<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1997
Registration No. 333-21183
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
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 NUMBER)
CHARLES N. WARREN
SENIOR VICE PRESIDENT
AND GENERAL COUNSEL
1901 ASCENSION BLVD., SUITE 100
ARLINGTON, TEXAS 76006
(817) 856-8200
1901 ASCENSION BLVD., SUITE 100 (NAME, ADDRESS, INCLUDING ZIP CODE,
ARLINGTON, TEXAS 76006 AND
(817) 856-8200 TELEPHONE NUMBER, INCLUDING AREA CODE,
(ADDRESS, INCLUDING ZIP CODE, AND OF AGENT FOR SERVICE)
TELEPHONE
NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
COPIES OF COMMUNICATIONS TO:
IRWIN F. SENTILLES, III DANIEL J. ZUBKOFF
GIBSON, DUNN & CRUTCHER LLP CAHILL GORDON & REINDEL
1717 MAIN STREET, SUITE 5400 EIGHTY PINE STREET
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10005
(214) 698-3100 (212) 701-3000
-----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
-----------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 4, 1997
PROSPECTUS
5,000,000 SHARES
D.R. HORTON, INC.
CUSTOM HOMES
COMMON STOCK
--------
Of the 5,000,000 shares of Common Stock offered hereby (the "Offering"),
4,000,000 shares are being sold by D.R. Horton, Inc. (the "Company") and
1,000,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The Common Stock is listed on the New York Stock Exchange under the symbol
"DHI." The last reported sale price of the Common Stock on the New York Stock
Exchange Composite Tape was $11 7/8 per share on March 3, 1997. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to 750,000 additional shares of Common Stock
on the same terms as set forth above solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ , $ , and
$ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if delivered to and accepted
by them and subject to certain conditions. It is expected that the shares of
Common Stock offered hereby will be available for delivery on or about ,
1997, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001, or through the facilities of The Depository Trust Company.
--------
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1997
<PAGE>
The pictures below are representative of homes built by the Company.
Charlotte, North Carolina Dallas-Fort Worth, Texas
Suburban Washington D.C. Phoenix, Arizona
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus. As used in this Prospectus, except as the context
otherwise requires, references to D.R. Horton, Inc. and its subsidiaries
(collectively, the "Company"), and the financial and operating data contained
in this Prospectus reflect the consolidated results of such entities for the
periods indicated. All share and per share data included or incorporated by
reference herein have been adjusted to reflect the Company's 9% stock dividend
of June 1995, seven-for-five stock split of September 1995 and 8% stock
dividend of May 1996. Unless otherwise indicated, information set forth herein
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a national homebuilder constructing and selling single-family
homes in metropolitan areas of the Mid-Atlantic, Midwest, Southeast, Southwest
and Western regions of the United States. The Company builds homes in 27
markets and believes that it is one of only three public homebuilders with
operations in 21 or more 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 in price from $80,000 to $600,000, with an average selling
price of $166,600 for the year ended September 30, 1996, and $168,700 for the
three months ended December 31, 1996.
In fiscal 1996, the Company recorded its tenth consecutive year of record
revenues, earnings and sales backlog. The Company's revenues have increased
from $393.3 million in fiscal 1994 to $547.3 million in fiscal 1996, a compound
annual growth rate of 18%. Over this same period, net income has increased from
$17.7 million to $27.4 million, a 25% compound annual growth rate. Homes closed
by the Company have increased from 2,360 in fiscal 1994 to 3,284 in fiscal
1996.
Revenues increased 19%, to $144.4 million from $121.1 million for the three
months ended December 31, 1996, compared to the same period in 1995. The sales
value of net new contracts signed by the Company increased 12%, to $129.8
million (751 homes) compared to $115.4 million (699 homes) for the comparable
period in 1995. At December 31, 1996, the Company's backlog of homes under
contract totaled $223.5 million (1,208 homes), a 35% increase from $165.0
million (968 homes) at December 31, 1995. Net income for the three months ended
December 31, 1996, increased 26%, to $6.8 million ($0.21 per share), from $5.4
million ($0.19 per share), for the same quarter of 1995.
OPERATING STRATEGY
The Company attributes its success to its proven operating strategy, which
focuses on the following elements:
Geographic Diversification. The Company is one of the most geographically
diversified homebuilders in the United States, with operating divisions in 21
states and 27 markets, as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC REGION MARKETS
----------------- -------
<S> <C>
Mid-Atlantic............ Charlotte, Greensboro, Greenville, North Central 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
Western................. Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
</TABLE>
3
<PAGE>
The Company believes that its diversification strategy mitigates the effects
of local and regional economic cycles and enhances its growth potential.
New Markets/Acquisitions. While the Company believes that there are
significant growth opportunities in its existing markets, it intends to
continue to evaluate new markets for entry that have significant entry-level
and move-up segments and satisfy the Company's profitability, investment return
and other criteria. Since October 1, 1992, the Company has expanded into 15 new
markets through start-up operations and has completed complementary
acquisitions that have expanded the Company into four additional markets.
Additionally, the Company recently completed the acquisition of the Torrey
Group of Companies ("Torrey"), the largest builder in the rapidly growing
Atlanta, Georgia market. See "The Torrey Acquisition." The Company believes
that the expansion of its operations through the selective acquisition of
existing homebuilding companies can afford it several benefits not found in
start-up operations.
Before entering new markets, the Company evaluates their potential on the
basis of local housing demand, demographic trends and other factors, such as
local growth initiatives, employment demand and growth, and the availability of
quality lots and undeveloped real estate at reasonable prices. Typically, the
Company will not invest significant 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.
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. Typically, the Company endeavors to
limit the risks associated with acquiring an existing homebuilding company by
conducting extensive operational, financial and legal due diligence on each
acquisition candidate and by only acquiring homebuilding companies that the
Company believes should have an immediate positive impact on the Company's
earnings.
Market Focus-Custom Features. The Company typically positions itself in its
markets between large volume homebuilders and local custom builders by offering
a broader selection of homes with 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. The Company also is
able to customize its designs to deliver personalized homes to its customers.
While most design modifications are significant to the homebuyer, such changes
improve margins and typically involve relatively minor adjustments that allow
the Company to maintain the efficiencies of a volume homebuilder. The Company
believes that its ability to cater to the design tastes of prospective
homebuyers 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 maximum flexibility to its local division managers. The
Company believes that division management is more informed to make decisions
regarding local operations. Each operating division is responsible for
preliminary site selection, negotiation of option contracts, and overseeing
land development activities. Additionally, each operating division plans its
homebuilding schedule, selects the building plans and architectural scheme for
its subdivisions, obtains all building approvals, and develops a marketing plan
for its homes. The Company's corporate office retains 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 the administrative and accounting functions and by limiting the
number of field administrative personnel and middle level management positions.
The Company attempts to control construction costs through the efficient design
of its homes and obtaining favorable pricing from certain subcontractors based
on the high volume of work performed
4
<PAGE>
for the Company. The Company's management information systems also assist in
controlling construction costs, overhead and capital by allowing management to
monitor construction expenditures on a home-by-home basis and the composition
and level of inventory on a subdivision basis.
Limited Real Estate Exposure. The Company attempts to minimize the risks
associated with land ownership while maximizing its return on invested capital
by acquiring developed building lots pursuant to lot option contracts,
generally on a non-recourse basis, after all zoning and other governmental
entitlements and approvals are obtained. The Company attempts to control a two
to four year supply of building lots based on current and expected absorption
rates. The Company also pursues selected land acquisition and development
opportunities to augment its inventory of option building lots and to maximize
profit opportunities. These acquisitions are generally limited to smaller
tracts of entitled land that will yield 50 to 150 lots when developed. By
limiting its land acquisition and development activities generally to smaller
parcels of land, the Company reduces the financial and market risks associated
with owning land during the development period.
THE TORREY ACQUISITION
On January 29, 1997, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") for the acquisition of the entities comprising
Torrey (the "Torrey Acquisition"). The Company completed the Torrey Acquisition
on February 27, 1997. Under the terms of the Stock Purchase Agreement, the
Company paid at closing consideration consisting of $28.5 million in cash and
844,444 shares of Common Stock, and agreed to a contingent payment estimated at
$1 million, for all of the outstanding capital stock of the entities comprising
Torrey. The Company also assumed and refinanced approximately $89 million of
indebtedness, other obligations and minority interests.
Torrey 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 issued. Torrey
targets both entry-level and first time move-up buyers. For the twelve months
ended September 30, 1996, Torrey delivered 1,442 homes, generating $183.8
million of revenue. In addition to building homes in the Atlanta market, Torrey
has homebuilding operations in Charlotte and Raleigh/Durham, North Carolina,
and Greenville, South Carolina. Despite Torrey's leading market share position
in the Atlanta market, the Company believes that it can improve Torrey's
operating results by providing additional and lower cost capital and operating
synergies.
The Company believes that the Torrey Acquisition is consistent with its
strategy of selectively pursuing acquisitions of homebuilders that have an
excellent reputation, a track record of profitability and a strong management
team.
5
<PAGE>
THE OFFERING
Common Stock offered by:
The Company............. 4,000,000 shares
The Selling 1,000,000 shares
Stockholders........... -----------
Total Common Stock
offered............
5,000,000 shares
Common Stock to be
outstanding after the
Offering................... 36,450,729 shares(1)
New York Stock Exchange DHI
Symbol.....................
Use of proceeds............. The net proceeds to the Company from the Offering
will be used to temporarily repay indebtedness
under revolving credit facilities and for
general corporate purposes. The Company will not
receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
- --------
(1) Does not reflect 2,337,756 additional shares of Common Stock subject to
outstanding options as of December 31, 1996 pursuant to the Company's 1991
Stock Incentive Plan (the "Stock Option Plan") or shares issued in the
Torrey Acquisition.
RISK FACTORS
Investment in the Common Stock involves certain risks discussed under "Risk
Factors" that should be considered by prospective investors.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------------------- -------------------------------
PRO FORMA PRO FORMA
AS AS
ADJUSTED(1) ADJUSTED(1)
1994 1995 1996 1996 1995 1996 1996
-------- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $393,317 $437,388 $547,336 $780,438 $121,068 $144,381 $214,891
Gross profit........... 67,218 77,646 98,282 145,003 21,533 26,345 38,699
Income before income
taxes................. 28,591 32,557 44,432 69,800 8,725 11,159 14,790
Net income............. $ 17,663 $ 20,539 $ 27,379 $ 42,854 $ 5,415 $ 6,807 $ 9,022
Net income per share... $ 0.63 $ 0.74 $ 0.87 $ 1.18 $ 0.19 $ 0.21 $ 0.24
Weighted average number
of common shares (in
thousands)............ 27,845 27,849 31,420 36,271 28,250 33,003 37,854
SELECTED OPERATING DATA:
Gross profit margin.... 17.1% 17.8% 18.0% 18.6% 17.8% 18.2% 18.0%
Number of homes
closed................ 2,360 2,474 3,284 5,037 731 855 1,333
New sales orders, net
(homes)(2)............ 2,327 2,553 3,488 5,150 699 751 1,102
New sales orders, net
($ value)(2).......... $394,587 $449,260 $585,489 $826,214 $115,363 $129,776 $179,954
Sales backlog at end of
period (homes)(3)..... 773 1,000 1,204 1,712 968 1,208 1,499
Sales backlog at end of
period ($ value)(3)... $140,524 $170,736 $208,888 $297,572 $165,030 $223,474 $267,392
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(4)
----------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Inventories........................................... $ 400,453 $ 497,037
Total assets.......................................... 445,854 567,300
Total debt............................................ 203,200 258,038
Stockholders' equity.................................. 184,780 235,823
</TABLE>
- --------
(1) Pro forma to reflect the acquisitions of the assets of Trimark Communities,
LLC ("Trimark") and SGS Communities, Inc. ("SGS"), which were both
completed during the first quarter of fiscal 1997, and the Torrey
Acquisition, which was completed in the second quarter of fiscal 1997, as
if such acquisitions had occurred on the first day of each reported period.
See "Unaudited Pro Forma Financial Data." As adjusted to reflect the sale
of 4,000,000 shares of Common Stock offered hereby by the Company and the
application of the estimated net proceeds therefrom to temporarily reduce
indebtedness under the Company's revolving credit facilities.
(2) Represents homes placed under contract during the period, net of
cancellations. See "Business--Marketing and Sales."
(3) Represents homes under contract but not yet closed at the end of the
period. See "Business--Marketing and Sales."
(4) Pro forma to reflect the Torrey Acquisition and the sale of 4,000,000
shares of Common Stock offered hereby by the Company and the application of
the estimated net proceeds therefrom to temporarily reduce indebtedness
under the Company's revolving credit facilities.
7
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
factors set forth below before purchasing any shares of Common Stock offered
hereby.
General Real Estate, Economic and Other Conditions. The homebuilding
industry is cyclical and is significantly affected by changes in general and
local economic conditions, such as employment levels, availability of
financing for homebuyers, interest rates, consumer confidence and housing
demand. In addition, homebuilders are subject to various risks, including
competitive overbuilding, availability and cost of building lots, materials
and labor, weather conditions, delays in construction schedules, cost
overruns, changes in governmental regulation and increases in real estate
taxes and other local government fees. Moreover, homebuilders are subject to
the risks associated with natural disasters such as hurricanes, earthquakes,
and fires. The Company and its competitors also are impacted by comprehensive
local, state and Federal statutes and rules regulating environmental matters,
zoning, building design and density requirements, as they affect the
availability and cost of building lots and the timing of homebuilding
activities.
Interest Rates; Mortgage Financing. Virtually all purchasers of the
Company's homes finance their acquisitions through third-party lenders
providing mortgage financing. In general, housing demand is adversely affected
by increases in interest rates, decreasing availability of mortgage financing,
increasing housing costs and unemployment. If mortgage interest rates increase
and the ability of prospective buyers to finance home purchases is adversely
affected, the Company's operating results may be negatively impacted. The
Company's homebuilding activities also are dependent upon the availability and
cost of mortgage financing for buyers of homes owned by potential customers so
those customers can sell their existing homes and purchase a home from the
Company. In addition, the Company believes that the availability of Federal
Housing Administration and Veterans Administration mortgage financing is an
important factor in marketing many of its homes. Any limitations or
restrictions on the availability of such financing could adversely affect the
Company's sales. See "Business--Customer Financing."
Competition. The homebuilding industry is highly competitive and fragmented.
Homebuilders compete not only for homebuyers, but also for desirable
properties, financing, raw materials and skilled labor. The Company competes
with other local, regional and national homebuilders, often within larger
subdivisions designed, planned and developed by such homebuilders. Some of the
Company's competitors have longer operating histories and greater financial,
marketing and sales resources than the Company, including, in some instances,
affiliated mortgage companies.
Future Capital Requirements. The Company's operations require significant
amounts of cash, and the Company will be required to seek additional capital
for the future growth and development of its business. There can be no
assurance as to the terms or availability of such additional capital. If the
Company is not successful in obtaining sufficient capital on favorable terms,
it could result in a reduction in sales and may adversely affect the Company's
future growth or results of operations. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Acquisitions. From April 1994, through the present, the Company has acquired
six homebuilding companies, including the Torrey Acquisition completed on
February 27, 1997. In the future, the Company intends to seek to acquire
additional homebuilding companies. Subsequent to the acquisitions, the
previous owners of the acquired companies normally continue to manage their
operations as subsidiaries of the Company. Although the Company believes that
it has successfully integrated the companies it has previously acquired into
its operations without substantial costs, delays or other problems, there is
no assurance that the Company will be able to successfully integrate the
operations of Torrey and any future acquisitions of homebuilding companies. In
addition, while the Company believes that its management has been effective in
overseeing the combined operations of the Company and its acquisitions, there
can be no assurance that the Company will be able to implement successfully
its operating and growth strategies in each of its markets. Finally, there can
be no
8
<PAGE>
assurance that the pace of the Company's acquisitions will not adversely
affect the Company's efforts to integrate acquisitions and manage the acquired
companies profitably.
Control Relationships. Donald R. Horton and other affiliates of the Company
will own, directly or indirectly, approximately 36.54% of the Company's
outstanding Common Stock after giving effect to the Offering (35.58% if the
Underwriters' over-allotment option is exercised in full). Accordingly, such
persons may effectively be able to elect the entire board of Directors of the
Company and control its management, operations and affairs. Donald R. Horton,
along with his children and certain family trusts of which he and his wife and
children are the beneficiaries, will own approximately 31.38% of the Company's
outstanding Common Stock after giving effect to the Offering (30.56% if the
Underwriters' over-allotment options is exercised in full). See "Selling
Stockholders."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
in the Offering are estimated to be approximately $43.6 million ($50.2 million
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use the proceeds from the Offering to temporarily repay
indebtedness under revolving credit facilities and for general corporate
purposes. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Financial Condition, Liquidity and Capital
Resources." Borrowings under the Company's various credit facilities bear
interest at effective rates ranging from LIBOR plus 1 1/4% to LIBOR plus 2%.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "DHI." The following table sets forth the high and low sale prices
for the Common Stock for the periods indicated, as reported on the Nasdaq
National Market (through December 13, 1995) and the New York Stock Exchange
(on and after December 14, 1995).
<TABLE>
<CAPTION>
FISCAL YEAR 1997
FISCAL YEAR FISCAL YEAR (THROUGH
1995 1996 MARCH 3, 1997)
----------------- ------------------ ----------------
HIGH LOW HIGH LOW HIGH LOW
--------- ------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Quarter ended December
31..................... $ 8 5/16 $5 3/8 $11 $8 15/16 $ 11 3/8 $8 5/8
Quarter ended March 31.. 6 5/16 5 5/16 11 15/16 8 15/16 13 10 1/8
Quarter ended June 30... 8 15/16 6 9/16 10 5/8 8 5/8
Quarter ended September
30..................... 10 1/2 8 1/2 10 3/8 7 1/2
</TABLE>
As of January 31, 1997, there were 181 holders of record of the Common
Stock. On March 3, 1997, the last sale price reported on the New York Stock
Exchange Composite Tape for the Common Stock was $11 7/8.
DIVIDEND POLICY
Declarations of cash dividends are within the discretion of the Board of
Directors and are dependent upon various factors, including the earnings, cash
flow, capital requirements and operating and financial condition of the
Company. Other than as required to maintain the financial ratios and net worth
requirements under the Company's revolving credit facilities, there are no
restrictions on payments of cash dividends by the Company. On January 20,
1997, the Company declared a cash dividend of $.02 per outstanding share of
Common Stock, its first cash dividend since its initial public offering. The
Company intends to pay an annual cash dividend, payable quarterly on
outstanding shares of Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1996, with pro forma adjustments to reflect the acquisition of Torrey as
if such acquisition had occurred on December 31, 1996, and as adjusted to
reflect the Torrey Acquisition and the sale by the Company of the Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds".
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED(2)
-------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes Payable.......................... $203,200 $301,634 $258,038
Stockholders' equity(3):
Common Stock, par value $.01 per share;
100,000,000 shares authorized;
32,415,729 actual shares; 33,260,173
pro forma shares, and 37,295,173 pro
forma as adjusted shares, issued and
outstanding........................... 324 333 373
Additional capital..................... 160,049 167,355 211,043
Retained earnings...................... 24,407 24,407 24,407
-------- -------- --------
Total stockholders' equity........... $184,780 $192,095 $235,823
======== ======== ========
Total capitalization................. $387,980 $493,729 $493,861
======== ======== ========
</TABLE>
- --------
(1) Pro forma to reflect the Torrey Acquisition as if such acquisition had
occurred on December 31, 1996. See "Unaudited Pro Forma Consolidated
Balance Sheets."
(2) As adjusted to reflect the Torrey Acquisition and the sale of 4,000,000
shares of Common Stock offered hereby by the Company and the application
of the estimated net proceeds therefrom to temporarily reduce indebtedness
under the Company's revolving credit facilities.
(3) Does not reflect 2,337,756 additional shares of Common Stock subject to
outstanding options as of December 31, 1996, pursuant to the Stock Option
Plan.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited Pro Forma Consolidated Statements of Operations of the Company
for the three months ended December 31, 1996, and for the fiscal year ended
September 30, 1996, were prepared to illustrate the estimated effects of: (i)
the acquisitions of the assets of Trimark and SGS, which were completed during
the first quarter of fiscal 1997; (ii) the Torrey Acquisition, which was
completed in the second quarter of fiscal 1997; and (iii) the sale of
4,000,000 shares of Common Stock offered hereby by the Company and the
application of the estimated net proceeds therefrom to temporarily reduce
indebtedness under the Company's revolving credit facilities, as if such
acquisitions and Common Stock sale had occurred on the first day of each
period.
The unaudited Pro Forma Consolidated Balance Sheets of the Company as of
December 31, 1996, were prepared to illustrate the estimated effects of the
Torrey Acquisition and the sale of the 4,000,000 shares of Common Stock
offered by the Company.
The pro forma statements do not purport to represent either the actual
financial position or results of operations of the Company had the pro forma
transactions occurred on the dates assumed, or the results expected in the
future. The pro forma adjustments are based upon available information and
upon certain assumptions that management believes are reasonable. The notes to
the unaudited Pro Forma Consolidated Statements of Operations and Balance
Sheets provide a summary of the adjustments made in determining the pro forma
amounts. The pro forma financial information should be read in conjunction
with the historical financial statements of the Company, including the notes
thereto, and the other financial information pertaining to the Company,
including information set forth in "Capitalization" and the related notes
thereto, included elsewhere or incorporated by reference into this Prospectus.
The pro forma financial information is based upon the purchase method of
accounting for the acquisitions of Trimark, SGS and Torrey.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
D.R. TRIMARK PRO FORMA PRO FORMA AS
HORTON AND SGS (1) TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3)
-------- ----------- ------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $144,381 $8,136 $62,374 $ -- $214,891 $ -- $214,891
Cost of sales........... 118,036 6,287 53,079 (1,162)(5) 176,240 (48) 176,192
-------- ------ ------- ------ -------- ----- --------
Gross profit............ 26,345 1,849 9,295 1,162 38,651 48 38,699
Selling, general and
administrative
expenses............... 15,117 634 7,531 851 (6) 24,133 -- 24,133
-------- ------ ------- ------ -------- ----- --------
Operating income........ 11,228 1,215 1,764 311 14,518 48 14,566
-------- ------ ------- ------ -------- ----- --------
Other:
Interest (expense)..... (784) -- (192) -- (976) 784 (192)
Other
income/(expense)...... 715 (207) 79 (171)(7) 416 -- 416
-------- ------ ------- ------ -------- ----- --------
(69) (207) (113) (171) (560) 784 224
-------- ------ ------- ------ -------- ----- --------
Income before income
taxes.................. 11,159 1,008 1,651 140 13,958 832 14,790
Provision for income
taxes (4).............. 4,352 392 644 55 5,443 325 5,768
-------- ------ ------- ------ -------- ----- --------
Net income.............. $ 6,807 $ 616 $ 1,007 $ 85 $ 8,515 $ 507 $9,022
======== ====== ======= ====== ======== ===== ========
Net income per share.... $ 0.21 $ 0.25 $ 0.24
======== ======== ========
Weighted average number
of common shares (in
thousands)............. 33,003 844(8) 33,847 4,007 37,854
======== ======= ======== ===== ========
</TABLE>
11
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
D.R. TRIMARK PRO FORMA PRO FORMA AS
HORTON AND SGS TORREY ADJUSTMENTS COMBINED(2) ADJUSTMENTS(3) ADJUSTED(3)
--------- -------- -------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 547,336 $ 49,274 $183,828 $ -- $780,438 $ -- $780,438
Cost of sales........... 449,054 36,854 155,593 (4,725)(5) 636,776 (1,341) 635,435
--------- -------- -------- ------- -------- ------- --------
Gross profit............ 98,282 12,420 28,235 4,725 143,662 1,341 145,003
Selling, general and
administrative
expenses............... 53,860 5,374 16,131 1,484(6) 76,849 -- 76,849
--------- -------- -------- ------- -------- ------- --------
Operating income........ 44,422 7,046 12,104 3,241 66,813 1,341 68,154
--------- -------- -------- ------- -------- ------- --------
Other:
Interest (expense)..... (1,474) -- -- -- (1,474) 1,474 0
Other income/
(expense)............. 1,484 (413) (594) 1,169(7) 1,646 -- 1,646
--------- -------- -------- ------- -------- ------- --------
10 (413) (594) 1,169 172 1,474 1,646
--------- -------- -------- ------- -------- ------- --------
Income before income
taxes.................. 44,432 6,633 11,510 4,410 66,985 2,815 69,800
Provision for income
taxes (4).............. 17,053 2,586 4,489 1,720 25,848 1,098 26,946
--------- -------- -------- ------- -------- ------- --------
Net income.............. $ 27,379 $ 4,047 $ 7,021 $ 2,690 $ 41,137 $ 1,717 $ 42,854
========= ======== ======== ======= ======== ======= ========
Net income per share.... $ 0.87 $ 1.28 $ 1.18
========= ======== ========
Weighted average number
of common shares (in
thousands)............. 31,420 844(8) 32,264 4,007 36,271
========= ======== ======== ======= ========
</TABLE>
- --------
The anticipated cost savings described below are based upon estimates and
assumptions made by the Company that, although considered reasonable by the
Company, are subject to business, economic and other uncertainties.
(1) Reflects the estimated financial results from October 1, 1996, until the
dates of acquisition (October 15, 1996, for Trimark, and December 2, 1996,
for SGS). The results for Trimark and SGS subsequent to such dates are
included in the Company's financial results.
(2) To reflect the estimated combined results of the Company and the
acquisitions of Trimark, SGS and Torrey.
(3) To reflect the sale of the Common Stock to be issued in conjunction with
the Offering and the incremental dilution associated with options to be
exercised by certain of the Selling Stockholders. A Common Stock price of
$11.50 per share was assumed. The adjustments reflect reduction of
previously capitalized and expensed interest.
(4) Prior to their acquisition by the Company, Trimark, SGS and Torrey
operated as S corporations under applicable provisions of the Internal
Revenue Code of 1986, as amended, and taxable income was taxed directly to
their stockholders. For pro forma purposes, income taxes are provided at
the Company's estimated incremental tax rate.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
DECEMBER SEPTEMBER
31, 1996 30, 1996
-------- ----------
<S> <C> <C>
(5)Adjustments to cost of sales are:
Net financing costs of incremental debt incurred to
finance acquisitions................................... $ 331 $ 1,661
Reclassification of capitalized inventory costs to
conform to Company accounting policies................. (1,317) (6,153)
Reduction in warranty insurance costs paid to third
parties................................................ (76) (233)
Reduction in employee benefit costs..................... (100) --
------- -------
Total adjustments to cost of sales.................... $(1,162) $(4,725)
======= =======
(6)Adjustments to selling, general and administrative
expenses are:
Reductions in salaries and related employee benefits.... $ (583) $(5,116)
Reductions in overhead items such as: insurance, audit,
bank charges, referral fees, autos, telephone, etc.,
consistent with Company policies, net of capitalized
items expensed under Company accounting policies....... (105) (483)
Amortization of excess of cost over net assets acquired
over 20 years.......................................... 222 930
Reclassification of capitalized inventory costs to
conform to Company accounting policies................. 1,317 6,153
------- -------
Total adjustments to selling, general and
administrative expenses.............................. $ 851 $ 1,484
======= =======
</TABLE>
(7) To eliminate earnings of minority interests purchased in the Torrey
Acquisition.
(8) Common Stock issued as consideration in the Torrey Acquisition.
12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
D.R. HORTON, PRO FORMA PRO FORMA PRO FORMA
INC. TORREY ADJUSTMENTS(1) COMBINED(2) ADJUSTMENTS(3) AS ADJUSTED(4)
------------ -------- -------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 15,125 $ 4,903 $(4,903) $ 15,125 $ -- $ 15,125
Inventories............. 400,453 94,184 2,400 497,037 -- 497,037
Property and equipment
(net).................. 5,754 4,949 921 11,624 -- 11,624
Earnest money deposits
and other assets....... 18,940 2,195 -- 21,135 -- 21,135
Excess of cost over net
assets acquired (net).. 5,582 -- 16,797 22,379 -- 22,379
-------- -------- ------- -------- -------- --------
$445,854 $106,231 $15,215 $567,300 $ 0 $567,300
======== ======== ======= ======== ======== ========
LIABILITIES
Accounts payable........ $ 33,434 $ 11,450 $ -- $ 44,884 $ -- $ 44,884
Accrued expenses and
customer deposits...... 24,440 4,247 -- 28,687 (132) 28,555
Notes payable........... 203,200 67,847 30,587 301,634 (43,596) 258,038
-------- -------- ------- -------- -------- --------
261,074 83,544 30,587 375,205 (43,728) 331,477
-------- -------- ------- -------- -------- --------
Minority interests...... -- 5,785 (5,785) 0 -- 0
-------- -------- ------- -------- -------- --------
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,
32,415,729 actual
shares, 33,260,173 pro
forma shares, and
37,295,173 pro forma as
adjusted shares, issued
and outstanding........ 324 -- 9 333 40 373
Additional capital...... 160,049 -- 7,306 167,355 43,688 211,043
Retained earnings....... 24,407 16,902 (16,902) 24,407 -- 24,407
-------- -------- ------- -------- -------- --------
184,780 16,902 (9,587) 192,095 43,728 235,823
-------- -------- ------- -------- -------- --------
$445,854 $106,231 $15,215 $567,300 $ 0 $567,300
======== ======== ======= ======== ======== ========
</TABLE>
- --------
(1) To reflect the Torrey Acquisition for $28.5 million in cash, 844,444
shares of Common Stock, a contingent payment of $1 million, and the
assumption and refinancing of approximately $89 million in liabilities,
other obligations and minority interests. Adjustments to balance sheets
are as follows:
<TABLE>
<S> <C>
Net increase in inventory to fair market value...................... $2,400
Adjust building to appraised value.................................. 921
Increase in notes payable to finance goodwill and net assets........ 30,587
</TABLE>
(2) To reflect the combined financial position of the Company and Torrey, as
if the Torrey Acquisition had occurred on December 31, 1996. A Common
Stock price of $11.25 per share, the maximum valuation under the terms of
the Stock Purchase Agreement, was used with a discount to reflect its
restricted nature.
(3) To reflect the effects of the sale of 4,000,000 shares of Common Stock
offered hereby by the Company, the application of the estimated net
proceeds therefrom to temporarily reduce indebtedness under the Company's
revolving credit facilities, and the incremental dilution associated with
options to be exercised by certain of the Selling Stockholders, as if such
Common Stock sale and incremental dilution had occurred on December 31,
1996. A Common Stock price of $11.50 was assumed.
(4) To reflect the combined financial position of the Company and Torrey, the
effects of the sale of 4,000,000 shares of Common Stock offered hereby by
the Company, the application of the estimated net proceeds therefrom to
temporarily reduce indebtedness under the Company's revolving credit
facilities, and the incremental dilution associated with options to be
exercised by certain of the Selling Stockholders, as if such combination,
Common Stock sale and incremental dilution had occurred on December 31,
1996. For the purpose of determining the effects of the Common Stock sale
and incremental dilution, a Common Stock price of $11.50 was assumed.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
The following selected financial data (except for the selected operating
data) are derived from the Consolidated Financial Statements of the Company.
The Company's Consolidated Financial Statements as of and for each of the
three years ended September 30, 1996, have been audited by Ernst & Young LLP,
independent auditors. The selected financial information of the Company as of
December 31, 1995 and 1996, and for each of the three month periods then
ended, have been derived from unaudited financial statements, which, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of such information
for the unaudited interim periods. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Company's Consolidated Financial
Statements, including the related notes thereto, incorporated by reference in
this Prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE
FISCAL YEARS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ------------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $393,317 $437,388 $547,336 $121,068 $144,381
Gross profit............... 67,218 77,646 98,282 21,533 26,345
Selling, general and
administrative expenses... 39,073 44,549 53,860 12,513 15,117
Operating income........... 28,145 33,097 44,422 9,020 11,228
Interest and other income
(expense)................. 446 (540) 10 (295) (69)
-------- -------- -------- -------- --------
Income before income
taxes..................... 28,591 32,557 44,432 8,725 11,159
Provision for income
taxes..................... 10,928 12,018 17,053 3,310 4,352
-------- -------- -------- -------- --------
Net income................. $ 17,663 $ 20,539 $ 27,379 $ 5,415 $ 6,807
======== ======== ======== ======== ========
Net income per share....... $ 0.63 $ 0.74 $ 0.87 $ 0.19 $ 0.21
======== ======== ======== ======== ========
Weighted average number of
common shares (in
thousands)................ 27,845 27,849 31,420 28,250 33,003
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
Gross profit margin........ 17.1% 17.8% 18.0% 17.8% 18.2%
Number of homes closed..... 2,360 2,474 3,284 731 855
New sales orders, net
(homes)(1)................ 2,327 2,553 3,488 699 751
New sales orders, net ($
value)(1)................. $394,587 $449,260 $585,489 $115,363 $129,776
Sales backlog at end of
period (homes)(2)......... 773 1,000 1,204 968 1,208
Sales backlog at end of
period ($ value)(2)....... $140,524 $170,736 $208,888 $165,030 $223,474
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
-------------------------- -----------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Inventories...................... $204,094 $282,908 $345,283 $294,042 $400,453
Total assets..................... 230,898 318,787 402,913 337,630 445,854
Total debt....................... 108,578 169,879 169,873 183,207 203,200
Stockholders' equity............. 84,553 106,073 177,638 111,514 184,780
</TABLE>
- --------
(1) Represents homes placed under contract during the period, net of
cancellations. See "Business--Marketing and Sales."
(2) Represents homes under contract but not yet closed at the end of the
period. See "Business--Marketing and Sales."
14
<PAGE>
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 for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGES OF REVENUE
-----------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- --------------------
1994 1995 1996 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Costs and Expenses:
Cost of sales..................... 82.9% 82.2% 82.0% 82.2% 81.8%
Selling, general and
administrative expenses.......... 9.9 10.2 9.8 10.3 10.5
Interest expense.................. -- 0.3 0.3 0.6 0.5
----- ----- ----- --------- ---------
Total costs and expenses........... 92.8 92.7 92.1 93.1 92.8
Other (income)..................... (0.1) (0.1) (0.2) (0.3) (0.5)
----- ----- ----- --------- ---------
Income before income taxes......... 7.3 7.4 8.1 7.2 7.7
Income taxes....................... 2.8 2.7 3.1 2.7 3.0
----- ----- ----- --------- ---------
Net income......................... 4.5% 4.7% 5.0% 4.5% 4.7%
===== ===== ===== ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
---------------------------------------- ------------------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ----------------- -----------------
HOMES HOMES HOMES HOMES HOMES
CLOSED % CLOSED % CLOSED % CLOSED % CLOSED %
------ ----- ------ ----- ------ ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOMES CLOSED
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 442 18.7% 436 17.6% 547 16.7% 137 18.7% 116 13.6%
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 286 12.1 348 14.1 457 13.9 72 9.9 105 12.3
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 398 16.9 303 12.2 519 15.8 140 19.2 130 15.2
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 1,108 47.0 1,131 45.7 1,239 37.7 308 42.1 333 38.9
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 126 5.3 256 10.4 522 15.9 74 10.1 171 20.0
----- ----- ----- ----- ----- ----- ------ -------- ------ --------
2,360 100.0% 2,474 100.0% 3,284 100.0% 731 100.0% 855 100.0%
===== ===== ===== ===== ===== ===== ====== ======== ====== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------- -----------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- ----------------- -----------------
HOMES HOMES HOMES HOMES HOMES
SOLD $ SOLD $ SOLD $ SOLD $ SOLD $
----- -------- ----- -------- ----- -------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NEW SALES CONTRACTS
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 402 $113,434 403 $103,952 495 $106,908 113 $ 23,958 108 $ 25,010
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 272 51,890 339 68,675 527 100,990 111 21,953 89 17,874
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 346 48,073 371 64,654 493 80,104 107 17,517 100 16,158
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 1,138 149,023 1,148 155,202 1,311 190,006 267 36,978 265 40,451
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 169 32,167 292 56,777 662 107,481 101 14,957 189 30,283
----- -------- ----- -------- ----- -------- ----- ---------- ----- ----------
2,327 $394,587 2,553 $449,260 3,488 $585,489 699 $ 115,363 751 $ 129,776
===== ======== ===== ======== ===== ======== ===== ========== ===== ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------- ---------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- ---------------- ----------------
HOMES $ HOMES $ HOMES $ HOMES $ HOMES $
----- -------- ----- -------- ----- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD SALES
BACKLOG
($ IN THOUSANDS)
Mid-Atlantic (Charlotte,
Greensboro, New Jersey,
Raleigh/Durham,
Suburban Washington D.
C.).................... 137 $ 42,886 198 $ 43,949 146 $ 34,405 174 $ 39,642 214 $ 60,842
Midwest (Chicago,
Cincinnati, Kansas
City, Minneapolis/St.
Paul, St. Louis)....... 123 23,585 114 22,332 184 34,861 153 29,326 168 30,981
Southeast (Atlanta,
Birmingham, Nashville,
Orlando, Pensacola,
South Florida)......... 68 10,216 190 33,557 164 26,479 157 26,886 134 20,474
Southwest (Albuquerque,
Austin, Dallas/Fort
Worth, Houston,
Phoenix)............... 400 56,004 417 58,132 489 74,336 376 53,156 421 65,887
Western (Denver, Las
Vegas, Los Angeles,
Salt Lake City, San
Diego)................. 45 7,833 81 12,766 221 38,807 108 16,020 271 45,290
--- -------- ----- -------- ----- -------- ---- --------- ------ ---------
773 $140,524 1,000 $170,736 1,204 $208,888 968 $ 165,030 1,208 $ 223,474
=== ======== ===== ======== ===== ======== ==== ========= ====== =========
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
Revenues for the three months ended December 31, 1996, increased by 19.3%,
to $144.4 million, from $121.1 million for the comparable period of 1995. The
number of homes closed by the Company increased by 17.0%, to 855 homes in the
three months ended December 31, 1996, from 731 homes in the same period of
1995. Percentage increases in home closings ranging from 8.1% to 131.1% were
achieved in the Company's Midwest, Southwest and Western market regions, which
were somewhat offset by modest percentage decreases in home closings in the
Mid-Atlantic and Southeast market regions. Home sales revenues increased
partly due to an increase in the average home delivery price (to $168,700 in
1996, from $165,600 for the comparable period of 1995). The increase in the
average home delivery price was due primarily to changes in the geographic mix
of homes closed within the Company.
16
<PAGE>
New net sales contracts increased 7.4%, to 751 homes for the three months
ended December 31, 1996, from 699 homes for the three months ended December
31, 1995. The dollar amount of new net sales contracts increased by 12.5%,
with percentage increases ranging from 4.4% to 102.5% achieved in the
Company's Mid-Atlantic, Southwest and Western market regions. Those increases
were offset by moderate percentage declines in the Midwest and Southeast
market regions. The Company was operating in 225 subdivisions at December 31,
1996, compared to 171 subdivisions at December 31, 1995. At December 31, 1996,
the Company's backlog of sales contracts was 1,208 homes, a 24.8% increase
over comparable figures at December 31, 1995. The increase in sales backlog
was partially due to the sales backlog acquired in the purchase of Trimark
Communities, L.L.C., of Denver, Colorado (Trimark), and SGS Communities, Inc.,
of New Jersey (SGS) during the quarter. The average sales value of homes in
backlog increased to $185,000 at December 31, 1996, from $170,500 at December
31, 1995. The increase was due partially to the high average dollar value of
the sales backlog acquired with the December, 1996 acquisition of SGS, and to
changes in the geographic mix of homes sold during the quarter.
The increase in revenues caused cost of sales to increase by 18.6%, to
$118.0 million in the three months ended December 31, 1996, from $99.5 million
in the comparable period of 1995. As a percentage of revenues, cost of sales
decreased to 81.8% in 1996 from 82.2% in 1995. The decrease in cost of sales
as a percentage of revenues is primarily due to efforts to increase sales
prices and control costs.
Selling, general and administrative (SG&A) expense increased by 20.8%, to
$15.1 million in the three months ended December 31, 1996, from $12.5 million
in the comparable period of 1995. As a percentage of revenues, SG&A expense
increased to 10.5% in 1996, from 10.3% in 1995. This increase was partially
due to costs associated with the first quarter acquisitions.
Interest expense amounted to $0.8 million in the three months ended December
31, 1996, compared to $0.7 in the comparable period of 1995. The Company
follows a policy of capitalizing interest only on inventory under construction
or development. During the three months ended December 31, 1996 and 1995, the
Company expensed a portion of incurred interest and other financing costs due
to increased levels of developed lots and finished homes. 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 and the pre-tax
earnings of the DRH Title Companies and DRH Mortgage Company, Ltd., increased
to $715,000 in the three months ended December 31, 1996, from $374,000 for the
comparable period of 1995. The increase was primarily due to expanded title
agency activities and the initiation of mortgage company services which were
not provided in 1995. Increased interest income from overnight investing of
cash balances also contributed to the increase in other income.
The provision for income taxes was $4.4 million in the three months ended
December 31, 1996, up $1.1 million from the $3.3 million for the comparable
quarter of 1995. The increase in income taxes was attributable to the increase
in income before income taxes and an increase in the estimated effective
income tax rate anticipated for fiscal 1997.
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 Western 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 selling 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.
17
<PAGE>
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 operations 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.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues increased by 11.2%, to $437.4 million in 1995 from $393.3 million
in 1994. The number of homes closed by the Company increased by 4.8% to 2,474
homes in 1995 from 2,360 homes in 1994, led by a 103.2% increase in the
Company's Western region and a 21.7% increase in the Company's Midwest region.
The large increase in the Western region resulted from earlier investments
incurred to enter markets within this region and illustrates a normal
progression for newer markets. The 1995 increase in revenues also was due in
part to a 4.3% increase in the average selling price of homes closed, to
$173,700 in 1995 from $166,600 in 1994. The increase was due primarily to
changes in the geographic mix of homes closed within the Company, as homes
closed in the newer markets were at higher prices. Miscellaneous land/lot
sales in 1995 and the impact of acquisitions also contributed to the increase
in revenues.
18
<PAGE>
New net sales contracts increased by 9.7%, to 2,553 homes in 1995 from 2,327
in 1994. Percentage increases in new net sales contracts were achieved in all
of the Company's market regions, led by 72.8% and 24.6% increases in the
Western and Midwest regions, respectively. The 1995 average selling price was
$176,000, compared to $169,600 in 1994.
The Company was operating in 162 subdivisions at September 30, 1995,
compared to 137 at September 30, 1994. At September 30, 1995, the Company's
backlog of sales contracts was 1,000 homes, a 29.4% increase over the
comparable figure at September 30, 1994. The average sales price of homes in
backlog decreased to $170,700 at September 30, 1995, from $181,800 at
September 30, 1994.
Cost of sales increased by 10.3%, to $359.7 million in 1995 from $326.1
million in 1994. As a percentage of revenues, cost of sales decreased by 0.7%,
to 82.2% in 1995 from 82.9% in 1994. This improvement resulted from proactive
efforts to maintain sales prices and control costs, higher margins on homes
closed on internally developed lots, and miscellaneous land/lot sales. The
Company does not capitalize pre-opening costs for new subdivisions.
Selling, general and administrative (SG&A) expense increased by 14.0%, to
$44.5 million in 1995 from $39.1 million in 1993. 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 increased by 0.3%, to 10.2% in 1995 from 9.9% in 1994, due partly to
costs associated with expansion into new markets which had not yet generated
significant revenues.
Interest expense totalled $1.2 million in 1995, compared to none in 1994.
The Company follows a policy of capitalizing interest only on inventory under
construction or development. During 1995, the Company expensed a portion of
incurred interest and other financing costs due to increased levels of
developed lots and finished homes. During the 1994 period, all such costs were
capitalized in inventory. Capitalized interest and other financing costs are
included in cost of sales at the time of home closings.
Other income, which consisted mainly of interest income and pretax earnings
of DRH Title Company of Texas, Ltd. in 1995, increased to $621,000 in 1995,
from $446,000 in 1994.
The provision for income taxes increased 10.0%, to $12.0 million in 1995
from $10.9 million in 1994, due primarily to the corresponding increase in
income before income taxes. The effective tax rate decreased to 36.9% in 1995
from 38.2% in 1994. As a percentage of revenues, the income tax provision
decreased by 0.1% to 2.7% in 1995. The decreases in the effective tax rate and
in the tax provision as a percentage of revenues were due primarily to the
effects of certain tax planning strategies relating to state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had available cash and cash equivalents of
$15.1 million. Inventories (including finished homes and construction in
progress, developed residential lots and other land) at December 31, 1996,
increased by $55.2 million from September 30, 1996, due to the acquisitions of
selected assets (including inventories) of Trimark and SGS. Inventories also
increased due to a general increase in business activity and the expansion of
operations in the newer market areas. Because the inventory increase and the
acquisitions were financed largely by borrowing, the Company's ratio of notes
payable to total capital increased to 52.4% at December 31, 1996, from 48.9%
at September 30, 1996. The equity to total assets ratio decreased slightly
during the three months, to 41.4% at December 31, 1996, 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, in 1992 and 1996, from the
sale of Common Stock.
At December 31, 1996, the Company had outstanding debt of $203.2 million and
additional aggregate unsecured financing available under debt agreements of
$101.2 million. The Company currently has
19
<PAGE>
debt capacity of $410 million. However, the covenants contained in its credit
facilities currently limit such capacity to $356 million.
In October, 1996, the Company completed the acquisition of the principal
assets (approximately $7.6 million, primarily inventories) of Trimark for
approximately $6.6 million in cash and the assumption of approximately $1.1
million in trade accounts and notes payable associated with the acquired
assets. In December, 1996, the Company purchased the principal assets
(approximately $20.4 million, primarily inventories) of SGS for $11.8 million
in cash and the assumption of $9.7 million in trade accounts and notes payable
associated with the acquired assets.
On February 27, 1997, the Company completed the Torrey Acquisition. Under
the terms of the Stock Purchase Agreement, the Company paid at closing
consideration consisting of $28.5 million in cash and 844,444 shares of Common
Stock, and agreed to a contingent payment estimated at $1 million, for all of
the outstanding capital stock of the entities comprising Torrey. The Company
also assumed and refinanced approximately $89 million of indebtedness, other
obligations and minority interests.
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 new and
existing 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 as well as 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 December 31, 1996, the Company had no material commitments for
capital expenditures.
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.
20
<PAGE>
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 Western 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, 1996, the Company closed homes with an average
sales price approximating $166,600. The average sales price of homes closed in
the three months ended December 31, 1996, was $168,700.
The Company is one of the most geographically diversified homebuilders in
the United States, with operating divisions in 21 states and 27 markets. These
markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago,
Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Greenville, Houston, Kansas
City, Las Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, North Central
New Jersey, Orlando, Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San
Diego, South Florida, St. Louis 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.................... Nashville, North Central New Jersey, Greenville
</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 geographic 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 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.
21
<PAGE>
Acquisitions. As an integral component of the Company's operational strategy
of continued expansion and geographic diversification, the Company continually
evaluates opportunities for strategic acquisitions. The Company believes that
the 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 candidate 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 1994:
<TABLE>
<CAPTION>
DATE
ACQUIRED ENTITIES ACQUIRED MARKETS
-------- ----------------- -------
<C> <S> <C>
April 1994 Joe Miller Homes, Inc. Minneapolis/St. Paul
and
Argus Development, Inc.
July 1995 Arappco, Inc. Greensboro
September 1995 Regency Development, Inc. Birmingham
October 1996 Trimark Communities, LLC Denver
December 1996 SGS Communities, Inc. North Central New Jersey
February 1997 The Torrey Group of Atlanta, Charlotte, Greenville and
Companies 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.
On February 27, 1997, the Company completed the Torrey Acquisition. Under
the terms of the Stock Purchase Agreement, the Company paid at closing
consideration consisting of $28.5 million in cash and 844,444 shares of Common
Stock, and agreed to a contingent payment estimated at $1 million, for all of
the outstanding capital stock of the entities comprising Torrey. The Company
also assumed and refinanced approximately $89 million of indebtedness, other
obligations and minority interests.
Torrey 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
issued. Torrey targets both entry-level and first time move-up buyers. For the
twelve months ended September 30, 1996, Torrey delivered 1,442 homes,
generating $183.8 million of revenue. In addition to building homes in the
Atlanta market, Torrey has homebuilding operations in Charlotte and
Raleigh/Durham, North Carolina, and Greenville, South Carolina. Despite
Torrey's leading market share position in the Atlanta market, the Company
believes that it can improve Torrey's operating results by providing
additional and lower cost capital and operating synergies.
The Company believes that the Torrey Acquisition is consistent with its
strategy of selectively pursuing acquisitions of homebuilders that have an
excellent reputation, a track record of profitability, and a strong management
team.
Market Focus--Custom Features. The Company positions itself between large
volume homebuilders and local custom homebuilders by 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. 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
22
<PAGE>
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 generally 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 are
generally 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 December 31, 1996, the Company held lot option and similar contracts
for 10,928 lots with an estimated aggregate purchase price approximating $350
million. These options are secured by cash deposits approximating $4.4 million
and promissory notes approximating $1.4 million.
23
<PAGE>
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, North Central 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
Western................. 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>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------------- -------------------
1994 1995 1996 1995 1996
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mid-Atlantic..................... $121,829 $113,251 $116,452 $ 28,266 $ 24,167
Midwest.......................... 54,072 69,929 88,461 14,957 21,754
Southeast........................ 53,384 49,291 87,181 24,187 22,163
Southwest........................ 139,420 153,074 173,802 41,955 48,901
Western.......................... 24,612 51,843 81,440 11,703 27,396
-------- -------- -------- --------- ---------
Total.......................... $393,317 $437,388 $547,336 $ 121,068 $ 144,381
======== ======== ======== ========= =========
</TABLE>
LAND POLICIES
While the Company expects to continue to rely predominantly on lot option
and similar contracts to secure developed lots, it will pursue selected 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 150 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 December 31,
1996, only about 34% of the Company's total lot position of 16,584 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.
24
<PAGE>
The following table sets forth a summary of the Company's land/lot positions
at December 31, 1996:
<TABLE>
<S> <C>
Finished lots owned by the Company.................................... 1,315
Lots under development owned by the Company........................... 4,341
------
Total lots owned.................................................... 5,656
Lots available under lot option and similar contracts................. 10,928
------
Total land/lot position............................................. 16,584
======
</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 the 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 December
31, 1996, the Company owned 249 model homes. These model 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 requirements of relocated personnel and independent brokers, who
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
25
<PAGE>
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 to approximately five homes
per subdivision. At December 31, 1996, the Company was operating in 225
subdivisions and averaged five 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 of 5% to 10% 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 the home 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 for presold
homes.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customers' post-closing needs. The
Company believes that prompt and courteous response to homebuyers' 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 in turn 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 Dallas/Fort Worth, Austin, Houston and
Phoenix.
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
Florida markets. The Company assumes no underwriting risk associated with
these title policies.
26
<PAGE>
EMPLOYEES
At December 31, 1996, the Company employed 765 persons, of whom 232 were
sales and marketing personnel, 266 were executive, administrative and clerical
personnel, 256 were involved in construction, and 11 worked in title
operations. Fewer than 10 of the Company's employees are covered by collective
bargaining agreements. Certain of the subcontractors which the Company engages
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.
SELLING STOCKHOLDERS
The following table and accompanying footnotes set forth certain information
regarding beneficial ownership of the Company's Common Stock by the Selling
Stockholders as of March 3, 1997 and as adjusted to reflect the sale of
4,000,000 shares of Common Stock by the Company and 1,000,000 shares of Common
Stock by the Selling Stockholders in the Offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- ----------------------
NUMBER OF
SHARES TO BE
NAME OF NUMBER PERCENT SOLD IN THE NUMBER PERCENT
BENEFICIAL HOLDER OF SHARES OF CLASS (1) OFFERING (2) OF SHARES OF CLASS (2)
----------------- --------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Donald R. Horton (3).... 6,763,060 20.29% 800,000 5,963,060 15.95%
Richard L. Horton (4)... 762,806 2.29% 50,000 712,806 1.91%
Terrill J. Horton (5)... 6,852,744 20.55% 40,000 6,812,744 18.23%
David J. Keller (6)..... 128,694 0.38% 25,000 103,694 0.28%
Scott J. Stone (7)...... 227,757 0.68% 75,000 152,757 0.41%
Donald J. Tomnitz (8)... 89,108 0.27% 10,000 79,108 0.21%
</TABLE>
- --------
(1) Does not give effect to the exercise of any currently outstanding options
under the Stock Option Plan, other than with respect to Messrs. Keller and
Tomnitz.
(2) Does not give effect to any exercise of the Underwriters option to
purchase up to 150,000 additional shares from the Selling Stockholders to
cover over-allotments. Of such shares, Messrs. Donald Horton, Richard
Horton, Terrill Horton, Keller, Stone and Tomnitz have granted an option
to the Underwriters covering 120,000, 7,500, 6,000, 3,750, 11,250 and
1,500 shares, respectively.
(3) These shares of Common Stock include an aggregate of 478,579 shares owned
by Mr. Horton's children. Mr. Horton is the Chairman of the Board and
President of the Company.
(4) Mr. Horton is the Vice President of the Company's Dallas/Ft. Worth East
Division and a Director of the Company.
(5) These shares of Common Stock include an aggregate of 5,763,898 shares,
consisting of 413,254 shares of Common Stock owned of record by the Donald
Ray Horton Trust, 376,893 shares of Common Stock owned of record by the
Martha Elizabeth Horton Trust, 2,069,702 shares of Common Stock owned of
record by the Donald Ray Horton Trust Number Two, 953,811 shares of Common
Stock owned of record by Martha Elizabeth Horton Trust Number Two and
975,119 shares of Common Stock owned of record by each of the Donald Ryan
Horton Trust and the Douglas Reagan Horton Trust. Mr. Horton serves as the
sole trustee for each of the foregoing trusts. These shares of Common
Stock also include 9,159 shares owned by Mr. Horton's son. Mr. Horton is
the Vice President of the Company's Dallas/Ft. Worth North Division and a
Director of the Company.
(6) These shares of Common Stock include 7,732 shares held by Mr. Keller for
the benefit of his children and 120,962 shares issuable upon the exercise
of outstanding stock options. Mr. Keller is an Executive Vice President,
Treasurer, Chief Financial Officer and a Director of the Company.
(7) Mr. Stone is the Vice President of the Company's Atlanta Division and a
Director of the Company.
(8) These shares of Common Stock include 81,774 shares issuable upon the
exercise of outstanding stock options. Mr. Tomnitz is the President--
Homebuilding Division and a Director of the Company.
27
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed
to sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc......................................................
Donaldson, Lufkin & Jenrette Securities Corporation...................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................
Salomon Brothers Inc..................................................
---------
Total............................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus
and part of the shares to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial offering
of the shares to the public, the public offering price and such concessions
may be changed by the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for thirty days from the date of this Prospectus, to
purchase up to an aggregate of 750,000 additional shares of Common Stock at
the price to the public set forth on the cover page of this Prospectus less
underwriting discounts and commissions, of which 600,000 shares would be sold
by the Company and 150,000 shares would be sold by the Selling Stockholders.
See "Selling Stockholders." The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any, in connection with the
offering of the shares offered hereby. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company, certain of its executive officers and directors, and the
Selling Stockholders have agreed that, for a period of 90 days from the date
of this Prospectus, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock of the Company (other than up to an aggregate of
150,000 shares by executive officers, directors and Selling Stockholders
subsequent to the completion of the distribution of the shares offered hereby)
or any securities convertible into, or exercisable or exchangeable for, Common
Stock of the Company.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
28
<PAGE>
LEGAL OPINIONS
Gibson, Dunn & Crutcher LLP, Dallas, Texas has rendered an opinion (filed as
an exhibit to the Registration Statement (as defined)) with respect to the
validity of the shares of Common Stock being offered hereby. Certain legal
matters are being passed upon for the Underwriters by Cahill Gordon & Reindel
(a partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of D.R. Horton, Inc. appearing in D.R.
Horton, Inc.'s Annual Report (Form 10-K) for the year ended September 30,
1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy and information
statements filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, Northwest Atrium
Center, 500 West Madison Street, Room 3190, Chicago, Illinois 60661. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material is also available for inspection at the offices of The
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The
Commission also maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants such as the Company which file electronically with the Commission.
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. For further information with respect to the Company and such Common
Stock, reference is made to the Registration Statement, including the
documents and exhibits filed or incorporated as a part thereof. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement or to a document incorporated by reference herein, reference is
hereby made to the exhibitor for a more complete description of the matter
involved and each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996, the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1996, the description of the Company's Common Stock
contained in the Company's Registration Statement on Form 8-A filed on
December 7, 1995, and pages two through seven ("Election of Directors" through
"Executive Compensation-Compensation Committee Interlocks and Insider
Participation") and page ten ("Executive Compensation-Transactions with
Management") contained in the Company's Proxy Statement dated December 20,
1996,
29
<PAGE>
relating to the 1997 Annual Meeting of Stockholders are incorporated in this
Prospectus by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the Offering shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents.
Any statement in a document incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any subsequently filed document which
is incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
herein by reference (not including exhibits to such documents unless such
exhibits are specifically incorporated by reference in the information
contained in this Prospectus). All such requests should be addressed to: D.R.
Horton, Inc., 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006.
30
<PAGE>
Map depicting the states of the United States of America in which the Company
conducts its operations and a listing of each of the Company's operating
divisions, with telephone numbers, arranged by geographic region.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 9
Price Range of Common Stock.............................................. 9
Dividend Policy.......................................................... 9
Capitalization........................................................... 10
Unaudited Pro Forma Financial Data....................................... 11
Selected Financial Information........................................... 14
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 15
Business................................................................. 21
Selling Stockholders..................................................... 27
Underwriting............................................................. 28
Legal Opinions........................................................... 29
Experts.................................................................. 29
Available Information.................................................... 29
Incorporation of Certain Information by Reference........................ 29
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
D.R. HORTON, INC.
CUSTOM HOMES
COMMON STOCK
--------
PROSPECTUS
, 1997
--------
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 18,948.86
NASD filing fee................................................. 6,753.00
Blue Sky fees and expenses...................................... 25,000.00
Printing and engraving fees and expenses........................ 50,000.00
Accountants' fees and expenses.................................. 45,000.00
Legal fees and expenses......................................... 75,000.00
Miscellaneous................................................... 109,298.14
-----------
Total....................................................... $330,000.00
===========
</TABLE>
- --------
* All fees and expenses will be paid by the Company. All fees and expenses
other than the Securities and Exchange Commission and NASD filing fees are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation, as amended,
provides that the Company shall, to the full extent permitted by the General
Corporation Law of the State of Delaware (the "DGCL") or other applicable laws
presently or hereafter in effect, indemnify each person who is or was or had
agreed to become a director or officer of the Company, or each such person who
is or was serving or who had agreed to serve at the written request of the
Board of Directors or an officer of the Company as an employee or agent of the
Company or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, in any such case owned
or controlled by the Company, including the heirs, executors, administrators
or estate of such person, and eliminates the personal liability of its
directors to the full extent permitted by the DGCL or other applicable laws
presently or hereafter in effect. The Company has entered into an
indemnification agreement with each of its directors and executive officers.
Section 145 of the DGCL permits a corporation to indemnify its directors and
officers against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if
such directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. In a derivative action, i.e., one by or in
the right of the corporation, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable for negligence or misconduct in the performance of
his respective duties to the corporation, although the court in which the
action or suit was brought may determine upon application that the defendant
officers or directors are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
Section 102(b)(7) of the DGCL provides that a corporation may eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision shall
eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective.
II-1
<PAGE>
The Underwriting Agreement, which is Exhibit 1.1 hereto, provides that the
Underwriters named therein will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against
certain liabilities, including liabilities under the Securities Act.
The Company also has obtained Directors and Officers Liability Insurance
that provides insurance coverage for certain liabilities which may be incurred
by the Company's directors and officers in their capacity as such.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<C> <S>
1.1 --Form of Underwriting Agreement
5.1 --Opinion of Gibson, Dunn & Crutcher LLP, Dallas, Texas, as to the
validity of the shares of Common Stock being registered
23.1 --Consent of Gibson, Dunn & Crutcher LLP, Dallas, Texas (See
Exhibit 5.1)
*23.2 --Consent of Ernst & Young LLP, Fort Worth, Texas
*24.1 --Powers of Attorney (See signature page of this Registration
Statement)
</TABLE>
- --------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Company undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
under the Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF TEXAS, ON MARCH
3, 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 ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
Donald R. Horton Board and President March 3, 1997
- ------------------------------------- (Principal
DONALD R. HORTON Executive Officer)
Richard Beckwitt* Director
- ------------------------------------- March 3, 1997
RICHARD BECKWITT
Richard I. Galland* Director
- ------------------------------------- March 3, 1997
RICHARD I. GALLAND
Richard L. Horton* Director
- ------------------------------------- March 3, 1997
RICHARD L. HORTON
Terrill J. Horton* Director
- ------------------------------------- March 3, 1997
TERRILL J. HORTON
Treasurer, Chief
/s/ David J. Keller Financial Officer March 3, 1997
- ------------------------------------- and Director
DAVID J. KELLER (Principal
Accounting and
Financial Officer)
II-3
<PAGE>
SIGNATURE TITLE DATE
Director
- -------------------------------------
FRANCINE I. NEFF
Scott J. Stone* Director
- ------------------------------------- March 3, 1997
SCOTT J. STONE
Donald J. Tomnitz* Director
- ------------------------------------- March 3, 1997
DONALD J. TOMNITZ
*By: /s/ Donald R. Horton
----------------------------------
DONALD R. HORTON
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBITS NUMBERED PAGE
------- -------- -------------
<C> <S> <C>
1.1 --Form of Underwriting Agreement
5.1 --Opinion of Gibson, Dunn & Crutcher LLP, Dallas,
Texas, as to the validity of the shares of Common
Stock being registered
23.1 --Consent of Gibson, Dunn & Crutcher LLP, Dallas,
Texas (See Exhibit 5.1)
*23.2 --Consent of Ernst & Young LLP, Fort Worth, Texas
*24.1 --Powers of Attorney (See signature page of this
Registration Statement)
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 1.1
5,000,000 Shares
D.R. HORTON, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
March [5], 1997
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
D.R. Horton, Inc., a Delaware corporation (the "Company"), proposes to
-------
issue and sell an aggregate of 4,000,000 shares of its common stock, $0.01 par
value per share (the "Common Stock"), to you ("you" or the "Underwriters"), and
------------ --- ------------
the persons named in Schedule I hereto (the "Selling Stockholders") propose to
---------- --------------------
sell to the several Underwriters an aggregate of 1,000,000 shares of Common
Stock. The Company and the Selling Stockholders are hereinafter sometimes
referred to as the "Sellers". The 4,000,000 shares of Common Stock to be issued
-------
and sold to the Underwriters by the Company and the 1,000,000 shares of Common
Stock to be sold to the Underwriters by the Selling Stockholders are hereinafter
referred to as the "Firm Shares". The Company and the Selling Stockholders also
-----------
propose to sell to the Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional 750,000 shares (the "Additional Shares")
-----------------
of Common Stock. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares".
------
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you in connection with the several purchases of
the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
----------
accordance with the provisions of the Securities Act of 1933, as amended, and
the published rules and regulations of the Commission thereunder (collectively,
the "Act"), a registration statement on Form S-3 under the Act (the
"registration statement"), including a prospectus
----------------------
<PAGE>
-2-
subject to completion relating to the Shares. The term "Registration Statement"
----------------------
as used in this Agreement means the registration statement (including all
financial schedules and exhibits), as amended at the time it becomes effective,
or, if the registration statement became effective prior to the execution of
this Agreement, as amended prior to the execution of this Agreement, and any
registration statement filed pursuant to Rule 462(b) under the Act increasing
the size of the offering registered under the Act. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
----------------------
in this Agreement means the registration statement as amended by said post-
effective amendment. The term "Prospectus" as used in this Agreement means the
----------
prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
---------------------
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus. Any reference in this Agreement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act,
as of the date of the registration statement, the Registration Statement, such
Prepricing Prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Exchange Act"), which, upon filing, are
------------
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used herein, the term "Incorporated Documents" means the documents
----------------------
which at the time are incorporated by reference in the registration statement,
<PAGE>
-3-
the Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.
2. Agreements to Sell and Purchase. Subject to such adjustments as
-------------------------------
you may determine in order to avoid fractional shares, the Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue and
sell to each Underwriter and, upon the basis of the representations, warranties
and agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $[ ] per Share (the "purchase price per share"), the number of Firm
------------------------
Shares which bears the same proportion to the aggregate number of Firm Shares to
be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company and the Selling Stockholders.
Subject to such adjustments as you may determine in order to avoid
fractional shares, each Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from each Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.
The Company and the Selling Stockholders also agree, subject to all
the terms and conditions set forth herein, to sell to the Underwriters, and,
upon the basis of the representations, warranties and agreements of the Company
and the Selling Stockholders herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right to purchase
from the Company and the Selling Stockholders, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
---------------------
any time and from time to time prior to 9:00 P.M., New York City
<PAGE>
-4-
time, on the 30th day after the date of the Prospectus (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next business day thereafter
when the New York Stock Exchange is open for trading), up to an aggregate of
600,000 Additional Shares from the Company and up to an aggregate of 150,000
shares from the Selling Stockholders (the maximum number of Additional Shares
which each of them agrees to sell upon the exercise by the Underwriters of the
over-allotment option is set forth opposite their respective names in Schedule
I). Additional Shares may be purchased only for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. The number
of Additional Shares which the Underwriters elect to purchase upon any exercise
of the over-allotment option shall be provided by the Company and by each
Selling Stockholder in proportion to the respective maximum numbers of
Additional Shares which the Company and each such Selling Stockholder has agreed
to sell. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company and the Selling
Stockholders the number of Additional Shares (subject to such adjustments as you
may determine in order to avoid fractional shares) which bears the same
proportion to the number of Additional Shares to be sold by the Company and the
Selling Stockholders as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule II hereto (or such number of Firm Shares increased
as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares
to be sold by the Company and the Selling Stockholders.
Certificates in transferable form for the Shares (including any Additional
Shares) which each of the Selling Stockholders agrees to sell pursuant to this
Agreement have been placed in custody with [the Company] (the "Custodian") for
---------
delivery under this Agreement pursuant to a Custody Agreement (the "Custody
-------
Agreement") and Power of Attorney (the "Power of Attorney") executed by each of
- --------- -----------------
the Selling Stockholders appointing Donald R. Horton as agent and attorney-in-
fact (the "Attorney-in-Fact"). Each Selling Stockholder agrees that (i) the
----------------
Shares represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters, the Company and each
other Selling Stockholder, (ii) the arrangements made by the Selling
Stockholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Stockholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Stockholder or by operation of law, whether by the
death or incapacity of any Selling Stockholder or the occurrence of any
<PAGE>
-5-
other event. If any Selling Stockholder shall die or be incapacitated or if any
other event shall occur before the delivery of the Shares hereunder,
certificates for the Shares of such Selling Stockholder shall be delivered to
the Underwriters by the Attorney-in-Fact in accordance with the terms and
conditions of this Agreement and the Custody Agreement as if such death or
incapacity or other event had not occurred, regardless of whether or not the
Attorney-in-Fact or any Underwriter shall have received notice of such death,
incapacity or other event. Each Selling Stockholder agrees the Attorney-in-Fact
is authorized, on behalf of each of such Selling Stockholder, to execute this
Agreement and any other documents necessary or desirable in connection with the
sale of the Shares to be sold hereunder by such Selling Stockholder, to make
delivery of the certificates for such Shares, to receive the proceeds of the
sale of such Shares, to give receipts for such proceeds, to pay therefrom any
expenses to be borne by such Selling Stockholder in connection with the sale and
public offering of such Shares, to distribute the balance thereof to such
Selling Stockholder, and to take such other action as may be necessary or
desirable in connection with the transactions contemplated by this Agreement.
3. Terms of Public Offering. The Sellers have been advised by you
------------------------
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable upon the terms
set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
-------------------------------------------
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on March [ ], 1997 (the "Closing Date"). The place of closing
------------
for the Firm Shares and the Closing Date may be varied by agreement among you,
the Company and the Attorney-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
-------------------
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company and the Attorney-in
- -Fact of the Underwriters' determination to purchase a number,
<PAGE>
-6-
specified in such notice, of Additional Shares. The place of closing for any
Additional Shares and the Option Closing Date for such Shares may be varied by
agreement among you, the Company and the Attorney-in-Fact.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by wire transfer of immediately available funds to accounts
specified by each of the Company and the Custodian not later than two business
days before the Closing Date or the Option Closing Date, as the case may be.
5. Agreements of the Company. The Company agrees with the several
-------------------------
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the Company will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice
in writing, when the Registration Statement or such post-effective
amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any
Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Prepricing Prospectus or the Prospectus or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation or the threatening
<PAGE>
-7-
of any proceeding for such purpose; and (iii) within the period of time
referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth
or results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with
the Act or any other law. If at any time any stop order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Prepricing Prospectus or the Prospectus or
suspending any such qualification, the Company will promptly use its best
efforts to obtain the withdrawal of such order at the earliest possible
time.
(c) The Company will furnish to you, without charge (i) five copies
of the registration statement as originally filed with the Commission and
of each amendment thereto, including all exhibits thereto, (ii) each
PrePricing Prospectus, the Prospectus and any amended or supplemented
Prospectus, (iii) such number of copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits, as
you may request, (iv) such number of copies of the Incorporated Documents,
without exhibits, as you may request, and (v) five copies of the exhibits
to the Incorporated Documents.
(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus or, prior
to the end of the period of time referred to in paragraph (f) below, file
any document which, upon filing becomes an Incorporated Document, of which
you shall not previously have been advised or to which, after you shall
have received a copy of the document proposed to be filed, you shall
reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you
have requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of
<PAGE>
-8-
the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by dealers,
prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the
Company will expeditiously deliver to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may reasonably request. The Company consents to
the use of the Prospectus (and of any amendment or supplement thereto) in
accordance with the provisions of the Act and with the securities or Blue
Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period of
time thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If during such period
of time any event shall occur that in the judgment of the Company or in the
opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary to
supplement or amend the Prospectus (or to file under the Exchange Act any
document which, upon filing, becomes an Incorporated Document) in order to
comply with the Act or any other law, the Company will forthwith prepare
and, subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto (or to such
document), and will expeditiously furnish to the Underwriters and dealers a
reasonable number of copies thereof. In the event that the Company and you
agree that the Prospectus should be amended or supplemented, the Company,
if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or
supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the
Shares for offering and
<PAGE>
-9-
sale by the several Underwriters and by dealers under the securities or
Blue Sky laws of such jurisdictions as you may designate and will file such
consents to service of process or other documents necessary or appropriate
in order to effect such registration or qualification; provided that in no
--------
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising
out of the offering or sale of the Shares, in any jurisdiction where it is
not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the date the Registration Statement is
declared effective by the Commission (the "Effective Date") and ending not
--------------
later than 15 months thereafter, as soon as practicable after the end of
such period, which consolidated earnings statement shall satisfy the
provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you as soon as available, a copy of all public materials
furnished by the Company to its stockholders and all public reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission.
(j) If this Agreement shall terminate or shall be terminated pursuant
to any provisions hereof (otherwise than pursuant to the second paragraph
of Section 12 hereof or by notice given by you terminating this Agreement
pursuant to Section 12 or Section 13 hereof) or if this Agreement shall be
terminated by the Underwriters because of any failure or refusal on the
part of the Company or the Selling Stockholders to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse you for all reasonable out-of-pocket expenses (including fees and
expenses of your counsel) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder in accordance with the description set
forth in the Prospectus.
<PAGE>
-10-
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) The Company will not sell, contract to sell or otherwise dispose
of any Common Stock (other than the Shares) or any securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options,
warrants or other rights to purchase Common Stock, for a period of 90 days
after the date of the Prospectus, without the prior written consent of
Smith Barney Inc.; provided, however, that the foregoing shall not prohibit
-------- -------
(i) the grant of options pursuant to stock option plans existing on the
date hereof, (ii) the issuance of Common Stock upon exercise of options
granted under stock option plans referred to in clause (i) or pursuant to
employee benefit plans existing on the date hereof or (iii) the issuance of
Common Stock or options, warrants or other rights to purchase Common Stock
in connection with the acquisition of a business by the Company, provided
that the entity that receives such Common Stock or such options, warrants
or rights agrees to be bound by this Section 5(m).
(n) The Company has furnished or will furnish to you "lock-up"
letters described in the Prospectus in form and substance satisfactory to
you, signed by certain of its executive officers and directors and
previously designated by you.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will take all steps necessary to effect the listing
of the Shares, subject to notice of issuance, on the New York Stock
Exchange.
6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders agrees with the several Underwriters as follows:
<PAGE>
-11-
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto
to become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if
any, on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters.
(c) Such Selling Stockholder will do or perform all things required
to be done or performed by the Selling Stockholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all
conditions precedent to the delivery of the Shares pursuant to this
Agreement.
(d) Such Selling Stockholder will not sell, contract to sell or
otherwise dispose of any Common Stock (other than the Shares and other than
up to an aggregate of 150,000 shares by executive officers, directors and
Selling Stockholders subsequent to the completion of the distribution of
the Shares) or any securities convertible into or exercisable or
exchangeable for Common Stock, or grant any options, warrants or other
rights to purchase Common Stock, for a period of 90 days after the date of
the Prospectus, without the prior written consent of Smith Barney Inc.;
provided, however, that the foregoing shall not prohibit gifts or donations
-------- -------
to persons who agree to be bound by this Section 6(d).
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Common Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(f) hereof of any material change in
information relating to such Selling Stockholder provided by such Selling
Stockholder specifically for inclusion under the caption "Selling
Stockholders" in the Prospectus.
<PAGE>
-12-
(g) Such Selling Stockholder will deliver to Smith Barney Inc. prior
to the Closing Date a properly completed and executed United States
Treasury Department Form W-9.
7. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Act and do not and will not, as of the applicable
effective date (as to the Registration Statement and any amendment thereto)
and as of the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in light of the circumstances under which they were made);
provided that no representation or warranty is made as to information
--------
contained in or omitted from the Registration Statement or the Prospectus
in reliance upon and in conformity with written information furnished to
the Company through you with respect to any Underwriter specifically for
inclusion therein or in reliance upon and in conformity with written
information provided by a Selling Stockholder to the Company concerning
such Selling Stockholder specifically for inclusion under the caption
"Selling Stockholders" in the Prospectus.
(c) The Incorporated Documents, when they were or are filed with the
Commission, conformed or will conform in all material respects to the
requirements of the Act or the Exchange Act, as applicable, and none of
such documents contained or will contain an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements
<PAGE>
-13-
therein, in the light of the circumstances under which they were made, not
misleading.
(d) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
incorporated by reference in the Prospectus present fairly the consolidated
financial position and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(e) Ernst & Young, LLP, who have reported on the audited financial
statements of the Company, whose report is incorporated by reference in the
Prospectus and who have delivered the initial letter referred to in Section
10(g) hereof, are independent public accountants as required by the Act.
(f) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Prospectus have
been prepared in all material respects in accordance with applicable
requirements of Regulation S-X promulgated under the Exchange Act and have
been properly computed on the bases described therein. The material
assumptions used in the preparation of the pro forma financial statements
and other pro forma information in the Prospectus are set forth therein and
are reasonable, and the adjustments used therein are appropriate to give
pro forma effect to the transactions or circumstances referred to therein.
(g) The Company and each of its subsidiaries (as defined in Section
16) have been duly formed and are validly existing in good standing under
the laws of their respective jurisdictions of organization, are duly
qualified to do business and are in good standing in each jurisdiction in
which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification except where the
failure to so qualify would not have a material adverse effect on the
financial condition, results of operations, business or prospects of the
Company and its subsidiaries taken as a whole (a "Material Adverse
----------------
Effect"), and have all power and authority necessary to own or hold their
------
respective properties and to conduct the businesses in which they are
engaged.
<PAGE>
-14-
(h) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and non-
assessable and conform to the description thereof contained in or
incorporated by reference in the Prospectus; and all of the issued equity
securities of each subsidiary of the Company have been duly authorized and
validly issued and, as to shares of capital stock of any corporation
constituting a subsidiary, are fully paid and non-assessable and (except
for directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
other than restrictions on transfer imposed by applicable securities laws.
(i) The unissued shares of the Common Stock to be issued and sold by
the Company to the Underwriters hereunder have been duly authorized and,
when issued and delivered against payment therefor as provided herein, will
be validly issued, fully paid and non-assessable and such shares will
conform to the description thereof contained in or incorporated by
reference in the Prospectus.
(j) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other material agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the organizational
documents of the Company or any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for such consents, approvals,
authorizations, registrations or qualifications as may be required under
the Act or applicable state or foreign securities laws in connection with
the purchase and distribution of the Shares by the Underwriters, no
consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement
<PAGE>
-15-
by the Company and the consummation of the transactions contemplated
hereby.
(k) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements incorporated by
reference in the Prospectus, any loss or interference with the business of
the Company and its subsidiaries taken as a whole from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, resulting in a
Material Adverse Effect; and, since such date, there has not been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole, otherwise
than as set forth or contemplated in the Prospectus.
(l) Other than with respect to the offering contemplated hereby and
the shares of Common Stock received in connection with the acquisition (The
"Torrey Acquisition") of the Torrey Group of Companies ("Torrey"), there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under the Act.
(m) The Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the Prospectus, including
any sales pursuant to an exemption from the registration requirements of
the Act other than shares issued pursuant to stock options plans or other
employee benefit plans and shares issued in connection with the Torrey
Acquisition.
(n) This Agreement has been duly authorized, executed and delivered
by the Company.
<PAGE>
-16-
(o) The Company and its subsidiaries own the items of real property
and personal property purported to be owned by them which are material to
the conduct of the business of the Company and its subsidiaries taken as a
whole, free and clear of all liens, encumbrances and defects, except such
as are described or incorporated by reference in the Prospectus or such as
would not have a Material Adverse Effect. All real property held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are described in
the Prospectus or such as would not have a Material Adverse Effect.
(p) Except as described or incorporated by reference in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which
are reasonably likely to have a Material Adverse Effect; and to the best of
the Company's knowledge, no such proceedings are threatened by governmental
authorities or by others.
(q) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(r) To the knowledge of the Company, all real property owned (either
presently or at any time in the past), or presently leased by the Company
and its subsidiaries in connection with the operation of its business,
including, without limitation, any subsurface soils and ground water
(collectively, the "Realty"), is free of contamination from any substance
------
or material presently known to be toxic or hazardous, including, without
limitation, any radioactive substance, methane, volatile hydrocarbons or
industrial solvents (each a "Hazardous Substance"), which could reasonably
-------------------
be expected to materially impair the beneficial use thereof by the Company
and its subsidiaries or constitute or cause a significant health, safety or
other environmental hazard to occupants or users (except for contaminations
which would not have a Material Adverse Effect); and to the knowledge of
the Company, the Realty does not contain any underground storage or
treatment tanks, active or abandoned water, gas or oil wells, or any other
underground improvements or structures, other than the foundations,
footings or other supports for the improvements located thereon, the
presence of which would have a Material Adverse Effect. Notwithstanding the
foregoing,
<PAGE>
-17-
Hazardous Substances shall be deemed not to include any supplies or
substances maintained, used, stored or held on the Realty which are (i)
naturally occurring, (ii) installed by public utilities or (iii) used in
the ordinary course of the Company's or its subsidiaries' business,
provided that such supplies or substances are stored, used, maintained and
held in all material respects in accordance with any applicable
governmental requirements and with restrictions, conditions and standards
suggested by the manufacturer and the Company's insurance carriers.
(s) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock.
(t) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses.
(u) The Company and each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of their
respective businesses the absence of which would have a Material Adverse
Effect and have no reason to believe that the conduct of their respective
businesses will conflict with, and have not received any notice of any
claim of conflict with, any such rights of others.
(v) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Act which have not been described or incorporated by
reference in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by the Act.
(w) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which could reasonably be
expected to have a Material Adverse Effect.
<PAGE>
-18-
(x) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which would reasonably
likely have) a Material Adverse Effect.
(y) Since the date as of which information is given in the Prospectus
and through the date hereof, and except as may otherwise be disclosed or
incorporated by reference in the Prospectus, the Company has not (i) issued
or granted any securities other than shares of Common Stock issued pursuant
to stock option plans or other employee benefit plans existing on the date
hereof or the grant of options pursuant to option plans existing on the
date hereof, (ii) entered into any material transaction not in the ordinary
course of business or (iii) declared or paid any dividend on its capital
stock, and, from the date of the Prospectus, the Company has not incurred
any material liability other than in the ordinary course of business.
(z) The Company is in full compliance with Section 13(b)(2) of the
Exchange Act.
(aa) Neither the Company nor any of its subsidiaries (i) is in
violation of its organizational documents, (ii) is in default in any
material respect, and no event has occurred which, with notice or lapse of
time or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject as a result of which default there
would be a Material Adverse Effect or (iii) is in violation of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any license,
permit, certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the conduct of its
business which violation or failure would have a Material Adverse Effect.
(bb) Neither the Company nor any subsidiary is an "investment company"
within the meaning of such term under
<PAGE>
-19-
the United States Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder has (except with respect to certain
shares of Common Stock for which the Selling Stockholders hold options as
designated on Schedule 2 (collectively, the "Selling Stockholder Option
--------------------------
Shares")) and immediately prior to the Closing Date the Selling Stockholder
will have good and valid title to the shares of Common Stock (including the
Selling Stockholder Option Shares) to be sold by it hereunder, free and
clear of all liens, encumbrances, equities or claims; and upon delivery of
such shares and payment therefor pursuant hereto, good and valid title to
such shares, free and clear of all liens, encumbrances, equities or claims,
will pass to the several Underwriters.
(b) Such Selling Stockholder has placed (or, with respect to the
Selling Stockholder Option Shares, will have placed by the Closing Date) in
custody with the Custodian under the Custody Agreement, for delivery under
this Agreement, certificates in negotiable form (with signature guaranteed)
representing the shares of Common Stock to be sold by it.
(c) Such Selling Stockholder has duly and irrevocably executed and
delivered the Power of Attorney appointing Donald R. Horton as Attorney-in-
fact, with full power of substitution, and with full authority to execute
and deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf of such
Selling Stockholder.
(d) Such Selling Stockholder has full legal right, power and authority
to enter into this Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement, by such Selling Stockholder
and the consummation by such Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other material agreement or in-
<PAGE>
-20-
strument to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the property or assets of
such Selling Stockholder is subject, nor will such actions result in any
violation of any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property or assets of such Selling Stockholder; and,
except for such consents, approval, authorizations, registrations or
qualifications as may be required under the Act and applicable state or
foreign securities laws in connection with the purchase and distribution of
the Shares by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and performance of
this Agreement, the Power of Attorney or the Custody Agreement by such
Selling Stockholder and the consummation by such Selling Stockholder of the
transactions contemplated hereby or thereby.
(e) To the extent that any statements made in the Registration
Statement or the Prospectus or any amendment or supplement pertain to and
are made in reliance upon and in conformity with written information
provided by such Selling Stockholder to the Company concerning such Selling
Stockholder specifically for inclusion under the caption "Selling
Stockholders" in the Prospectus, the Registration Statement and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus, when they become effective or are filed with
the Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made (in the case of the
Prospectus), not misleading.
(f) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
of the price of the Common Stock.
9. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter,
<PAGE>
-21-
its officers and employees and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter expressly for use in connection therewith; provided, however, that
-------- -------
the indemnification contained in this paragraph (a) with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any officer or employee of such Underwriter or any person
controlling such Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus,
provided that the Company has delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. Notwithstanding anything to the contrary herein, no Underwriter shall
be obligated to send or give any Incorporated Document, or any amendment or
supplement thereto, to any person in order to benefit from the indemnification
provisions herein or otherwise. The foregoing indemnity agreement shall be in
addition to any liability which the Company or any Selling Stockholder may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
--------------------
indemnifying parties shall be entitled to assume the defense thereof, including
the employment of counsel
<PAGE>
-22-
and payment of all fees and expenses. Such Underwriter or any such controlling
person shall have the right to employ separate counsel in any such action, suit
or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the indemnifying parties have agreed in writing to
pay such fees and expenses, (ii) the indemnifying parties have failed to assume
the defense and employ counsel, or (iii) the named parties to any such action,
suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with respect to
<PAGE>
-23-
the information furnished in writing by or on behalf of such Selling Stockholder
expressly for inclusion under the caption "Selling Stockholders" in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. The maximum aggregate liability of a Selling
Stockholder pursuant to the foregoing indemnity agreement shall not exceed the
product of (i) the number of shares of stock sold by the Selling Stockholder and
(ii) the price per share paid to the Selling Stockholder by the Underwriters
pursuant hereto. If any action, suit or proceeding shall be brought against any
Underwriter or any such controlling person of any Underwriter based on the
Registration Statement, the Prospectus or any Prepricing Prospectus or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Selling Stockholder pursuant to this paragraph (c), such Selling
Stockholder shall have the rights and duties given to the Company by paragraph
(b) above (except that if the Company shall have assumed the defense thereof
such Selling Stockholder shall not be entitled to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Selling Stockholder's expense), and
each Underwriter and each such controlling person of any Underwriter shall have
the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Selling Stockholder may otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each Selling Stockholder, and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to each Underwriter, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter expressly for use in the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Company, any of its
directors, any such officer, any Selling Stockholder, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (d),
such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to
<PAGE>
-24-
do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Company, its directors, any such officer, the
Selling Stockholders, and any such controlling person shall have the rights and
duties given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which any Underwriter may
otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company,
the Selling Stockholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the Selling Stockholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
<PAGE>
-25-
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(f) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (e) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (e) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of paragraph (e)
above or this paragraph (f), neither the Company nor any Selling Stockholder
shall be required to contribute an amount in excess of the amount for which such
party would have been liable if the provisions of paragraphs (a) or (c), as
applicable had been available. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule II hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an uncondi-
<PAGE>
-26-
tional release of such indemnified party from all liability on claims that are
the subject matter of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholders or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company or to the Selling Stockholder, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.
(i) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Common Stock by
the Underwriters set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of, the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
(j) Each Selling Stockholder confirms and the Company and the
Underwriters acknowledge that the statements under the caption "Selling
Stockholders" in the Prospectus constitute the only written information provided
by such Selling Stockholder specifically for inclusion in the Registration
Statement and the Prospectus.
10. Conditions of Underwriters' Obligations. The several obligations of the
---------------------------------------
Underwriters to purchase the Firm Shares hereunder are subject to the following
conditions:
<PAGE>
-27-
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment shall
have become effective not later than 5:30 P.M., New York City time, on the
date hereof, or at such later date and time as shall be consented to in
writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made; no stop order suspending the
effectiveness of the registration statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge
of the Company or any Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been
complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company and its
Subsidiaries not contemplated by the Prospectus, which in your opinion
would materially adversely affect the market for the Shares, or (ii) any
event or development relating to or involving the Company or any officer or
director of the Company or any Selling Stockholder which makes any
statement made in the Prospectus untrue or which, in the opinion of the
Company and its counsel or the Underwriters and their counsel, requires the
making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or
development would, in your opinion materially adversely affect the market
for the Shares.
(c) You shall have received on the Closing Date, an opinion of Gibson
Dunn & Crutcher LLP, special counsel for the Company, dated the Closing
Date and addressed to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is duly
<PAGE>
-28-
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the business, operations or financial condition of
the Company and its subsidiaries taken as a whole, and has all
corporate power and authority necessary to own or hold its properties
and conduct its business as described or incorporated by reference in
the Prospectus;
(ii) The Company has authorized and outstanding capital stock as
set forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Common Stock being
delivered by the Selling Stockholders) have been duly authorized and
validly issued, are fully paid and non-assessable and conform in all
material respects to the description thereof incorporated by reference
in the Prospectus; the shares of Common Stock being delivered and which
are being issued by the Company are duly authorized and, when issued
upon payment therefor in accordance with this Agreement, will be
validly issued, fully paid and non-assessable;
(iii) there are no preemptive rights, nor any restriction upon
the voting or transfer of, any shares of the Common Stock provided for
in the Company's Certificate of Incorporation or bylaws, or to the
knowledge of such counsel, any other agreement to which the Company is
a party;
(iv) To such counsel's knowledge and other than as described or
incorporated by reference in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which is of a
character which is required to be disclosed in the Prospectus; and, to
such counsel's knowledge, no such proceedings are threatened by
governmental authorities or by others.
(v) The Registration Statement was declared effective under the
Act as of the date and time specified in such opinion, the Prospectus
was filed with the Commission pursuant to the subparagraph of Rule
<PAGE>
-29-
424(b) under the Act on the date specified therein, and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose is pending or threatened by the Commission;
(vi) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
the Closing Date (other than the financial and pro forma data (and the
related notes thereto) and statistical data and the financial
statements and related schedules therein, as to which such counsel need
express no opinion) appear on their face to comply as to form in all
material respects with the requirements of the Act; the documents
incorporated by reference in the Prospectus and any further amendment
or supplement to any such incorporated document made by the Company
prior to the Closing Date (other than the financial and pro forma data
(and the related notes thereto) and statistical data and the financial
statements, and related schedules therein, as to which such counsel
need express no opinion), when they were filed with the Commission
appear on their face to have been appropriately responsive in all
material respects to the requirements of the Act and the Exchange Act;
(vii) To such counsel's knowledge, there are no contracts or
other documents of a character which are required to be described in
the Prospectus or filed as exhibits to the Registration Statement by
the Act which have not been described or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Act;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company; and
(ix) The issue and sale of the shares of Common Stock being
delivered on the Closing Date by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation by the Company of the transactions contemplated hereby and
thereby will not, to such counsel's knowledge, conflict with or result
in a material breach or violation of any of the terms or provisions of,
or constitute a material default under, any indenture, mortgage, deed
of trust, loan agreement or other ma-
<PAGE>
-30-
terial agreement or instrument filed (including by incorporation by
reference) by the Company as an Exhibit to its Annual Report on Form
10-K for the fiscal year ended September 30, 1996, nor will such
actions result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or, to such
counsel's knowledge, any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries set forth on Schedule III
------------
hereto or any of their properties or assets; and, except for such
consents, approvals, authorizations, registrations or qualifications as
may be required under the Securities Act, and applicable state or
foreign securities laws in connection with the purchase and
distribution of the Common Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement by the Company
and the valid issuance and sale of the Common Stock by the Company.
In rendering such opinion, such counsel may state that its opinion is
limited to the Federal laws of the United States of America, the laws of
the States of Texas and New York and the General Corporation Law of the
State of Delaware. Such counsel shall also have furnished to the
Underwriters a written statement, addressed to the Underwriters and dated
the Closing Date, in form and substance satisfactory to the Underwriters
and counsel for the Underwriters, to the effect that (x) such counsel has
acted as special counsel to the Company in connection with the preparation
of the Registration Statement and during the course of the preparation of
the Registration Statement and Prospectus, such counsel participated in
conferences with representatives of the Company, the Company's corporate
counsel, and its accountants and the representatives of the Underwriters
and at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed, and (y) based on the
foregoing, no facts have come to the attention of such counsel which lead
it to believe that (I) the Registration Statement (except as to financial
and pro forma data (and related notes thereto) and statistical data and the
financial statements and related schedules contained or incorporated by
reference therein), as of the date the
<PAGE>
-31-
Registration Statement became effective, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus (except as to financial and pro forma
data (and related notes thereto) and statistical data and the financial
statements and related schedules contained or incorporated by reference
therein) contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or (II) any Incorporated Document or any amendment or
supplement thereto made by the Company prior to such Closing Date, when
they were filed with the Commission, as the case may be, contained (except
as to financial and pro forma data (and related notes thereto) and
statistical data and the financial statements and related schedules
contained or incorporated by reference therein) an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel has not
independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus or
incorporated by reference therein, and such counsel is not passing upon and
such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus other than the description of the Company's
capital stock incorporated by reference into the Prospectus.
(d) You shall have received on the Closing Date, an opinion of John M.
Saganich, Esq., corporate counsel for the Company, dated the Closing Date
and addressed to you, to the effect that:
(i) The issue and sale of the shares of Common Stock being
delivered on the Closing Date by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation by the Company of the transactions contemplated hereby
will not, to the knowledge of such counsel, conflict with or result in
a material breach or violation of any of the terms or provisions of, or
constitute a material default under, any indenture,
<PAGE>
-32-
mortgage, deed or trust, loan agreement or other material agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
any of the Company's subsidiaries set forth on Schedules III and IV
------------- --
hereto or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over any of
the Company's subsidiaries set forth on Schedule IV hereto or any of
-------- --
their properties or assets; and
(ii) Each subsidiary of the Company set forth on Schedules III
-------------
and IV which is a corporation has been duly incorporated and is validly
--
existing as a corporation in good standing under the laws of its state
of incorporation, is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which its
ownership or lease of its property or the conduct of its business
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business,
operations or financial condition of the Company and its subsidiaries
taken as a whole, and has all corporate power and authority necessary
to own or hold its properties and conduct its business as described in
the Prospectus. The outstanding shares of capital stock of each such
subsidiary is duly authorized, validly issued, fully paid and
nonassessable and (except for directors' qualifying shares) are owned
of record, directly or indirectly by the Company. Each subsidiary of
the Company set forth on Schedules III and IV which is a limited
------------- --
partnership has been duly formed and is validly existing as a limited
partnership in good standing under the laws of the state of its
organization, is duly qualified to do business and is in good standing
as a foreign limited partnership in each jurisdiction in which its
ownership or lease of its property or the conduct of its business
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business,
operation or financial condition of the Company and its subsidiaries
taken as a whole, and has all
<PAGE>
-33-
partnership power and authority necessary to own or hold its properties
and conduct its business as described in the Prospectus. The
subsidiaries listed on Schedules III and IV constitute all of the
------------- --
material subsidiaries of the Company.
(e) You shall have received on the Closing Date, an opinion of Gibson,
Dunn & Crutcher LLP, special counsel for each of the Selling Stockholders,
dated the Closing Date and addressed to you, to the effect that:
(i) To such counsel's knowledge, based solely upon the
representation and warranties of the Selling Stockholders contained in
this Agreement and factual certificates of the Selling Stockholders,
each Selling Stockholder has the legal right, power, and authority to
enter into this Agreement, the Power-of-Attorney and the Custody
Agreement; and except for such consents, approvals, authorizations,
registrations or qualifications as may be required under the Act and
applicable state or foreign securities laws in connection with the
purchase and distribution of the Common Stock by the Underwriters, to
such counsel's knowledge no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and performance
of this Agreement, the Power of Attorney or the Custody Agreement by
any such Selling Stockholder and the consummation by any such Selling
Stockholder of the transactions contemplated hereby and thereby;
(ii) This Agreement has been duly executed and delivered by each
such Selling Stockholder and constitutes a valid and binding agreement
of each such Selling Stockholder;
(iii) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by each such Selling Stockholder and constitute
valid and binding agreements of each such Selling Stockholder; and
(iv) Upon payment therefor, the Selling Stockholders' rights to
and interest in the shares of Common Stock to be sold by each such
Selling Stockholder under this Agreement on the Closing Date, have been
transferred, free of any adverse claim, to each of
<PAGE>
-34-
the several Underwriters who takes in good faith and without notice of
an adverse claim.
In rendering such opinion, such counsel may state that its opinion is
limited to the Federal laws of the United States of America and the laws of the
States of Texas and New York.
(f) The Underwriters shall have received from Cahill Gordon & Reindel,
special counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Common Stock,
the Registration Statement, the Prospectus and other related matters as the
Underwriters may reasonably require, and the Company shall have furnished
to such counsel such documents as they reasonably request for the purpose
of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Underwriters shall
have received from Ernst & Young LLP a letter, in form and substance
satisfactory to the Underwriters, addressed to the Underwriters and dated
the date hereof (i) confirming that they are independent public accountants
within the meaning of the Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(h) With respect to the letter of Ernst & Young LLP referred to in the
preceding paragraph and delivered to you concurrently with the execution of
this Agreement (the "initial letter"), the Company shall have furnished to
--------------
the Underwriters a letter (the "bring-down letter") of such accountants,
-----------------
addressed to the Underwriters and dated the Closing Date (i) confirming
that they are independent public accountants within the meaning of the Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or, with
respect to matters in-
<PAGE>
-35-
volving changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a date
not more than five days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set forth
in the initial letter.
(i) The Company shall have furnished to the Underwriters its
certificate, dated such Closing Date executed by its Chairman of the Board,
its President or a Vice President and its chief financial officer stating
that:
(i) The representations and warranties and agreements of the
Company in this Agreement are true and correct as of the Closing Date
as if made on such date; the Company has complied with all its
agreements contained herein to be performed by it at or prior to the
Closing Date; and the conditions set forth in Sections 10(a) and 10(k)
have been fulfilled;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that
purpose has been initiated or threatened; and
(iii) All filings required by Rule 424(b) and Rule 430A under
the Act have been made.
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Underwriters on the Closing Date a certificate, dated the
Closing Date, signed by, or on behalf of, the Selling Stockholder stating
that the representations and warranties of the Selling Stockholder
contained herein are true and correct as of the Closing Date as if made on
such date and that the Selling Stockholder has complied with all agreements
contained herein to be performed by the Selling Stockholder at or prior to
such Closing Date.
(k) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other calam-
<PAGE>
-36-
ity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock, net revenues, per share or total
amounts of income before extraordinary income or of net income or long-term
debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of Smith Barney Inc.
and/or a majority in interest of the several Underwriters, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Common Stock being delivered on the
Closing Date on the terms and in the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Company's debt
securities by any "nationally recognized statistical rating organization",
as that term is defined by the Commission for purposes of Rule 436(g)(2)
under the Act and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities.
(m) The Company shall have furnished to you such other documents and
certificates as to the accuracy and completeness of any statement in the
Registration Statement or the Prospectus as you reasonably may request.
(n) The Company shall have performed such of its obligations under this
Agreement as are to be performed by the terms hereof.
(o) You shall have been furnished with such additional documents and
certificates as you or counsel for the Underwriters may reasonably request.
(p) The Common Stock to be purchased on the Closing Date by the
Underwriters shall be approved for listing on the New York Stock Exchange.
<PAGE>
-37-
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
any Attorney-in-Fact or any Selling Stockholder and delivered to you or to your
counsel shall be deemed a representation and warranty by the Company, the
Selling Stockholders or the particular Selling Stockholder, as the case may be,
to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (j) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. As between the Company and the Selling Stockholders,
--------
on the one hand, and the Underwriters on the other hand, the Company shall pay
the following costs and expenses and all other costs and expenses incident to
the performance by the Company and the Selling Stockholders of their obligations
hereunder: (i) the preparation, printing or reproduction, and filing with the
Commission of the registration statement (including financial statements and
exhibits thereto), each Prepricing Prospectus, the Prospectus, and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the registration statement, each Prepricing
Prospectus, the Prospectus, the Incorporated Documents, and all amendments or
supplements to any of them, as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on the New York Stock Exchange;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the
<PAGE>
-38-
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the filing fees and the fees and expenses of counsel for the Underwriters in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.; (viii) the transportation and other expenses incurred
by or on behalf of Company representatives (but not Underwriters'
representatives) in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company and the Selling Stockholders.
12. Effective Date of Agreement. This Agreement shall become
---------------------------
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such post-
effective amendment has been released by the Commission. Until such time as this
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, by notifying the Company and the Selling Stockholders.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
de-
<PAGE>
-39-
fault occurs is more than one-tenth of the aggregate number of Shares which
the Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule II hereto who, with
your approval and the approval of the Company, purchases Shares which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Texas shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the
<PAGE>
-40-
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
14. Miscellaneous. Except as otherwise provided in Sections 5, 12 and
-------------
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 1901 Ascension Blvd., Suite 100, Arlington, TX 76006, Attention:
Donald R. Horton; or (ii) if to the Selling Stockholders, at c/o Donald R.
Horton at the address set forth in clause (i), Attention: Donald R. Horton, or
(iii) if to you, care of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the
term "successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
15. Definition of the Terms "Business Day" and "Subsidiary". For
-------------------------------------------------------
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 under the Act.
<PAGE>
-41-
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
D.R. HORTON, INC.
By:
------------------------------------
Name:
Title:
Each of the Selling Stockholders
named in Schedule I hereto
By:
------------------------------------
Name:
Title: Attorney-in-Fact
Confirmed as of the date first
above mentioned:
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
By: SMITH BARNEY INC.
By:
----------------------------
Name:
Title:
<PAGE>
-42-
SCHEDULE I
D.R. HORTON, INC.
<TABLE>
<CAPTION>
Number of Number of
Selling Stockholders Firm Shares Additional Shares
-------------------- ----------- -----------------
<S> <C> <C>
Donald R. Horton 800,000
Richard L. Horton 50,000
Terrill J. Horton 40,000
David J. Keller 25,000
Scott J. Stone 75,000
Donald J. Tomwitz 10,000
--------- ------------
Total....... 1,000,000 150,000
--------- ------------
</TABLE>
<PAGE>
-43-
SCHEDULE II
D.R. HORTON, INC.
<TABLE>
<CAPTION>
Number of Number of
Underwriter Firm Shares Additional Shares
----------- ----------- -----------------
<S> <C> <C>
Smith Barney Inc.
Donaldson, Lufkin &
Jenrette Securities
Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Brothers Inc
5,000,000 750,000
--------- ---------
Total...................................
--------- ---------
</TABLE>
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP APPEARS HERE]
March 4, 1997
D. R. Horton, Inc.
1901 Ascension Blvd., Suite 100
Arlington, Texas 76006
Re: D. R. Horton, Inc. Public Offering of 5,000,000 Shares of Common
Stock
Ladies and Gentlemen:
We have acted as special counsel for D. R. Horton, Inc., a Delaware
corporation (the "Company), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 4,000,000 shares of common
stock, par value $.01 per share, of the Company (the "Common Stock") for sale by
the Company and the sale by certain stockholders of the Company (the "Selling
Stockholders") of 1,000,000 shares of Common Stock (plus up to an additional
750,000 shares of Common Stock (the "Option Shares") issuable upon exercise of
the over-allotment option described in the Registration Statement as such term
is defined below) pursuant to a Registration Statement on Form S-3 (No. 333-
21183) (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") (all of such 5,750,000 shares of Common Stock are
herein collectively referred to as the "Shares").
In connection with our examination of documents as hereinafter
described, we have assumed the genuineness of all signatures on, and the
authenticity of, all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as copies. With respect
to agreements and instruments executed by natural persons, we have assumed the
legal competency of such persons.
For the purpose of rendering this opinion, we have made such factual
and legal examination as we deemed necessary under the circumstances, and in
that connection we have examined, among other things, originals or copies of the
following:
(1) The Certificate of Incorporation of the Company, as amended to
date;
(2) The Bylaws of the Company, as amended to date;
(3) Minutes of meetings of the Company's Board of Directors at which
action was taken with respect to the transactions covered by this
opinion and minutes of other corporate proceedings; and
(4) Such other certificates and assurances from public officials,
officers and representatives of the Company and the Selling
Stockholders that we considered necessary or appropriate for the
purpose of rendering this opinion.
On the basis of the foregoing examination, and in reliance thereon, we
are of the opinion that, assuming that the Executive Committee of the Board of
Directors duly approves the number of shares to be issued and the price of such
shares, the Shares when issued and delivered to and paid for by the Underwriters
as described in the Registration Statement will be validly issued, fully paid
and nonassessable.
This opinion is limited to the present corporate laws of the State of
Delaware, the present federal laws of the United States and to the present
judicial interpretations thereof and to the facts as they presently exist. We
undertake no obligation to advise you as a result of developments occurring
after the date hereof or as a result of facts or circumstances brought to our
attention after the date hereof. This opinion may be filed as an exhibit to the
Registration Statement. Consent is also given to the reference to this firm
under the caption "Legal Opinions" in the prospectus contained in the
Registration Statement. In giving this consent, we do not admit we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
