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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
MARCH 17, 2000
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(Date of Report--Date of Earliest Event Reported)
D.R. HORTON, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-14122 75-2386963
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(State or Other Jurisdiction) (Commission (IRS Emplyer
of Incorporation) File Number) Identification No.)
1901 ASCENSION BOULEVARD, SUITE 100, ARLINGTON, TEXAS 76006
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(Address of Principal Executive Offices)
(817) 856-8200
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
Exhibit 1.1 hereto is the Underwriting Agreement, dated as of March 15,
2000, among D.R. Horton, Inc., the Guarantors named therein and Morgan
Stanley & Co. Incorporated.
Exhibit 4.1 hereto is the Eighth Supplemental Indenture, dated as of
March 21, 2000, to be executed by D.R. Horton, Inc., the Guarantors named
therein and American Stock Transfer and Trust Company, as Trustee, relating
to the 10-1/2% Senior Notes due 2005 of D.R. Horton, Inc.
Exhibit 12.1 hereto is the statement of computation of ratios of
earnings to fixed charges.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
1.1 Underwriting Agreement, dated as of March 15, 2000,
among D.R. Horton, Inc., the Guarantors named therein
and Morgan Stanley & Co. Incorporated.
4.1 Eighth Supplemental Indenture, dated as of March 21,
2000, executed by D.R. Horton, Inc., the Guarantors
named therein and American Stock Transfer and Trust
Company, as Trustee, relating to the 10-1/2% Senior
Notes due 2005 of D.R. Horton, Inc.
12.1 Statement of computation of ratios of earnings to fixed
charges.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 17, 2000
D. R. HORTON, INC.
By: /s/ Donald R. Horton
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Donald R. Horton
Chairman of the Board
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$150,000,000
D.R. HORTON, INC.
SENIOR NOTES DUE 2005
UNDERWRITING AGREEMENT
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March 15, 2000
Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
D.R. Horton, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell $150,000,000 aggregate principal amount of its Senior Notes due
2005 (the "NOTES")to Morgan Stanley & Co. Incorporated (the "UNDERWRITER"). The
stated interest rate on the Notes will be set by the Underwriter in accordance
with Section 2 hereof. The Notes are to be issued pursuant to the provisions of
an Indenture dated as of June 7, 1999, as supplemented from time to time by
supplemental indentures (the "INDENTURE"), among the Company, certain
subsidiaries of the Company and the American Stock Transfer and Trust Company,
as Trustee (the "TRUSTEE"). The Company's obligations under the Indenture and
the Notes will be unconditionally guaranteed (the "GUARANTEES"), jointly and
severally, by each of the subsidiaries of the Company listed on the signature
pages hereof (the "GUARANTORS"). The Company and the Guarantors are collectively
referred to herein as the "ISSUERS" and the Notes and the Guarantees are
collectively referred to herein as the "SECURITIES."
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
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(collectively, the "ACT"), a registration statement on Form S-3 (No 333-76175),
including a base prospectus relating to the Securities. The registration
statement as amended at the time it became effective on April 16, 1999,
including information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter
referred to as the "REGISTRATION STATEMENT"; and the base prospectus dated April
16, 1999 (the "BASE PROSPECTUS"), as supplemented by the prospectus supplement
relating to the Securities in the form first used to confirm sales of Securities
(the "PROSPECTUS SUPPLEMENT"), is hereinafter referred to as the "PROSPECTUS."
Any reference herein to the Registration Statement, a preliminary 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 effective date of the Registration Statement or the date of such
preliminary prospectus or the Prospectus (the "INCORPORATED DOCUMENTS"), and,
except as otherwise indicated, when reference is made to information "in"
(including by use of the terms "set forth in," "described in" and similar terms)
the Prospectus or the Registration Statement, such reference shall be deemed to
include information incorporated by reference in the Prospectus or the
Registration Statement, as the case may be.
2. AGREEMENTS TO SELL AND PURCHASE. The Company agrees to issue and sell,
and, on the basis of the representations and warranties contained in this
Underwriting Agreement (the "AGREEMENT") and subject to its terms and
conditions, the Underwriter agrees to purchase from the Company, the entire
principal amount of the Notes at 98.50% of the principal amount thereof (the
"PURCHASE PRICE"). The Underwriter shall determine the stated interest rate on
the Notes not later than 5:00 P.M., New York City time, on March 16, 2000 and
advise the Company in writing thereof; PROVIDED, that, the effective interest
cost on the Notes to the Company shall not exceed 10.771% per annum, and the
stated interest rate on the Notes shall not exceed 10.75% per annum. In the
event that the stated interest rate on the Notes exceeds 10.375% per annum, the
Purchase Price will be increased to an amount such that the effective interest
cost on the Notes to the Company will equal 10.771% per annum.
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3. TERMS OF PUBLIC OFFERING. The Company is advised by the Underwriter
that the Underwriter proposes to make a public offering of the Securities as
soon after the execution and delivery of this Agreement as in judgment of the
Underwriter is advisable on the basis set forth in the Prospectus Supplement.
4. DELIVERY AND PAYMENT. Delivery to the Underwriter of and payment for
the Securities shall be made at 10:00 A.M., New York City time, on the third
business day after the date on which the stated interest rate is designated by
the Underwriter (the "CLOSING DATE"), at such place as you shall designate. The
Closing Date and the location of delivery of and the form of payment for the
Securities may be varied by agreement between you and the Company.
Certificates for the Securities shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date. Such certificates shall be made
available to you for inspection not later than 9:30 A.M., New York City time, on
the business day next preceding the Closing Date. Certificates in definitive
form evidencing the Securities shall be delivered to you on the Closing Date
with any transfer taxes thereon duly paid by the Company, for the account of the
Underwriter, against payment of the Purchase Price therefor by wire or certified
or official bank checks payable in Federal funds to the order of the Company. If
the Securities will be issued in book-entry form, the Company shall deposit the
global certificate(s) representing the Securities with the Depository Trust
Company ("DTC"), or its designated custodian, at the Closing Date, and the
Company will deliver such global certificate(s) to the Underwriter by causing
DTC to credit the Securities to the account of the Underwriter at DTC against
payment therefor as set forth above.
5. AGREEMENTS OF THE ISSUERS. The Issuers, jointly and severally, agree
with the Underwriter as follows:
(a) The Issuers will, if necessary or required by law, file an
amendment to the Registration Statement or, if necessary pursuant to Rule
430A under the Act, a post-
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effective amendment to the Registration Statement, as soon as practicable
after the execution and delivery of this Agreement, and will use their
best efforts to cause the Registration Statement or such post-effective
amendment to become effective at the earliest possible time. The Company
will comply fully and in a timely manner with the applicable provisions
of Rule 424 and Rule 430A under the Act.
(b) The Issuers will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of the effectiveness of any
amendment to the Registration Statement; (ii) of the transmission to the
Commission for filing of any supplement to the Prospectus (including any
document that would as a result of such filing become an Incorporated
Document) and to furnish you with copies thereof; (iii) of the receipt of
any comments from the Commission that relate to the Registration
Statement or of any request by the Commission for amendment of or a
supplement to the Registration Statement or the Prospectus or for
additional information; (iv) 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 the Prospectus or of the
suspension of qualification of the Securities for offering or sale in any
jurisdiction or the initiation or the threatening of any proceeding for
such purpose; and (v) within the period of time referred to in paragraph
(e) 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
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Registration Statement or any order preventing or suspending the use of
the Prospectus or suspending any such qualification shall be issued, the
Issuers will promptly use their best efforts to obtain the withdrawal of
such order at the earliest possible time.
(c) The Issuers 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) the Prospectus and any amendment or supplement thereto, (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 Issuers 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 (e) 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) 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 Underwriter a prospectus is required by the
Act to be delivered in connection with sales by the Underwriter or any
dealer, the Issuers will expeditiously deliver to the 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
Issuers consent 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
Securities are offered by the Underwriter and by all dealers to whom
Securities may be sold, both in connection with the
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offering and sale of the Securities and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by the Underwriter or any dealer.
(f) If during the period of time referred to in paragraph (e)
above any event shall occur as a result of which, in the judgment of the
Issuers or in the opinion of counsel for the Underwriter, it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with the Act or any other
law, the Issuers will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate amendment or
supplement to the Prospectus so that the statements in the Prospectus, as
so amended or supplemented, will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to the Underwriter and to such dealers as
you shall specify such number of copies thereof as the Underwriter or
such dealers may reasonably request. In the event that the Issuers and
you agree that the Prospectus should be amended or supplemented, the
Issuers, 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 Issuers will cooperate with you and with counsel for the
Underwriter in connection with the registration or qualification of the
Securities for offering and sale by the Underwriter 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, HOWEVER, that in no event shall any Issuer 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
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the Securities, in any jurisdiction where it is not now so subject.
(h) The Issuers 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 of the Prospectus 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 11(a) of the Act and Rule 158
thereunder, and to advise you in writing when such statement has been
made available.
(i) During the period of five years hereafter, the Issuers 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) The Company will apply the net proceeds from the sale of the
Securities in accordance with the description set forth in the Prospectus
under the caption "Use of Proceeds."
(k) Neither the Company nor any of its subsidiaries has taken, or
will 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 Securities to facilitate the sale or
resale of the Securities.
(l) The Issuers will pay all costs, expenses, fees and taxes
incident to (i) the preparation, printing, filing and distribution under
the Act of the Registration Statement (including financial statements and
exhibits), and all amendments and supplements thereto prior to or during
the period specified in paragraph (e) above, (ii) the printing and
delivery of the Prospectus and all amendments or supplements thereto
during the period specified in paragraph (e) above, (iii) the printing
and
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delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Securities (including in each case any disbursements of counsel for the
Underwriter relating to such printing and delivery), (iv) the
registration or qualification of the Securities for offer and sale under
the securities or Blue Sky laws of the several states (including in each
case the reasonable fees and disbursements of counsel for the Underwriter
relating to such registration or qualification and memoranda relating
thereto), (v) filings and clearance with the National Association of
Securities Dealers, Inc. in connection with the offering, (vi) the
listing, if any, of the Securities on any national securities exchange,
and (vii) furnishing such copies of the Registration Statement, the
Prospectus and all amendments and supplements thereto as may be requested
for use in connection with the offering or sale of the Securities by the
Underwriter or by dealers to whom Securities may be sold.
(m) The Issuers will not during the period beginning on the date
hereof and continuing to and including the Closing Date, offer, sell,
contract to sell or otherwise dispose of any debt securities of the
Company or any warrants, options or other rights to purchase or acquire
debt securities of the Company or any securities convertible into or
exchangeable for debt securities of the Company (other than (i) the
Securities and (ii) commercial paper issued in the ordinary course of
business), without the prior written consent of the Underwriter.
(n) The Issuers will use their best efforts to do and perform all
things required or necessary to be done and performed under this
Agreement by the Issuers prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Securities.
6. REPRESENTATIONS AND WARRANTIES OF THE ISSUERS. The Issuers, jointly
and severally, represent and warrant to the Underwriter that:
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(a) Each preliminary 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 preliminary prospectus.
(b) The Registration statement has become effective and at the
date of the Prospectus (if different), including at the date of any
post-effective amendment or supplement, the Registration Statement will
comply in all material respects with the provisions of the Act, and will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; the Prospectus (and any supplements or
amendments thereto) will at all such times comply in all material
respects with the provisions of the Act and will not at any such time
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, 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 Issuers with respect to the Underwriter
specifically for inclusion therein.
(c) The Incorporated Documents, at the time they were filed with
the Commission or, to the extent such documents were subsequently amended
prior to the date hereof, at the time so amended, complied in all
material respects with the requirements of the Act or the Securities
Exchange Act of 1934, as amended, and the published rules and regulations
of the Commission thereunder (collectively, the "EXCHANGE ACT"), as
applicable, and such documents do not on the date hereof and will not on
the Closing Date contain an untrue statement of a material fact and do
not on the date hereof and will not on the Closing Date omit to state a
material fact required to be stated therein or necessary
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to make the statements 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) in the Registration Statement or 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 financial
statements of the Company, are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(f) [Reserved]
(g) The Company and each of its subsidiaries 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, singly or in the aggregate, 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.
(h) The Company has an authorized capitalization as set forth in
the Prospectus; and all of the issued equity interests 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
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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 execution, delivery and performance of this Agreement, the
Indenture and the Securities by the issuers, compliance by the Issuers of
all the provisions hereof and thereof 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
property 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 Securities by the Underwriter, 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 Indenture and
the Securities by the Issuers, compliance by the Issuers of all the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby.
(j) This Agreement has been duly authorized, executed and
delivered by the Issuers and is a valid and binding agreement of the
Issuers enforceable in accordance with its terms (except as rights to
indemnity and contribution hereunder may be limited by applicable law).
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(k) The Indenture has been duly qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), and has been duly
authorized, executed and delivered by the Issuers and is a valid and
binding agreement of the Issuers, enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(l) The Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to the Underwriter against payment therefor as provided by this
Agreement, will be entitled to the benefits of the Indenture, and will be
valid and binding obligations of the Company, enforceable in accordance
with their terms except as (i) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(m) The Guarantees have been duly authorized and, upon endorsement
on the Notes by the Guarantors, execution and authentication of the Notes
in accordance with the provisions of the Indenture and delivery of the
Notes to the Underwriter against payment therefor as provided by this
Agreement, will be entitled to the benefits of the Indenture, and will be
valid and binding obligations of the Guarantors, enforceable in
accordance with their terms except as (i) the enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(n) The Securities and the Indenture conform to the description
thereof in the Prospectus.
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(o) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements 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.
(p) 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.
(q) 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 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.
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(r) Except as described 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 Issuers' knowledge, no such
proceedings are threatened by governmental authorities or by others.
(s) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(t) To the Issuers' knowledge, 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 their 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 Issuers' knowledge, 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, 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
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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.
(u) The Company and 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.
(v) The Company and 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.
(w) 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 in the
Prospectus or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Act.
(x) No labor disturbance by the employees of the Company or any of
its subsidiaries exists or, to the Issuers' knowledge, is imminent which
could reasonably be expected to have a Material Adverse Effect.
(y) The Company and its subsidiaries have 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, except where the
failure to do so has not had and would reasonably not be expected to have
a Material Adverse Effect, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor
does any Issuer have any knowledge of any tax deficiency which would
reasonably likely have) a Material Adverse Effect.
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(z) Since the date as of which information is given in the
Prospectus, and except as may otherwise be disclosed in the Prospectus,
neither the Company nor any of its subsidiaries has (i) entered into any
material transaction not in the ordinary course of business or (ii)
except for the dividend of $.04 per share declared in January 2000 and
payable on February 17, 2000, declared or paid any dividend on its
capital stock from the date of the Prospectus, neither the Company nor
any of its subsidiaries has incurred any material liability other than in
the ordinary course of business.
(aa) The Company is in full compliance with Section 13(b)(2) of
the Exchange Act.
(bb) 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.
(cc) Neither the Company nor any of its subsidiaries is an
"investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and
the rules and regulations of the Commission thereunder.
<PAGE>
-17-
7. INDEMNIFICATION. (a) The Issuers, jointly and severally, agree to
indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
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 judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Underwriter furnished in writing
to the Issuers by or on behalf of the Underwriter expressly for use therein;
PROVIDED, HOWEVER, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of the Underwriter or any
person controlling the Underwriter asserted by a person with respect to any such
losses, claims, damages and liabilities and judgments, if a copy of the
Prospectus (as then amended or supplemented if the Issuers shall have furnished
such amendment or supplement thereto in the requisite quantity on a timely basis
to permit such sending or giving) was not sent or given by or on behalf of the
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of Securities to such person, and
if the Prospectus (as so amended and supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or judgment. Notwithstanding
anything to the contrary herein, the Underwriter shall not be obligated to send
or give any Incorporated Document, or any amendment or supplement thereto, to
any person in order to benefit from the indemnity provisions herein or
otherwise. The foregoing indemnity agreement shall be in addition to any
liability that the Issuers may otherwise have.
(b) In case any action shall be brought against the Underwriter or any
person controlling the Underwriter, based
<PAGE>
-18-
upon any preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereto and with respect to which indemnity may be
sought against the Issuers, the Underwriter shall promptly notify the Issuers in
writing and the Issuers shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses. The Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Underwriter or such controlling person unless (i)
the employment of such counsel shall have been specifically authorized in
writing by the Issuers, (ii) the Issuers shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such action (including any
impleaded parties) include both the Underwriter or such controlling person and
the Issuers and the Underwriter or such controlling person shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Issuers
(in which case the Issuers shall not have the right to assume the defense of
such action on behalf of the Underwriter or such controlling person, it being
understood, however, that the Issuers shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Underwriter and all such controlling
persons, which firm shall be designated in writing by the Underwriter and that
all such fees and expenses shall be reimbursed as they are incurred). The
Issuers shall not be liable for any settlement of any such action effected
without the Company's written consent but if settled with the written consent of
the Company, the Issuers agree to indemnify and hold harmless the Underwriter
and any such controlling person from and against any loss or liability by reason
of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened 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
<PAGE>
-19-
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(c) The Underwriter agrees to indemnify and hold harmless the Issuers,
their directors, their officers who sign the Registration Statement and any
person controlling the Issuers within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from the Issuers to the Underwriter but only with reference to information
relating to the Underwriter furnished in writing by or on behalf of the
Underwriter expressly for use in the Registration Statement, the Prospectus or
any preliminary prospectus. In case any action shall be brought against the
Issuers, any of its directors, any such officer or any person controlling the
Issuers based on the Registration Statement, the Prospectus or any preliminary
prospectus and in respect of which indemnity may be sought against the
Underwriter, the Underwriter shall have the rights and duties given to the
Issuers (except that if the Issuers shall have assumed the defense thereof, the
Underwriter shall not be required 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 the expense of the Underwriter), and the Issuers, their
directors, any such officers and any person controlling the Issuers shall have
the rights and duties given to the Underwriter, by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each 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 and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Issuers on the one hand and the
Underwriter on the other hand from the offering of the Securities 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
<PAGE>
-20-
the Issuers and the Underwriter in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Issuers and the Underwriter 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 compensation received by the
Underwriter (based on discount to investors on resale), bear to the sum of such
total net proceeds and such compensation. The relative fault of the Issuers and
the Underwriter shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Issuers or the
Underwriter and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Issuers and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph 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 or defending any such action or claim.
Notwithstanding the provisions of this Section 7, the Underwriter shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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.
<PAGE>
-21-
(e) The Underwriter confirms and the Issuers acknowledge that the
statements with respect to the public offering of the Securities by the
Underwriter set forth in the third paragraph of the section entitled
"Underwriting" in the Prospectus Supplement are correct and constitute the only
information concerning the Underwriter furnished in writing to the Issuers by or
on behalf of the Underwriter specifically for inclusion in the Registration
Statement and the Prospectus.
8. CONDITIONS OF UNDERWRITER'S OBLIGATION. The obligation of the
Underwriter to purchase the Securities under this Agreement is subject to the
satisfaction of each of the following conditions:
(a) All the representations and warranties of the Issuers
contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date.
The Issuers shall have performed or complied with all of their agreements
herein contained and required to be performed or complied with by them at
or prior to the Closing Date.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or
threatened by the Commission, (ii) every request for additional
information on the part of the Commission shall have been complied with
in all material respects, and (iii) no stop order suspending the sale of
the Securities in any jurisdiction referred to in Section 6(g) shall have
been issued and no proceeding for that purpose shall have been commenced
or shall be pending or threatened which would, in your reasonable
judgment, make it impracticable or inadvisable to market the Securities
or to enforce contracts for the sale of the Securities.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any downgrading, nor
shall any notice have been given of any intended or potential downgrading
or of
<PAGE>
-22-
any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any Issuer's debt by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Act.
(d) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, affairs or business prospects, whether or not arising in
the ordinary course of business, of the Company and its subsidiaries
taken as a whole, (ii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus there shall not
have been any change, or any development involving a prospective material
adverse change, in the capital stock or in the long-term debt of the
Company or any of its subsidiaries from that set forth in the
Registration Statement and Prospectus and (iii) the Company and its
subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole,
other than those reflected in the Registration Statement and the
Prospectus.
(e) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Donald R. Horton or Donald J. Tomnitz
and Samuel Fuller, in their capacities as the Chairman of the Board or
Chief Executive Officer and President and Chief Financial Officer of the
Company, respectively, confirming the matters set forth in paragraphs
(a), (b), (c) and (d) of this Section 8.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriter), dated the Closing
Date, of Gibson Dunn & Crutcher LLP, special counsel for the Company, to
the effect that:
<PAGE>
-23-
(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 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 in the Prospectus.
(ii) To such counsel's knowledge and other than as
described 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.
(iii) 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 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.
(iv) 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 data (and the
related notes thereto) and statistical data and the
<PAGE>
-24-
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 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.
(v) 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.
(vi) This Agreement has been duly authorized, executed and
delivered by the Issuers.
(vii) The execution, delivery and performance of this
Agreement, the Indenture and the Securities by the Issuers and the
compliance by the Issuers with all of the provisions of this
Agreement and the consummation by the Issuers 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 material agreement or instrument listed as
an exhibit to its Annual Report on Form 10-K for the fiscal year
ended September 30, 1999 or to any subsequent filing under the
Exchange Act or the Act, nor will such actions result in any
<PAGE>
-25-
violation of the provisions of the charter or by-laws of any
Issuer 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 any Issuer or
any of their property or assets; 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 Securities by the Underwriter, 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
Indenture and the Securities by the Issuers and the valid issuance
and sale of the Securities by the Issuers.
(viii) The Indenture has been duly qualified under the TIA
and has been duly authorized, executed and delivered by the
Issuers and is a valid and binding agreement of the Issuers,
enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors, rights generally and (b) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(ix) The Notes have been duly authorized and executed by
the Company and, when authenticated in accordance with the
provisions of the Indenture and delivered to the Underwriter
against payment therefor as provided by this Agreement, will be
entitled to the benefits of the Indenture, and will be valid and
binding obligations of the Company, enforceable in accordance with
their terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and
the availability of equitable
<PAGE>
-26-
remedies may be limited by equitable principles of general
applicability.
(x) The Guarantees have been duly authorized and endorsed
on the Notes by the Guarantors, and, upon execution and
authentication of the Notes in accordance with the provisions of
the Indenture and delivery thereof to the Underwriter against
payment therefor as provided by this Agreement, will be entitled
to the benefits of the Indenture, and will be valid and binding
obligations of the Guarantors, enforceable in accordance with
their terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable
principles of general applicability.
(xi) The Securities and the Indenture conform in all
material respects to the descriptions thereof in the Prospectus.
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 Underwriter a written
statement, addressed to the Underwriter and dated the Closing Date, in form and
substance satisfactory to the Underwriter and counsel for the Underwriter, 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 internal counsel, and its accountants and the representatives of the
Underwriter 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 data (and
related notes
<PAGE>
-27-
thereto) and statistical data and the financial statements and related schedules
contained or incorporated by reference therein), as of the date the 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 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 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.
(g) You shall have received on the Closing Date, an opinion of
Paul W. Buchschacher, Esq., Corporate Counsel for the Company, dated the
Closing Date and addressed to you, to the effect that:
Each Guarantor that 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
<PAGE>
-28-
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 Guarantor 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
Guarantor that 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 partnership power and authority necessary to
own or hold its properties and conduct its business as described
in the Prospectus.
(h) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Cahill Gordon and Reindel, counsel for the
Underwriter, in form and substance satisfactory to the Underwriter.
(i) You shall have received a letter on and as of the Closing
Date, in form and substance satisfactory to you, from Ernst & Young, LLP,
independent public accountants, with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form and substance of the
letter
<PAGE>
-29-
delivered to you by Ernst & Young, LLP, on the date of this Agreement.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements in
the Prospectus any loss or interference with its business 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 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 the Underwriter, so material
and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Securities being delivered on
the Closing Date on the terms and in the manner contemplated in the
Prospectus.
(k) The Issuers 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.
(l) You shall have been furnished with such additional documents
and certificates as you or counsel for the Underwriter may reasonably
request.
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.
<PAGE>
-30-
Any certificate or document signed by any officer of the Issuers
and delivered to you or to your counsel shall be deemed a representation
and warranty by the Issuers to the Underwriter as to the statements made
therein.
9. TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date by
you by written notice to the Issuers if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or development
involving a prospective material adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries or the earnings, affairs, or
business prospects of the Company and any of its subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, which would, in your
judgment, make it impracticable to market the Securities on the terms and in the
manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable to market the Securities on the terms and in the
manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices for
securities on any such exchange, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company and its subsidiaries taken as a whole, (v) the
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
<PAGE>
-31-
10. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Issuers, to D.R. Horton,
1901 Ascension Blvd., Suite 100 Arlington, Texas 76006, and (b) if to the
Underwriter, to Morgan Stanley & Co. Incorporated, 1585 Broadway, 27th Floor,
New York, New York 10036, Attention: Syndicate Desk, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, its officers and directors (in
their capacities as such) and of the Underwriter set forth in or made pursuant
to this Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Securities, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
the Underwriter or by or on behalf of the Company, the officers or directors of
the Company or any controlling person of the Company (in their capacities as
such), (ii) acceptance of the Securities and payment for them hereunder and
(iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriter because of any
failure or refusal on the part of any Issuer to perform any of its agreements in
this Agreement or to fulfill any of the conditions of Section 8 of this
Agreement, the Issuers, jointly and severally, agree to reimburse the
Underwriter for all out-of-pocket expenses (including the fees and disbursements
of counsel) reasonably incurred by it.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Issuers, the Underwriter, any
controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include a purchaser of any of the
Securities from the Underwriter merely because of such purchase.
<PAGE>
-32-
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
<PAGE>
-33-
Please confirm that the foregoing correctly sets forth the agreement
between the Issuers and the Underwriter.
Very truly yours,
D.R. HORTON, INC.
By:
------------------------------------
Name:
Title:
<PAGE>
-34-
GUARANTORS:
DRHI, Inc.
Meadows I, Ltd.
Meadows IX, Inc.
Meadows X, Inc.
D.R. Horton, Inc.-Birmingham
D.R. Horton, Inc.-Chicago
D.R. Horton, Inc.-Denver
D.R. Horton, Inc.-Greensboro
D.R. Horton, Inc.-Louisville
D.R. Horton, Inc.-Minnesota
D.R. Horton, Inc.-New Jersey
D.R. Horton, Inc.-Portland
D.R. Horton, Inc.-Sacramento
D.R. Horton, Inc.-San Diego
D.R. Horton, Inc.-Torrey
D.R. Horton San Diego Holding Company, Inc.
D.R. Horton Los Angeles Holding Company,
Inc.
DRH Construction, Inc.
DRH Cambridge Homes, Inc. (formerly D.R.
Horton Sacramento Management Company,
Inc.)
C. Richard Dobson Builders, Inc.
DRH Tucson Construction, Inc.
Continental Homes, Inc.
KDB Homes, Inc.
Continental Residential, Inc.
Continental Homes of Florida, Inc.
CHI Construction Company
CHTEX of Texas, Inc.
By:
----------------------------------------
Name:
Title:
<PAGE>
-35-
Meadows II, Ltd.
CH Investments of Texas, Inc.
By: _________________________
Name: William Peck
Title: President
<PAGE>
-36-
SGS COMMUNITIES AT GRANDE QUAY, LLC
By: Meadows IX, Inc., a member
By:
--------------------------------
Name:
Title:
and
By: Meadows X, Inc., a member
By:
--------------------------------
Name:
Title:
D.R. HORTON MANAGEMENT COMPANY, LTD.
D.R. HORTON - TEXAS, LTD.
By: Meadows I, Ltd.,
its general partner
By:
--------------------------------
Name:
Title:
<PAGE>
-37-
CONTINENTAL HOMES OF TEXAS, L.P.
By: CHTEX of Texas, Inc.,
its general partner
By:
--------------------------------
Name:
Title:
<PAGE>
-38-
Agreed and accepted as of the
date first written above:
MORGAN STANLEY & CO.
INCORPORATED
By:
-------------------------------
Name:
Title:
<PAGE>
================================================================================
D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO
10 1/2% SENIOR NOTES DUE 2005
----------------------
EIGHTH SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 21, 2000
----------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY,
TRUSTEE
================================================================================
<PAGE>
EIGHTH SUPPLEMENTAL INDENTURE dated as of March 21, 2000
("SUPPLEMENTAL INDENTURE"), to the Indenture dated as of June 9, 1997 (as
amended, modified or supplemented from time to time in accordance therewith, the
"INDENTURE"), by and among D.R. HORTON, INC., a Delaware corporation (the
"COMPANY"), each of the Guarantors (as defined herein) and AMERICAN STOCK
TRANSFER & TRUST COMPANY, as trustee (the "TRUSTEE").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the holders of Notes (as defined
herein):
WHEREAS, the Company, the Guarantors and the Trustee have duly
authorized the execution and delivery of the Indenture to provide for the
issuance from time to time of senior debt securities (the "Securities") to be
issued in one or more series as in the Indenture provided;
WHEREAS, the Company and the Guarantors desire and have
requested the Trustee to join them in the execution and delivery of this
Supplemental Indenture in order to establish and provide for the issuance by the
Company of a series of Securities designated as its 10 1/2% Senior Notes due
2005 in the aggregate principal amount of $150,000,000, substantially in the
form attached hereto as Exhibit A (the "NOTES"), guaranteed by the Guarantors,
on the terms set forth herein;
WHEREAS, Section 2.01 of the Indenture provides that a
supplemental indenture may be entered into by the Company, the Guarantors and
the Trustee for such purpose provided certain conditions are met;
WHEREAS, the conditions set forth in the Indenture for the
execution and delivery of this Supplemental Indenture have been complied with;
and
WHEREAS, all things necessary to make this Supplemental
Indenture a valid agreement of the Company, the Guarantors and the Trustee, in
accordance with its terms, and a valid amendment of, and supplement to, the
Indenture have been done;
<PAGE>
-2-
NOW, THEREFORE:
In consideration of the premises and the purchase and
acceptance of the Notes by the holders thereof the Company and the Guarantors
mutually covenant and agree with the Trustee, for the equal and ratable benefit
of the holders, that the Indenture is supplemented and amended, to the extent
expressed herein, as follows:
ARTICLE ONE
SCOPE OF SUPPLEMENTAL INDENTURE; GENERAL
The changes, modifications and supplements to the Indenture
effected by this Supplemental Indenture shall be applicable only with respect
to, and govern the terms of, the Notes, which shall be limited in aggregate
principal amount to $150,000,000 in one series, and shall not apply to any other
Securities that may be issued under the Indenture unless a supplemental
indenture with respect to such other Securities specifically incorporates such
changes, modifications and supplements. Pursuant to this Supplemental Indenture,
there is hereby created and designated a series of Securities under the
Indenture entitled "10 1/2% Senior Notes due 2005." The Notes shall be in the
form of EXHIBIT A hereto. The Notes shall be guaranteed by the Guarantors as
provided in such form and the Indenture. If required, the Notes may bear an
appropriate legend regarding original issue discount for federal income tax
purposes.
ARTICLE TWO
CERTAIN DEFINITIONS
The following terms have the meanings set forth below in this
Supplemental Indenture. Capitalized terms used but not defined herein have the
meanings ascribed to such terms in the Indenture. To the extent terms defined
herein differ from the Indenture the terms defined herein will govern.
"ACQUIRED INDEBTEDNESS" means (i) with respect to any Person
that becomes a Restricted Subsidiary (or is merged into
<PAGE>
-3-
the Company or any Restricted Subsidiary) after the Issue Date, Indebtedness of
such Person or any of its Subsidiaries existing at the time such Person becomes
a Restricted Subsidiary (or is merged into the Company or any Restricted
Subsidiary) that was not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary (or being merged into the Company
or any Restricted Subsidiary) and (ii) with respect to the Company or any
Restricted Subsidiary, any Indebtedness expressly assumed by the Company or any
Restricted Subsidiary in connection with the acquisition of any assets from
another Person (other than the Company or any Restricted Subsidiary), which
Indebtedness was not incurred by such other Person in connection with or in
contemplation of such acquisition. Indebtedness incurred in connection with or
in contemplation of any transaction described in clause (i) or (ii) of the
preceding sentence shall be deemed to have been incurred by the Company or a
Restricted Subsidiary, as the case may be, at the time such Person becomes a
Restricted Subsidiary (or is merged into the Company or any Restricted
Subsidiary) in the case of clause (i) or at the time of the acquisition of such
assets in the case of clause (ii), but shall not be deemed Acquired
Indebtedness.
"AFFILIATE" means, when used with reference to a specified
Person, any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Person specified.
"ASSET ACQUISITION" means (i) an Investment by the Company or
any Restricted Subsidiary in any other Person if, as a result of such
Investment, such Person shall become a Restricted Subsidiary or shall be
consolidated or merged with or into the Company or any Restricted Subsidiary or
(ii) the acquisition by the Company or any Restricted Subsidiary of the assets
of any Person, which constitute all or substantially all of the assets or of an
operating unit or line of business of such Person or which is otherwise outside
the ordinary course of business.
"ASSET DISPOSITION" means any sale, transfer, conveyance,
lease or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback or sale of shares of Capital Stock in any
<PAGE>
-4-
Subsidiary) (each, a "TRANSACTION") by the Company or any Restricted Subsidiary
to any Person of any Property having a fair market value in any transaction or
series of related transactions of at least $10 million. The term "ASSET
DISPOSITION" shall not include (i) a transaction between the Company and any
Restricted Subsidiary or a transaction between Restricted Subsidiaries, (ii) a
transaction in the ordinary course of business, including, without limitation,
sales (directly or indirectly), dedications and other donations to governmental
authorities, leases and sales and leasebacks of (A) homes, improved land and
unimproved land and (B) real estate (including related amenities and
improvements), (iii) a transaction involving the sale of Capital Stock of, or
the disposition of assets in, an Unrestricted Subsidiary, (iv) any exchange or
swap of assets of the Company or any Restricted Subsidiary for assets that (x)
are to be used by the Company or any Restricted Subsidiary in the ordinary
course of its Real Estate Business and (y) have a Fair Market Value not less
than the Fair Market Value of the assets exchanged or swapped, (v) any sale,
transfer, conveyance, lease or other disposition of assets and properties of the
Company that is governed by Section 3.08 hereof, or (iv) dispositions of
mortgage loans and related assets and mortgage-backed securities in the ordinary
course of a mortgage lending business.
"ATTRIBUTABLE DEBT" means, with respect to any Capitalized
Lease Obligations, the capitalized amount thereof determined in accordance with
GAAP.
"BANKRUPTCY LAW" means title 11 of the United States Code, as
amended, or any similar federal or state law for the relief of debtors.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
or in such Person's capital stock or other equity interests, and options, rights
or warrants to purchase such capital stock or other equity interests, whether
now outstanding or issued after the Issue Date, including, without limitation,
all Disqualified Stock and Preferred Stock.
<PAGE>
-5-
"CAPITALIZED LEASE OBLIGATIONS" of any Person means the
obligations of such Person to pay rent or other amounts under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of such obligations will be the capitalized amount thereof
determined in accordance with GAAP.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities
issued or directly and fully guaranteed or insured by the U.S. government or any
agency or instrumentality thereof having maturities of one year or less from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group, respectively, and in each case maturing within six months
after the date of acquisition; and (f) investments in money market funds
substantially all of the assets of which consist of securities described in the
foregoing clauses (a) through (e).
"CHANGE OF CONTROL" means (i) any sale, lease or other
transfer (in one transaction or a series of transactions) of all or
substantially all of the consolidated assets of the Company and its Restricted
Subsidiaries to any Person (other than a Restricted Subsidiary); PROVIDED,
HOWEVER, that a transaction where the holders of all classes of Common Equity of
the Company immediately prior to such transaction own, directly or indirectly,
more than 50% of all classes of Common Equity of such Person immediately after
such transaction shall not be a Change of Control; (ii) a "person" or "group"
(within the meaning of Section 13(d) of the Exchange Act (other than (x) the
Company or (y) Donald R. Horton, Terrill J. Horton, or their respective wives,
children, grandchildren and other descendants, or any trust or
<PAGE>
-6-
other entity formed or controlled by any of such individuals)) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Common
Equity of the Company representing more than 50% of the voting power of the
Common Equity of the Company; (iii) Continuing Directors cease to constitute at
least a majority of the Board of Directors of the Company; or (iv) the
stockholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; PROVIDED, HOWEVER, that a liquidation or dissolution
of the Company which is part of a transaction that does not constitute a Change
of Control under the proviso contained in clause (i) above shall not constitute
a Change of Control.
"COMMON EQUITY" of any Person means Capital Stock of such
Person that is generally entitled to (i) vote in the election of directors of
such Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management or policies of such Person.
"CONSOLIDATED ADJUSTED TANGIBLE ASSETS" of the Company as of
any date means the Consolidated Tangible Assets of the Company and the
Restricted Subsidiaries at the end of the fiscal quarter immediately preceding
the date less any assets securing any Non-Recourse Indebtedness, as determined
in accordance with GAAP.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means,
for any period, on a consolidated basis for the Company and the Restricted
Subsidiaries, Consolidated Net Income for such period plus (each to the extent
deducted in calculating such Consolidated Net Income and determined in
accordance with GAAP) (a) the sum for such period, without duplication, of (i)
income taxes, (ii) Consolidated Interest Expense, (iii) depreciation and
amortization expenses and other non-cash charges to earnings and (iv) interest
and financing fees and expenses which were previously capitalized and which are
amortized to cost of sales, minus (b) all other non-cash items (other than the
receipt of notes receivable) increasing such Consolidated Net Income.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect
to any determination date, the ratio of (x)
<PAGE>
-7-
Consolidated Cash Flow Available for Fixed Charges for the prior four full
fiscal quarters (the "FOUR QUARTER PERIOD") for which financial results have
been reported immediately preceding the determination date (the "TRANSACTION
DATE"), to (y) the aggregate Consolidated Interest Incurred for the Four Quarter
Period. For purposes of this definition, "Consolidated Cash Flow Available for
Fixed Charges" and "Consolidated Interest Incurred" shall be calculated after
giving effect on a PRO FORMA basis for the period of such calculation to (i) the
incurrence or the repayment, repurchase, defeasance or other discharge or the
assumption by another Person that is not an Affiliate (collectively,
"REPAYMENT") of any Indebtedness of the Company or any Restricted Subsidiary
(and the application of the proceeds thereof) giving rise to the need to make
such calculation, and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), at any time on or after the first day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period, except that
Indebtedness under revolving credit facilities shall be deemed to be the average
daily balance of such Indebtedness during the Four Quarter Period (as reduced on
such PRO FORMA basis by the application of any proceeds of the incurrence of
Indebtedness giving rise to the need to make such calculation); (ii) any Asset
Disposition or Asset Acquisition (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or any Restricted Subsidiary (including any Person that becomes a
Restricted Subsidiary as a result of any such Asset Acquisition) incurring
Acquired Indebtedness at any time on or after the first day of the Four Quarter
Period and on or prior to the Transaction Date), as if such Asset Disposition or
Asset Acquisition (including the incurrence or repayment of any such
Indebtedness) and the inclusion, notwithstanding clause (ii) of the definition
of "Consolidated Net Income," of any Consolidated Cash Flow Available for Fixed
Charges associated with such Asset Acquisition as if it occurred on the first
day of the Four Quarter Period; PROVIDED, HOWEVER, that the Consolidated Cash
Flow Available for Fixed Charges associated with any Asset Acquisition shall not
be included to the extent the net income so associated would be excluded
<PAGE>
-8-
pursuant to the definition of "Consolidated Net Income," other than clause (ii)
thereof, as if it applied to the Person or assets involved before they were
acquired; and (iii) the Consolidated Cash Flow Available for Fixed Charges and
the Consolidated Interest Incurred attributable to discontinued operations, as
determined in accordance with GAAP, shall be excluded. Furthermore, in
calculating "Consolidated Cash Flow Available for Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on Indebtedness in respect of which a PRO
FORMA calculation is required that is determined on a fluctuating basis as of
the Transaction Date (including Indebtedness actually incurred on the
Transaction Date) and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate PER ANNUM equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (2)
notwithstanding clause (1) above, interest on such Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Protection Agreements, shall be deemed to accrue at the rate PER
ANNUM resulting after giving effect to the operation of such agreements.
"CONSOLIDATED INTEREST EXPENSE" of the Company for any period
means the Interest Expense of the Company and the Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST INCURRED" for any period means the
Interest Incurred of the Company and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" for any period means the aggregate
net income (or loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; PROVIDED that there
will be excluded from such net income (loss) (to the extent otherwise included
therein), without duplication: (i) the net income (or loss) of (x) any
Unrestricted Subsidiary (other than a Mortgage Subsidiary) or (y) any Person
(other than a Restricted Subsidiary) in which any Person other than the Company
or any Restricted Subsidiary has an ownership
<PAGE>
-9-
interest, except, in each case, to the extent that any such income has actually
been received by the Company or any Restricted Subsidiary in the form of cash
dividends or similar cash distributions during such period, which dividends or
distributions are not in excess of the Company's or such Restricted Subsidiary's
(as applicable) pro rata share of such Unrestricted Subsidiary's or such other
Person's net income earned during such period, (ii) except to the extent
includable in Consolidated Net Income pursuant to the foregoing clause (i), the
net income (or loss) of any Person that accrued prior to the date that (a) such
Person becomes a Restricted Subsidiary or is merged with or into or consolidated
with the Company or any of its Restricted Subsidiaries (except, in the case of
an Unrestricted Subsidiary that is redesignated a Restricted Subsidiary during
such period, to the extent of its retained earnings from the beginning of such
period to the date of such redesignation) or (b) the assets of such Person are
acquired by the Company or any Restricted Subsidiary, (iii) the net income of
any Restricted Subsidiary to the extent that (but only so long as) the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of that income is not permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary during such
period, (iv) the gains or losses, together with any related provision for taxes,
realized during such period by the Company or any Restricted Subsidiary
resulting from (a) the acquisition of securities, or extinguishment of
Indebtedness, of the Company or any Restricted Subsidiary or (b) any Asset
Disposition by the Company or any Restricted Subsidiary, (v) any extraordinary
gain or loss together with any related provision for taxes, realized by the
Company or any Restricted Subsidiary, (vi) any non-recurring expense recorded by
the Company or any Restricted Subsidiary in connection with a merger accounted
for as a "pooling-of-interests" transaction; PROVIDED, FURTHER, that for
purposes of calculating Consolidated Net Income solely as it relates to clause
(iii) of Section 3.03(a) hereof, clause (iv)(b) above shall not be applicable.
"CONSOLIDATED NET WORTH" of any Person as of any date means
the stockholders' equity (including any Preferred
<PAGE>
-10-
Stock that is classified as equity under GAAP, other than Disqualified Stock) of
such Person and its Restricted Subsidiaries on a consolidated basis at the end
of the fiscal quarter immediately preceding such date, as determined in
accordance with GAAP, less any amount attributable to Unrestricted Subsidiaries.
"CONSOLIDATED TANGIBLE ASSETS" of the Company as of any date
means the total amount of assets of the Company and its Restricted Subsidiaries
(less applicable reserves) on a consolidated basis at the end of the fiscal
quarter immediately preceding such date, as determined in accordance with GAAP,
less: (i) Intangible Assets and (ii) appropriate adjustments on account of
minority interests of other Persons holding equity investments in Restricted
Subsidiaries.
"CONTINUING DIRECTOR" means a director who either was a member
of the Board of Directors of the Company on the date of this Indenture or who
became a director of the Company subsequent to such date and whose election, or
nomination for election by the Company's stockholders, was duly approved by a
majority of the Continuing Directors on the Board of Directors of the Company at
the time of such approval, either by a specific vote or by approval of the proxy
statement issued by the Company on behalf of the entire Board of Directors of
the Company in which such individual is named as nominee for director.
"CONTROL", when used with respect to any Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
"CREDIT FACILITIES" means, collectively, each of the credit
facilities and guidance lines of credit of the Company or one or more Restricted
Subsidiaries in existence on the date of this Supplemental Indenture and one or
more other facilities or guidance lines of credit among or between the Company
or one or more Restricted Subsidiaries and one or more lenders pursuant to which
the Company or any Restricted Subsidiary may incur indebtedness for working
capital and
<PAGE>
-11-
general corporate purposes (including acquisitions), as any such facility or
line of credit may amended, restated, supplemented or otherwise modified from
time to time, and includes any agreement extending the maturity of, increasing
the amount of, or restructuring, all or any portion of the Indebtedness under
any such facility or line of credit or any successor facilities or lines of
credit and includes any facility or line of credit with one or more lenders
refinancing or replacing all or any portion of the Indebtedness under such
facility or line of credit or any successor facility or line of credit.
"CURRENCY AGREEMENT" of any Person means any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement
designed to protect such Person or any of its Subsidiaries against fluctuations
in currency values.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"DEFAULT" means any event, act or condition that is, or after
notice or the passage of time or both would be, an Event of Default.
"DESIGNATION AMOUNT" has the meaning provided in the
definition of Unrestricted Subsidiary.
"DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Notes or (ii) is convertible into or
exchangeable or exercisable for (whether at the option of the issuer or the
holder thereof) (a) debt securities or (b) any Capital Stock referred to in (i)
above, in each case, at any time prior to the final maturity date of the Notes
PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified
Stock but for provisions thereof giving holders thereof (or the holders of any
security into or for which such
<PAGE>
-12-
Capital Stock is convertible, exchangeable or exercisable) the right to require
the Company to repurchase or redeem such Capital Stock upon the occurrence of a
change in control occurring prior to the final maturity date of the Notes shall
not constitute Disqualified Stock if the change in control provisions applicable
to such Capital Stock are no more favorable to such holders than Section 3.01
hereof and such Capital Stock specifically provides that the Company will not
repurchase or redeem any such Capital Stock pursuant to such provisions prior to
the Company's repurchase of the Notes as are required pursuant to Section 3.01
hereof.
"DOLLARS" and "$" mean United States Dollars.
"EVENT OF DEFAULT" means:
(1) the failure by the Company to pay interest on any Note
when the same becomes due and payable and the continuance of any such
failure for a period of 30 days;
(2) the failure by the Company to pay the principal or premium
of any Note when the same becomes due and payable at maturity, upon
acceleration or otherwise;
(3) the failure by the Company or any Restricted Subsidiary to
comply with any of its agreements or covenants in, or provisions of,
the Notes, the Guarantees or the Indenture and such failure continues
for the period and after the notice specified below (except in the case
of a default under Section 3.01 or 3.08, which will constitute Events
of Default with notice but without passage of time);
(4) the acceleration of any Indebtedness (other than
Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary
that has an outstanding principal amount of $25 million or more,
individually or in the aggregate, and such acceleration does not cease
to exist, or such Indebtedness is not satisfied, in either case within
30 days after such acceleration;
(5) the failure by the Company or any Restricted Subsidiary to
make any principal or interest payment in an amount of $25 million or
more, individually or in the aggregate, in respect of Indebtedness
(other than Non-Recourse Indebtedness) of the Company or any Restricted
Subsidiary within 30 days of such principal or interest
<PAGE>
-13-
becoming due and payable (after giving effect to any applicable grace
period set forth in the documents governing such Indebtedness);
(6) a final judgment or judgments that exceed $25 million or
more, individually or in the aggregate, for the payment of money having
been entered by a court or courts of competent jurisdiction against the
Company or any of its Restricted Subsidiaries and such judgment or
judgments is not satisfied, stayed, annulled or rescinded within 60
days of being entered;
(7) the Company or any Restricted Subsidiary that is a
Significant Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Restricted Subsidiary that is a Significant Subsidiary as
debtor in an involuntary case,
(B) appoints a Custodian of the Company or any
Restricted Subsidiary that is a Significant Subsidiary or a
Custodian for all or substantially all of the property of the
Company or any Restricted Subsidiary that is a Significant
Subsidiary, or
(C) orders the liquidation of the Company or any
Restricted Subsidiary that is a Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days; or
<PAGE>
-14-
(9) any Guarantee of a Guarantor which is a Significant
Subsidiary ceases to be in full force and effect (other than in
accordance with the terms of such Guarantee and the Indenture) or is
declared null and void and unenforceable or found to be invalid or any
Guarantor denies its liability under its Guarantee (other than by
reason of release of a Guarantor from its Guarantee in accordance with
the terms of the Indenture and the Guarantee).
"FAIR MARKET VALUE" means, with respect to any asset, the
price (after taking into account any liabilities relating to such assets) that
would be negotiated in an arm's-length transaction for cash between a willing
seller and a willing and able buyer, neither of which is under any compulsion to
complete the transaction, as such price is determined in good faith by the Board
of Directors of the Company or a duly authorized committee thereof, as evidenced
by a resolution of such Board or committee.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, as in effect on the date of this
Supplemental Indenture.
"GUARANTORS" means (i) initially, each of:
C. Richard Dobson Builders, Inc., a Virginia corporation; CH Investments of
Texas, Inc., a Delaware corporation; CHI Construction Company, an Arizona
corporation; CHTEX of Texas, Inc., a Delaware corporation; Continental Homes,
Inc., a Delaware corporation; Continental Homes of Florida, Inc., a Florida
corporation; Continental Homes of Texas, L.P., a Texas limited partnership
(formerly Continental Homes of Austin, L.P., a Texas limited partnership);
Continental Residential, Inc., a California corporation; D.R. Horton, Inc. -
Birmingham, an Alabama corporation; D.R. Horton, Inc. - Chicago, a Delaware
corporation; D.R. Horton, Inc. - Denver, a
<PAGE>
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Delaware corporation; D.R. Horton, Inc. - Greensboro, a Delaware corporation;
D.R. Horton, Inc. - Louisville, a Delaware corporation; D.R. Horton, Inc. -
Minnesota, a Delaware corporation; D.R. Horton, Inc. - New Jersey, a Delaware
corporation; D.R. Horton, Inc. - Portland, a Delaware corporation; D.R. Horton,
Inc. - Sacramento, a California corporation; D.R. Horton, Inc. - San Diego, a
Delaware corporation; D.R. Horton - Texas Ltd., a Texas limited partnership;
D.R. Horton, Inc. - Torrey, a Delaware corporation; D.R. Horton - Los Angeles
Holding Company, Inc., a California corporation; D.R. Horton Management Company,
Ltd., a Texas limited partnership; D.R. Horton San Diego Holding Company, Inc.,
a California corporation; DRH Cambridge Homes, Inc., a California corporation
(formerly D.R. Horton Sacramento Management Company, Inc.); DRH Construction,
Inc., a Delaware corporation; DRH Tucson Construction, Inc., a Delaware
corporation; DRHI, Inc., a Delaware corporation; KDB Homes, Inc., a Delaware
corporation; Meadows I, Ltd., a Delaware corporation; Meadows II, Ltd., a
Delaware corporation; Meadows IX, Inc., a New Jersey corporation; Meadows X,
Inc., a New Jersey corporation; SGS Communities at Grande Quay, L.L.C., a New
Jersey limited liability company; and (ii) each of the Company's Subsidiaries
which becomes a guarantor of the Notes pursuant to the provisions of the
Indenture. An Unrestricted Subsidiary may become a Guarantor if it (x) is so
designated by resolution of the Board of Directors of the Company and (y)
executes a supplemental indenture satisfactory to the Trustee.
"HOLDER" means the Person in whose name a Note is registered
in the books of the Registrar for the Notes.
"INDEBTEDNESS" of any Person means, without duplication, (i)
any liability of such Person (a) for borrowed money or under any reimbursement
obligation relating to a letter of credit or other similar instruments (other
than standby letters of credit or similar instrument issued for the benefit of
or surety, performance, completion or payment bonds, earnest money notes or
similar purpose undertakings or indemnifications issued by, such Person in the
ordinary course of business), (b) evidenced by a bond, note, debenture or
similar instrument (including a purchase money obligation) given in connection
with the acquisition of any businesses,
<PAGE>
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properties or assets of any kind or with services incurred in connection with
capital expenditures (other than any obligation to pay a contingent purchase
price which, as of the date of incurrence thereof is not required to be recorded
as a liability in accordance with GAAP), or (c) in respect of Capitalized Lease
Obligations (to the extent of the Attributable Debt in respect thereof), (ii)
any Indebtedness of others that such Person has guaranteed to the extent of the
guarantee, (iii) to the extent not otherwise included, the obligations of such
Person under Currency Agreements or Interest Protection Agreements to the extent
recorded as liabilities not constituting Interest Incurred, net of amounts
recorded as assets in respect of such agreements, in accordance with GAAP, and
(iv) all Indebtedness of others secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED, that
Indebtedness shall not include accounts payable, liabilities to trade creditors
of such Person or other accrued expenses arising in the ordinary course of
business. The amount of Indebtedness of any Person at any date shall be (a) the
outstanding balance at such date of all unconditional obligations as described
above, net of any unamortized discount to be accounted for as Interest Expense,
in accordance with GAAP, (b) the maximum liability of such Person for any
contingent obligations under clause (ii) above at such date, net of, any
unamortized discount to be accounted for as Interest Expense in accordance with
GAAP and (c) in the case of clause (iv) above, the lesser of (1) the fair market
value of any asset subject to a Lien securing the Indebtedness of others on the
date that the Lien attaches and (2) the amount of the Indebtedness secured.
"INTANGIBLE ASSETS" of the Company means all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, writeups of assets over
their prior carrying value (other than write-ups which occurred prior to the
Issue Date and other than, in connection with the acquisition of an asset, the
write-up of the value of such asset (within one year of its acquisition) to its
fair market value in accordance with GAAP) and all other items which would be
treated as intangibles on the consolidated balance sheet of
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the Company and the Restricted Subsidiaries prepared in accordance with GAAP.
"INTEREST EXPENSE" of any Person for any period means, without
duplication, the aggregate amount of (i) interest which, in conformity with
GAAP, would be set opposite the caption "interest expense" or any like caption
on an income statement for such Person (including, without limitation, imputed
interest included in Capitalized Lease Obligations, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, the net costs (but reduced by net gains) associated with
Currency Agreements and Interest Protection Agreements, amortization of other
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount or premium, if any, and all other noncash
interest expense other than interest and other charges amortized to cost of
sales), and (ii) all interest actually paid by the Company or a Restricted
Subsidiary under any guarantee of Indebtedness (including, without limitation, a
guarantee of principal, interest or any combination thereof) of any Person other
than the Company or any Restricted Subsidiary during such period; PROVIDED, that
Interest Expense shall exclude any expense associated with the complete
write-off of financing fees and expenses in connection with the repayment of any
Indebtedness.
"INTEREST INCURRED" of any Person for any period means,
without duplication, the aggregate amount of (i) Interest Expense and (ii) all
capitalized interest and amortized debt issuance costs.
"INTEREST PROTECTION AGREEMENT" of any Person means any
interest rate swap agreement, interest rate collar agreement, option or futures
contract or other similar agreement or arrangement designed to protect such
Person or any of its Subsidiaries against fluctuations in interest rates with
respect to Debt permitted to be incurred under this Supplemental Indenture.
"INVESTMENT GRADE" shall mean BBB - or higher by S&P or Baa3
or higher by Moody's or the equivalent of such ratings by S&P or Moody's.
<PAGE>
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"INVESTMENTS" of any Person means (i) all investments by such
Person in any other Person in the form of loans, advances or capital
contributions, (ii) all guarantees of Indebtedness or other obligations of any
other Person by such Person, (iii) all purchases (or other acquisitions for
consideration) by such Person of Indebtedness, Capital Stock or other securities
of any other Person and (iv) all other items that would be classified as
investments in any other Person (including, without limitation, purchases of
assets outside the ordinary course of business) on a balance sheet of such
Person prepared in accordance with GAAP.
"ISSUE DATE" means the date on which the Notes are originally
issued under this Supplemental Indenture.
"LIEN" means, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this definition, a Person shall be deemed to own,
subject to a Lien, any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"MARKETABLE SECURITIES" means (a) equity securities that are
listed on the New York Stock Exchange, the American Stock Exchange or The Nasdaq
National Market and (b) debt securities that are rated by a nationally
recognized rating agency, listed on the New York Stock Exchange or the American
Stock Exchange or covered by at least two reputable market makers.
"MOODY'S" means Moody's Investors Service, Inc. or any
successor to its debt rating business.
"MORTGAGE SUBSIDIARY" means any Subsidiary of the Company
substantially all of whose operations consist of the mortgage lending business.
"NET CASH PROCEEDS" means, with respect to an Asset
Disposition, cash payments received (including any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable or
otherwise
<PAGE>
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(including any cash received upon sale or disposition of such note or
receivable), but only as and when received), excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to the Property disposed of in such Asset Disposition
or received in any other non-cash form unless and until such non-cash
consideration is converted into cash therefrom, in each case, net of all legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state and local taxes required to be accrued as a
liability under GAAP as a consequence of such Asset Disposition, and in each
case net of a reasonable reserve for the after-tax cost of any indemnification
or other payments (fixed and contingent) attributable to the seller's
indemnities or other obligations to the purchaser undertaken by the Company or
any of its Restricted Subsidiaries in connection with such Asset Disposition,
and net of all payments made on any Indebtedness which is secured by or relates
to such Property, in accordance with the terms of any Lien or agreement upon or
with respect to such Property or which must by its terms or by applicable law be
repaid out of the proceeds from such Asset Disposition, and net of all
contractually required distributions and payments made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of such Asset
Disposition.
"NON-RECOURSE INDEBTEDNESS" with respect to any Person means
Indebtedness of such Person for which (i) the sole legal recourse for collection
of principal and interest on such Indebtedness is against the specific property
identified in the instruments evidencing or securing such Indebtedness and such
property was acquired with the proceeds of such Indebtedness or such
Indebtedness was incurred within 90 days after the acquisition of such property
and (ii) no other assets of such Person may be realized upon in collection of
principal or interest on such Indebtedness. Indebtedness which is otherwise
Non-Recourse Indebtedness will not lose its character as Non-Recourse
Indebtedness because there is recourse to the borrower, any guarantor or any
other Person for (i) environmental warranties and indemnities, or (ii)
indemnities for and liabilities arising from fraud, misrepresentation,
misapplication or non-payment of rents, profits, insurance and condemnation
proceeds and other sums
<PAGE>
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actually received by the borrower from secured assets to be paid to the lender,
waste and mechanics' liens.
"PERMITTED INDEBTEDNESS" means (i) Indebtedness under Credit
Facilities which does not exceed $675 million principal amount outstanding at
any one time; (ii) Indebtedness in respect of obligations of the Company and its
Subsidiaries to the trustees under indentures for debt securities; (iii)
intercompany debt obligations of the Company to any Restricted Subsidiary and of
any Restricted Subsidiary to the Company or any other Restricted Subsidiary;
PROVIDED, HOWEVER, that any Indebtedness of any Restricted Subsidiary or the
Company owed to any Restricted Subsidiary or that ceases to be a Restricted
Subsidiary shall be deemed to be incurred and shall be treated as an incurrence
for purposes of the first paragraph of the covenant described under "Limitations
on Indebtedness" at the time the Restricted Subsidiary in question ceases to be
a Restricted Subsidiary; (iv) Indebtedness of the Company or any Restricted
Subsidiary under any Currency Agreements or Interest Protection Agreements in a
notional amount no greater than the payments due (at the time the related
Currency Agreement or Interest Protection Agreement is entered into) with
respect to the Indebtedness or currency being hedged; (v) Purchase Money
Indebtedness; (vi) Capitalized Lease Obligations; (vii) obligations for, pledge
of assets in respect of, and guaranties of, bond financings of political
subdivisions or enterprises thereof in the ordinary course of business; (viii)
Indebtedness secured only by office buildings owned or occupied by the Company
or any Restricted Subsidiary, which Indebtedness does not exceed $20 million
aggregate principal amount outstanding at any one time; (ix) Indebtedness under
wharehouse lines of credit, repurchase agreements and Indebtedness secured by
mortgage loans and related assets of mortgage lending Subsidiaries in the
ordinary course of a mortgage lending business; and (x) Indebtedness of the
Company or any Restricted Subsidiary which, together with all other Indebtedness
under this clause (x), does not exceed $30 million aggregate principal amount
outstanding at any one time.
"PERMITTED INVESTMENT" means (i) Cash Equivalents; (ii) any
Investment in the Company or any Restricted Subsidiary or any Person that
becomes a Restricted Subsidiary
<PAGE>
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as a result of such Investment or that is consolidated or merged with or into,
or transfers all or substantially all of the assets of it or an operating unit
or line of business to, the Company or a Restricted Subsidiary; (iii) any
receivables, loans or other consideration taken by the Company or any Restricted
Subsidiary in connection with any asset sale otherwise permitted by the
Indenture; (iv) Investments received in connection with any bankruptcy or
reorganization proceeding, or as a result of foreclosure, perfection or
enforcement of any Lien or any judgment or settlement of any Person in exchange
for or satisfaction of Indebtedness or other obligations or other property
received from such Person, or for other liabilities or obligations of such
Person created, in accordance with the terms of the Indenture; (v) Investments
in Currency Agreements or Interest Protection Agreements described in the
definition of Permitted Indebtedness; (vi) any loan or advance to an executive
officer or director of the Company or any Restricted Subsidiary made in the
ordinary course of business; PROVIDED, HOWEVER, that any such loan or advance
exceeding $1 million shall have been approved by the Board of Directors of the
Company or a committee thereof consisting of disinterested members; (vii)
Investments in joint ventures in a Real Estate Business with unaffiliated third
parties in an aggregate amount at any time outstanding not to exceed 10% of
Consolidated Tangible Assets at such time; (viii) Investments in interests in
issuances of collateralized mortgage obligations, mortgages, mortgage loan
securities or other mortgage related assets; and (ix) Investments in an
aggregate amount outstanding not to exceed $75 million.
"PERMITTED LIENS" means (i) Liens for taxes, assessments or
governmental or quasi-government charges or claims that (a) are not yet
delinquent, (b) are being contested in good faith by appropriate proceedings and
as to which appropriate reserves have been established or other provisions have
been made in accordance with GAAP, if required, or (c) encumber solely property
abandoned or in the process of being abandoned, (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other Liens imposed by law and arising in the ordinary course of
business and with respect to amounts that, to the extent applicable, either (a)
are not yet
<PAGE>
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delinquent or (b) are being contested in good faith by appropriate proceedings
and as to which appropriate reserves have been established or other provisions
have been made in accordance with GAAP, if required, (iii) Liens (other than any
Lien imposed by the Employer Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
development obligations, progress payments, government contacts, utility
services, developer's or other obligations to make on-site or off-site
improvements and other obligations of like nature (exclusive of obligations for
the payment of borrowed money but including the items referred to in the
parenthetical in clause (i)(a) of the definition of "Indebtedness"), in each
case incurred in the ordinary course of business of the Company and the
Restricted Subsidiaries, (v) attachment or judgment Liens not giving rise to a
Default or an Event of Default, (vi) easements, dedications, assessment district
or similar liens in connection with municipal or special district financing,
rights-of-way, restrictions, reservations, other similar charges, burdens, and
other similar charges or encumbrances not materially interfering with the
ordinary course of business of the Company and the Restricted Subsidiaries,
(vii) zoning restrictions, licenses, restrictions on the use of real property or
minor irregularities in title thereto, which do not materially impair the use of
such real property in the ordinary course of business of the Company and the
Restricted Subsidiaries, (viii) Liens securing Indebtedness incurred pursuant to
clause (viii) or (ix) of the definition of Permitted Indebtedness, (ix) Liens
securing Indebtedness of the Company or any Restricted Subsidiary permitted to
be incurred under the Indenture; PROVIDED, that the aggregate amount of all
consolidated Indebtedness of the Company and the Restricted Subsidiaries
(including, with respect to Capitalized Lease Obligations, the Attributable Debt
in respect thereof) secured by Liens (other than Non-Recourse Indebtedness and
Indebtedness incurred pursuant to clause (ix) of the definition of Permitted
Indebtedness) shall not exceed 40% of Consolidated Adjusted Tangible Assets at
any one time outstanding (after giving effect to the incurrence of such
<PAGE>
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Indebtedness and the use of the proceeds thereof), (x) Liens securing
Non-Recourse Indebtedness of the Company or any Restricted Subsidiary; PROVIDED,
that such Liens apply only to the property financed out of the net proceeds of
such Non-Recourse Indebtedness within 90 days after the incurrence of such
Non-Recourse Indebtedness, (xi) Liens securing Purchase Money Indebtedness;
PROVIDED that such Liens apply only to the property acquired, constructed or
improved with the proceeds of such Purchase Money Indebtedness within 90 days
after the incurrence of such Purchase Money Indebtedness, (xii) Liens on
property or assets of the Company or any Restricted Subsidiary securing
Indebtedness of the Company or any Restricted Subsidiary owing to the Company or
one or more Restricted Subsidiaries, (xiii) leases or subleases granted to
others not materially interfering with the ordinary course of business of the
Company and the Restricted Subsidiaries, (xiv) purchase money security interests
(including, without limitation, Capitalized Lease Obligations); PROVIDED, that
such Liens apply only to the Property acquired and the related Indebtedness is
incurred within 90 days after the acquisition of such Property, (xv) any right
of first refusal, right of first offer, option, contract or other agreement to
sell an asset; PROVIDED, that such sale is not otherwise prohibited under the
Indenture, (xvi) any right of a lender or lenders to which the Company or a
Restricted Subsidiary may be indebted to offset against, or appropriate and
apply to the payment of such, Indebtedness any and all balances, credits,
deposits, accounts or money of the Company or a Restricted Subsidiary with or
held by such lender or lenders or its Affiliates, (xvii) any pledge or deposit
of cash or property in conjunction with obtaining surety, performance,
completion or payment bonds and letters of credit or other similar instruments
or providing earnest money obligations, escrows or similar purpose undertakings
or indemnifications in the ordinary course of business of the Company and its
Restricted Subsidiaries, (xviii) Liens for homeowner and property owner
association developments and assessments, (xix) Liens securing Refinancing
Indebtedness; PROVIDED, that such Liens extend only to the assets securing the
Indebtedness being refinanced, and (xx) Liens incurred in the ordinary course of
business as security for the obligations of the Company and its Restricted
Subsidiaries with respect to indemnification in respect of title insurance
providers.
<PAGE>
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"PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, incorporated or unincorporated
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PREFERRED STOCK" of any Person means all Capital Stock of
such Person which has a preference in liquidation or with respect to the payment
of dividends.
"PROPERTY" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person, whether or not
included in the most recent consolidated balance sheet of such Person and its
Subsidiaries under GAAP.
"PUBLIC EQUITY OFFERING" means an underwritten public offering
of Common Equity of the Company pursuant to an effective registration statement
filed under the Securities Act (excluding registration statements filed on Form
S-8 or any successor form).
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the
Company or any Restricted Subsidiary incurred for the purpose of financing all
or any part of the purchase price, or the cost of construction or improvement,
of any property to be used in the ordinary course of business by the Company and
the Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) the aggregate principal
amount of such Indebtedness shall not exceed such purchase price or cost and
(ii) such Indebtedness shall be incurred no later than 90 days after the
acquisition of such property or completion of such construction or improvement.
"QUALIFIED STOCK" means Capital Stock of the Company other
than Disqualified Stock.
"RATING AGENCIES" shall mean (1) S&P and (2) Moody's.
"REAL ESTATE BUSINESS" means homebuilding, housing
construction, real estate development or construction and
<PAGE>
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related real estate activities, including the provision of mortgage financing or
title insurance.
"REFINANCING INDEBTEDNESS" means Indebtedness (to the extent
not Permitted Indebtedness) that refunds, refinances or extends any Indebtedness
of the Company or any Restricted Subsidiary (to the extent not Permitted
Indebtedness) outstanding on the Issue Date or other Indebtedness (to the extent
not Permitted Indebtedness) permitted to be incurred by the Company or any
Restricted Subsidiary pursuant to the terms of this Indenture, but only to the
extent that (i) the Refinancing Indebtedness is subordinated to the Notes or the
Guarantees, as the case may be, to the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended or (b) after the maturity date of the Notes,
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to
mature on or prior to the maturity date of the Notes has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the Weighted Average Life to Maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Notes, and (iv) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended.
"RESTRICTED PAYMENT" means any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any Restricted Subsidiary or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Restricted Subsidiary (other than (a) dividends or distributions
payable solely in Qualified Stock and (b) in the case of Restricted
Subsidiaries, dividends or distributions payable to the Company or to a
Restricted Subsidiary); (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company or any Restricted
Subsidiary (other than a payment made to the Company or any Restricted
Subsidiary); and (iii)
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any Investment (other than any Permitted Investment), including any Investment
in an Unrestricted Subsidiary (including by the designation of a Subsidiary of
the Company as an Unrestricted Subsidiary).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
which is not an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group or any successor
to its debt rating business.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary of the Company
which would constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X under the Securities Act and the Exchange Act.
"SUBSIDIARY" of any Person means any corporation or other
entity of which a majority of the Capital Stock having ordinary voting power to
elect a majority of the Board of Directors or other persons performing similar
functions is at the time directly or indirectly owned or controlled by such
Person.
"TRUSTEE" means the party named as such above until a
successor replaces such party in accordance with the applicable provisions of
this Indenture and thereafter means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company
so designated by a resolution adopted by the Board of Directors of the Company
or a duly authorized committee thereof as provided below; PROVIDED that (a) the
holders of Indebtedness thereof do not have direct or indirect recourse against
the Company or any Restricted Subsidiary, and neither the Company nor any
Restricted Subsidiary otherwise has liability, for any payment obligations in
respect of such Indebtedness (including any undertaking, agreement or instrument
evidencing such Indebtedness), except, (i) in each case, to the extent that the
amount thereof constitutes a Restricted Payment permitted by the Indenture, (ii)
in the case of Non-Recourse Indebtedness, to the extent such recourse or
liability is for the matters discussed in the last sentence of the definition of
"Non-Recourse Indebtedness," or (iii) to
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the extent such Indebtedness is a guarantee by such Subsidiary of Indebtedness
of the Company or a Restricted Subsidiary and (b) no holder of any Indebtedness
of such Subsidiary shall have a right to declare a default on such Indebtedness
or cause the payment thereof to be accelerated or payable prior to its stated
maturity as a result of a default on any Indebtedness of the Company or any
Restricted Subsidiary. Subject to the foregoing, the Board of Directors of the
Company or a duly authorized committee thereof may designate any Subsidiary to
be an Unrestricted Subsidiary; PROVIDED, HOWEVER, that (i) the net amount (the
"DESIGNATION AMOUNT") then outstanding of all previous Investments by the
Company and the Restricted Subsidiaries in such Subsidiary will be deemed to be
a Restricted Payment at the time of such designation and will reduce the amount
available for Restricted Payments under Section 3.03 hereof, to the extent
provided therein, (ii) the Company must be permitted under Section 3.03 hereof
to make the Restricted Payment deemed to have been made pursuant to clause (i),
and (iii) after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing. In accordance with the foregoing,
and not in limitation thereof, Investments made by any Person in any Subsidiary
of such Person prior to such Person's merger with the Company or any Restricted
Subsidiary (but not in contemplation or anticipation of such merger) shall not
be counted as an Investment by the Company or such Restricted Subsidiary if such
Subsidiary of such Person is designated as an Unrestricted Subsidiary. The Board
of Directors of the Company or a duly authorized committee thereof may also
redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
HOWEVER, that (i) the Indebtedness of such Unrestricted Subsidiary as of the
date of such redesignation could then be incurred under Section 3.02 hereof and
(ii) immediately after giving effect to such redesignation and the incurrence of
any such additional Indebtedness, the Company and the Restricted Subsidiaries
could incur $1.00 of additional Indebtedness under Section 3.02(a) hereof. Any
such designation or redesignation by the Board of Directors of the Company or a
committee thereof will be evidenced to the Trustee by the filing with the
Trustee of a certified copy of the resolution of the Board of Directors of the
Company or a committee thereof giving effect to such designation or
redesignation and an Officers'
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Certificate certifying that such designation or redesignation complied with the
foregoing conditions and setting forth the underlying calculations of such
Officers' Certificate. The designation of any Person as an Unrestricted
Subsidiary shall be deemed to include a designation of all Subsidiaries of such
Person as Unrestricted Subsidiaries; PROVIDED, HOWEVER, that the ownership of
the general partnership interest (or a similar member's interest in a limited
liability company) by an Unrestricted Subsidiary shall not cause a Subsidiary of
the Company of which more than 95% of the equity interest is held by the Company
or one or more Restricted Subsidiaries to be deemed an Unrestricted Subsidiary.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other required
payment of principal, including, without limitation, payment at final maturity,
in respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment
by (ii) the sum of all such payments described in clause (i)(a) above.
ARTICLE THREE
COVENANTS
Section 3.01. REPURCHASE OF NOTES UPON CHANGE OF CONTROL
(a) In the event that there shall occur a Change of Control,
each Holder of Notes shall have the right, at such Holder's option, to require
the Company to purchase all or any part of such Holder's Notes on a date (the
"REPURCHASE DATE") that is no later than 90 days after notice of the Change of
Control, at 101% of the principal amount thereof plus accrued interest to the
Repurchase Date.
(b) On or before the thirtieth day after any Change of
Control, the Company is obligated to mail, or cause to be mailed, to all Holders
of record of Notes a notice regarding the Change of Control and the repurchase
right. The notice
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shall state the Repurchase Date, the date by which the repurchase right must be
exercised, the price for the Notes and the procedure which the Holder must
follow to exercise such right. Substantially simultaneously with mailing of the
notice, the Company shall cause a copy of such notice to be published in a
newspaper of general circulation in the Borough of Manhattan, The City of New
York. To exercise such right, the Holder of such Note must deliver at least ten
days prior to the Repurchase Date written notice to the Company (or an agent
designated by the Company for such purpose) of the Holder's exercise of such
right, together with the Note with respect to which the right is being
exercised, duly endorsed for transfer; PROVIDED, HOWEVER, that if mandated by
applicable law, a Holder may be permitted to deliver such written notice nearer
to the Repurchase Date than may be specified by the Company.
(c) The Company will comply with applicable law, including
Section 14(e) of the Exchange Act and Rule 14e-1 thereunder, if applicable, if
the Company is required to give a notice of right of repurchase as a result of a
Change of Control.
Section 3.02. LIMITATIONS ON INDEBTEDNESS.
(a) Until the Notes are rated Investment Grade by both Rating
Agencies (after which time the following covenant will no longer be in effect),
the Company will not, and will not cause or permit any Restricted Subsidiary,
directly or indirectly, to, create, incur, assume, become liable for or
guarantee the payment of (collectively, an "INCURRENCE") any Indebtedness
(including Acquired Indebtedness) unless, after giving effect thereto and the
application of the proceeds therefrom, the Consolidated Fixed Charge Coverage
Ratio on the date thereof would be at least 2.0 to 1.0.
(b) Notwithstanding the foregoing, the provisions of this
Supplemental Indenture will not prevent the incurrence of: (i) Permitted
Indebtedness, (ii) Refinancing Indebtedness, (iii) Non-Recourse Indebtedness,
(iv) any Guarantee of Indebtedness of the Company represented by the Notes and
(v) any guarantee of Indebtedness incurred under Credit Facilities in compliance
with this Indenture.
<PAGE>
-30-
(c) For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness may be incurred through the first
paragraph of this covenant or by meeting the criteria of one or more of the
types of Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion, (i)
may classify such item of Indebtedness under and comply with either of such
paragraphs (or any of such definitions), as applicable, (ii) may classify and
divide such item of Indebtedness into more than one of such paragraphs (or
definitions), as applicable, and (iii) may elect to comply with such paragraphs
(or definitions), as applicable, in any order.
(d) The Company will not, and will not cause or permit any
Guarantor to, directly or indirectly, in any event incur any Indebtedness that
purports to be by its terms (or by the terms of any agreement governing such
Indebtedness) subordinated to any other Indebtedness of the Company or of such
Guarantor, as the case may be, unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinated to the Notes or the Guarantee of such Guarantor, as the case may
be, to the same extent and in the same manner as such Indebtedness is
subordinated to such other Indebtedness of the Company or such Guarantor, as the
case may be.
Section 3.03. LIMITATIONS ON RESTRICTED PAYMENTS.
(a) Until the Notes are rated Investment Grade by both Rating
Agencies (after which time the following covenant will no longer be in effect),
the Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment unless:
i) no Default or Event of Default shall have occurred
and be continuing at the time of or immediately after giving effect to such
Restricted Payment;
ii) immediately after giving effect to such
Restricted Payment, the Company could incur at least $1.00 of Indebtedness
pursuant to Section 3.02(a) hereof; and
<PAGE>
-31-
iii) immediately after giving effect to such
Restricted Payment, the aggregate amount of all Restricted Payments (including
the Fair Market Value of any non-cash Restricted Payment) declared or made after
the Issue Date does not exceed the sum of (a) 50% of the Consolidated Net Income
of the Company on a cumulative basis during the period (taken as one accounting
period) from and including February 1, 1999 and ending on the last day of the
Company's fiscal quarter immediately preceding the date of such Restricted
Payment (or in the event such Consolidated Net Income shall be a deficit, minus
100% of such deficit), PLUS (b) 100% of the aggregate net cash proceeds of and
the fair market value of Property received by the Company from (1) any capital
contribution to the Company after June 9, 1997 or any issue or sale after June
9, 1997 of Qualified Stock (other than to any Subsidiary of the Company) and (2)
the issue or sale after June 9, 1997 of any Indebtedness or other securities of
the Company convertible into or exercisable for Qualified Stock of the Company
that have been so converted or exercised, as the case may be, PLUS (c) $86.0
million, which is equal to the aggregate principal amount of the Company's
6-7/8% Convertible Subordinated Notes due 2002 that were converted into the
Company's Common Equity prior to the Issue Date, plus (d) in the case of the
disposition or repayment of any Investment constituting a Restricted Payment
made after the June 9, 1997, an amount (to the extent not included in the
calculation of the Consolidated Net Income referred to in (a)) equal to the
lesser of (x) the return of capital with respect to such Investment (including
by dividend, distribution or sale of Capital Stock) and (y) the amount of such
Investment that was treated as a Restricted Payment, in either case, less the
cost of the disposition or repayment of such Investment (to the extent not
included in the calculation of the Consolidated Net Income referred to in (a)),
PLUS (e) with respect to any Unrestricted Subsidiary that is redesignated as a
Restricted Subsidiary after June 9, 1997 in accordance with the definition of
Unrestricted Subsidiary (so long as the designation of such Subsidiary as an
Unrestricted Subsidiary was treated as a Restricted Payment made after June 9,
1997 and only to the extent not included in the calculation of the Consolidated
Net Income referred to in (a)), an amount equal to the lesser of (x) the
proportionate interest of the Company or a Restricted Subsidiary in an amount
equal to the excess of
<PAGE>
-32-
(I) the total assets of such Subsidiary, valued on an aggregate basis at the
lesser of book value and Fair Market Value thereof, over (II) the total
liabilities of such Subsidiary, determined in accordance with GAAP, and (y) the
Designation Amount at the time of such Subsidiary's designation as an
Unrestricted Subsidiary, PLUS (f) $25 million minus (g) the aggregate amount of
all Restricted Payments (other than Restricted Payments referred to in clause
(C) of the immediately succeeding paragraph) made after June 9, 1997 through the
Issue Date.
(b) Clauses (ii) and (iii) of paragraph (a) will not prohibit:
(A) the payment of any dividend within 60 days of its declaration if such
dividend could have been made on the date of its declaration without violation
of the provisions of this Indenture; (B) the repurchase, redemption or
retirement of any shares of Capital Stock of the Company in exchange for, or out
of the net proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other shares of Qualified Stock; and (C) the
purchase, redemption or other acquisition, cancellation or retirement for value
of Capital Stock, or options, warrants, equity appreciation rights or other
rights to purchase or acquire Capital Stock, of the Company or any Subsidiary
held by officers or employees or former officers or employees of the Company or
any Subsidiary (or their estates or beneficiaries under their estates) not to
exceed $20 million in the aggregate February 4, 1999; provided, however, that
each Restricted Payment described in clauses (A) and (B) of this sentence shall
be taken into account for purposes of computing the aggregate amount of all
Restricted Payments pursuant to clause (iii) of paragraph (a).
(c) For purposes of determining the aggregate and permitted
amounts of Restricted Payments made, the amount of any guarantee of any
Investment in any Person that was initially treated as a Restricted Payment and
which was subsequently terminated or expired, net of any amounts paid by the
Company or any Restricted Subsidiary in respect of such guarantee, shall be
deducted.
(d) In determining the "fair market value of Property" for
purposes of clause (iii) of the paragraph (a),
<PAGE>
-33-
Property other than cash, Cash Equivalents and Marketable Securities shall be
deemed to be equal in value to the "equity value" of the Capital Stock or other
securities issued in exchange therefor. The "equity value" of such Capital Stock
or other securities shall be equal to (i) the number of shares of Common Equity
issued in the transaction (or issuable upon conversion or exercise of the
Capital Stock or other securities issued in the transaction) multiplied by the
closing sale price of the Common Equity on its principal market on the date of
the transaction (less, in the case of Capital Stock or other securities which
require the payment of consideration at the time of conversion or exercise, the
aggregate consideration payable thereupon) or (ii) if the Common Equity is not
then traded on the New York Stock Exchange, American Stock Exchange or Nasdaq
National Market, or if the Capital Stock or other securities issued in the
transaction do not consist of Common Equity (or Capital Stock or other
securities convertible into or exercisable for Common Equity), the value of such
Capital Stock or other securities as determined by a nationally recognized
investment banking firm retained by the Board of Directors of the Company.
Section 3.04. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
(a) Until the Notes are rated Investment Grade by both Rating
Agencies (after which time the following covenant will no longer be in effect),
the Company will not, and will not cause or permit any Restricted Subsidiary to,
make any loan, advance, guarantee or capital contribution to, or for the benefit
of, or sell, lease, transfer or otherwise dispose of any property or assets to,
or for the benefit of, or purchase or lease any property or assets from, or
enter into or amend any contract, agreement or understanding with, or for the
benefit of, any Affiliate of the Company or any Affiliate of any of the
Company's Subsidiaries or any holder of 10% or more of the Common Equity of the
Company (including any Affiliates of such holders), in a single transaction or
series of related transactions (each, an "AFFILIATE TRANSACTION"), except for
any Affiliate Transaction the terms of which are at least as favorable as the
terms which could be obtained by the Company or such Restricted Subsidiary, as
the case may be, in a comparable transaction made on an arm's length basis with
<PAGE>
-34-
Persons who are not such a holder, an Affiliate of such a holder or an Affiliate
of the Company or any of the Company's Subsidiaries.
(b) In addition, the Company will not, and will not cause or
permit any Restricted Subsidiary to, enter into an Affiliate Transaction unless
(i) with respect to any such Affiliate Transaction involving or having a value
of more than $5 million, the Company shall have (x) obtained the approval of a
majority of the Board of Directors of the Company and (y) either obtained the
approval of a majority of the Company's disinterested directors or obtained an
opinion of a qualified independent financial advisor to the effect that such
Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (ii) with respect to any
such Affiliate Transaction involving or having a value of more than $25 million,
the Company shall have (x) obtained the approval of a majority of the Board of
Directors of the Company and (y) delivered to the Trustee an opinion of a
qualified independent financial advisor to the effect that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
(c) Notwithstanding the foregoing, an Affiliate Transaction
will not include (i) any contract, agreement or understanding with, or for the
benefit of, or plan for the benefit of employees of the Company or its
Subsidiaries generally (in their capacities as such) that has been approved by
the Board of Directors of the Company, (ii) Capital Stock issuances to
directors, officers and employees of the Company or its Subsidiaries pursuant to
plans approved by the stockholders of the Company, (iii) any Restricted Payment
otherwise permitted under Section 3.03, (iv) any transaction between or among
the Company and one or more Restricted Subsidiaries or between or among
Restricted Subsidiaries (PROVIDED, HOWEVER, no such transaction shall involve
any other Affiliate of the Company (other than an Unrestricted Subsidiary to the
extent the applicable amount constitutes a Restricted Payment permitted by this
Indenture)) and (v) any transaction between one or more Restricted Subsidiaries
and one or more Unrestricted Subsidiaries where all of the
<PAGE>
-35-
payments to, or other benefits conferred upon, such Unrestricted Subsidiaries
are substantially contemporaneously dividended, or otherwise distributed or
transferred without charge, to the Company or a Restricted Subsidiary.
Section 3.05. LIMITATIONS ON DISPOSITIONS OF ASSETS.
Until the Notes are rated Investment Grade by both Rating
Agencies (after which time the following covenant will no longer be in effect),
the Company will not, and will not cause or permit any Restricted Subsidiary to,
make any Asset Disposition unless (x) the Company (or such Restricted
Subsidiary, as the case may be) receives consideration at the time of such Asset
Disposition at least equal to the Fair Market Value thereof, and (y) not less
than 70% of the consideration received by the Company (or such Restricted
Subsidiary, as the case may be) is in the form of cash, Cash Equivalents and
Marketable Securities. The amount of any Indebtedness (other than any
Indebtedness subordinated to the Notes) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Disposition
shall be deemed to be consideration required by clause (y) above for purposes of
determining the percentage of such consideration received by the Company or the
Restricted Subsidiaries. The Net Cash Proceeds of an Asset Disposition shall,
within one year, at the Company's election, (a) be used by the Company or a
Restricted Subsidiary in the business of the construction and sale of homes
conducted by the Company and the Restricted Subsidiaries or any other business
of the Company or a Restricted Subsidiary existing at the time of such Asset
Disposition or (b) to the extent not so used, be applied to make a Net Cash
Proceeds Offer for the Notes and, if the Company or a Restricted Subsidiary
elects or is required to do so, repay, purchase or redeem any other
unsubordinated Indebtedness (on a pro rata basis if the amount available for
such repayment, purchase or redemption is less than the aggregate amount of (i)
the principal amount of the Notes tendered in such Net Cash Proceeds Offer and
(ii) the lesser of the principal amount, or accreted value, of such other
unsubordinated Indebtedness, plus, in each case accrued interest to the date of
repayment, purchase or redemption) at 100% of the principal amount or accreted
value thereof, as the case may be, plus accrued interest to the date of
repurchase
<PAGE>
-36-
or repayment. Notwithstanding the foregoing, (A) the Company will not be
required to apply such Net Cash Proceeds to the repurchase of Notes in
accordance with clause (b) of the preceding sentence except to the extent that
such Net Cash Proceeds, together with the aggregate Net Cash Proceeds of prior
Asset Dispositions (other than those so used) which have not been applied in
accordance with this provision and as to which no prior Net Cash Proceeds Offer
shall have been made, exceed 5% of Consolidated Tangible Assets and (B) in
connection with any Asset Disposition, the Company and the Restricted
Subsidiaries will not be required to comply with the requirements of clause (y)
of the first sentence of this paragraph to the extent that the aggregate
non-cash consideration received in connection with such Asset Disposition,
together with the sum of all non-cash consideration received in connection with
all prior Asset Dispositions that has not yet been converted into cash, does not
exceed 5% of Consolidated Tangible Assets; PROVIDED, HOWEVER, that when any
non-cash consideration is converted into cash, such cash shall constitute Net
Cash Proceeds and be subject to the preceding sentence.
Section 3.06. LIMITATIONS ON LIENS.
The Company will not, and will not cause or permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens,
other than Permitted Liens, on any of its Property, or on any shares of Capital
Stock or Indebtedness of any Restricted Subsidiary, unless contemporaneously
therewith or prior thereto all payments due under this Indenture and the Notes
are secured on an equal and ratable basis with the obligation or liability so
secured until such time as such obligation or liability is no longer secured by
a Lien.
Section 3.07. LIMITATIONS ON RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not cause or permit any
Restricted Subsidiary to, create, assume or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction (other than
encumbrances or restrictions imposed by law or by judicial or regulatory action
or by provisions of leases and other agreements that
<PAGE>
-37-
restrict the assignability thereof) on the ability of any Restricted Subsidiary
to (i) pay dividends or make any other distributions on its Capital Stock or any
other interest or participation in, or measured by, its profits, owned by the
Company or any other Restricted Subsidiary, or pay interest on or principal of
any Indebtedness owed to the Company or any other Restricted Subsidiary, (ii)
make loans or advances to the Company or any other Restricted Subsidiary, or
(iii) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for (a) encumbrances or restrictions existing
under or by reason of applicable law, (b) covenants or restrictions contained in
Indebtedness in effect on the date of this Indenture as such covenants or
restrictions are in effect on such date, (c) any restrictions or encumbrances
arising under Acquired Indebtedness; PROVIDED, that such encumbrance or
restriction applies only to either the assets that were subject to the
restriction or encumbrance at the time of the acquisition or the obligor on such
Indebtedness and its Subsidiaries, (d) any restrictions or encumbrances arising
in connection with Refinancing Indebtedness; PROVIDED, HOWEVER, that any
restrictions and encumbrances of the type described in this clause (d) that
arise under such Refinancing Indebtedness shall not be materially more
restrictive than those under the agreement creating or evidencing the
Indebtedness being refunded, refinanced, replaced or extended, (e) any Permitted
Lien, or any other agreement restricting the sale or other disposition of
property, securing Indebtedness permitted by this Indenture if such Permitted
Lien or agreement does not expressly restrict the ability of a Subsidiary of the
Company to pay dividends or make or repay loans or advances prior to default
thereunder, (f) reasonable and customary borrowing base covenants set forth in
agreements evidencing Indebtedness otherwise permitted by this Indenture, (g)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of the Company or any Restricted Subsidiary, and (h) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary pending the closing
of such sale or disposition.
<PAGE>
-38-
Section 3.08. LIMITATIONS ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS.
Neither the Company nor any Guarantor will consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets (including, without limitation, by way of
liquidation or dissolution), or assign any of its obligations under the Notes,
the Guarantees or this Indenture (as an entirety or substantially in one
transaction or in a series of related transactions), to any Person (in each case
other than in a transaction in which the Company or a Restricted Subsidiary is
the survivor of a consolidation or merger, or the transferee in a sale, lease,
conveyance or other disposition) unless: (i) the Person formed by or surviving
such consolidation or merger (if other than the Company or the Guarantor, as the
case may be), or to which such sale, lease, conveyance or other disposition or
assignment will be made (collectively, the "SUCCESSOR"), is a corporation or
other legal entity organized and existing under the laws of the United States or
any state thereof or the District of Columbia, and the Successor assumes by
supplemental indenture in a form reasonably satisfactory to the Trustee all of
the obligations of the Company or the Guarantor, as the case may be, under the
Notes or a Guarantee, as the case may be, and the Indenture, (ii) immediately
after giving effect to such transaction, no Default or Event of Default has
occurred and is continuing, (iii) immediately after giving effect to such
transaction and the use of any net proceeds therefrom, on a PRO FORMA basis, the
Consolidated Net Worth of the Company or the Successor (in the case of a
transaction involving the Company), as the case may be, would be at least equal
to the Consolidated Net Worth of the Company immediately prior to such
transaction (exclusive of any adjustments to Consolidated Net Worth attributable
to transaction costs) less any amount treated as a Restricted Payment in
connection with such transaction in accordance with this Indenture and (iv)
unless prior to such transaction the Notes are rated Investment Grade by both
Rating Agencies (after which this clause (iv) shall not apply), immediately
after giving effect to such transaction, the Company could incur at least $1.00
of Indebtedness pursuant to Section 3.02(a) hereof. The foregoing provisions
shall not apply to (i) a transaction involving the sale or disposition
<PAGE>
-39-
of Capital Stock of a Guarantor, or the consolidation or merger of a Guarantor,
or the sale, lease, conveyance or other disposition of all or substantially all
of the assets of a Guarantor, that in any such case results in such Guarantor
being released from its Guarantee pursuant to the Indenture or (ii) a
transaction the purpose of which is to change the state of incorporation of the
Company or any Guarantor.
Section 3.09. REPORTS TO HOLDERS OF NOTES.
The Company will file with the Commission the annual reports
and the information, documents and other reports required to be filed pursuant
to Section 13 or 15(d) of the Exchange Act. The Company will file with the
Trustee and mail to each Holder of record of Notes such reports, information and
documents within 15 days after it files them with the Commission. In the event
that the Company is no longer subject to these periodic requirements of the
Exchange Act, it will nonetheless continue to file reports with the Commission
and the Trustee and mail such reports to each holder of Notes as if it were
subject to such reporting requirements. Regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company will cause its consolidated financial statements and a
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" written report, similar to those that would have been required to
appear in annual or quarterly reports, to be delivered to Holders of Notes.
ARTICLE FOUR
MISCELLANEOUS
Section 4.01. GOVERNING LAW.
The laws of the State of New York shall govern this
Supplemental Indenture, the Securities of each Series and the Guarantees.
<PAGE>
-40-
Section 4.02. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Supplemental Indenture may not be used to interpret
another indenture, loan or debt agreement of the Company or a Subsidiary. Any
such indenture, loan or debt agreement may not be used to interpret this
Supplemental Indenture.
Section 4.03. NO RECOURSE AGAINST OTHERS.
All liability described in paragraph 13 of the Notes of any
director, officer, employee or stockholder, as such, of the Company is waived
and released.
Section 4.04. SUCCESSORS AND ASSIGNS.
All covenants and agreements of the Company and the Guarantors
in this Supplemental Indenture and the Notes shall bind its successors and
assigns. All agreements of the Trustee in this Supplemental Indenture shall bind
its successors and assigns.
Section 4.05. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 4.06. SEVERABILITY.
In case any one or more of the provisions contained in this
Supplemental Indenture or in the Notes shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Supplemental
Indenture or of the Notes.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties have caused this Supplemental
Indenture to be duly executed, all as of the date first above written.
D.R. HORTON, INC.
By:
---------------------------------------
Name:
Title:
<PAGE>
GUARANTORS:
DRHI, Inc.
Meadows I, Ltd.
Meadows IX, Inc.
Meadows X, Inc.
D.R. Horton, Inc.-Birmingham
D.R. Horton, Inc.-Chicago
D.R. Horton, Inc.-Denver
D.R. Horton, Inc.-Greensboro
D.R. Horton, Inc.-Louisville
D.R. Horton, Inc.-Minnesota
D.R. Horton, Inc.-New Jersey
D.R. Horton, Inc.-Portland
D.R. Horton, Inc.-Sacramento
D.R. Horton, Inc.-San Diego
D.R. Horton, Inc.-Torrey
D.R. Horton San Diego Holding Company, Inc.
D.R. Horton Los Angeles Holding Company, Inc.
DRH Construction, Inc.
DRH Cambridge Homes, Inc. (formerly D.R. Horton
Sacramento Management Company, Inc.)
C. Richard Dobson Builders, Inc.
DRH Tucson Construction, Inc.
Continental Homes, Inc.
KDB Homes, Inc.
Continental Residential, Inc.
Continental Homes of Florida, Inc.
CHI Construction Company
CHTEX of Texas, Inc.
By:
----------------------------------------
Name:
Title:
<PAGE>
Meadows II, Ltd.
CH Investments of Texas, Inc.
By:
----------------------------------------
Name: William Peck
Title: President
<PAGE>
SGS COMMUNITIES AT GRANDE QUAY, LLC
By: Meadows IX, Inc., a member
By:
-----------------------------------------------
Name:
Title:
and
By: Meadows X, Inc., a member
By:
-----------------------------------------------
Name:
Title:
D.R. HORTON MANAGEMENT COMPANY, LTD.
D.R. HORTON - TEXAS, LTD.
By: Meadows I, Ltd.,
its general partner
By:
-----------------------------------------------
Name:
Title:
<PAGE>
CONTINENTAL HOMES OF TEXAS, L.P.
By: CHTEX of Texas, Inc.,
its general partner
By:
-----------------------------------------------
Name:
Title:
<PAGE>
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
A-1
<PAGE>
NO. CUSIP NO.:
10 1/2% SENIOR NOTES DUE 2005
D.R. HORTON, INC.
A DELAWARE CORPORATION
promises to pay to
or registered assigns
the principal sum of Dollars on April 1, 2005
Interest Payment Dates: April 1 and October 1, commencing October 1, 2000
Interest Record Dates: March 15 and September 15
Dated:
D.R. HORTON, INC.
[Seal]
By:
---------------------
Title:
By:
---------------------
Title:
American Stock Transfer & Trust
Company, as Trustee, certifies
that this is one of the Securities
referred to in the within
mentioned Indenture.
Date:
A-2
<PAGE>
By:
------------------------------------
Authorized Signatory
A-3
<PAGE>
D.R. HORTON, INC.
10 1/2% SENIOR NOTES DUE 2005
1. INTEREST.
D.R. HORTON, INC. (the "Company"), a Delaware corporation,
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semiannually on April 1 and
October 1 of each year, commencing October 1, 2000, until the principal is paid
or made available for payment. Interest on the Securities will accrue from the
most recent date to which interest has been paid or duly provided for or, if no
interest has been paid, from the date of original issuance, provided that, if
there is no existing default in the payment of interest, and if this Security is
authenticated between a record date referred to on the face hereof and the next
succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2. METHOD OF PAYMENT.
The Company will pay interest on the Securities (except
defaulted interest, if any, which will be paid on such special payment date to
Holders of record on such special record date as may be fixed by the Company) to
the persons who are registered Holders of Securities at the close of business on
the March 15 and September 15 immediately preceding the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts.
3. PAYING AGENT AND REGISTRAR.
Initially, American Stock Transfer & Trust Company (the
"Trustee") will act as Paying Agent and Registrar. The Company may change or
appoint any Paying Agent, Registrar or
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co-Registrar without notice. The Company or any of its Subsidiaries may act as
Paying Agent, Registrar or co-Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture dated as
of June 9, 1997 among the Company, the Guarantors and the Trustee, as
supplemented (the "Indenture"). The terms of the Securities and the Guarantees
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 ("TIA") as in effect on the date of
the Indenture. The Securities and the Guarantees are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
them. Capitalized terms not defined herein have the meanings given to those
terms in the Indenture.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture and the applicable
Authorizing Resolution or supplemental indenture. Requests may be made to: D.R.
Horton, Inc., 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006,
Attention: Chief Financial Officer.
5. REDEMPTION.
Except as set forth in the following sentence, the Securities
will not be redeemable. The Company may redeem Securities, at any time prior to
April 1, 2003, with the net cash proceeds of one or more Public Equity Offerings
by the Company, at a redemption price equal to 110.5% of the principal amount of
such Securities, plus accrued and unpaid interest, if any, to the date of
redemption; PROVIDED, HOWEVER, that after each such redemption not less than
$100,000,000 principal amount of Securities (excluding any Securities held by
the Company or any of its Affiliates) remains outstanding. Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering.
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Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part. On and after the redemption date interest ceases
to accrue on Securities or portions of them called for redemption, provided that
if the Company shall default in the payment of such Security at the redemption
price together with accrued interest, interest shall continue to accrue at the
rate borne by the Securities.
6. DENOMINATIONS, TRANSFER, EXCHANGE.
The Securities are in registered form only without coupons in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities by presentation of such Securities to the Registrar or a
co-Registrar with a request to register the transfer or to exchange them for an
equal principal amount of Securities of other denominations. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not transfer or exchange any Security selected
for redemption, except the unredeemed part thereof if the Security is redeemed
in part, or transfer or exchange any Securities for a period of 15 days before a
selection of Securities to be redeemed.
7. PERSONS DEEMED OWNERS.
The registered Holder of this Security shall be treated as the
owner of it for all purposes.
8. UNCLAIMED MONEY.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent will pay the money back to
the Company at its request. After that, Holders entitled to the money must look
to the Company for payment unless an abandoned property law designates another
person.
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<PAGE>
9. AMENDMENT, SUPPLEMENT, WAIVER.
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the outstanding Securities and any past default
or compliance with any provision relating to the Securities may be waived in a
particular instance with the consent of the Holders of a majority in principal
amount of the outstanding Securities. Without the consent of any Securityholder,
the Company and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to create a Series and establish its terms, to remove a Guarantor which, in
accordance with the terms of the Indenture, ceases to be liable in respect of
its Guarantee, or to make any other change, provided such action does not
adversely affect the rights of any Securityholder.
10. SUCCESSOR CORPORATION.
When a successor corporation assumes all the obligations of
its predecessor under the Securities and the Indenture, the predecessor
corporation will be released from those obligations.
11. TRUSTEE DEALINGS WITH COMPANY.
American Stock Transfer & Trust Company, the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its affiliates, and may
otherwise deal with the Company or its affiliates, as if it were not Trustee.
12. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Securityholder by accepting
a Security waives and releases all
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such liability. The waiver and release are part of the consideration for the
issue of the Securities.
13. DISCHARGE OF INDENTURE.
The Indenture contains certain provisions pertaining to
defeasance, which provisions shall for all purposes have the same effect as if
set forth herein.
14. AUTHENTICATION.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
15. ABBREVIATIONS.
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
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<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Security, fill in the
form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type ASSIGNEE'S name, address, and zip code)
and irrevocably appoint
- -------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date: ________________ Your signature:_____________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee: __________________________________________________________
Signature must be guaranteed by
participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
GUARANTEE
The undersigned (the "Guarantors") have unconditionally
guaranteed, jointly and severally (such guarantee by each Guarantor being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
principal of and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Securities, to the extent lawful,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Nine of the Indenture and (ii) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, that the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise.
No past, present or future stockholder, officer, director,
employee or incorporator, as such, of any of the Guarantors shall have any
liability under the Guarantee by reason of such person's status as stockholder,
officer, director, employee or incorporator. Each holder of a Security by
accepting a Security waives and releases all such liability. This waiver and
release are part of the consideration for the issuance of the Guarantees.
Each holder of a Security by accepting a Security agrees that
any Guarantor named below shall have no further liability with respect to its
Guarantee if such Guarantor otherwise ceases to be liable in respect of its
Guarantee in accordance with the terms of the Indenture.
<PAGE>
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
[Guarantors]
By:_____________________
Title:
<PAGE>
EXHIBIT 12.1
D.R. HORTON, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the fiscal years For the three months
ended September 30, ended December 31,
------------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1998 1999
------------------------------------------------------------ ---------------------
($'s in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax income from $ 58,022 $ 89,814 $108,550 $159,099 $263,826 $ 54,266 $ 68,601
continuing operations............
Amortization of capitalized 18,734 25,670 29,323 47,995 58,153 14,884 13,868
interest.........................
Interest expensed ................. 9,551 10,006 11,707 17,453 18,565 3,967 5,524
------------------------------------------------------------ ---------------------
Earnings ............ $ 86,307 $125,490 $149,580 $224,547 $340,544 $ 73,117 $ 87,993
============================================================ =====================
Interest incurred ................. $ 34,500 $ 39,807 $ 51,978 $ 71,649 $ 83,090 $ 16,457 $ 24,330
------------------------------------------------------------ ---------------------
Fixed charges ....... $ 34,500 $ 39,807 $ 51,978 $ 71,649 $ 83,090 $ 16,457 $ 24,330
============================================================ =====================
Ratio of earnings to fixed charges 2.50 3.15 2.88 3.13 4.10 4.44 3.62
============================================================ =====================
</TABLE>
