-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L40LMRj53YYVmfpeHlP6/dYSnwwmqLcaYa4gbOPTyRfBkFG0XF8hvlVRGNO2fm5G bdkOvLoR07Nu2P0YhCMLqw== 0000930661-01-000551.txt : 20010312 0000930661-01-000551.hdr.sgml : 20010312 ACCESSION NUMBER: 0000930661-01-000551 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010305 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14122 FILM NUMBER: 1563555 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 MAIL ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: SUITE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 8-K 1 0001.txt FORM 8-K 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 5, 2001 ------------- (Date of Report--Date of Earliest Event Reported) D.R. Horton, Inc. ----------------- (Exact Name of Registrant as Specified in Charter) - ---------------------------------------- -------------------------------------- -------------------------------------- Delaware 1-14122 75-2386963 - ---------------------------------------- -------------------------------------- -------------------------------------- (State or Other Jurisdiction (Commission File Number) (IRS Employer Identification No.) of Incorporation) - ---------------------------------------- -------------------------------------- --------------------------------------
1901 Ascension Boulevard, Suite 100, Arlington, Texas 76006 ----------------------------------------------------------- (Address of Principal Executive Offices) (817) 856-8200 -------------- (Registrant's Telephone Number, Including Area Code) _____________________________________________________________ (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events. Exhibit 1.1 hereto is the Underwriting Agreement, dated as of March 5, 2001, among D.R. Horton, Inc., the Guarantors named therein, UBS Warburg LLC and Banc of America Securities LLC. Exhibit 4.1(a) hereto is the Second Supplemental Indenture, dated as of March 12, 2001, to be executed by D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.375% Senior Subordinated Notes due 2011 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 5, 2001, among D.R. Horton, Inc., the Guarantors named therein, UBS Warburg LLC and Banc of America Securities LLC 4.1(a) Second Supplemental Indenture, dated as of March 12, 2001, to be executed by D.R. Horton, Inc., the guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 9.375% Senior Subordinated Notes due 2011 of D.R. Horton, Inc. 12.1 Statement of computation of ratios of earnings to fixed charges. 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 8, 2001 D. R. Horton, Inc. By: /s/ Samuel R. Fuller ------------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer, and Chief Financial Officer EX-1.1 2 0002.txt UNDERWRITING AGREEMENT Exhibit 1.1 $200,000,000 D.R. HORTON, INC. 9.375% Senior Subordinated Notes due 2011 UNDERWRITING AGREEMENT ---------------------- March 5, 2001 UBS Warburg LLC 299 Park Avenue New York, New York 10171 Banc of America Securities LLC 9 West 57/th/ Street Capital Markets, 31/st/ Floor New York, New York 10019 Ladies and Gentlemen: D.R. Horton, Inc., a Delaware corporation (the "Company"), proposes to ------- issue and sell $200,000,000 aggregate principal amount of its 9.375% Senior Subordinated Notes due 2011 (the "Notes") to UBS Warburg LLC and Banc of America ----- Securities LLC (together, the "Underwriters"). The Notes are to be issued ------------ pursuant to the provisions of an Indenture dated as of September 11, 2000 as supplemented (the "Indenture") and the supplemental indenture to be dated March --------- 12, 2001 (the "Second Supplemental Indenture"), among the Company, certain ----------------------------- subsidiaries of the Company and 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 (collectively, the "Act"), a registration statement on Form S-3 (No. 333-76175), including a --- base prospectus relating to the Securities. The regis- -2- tration 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, each of the Underwriters agree to purchase from the Company, the aggregate principal amount of the Notes set forth opposite such Underwriter's name on Schedule A hereto. The aggregate purchase price shall be 99.202% of the ---------- principal amount thereof ($198,404,000), plus accrued interest, if any, from March 12, 2001 to the date of payment and delivery (the "Purchase Price"). -------------- 3. Terms of Public Offering. The Company is advised by the Underwriters ------------------------ that the Underwriters propose to make a public offering of the Securities as soon after the execution and delivery of this Agreement as in judgment of the Underwriters is advisable on the basis set forth in the Prospectus Supplement. 4. Delivery and Payment. Delivery to the Underwriters of and payment for -------------------- the Securities shall be made at 10:00 A.M., New York City time, on March 12, 2001 (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 Underwriters, 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 -3- 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 Underwriters by causing DTC to credit the Securities to the accounts of each of the Underwriters at DTC against payment therefor as set forth above. 5. Agreements of the Issuers. The Issuers, jointly and severally, ------------------------- agree with the Underwriters 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-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 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. -4- (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 Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or any dealer, the Issuers will expeditiously deliver to the Underwriters 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 any Underwriter and by all dealers to whom Securities may be sold, both in connection with the 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 any 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 Underwriters, 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 Underwriters and to such dealers as you shall specify such number of copies thereof as the Underwriters 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 is- -5- sue 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 Underwriters in connection with the registration or qualification of the Securities for offering and sale by any 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 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 date 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 will 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 of the Company 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 delivery of -6- 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 Underwriters 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 Underwriters 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 any 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 each of the Underwriters. (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 Underwriters that: (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 -7- 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 Underwriters 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 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. -8- (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 as disclosed in the Registration Statement or the Prospectus or minority interests in non-Guarantor subsidiaries) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than restrictions on transfer imposed by applicable securities laws. (i) The 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 any 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). (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. -9- (l) The Notes have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to each of the Underwriters 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 each of the Underwriters 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. (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. -10- (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. (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 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. -11- (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. (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 cash dividend of $.05 per share declared in January 2001 and paid on February 15, 2001 and an 11% stock dividend declared in February 2001 and payable on March 23, 2001, declared or paid any dividend on its capital stock, and, 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. -12- (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. 7. Indemnification. (a) The Issuers, jointly and severally, agree to --------------- indemnify and hold harmless any Underwriter, each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the directors, officers, employees and agents of each of the foregoing (collectively, the "Underwriter Indemnified Parties"), 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 any Underwriter furnished in writing to the Issuers by or on behalf of such 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 any Underwriter Indemnified Party 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 such Underwriter or related Underwriter Indemnified Party 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, no Underwriter shall be obligated to send or give any Incorporated -13- 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) The Issuers, jointly and severally, also agree to indemnify and hold harmless UBS Warburg LLC and its Underwriter Indemnified Parties, from and against any and all losses, claims, damages, liabilities and judgments incurred as a result of UBS Warburg LLC's participation as a "qualified independent underwriter" within the meaning of the NASD Conduct Rules, in connection with the offering of the Notes. (c) In case any action shall be brought against any Underwriter Indemnified Party, based 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 Underwriters 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. Such Underwriter Indemnified Party 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 such Underwriter Indemnified Party 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 such Underwriter Indemnified Party and the Issuers and such Underwriter Indemnified Party 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 such Underwriter Indemnified Party, 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 all such Underwriter Indemnified Parties, which firm shall be designated in writing by UBS Warburg LLC 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 Indemnified Parties from and against any loss or liability by reason of such settlement. The Company shall not, without the prior written consent of the Underwriter Indemnified Parties, effect any settlement of any pending or threatened proceeding in respect of which any Underwriter Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Underwriter Indemnified Party, unless such settlement includes an unconditional release of such Underwriter Indemnified Party from all liability on claims that are the subject matter of such proceeding. -14- (d) Each Underwriter agrees, severally and not jointly, 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 Indemnified Parties but only with reference to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter expressly for use in the Registration Statement, the Prospectus or any 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 any Underwriter, such Underwriter shall have the rights and duties given to the Issuers (except that if the Issuers shall have assumed the defense thereof, such 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 such Underwriter), and the Issuers, their directors, any such officers and any person controlling the Issuers shall have the rights and duties given to the Underwriters, by Section 7(c) hereof. (e) If the indemnification provided for in this Section 7 is unavailable to or insufficient to hold harmless 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 Underwriters 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 the Issuers and the Underwriters 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 Underwriters 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 Underwriters (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 Underwriters 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 any Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(e) 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 indem- -15- nified 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 Underwriters 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 Underwriters have 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. (f) The Underwriters confirm and the Issuers acknowledge that the statements with respect to the public offering of the Securities by the Underwriters set forth in the third and fourth paragraphs of the section entitled "Underwriting" in the Prospectus Supplement are correct and constitute the only information concerning the Underwriters furnished in writing to the Issuers by or on behalf of the Underwriters specifically for inclusion in the Registration Statement and the Prospectus. 8. Conditions of Underwriters' Obligation. The obligation of each of -------------------------------------- the Underwriters 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 any review for a possible change that does not indicate the direction of the possible change, in the rating -16- 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 Underwriters), dated the Closing Date, of Gibson Dunn & Crutcher LLP, special counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, is duly 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 -17- 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 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, 2000 or to any subsequent filing under the Exchange Act or the Act, nor will such actions result in any violation of the provisions of -18- 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 Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the 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 each of the Underwriters 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. (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 each of the Underwriters 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. -19- (xii) The Second Supplemental Indenture is (x) authorized and permitted by the Indenture, (y) not inconsistent with the Indenture and (z) valid and binding upon the Issuers an accordance with its terms. In rendering such opinion, such counsel may state that its opinion is limited to the Federal laws of the United States of America, the laws of the States of Texas and New York and the General Corporation Law of the State of Delaware. Such counsel shall also have furnished to the Underwriters a written statement, addressed to the Underwriters and dated the Closing Date, in form and substance satisfactory to the Underwriters and counsel for the Underwriters, to the effect that (x) such counsel has acted as special counsel to the Company in connection with the preparation of the Registration Statement and during the course of the preparation of the Registration Statement and Prospectus, such counsel participated in conferences with representatives of the Company, the Company's internal counsel, and its accountants and the representatives of the Underwriters and at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that (I) the Registration Statement (except as to financial data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein), as of the date the 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: -20- 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 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 Underwriters, in form and substance satisfactory to the Underwriters. (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 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 -21- 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 Underwriters, 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 Underwriters 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. 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 Underwriters 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, -22- 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. 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 Underwriters, to them c/o UBS Warburg LLC, 299 Park Avenue, New York, New York 10171, 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 Underwriters 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 Underwriters 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 Underwriters 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 Underwriters 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 Underwriters, any controlling persons referred to herein, the other indemnitees 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 any Underwriter merely because of such purchase. 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. [Signature Pages Follow] -23- Please confirm that the foregoing correctly sets forth the agreement between the Issuers and the Underwriters. Very truly yours, D.R. HORTON, INC. By:________________________________ Name: Donald R. Horton Title: Chairman of the Board -24- 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. 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: Samuel R. Fuller Title: Treasurer -25- SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By:_________________________________ Name: Samuel R. Fuller Title: Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. D.R. HORTON - TEXAS, LTD. By: Meadows I, Ltd., its general partner By:_________________________________ Name: Samuel R. Fuller Title: Treasurer CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By:_________________________________ Name: Samuel R. Fuller Title: Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By:_________________________________ Name: William Peck Title: President -26- SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows X, Inc., a member By:_________________________________ Name: Samuel R. Fuller Title: Treasurer -27- Agreed and accepted as of the date first written above: UBS WARBURG LLC By: _________________________________ Name: Salvatore Giannetti Title: Managing Director By: _________________________________ Name: Ervil Spencer Title: Director BANC OF AMERICA SECURITIES LLC By: _________________________________ Name: Adam Goodfriend Title: Managing Director -28- Schedule A ---------- UBS Warburg LLC $170,000,000 Banc of America Securities LLC 30,000,000 ------------ Total $200,000,000 EX-4.1.A 3 0003.txt SECOND SUPPLEMENTAL INDENTURE EXHIBIT 4.1(A) ================================================================================ D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO 9.375% Senior Subordinated Notes due 2011 ______________________ Second Supplemental Indenture Dated as of March 12, 2001 ______________________ AMERICAN STOCK TRANSFER & TRUST COMPANY, Trustee ================================================================================ SECOND SUPPLEMENTAL INDENTURE dated as of March 12, 2001 ("Supplemental Indenture"), to the Indenture dated as of September 11, 2000 (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 subordinated 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 9.375% Senior Subordinated Notes due 2011 in the aggregate principal amount of up to $250.0 million, 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; 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: -2- 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 $250.0 million in one or more 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 "9.375% Senior Subordinated Notes due 2011." 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. In the event that the Company shall issue and the Trustee shall authenticate any Notes issued under this Supplemental Indenture subsequent to the Issue Date (such Notes, "Additional Securities"), the Company shall use its --------------------- best efforts to obtain the same "CUSIP" number for such Notes as is printed on the Notes outstanding at such time; provided, however, that if any series of -------- ------- Notes issued under this Supplemental Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee, to be a different class of security than the Notes outstanding at such time for federal income tax purposes, the Company may obtain a "CUSIP" number for such Notes that is different than the "CUSIP" number printed on the Notes then outstanding. Notwithstanding the foregoing, all Notes issued under this Supplemental Indenture shall vote and consent together on all matters as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. In the event that less than all of the Notes are to be redeemed at any time pursuant to an optional redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national security exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. In addition, if a partial redemption is made pursuant to paragraph 5(b) of the Notes, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a optional redemption basis as is practicable (subject to the procedures of the Depository Trust Company), unless that method is otherwise prohibited. -3- 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 herein will govern. "Acquired Indebtedness" means (i) with respect to any Person that --------------------- becomes a Restricted Subsidiary (or is merged into the Company or any Restricted Subsidiary) after the Issue Date, Indebtedness of such Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary (or is merged into the Company or any Restricted Subsidiary) that was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary (or being merged into the Company or any Restricted Subsidiary) and (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 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 $10.0 million. The term "Asset Dispo- ------------ -4- sition" 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 (vi) 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. "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 $500.0 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 ac- -5- quisition; 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 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) Consolidated Cash Flow Available for Fixed Charges for the -6- 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 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. -7- "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 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, and (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 3.04(a) hereof, clause (iv)(b) above shall not be applicable. -8- "Consolidated Net Worth" of any Person as of any date means the ---------------------- stockholders' equity (including any Preferred Stock that is classified as equity under GAAP, other than Disqualified Stock) of such Person and its Restricted Subsidiaries on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less any amount attributable to Unrestricted Subsidiaries. "Consolidated Tangible Assets" of the Company as of any date means the ---------------------------- total amount of assets of the Company and its Restricted Subsidiaries (less applicable reserves) on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less (1) Intangible Assets and (2) appropriate adjustments on account of minority interests of other Persons holding equity investments in Restricted Subsidiaries. "Continuing Director" means a director who either was a member of the ------------------- Board of Directors of the Company on the date of the Indenture or who became a director of the Company subsequent to such date and whose election, or nomination for election by the Company's stockholders, was duly approved by a majority of the Continuing Directors on the Board of Directors of the Company at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the entire Board of Directors of the Company in which such individual is named as nominee for director. "control", when used with respect to any Person, means the power to ------- direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the ----------- ---------- foregoing. "Credit Facilities" means, collectively, each of the credit facilities ----------------- and guidance lines of credit of the Company or one or more Restricted Subsidiaries in existence on the date of 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 general corporate purposes (including acquisitions), as any such facility or line of credit may be amended, restated, supplemented or otherwise modified from time to time, and includes any agreement extending the maturity of, increasing the amount of, or restructuring, all or any portion of the Indebtedness under such facility or line of credit or any successor facilities or lines of credit and includes any facility or line of credit with one or more lenders refinancing or replacing all or any portion of the Indebtedness under 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. -9- "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 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. ------- - "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. -10- "Guarantors" means (i) initially, each of: ---------- DRHI, Inc., a Delaware corporation; Meadows I, Ltd., a Delaware corporation; Meadows II, Ltd., a Delaware corporation; Meadows IX, Inc., a New Jersey corporation; Meadows X, Inc., a New Jersey corporation; D.R. Horton, Inc.-Minnesota, a Delaware corporation; D.R. Horton, Inc. - Greensboro, a Delaware corporation; D.R. Horton, Inc. - Birmingham, an Alabama corporation; D.R. Horton, Inc. - Chicago, a Delaware corporation; D.R. Horton, Inc. - San Diego, a Delaware corporation; D.R. Horton, Inc. - New Jersey, a Delaware corporation; D.R. Horton, Inc. - Torrey, a Delaware corporation; DRH Construction, Inc., a Delaware corporation; D.R. Horton, Inc. - Louisville, a Delaware corporation; D.R. Horton, Inc. - Denver, a Delaware corporation; D.R. Horton San Diego Holding Company, Inc., a California corporation; D.R. Horton Los Angeles Holding Company, Inc., a California corporation; SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company; D.R. Horton Management Company, Ltd., a Texas limited partnership; D.R. Horton-Texas, Ltd., a Texas limited partnership; D.R. Horton, Inc. - Sacramento, a California corporation; DRH Cambridge Homes, Inc., a California corporation; C. Richard Dobson Builders, Inc., a Virginia corporation; DRH Tucson Construction, Inc., a Delaware corporation; Continental Homes, Inc., a Delaware corporation; KDB Homes, Inc., a Delaware corporation; Continental Residential, Inc., a Delaware corporation; Continental Homes of Florida, Inc., a Florida corporation; CHI Construction Company, an Arizona corporation; CHTEX of Texas, Inc., a Delaware corporation; CH Investments of Texas, Inc., a Delaware corporation; Continental Homes of Texas, L.P., a Texas limited partnership; D.R. Horton, Inc. - Portland, a Delaware corporation; and (ii) each of the Company's Subsidiaries which becomes a guarantor of the Notes pursuant to the provisions of the Indenture. "Holder" means the Person in whose name a Note is registered in the ------ books of the Registrar for the Notes. -11- "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 instruments issued for the benefit of or surety, performance, completion or payment bonds, earnest money notes or similar purpose undertakings or indemnifications issued by, such Person in the ordinary course of business), (b) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind or with services incurred in connection with capital expenditures (other than any obligation to pay a contingent purchase price which, as of the date of incurrence thereof is not required to be recorded as a liability in accordance with GAAP), or (c) in respect of Capitalized Lease Obligations (to the extent of the Attributable Debt in respect thereof), (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, write-ups of assets over their prior carrying value (other than write-ups which occurred prior to the Issue Date and other than, in connection with the acquisition of an asset, the write-up of the value of such asset (within one year of its acquisition) to its fair market value in accordance with GAAP) and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and the Restricted Subsidiaries prepared in accordance with GAAP. "Interest Expense" of any Person for any period means, without ---------------- duplication, the aggregate amount of (i) interest which, in conformity with GAAP, would be set opposite the caption "interest expense" or any like caption on an income statement for such Person (including, without limitation, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and -12- 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 Indebtedness 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. "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 first date on which the Notes are 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) -13- debt securities that are rated by a nationally recognized rating agency, listed on the New York Stock Exchange or the American Stock Exchange or covered by at least two reputable market makers. "Moody's" means Moody's Investors Service, Inc. or any successor to ------- its debt rating business. "Mortgage Subsidiary" means any Subsidiary of the Company ------------------- substantially all of whose operations consist of the mortgage lending business. "Net Cash Proceeds" means, with respect to an Asset Disposition, cash ----------------- payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise (including any cash received upon sale or disposition of such note or receivable), but only as and when received), excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the Property disposed of in such Asset Disposition or received in any other non-cash form unless and until such non-cash consideration is converted into cash therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state and local taxes required to be accrued as a liability under GAAP as a consequence of such Asset Disposition, and in each case net of a reasonable reserve for the after-tax cost of any indemnification or other payments (fixed and contingent) attributable to the seller's indemnities or other obligations to the purchaser undertaken by the Company or any of its Restricted Subsidiaries in connection with such Asset Disposition, and net of all payments made on any Indebtedness which is secured by or relates to such Property, in accordance with the terms of any Lien or agreement upon or with respect to such Property or which must by its terms or by applicable law be repaid out of the proceeds from such Asset Disposition, and net of all contractually required distributions and payments made to minority interest holders in Restricted Subsidiaries or joint ventures as a result of such Asset Disposition. "Non-Recourse Indebtedness" with respect to any Person means ------------------------- Indebtedness of such Person for which (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 actually -14- 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 $1.0 billion aggregate 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 that ceases to be a Restricted Subsidiary shall be deemed to be incurred and shall be treated as an incurrence for purposes of Section 3.02(a) 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 $20.0 million aggregate principal amount outstanding at any one time; (ix) Indebtedness under warehouse lines of credit, repurchase agreements and Indebtedness secured by mortgage loans and related assets of mortgage lending Subsidiaries in the ordinary course of a mortgage lending business; and (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 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 $1.0 million shall have been approved by the Board of -15- 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 servicing or other mortgage related assets; and (ix) Investments in an aggregate amount outstanding not to exceed $100.0 million. "Permitted Liens" means: (1) Liens for taxes, assessments or --------------- governmental or quasi-government charges or claims that (a) are not yet delinquent, (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP, if required, or (c) encumber solely property abandoned or in the process of being abandoned, (2) statutory Liens of landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other Liens imposed by law and arising in the ordinary course of business and with respect to amounts that, to the extent applicable, either (a) are not yet delinquent or (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP, if required, (3) Liens (other than any Lien imposed by the Employer Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (4) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, development obligations, progress payments, government contacts, utility services, developer's or other obligations to make on-site or off-site improvements and other obligations of like nature (exclusive of obligations for the payment of borrowed money but including the items referred to in the parenthetical in clause (i)(a) of the definition of "Indebtedness"), in each case incurred in the ordinary course of business of the Company and the Restricted Subsidiaries, (5) attachment or judgment Liens not giving rise to a Default or an Event of Default, (6) easements, dedications, assessment district or similar liens in connection with municipal or special district financing, rights-of-way, restrictions, reservations and other similar charges, burdens, and other similar charges or encumbrances not materially interfering with the ordinary course of business of the Company and the Restricted Subsidiaries, (7) zoning restrictions, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such real property in the ordinary course of business of the Company and the Restricted Subsidiaries, (8) Liens securing Indebtedness incurred pursuant to clause (8) or (9) of the definition of Permitted Indebtedness, (9) Liens securing Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the Indenture; provided, that the aggregate amount of all -------- consolidated Indebtedness of the Company and the Restricted Subsidiaries (including, with respect to Capitalized Lease Obligations, the Attributable Debt in respect thereof) secured by Liens (other than Non-Recourse Indebtedness and Indebtedness incurred pursuant to clause (9) of the definition of Permitted Indebtedness) shall not exceed 40% of Consolidated Adjusted Tangible Assets at any one time outstanding (after giving effect to the -16- incurrence of such Indebtedness and the use of the proceeds thereof), (10) Liens securing Non-Recourse Indebtedness of the Company or any Restricted Subsidiary; provided, that such Liens apply only to the property financed out of the net - -------- proceeds of such Non-Recourse Indebtedness within 90 days after the incurrence of such Non-Recourse Indebtedness, (11) Liens securing Purchase Money Indebtedness; provided that such Liens apply only to the property acquired, constructed or improved with the proceeds of such Purchase Money Indebtedness within 90 days after the incurrence of such Purchase Money Indebtedness, (12) Liens on property or assets of the Company or any Restricted Subsidiary securing Indebtedness of the Company or any Restricted Subsidiary owing to the Company or one or more Restricted Subsidiaries, (13) leases or subleases granted to others not materially interfering with the ordinary course of business of the Company and the Restricted Subsidiaries, (14) purchase money security interests (including, without limitation, Capitalized Lease Obligations); provided, that -------- such Liens apply only to the Property acquired and the related Indebtedness is incurred within 90 days after the acquisition of such Property, (15) any right of first refusal, right of first offer, option, contract or other agreement to sell an asset; provided, that such sale is not otherwise prohibited under the -------- Indenture, (16) any right of a lender or lenders to which the Company or a Restricted Subsidiary may be indebted to offset against, or appropriate and apply to the payment of such, Indebtedness any and all balances, credits, deposits, accounts or money of the Company or a Restricted Subsidiary with or held by such lender or lenders or its Affiliates, (17) any pledge or deposit of cash or property in conjunction with obtaining surety, performance, completion or payment bonds and letters of credit or other similar instruments or providing earnest money obligations, escrows or similar purpose undertakings or indemnifications in the ordinary course of business of the Company and its Restricted Subsidiaries, (18) Liens for homeowner and property owner association developments and assessments, (19) Liens securing Refinancing Indebtedness; provided, that such Liens extend only to the assets securing the -------- Indebtedness being refinanced, (20) Liens incurred in the ordinary course of business as security for the obligations of the Company and its Restricted Subsidiaries with respect to indemnification in respect of title insurance providers, and (21) Liens securing Senior Indebtedness and Liens securing Guarantor Senior Indebtedness. "Person" means any individual, corporation, partnership, limited ------ liability company, joint venture, incorporated or unincorporated association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "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. -17- "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 (i) S&P and (ii) Moody's. --------------- "Real Estate Business" means homebuilding, housing construction, real -------------------- estate development or construction and related real estate activities, including the provision of mortgage financing or title insurance. "Refinancing Indebtedness" means Indebtedness (to the extent not ------------------------ Permitted Indebtedness) that refunds, refinances or extends any Indebtedness of the Company or any Restricted Subsidiary (to the extent not Permitted Indebtedness) outstanding on the Issue Date or other Indebtedness (to the extent not Permitted Indebtedness) permitted to be incurred by the Company or any Restricted Subsidiary pursuant to the terms of the Indenture, but only to the extent that (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 -18- 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) 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 the Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means any Subsidiary of the Company so ----------------------- designated by a resolution adopted by the Board of Directors of the Company or a duly authorized committee thereof as provided below; provided that (a) the -------- holders of Indebtedness thereof do not have direct or indirect recourse against the Company or any Restricted Subsidiary, and neither the Company nor any Restricted Subsidiary otherwise has liability for, any payment obligations in respect of such Indebtedness (including any undertaking, agreement or instrument evidencing such Indebtedness), except, (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 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; -19- 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 3.04 hereof, to the extent provided therein, (ii) the Company must be permitted under Section 3.04 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 or be continuing. In accordance with the foregoing, and not in limitation thereof, Investments made by any Person in any Subsidiary of such Person prior to such Person's merger with the Company or any Restricted Subsidiary (but not in contemplation or anticipation of such merger) shall not be counted as an Investment by the Company or such Restricted Subsidiary if such Subsidiary of such Person is designated as an Unrestricted Subsidiary. The Board of Directors of the Company or a duly authorized committee thereof may also redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that -------- ------- (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' 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. -20- 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 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 this Section 3.02 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, this Section 3.02 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 -21- (v) any guarantee of Indebtedness incurred under Credit Facilities in compliance with this Indenture. (c) For purposes of determining compliance with this Section 3.02, 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. Section 3.03. Limitation on Senior Subordinated Indebtedness. ---------------------------------------------- The Company will not, and will not cause or permit any Guarantor to, directly or indirectly, incur any Indebtedness that purports by its terms (or by the terms of any agreement governing such Indebtedness) to rank senior in right of payment to the Notes and subordinated in right of payment to any other Indebtedness of the Company or of such Guarantor, as the case may be. Section 3.04. Limitation on Restricted Payments. --------------------------------- Until the Notes are rated Investment Grade by both Rating Agencies (after which time this Section 3.04 will no longer be in effect) (a) 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); and (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 April 1, 1998 and ending on the last day of the Company's fiscal quarter immediately preceding the date of such Restricted Payment (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit), plus (b) 100% of the aggregate net cash pro- -22- ceeds of and the fair market value of Property received by the Company from (1) any capital contribution to the Company after June 9, 1997 or any issue or sale after June 9, 1997 of Qualified Stock (other than to any Subsidiary of the Company) and (2) the issue or sale after June 9, 1997 of any Indebtedness or other securities of the Company convertible into or exercisable for Qualified Stock of the Company that have been so converted or exercised, as the case may be, plus (c) $86.0 million, which is equal to the aggregate principal amount of the Company's 6 7/8% Convertible Subordinated Notes due 2002 that were converted into the Company's Common Equity prior to the Issue Date, plus (d) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after June 9, 1997, an amount (to the extent not included in the calculation of the Consolidated Net Income referred to in (a)) equal to the lesser of (x) the return of capital with respect to such Investment (including by dividend, distribution or sale of Capital Stock) and (y) the amount of such Investment that was treated as a Restricted Payment, in either case, less the cost of the disposition or repayment of such Investment (to the extent not included in the calculation of the Consolidated Net Income referred to in (a)), plus (e) with respect to any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary after June 9, 1997 in accordance with the definition of Unrestricted Subsidiary (so long as the designation of such Subsidiary as an Unrestricted Subsidiary was treated as a Restricted Payment made after June 9, 1997 and only to the extent not included in the calculation of the Consolidated Net Income referred to in (a)), an amount equal to the lesser of (x) the proportionate interest of the Company or a Restricted Subsidiary in an amount equal to the excess of (I) the total assets of such Subsidiary, valued on an aggregate basis at the lesser of book value and Fair Market Value thereof, over (II) the total liabilities of such Subsidiary, determined in accordance with GAAP, and (y) the Designation Amount at the time of such Subsidiary's designation as an Unrestricted Subsidiary, plus (f) $50.0 million minus (g) the aggregate amount of all Restricted Payments (other than Restricted Payments referred to in clause (C) of (b) below) made after June 9, 1997 through the Issue Date. (b) Clauses (ii) and (iii) of (a) above 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 since the Issue Date; provided, however, that each Restricted -------- ------- Payment described in clauses (A) and (B) of this sentence shall be taken into account for purposes of -23- computing the aggregate amount of all Restricted Payments pursuant to clause (iii) of (a) above. (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 (a) above, 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 does 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 3.05. Limitations on Transactions with Affiliates. -------------------------------------------- Until the Notes are rated Investment Grade by both Rating Agencies (after which time this Section 3.05 will no longer be in effect), (a) the Company will not, and will not cause or permit any Restricted Subsidiary to, make any loan, advance, guarantee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any property or assets to, or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Company or any Affiliate of any of the Company's Subsidiaries or any holder of 10% or more of the Common Equity of the Company (including any Affiliates of such holders), in a single transaction or series of related transactions (each, an "Affiliate Transaction"), --------------------- except for any Affiliate Transaction the terms of which are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's length basis with Persons who are not such a holder, an Affiliate of such a holder or an Affiliate of the Company or any of the Company's Subsidiaries. -24- (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 $10 million, the Company shall have (x) obtained the approval of a majority of the Board of Directors of the Company and (y) either obtained the approval of a majority of the Company's disinterested directors or obtained an opinion of a qualified independent financial advisor to the effect that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (ii) with respect to any such Affiliate Transaction involving or having a value of more than $50.0 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 (a) and (b) above , 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 3.04, (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 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 3.06. Limitations on Dispositions of Assets. ------------------------------------- Until the Notes are rated Investment Grade by both Rating Agencies (after which time this Section 3.06 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 -25- any Restricted Subsidiary that is actually assumed by the transferee in such Asset Disposition shall be deemed to be consideration required by clause (y) above for purposes of determining the percentage of such consideration received by the Company or the Restricted Subsidiaries. The Net Cash Proceeds of an Asset Disposition shall, within one year, at the Company's election, (a) be used by the Company or a Restricted Subsidiary in the business of the construction and sale of homes conducted by the Company and the Restricted Subsidiaries or any other business of the Company or a Restricted Subsidiary existing at the time of such Asset Disposition or (b) to the extent not so used, be applied to repay, purchase or redeem Senior Indebtedness and/or Guarantor Senior Indebtedness or (c) to the extent not used pursuant to clauses (a) and (b), be applied to make a Net Cash Proceeds Offer for the Notes and, if the Company or a Restricted Subsidiary elects or is required to do so, repay, purchase or redeem any other Indebtedness that ranks pari passu with the Notes (on a pro rata basis if the amount available for such repayment, purchase or redemption is less than the aggregate amount of (i) the principal amount of the Notes tendered in such Net Cash Proceeds Offer and (ii) the lesser of the principal amount, or accreted value, of such other pari passu Indebtedness, plus, in each case accrued interest to the date of repayment, purchase or redemption) at 100% of the principal amount or accreted value thereof, as the case may be, plus accrued interest to the date of repurchase or repayment. Notwithstanding the foregoing, (A) the Company will not be required to apply such Net Cash Proceeds to the repurchase of Notes in accordance with clause (b) or (c) of the preceding sentence except to the extent that such Net Cash Proceeds, together with the aggregate Net Cash Proceeds of prior Asset Dispositions (other than those so used) which have not been applied in accordance with this provision and as to which no prior Net Cash Proceeds Offer shall have been made, exceed 5% of Consolidated Tangible Assets and (B) in connection with any Asset Disposition, the Company and the Restricted Subsidiaries will not be required to comply with the requirements of clause (y) of the first sentence of this Section 3.06 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 3.07. 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 the Indenture and the Notes and/or the Guarantees, as the case may be, are secured (i) in the case of an obligation that ranks pari passu with the Notes or a Guarantee, on at least an equal and ratable basis with the obligation so secured and (ii) in the case of an obligation that is subordinated to the -26- Notes or a Guarantee, on a basis that is senior in priority to the Lien securing such obligation, in each case, until such time as such obligation is no longer secured by a Lien. Section 3.08. 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 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 Supplemental 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. Section 3.09. 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 -27- 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). The foregoing provisions shall not apply to (i) a transaction involving the sale or disposition of Capital Stock of a Guarantor, or the consolidation or merger of a Guarantor, or the sale, lease, conveyance or other disposition of all or substantially all of the assets of a Guarantor, that in any such case results in such Guarantor being released from its Guarantee 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 3.10. 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. -28- 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 without giving effect to principles of conflicts of laws. 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. [Signature Pages Follow] 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: Donald R. Horton Title: Chairman of the Board -2- 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. 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: Samuel R. Fuller Title: Treasurer -3- SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By:_____________________________________ Name: Samuel R. Fuller Title: Treasurer By: Meadows X, Inc., a member By:_____________________________________ Name: Samuel R. Fuller Title: Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. D.R. HORTON-TEXAS, LTD. By: Meadows I, Ltd., its general partner By:_____________________________________ Name: Samuel R. Fuller Title: Treasurer CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By:_____________________________________ Name: Samuel R. Fuller Title: Treasurer -4- MEADOWS II, LTD. CH INVESTMENTS OF TEXAS, INC. By:_____________________________________ Name: William Peck Title: President AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By:_____________________________ Name: Title: 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 No. CUSIP No.: D.R. HORTON, INC. 9.375% Senior Subordinated Notes due 2011 D.R. HORTON, INC., a corporation incorporated under the laws of the State of Delaware, promises to pay to CEDE & CO. or its registered assigns, the principal sum of Dollars on March 15, 2011. Interest Payment Dates: March 15 and September 15, commencing September 15, 2001 Interest Record Dates: March 1 and September 1 Dated: D.R. HORTON, INC. [Seal] By:________________________________ Name: Title: By:________________________________ Name: Title: A-2 American Stock Transfer & Trust Company, as Trustee, certifies that this is one of the Securities referred to in the within mentioned Indenture. Date: By:_____________________________ Authorized Signatory A-3 D.R. HORTON, INC. 9.375% Senior Subordinated Notes due 2011 (the "Securities") 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 March 15 and September 15 of each year, commencing September 15, 2001, 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 1 and September 1 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 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 September 11, 2000 ("Indenture") among the Company, the Guarantors and the Trustee, as supplemented by a Second Supplemental Indenture dated as of March 12, 2001. The terms of the Securities and the Guarantees include those stated in the Indenture and those made part of the A-4 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. Optional Redemption. ------------------- (a) Except as set forth below, the Securities may not be redeemed prior to March 15, 2006. At any time on or after March 15, 2006, the Company, at its option, may redeem the Securities, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below, together with accrued and unpaid interest thereon, if any, to the redemption date, if redeemed during the 12-month period beginning March 15 of the years indicated: Year Redemption ---- Price ----- 2006...................................................... 104.688% 2007...................................................... 103.125% 2008...................................................... 101.563% 2009 and thereafter....................................... 100.000% (b) At any time prior to March 15, 2004, the Company may redeem the Securities with the net cash proceeds of one or Public Equity Offerings at a redemption price equal to 109.375% of the principal amount of such Securities to be redeemed, plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the aggregate principal amount of -------- securities (excluding any Securities held by the Company or any of its Affiliates) issued under the Indenture remains outstanding immediately after the occurrence of such redemption. Notice of redemption must be given within 60 days of the date of the closing of the relevant Public Equity Offering. 6. Selection and Notice of Redemption ---------------------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the date of redemption to each Holder of Securities to be redeemed at his registered A-6 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. 7. Denominations, Transfer, Exchange. --------------------------------- The Securities are in registered form only without coupons in denominations of $1,000 and integral multiples thereof. 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. 8. Persons Deemed Owners. --------------------- The registered Holder of this Security shall be treated as the owner of it for all purposes. 9. 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. 10. Amendment, Supplement, Waiver. ----------------------------- Subject to certain exceptions, the Indenture, the Securities or the Guarantees may be amended or supplemented with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Securities) of the Holders of at least a majority in principal amount of the outstanding Securities then outstanding and any existing default under, or compliance with any provision of the Indenture relating to the Securities may be waived (other than any continuing Default or Event of Default in the payment of interest on or the principal of the Securities) with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Securities) of the Holders of a majority in principal amount of the Securities then outstanding. Without the consent of any Securityholder, the Company and the Trustee may amend or supplement the Indenture, the Securities or the Guarantees 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. 11. 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. 12. 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. 13. 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 such liability. The waiver and release are part of the consideration for the issue of the Securities. 14. 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. 15. Authentication. -------------- This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. A-7 16. 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). A-8 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 guarantee program reasonably acceptable to the Trustee). [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. 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. 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 Com- pany, Inc. D.R. Horton Los Angeles Holding Com- pany, Inc. DRH Construction, Inc. DRH Cambridge Homes, 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: SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By:_____________________________________ Name: Title: 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: CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By:_____________________________________ Name: Title: MEADOWS II, LTD. CH INVESTMENTS OF TEXAS, INC. By:_____________________________________ Name: Title: EX-12.1 4 0004.txt STATEMENT OF COMP. OF RATIOS OF EARNINGS Exhibit 12.1 ------------ D.R. HORTON, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the fiscal years For the three months ended September 30, ended December 31, ----------------------------------------------------------- --------------------- 1996 1997 1998 1999 2000 1999 2000 ----------------------------------------------------------- --------------------- ($'s in thousands) Consolidated income before taxes ........ $ 89,814 $ 108,550 $ 159,099 $ 263,826 $ 309,224 $ 68,601 $ 76,361 Amortization of capitalized interest..... 25,670 29,323 47,995 58,153 69,566 13,868 18,172 Interest expensed ....................... 10,006 11,707 17,453 18,565 18,680 5,524 4,845 ---------- --------- ---------- ---------- ---------- ---------- --------- Earnings .................. $ 125,490 $ 149,580 $ 224,547 $ 340,544 $ 397,470 $ 87,993 $ 99,378 ========== ========= ========== ========== ========== ========== ========= Interest incurred ....................... $ 39,807 $ 51,978 $ 71,649 $ 83,090 $ 112,813 $ 24,330 $ 31,483 ---------- --------- ---------- ---------- ---------- ---------- --------- Fixed charges ............. $ 39,807 $ 51,978 $ 71,649 $ 83,090 $ 112,813 $ 24,330 $ 31,483 ========== ========= ========== ========== ========== ========== ========= Ratio of earnings to fixed charges ...... 3.15 2.88 3.13 4.10 3.52 3.62 3.16 ========== ========= ========== ========== ========== ========== =========
-----END PRIVACY-ENHANCED MESSAGE-----