determined that they are not material to investors.
As of and for the periods ended: (In thousands)
<TABLE>
<CAPTION>
September 30, 1997
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Total assets....... $ 619,586 $ 456,323 $ 2,065 $(358,180) $ 719,794
Total liabilities.. 395,803 417,284 1,272 (357,345) 457,014
Revenues........... 286,568 550,712 1,513 (1,513) 837,280
Gross profit....... 51,485 100,454 1,226 (1,226) 151,939
Net income......... 34,521 70,942 909 (70,168) 36,204
<CAPTION>
September 30, 1996
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Total assets....... $ 353,563 $ 181,586 $ 1,117 $(133,353) $ 402,913
Total liabilities.. 197,255 160,019 279 (132,278) 225,275
Revenues........... 269,853 277,483 1,210 (1,210) 547,336
Gross profit....... 47,346 50,936 901 (901) 98,282
Net income......... 30,771 54,368 553 (58,313) 27,379
<CAPTION>
September 30, 1995
D.R. Horton, Guarantor Nonguarantor Intercompany
Inc. Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Total assets....... $ 277,131 $ 151,761 $ 380 $(110,485) $ 318,787
Total liabilities.. 185,028 137,013 29 (109,356) 212,714
Revenues........... 259,165 178,223 576 (576) 437,388
Gross profit....... 44,274 33,372 444 (444) 77,646
Net income......... 18,281 35,336 205 (33,283) 20,539
</TABLE>
29
<PAGE>
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
NOTE I - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are: (In thousands, except for per share
amounts)
<TABLE>
<CAPTION>
1997
--------------------------------------------------
Three Months Ended
--------------------------------------------------
September 30 June 30 March 31 December 31
------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues.................... $283,207 $250,096 $159,596 $144,381
Gross margin................ 51,595 44,195 29,804 26,345
Net income.................. 12,953 9,753 6,691 6,807
Net income per share........ .34 .26 .20 .21
<CAPTION>
1996
--------------------------------------------------
Three Months Ended
--------------------------------------------------
September 30 June 30 March 31 December 31
------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues.................... $168,943 $143,283 $114,042 $121,068
Gross margin................ 30,677 25,897 20,175 21,533
Net income.................. 9,408 7,434 5,122 5,415
Net income per share........ .29 .23 .16 .19
<CAPTION>
1995
--------------------------------------------------
Three Months Ended
--------------------------------------------------
September 30 June 30 March 31 December 31
------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues.................... $132,827 $120,529 $ 87,076 $ 96,956
Gross margin................ 23,992 21,647 15,359 16,648
Net income.................. 6,681 6,090 3,948 3,820
Net income per share........ .24 .22 .14 .14
</TABLE>
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption
"Election of Directors" at pages 3 through 5 and the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" at page 12, of the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on January 22, 1998
and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption
"Executive Compensation" at pages 6 through 11 of the registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on January 22, 1998
and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Beneficial Ownership of Common Stock" at pages 2 and 3 of the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on January 22,
1998 and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Executive Compensation Transactions with Management" at page 11 of the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on January 22, 1998 and incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this report:
1. Financial Statements:
See Item 8 above.
2. Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission") are not
required under the related instructions or are not applicable, and therefore
have been omitted.
31
<PAGE>
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1 -- Amended and Restated Certificate of Incorporation, as amended(1)
3.2 -- Amended and Restated Bylaws (2)
4.1 -- See Exhibits 3.1 and 3.2
4.2 -- Indenture, dated as of June 9, 1997, among the Company, the
Guarantors named therein and American Stock Transfer & Trust
Company, as Trustee(3)
4.3 -- First Supplemental Indenture, dated as of June 9, 1997, among
the Company, the Guarantors named therein and American Stock
Transfer & Trust Company, as Trustee(4)
4.4 -- Second Supplemental Indenture, dated as of September 30, 1997,
among the Company, the Guarantors named therein and American
Stock Transfer & Trust Company, as Trustee(5)
10.1 -- Form of Indemnification Agreement between the Company and each
of its directors and executive officers and schedule of
substantially identical documents(6)
10.2 -- D.R. Horton, Inc. 1991 Stock Incentive Plan(7)(8)
10.2a -- Amendment No. 1 to 1991 Stock Incentive Plan(7)(8)
10.2b -- Amendment No. 2 to 1991 Stock Incentive Plan(7)(8)
10.2c -- Amendment No. 3 to 1991 Stock Incentive Plan(8)(9)
10.2d -- Amendment No. 4 to 1991 Stock Incentive Plan(8)(9)
10.2e -- Amendment No. 5 to 1991 Stock Incentive Plan (8)(10)
10.2f -- Amendment No. 6 to 1991 Stock Incentive Plan(5)(8)
10.3 -- Form of Non-Qualified Stock Option Agreement (Term Vesting)(11)
10.4 -- Form of Non-Qualified Stock Option Agreement (Performance
Vesting)(12)
10.5 -- Form of Incentive Stock Option (Term Vesting)(12)
10.6 -- Form of Incentive Stock Option (Performance Vesting)(12)
10.7 -- Form of Restricted Stock Agreement (Term Vesting)(12)
10.8 -- Form of Restricted Stock Agreement (Performance Vesting)(12)
10.9 -- Form of Stock Appreciation Right Agreement (Term Vesting)(12)
10.10 -- Form of Stock Appreciation Right Agreement (Performance
Vesting)(12)
10.11 -- Form of Stock Appreciation Right Notification (Tandem)(12)
10.12 -- Form of Performance Share Notification(12)
10.13 -- Form of Performance Unit Notification(12)
10.14 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan
No. 1(8)(13)
10.15 -- D.R. Horton, Inc. Supplemental Executive Retirement Trust
No. 1(8)(13)
10.16 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan
No. 2(8)(13)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
10.17 -- Master Loan and Inter-Creditor Agreement, dated as of June 12,
1997, among D.R. Horton, Inc., as Borrower, NationsBank, N.A.,
Bank of America National Trust and Savings Association, Fleet
National Bank, Bank United, Comerica Bank, The First National
Bank of Chicago, Credit Lyonnais New York Branch, PNC Bank,
National Association, Amsouth Bank of Alabama, Bank One,
Arizona, NA, Societe Generale, Southwest Agency, First American
Bank Texas, SSB, Harris Trust and Savings Bank, and Sanwa Bank
California as Banks; Bank United, Comerica Bank, Credit Lyonnais
New York Branch, The First National Bank of Chicago, and PNC
Bank, National Association, as Co-Agents; Fleet National Bank,
as Documentation Agent; Bank of America National Trust and
Savings Association, as Syndication Agent; and NationsBank,
N.A., as Administrative Agent(14)
10.18 -- Restated Working Capital Line of Credit Agreement dated as of
July 15, 1997, by and between D.R. Horton, Inc., as Borrower,
and Barnett Bank, N.A., as Lender(5)
21.1 -- Subsidiaries of D.R. Horton, Inc. (5)
23.1 -- Consent of Ernst & Young LLP, Fort Worth, Texas(5)
27 -- Financial Data Schedule for year ended September 30, 1997 (5)
</TABLE>
- ----------
(1)Incorporated by reference from Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, filed
with the Commission on November 22, 1995.
(2)Incorporated by reference from Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
filed with the Commission on May 14, 1997.
(3)Incorporated by reference from Exhibit 4.1(a) to the Registrant's
Registration Statement on Form S-3 (No. 333-27521), filed with the
Commission on May 21, 1997.
(4)Incorporated by reference from Exhibit 4.1 to the Registrant's Form
8-K/A dated April 1, 1997, filed with the Commission on June 6, 1997.
(5)Filed herewith.
(6)Incorporated by reference from Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, filed
with the Commission on November 22, 1995.
(7)Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (No. 33-46554) declared effective by the Commission on June
4, 1992.
(8)Management contract or compensatory plan or arrangement.
(9)Incorporated by reference from the Registrant's Annual Report Form 10-K
for the fiscal year ended September 30, 1994, filed with the Commission
on December 9, 1994.
(10)Incorporated by reference from Exhibit 10.2e to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, filed
with the Commission on November 22, 1995.
(11)Incorporated by reference from Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-81856), filed
with the Commission on July 22, 1994.
(12)Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, filed with the
Commission on March 29, 1993.
(13)Incorporated by reference from the Registrant's Transitional Report on
Form 10-K for the period from January 1, 1993 to September 30, 1993,
filed with the Commission on December 28, 1993.
(14)Incorporated herein by reference from Exhibit 10.1 to the Registrant's
Form 8-K dated June 12, 1997, filed with the Commission on June 19, 1997.
(b)There have been no reports filed on Form 8-K by the Registrant during
the quarter ended September 30, 1997.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 8, 1997 D.R. HORTON, INC.
By /s/ DONALD R. HORTON
---------------------------------
Donald R. Horton,
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ DONALD R. HORTON Chairman of the Board and December 8, 1997
- -------------------------- President (Principal
Donald R. Horton Executive Officer)
/s/ RICHARD BECKWITT Director December 8, 1997
- --------------------------
Richard Beckwitt
/s/ RICHARD I. GALLAND Director December 8, 1997
- --------------------------
Richard I. Galland
/s/ RICHARD L. HORTON Director December 8, 1997
- --------------------------
Richard L. Horton
/s/ TERRILL J. HORTON Director December 8, 1997
- --------------------------
Terrill J. Horton
/s/ DAVID J. KELLER Treasurer, Chief Financial December 8, 1997
- -------------------------- Officer and Director
David J. Keller (Principal Financial
Officer and Principal
Accounting Officer)
/s/ FRANCINE I. NEFF Director December 8, 1997
- --------------------------
Francine I. Neff
/s/ SCOTT J. STONE Director December 8, 1997
- --------------------------
Scott J. Stone
/s/ DONALD J. TOMNITZ Director December 8, 1997
- --------------------------
Donald J. Tomnitz
</TABLE>
34
<PAGE>
CORPORATE INFORMATION
D.R. Horton, Inc. (the "Company") is engaged primarily in the construction
and sale of single-family homes. The Company offers high-quality homes with
custom features, designed principally for the entry-level and move-up segments.
The Company has established a unique marketing niche, offering a broader
selection of homes that typically have more amenities and greater design
flexibility than homes offered by volume builders, at prices that are generally
more affordable than those charged by local custom builders. D.R. Horton homes
range in size from 1,000 to 5,000 square feet and are priced from $80,000 to
$600,000. For the year ended September 30, 1997, the Company closed 5,018 homes
with an average sales price of approximately $166,700.
The Company is geographically diversified, operating in 21 states and 28
markets. Plans call for continued expansion in current markets, as well as entry
into new markets that have significant entry-level and move-up market segments
consistent with the Company's product and pricing strategy.
THE BOARD OF DIRECTORS Transfer Agent and Registrar
Donald R. Horton American Stock Transfer & Trust Co.
Chairman and President (2)(3) New York, NY
Richard Beckwitt
Executive Vice President and Investor Relations
President -Investments Division (2)(3)
David J. Keller
Richard I. Galland D.R. Horton, Inc.
Former Chief Executive Officer and 1901 Ascension Blvd., Suite 100
Chairman of Fina, Inc. (1) (2) Arlington, Texas 76006
(817)856-8200
Richard L. Horton
Former Vice President - Dallas/Fort Worth
East Division Annual Meeting
Terrill J. Horton January 22, 1998, 9:30 a.m. C.S.T.
Former Vice President - Dallas/Fort Worth
North Division At the Corporate Offices of
D.R. Horton, Inc.
David J. Keller 1901 Ascension Blvd., Suite 100
Executive Vice President, Treasurer Arlington, Texas 76006
& Chief Financial Officer (2)(3)
Francine I. Neff
Former Treasurer of the United States (1)
Scott J. Stone
Former Vice President - Eastern Region
Donald J. Tomnitz
President - Homebuilding Division
- ----------
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Executive Committee Member
35
Exhibit 4.4
================================================================================
D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO
8 3/8% Senior Notes due 2004
------------------------
Second Supplemental Indenture
Dated as of September 30, 1997
------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY,
Trustee
================================================================================
<PAGE>
SECOND SUPPLEMENTAL INDENTURE dated as of September 30, 1997, and effective
as of the dates set forth in Article Two below (this "Supplemental Indenture"),
to the Indenture dated as of June 9, 1997 (as amended, modified or supplemented
from time to time in accordance therewith, the "Indenture"), by and among D.R.
Horton, Inc., a Delaware corporation (the "Company"), each of the Guarantors and
AMERICAN STOCK TRANSFER AND TRUST COMPANY, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the holders of Notes (as defined herein):
WHEREAS, the Company, the Guarantors and the Trustee have duly authorized
the execution and delivery of the Indenture to provide that from time to time
newly organized Subsidiaries of the Company may become Restricted Subsidiaries
and Guarantors, and that the Company may redesignate an Unrestricted Subsidiary
to be a Restricted Subsidiary;
WHEREAS, the Company and the Guarantors desire and have requested the
Trustee to join them in the execution and delivery of this Supplemental
Indenture in order to designate additional Restricted Subsidiaries and
Guarantors of the Company's 8 3/8% Senior Notes due 2004 in the aggregate
principal amount of up to $250,000,000 (the "Notes");
WHEREAS, Sections 4.05 and 10.01(6) of the Indenture, and the definition of
"Unrestricted Subsidiary" in Article Two of the First Supplemental Indenture
dated as of June 9, 1997, provide that a supplemental indenture may be entered
into by the Company, the Guarantors and the Trustee for such purpose provided
certain conditions are met;
WHEREAS, the conditions set forth in the Indenture for the execution and
delivery of this Supplemental Indenture have been complied with; and
WHEREAS, all things necessary to make this Supplemental Indenture a valid
agreement of the Company, the Guarantors and the Trustee, in accordance with its
terms, and a valid amendment of, and supplement to, the Indenture have been
done;
<PAGE>
NOW, THEREFORE:
In consideration of the premises and the purchase and acceptance of the
Notes by the holders thereof, the Company and the Guarantors mutually covenant
and agree with the Trustee, for the equal and ratable benefit of the holders,
that the Indenture is supplemented and amended, to the extent expressed herein,
as follows:
ARTICLE ONE
Scope of Supplemental Indenture; General
The changes, modifications and supplements to the Indenture effected by this
Supplemental Indenture shall be applicable only with respect to, and govern the
terms of, the Notes, and shall not apply to any other Securities that may be
issued under the Indenture unless a supplemental indenture with respect to such
other Securities specifically incorporates such changes, modifications and
supplements. Except as amended hereby, the Indenture and the Notes are in all
respects ratified and confirmed and all of their terms shall remain in full
force and effect.
The recitals of fact contained herein shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for the correctness of
them. The Trustee makes no representations as to the validity or adequacy of
this Supplemental Indenture or to its due execution by the Company.
Capitalized terms used but not defined herein have the meanings ascribed to
such terms in the Indenture. The laws of the State of New York shall govern this
Supplemental Indenture, the Notes and the Guarantees.
ARTICLE TWO
Addition and Removal of Guarantors
Section 2.01 Additional Guarantors.
Effective as of July 1, 1997, SGS Communities at West Windsor, LLC, a New
Jersey limited liability company, and, effective as of September 30, 1997, D.R.
Horton San Diego No. 22, Inc., a California corporation, D.R. Horton San Diego
No. 23, Inc., a California corporation, D.R. Horton San Diego No. 24, Inc., a
California corporation, D.R. Horton San Diego No. 25, Inc., a California
corporation, D.R. Horton San Diego No. 26, Inc., a California corporation, D.R.
Horton Denver No. 19, Inc., a Colorado corporation, D.R. Horton Denver No. 20,
Inc., a Colorado corporation, D.R. Horton Denver No. 21, Inc., a Colorado
corporation, D.R. Horton Denver No. 22, Inc., a Colorado corporation, D.R.
Horton Denver No. 23, Inc., a Colorado corporation, D.R. Horton Denver No. 24,
Inc., a Colorado corporation, D.R. Horton Denver No. 25, Inc., a Colorado
corporation, D.R. Horton Denver No. 26, Inc., a Colorado corporation, D.R.
Horton Los Angeles No. 18, Inc., a California corporation, D.R. Horton Los
Angeles No. 19, Inc., a California corporation, and DRH Tucson Construction,
Inc., a Delaware corporation (collectively, the "Additional Guarantors"), shall
become parties to the Indenture as Guarantors, guarantee the Notes and become
Restricted Subsidiaries. Accordingly, each of the Additional Guarantors hereby
agrees to be bound by, and expressly assumes as a Guarantor, the Indenture,
particularly Article Nine thereof, and the Guarantee noted on the Notes. In
furtherance of Section 4.05 of the Indenture, but not in limitation thereof,
each of the Additional Guarantors unconditionally guarantees, on a joint and
several basis with all other Guarantors, all of the Company's obligations under
the Notes and the Indenture (as it relates to the Notes), all in accordance with
the terms set forth in Article Nine of the Indenture and the Guarantee noted on
the Notes. Each of the Additional Guarantors hereby authorizes endorsement of
such guarantee on the Notes ordered to be authenticated and delivered by
Trustee, as contemplated by Exhibit A to the Indenture. The Company, the Trustee
and the other Guarantors acknowledge the addition of the Additional Guarantors
as Guarantors and Restricted Subsidiaries.
Section 2.02 Removal of Guarantors.
The Company, the Trustee and the other Guarantors acknowledge that,
effective as of July 31, 1997, Meadows III, Ltd. and D.R. Horton - Royalty, Ltd.
are no longer parties to the Indenture and therefore are no longer Restricted
Subsidiaries or Guarantors, by reason of the (i) liquidation of D.R. Horton -
Royalty, Ltd. and distribution of its assets to other Restricted Subsidiaries
and Guarantors and (ii) the merger of Meadows III, Ltd. into Meadows II, Ltd.,
which is a Restricted Subsidiary and Guarantor.
SIGNATURES
IN WITNESS WHEREOF, the parties have caused this Second Supplemental
Indenture to be duly executed, as of the effective dates above written.
D.R. Horton, Inc.
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Executive Vice President
GUARANTORS:
DRHI, Inc.
DRH Construction, Inc.
DRH New Mexico Construction, Inc.
DRH Tucson Construction, Inc.
D.R. Horton Denver Management
Company, Inc.
D.R. Horton Denver No. 10, Inc.
D.R. Horton Denver No. 11, Inc.
D.R. Horton Denver No. 12, Inc.
D.R. Horton Denver No. 13, Inc.
D.R. Horton Denver No. 14, Inc.
D.R. Horton Denver No. 15, Inc.
D.R. Horton Denver No. 16, Inc.
D.R. Horton Denver No. 17, Inc.
D.R. Horton Denver No. 18, Inc.
D.R. Horton Denver No. 19, Inc.
D.R. Horton Denver No. 20, Inc.
D.R. Horton Denver No. 21, Inc.
D.R. Horton Denver No. 22, Inc.
D.R. Horton Denver No. 23, Inc.
D.R. Horton Denver No. 24, Inc.
D.R. Horton Denver No. 25, Inc.
D.R. Horton Denver No. 26, Inc.
D.R. Horton, Inc. - Albuquerque
D.R. Horton, Inc. - Denver
D.R. Horton, Inc. - Minnesota
D.R. Horton, Inc. - New Jersey
Meadows I, Ltd.
Meadows II, Ltd.
Meadows III, Ltd.
Meadows IX, Inc.
Meadows X, Inc.
D.R. Horton Los Angeles Holding
Company, Inc.
D.R. Horton Los Angeles Management
Company, Inc.
D.R. Horton Los Angeles No. 9, Inc.
D.R. Horton Los Angeles No. 10, Inc.
D.R. Horton Los Angeles No. 11, Inc.
D.R. Horton Los Angeles No. 12, Inc.
D.R. Horton Los Angeles No. 13, Inc.
D.R. Horton Los Angeles No. 14, Inc.
D.R. Horton Los Angeles No. 16, Inc.
D.R. Horton Los Angeles No. 17, Inc.
D.R. Horton Los Angeles No. 18, Inc.
D.R. Horton Los Angeles No. 19, Inc.
D.R. Horton, Inc. - Birmingham
D.R. Horton, Inc. - Greensboro
D.R. Horton San Diego Holding
Company, Inc.
D.R. Horton San Diego Management
Company, Inc.
D.R. Horton San Diego No. 9, Inc.
D.R. Horton San Diego No. 10, Inc.
D.R. Horton San Diego No. 11, Inc.
D.R. Horton San Diego No. 12, Inc.
D.R. Horton San Diego No. 13, Inc.
D.R. Horton San Diego No. 14, Inc.
D.R. Horton San Diego No. 15, Inc.
D.R. Horton San Diego No. 16, Inc.
D.R. Horton San Diego No. 17, Inc.
D.R. Horton San Diego No. 18, Inc.
D.R. Horton San Diego No. 19, Inc.
D.R. Horton San Diego No. 20, Inc.
D.R. Horton San Diego No. 21, Inc.
D.R. Horton San Diego No. 22, Inc.
D.R. Horton San Diego No. 23, Inc.
D.R. Horton San Diego No. 24, Inc.
D.R. Horton San Diego No. 25, Inc.
D.R. Horton San Diego No. 26, Inc.
D.R. Horton, Inc. - Torrey
S.G. Torrey Atlanta, Ltd.
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
SGS COMMUNITIES AT GRANDE QUAY, LLC
By: Meadows IX, Inc., a member
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
and
By: Meadows X, Inc., a member
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
SGS COMMUNITIES AT WEST WINDSOR, LLC
By: Meadows IX, Inc., a member
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
and
By: D.R. Horton, Inc.- New Jersey, a member
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
D.R. HORTON MANAGEMENT COMPANY, LTD.
D.R. HORTON - TEXAS, LTD.
D.R. HORTON - ROYALTY, LTD.
By: Meadows I, Ltd.,
its general partner
By: /s/ DAVID J. KELLER
----------------------------------
Name: David J. Keller
Title: Treasurer
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Trustee
By: /s/ HERBERT J. LEMMER
----------------------------------
Name: Herbert J. Lemmer
Title: Vice President
Exhibit 10.2f
D.R. HORTON, INC.
1991 STOCK INCENTIVE PLAN
Amendment No. 6
The D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended (the "Plan"),
was amended by the Board of Directors of the Company on November 18, 1997, in
the following respects:
1. The first sentence of Paragraph 3 of the Plan is hereby amended to read
in its entirety as follows:
The shares of Common Stock and any other Company Security which may be (a)
sold upon the exercise of Option Rights, (b) delivered upon the exercise of
Appreciation Rights, (c) granted or sold as Restricted Stock and released from
substantial risks of forfeiture and restrictions on transfer thereof or (d)
delivered in payment of any Performance Units or as Performance Shares (or in
lieu thereof), shall not exceed in the aggregate 6,000,000 shares, subject to
adjustment as provided in Paragraph 10 of this Plan.
2. In all other respects, the Plan as previously approved is hereby ratified
and confirmed.
November 18, 1997
Exhibit 10.18
RESTATED
WORKING CAPITAL LINE OF CREDIT AGREEMENT
among
D.R. HORTON, INC., as Borrower
and
BARNETT BANK, N.A., as Lender
<PAGE>
RESTATED
WORKING CAPITAL LINE OF CREDIT AGREEMENT
THIS RESTATED WORKING CAPITAL LINE OF CREDIT AGREEMENT dated as of the 15th
day of July, 1997, by and between D. R. HORTON, INC., a Delaware corporation,
whose address is 1901 Ascension Boulevard, Suite 100, Arlington, Texas 76006,
and BARNETT BANK, N.A., a national banking association, whose address is P.O.
Box 678267, Orlando, Florida 32867-8267, Attention: Closing Department Manager
restates that certain Working Capital Line of Credit Agreement dated March 1,
1997, between the Borrower and the Lender.
R E C I T A L S
A. The Borrower has requested the Lender to lend to the Borrower up to the
sum of TWENTY FIVE MILLION DOLLARS ($25,000,000.00) under a revolving line of
credit; and
B. The Lender is willing to make such loan upon the terms and conditions set
forth in the Loan Documents (as that term is hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises, conditions,
represen tations and warranties hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged, the parties covenant and agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms as may be defined throughout this Agreement, or in
any Loan Document, the following terms shall be defined for use throughout this
Agreement as follows:
Section 1.1. Acquisition.
Whether by purchase, lease, exchange, issuance of stock or other equity or
debt securities, merger, reorganization or any other method, (a) any acquisition
by the Borrower or any of its Restricted Subsidiaries of Inventory, (b) any
acquisition by the Borrower or any of its Restricted Subsidiaries of any other
Person, which Person shall then become a Subsidiary of the Borrower or any such
Restricted Subsidiary or (c) any acquisition by the Borrower or any of its
Restricted Subsidiaries of all or any substantial part of the assets of any
other Person.
<PAGE>
Section 1.2. Acquisition Carve Out Notice.
The written notice by the Borrower delivered to the Lender not later than
the end of the fiscal quarter following the fiscal quarter in which an
Acquisition is consummated notifying such Persons of the election by the
Borrower to initiate a Financial Covenant Carve Out as a result of such
Acquisition. Contemporaneously with the delivery of an Acquisition Carve Out
Notice, the Borrower shall deliver to the Lender a plan of action reflecting
that the Borrower will be in compliance with the covenants set forth in Sections
6.9(1), 6.10(1), 6.10(2) and 6.10(3) hereof on or prior to the last day of the
applicable Financial Covenant Carve Out and failure to deliver such plan of
action shall render such Acquisition Carve Out Notice ineffective.
Section 1.3. Acquisition Cost.
1.3(1) Developed Lots. If the subject is a Developed Lot(s), costs shall
include the purchase price plus the amount paid for any impact fees paid by the
Borrower and its Restricted Subsidiaries with respect to such Developed Lot(s).
If the Developed Lot(s) was developed by the Borrower or its Restricted
Subsidiaries, costs shall also include land costs, site development and soft
costs (engineering, interest, etc.) paid by Borrower and its Restricted
Subsidiaries, associated with the development of such lots.
1.3(2) Lots Under Development. Costs in connection with Lots Under
Development shall include land costs, site development and soft costs
(engineering, interest, etc.) paid by Borrower and its Restricted Subsidiaries,
associated with the development of such lots.
Administrative Costs shall be excluded from Acquisition Costs of both
Developed Lots or Lots Under Development.
Section 1.4. Acquisition Suspension Period.
An Acquisition Suspension Period shall occur upon delivery by the Borrower
to the Lender of an Acquisition Carve Out Notice and shall continue until the
earlier to occur of (a) the last day of the third fiscal quarter immediately
following the fiscal quarter in which the Acquisition giving rise to such
Acquisition Carve Out Notice was consummated, or (b) the last day of the
Borrower's fiscal quarter in which the Leverage Ratio (determined in accordance
with Section 6.9(1) hereof) exceeds 2.6 to 1.0. Notwithstanding the foregoing,
the maximum Leverage Ratio as of the last day of each fiscal quarter during an
Acquisition Suspension Period shall be 2.6 to 1.0, and failure to comply with
such Leverage Ratio shall be an Event of Default.
Section 1.5. Adjusted LIBOR Rate.
The interest rate established on the Interest Rate Adjustment Date for any
Interest Period.
<PAGE>
Section 1.6. Administrative Costs.
Costs and expenses incurred by the Borrower or its Restricted Subsidiaries
in connection with (a) the marketing and selling of Inventory which is part of
the Loan Inventory and (b) the administration, management and operation of the
Borrower's and its Restricted Subsidiaries' businesses (excluding, without
limitation, Interest Expense and fees payable hereunder).
Section 1.7. Advance or Advances.
Amounts advanced by the Lender to the Borrower pursuant to this Agreement.
Section 1.8. Agreement.
This Restated Working Capital Line of Credit Agreement.
Section 1.9. Agreement Date.
The date as of which the Borrower and the Lender execute this Agreement.
Section 1.10. Applicable Law.
In respect of any Person, all provisions of constitutions, statutes, rules,
regulations, and orders of governmental bodies or regulatory agencies applicable
to such Persons including, without limitation, all orders and decrees of all
courts and arbitrators in proceedings or actions to which the Person in question
is a party or by which it is bound.
Section 1.11. Applicable Margin.
The interest rate margins set forth on Exhibit E attached hereto applicable
to the Note Rate determined based upon the Leverage Ratio for the fiscal quarter
end being tested or the most recently completed fiscal quarter for which
financial statements have been delivered or the Borrower's S&P/Moody's Rating,
as applicable. The Applicable Margin shall be adjusted on the Interest Rate
Adjustment Date. At all times during an Event of Default hereunder, the
Applicable Margin shall be the Applicable Margin set forth at Level VI of
Exhibit E. In the event that the Borrower qualifies for more than one level of
pricing, the Applicable Margin shall be based upon the lowest level (with Level
I being the lowest level) for which the Borrower is qualified. The Applicable
Margin from the Agreement Date until the first adjustment date as provided above
will be based upon the Leverage Ratio for the most recently completed fiscal
quarter of the Borrower prior to the Agreement Date.
<PAGE>
Section 1.12. Authorized Signatory.
With respect to the Borrower, such personnel of the Borrower as set forth in
an incumbency certificate of the Borrower delivered to the Lender on the
Agreement Date (or any duly executed incumbency certificate delivered after the
Agreement Date) and certified therein as being duly authorized by the Borrower
to execute documents, agreements, and instruments on behalf of the Borrower.
Section 1.13. Bank Group Line.
The credit accommodations described in and evidenced by that certain Master
Loan and Inter-Creditor Agreement among D. R. Horton, Inc., as "Borrower",
NationsBank, N.A., Bank of America National Trust and Savings Association; Fleet
National Bank, Bank United, Comerica Bank, The First National Bank of Chicago,
Credit Lyonnais New York Branch, PNC Bank, National Association, AmSouth Bank of
Alabama, Bank One, Arizona, NA, Societe Generale, Southwest Agency, First
American Bank Texas, SSB, Harris Trust and Savings Bank and Sanwa Bank
California, as "Banks"; and Bank United, Comerica Bank, Credit Lyonnais New York
Branch, The First National Bank of Chicago, and PNC Bank, National Association,
as "Co-Agents"; and Fleet National Bank, as "Documentation Agent; and Bank of
America National Trust and Savings Association, as "Syndication Agent"; and
NationsBank, N.A., as "Administrative Agent dated as of June 12, 1997.
Section 1.14. Borrower.
D.R. HORTON, INC., a Delaware corporation
Section 1.15. Borrowing Base Report.
Consists of the Summary Borrowing Base Report and Detailed Borrowing Base
Report which reflect inventory that the Borrower desires to have designated as
Loan Inventory.
Section 1.16. Business Banking Day.
Each day other than a Saturday, a Sunday or any holiday on which commercial
banks in Jacksonville, Florida are closed for business.
Section 1.17. Change of Control.
Either (i) any sale, lease or other transfer (in one transaction or a series
of transactions) of all or substantially all of the consolidated assets of the
Borrower and its Restricted Subsidiaries to any Person (other than a Restricted
Subsidiary of the Borrower), provided that a transaction where the holders of
all classes of Common Equity of the Borrower immediately prior to such
<PAGE>
transaction own, directly or indirectly, 50% or more of all classes of Common
Equity of such Person immediately after such transaction shall not be a Change
of Control; (ii) a "person" or "group" within the meaning of Section 13(d) of
the Exchange Act (other than the Borrower or Donald R. Horton, his wife,
children or grandchildren, or Terrill J. Horton, or any trust or other entity
formed or controlled by Donald R. Horton, his wife, children or grandchildren,
or Terrill J. Horton)) becomes the "beneficial owner" (as defined in Rule 13d-8
under the Exchange Act) of Common Equity of the Borrower representing more than
50% of the voting power of the Common Equity of the Borrower; (iii) Continuing
Directors cease to constitute at least a majority of the Board of Directors of
the Borrower; or (iv) the stockholders of the Borrower approve any plan or
proposal for the liquidation or dissolution of the Borrower, provided that a
liquidation or dissolution of the Borrower which is part of a transaction that
does not constitute a Change of Control under the proviso contained in clause
(i) above shall not constitute a Change of Control.
Section 1.18. Closing Date.
The date contained in the first paragraph of this Agreement.
Section 1.19. Closed Sales.
For any calculation period, sales of Developed Lots containing Dwellings
which have been closed by the Borrower and all Restricted Subsidiaries. Closed
Sales shall include Developed Lots containing Dwellings owned by any Person
which became a Restricted Subsidiary after February 14, 1997 for which sales
have closed during the applicable calculation period. Closed Sales shall include
closings attributable to acquisitions by the Borrower and/or by its Restricted
Subsidiaries or when substantially all assets owned by any Person were acquired
by the Borrower and/or Restricted Subsidiaries after February 14, 1997.
Section 1.20. Code.
The Internal Revenue Code of 1986, as amended.
Section 1.21. Common Equity.
With respect to any Person, capital stock of such Person that is generally
entitled to (i) vote in the election of directors of such Person, or (ii) if
such Person is not a corporation, vote or otherwise participate in the selection
of the governing body, partners, managers or others that will control the
management or policies of such Person.
<PAGE>
Section 1.22. Construction Costs.
All costs accepted by the Lender actually incurred by the Borrower or its
Restricted Subsidiaries with respect to the construction of a Dwelling as of the
date of determination by the Lender, which shall include direct costs associated
with a given Dwelling's construction (including Lot) plus indirect costs such as
real estate taxes and interest costs allocated to the Dwelling during the
construction phase. Direct cost is defined as costs for which a "hard" charge
has been allocated (to the Dwelling being constructed) without consideration for
any allocable soft costs (promotional materials, sales effort costs, overhead,
supervision, etc.). Excluded from Construction Costs are (a) projected costs and
costs for materials or labor not yet delivered to, provided to or incorporated
into such Dwelling and (b) Administrative Costs.
Section 1.23. Continuing Director.
A director who either was a member of the board of directors of the Borrower
on the Agreement Date or who became a director of the Borrower subsequent to
such date and whose election, or nomination for election by the Borrower's
stockholders, was duly approved by a majority of the Continuing Directors on the
board of directors of the Borrower at the time of such approval, either by a
specific vote or by approval of the proxy statement issued by the Borrower on
behalf of the entire board of directors of the Borrower in which such individual
is named as nominee for a director.
Section 1.24. Default.
Any of the events specified in Article VII hereof, provided that any
requirement for notice or lapse of time, or both, has been satisfied.
Section 1.25. Default Rate.
The Default Rate as defined in the Note.
Section 1.26. Detailed Borrowing Base Report.
A unit-by-unit inventory summary of the Loan Inventory in form acceptable to
Lender and certified as true and correct by an Executive Officer of the Borrower
containing, at a minimum, the cost funded to date for each Dwelling Lot, each
Development Lot and each Lot Under Development including, but not limited to
those elements of cost set forth in Sections 1.1, 1.6 and 1.22 hereof.
<PAGE>
Section 1.27. Developed Lots.
Subdivision lots owned by the Borrower or its Restricted Subsidiaries ,
subject to a recorded plat, which the Borrower has designated and Lender has
accepted to be included and are included as "Developed Lots" in the calculation
of the Loan Funding Availability (exclusive of any Dwelling Lot). An individual
Developed Lot is sometimes referred to herein as a "Developed Lot."
Section 1.28. Dwelling.
A house which the Borrower or any Restricted Subsidiary has constructed or
is constructing on a Developed Lot which has been designated as a Dwelling Lot.
Section 1.29. Dwelling Lots.
Lots with Dwellings which the Borrower or any Restricted Subsidiary has
designated and Lender has accepted to be included and are included as "Dwelling
Lots" in the calculation of the Loan Funding Availability. The term "Dwelling
Lot" includes the Dwelling located thereon. An individual Dwelling Lot is
sometimes referred to herein as a "Dwelling Lot."
Section 1.30. EBITDA.
With respect to the Borrower and all Restricted Subsidiaries, earnings for
the preceding twelve (12) months (including, without limitation, dividends from
Unrestricted Subsidiaries including, without limitation, net income (or loss) of
any Person that accrued prior to the date that such Person becomes a Restricted
Subsidiary or is merged with or into or consolidated with the Borrower or any of
its Restricted Subsidiaries) before interest incurred, state and federal income
taxes paid, franchise taxes paid and depreciation and amortization, all in
accordance with GAAP.
Section 1.31. ERISA.
The Employee Retirement Income Security Act of 1974, as in effect on the
Agreement Date and as such Act may be amended thereafter from time to time.
Section 1.32. ERISA Affiliate.
(a) Any corporation which is a member of the same controlled group of
corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b)
any other trade or business (whether or not incorporated) under common control
(within the meaning of Code Section 414(c)) with the Borrower, (c) any other
corporation, partnership or other organization which is a member of an
affiliated service group (within the meaning of Code Section 414(m)) with the
<PAGE>
Borrower, or (d) any other entity required to be aggregated with the Borrower
pursuant to regulations under Code Section 414(o).
Section 1.33. Event of Default.
Any event specified in Article VI hereof and any other event which with any
passage of time or giving of notice (or both) would constitute such event a
Default.
Section 1.34. Exchange Act.
The Securities Exchange Act of 1934, as amended.
Section 1.35. Executive Officer.
The President, any Executive Vice President, Vice President, Assistant Vice
President, Secretary, Assistant Secretary or Treasurer of the Borrower.
Section 1.36. Financial Covenant Carve Out.
The Borrower's compliance with either Sections 6.9(1), 6.10(1), 6.10(2) and
6.10(3) hereof during any Acquisition Suspension Period or with Section 6.9(1)
hereof during any Operational Suspension Period shall be suspended; provided,
however, that there shall be no more than one Financial Covenant Carve Out in
any period of twelve (12) consecutive calendar months beginning with the month
in which the Financial Covenant Carve Out was elected, and provided, further,
however, that no Financial Covenant Carve Out shall commence unless the Borrower
was in compliance with all covenants for not less than one full fiscal quarter
immediately preceding any such Financial Covenant Carve Out Notice.
Section 1.37. Fixed Charges.
The aggregate consolidated interest incurred of the Borrower and its
Restricted Subsidiaries for the most recently completed four (4) fiscal quarters
for which results have been reported to Lender.
Section 1.38. Force Majeure.
An occurrence outside the control of the Borrower which cannot be avoided by
the exercise of due care by the Borrower which delays performance by the
Borrower in the nature of and including but not limited to strikes, lockouts,
unavailability of materials, power failure, riots, war or destructive natural
causes. The phrase "subject to Force Majeure" as used herein shall mean that the
time period for the Borrower's performance shall be extended by a length of time
equivalent to the period during which the occurrence constituting Force Majeure
shall exist. Notwithstanding the foregoing, in no event shall the Borrower's
obligations to make payments under the Note be delayed or extended.
<PAGE>
Section 1.39. Funding Period.
A period commencing on the day immediately following the date that the Loan
Funding Availability is established pursuant to Section 5.1(c) hereof by the
Lender and ending on the date that the Loan Funding Availability next is
established pursuant to Section 5.1(c) hereof by the Lender.
Section 1.40. GAAP.
As in effect as of the Agreement Date, generally accepted accounting
principles consistently applied.
Section 1.41. Governmental Authority.
Any nation or government, any state or other political subdivision thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
Section 1.42. Guaranty or Guaranteed.
As applied to an obligation (each a "primary obligation"), shall mean and
include (a) any guaranty, direct or indirect, in any manner, of any part or all
of such primary obligation, and (b) any agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of any part or all of such primary obligation, including,
without limiting the foregoing, and any obligation of such Person (the Primary
obligor"), whether or not contingent, (i) to purchase any such primary
obligation or any property or asset constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or-payment of
such primary obligation or (2) to maintain working capital, equity capital or
the net worth, cash flow, solvency or other balance sheet or income statement
condition of any other Person, (iii) to purchase property, assets, securities or
services primarily for the purpose of assuring the owner or holder of any
primary obligation of the ability of the primary obligor with respect to such
primary obligation to make payment thereof or (iv) otherwise to assure or hold
harmless the owner or holder of such primary obligation against loss in respect
thereof.
Section 1.43. Guarantors.
DRH CONSTRUCTION, INC., a Delaware corporation
DRH NEW MEXICO CONSTRUCTION, INC., a Delaware corporation
<PAGE>
DRHI, INC., a Delaware corporation
D.R. HORTON, INC. - ALBUQUERQUE, a Delaware corporation
D.R. HORTON, INC. - MINNESOTA, a Delaware corporation
D.R. HORTON LOS ANGELES HOLDING COMPANY, INC., a California
corporation
D.R. HORTON LOS ANGELES MANAGEMENT COMPANY, INC., a California
corporation
D.R. HORTON LOS ANGELES NO. 9, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 10, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 11, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 12, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 13, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 14, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 16, INC., a California corporation
D.R. HORTON LOS ANGELES NO. 17, INC., a California corporation
D.R. HORTON MANAGEMENT COMPANY, LTD., a Texas limited partnership
D.R. HORTON - ROYALTY, LTD., a Texas limited partnership
D.R. HORTON, INC. - BIRMINGHAM, an Alabama corporation
D.R. HORTON, INC. - GREENSBORO, a Delaware corporation
D.R. HORTON SAN DIEGO HOLDING COMPANY, INC., a California corporation
D.R. HORTON SAN DIEGO MANAGEMENT COMPANY, INC., a California
corporation
D.R. HORTON SAN DIEGO NO. 9, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 10, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 11, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 12, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 13, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 14, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 15, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 16, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 17, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 18, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 19, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 20, INC., a California corporation
D.R. HORTON SAN DIEGO NO. 21, INC., a California corporation
D.R. HORTON - TEXAS, LTD., a Texas limited partnership, by D.R. Horton,
Inc., its authorized agent
D.R. HORTON, INC. - NEW JERSEY, a Delaware corporation
D.R. HORTON, INC. - DENVER, a Delaware corporation
D.R. HORTON DENVER MANAGEMENT COMPANY, INC., a Colorado corporation
D.R. HORTON DENVER NO. 10, INC., a Colorado corporation
D.R. HORTON DENVER NO. 11, INC., a Colorado corporation
<PAGE>
D.R. HORTON DENVER NO. 12, INC., a Colorado corporation
D.R. HORTON DENVER NO. 13, INC., a Colorado corporation
D.R. HORTON DENVER NO. 14, INC., a Colorado corporation
D.R. HORTON DENVER NO. 15, INC., a Colorado corporation
D.R. HORTON DENVER NO. 16, INC., a Colorado corporation
D.R. HORTON DENVER NO. 17, INC., a Colorado corporation
D.R. HORTON DENVER NO. 18, INC., a Colorado corporation
MEADOWS I, LTD., a Delaware corporation
MEADOWS II, LTD., a Delaware corporation
MEADOWS III, LTD., a Delaware corporation
MEADOWS IX, INC., a New Jersey corporation
MEADOWS X, INC., a New Jersey corporation
SGS COMMUNITIES AT GRANDE QUAY, L.L.C., a New Jersey limited liability
company, by Meadows IX and Meadows X, New Jersey corporations, as
members
D.R. HORTON, INC. - TORREY, a Delaware corporation
S.G. TORREY ATLANTA, LTD., a Georgia corporation
Together with each additional Restricted Subsidiary of Borrower as may from
time to time deliver a Guaranty of the Loan which Guaranty is accepted by
Lender.
Section 1.44. Indebtedness.
With respect to any specified Person, (a) all items, except items of (i)
shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv)
general contingency or deferred tax reserves, (v) liabilities for deposits and
(vi) deferred income, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person, (b) all direct or indirect obligations secured by any Lien to
which any property or asset owned by such Person is subject, whether or not the
obligation secured thereby shall have been assumed, and (c) all reimbursement
obligations with respect to outstanding letters of credit.
Section 1.45. Indebtedness for Money Borrowed.
With respect to any specified Person, all money borrowed by such Person and
Indebtedness represented by notes payable by such Person and drafts accepted
representing extensions of credit to such Person, all obligations of such Person
evidenced by bonds, debentures, notes, or other similar instruments, all
Indebtedness of such Person upon which interest charges are customarily paid,
and all Indebtedness of such Person issued or assumed as full or partial payment
for property or services, whether or not any such notes, drafts, obligations, or
Indebtedness represent Indebtedness for money borrowed. For purposes of this
definition, interest which is accrued but not paid on the original due date or
within any applicable cure or grace period as provided by the underlying
contract for such interest shall be deemed Indebtedness for Money Borrowed.
<PAGE>
Section 1.46. Interest Expense.
In respect of any period, an amount equal to the sum of the interest
incurred during such period based on a stated interest rate with respect to
Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries
on a consolidated basis.
Section 1.47. Interest Period.
Each period commencing on each Interest Rate Adjustment Date and ending on
the next Interest Rate Adjustment Date.
Section 1.48. Interest Rate Adjustment Date.
The 1st day of January, April, July and October of each year commencing July
1, 1997.
Section 1.49. Inventory.
All real and personal property, improvements and fixtures owned by the
Borrower or the Restricted Subsidiaries, including but not limited to all Land
Parcels, Lots Under Development, Developed Lots and Dwelling Lots.
Section 1.50. Land Parcels.
Parcels of land owned by the Borrower or any of its Restricted Subsidiaries
which are, as of the date of determination, not scheduled for commencement of
development into Developed Lots during the twelve (12) calendar months
immediately following such date of determination and which the Borrower has
designated as "Land Parcels." An individual Land Parcel is sometimes referred to
as a "Land Parcel."
Section 1.51. Lender.
Barnett Bank, N.A.
Section 1.52. Letters of Credit.
Letters of credit issued for the account of the Borrower to support
obligations of the Borrower or any of its Affiliates, including but not limited
to earnest money payments under option contracts, project completion performance
or project maintenance (but not credit enhancement). An individual Letter of
Credit is sometimes referred to as a "Letter of Credit".
<PAGE>
Section 1.53. Leverage Ratio.
As of the last day of each fiscal quarter of the Borrower, the ratio of (a)
the Net Total Liabilities of the Borrower and its Restricted Subsidiaries on a
consolidated basis on such date to (b) Tangible Net Worth of the Borrower and
its Restricted Subsidiaries on a consolidated basis for the fiscal quarter end
being tested.
Section 1.54. LIBOR Rate.
The offered rate for deposits in United States dollars in the London
Interbank market for a three month period which appears on the Reuters Screen
LIBO Page as of 11:00 a.m. (London time) on the day that is two London Banking
Days (as defined herein) preceding the first Business Banking Day (as defined
herein) of the Interest Period. If at least two such offered rates appear on the
Reuters Screen LIBO Page, the rate will be the arithmetic mean of such offered
rates. The Lender may, in its discretion, use any other publicly available index
or reference rate showing rates offered for United States dollar deposits in the
London Interbank market as of the applicable date. In addition, the Lender may,
in its discretion, use rate quotation for a ninety (90) day period in lieu of a
quotation for a three (3) month period.
Section 1.55. Lien.
With respect to any property, any mortgage, lien, pledge, assignment,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment, or other encumbrance of any kind in the nature of any
of the foregoing in respect of such property, whether or not choate, vested, or
perfected.
Section 1.56. Loan Amount.
TWENTY FIVE MILLION DOLLARS ($25,000,000.00).
Section 1.57. Loan Documents.
This Agreement, the Note and any and all other documents evidencing the Note
as the same may be amended, substituted, replaced, extended or renewed from time
to time.
Section 1.58. Loan Funding Availability.
The amount of Unsecured Indebtedness and unreimbursed draws under Letters of
Credit which the Borrower may incur as established pursuant to Section 5.1
hereof, at any applicable time, by the Lender based on the Loan Inventory.
<PAGE>
Section 1.59. Loan Inventory.
Shall consist of Lots Under Development, Developed Lots, and Dwelling Lots
which are not encumbered by a Lien or Liens (other than any Permitted
Encumbrance) and which have been designated as Loan Inventory to be utilized for
the purpose of calculating Funding Availability under this Agreement.
Section 1.60. Loan.
Collectively, amounts advanced by the Lender to the Borrower under the Loan
Documents evidenced by the Note.
Section 1.61. London Banking Day.
Each day other than a Saturday, a Sunday or any holiday on which commercial
banks in London, England are closed for business.
Section 1.62. Lots Under Development.
Land Parcels which are, as of the date of determination, being developed
into Developed Lots or which are scheduled for the commencement of development
into Developed Lots within twelve (12) calendar months after the date of
determination, and which the Borrower has designated and the Lender has accepted
to be included and are included as "Lots Under Development" in the calculation
of the Funding Availability. An individual Lot Under Development is sometimes
referred to as a "Lot Under Development."
Section 1.63. Maturity Date.
The date when the Loan is due and payable as defined in the Note.
Section 1.64. Models.
A Dwelling Lot containing a dwelling unit which is designated by the
Borrower as a model unit for use in marketing and promoting the sale of Dwelling
Lots.
Section 1.65. Moody's Rating.
At any time, with respect to any Person, the rating in effect at such time
assigned by Moody's Investors Service, Inc. for the long term senior unsecured
debt of such Person.
<PAGE>
Section 1.66. Net Total Liabilities.
At any time, Total Liabilities of the Borrower and its Restricted
Subsidiaries less cash and cash equivalents of the Borrower and its Restricted
Subsidiaries.
Section 1.67. Note.
Consolidated Promissory Note in the principal amount of TWENTY FIVE MILLION
DOLLARS ($25,000,000.00) of even date herewith.
Section 1.68. Note Rate.
The LIBOR Rate plus the Applicable Margin.
Section 1.69. Obligations.
(a) All payment and performance obligations of the Borrower and all other
obligors to the Lender under the Loan Documents, as they may be amended from
time to time, or as a result of making the Loan, and (b) the obligation to pay
an amount equal to the amount of any and all damages which the Borrower is
obligated to pay pursuant to the Loan Documents to, or on behalf of, the Lender,
which they may suffer by reason of a breach by any of the Borrower or any other
obligor of any obligation, covenant, or undertaking with respect to this
Agreement or any other Loan Document.
Section 1.70. Operational Carve Out Notice.
The written notice by the Borrower delivered to the Lender within sixty (60)
days from the end of the fiscal quarter for which this election is made
notifying such Persons of the election by the Borrower to initiate a Financial
Covenant Carve Out as a result of normal operational performance.
Contemporaneously with the delivery of an Operational Carve Out Notice, the
Borrower shall provide to the Lender a plan of action reflecting that the
Borrower will be in compliance with Section 6.9(1) hereof on or prior to the
last day of the applicable Financial Covenant Carve Out, and the failure to
deliver such plan of action shall render such Operational Carve Out Notice
ineffective.
Section 1.71. Operational Suspension Period.
An Operational Suspension Period shall occur upon delivery by the Borrower
to the Lender of an Operational Carve Out Notice and shall continue until the
earlier to occur of (a) the last day of the second fiscal quarter immediately
following the fiscal quarter for which such Operational Carve Out Notice was
delivered, or (b) the last day of the Borrower's fiscal quarter on which the
Leverage Ratio is to be determined in accordance with Section 6.9(1) hereof, if
<PAGE>
on such date the Leverage Ratio (determined in accordance with Section 6.9(1)
hereof exceeds 2.5 to 1.0. Notwithstanding the foregoing, the maximum Leverage
Ratio for the Borrower during an Operational Suspension Period shall be 2.5. to
1.0 at the end of each fiscal quarter of the Borrower, and failure to comply
with such Leverage Ratio shall be an Event of Default.
Section 1.72. Permitted Encumbrances.
Liens, encumbrances, easements and other matters which (a) are in favor of
Lender to secure the subject facility, (b) are on real estate for real estate
taxes not yet delinquent, (c) are for taxes, assessments, judgments,
governmental charges or levies or claims the non-payment of which is being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves have been set aside on the Borrower's books (but only so long
as no foreclosure, distraint sale or similar proceedings have been commenced
with respect thereto and remain unstayed for a period for thirty (30) days after
their commencement), (d) are in favor of carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet past due or being diligently contested in good faith (if adequate
reserves are being maintained by the Borrower with respect thereto), (e) are
incurred in the ordinary course of business in connection with worker's
compensation and unemployment insurance, or (f) are easements, rights-of-way,
restrictions or similar encumbrances on the use of real property which does not
interfere with the ordinary conduct of business of the Borrower or materially
detract from the value of such real property.
Section 1.73. Person.
An individual, corporation, partnership, limited liability company, trust,
or unincorporated organization, or a government or any agency or political
subdivision thereof.
Section 1.74. Plan.
An employee benefit plan within the meaning of Section 3(3) of ERISA
maintained by or contributed to by the Borrower or any ERISA Affiliate.
Section 1.75. Reconciliation Date.
Two (2) Business Days after the Borrower's receipt of notice from the Lender
pursuant to Section 5.1(4) hereof that the outstanding principal balance of the
Unsecured Indebtedness plus unreimbursed draws under Letters of Credit issued
for the account of Borrower exceeds the Loan Funding Availability.
Section 1.76. Reportable Event.
Shall have the meaning set forth in Section 4043(b) of ERISA.
<PAGE>
Section 1.77. Request for Advance.
Any certificate signed by an Authorized Signatory of the Borrower requesting
an Advance hereunder which will increase the aggregate amount of the Loan
outstanding, which certificate shall be denominated a "Request for Advance," and
shall be in substantially the form of Exhibit A attached hereto. Each Request
for Advance shall, among other things, (a) specify the date of the Advance,
which shall be a Business Day, (b) specify the amount of the Advance, (c) state
that there shall not exist, on the date of the requested Advance and after
giving effect thereto, a Default or an Event of Default, and (d) state that all
conditions precedent to the making of the Advance have been satisfied.
Section 1.78. Restricted Subsidiaries.
Any Subsidiary of the Borrower which has been designated as a Restricted
Subsidiary by the Borrower and from which the Lender is to receive a Subsidiary
Guaranty, including, without limitation, the Guarantors.
Section 1.79. Speculative Lot.
Any Dwelling Lots having a fully or partially constructed dwelling unit
thereon which Dwelling Lot is not subject to a bona fide contract for the sale
of such Dwelling Lot to a third party, excluding Developed Lots containing
Dwellings used as Models.
Section 1.80. S&P Rating.
At any time, with respect to any Person, the rating in effect at such time
assigned by Standard and Poor's Ratings Group, a division of McGraw Hill, Inc.,
for the long term senior unsecured debt of such Person.
Section 1.81. S&P/Moody's Rating.
At any time, with respect to any Person, the ratings in effect at such time
assigned by Standard and Poor's Ratings Group, a division of McGraw Hill, and
Moody's Investors Service, Inc. for the long term senior unsecured debt of such
Person.
Section 1.82. Subsidiary.
As applied to any Person, (a) any corporation of which fifty percent (50%)
or more of the outstanding stock (other than directors' qualifying shares)
having ordinary voting power to elect a majority of its board of directors,
regardless of the existence at the time of a right of the holders of any class
or classes of securities of such corporation to exercise such voting power by
reason of the happening of any contingency, or any partnership of which fifty
percent (50%) or more of the outstanding partnership interests, is at the time
<PAGE>
owned by such Persons or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person, and (b) any other entity
which is controlled or susceptible to being controlled by such Person, or by one
or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person; provided, however, that for purposes of this
Agreement and the other Loan Documents the term "Subsidiary" shall not include
DRH Mortgage Company, Ltd., a Texas limited partnership, SGS Communities at West
Windsor, L.L.C., a New Jersey limited liability company, or SGS Communities at
Battleground, L.L.C., a New Jersey limited liability company. Unless the context
otherwise requires, "Subsidiaries as used herein shall mean the Subsidiaries of
the Borrower. The Subsidiaries of the Borrower as of the Closing Date are the
named Guarantors as set forth in Section 1.41 of this Agreement.
Section 1.83. Subsidiary Guaranty.
A guaranty agreement in form and substance satisfactory to the Lender
whereunder a Restricted Subsidiary guarantees the full and faithful payment and
performance of all of the Obligations of the Borrower hereunder and under the
other Loan Documents.
Section 1.84. Summary Borrowing Base Report.
An aggregate inventory summary of the Loan Inventory in form acceptable to
Lender and certified as true and correct by an Executive Officer of the Borrower
containing, at a minimum, the cost funded to date for all Dwelling Lots,
Developed Lots and Lots Under Development including those elements of cost set
forth in Sections 1.3, 1.6 and 1.22 hereof.
Section 1.85. Tangible Assets.
The difference between total assets of the Borrower and its Restricted
Subsidiaries and all intangible assets of the Borrower and its Restricted
Subsidiaries, all as determined in accordance with GAAP.
Section 1.86. Tangible Net Worth.
With respect to the Borrower and its Restricted Subsidiaries, stockholder's
equity on a consolidated basis less all "intangible assets" as defined under
GAAP and amounts invested in Unrestricted Subsidiaries of such Person.
Section 1.87. Third Party Notes Payable.
With respect to the Borrower and its Restricted Subsidiaries, all
Indebtedness for Money Borrowed other than (a) publicly issued Indebtedness for
Money Borrowed which is pari passu with the Obligations, (b) non-recourse
Indebtedness, (c) Indebtedness owed to the seller of any Inventory acquired by
<PAGE>
the Borrower of its Restricted Subsidiaries, (d) Indebtedness which is
structurally subordinate to the Obligations or which is convertible into equity
at the option of the Borrower, (e) Indebtedness for earnest money and (f) notes
payable for insurance premiums and capitalized lease obligations.
Section 1.88. Total Liabilities.
All items required by GAAP to be set forth as "liabilities" on the
Borrower's and its Restricted Subsidiaries' consolidated balance sheet.
Section 1.89. Unrestricted Subsidiaries.
Affiliated or wholly owned companies of D.R. Horton, Inc. not providing
guarantees.
Section 1.90. Unsecured Indebtedness.
Indebtedness for Money Borrowed of the Borrower and its Restricted
Subsidiaries which is not secured in whole or in part by any Lien except
Permitted Encumbrances (excluding capitalized lease obligations, notes payable
for insurance premiums, non-recourse promissory notes for seller financing and
promissory notes issued as earnest money for contracts).
Each definition of an agreement in this Article I shall include such
agreement as modified, amended, or supplemented from time to time with the prior
written consent of the Lender, and except where the context otherwise requires,
definitions imparting the singular shall include the plural and vice versa.
Except where otherwise specifically restricted, reference to a party to a Loan
Document includes that party and its successors and assigns. All terms used
herein which are defined in Article 9 of the Uniform Commercial Code in effect
in the State of Florida on the date hereof and which are not otherwise defined
herein shall have the same meanings herein as set forth therein.
All accounting terms used herein without definition shall be used as defined
under GAAP as of the Agreement Date.
ARTICLE II
AMOUNT AND TERMS OF LOAN
Section 2.1. Line of Credit.
The Lender hereby grants to the Borrower a revolving line of credit not to
exceed the sum of TWENTY FIVE MILLION DOLLARS ($25,000,000.00) to be funded and
disbursed only in accordance with the terms and conditions contained herein.
Subject to the terms, conditions and collateral requirements hereinafter set
<PAGE>
forth in this Agreement, at any time and from time to time, the Borrower may
borrow from and repay to and reborrow from the Lender at such time and in such
amounts not exceeding the maximum amount of TWENTY FIVE MILLION DOLLARS
($25,000,000.00) in effect under this Agreement.
Section 2.2. Promissory Note.
2.2(1) Execution of Note. Under the terms of this Agreement, the Borrower
shall execute and deliver to the Lender the Note.
2.2(2) Due Date of Note. The Note is due on demand.
----------
2.2(3) Grace Period for Payment. Notwithstanding the foregoing, in the
event Lender shall demand repayment of the amounts disbursed pursuant to the
Note, for reasons other than the monetary and/or non-monetary default by the
Borrower, Borrower shall have six (6) months from the date demand is made by the
Lender in which to repay such amounts and any amounts thereafter disbursed.
During the first ninety (90) days of such six (6) month period, the Lender shall
continue to disburse funds pursuant to this Agreement.
Section 2.3. Application of Funds.
The Lender and the Borrower agree that all funds received from the Lender
under this Agreement are to be used as working capital. Nothing herein shall
impose upon the Lender any obligation to see to the proper application of any
Advance.
Section 2.4. Taxes and Assessments on Note.
The Borrower shall promptly pay all taxes and assessments assessed or
levied, under and by virtue of any State, Federal or Municipal law or regulation
now in existence or hereinafter passed, to Lender as a result of its ownership
of the Note.
Section 2.5. Extension of Credit.
Subject to the terms and conditions of this Agreement, and in reliance upon
the representations and warranties made in this Agreement and the other Loan
Documents, and provided that there is no Default or Event of Default, the Lender
agrees to lend and relend to the Borrower amounts which in the aggregate at any
one time outstanding do not exceed the Loan Amount.
<PAGE>
Section 2.6. Manner of Borrowing and Disbursement Under Loan.
2.6(1) Request for Advance. The Borrower shall give the Lender irrevocable
written notice for Advances under the Loan not later than 12:00 noon (Eastern
time) on the day immediately preceding the date of the requested Advance in the
form of a Request for Advance, or notice by telephone or telecopy followed
immediately by a Request for Advance; provided, however, that the failure by the
Borrower to confirm any notice by telephone or telecopy with a Request for
Advance shall not invalidate any notice so given. Subsequent to the initial
Advance(s) of the Loan made on the Agreement Date, the Borrower may not request,
in the aggregate, more than two (2) Advances in any calendar month. No
disbursements shall be made more than thirty (30) days after the submission of a
Summary Borrowing Base Report or Detailed Borrowing Base Report, whichever is
applicable.
2.6(2) Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an
Advance hereunder, the Lender shall, subject to the satisfaction of the
conditions set forth in this Agreement, disburse the amount requested by (i)
transferring the amounts by wire transfer pursuant to the instructions of the
Borrower, or (ii) in the absence of such instructions, crediting the amounts so
made available to the account of the Borrower maintained with the Lender.
2.6(3) No Default. Prior to making any advance under the Loan Documents,
the Lender, in its sole discretion, may verify that the Borrower is not in
default under the Loan Documents and the Lender shall not be obligated to make
any advance unless and until it is reasonably satisfied as to the accuracy of
such information. The Lender shall not be obligated to make any Advances
hereunder: (a) upon this Agreement being deemed to expire as a result of any
law, regulation or regulatory action now or hereafter enacted or adopted; or (b)
upon the making of any such Advance becoming prohibited by any law, regulation
or regulatory action now or hereafter enacted or adopted.
Section 2.7. Interest on Loan.
2.7(1) Loan. Interest shall be computed on the basis of a hypothetical year
of 360 days for the actual number of days elapsed during each calendar month and
shall be payable at a simple interest rate equal to the Note Rate times the
principal balance outstanding from time to time under the Note for the number of
days such principal amounts are outstanding during such calendar month.
2.7(2) Upon Default. Upon the occurrence and during the continuance of a
Default, the Lender shall have the option (but shall not be required to give
prior notice thereof to the Borrower to accelerate the maturity of the Loan or
to exercise any other rights or remedies hereunder in connection with the
exercise of this right) to charge interest on the outstanding principal balance
of the Loan at the Default Rate from the date of such Default. Such interest
shall be payable on the earliest of demand or the next interest payment date
<PAGE>
established in the Note, as applicable, and shall accrue until the earlier of
(i) waiver or cure (to the satisfaction of the Lender) of the applicable
Default, (ii) agreement by the Lender to rescind the charging of interest at the
Default Rate, or (iii) payment in full of the Obligations.
Section 2.8. Fees on Loan.
The Borrower agrees to pay to the Lender an unused fee for each calendar
year on the difference between (i) the Loan Amount and (ii) the average daily
outstanding balance of the Loan during the applicable period, at the rate of 20
basis points (.20 %). Such unused fee shall be computed on the basis of a
hypothetical year of 360 days for the actual number of days elapsed, shall be
due and payable quarterly in arrears on the twenty-fifth (25th) day of each
January, April, July, and October for the immediately preceding calendar quarter
and on the Maturity Date, and shall be fully earned when due and non-refundable
when paid.
Section 2.9. Repayment of Loan.
2.9(1) Interest. The Borrower shall pay interest on the Loan as set forth in
the Note.
2.9(2) Reconciliation of Loan Inventory. The Borrower shall repay certain
portions of the outstanding principal of the Loan and accrued and unpaid
interest thereon upon the reconciliation of the Loan Funding Availability
against the outstanding principal balance under the Note as provided in Section
5.1 hereof.
2.9(3) Maturity. In addition to the foregoing, a final payment of all
Obligations then outstanding shall be due and payable by the Borrower on
Maturity Date.
Section 2.10. Manner of Payment.
2.10(1) Time. Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loan, fees, and any other amount
owed to the Lender under this Agreement, the Note, or the other Loan Documents
shall be made not later than 1:00 p.m. (Eastern time) on the date specified for
payment under this Agreement or such other Loan Document in lawful money of the
United States of America in immediately available funds. Any payment received by
the Lender after 1:00 p.m. (Eastern time) shall be deemed received on the next
Business Day for purposes of interest accrual.
2.10(2) Date. If any payment under this Agreement or any of the Note shall
be specified to be made upon a day which is not a Business Day, it shall be made
on the next succeeding day which is a Business Day, and such extension of time
shall in such case be included in computing interest and fees, if any, in
connection with such payment.
<PAGE>
2.10(3) Amount. The Borrower may not make payments, in the aggregate, under
this Agreement (excluding any payments specifically required pursuant to the
terms of this Agreement) more than two (2) times in any calendar month.
2.10(4) No Set Off. The Borrower agrees to pay principal, interest, fees,
and all other amounts due hereunder or under the Note without set-off or
counterclaim or any deduction whatsoever.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower makes the
following representations and warranties which shall be deemed to be continuous
representations and warranties so long as any credit hereunder remains available
or any indebtedness of the Borrower to the Lender remains unpaid:
Section 3.1. Organization and Standing.
The Borrower is a corporation duly organized and existing under the laws of
the State of Delaware and is duly qualified to do business in each jurisdiction
in which the conduct of its business requires such qualification, including the
State of Florida. To the best of the Borrower's knowledge and belief, the
Borrower is in compliance with all applicable laws and regulations governing the
conduct of its business and governing consummation of the transactions.
Section 3.2. Power and Authority.
The execution, delivery and performance hereof by the Borrower are within
its corporate powers and have been duly authorized by all necessary corporate
and shareholder action, are not in contravention of law or the terms of its
Articles of Incorporation or By-Laws or any amend ment thereto, or any
indenture, agreement or undertaking to which it is a party or by which it is
bound.
Section 3.3. Valid and Binding Obligations.
The Loan Documents constitute the legal, valid and binding respective
obligations of the Borrower subject to applicable bankruptcy and insolvency laws
and laws affecting creditors' rights and the enforcement thereof generally.
<PAGE>
Section 3.4. Title to Collateral.
The Borrower has, or will have, good and marketable title to all property
from time to time listed in the Summary Borrowing Base Report free and clear of
all mortgages, pledges, liens, security interests or other encumbrances other
than Permitted Encumbrances. The Borrower will warrant and defend the Collateral
against the claims and demands of all persons except for claims and demands
arising from the title exceptions referenced in the preceding sentence.
Section 3.5. Financial Statements and Other Information.
Subject to any limitation stated therein or in connection therewith by the
Borrower in writing, all balance sheets, earnings statements and other financial
data which have been or shall hereafter be furnished to the Lender to induce it
to enter into this Agreement or otherwise in connection herewith do or will
fairly represent the financial condition of the Borrower as of the dates and the
results of its operations for the period for which the same are furnished to the
Lender and have been or will be prepared in accordance with GAAP and all other
information, reports and other papers and data furnished to the Lender are and
or will be, at the time the same are so furnished, accurate and correct in all
material respects and complete insofar as completeness may be necessary to give
the Lender a true and accurate knowledge of the subject matter. There are no
material liabilities of any kind of the Borrower as of the date of the most
recent financial statements which are not reflected therein. There have been no
materially adverse changes in the financial condition or operation of the
Borrower since the date of such financial statements.
Section 3.6. Litigation.
The Borrower warrants and represents to the Lender that as of the Agreement
Date, none of the Borrower nor any Restricted Subsidiary is a party to any
litigation having a reasonable probability of being adversely determined to the
Borrower or any Restricted Subsidiary which, if adversely determined, would
impair the ability of the Borrower to carry on its business substantially as now
conducted or contemplated or would materially adversely affect the financial
condition, business or operations of the Borrower.
Section 3.7. Consent or Filing.
No consent, approval or authorization of, or registration, declaration or
filing with any court, any governmental body or authority or other person or
entity is required in connection with the valid execution, delivery or
performance of this Agreement or any document required by this Agreement or in
connection with any of the transactions contemplated thereby, except the filing
of any financing statements contemplated hereunder.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
The effectiveness of this Agreement and the obligations of the Lender to
consummate any of the transactions contemplated hereby shall be subject to the
satisfaction of the following conditions precedent, at or prior to the Closing
Date:
Section 4.1. Opinion of Counsel.
Borrower shall cause to be delivered to Lender an opinion from counsel to
the Borrower addressed to and in form satisfactory to the Lender regarding the
legal matters set forth in Sections 3.1, 3.2, 3.3, 3.6 and 3.7 hereof.
Section 4.2. Documents and Instruments.
The Lender shall have received all the instruments and documents
contemplated to be delivered by the Borrower hereunder, and the same shall be in
full force and effect. This Agreement and all of the instruments and documents
executed in connection therewith are hereinafter referred to as the "Loan
Documents".
Section 4.3. Correctness of Warranties.
All representations and warranties contained herein or otherwise made to the
Lender in connection herewith shall be true and correct.
Section 4.4. Certificate of Resolution.
The Board of Directors, or the Executive Committee thereof, and, if
stockholder approval is necessary, the stockholders of Borrower shall have
passed specific resolutions authorizing the execution and delivery of all
documents and the taking of all actions called for by this Agreement, and the
Borrower shall have furnished to the Lender copies of such resolutions,
certified by the Secretary.
Section 4.5. Borrowing Base Report.
The Borrower shall have delivered to the Lender the appropriate Borrowing
Base Report as required by Section 5.1(2) of this Agreement. Both the Summary
Borrowing Base Report and the Detailed Borrowing Base Report shall contain a
sworn certificate attesting to the accuracy of the representations contained in
said reports.
<PAGE>
Section 4.6. Insurance Certificate.
Certificate(s) of insurance required pursuant to Section 6.16 hereof.
Section 4.7. Guarantors.
4.7(1) Authorization. The Board of Directors and, if stockholder approval is
necessary, the stockholders of each of the Guarantors shall have passed specific
resolutions authorizing execution and delivery of the Guarantys and the Borrower
shall have furnished to the Lender copies of such resolutions, certified by the
Secretary of the respective corporations. With respect to the Guaranty by the
limited partnership, the Borrower shall provide the Lender with a certificate of
limited partnership evidencing the approval of the execution of the Guaranty by
the general partner.
4.7(2) Withdrawal/Adding of Guarantors. Provided there is no Default under
any Loan Document, the Guaranty of any Restricted Subsidiary may be released by
the Lender upon the written request of the Borrower. The withdrawal of any
Restricted Subsidiary shall be effective upon the written consent of the Lender.
A Guaranty of any Restricted Subsidiary may be added at any time by the Borrower
delivering to the Lender a continuing and unconditional guaranty in the form and
content of the Guaranty executed by Restricted Subsidiaries simultaneous with
the execution of this Agreement.
Section 4.8. Other Documents.
Such other documents as the Lender may reasonably from time to time require
in order to verify compliance with the Loan Documents.
Section 4.9. Subsequent Disbursements.
Prior to requesting subsequent disbursements under the Loan, (subsequent to
the first disbursement) the Borrower shall execute and deliver to the Lender all
of the following items, in form and substance satisfactory to the Lender. The
Lender shall have no further obligation to make further disbursements until all
such items have been properly executed and delivered to the Lender.
(a) The Summary Borrowing Base Report or the Detailed Borrowing Base Report
as required pursuant to this Agreement for all previous periods of time.
(b) The Request for Advance that the Borrower is required to deliver in
connection with the request of an Advance.
<PAGE>
(c) Such other documents as the Lender may reasonably require to insure
compliance with the Loan Documents.
ARTICLE V
DISBURSEMENT AMOUNT AND PROCEDURE
5.1 Loan Funding Availability. At the designated times set forth herein, the
Lender shall establish a Loan Funding Availability for the Loan Inventory.
5.1(1) Calculation of Loan Funding Availability. The Loan Funding
Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that
at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan
Funding Availability.
A = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Lots Under Development which are included in the Loan
Inventory. If, after a parcel of land is designated a Lot Under Development,
development of such parcel ceases for thirty (30) calendar days or more (other
than by reason of a Force Majeure), at the discretion of the Lender, the Loan
Funding Availability for such parcel may be reduced to an amount determined by
the Lender (which amount can be zero) until development of such Lot Under
Development is resumed to the satisfaction of the Lender.
B = seventy-five percent (75%) of the sum of all
Acquisition Costs for all Developed Lots included in the Loan Inventory.
C = one hundred percent (100%) of the sum of all
Acquisition Costs and Construction Costs for all Dwelling Lots included in the
Loan Inventory.
5.1(2) Designation of Land Parcels. Lots Under Development. Developed Lots
and Dwelling Lots. On or before the fifteenth (15th) calendar day of each
calendar month (other than a month following the end of a calendar quarter), the
Borrower shall deliver to the Lender a Summary Borrowing Base Report in the form
attached hereto as Exhibit B and incorporated herein. On or before the fifteenth
(15th) calendar day of each month following the end of a calendar quarter, the
Borrower shall deliver to the Lender a Detailed Borrowing Base Report in the
form attached hereto as Exhibit C and incorporated herein which form shall have
been completed and signed by the Borrower. The Summary Borrowing Base Report and
Detailed Borrowing Base Report shall reflect Inventory that the Borrower desires
to have designated as Loan Inventory. Upon the Lender's receipt of the Summary
Borrowing Base Report or Detailed Borrowing Base Report, as the case may be, the
Lender may conduct inspections or reviews of the subject Inventory that the
Lender deems appropriate, at the expense of the Lender except as hereinafter
expressly provided. Based upon the information in the Summary Borrowing Base
<PAGE>
Report or Detailed Borrowing Base Report, as the case may be, and the other
information compiled by the Lender, the Lender shall determine, in its
discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not
previously designated as part of the Loan Inventory shall be designated part of
the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot
or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or
Dwelling Lot.
5.1(3) Periodic Establishment of Loan Funding Availability. Within two (2)
Business Days of the Lender's receipt of an Summary Borrowing Base Report or
Detailed Borrowing Base Report, as the case may be, the Lender shall establish
the Loan Funding Availability based on the Report delivered to the Lender and
information compiled by the Lender. In the event the Borrower does not submit
the Summary Borrowing Base Report or Detailed Borrowing Base Report in the time
and manner set forth above or furnish sufficient information to the Lender to
enable the Lender to establish a new Loan Funding Availability, the Lender will
establish a Loan Funding Availability based on some or all of the previous
information submitted to the Lender by the Borrower in the immediately preceding
Summary Borrowing Base Report or Detailed Borrowing Base Report and the
information compiled by the Lender, as required hereunder, in connection
therewith, as the case may be, or other information available to the Lender.
5.1(4) Reconciliation. In the event that the Loan Funding Availability for a
particular Funding Period is less than the then outstanding principal amount of
all Unsecured Indebtedness and unpaid draws under the Letters of Credit, the
Lender shall notify the Borrower thereof. On or before the Reconciliation Date,
the Borrower shall (i) (A) pay to the Lender a principal payment to be applied
to the Loan; and/or (B) provide to the Lender evidence that the principal amount
of Unsecured Indebtedness has been reduced in an aggregate amount sufficient to
eliminate the excess of the outstanding principal amount of the Unsecured
Indebtedness and unpaid draws under the Letters of Credit over the Loan Funding
Availability, together with any accrued and unpaid interest on such excess; or
(ii) provide a revised Summary Borrowing Base Report or Detailed Borrowing Base
Report designating sufficient additional Inventory (which shall be acceptable to
the Lender, in its discretion) as Loan Inventory to cause the Loan Funding
Availability to equal or exceed the outstanding principal of the Loan.
5.1(5) Removal/Disapproval of Inventory for Loan Funding Availability. If,
at any time, the Lender determines, in its reasonable discretion, that any part
of the Loan Inventory is not acceptable for inclusion in the calculation of the
Loan Funding Availability as a result of an unforeseen material adverse change
in the condition of such portion of the Loan Inventory or as a result of the
existence of hazardous wastes or materials in or on any Inventory which are in
violation of any warranty, representation or covenant of the Loan Documents
regarding such hazardous wastes or materials, the Lender may exclude such
portion of the Loan Inventory from the calculation of the Loan Funding
Availability. If, after such exclusion, the then outstanding principal amount
under the Note would exceed the Loan Funding Availability, the Borrower shall
<PAGE>
pay to the Lender on the Reconciliation Date immediately following the exclusion
of such Loan Inventory, a principal payment on the Loan in an amount sufficient
to eliminate such excess of the aggregate outstanding principal balance of the
Loan over the Loan Funding Availability, together with accrued and unpaid
interest on such excess.
Section 5.2. Inspections/Valuations.
The Lender and/or any inspection agent employed by the Lender shall have the
right, during the term of this Agreement to inspect the Property at any
reasonable time to confirm the accuracy of the Borrowing Base Report and to
independently evaluate the units, lots and projects comprising the Loan
Inventory. In the event that the Borrowing Base Report is deemed inaccurate or
in the event that the value of the Loan Inventory in the reasonable
determination of the Lender exceeds the outstanding principal balance of the
Loan, the Loan Funding Availability may be adjusted by the Lender or the
affected portions of the Loan Inventory may be excluded from the Loan Inventory.
In addition, the Lender shall have the right, with reasonable notice to
Borrower, to examine the books of account and other records and files of the
Borrower, and to discuss the affairs, business, finances and accounts of the
Borrower with their respective officers and employees, all at such reasonable
time and as often as the Lender may request provided that Lender shall not
unreasonably interfere or disrupt the conduct of the Borrower's business. It is
agreed that all inspection and valuation services rendered by or for Lender's
officers or agents shall be rendered solely for the protection and benefit of
the Lender and at the Lender's expense.
Section 5.3. Lender Counsel Approval.
At the option and request of the Lender, the Lender may require that counsel
for the Lender review any of the documents or instruments required, executed or
provided in connection with this Agreement to confirm compliance with the terms
and conditions of this Agreement; or to otherwise advise the Lender in its
duties and responsibilities hereunder. The Borrower hereby agrees to reimburse
the Lender for the reasonable fees (based on time spent) and costs associated
therewith.
Section 5.4. Liability of Lender.
5.4(1) To Third Parties. The Lender shall in no event be responsible or
liable to any person other than the Borrower for its disbursement of or failure
to disburse the funds or any part thereof, and neither the contractor nor any
subcontractor nor materialmen or craftsmen nor laborers nor others shall have
any claim or right against the Lender under this Agreement or the Lender's
administration thereof. The Lender shall not be liable to any materialmen,
contractors, craftsmen, laborers or others for goods or services delivered by
them in or upon the Property, nor for debts or claims accruing to any such
parties against the Borrower. Nor shall the Lender be liable for the manner in
which any disbursements under this Agreement may be applied by the Borrower and
<PAGE>
the contractor or either of them or for any compliance with the Florida
Construction Lien Law. The Borrower is not and shall not be an agent for Lender
for any purpose.
5.4(2) To the Borrower. The Borrower has accepted and does accept, the full
responsibility for the selection of its own contractor and subcontractors and
all materials, supplies and equipment to be used in the construction of the
improvements contemplated by this Agreement, and the Lender assumes no
responsibility for the completion of the improvements contemplated herein.
Further, the Borrower has accepted and does accept full responsibility for
compliance with the Florida Construction Lien Law and relieves the Lender of any
and all liability with respect to that law and agrees to indemnify and hold the
Lender harmless from any and all liability under it of any nature whatsoever.
Section 5.5. Release of Guaranties.
Contemporaneously with the delivery of a Summary Borrowing Base Report (or a
Detailed Borrowing Base Report), the Borrower may request the release of any
Restricted Subsidiary from the Subsidiary Guaranty. In the event that the Loan
Funding Availability established by the Lender pursuant to Section 5.1(5)
hereof, without consideration of any Inventory owned by such Restricted
Subsidiary, is equal to or greater than the amount otherwise required pursuant
to Section 5.1(4) hereof, then the Lender shall, upon receipt of a certificate
from the Borrower that no Defaults exists before and after giving effect to such
release, release such Restricted Subsidiary from the Subsidiary Guaranty.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that until the Note, together with
interest and all other indebtedness to the Lender under the terms of this
Agreement, are paid in full, unless specifically waived by the Lender in
writing:
Section 6.1. Corporate Existence and Qualification.
The Borrower will do, or cause to be done, all things necessary to preserve,
renew and keep in full force and effect its corporate existence, rights,
licenses and permits and comply with all laws applicable to it, operate its
business in a proper and efficient manner and substantially as presently
operated or proposed to be operated; and at all times maintain, preserve and
protect all franchises and trade names and preserve all property used or useful
in the conduct of its business, and keep the same in good repair, working order
and condition, and from time to time make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments and improvements thereto,
<PAGE>
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 6.2. Financial Statements/Status Reports.
The Borrower will keep its books of accounts in accordance with GAAP and
will furnish to the Lender:
6.2(1) 10-K. Within one hundred twenty (120) days after the close of
Borrower's fiscal year the Form 10-K of the Borrower filed with the Securities
and Exchange Commission, together with the audited, consolidated financial
statements of the Borrower prepared by an independent accounting firm of
recognized standing.
6.2(2) 10-Q. Within sixty (60) days after the last day of each quarter in
each fiscal year of the Borrower, except the last quarter of such fiscal year of
the Borrower, the Form 10-Q of the Borrower filed with the Securities and
Exchange Commission containing financial statements of the Borrower and all
entities related to and divisions of the Borrower, on a consolidated basis.
6.2(3) Sales Report. Within sixty (60) days of the end of each fiscal year
commencing with fiscal year end 1997, annual sales and inventory status reports
showing units closed, units in backlog and income summary for all operations in
the State of Florida of the Borrower and its Restricted Subsidiaries.
6.2(4) Other Financial Documentation. The Borrower shall provide to the
Lender such other financial information as the Lender may reasonably request
from time to time to clarify or amplify the information required to be furnished
to the Lender under this Agreement.
Section 6.3. Taxes and Claims.
The Borrower shall properly pay and discharge: (a) all taxes, assessments
and govern mental charges upon or against the Borrower or its assets prior to
the date on which penalties attach thereto, unless and to the extent that such
taxes are being diligently contested in good faith and by appropriate
proceedings and appropriate reserves therefor have been established; and (b) all
lawful claims, whether for labor, materials, supplies, services or anything else
which might or could, if unpaid, become a lien or charge upon the properties or
assets of the Borrower, unless and to the extent only that the same are being
diligently contested in good faith and by appropriate proceedings and
appropriate reserves therefor have been established.
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Section 6.4. Pay Indebtedness to Lender and Perform Other Covenants.
The Borrower shall: (a) make full and timely payments of the principal of
and interest, and premium, if any, on the Note and all other indebtedness of the
Borrower to the Lender, whether now existing or hereafter arising and (b) duly
comply with all the terms and covenants contained in each of the instruments and
documents given to the Lender pursuant to this Agree ment at the times and
places and in the manner set forth herein.
Section 6.5. Litigation.
The Borrower will promptly notify the Lender upon the commencement of any
action, suit, claim, counterclaim or proceeding against or investigation of the
Borrower (except when the alleged liability is fully covered by insurance): (a)
which has the reasonable possibility of being concluded adversely to the
Borrower the result of which, in the reasonable opinion of the Borrower, could
materially adversely affect the business of the Borrower; or (b) which questions
the validity of this Agreement or any other document executed in connection
herewith or any action taken or to be taken pursuant to any of the foregoing.
Section 6.6. Defaults.
The Borrower will promptly notify the Lender in writing of: (a) any material
assessment by any taxing authority for unpaid taxes as soon as the Borrower has
knowledge thereof; (b) the existence of any declared default in the payment or
performance of any indebtedness (excluding non recourse indebtedness and
excluding indebtedness incurred in lieu of contract deposits pursuant to
contracts for the acquisition of buildable lots or land) owed by the Borrower to
any other lender within ten (10) days of the declaration of such default which
would materially and adversely affect the Borrower's assets or business.
Section 6.7. Further Assurances.
The Borrower shall, at its sole cost and expense, upon the request of the
Lender, duly execute and deliver or cause to be duly executed and delivered to
the Lender such further instruments and do and cause to be done such further
acts that may be necessary or proper in the opinion of the Lender to carry out
more effectively the intent and purpose of this Agreement.
Section 6.8. Funds Not Assignable.
The proceeds of the Loan shall not be assigned by the Borrower nor subject
to the process of any court upon legal action by or against the Borrower or by
or against anyone claiming under or through Borrower, and for the purpose of
this Agreement, the funds shall remain and be considered the money and property
of the Lender until the Borrower is entitled to have them disbursed as provided
herein. Nothing herein contained shall be considered as in anywise modifying,
<PAGE>
or subordinating the Obligations previously given or to be given by the Borrower
as security for the Loan and such Obligations shall be and remain in full force
and effect, this Agreement being intended only as additional security for the
Loan and to insure its use for the purposes intended by the Lender and Borrower.
Section 6.9. Financial Covenants.
Until the Obligations are repaid in full, the Borrower shall adhere to and
certify quarterly as correct, the following financial covenants (after giving
effect to any Financial Covenant Carve Out), all on a consolidated basis with
the Restricted Subsidiaries and determined as of the last day of each fiscal
quarter of the Borrower:
6.9(1) Leverage Ratio. The Borrower shall maintain at all times a Leverage
Ratio of not more than 2.35 to 1.
6.9(2) Ratio of EBITDA. The Borrower shall maintain at all times a ratio of
(i) EBITDA to (ii) Fixed Charges of not less than 2.75 to 1.0.
6.9(3) Minimum Tangible Net Worth. The Borrower shall maintain at all times
a minimum Tangible Net Worth of one hundred sixty million and no/100 dollars
($160,000,000.00), plus fifty percent (50%) of annual net profits for the
preceding fiscal year, plus fifty percent (50%) of any capital paid into the
Borrower (other than stock issued in connection with an employee stock ownership
plan, an employee stock option plan, an employee stock purchase plan or for an
acquisition), plus one hundred percent (100%) of net losses with absolute
minimum Tangible Net Worth of not less than one hundred sixty million and no/100
dollars ($160,000,000.00).
6.9(4) Third Party Notes Payable. The Borrower shall not at any time permit
Third Party Notes Payable to be greater than thirteen percent (13%) of Tangible
Assets on a consolidated basis.
Section 6.10. Inventory Covenants.
During the term of this Agreement, the Borrower shall adhere to the
following Inventory covenants which will be tested by the Lender as of the last
day of each fiscal quarter of the Borrower:
6.10(1) Speculative Lots. The total number of Speculative Lots owned by the
Borrower and its Restricted Subsidiaries at any given time shall not exceed
fifty percent (50%) of all Closed Sales during the immediately preceding twelve
(12) calendar months. Models shall not be considered "Speculative Lots" for
purposes of this Section 6.10(1).
<PAGE>
6.10(2) Developed Lots/Lots Under Development. The Borrower shall not permit
the total number of Developed Lots and Lots Under Development, in each case,
then owned by the Borrower and all Restricted Subsidiaries, at any given time to
exceed two and one-half (2 1/2) times the number of Closed Sales during the
immediately preceding twelve (12) calendar months. The Borrower shall not permit
the aggregate cost of all Developed Lots and Lots Under Development, in each
case, then owned by the Borrower and all Restricted Subsidiaries, at any given
time to exceed forty percent (40%) of all Tangible Assets of the Borrower on a
consolidated basis.
6.10(3) Land Cost. The cost of the land owned by Borrower and all Restricted
Subsidiaries at any given time which has not been developed into Developed Lots
and is not scheduled for commencement of development into Developed Lots within
twelve (12) calendar months from the date of determination shall not exceed ten
percent (10%) of all Tangible Assets of the Borrower and its Restricted
Subsidiaries on a consolidated basis. In the event that the Borrower or any
Restricted Subsidiary classifies certain undeveloped land as being scheduled for
development within twelve (12) calendar months for the purpose of this provision
and, as of the last day of such twelve (12) calendar month period, development
of such land has not commenced, such land shall not be classified as scheduled
for development within twelve (12) calendar months until such development is
commenced.
For purposes of Section 6.10(1), 6.10(2) and 6.10(3) only, the terms
"Speculative Lots", "Dwelling Lot", "Models", "Developed Lots", "Lots Under
Development" and "Dwellings" will include all properties of Borrower and
Restricted Subsidiaries that are situated either within or without the State of
Florida.
Section 6.11. Additional Information.
Upon the request of the Lender, the Borrower shall deliver to Lender any
documents or information with respect to the Inventory that the Lender may
reasonably require including, without limitation, and acquisition closing
documentation.
Section 6.12. Compliance Certificates.
Within forty-five (45) days from the end of each fiscal quarter of the
Borrower, the Borrower shall provide to the Lender a certificate signed by an
Authorized Signatory of the Borrower in the form attached hereto as Exhibit D
setting forth such calculations required to establish whether the Borrower was
in compliance with Sections 6.9 and 6.10 hereof.
Section 6.13. Payment of Contractors.
The Borrower shall pay in a timely manner, and shall cause its Restricted
Subsidiaries to pay in a timely manner, any and all contractors and
subcontractors who conduct work in or on the Inventory, subject to the right of
<PAGE>
the Borrower to contest any amount in dispute, so long as the contesting of such
amount is pursued diligently and in good faith. The Borrower will advise the
Lender in writing immediately if the Borrower or any of its Restricted
Subsidiaries receives any written notice from any contractor(s),
subcontractor(s) or material furnisher(s) to the effect that said contractor(s)
or material furnisher(s) have not been paid for any labor or materials furnished
to or in the Inventory and such outstanding payment or payments are individually
or collectively equal to or greater than five hundred thousand and no/ 100
dollars ($500,000.00) per subdivision or seven million and no/100 dollars
($7,000,000.00) in the aggregate. The Borrower will further make available to
the Lender, for inspection and copying, on demand, any contracts, bills of sale,
statements, receipted vouchers or agreements, under which the Borrower claims
title to any materials, fixtures or articles used in the development of the Loan
Inventory or construction of improvements on the Loan Inventory including,
without limitation, the Dwellings.
Section 6.14. Bank Group Line.
6.14(1) Default. Borrower shall provide immediate notice to Lender of any
declared default under the Bank Group Line or under any other loan agreement or
creditor agreement with any financial institution.
6.14(2) Notice of Change. Should the Borrower agree to any change or
amendment to the Bank Group Line, it shall give notice to the Lender of such
change prior to making the change, if time permits, and if not within two (2)
Business Days after the making of such change.
Section 6.15. Hazardous Substances.
The Borrower warrants and represents to the Lender that to the best of their
knowledge and belief and based on environmental assessments of the Inventory
commissioned by the Borrower, except to the extent disclosed to the Lender in
environmental assessments or other writings or to the extent that it would not
materially and adversely affect the use and marketability of any Inventory, the
Inventory has not been and is not now being used as a storage facility for any
"Hazardous Substances", nor has it been used in violation of any federal, state
or local environmental law, ordinance or regulation, that no proceedings have
been commenced, or notice(s) received, concerning any alleged violation of any
such environmental law, ordinance or regulation, and that the Inventory is free
of hazardous or toxic substances and wastes, contaminants, oil, radioactive or
other materials the removal of which is required or the maintenance of which is
restricted, prohibited or penalized by any federal, state or local agency,
authority or governmental unit except as set forth in the Site Assessments. The
Borrower covenants that it shall neither permit any such materials to be brought
on to the Inventory, nor shall it acquire real property to be added to the Loan
Inventory upon which any such materials exist, except to the extent disclosed to
the Lender in environmental assessments or other writings or to the extent that
<PAGE>
it would not materially and adversely affect the use and marketability of any
Inventory; and if such materials are so brought or found located thereon, such
materials shall be immediately removed, with proper disposal, to the extent
required by applicable environmental laws, ordinances and regulations, and all
required environmental cleanup procedures shall be diligently undertaken
pursuant to all such laws, ordinances and regulations. The Borrower further
represents and warrants that the Borrower will promptly transmit to the Lender
copies of any citations, orders, notices or other material governmental or other
communications received with respect to any hazardous materials, substances,
wastes or other environmentally regulated substances affecting the Inventory.
Notwithstanding the foregoing, there shall not be a default of this provision
should the Borrower store or use minimal quantities of the aforesaid materials,
provided that: such substances are of a type and are held only in a quantity
normally used in connection with the construction, occupancy or operation of
comparable buildings or residential developments (such as cleaning fluids and
supplies normally used in the day to day operation of residential developments),
such substances are being held, stored and used in complete and strict
compliance with all applicable laws, regulations, ordinances and requirements,
and the indemnity set forth below shall always apply to such substances, and it
shall continue to be the responsibility of the Borrower to take all remedial
actions required under and in accordance with this Agreement in the event of any
unlawful release of any such substance.
Borrower hereby agrees to indemnify Lender and hold Lender harmless from and
against any and all losses, liabilities, including strict liability, damages,
injuries, expenses, including reasonable attorneys' fees, costs of any
settlement or judgment and claims of any and every kind whatsoever paid incurred
or suffered by, or asserted against, Lender by any person or entity or
governmental agency for, with respect to, or as a direct or indirect result of,
the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, discharging or release from the Inventory of any Hazardous Substance
(including, without limitation, any losses, liabili ties, including strict
liability, damages, injuries, expenses, including reasonable attorneys' fees,
costs of any settlement or judgment or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any so
called federal, state or local "Superfund" "Superlien" laws, statutes, law
ordinance, code, rule, regulation, order or decree regulating, with respect to
or imposing liability, including strict liability, substances or standards of
conduct concerning any Hazardous Substance), regardless of whether within the
control of Lender.
For purposes of this Agreement, "Hazardous Substances" shall mean and
include those elements or compounds which are contained in the list of hazardous
substances adopted by the United States Environmental Protection Agency ("EPA")
and the list of toxic pollutants designated by Congress or the EPA or defined by
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material as now or at any time hereafter in effect.
<PAGE>
If Borrower receives any notice of (i) the happening of any material event
involving the spill, release, leak, seepage, discharge or clean-up of any
Hazardous Substance on any of the Inventory or in connection with Borrower's
operations thereon or (ii) any complaint, order, citation or material notice
with regard to air emissions, water discharges, or any other environ mental,
health or safety matter affecting Borrower (an "Environmental Complaint") from
any person or entity (including without limitation the EPA) then Borrower shall
immediately notify Lender orally and in writing of said notice.
Lender shall have the right but not the obligation, and without limitation
of Lender's rights under this Agreement, to enter onto the Inventory or to take
such other actions as it deems necessary or advisable to clean up, remove,
resolve or minimize the impact of, or otherwise deal with, any such Hazardous
Substance or Environmental Complaint following receipt of any notice from any
person or entity (including, without limitation, the EPA) asserting the
existence of any Hazardous Substance or an Environmental Complaint pertaining to
the Inventory or any part thereof which, if true, could result in an order, suit
or other action against Borrower, which would have a material adverse effect on
the Borrower, and/or which, in the sole opinion of Lender, could jeopardize its
security under this Agreement. All reasonable costs and expenses incurred by
Lender in the exercise of any such rights shall be secured by this Agreement and
shall be payable by Borrower upon demand.
Section 6.16. Insurance.
The Borrower shall keep the Inventory comprising the Loan Inventory insured
by responsible insurance companies in such amounts and against such risks as is
customary for owners of similar businesses and properties in the same general
areas in which the Borrower and its Restricted Subsidiaries operate or, to the
customary extent (and in a manner approved by the Lender) the Borrower may be
self insured. All insurance herein provided for shall be in form and with
companies reasonably approved by the Lender. The Borrower shall also maintain
general liability insurance, workman's compensation insurance, automobile
insurance for all vehicles owned by them and any other insurance reasonably
required by the Lender, to the extent commercially available at a reasonable
cost. On the Agreement Date, the Borrower shall deliver to the Lender a copy of
a certificate of insurance evidencing the insurance required hereunder. In
addition, on the date of delivery of each report required by Section 4.6 hereof,
the Borrower shall certify to the Lender that all insurance policies required to
be maintained hereunder remain in full force and effect.
Section 6.17. Reportable Event.
Promptly after Borrower receives notice or otherwise becomes aware thereof,
the Borrower shall notify the Lender of the occurrence of any Reportable Event
with respect to any Plan as to which the Pension Benefit Guaranty Corporation
has not by regulation waived the requirement of Section 4043(a) of ERISA that it
be notified within thirty (30) days of the occurrence of such event (provided
<PAGE>
that the Borrower shall give the Lender notice of any failure to meet the
minimum funding standards of Section 412 of the Code or Section 302 of ERISA,
regardless of the issuance of any waivers in accordance with Section 412(d) of
the Code.
Section 6.18. Secured Indebtedness.
The Borrower shall not, and shall not permit any of its Restricted
Subsidiaries to, incur or permit to exist any Indebtedness which is (a) secured
in whole or in part by any of the Inventory (other than Permitted Encumbrances);
or (b) contains any provision requiring the Borrower or any Restricted
Subsidiary to grant to the lender thereunder any Lien at a future date or upon
the occurrence of any subsequent event; except that the Borrower and its
Restricted Subsidiaries may incur (i) Indebtedness in favor of a seller of
Inventory to the Borrower which is secured solely by the Inventory
contemporaneously acquired from such seller; (ii) Indebtedness secured solely by
the Borrower's headquarters building located in Arlington, Texas or any other
office building owned by the Borrower or any Restricted Subsidiary, and (iii)
Indebtedness secured by any clubhouse located in any development of the Borrower
or any Restricted Subsidiary.
ARTICLE VII
DEFAULT AND REMEDIES
Section 7.1. Defaults.
Subsequent to any applicable notice and/or cure rights afforded by the Loan
Documents, each of the following shall constitute a Default, whatever the reason
for such event and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment or order of any court or any
order, rule, or regulation of any governmental or non-governmental body:
7.1(1) Payment. Default by the Borrower in the payment of any principal,
interest or payment due to the Lender under the Note or under any of the Loan
Documents;
7.1(2) Performance. Default in the payment or performance of any other
liability, obligation or covenant of the Borrower to the Lender under the Loan
Documents, for a period of ten (10) days after written notice; provided (i) if
Borrower reasonably cannot perform within such (10) day period and, in Lender's
reasonable judgment, Lender's security will not be impaired, Borrower may have
such additional time to perform as Borrower reasonably may require, provided and
for so long as Borrower proceeds with due diligence to cure said default; and
(ii) if Lender's security reasonably will be materially impaired if Borrower
does not perform in less than ten (10) days, Borrower will have only such period
following written notice in which to perform as Lender may reasonably specify.
<PAGE>
7.1(3) Representation. Any representation, warranty, statement, certificate,
schedule or report made or furnished by the Borrower that proves to have been
false or erroneous in any material respect at the time of the making thereof, or
to have omitted any substantial liability or claim against the Borrower, or if
on the date of execution of this Agreement there shall have been any materially
adverse change in any of the facts disclosed therein, which change shall not
have been disclosed to the Lender at or prior to the time of such execution;
7.1(4) Litigation. Any litigation or any proceedings which are pending
against the Borrower or Restricted Subsidiaries, the outcome of which would in
Lender's reasonable determination materially adversely affect the continued
operation of the Borrower, and the Borrower failing to take corrective measures
reasonably satisfactory to the Lender within ten (10) days;
7.1(5) Obligations to Others. The failure of the Borrower to pay, when due,
any other indebtedness for borrowed money owed by the Borrower to the Lender, or
default by the Borrower in the performance of the terms of any loan agreement or
indenture relating to such indebtedness, which failure or default would
materially adversely affect the business, operations or financial condition of
the Borrower, and any such default shall not have been remedied within thirty
(30) days thereafter;
7.1(6) Obligations to Lender. Any default by Borrower on any other direct
obligation that Borrower may have to the Lender which continues uncured for
thirty (30) days after notice from Lender;
7.1(7) Other Default. There shall occur any Event of Default in the
performance or observance of any agreement or covenant or breach of any
representation or warranty contained in any of the Loan Documents (other than
this Agreement or as otherwise provided in this Section 7.1 of this Agreement)
or any Subsidiary Guaranty, which shall not be cured to the Lender's
satisfaction within the applicable cure period, if any, provided for in such
Loan Document or ninety (90) days from the date the Borrower receives notice
from the Lender with respect thereto if no cure period is provided in such Loan
Document;
7.1(8) Title 11 Relief. There shall be entered a decree or order for relief
in respect of the Borrower or any of its Restricted Subsidiaries under Title 11
of the United States Code, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar
official of the Borrower or any of its Restricted Subsidiaries, or of any
substantial part of their respective properties, or ordering the winding-up or
liquidation of the affairs of the Borrower or any of its Restricted
Subsidiaries, or an involuntary petition shall be filed against the Borrower or
any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such
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petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of thirty (30) consecutive
days;
7.1(9) Title 11 Petition. The Borrower or any of its Restricted Subsidiaries
shall file a petition, answer, or consent seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy law or other similar law, or the Borrower
or any of its Restricted Subsidiaries shall consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, or other similar official of the Borrower or
any of its Restricted Subsidiaries, or of any substantial part of their
respective properties, or the Borrower or any of its Restricted Subsidiaries
shall fail generally to pay their respective debts as they become due, or the
Borrower or any of its Restricted Subsidiaries shall take any corporate or
partnership action to authorize any such action;
7.1(10) Judgment. A final judgment shall be entered by any court against the
Borrower or any of its Restricted Subsidiaries for the payment of money which
exceeds $500,000.00, which judgment is not covered by insurance or a warrant of
attachment or execution or similar process shall be issued or levied against
property of the Borrower or any of its Restricted Subsidiaries which, together
with all other such property of the Borrower or any of its Restricted
Subsidiaries subject to other such process, exceeds in value $500,000.00 in the
aggregate, and if, within thirty (30) days after the entry, issue, or levy
thereof, such judgment, warrant, or process shall not have been paid or
discharged or bonded or stayed pending appeal, or if, after the expiration of
any such stay, such judgment, warrant, or process shall not have been paid or
discharged;
7.1(11) ERISA Funding. (1) There shall be at any time any "accumulated
funding deficiency," as defined in ERISA or in Section 412 of the Code, with
respect to any Plan; or (2) a trustee shall be appointed by a United States
District Court to administer any Plan; or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any Plan; or (3) any of the
Borrower and its ERISA Affiliates shall incur any liability to the Pension
Benefit Guaranty Corporation in connection with the termination of any Plan; or
(4) any Plan or trust created under any Plan of any of the Borrower and its
ERISA Affiliates shall engage in a non-exempt "prohibited transactions (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited
transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and
by reason of any or all of the events described in clauses (1) through (4), as
applicable, the Borrower shall have incurred (and/or is likely to incur) and/or
incurred liability in excess of $1,000,000.00 in the aggregate;
7.1(12) Invalidity of Documents. All or any portion of any Loan Document
shall at any time and for any reason be declared by a court of competent
jurisdiction in a suit with respect to such Loan Document to be null and void,
<PAGE>
or a proceeding shall be commenced by any Governmental Authority involving a
legitimate dispute or by the Borrower or any of its Restricted Subsidiaries,
having jurisdiction over the Borrower or any of its Restricted Subsidiaries,
seeking to establish the invalidity or unenforceability thereof (exclusive of
questions of interpretation of any provision thereof), or the Borrower or any of
its Restricted Subsidiaries shall deny that it has any liability or obligation
for the payment of principal or interest purported to be created under any Loan
Document;
7.1(13) Change of Control. There shall occur any Change of Control;
7.1(14) Transfer of Property. Except for conveyances of all or any part of
the Loan Inventory between the Borrower and the Guarantors there occurs any
sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or
any part of the Loan Inventory or any interest therein, voluntarily or
involuntarily, whether by operation of law or otherwise, except (i) in
accordance with the terms of this Agreement, (ii) for execution of contracts
with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the
ordinary course of business;
7.1(15) Property Change. Except in the normal course of Borrower's
development of inventory into Developed Lots and construction of Dwellings
thereon, without the prior written consent of Lender, Borrower grants any
easement or dedication, files any plat, condominium declaration, or restriction
or otherwise encumbers all or any portion of the Loan Inventory, or seeks or
permits any zoning reclassification or variance, unless such action is expressly
permitted by the Loan Documents or does not affect any Inventory which is part
of the Loan Inventory; or
Notwithstanding anything contained herein to the contrary, the occurrence of any
of the foregoing shall not be a Default or an Event of Default hereunder if: (i)
the occurrence pertains only to specific parcel(s) within the Loan Inventory;
and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on or
before ten (10) days in the case of a monetary occurrence and thirty (30) days
in the case of a non-monetary occurrence after the occurrence or, if the
Borrower is entitled to notice and cure, within the applicable notice and cure
period.
In the event that any such parcel is a Lot Under Development, Developed Lot or
Dwelling Lot, then the Loan Funding Availability shall be immediately calculated
excluding such parcel. If, as the result of such removal, the outstanding
principal balance under the Loan would exceed the Loan Funding Availability, the
Borrower shall pay (X) to the Lender on the Reconciliation Date immediately
following the removal of such Inventory from the Loan Inventory, a principal
payment on the Loan in an amount sufficient to eliminate such excess of the
aggregate outstanding principal balance of the Loan over the Loan Funding
Availability, together with any due and unpaid interest on such excess or (Y)
add additional Inventory to the Loan Inventory (which is acceptable to the
<PAGE>
Lender) in an amount sufficient to cause the Loan Funding Availability to equal
or exceed the Loan.
Section 7.2. Remedies.
If a Default shall have occurred and shall be continuing:
7.2(1) Optional Acceleration. With the exception of a Default specified in
Sections 7.1(8), 7.1(9) and 7.1(10), Lender may, by notice to the Borrower (i)
declare the Note, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the Note, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower,
and (ii) terminate this Agreement.
7.2(2) Immediate Acceleration. Upon the occurrence of a Default under
Sections 7. l(8), 7.1(9) or 7.1(10) hereof, this Agreement shall automatically
terminate and such principal, interest (including without limitation, interest
which would have accrued but for the commencement of a case or proceeding under
the federal bankruptcy laws), and other amounts payable under this Agreement or
the Note shall thereupon and concurrently therewith become due and payable, all
without any action by the Lender, all without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in this
Agreement or in the Note to the contrary notwithstanding.
7.2(3) Loan Document Rights. The Lender shall exercise all of the
post-default rights granted to it and to them under the Loan Documents or under
Applicable Law.
7.2(4) Cumulative Rights. The rights and remedies of the Lender hereunder
shall be cumulative, and not exclusive.
Section 7.3. Cross Default.
All of the Note and other Loan Documents are "cross defaulted such that (a)
the occurrence of an Event of Default under any one of the Loan Documents shall
constitute an Event of Default under this Agreement and all of the Loan
Documents and (b) the occurrence of a Default under any one of the Loan
Documents shall constitute a Default under this Agreement and all of the other
Loan Documents.
Section 7.4. Waiver of Default.
The Lender at any time may waive any Default or any Event of Default which
shall have occurred and any of its consequences, in which case the parties
hereto shall be restored to their former positions and rights and obligations
<PAGE>
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon, and no such waiver shall
be effective unless it is in a written document executed by a duly authorized
officer.
Section 7.5. Rights and Remedies Not Waived.
No course of dealing between the Borrower and the Lender or any failure or
delay on the part of the Lender in exercising any rights or remedies hereunder
shall operate as a waiver of any rights or remedies of the Lender and no single
or partial exercise of any rights or remedies hereunder shall operate as a
waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Lien; Setoff By Lender.
The Borrower hereby grants to the Lender a continuing lien for all
indebtedness and other liabilities of the Borrower to the Lender upon any and
all moneys, securities, and other property of the Borrower and the proceeds
thereof, now or hereafter held or received by or in transit to, the Lender from
or to the Borrower, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of the Borrower with, and any and all claims of the Borrower against
the Lender at any time existing. Upon the occurrence of any Default, the Lender
is hereby authorized at any time and from time to time, without notice to the
Borrower setoff, appropriate, and apply any or all items hereinabove referred to
against all indebtedness and other liabilities of the Borrower to the Lender,
whether under this Agreement, the Loan Documents or otherwise, and whether now
existing or hereafter arising.
Section 8.2. Waivers.
The Borrower waives presentment, demand, protest, notice of default,
nonpayment, partial payments and all other notices and formalities relating to
this Agreement other than notices specifically required hereunder. The Borrower
consents to and waives notice of the granting of indulgences or extensions of
time of payment, the taking or releasing of security, the addition or release of
persons primarily or secondarily liable on or with respect to liabilities of the
Borrower to the Lender, all in such manner and at such time or times as the
Lender may deem advisable. No act or omission of the Lender shall in any way
impair or affect any of the indebtedness or liabilities of the Borrower to the
Lender or rights of the Lender in any security. No delay by the Lender to
exercise any right, power or remedy hereunder or under any security agreement,
and no indulgence given to the Borrower in case of any Default, shall impair any
<PAGE>
such right, power or remedy or be construed as having created a course of
dealing or performance contrary to the specific provisions of this Agreement or
as a waiver of any Default by the Borrower or any acquiescence therein or as a
violation of any of the terms or provisions of this Agreement. The Lender shall
have the right at all times to enforce the provisions of this Agreement and all
other documents executed in connection herewith in strict accordance with their
terms, notwithstanding any course of dealing or performance by the Lender in
refraining from so doing at any time and notwithstanding any custom in the
banking trade. No course of dealing between the Borrower and the Lender shall
operate as a waiver of any of the Lender's rights.
Section 8.3. Benefit.
This Agreement is made and entered into for the sole protection and benefit
of the Lender and the Borrower, their successors and assigns, and no other
person or persons other than the Borrower shall have any right of action hereon
or rights to the Loan proceeds at any time. Lender shall not (a) owe any duty
whatsoever to any claimant for labor performed or material furnished in
connection with the construction of any Dwelling or improvement on any
Inventory, or (b) owe any duty to apply any undisbursed portion of the Loan to
the payment of any claim, or (c) owe any duty to exercise any right or power of
the Lender hereunder or arising from any Default by the Borrower.
Section 8.4. Assignment.
The terms hereof shall be binding upon and inure to the benefit of the
heirs, successors, assigns, and personal representatives of the parties hereto;
provided, however, that the Borrower shall not assign this Agreement or any of
its rights, interests, duties or obligations hereunder or any Loan proceeds or
other monies to be advanced hereunder in whole or in part without the prior
written consent of the Lender and any such assignment (whether voluntary or by
operation law) without said consent shall be void and render automatically
terminated any obligation of Lender to advance any further monies pursuant to
this Agreement or any other Loan Document.
Section 8.5. Amendment and Waiver.
This Agreement and the other Loan Documents represent the final agreement
between the Lender and the Borrower and may not be contradicted by evidence of
prior, contemporaneous or subsequent oral or written agreements of the Borrower
and the Lender. Neither this Agreement nor any of the Loan Documents may be
amended orally, nor may any provision hereof be waived orally but only by an
instrument in writing signed by the Lender and the Borrower.
<PAGE>
Section 8.6. Terms.
Whenever the context and construction require, all words used in the
singular number herein shall be deemed to have been used in the plural, and vice
versa, and the masculine gender shall include the feminine and neuter and the
neuter shall include the masculine and feminine.
Section 8.7. Governing Law and Jurisdiction.
This Agreement shall be construed in accordance with the laws of the State
of Florida, and such laws shall govern the interpretation, construction and
enforcement hereof.
Section 8.8. Publicity.
Subject-to the Borrower's approval, the Lender shall have the right to
incorporate its name into signage placed upon the Loan Inventory situated in
Florida. Lender shall have the right to secure printed publicity through
newspaper and other media concerning the Inventory and source of financing.
Section 8.9. Expenses of Lender.
The Borrower promises to reimburse the Lender promptly for all reasonable
out-of-pocket expenses of every nature which the Lender may incur in connection
with the Loan Documents, the making of any Loans provided for herein or the
collection of the Borrower's indebtedness, including, but not limited to,
reasonable attorneys' fees of Lender's counsel relating to the preparation of
the Loan Documents, all recording fees, and documentary stamps. Such expenses
shall be paid at closing or in a reasonable time thereafter upon receipt of
written invoices. The Borrower shall also pay reasonable post-closing expenses
incurred by the Lender on behalf of the Borrower. Furthermore, the Borrower
shall be liable for post-closing collection expenses, including, but not limited
to the collection of Obligations of the Borrower hereunder, including reasonable
attorneys' fees, including appellate proceedings, post-judgment proceedings and
bankruptcy proceedings. In the event the Borrower fails to pay such expenses
within a reasonable time, the Lender may either (a) disburse to itself under the
terms of the Note any sums payable to Lender and such disbursement shall be
considered with like effect as if same had been made to Borrower, or (b) pay
such expenses on the Borrower's behalf and charge the Borrower's account.
Section 8.10. Invalidation of Provisions.
In the event that any one or more of the provisions of this Agreement is
deemed invalid by a court having jurisdiction over this Agreement or other
similar authority, Lender may, in its sole discretion, terminate this Agreement
in whole or in part.
<PAGE>
Section 8.11. Notices.
All notices, requests, consents, demands and other communications required
or which any party desires to give hereunder or under any other Loan Document
shall, unless other specifically provided in such other Loan Document, be deemed
sufficiently given or furnished if (a) in writing and delivered by personal
delivery, by courier, or by registered or certified United States mail, postage
prepaid, addressed to the party to whom directed at the addresses specified
below (unless changed by similar notice in writing given by the particular party
whose address is to be changed), (b) by telex with confirmation thereof in
writing by sender pursuant to subsection (a) above, (c) facsimile to the
facsimile number specified below with confirmation thereof in writing by sender
pursuant to subsection (a) above, or (d) by oral communication with confirmation
thereof in writing by the notifying party pursuant to subsection (a) above
within three (3) Business Days after such oral communication. Any such notice or
communication shall be deemed to have been given and to be effective either at
the time of personal delivery or, in the case of courier or mail, as of the date
of first attempted delivery at the address and in the manner provided herein,
or, in the case of telex, when transmitted (answer back confirmed), or, in the
case of facsimile, upon receipt or, in the case of oral communication, upon the
effectiveness of written confirmation as hereinabove provided. Notwithstanding
the foregoing, no notice of change of address shall be effective except upon
receipt. This Section shall not be construed in any way to affect or impair any
waiver of notice or demand provided in any Loan Document or to require giving of
notice or demand to or upon any person in any situation or for any reason.
BORROWER:
D. R. Horton, Inc.
1901 Ascension Boulevard
Suite 100
Arlington, Texas 76006
Attn: David J. Keller
and
Ted I. Harbour
Facsimile No.: (817) 856-8249
Telephone No.: (817) 856-8200
<PAGE>
LENDER:
Barnett Bank, N.A.
707 Mendham Boulevard
Post Office Box 678267
Orlando, Florida 32867-8267
Attn: Closing Department Manager
Facsimile No.: (407) 658-3826
Telephone No.: (407) 658-3815
With a copy to:
Winderweedle, Haines, Ward & Woodman, P.A.
250 Park Avenue South, 5th Floor
Post Office Box 880
Winter Park, Florida 32790-0880
Attn: Victor E. Woodman, Esquire
Facsimile No.: (407) 645-3728
Telephone No.: (407) 246-8412
Section 8.12. Termination by the Borrower.
The Borrower may terminate this Agreement in its entirety by giving at least
ten (10) days prior written notice of its intention to terminate and by payment
in full of all Obligations. Upon the date of termination, the Borrower's
obligation for the payment of the fee provided for in Section 2.8 hereof shall
terminate.
Section 8.13. Controlling Agreement.
In the event any provision of this Agreement is inconsistent with any
provision of any other document, whether heretofore executed, required or
executed pursuant to this Agreement or otherwise, the provisions of this
Agreement shall be controlling.
Section 8.14. Titles.
Titles to the sections of this Agreement are solely for the convenience of
the parties hereto and are not an aid in the interpretation of this Agreement or
any part thereof.
<PAGE>
Section 8.15. Counterparts.
This Agreement may be executed in any number of counterparts and by the
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same Agreement.
Section 8.16. Time is of the Essence.
The parties agree that time shall be of the essence in interpreting each and
every term and condition contained herein.
Section 8.17. Waiver of Trial by Jury.
The Borrower and the Lender knowingly, voluntarily and intentionally waive
the right either may have to a trial by jury in respect of any litigation based
hereon, or arising out of, under or in connection with the Loan Documents and
any agreement contemplated to be executed in conjunction therewith, or any
course of conduct, course of dealing, statements (whether verbal or written) or
actions of either party. This provision is a material inducement for the Lender
entering into the Loan evidenced by the Loan Documents.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
Signed, sealed and delivered
in the presence of:
D. R. HORTON, INC., a Delaware
corporation
/s/ TED I. HARBOUR
- ------------------------------------ By:/s/ DAVID J. KELLER
------------------------------
/s/ STEPHAN P. PERISON David J. Keller,
- ------------------------------------ Executive Vice President
"Borrower"
<PAGE>
BARNETT BANK, N.A., a national
banking association
/s/ DOROTHY MARIN
- ------------------------------------ By:/s/ FAYE CHANDRINOS
------------------------------
/s/ BRYAN CORLEY Faye Chandrinos
- ------------------------------------ As Its: Closing Officer
"Lender"
<PAGE>
REQUEST FOR ADVANCE
On ____________________, D.R. HORTON, INC. (Borrower) requests of BARNETT BANK,
N.A. (Lender) an advance of $_____________________; to be deposited into account
number #____________________ maintained with Lender or wire transferred to the
Borrower as follows: ---------------------------------------------------------.
Since the date of the last disbursement, and as of the date of this
disbursement, the Borrower certifies to the Lender and attests that to the best
of its knowledge and belief,
a) there has not been nor does there exist an adverse material change in their
financial condition, on a consolidated basis;
b) there exists no Event of Default or Default as defined in that Restated
Working Capital Line of Credit Agreement dated ____________ prior to or
subsequent to this disbursement;
c) the Borrower, on a consolidated basis, is in compliance with those financial
covenants, representations and warranties contained in that Restated Working
Capital Line of Credit Agreement dated _______________;
d) Construction of the site work for Parcels Under Development and construction
of improvements on the Dwelling Lots is progressing in a satisfactory
manner, pursuant to that Restated Working Capital Line of Credit Agreement
dated ____________________; and
e) all conditions precedent to the Borrower's right to receive the requested
disbursement have been met in accordance with the terms and conditions of
that Restated Working Capital Line of Credit Agreement dated
__________________.
D.R. HORTON, INC., a Delaware corporation
By:______________________________________
<PAGE>
============================================================= ==================
S&P/Moody's Rating or Leverage Ratio as of the Applicable
quarter end or most recently completed quarter Margin
- ------------------------------------------------------------- ------------------
LIBOR +
Level I BBB - Baa3, or better 65
Level II less than 1.25 72.5
Level III between 1.25 and 1.50 80
Level IV between 1.50 and 1.80 85
Level V between 1.80 and 2.35 95
Level VI between 2.35 and 2.60 110
============================================================= ==================
Exhibit 21.1
SUBSIDIARIES OF D.R. HORTON, INC.
As of September 30, 1997
STATE OF INCORPORATION DOING
NAME OR ORGANIZATION BUSINESS AS
---- --------------- -----------
DRHI, Inc. Delaware
Meadows I, Ltd. Delaware
Meadows II, Ltd. Delaware
Meadows IV, Inc. Texas
Meadows V, Ltd. Delaware
Meadows VII, Ltd. Delaware
Meadows IX, Inc. New Jersey
Meadows X, Inc. New Jersey
D.R. Horton Management
Company, Ltd. Texas
D.R. Horton - Texas, Ltd Texas D.R. Horton Custom Homes
DRH Title Company of
Colorado, Inc. Colorado
DRH Title Company of
Florida, Inc. Florida
DRH Title Company of
Texas, Ltd. Texas
DRH Construction, Inc. Delaware
DRH Land Company, Inc. California
DRH Mortgage Company, Ltd. Texas
DRH New Mexico
Construction, Inc. Delaware
DRH Properties, Inc. Arizona
DRH Tucson Construction Delaware
D.R. Horton, Inc.
- Albuquerque Delaware
D.R. Horton, Inc.
- Birmingham Alabama Regency Homes
D.R. Horton, Inc.
- Denver Delaware Trimark Communities
D.R. Horton Denver
Management Company, Inc. Colorado
D.R. Horton Denver
No. 10, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 11, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 12, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 13, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 14, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 15, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 16, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 17, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 18, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 19, Inc. Colorado Trimark Communities
<PAGE>
STATE OF INCORPORATION DOING
NAME OR ORGANIZATION BUSINESS AS
---- --------------- -----------
D.R. Horton Denver
No. 20, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 21, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 22, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 23, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 24, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 25, Inc. Colorado Trimark Communities
D.R. Horton Denver
No. 26, Inc. Colorado Trimark Communities
D.R. Horton, Inc.
- Greensboro Delaware Arappco Homes
D.R. Horton, Inc.
- Los Angeles Delaware D.R. Horton Custom Homes
D.R. Horton Los Angeles
Holding Company, Inc. California
D.R. Horton Los Angeles
Management Company, Inc. California
D.R. Horton Los Angeles
No. 9, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 10, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 11, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 12, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 13, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 14, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 16, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 17, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 18, Inc. California D.R. Horton Custom Homes
D.R. Horton Los Angeles
No. 19, Inc. California D.R. Horton Custom Homes
D.R. Horton, Inc.
- Minnesota Delaware Joe Miller Homes
D.R. Horton, Inc.
- New Jersey Delaware SGS Communities
D.R. Horton, Inc.
- Sacramento California
D.R. Horton Sacramento
Management Company, Inc. California
D.R. Horton, Inc.
- San Diego Delaware D.R. Horton Custom Homes
D.R. Horton San Diego
Holding Company, Inc. California
D.R. Horton San Diego
Management Company, Inc. California
D.R. Horton San Diego
No. 9, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 10, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 11, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 12, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 13, Inc. California D.R. Horton Custom Homes
<PAGE>
STATE OF INCORPORATION DOING
NAME OR ORGANIZATION BUSINESS AS
---- --------------- -----------
D.R. Horton San Diego
No. 14, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 15, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 16, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 17, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 18, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 19, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 20, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 21, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 22, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 23, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 24, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 25, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 26, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 27, Inc. California D.R. Horton Custom Homes
D.R. Horton San Diego
No. 28, Inc. California D.R. Horton Custom Homes
D.R. Horton, Inc.
- Torrey Delaware Torrey Homes
D.R. Horton - Torrey
No. 1, Inc. Delaware
Grand Realty Incorporated New Jersey
S. G. Torrey Atlanta, Ltd. Georgia
SGS Communities at
Battleground, LLC New Jersey SGS Comminuties
SGS Communities at
Grande Quay, LLC New Jersey SGS Communities
SGS Communities at
West Windsor, LLC New Jersey SGS Communities
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-48874) pertaining to the D.R. Horton, Inc. 1991 Stock Incentive
Plan; Form S-8 (No. 33-83162) pertaining to the D.R. Horton, Inc. Stock Tenure
Plan; Form S-8 (No. 333-3570) pertaining to the D.R. Horton, Inc. Employee Stock
Purchase Plan; and Form S-3 (No. 333-27521) and the related Prospectus for the
registration of $250,000,000 of its debt securities, preferred stock and common
stock of our report dated November 7, 1997, with respect to the consolidated
financial statements of D.R. Horton, Inc. included in the Annual Report (Form
10-K) for the year ended September 30, 1997.
/s/ERNST & YOUNG LLP
Fort Worth, Texas
December 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Balance Sheet and Consolidated Statement of Income found on
pages 17 and 18 of the Company's Form 10-K for the year ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 43,984
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 604,591
<CURRENT-ASSETS> 648,575
<PP&E> 13,124
<DEPRECIATION> 0
<TOTAL-ASSETS> 719,794
<CURRENT-LIABILITIES> 101,699
<BONDS> 355,315
0
0
<COMMON> 373
<OTHER-SE> 262,407
<TOTAL-LIABILITY-AND-EQUITY> 719,794
<SALES> 837,280
<TOTAL-REVENUES> 837,280
<CGS> 685,341
<TOTAL-COSTS> 685,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,150
<INCOME-PRETAX> 59,894
<INCOME-TAX> 23,690
<INCOME-CONTINUING> 36,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,204
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0
</TABLE>
