Filed pursuant to Rule 424(b)(5)

Registration No. 333-134986

SUBJECT TO COMPLETION, DATED MAY 5, 2009

PROSPECTUS SUPPLEMENT

(to Prospectus Dated June 13, 2006)

 

$400,000,000

% Convertible Senior Notes due 2014

 

 

We are offering $400,000,000 aggregate principal amount of our     % Convertible Senior Notes due 2014. Interest on the notes will be payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2009. The notes will mature on May 15, 2014, unless earlier repurchased by us or converted.

 

Holders may convert their notes at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date for the notes. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof at our election as described in this prospectus supplement. The initial conversion rate for the notes will be           shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $      per share of common stock. Such conversion rate will be subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest.

 

Following certain corporate transactions, we will increase the applicable conversion rate for a holder that elects to convert its notes in connection with such corporate transactions by a number of additional shares of our common stock as described in this prospectus supplement.

 

We may not redeem the notes prior to their stated maturity date.

 

If we undergo a fundamental change, as defined in this prospectus supplement, holders may require us to purchase all or a portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date, as defined herein.

 

The notes will be unsecured, senior obligations of our company and will rank equally with all of our existing and future unsecured and unsubordinated indebtedness.

 

On the closing date substantially all of our current homebuilding subsidiaries will guarantee the notes. The guarantees will be unsecured and will rank equally with all existing and future unsecured and unsubordinated indebtedness of the guarantors, including their guarantees of our other senior notes.

 

We have applied for listing of the notes, the related guarantees and the shares of stock issuable upon conversion of the notes on the New York Stock Exchange. Our common stock is listed on the New York Stock Exchange under the symbol “DHI.” The last reported sale price of our common stock on the New York Stock Exchange on May 5, 2009 was $12.35 per share.

 

 

Investing in the notes or our common stock issuable upon conversion of the notes involves risks. See “Risk Factors” beginning on page S-8 of this prospectus supplement and the “Risk Factors” sections in our annual report on Form 10-K for the fiscal year ended September 30, 2008 and in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2009.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

 

The underwriters expect to deliver the notes to investors in book-entry form through The Depository Trust Company on or about May   , 2009.

 

Book-Running Manager

Citi

 

Joint Lead Managers

 

 

May   , 2009

 

We have not authorized anyone to provide you with any different information or to make any representation that is different from, or in addition to, the information contained in this prospectus supplement and the accompanying prospectus, any documents incorporated by reference in this prospectus supplement or the accompanying prospectus and any free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus, or the information contained in any document incorporated by reference in this prospectus supplement or the accompanying prospectus, is accurate as of any date other than the date of each such document, unless the information specifically indicates that another date applies.

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

 

The distribution of this prospectus supplement and the accompanying prospectus may be restricted by law in certain jurisdictions. You should inform yourself about and observe any of these restrictions. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection with, an offer or solicitation by anyone in any jurisdiction in which the offer or solicitation is not authorized, or in which the person making the offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make the offer or solicitation.

 

This document is in two parts. The first part is this prospectus supplement, which describes certain matters relating to us and this offering. The second part, the accompanying prospectus, gives more general information about securities we may offer from time to time, some of which may not apply to the notes offered by this prospectus supplement and accompanying prospectus. For information about the notes, see “Description of Notes” in this prospectus supplement. For information about our common stock, see “Description of Common Stock” in this prospectus supplement. When we refer to this “document,” we mean this prospectus supplement and the accompanying prospectus, unless the context otherwise requires.

 

Before you invest in the notes, you should read the registration statement of which this document forms a part and this document, including the documents incorporated by reference herein that are described under the heading “Incorporation by Reference.”

 

If the information set forth in this prospectus supplement varies in any way from the information set forth in the accompanying prospectus, you should rely on the information contained in this prospectus supplement. If the information set forth in this prospectus supplement varies in any way from the information set forth in a document we have incorporated by reference, you should rely on the information in the more recent document.

 

The Securities and Exchange Commission allows us to “incorporate by reference” information into this prospectus supplement and the accompanying prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus, except for any information that is superseded by information that is included directly in this or another document.

 

This prospectus supplement and the accompanying prospectus incorporate by reference the documents listed below that we have filed with the SEC but have not been included or delivered with this document. These documents contain important information about us and our business, prospects and financial condition.

 

 

We also incorporate by reference any future filings we make with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, between the date of this prospectus supplement and the termination of the offering of the securities. These additional documents include periodic reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (other than information furnished and not filed by us under any item of any current report on Form 8-K, including the related exhibits, which is deemed not to be incorporated by reference in this prospectus supplement or the accompanying prospectus), as well as proxy statements (other than information identified in them as not incorporated by reference). You should review these filings as they may disclose changes in our business, prospects, financial condition or other affairs after the date of this prospectus supplement. The information that we file later with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and before the termination of this offering will automatically update and supersede previous information included or incorporated by reference in this prospectus supplement and the accompanying prospectus.

 

You can obtain any of the documents incorporated by reference in this prospectus supplement and the accompanying prospectus from us without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference in this prospectus supplement and the accompanying prospectus. You can obtain documents incorporated by reference in this prospectus supplement and the accompanying prospectus by requesting them in writing or by telephone from us at the following address:

 

Investor Relations

D.R. Horton, Inc.

301 Commerce Street, Suite 500

Fort Worth, Texas 76102

(817) 390-8200

 

Some of the statements contained or incorporated by reference in this prospectus supplement and the accompanying prospectus may be construed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target” or other words of similar meaning. Any or all of the forward-looking statements included or incorporated by reference in this prospectus supplement and the accompanying prospectus may not approximate actual experience, and the expectations derived from them may not be realized, due to risks, uncertainties and other factors. As a result, actual results may differ materially from the expectations or results we discuss in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

 

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports incorporated by reference in this prospectus supplement and the accompanying prospectus should be consulted. Additional information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained in this prospectus supplement, and in our annual report on Form 10-K for the fiscal year ended September 30, 2008 and our quarterly reports on Form 10-Q for the quarterly period ended December 31, 2008 and the quarterly period ended March 31, 2009, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are filed with the SEC. See “Incorporation by Reference.”

 

SUMMARY

Issuer		D.R. Horton, Inc., a Delaware corporation
The Notes		$400,000,000 aggregate principal amount of     % convertible senior notes due 2014. We have also granted the underwriters the option to purchase, not later than June 10, 2009, up to an additional $60,000,000 aggregate principal amount of notes, solely to cover over-allotments.
Maturity		May 15, 2014, unless earlier repurchased or converted.
Payment of Interest		% per year. Interest will accrue from May      , 2009 and will be payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2009.
Optional Redemption		We may not redeem the notes prior to their stated maturity date.
Conversion Rights		Holders may convert their notes at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the notes.
		The initial conversion rate for the notes will be           shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $      per share of common stock. Such conversion rate will be subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest. See “Description of Notes — Conversion Rights — Conversion Rate Adjustments.”
		Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof at our election. We refer to our obligation to pay or deliver these amounts as our conversion obligation. If we satisfy our conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of our common stock, the amount of cash and shares of our common stock, if any, due upon conversion will be based on a daily conversion value (as described herein) calculated on a proportionate basis for each trading day in the 20 trading-day cash settlement averaging period, as described under “Description of Notes — Conversion Rights — Settlement upon Conversion.”
		In addition, following certain corporate transactions, we will increase the applicable conversion rate for a holder who elects to convert in connection with such corporate transactions by a number of additional shares of our common stock as described under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.”
		You will not receive any additional cash payment, including any additional interest, upon conversion of a note except in circumstances described in “Description of Notes — Conversion Rights — General.” Instead, interest will be deemed paid by the cash, shares of our common stock or a combination thereof paid or delivered, as the case may be, to you upon conversion of a note.

Fundamental Change		If we undergo a fundamental change (as defined under “Description of Notes — Fundamental Change”), you will have the option to require us to purchase all or any portion of your notes. The fundamental change purchase price will be 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including any additional interest, to but excluding the fundamental change purchase date. We will pay cash for all notes so purchased.
Guarantees		On the closing date of this offering, the notes will be guaranteed by substantially all of our homebuilding subsidiaries. These subsidiaries will continue to guarantee the notes so long as they guarantee certain of our other publicly traded debt securities, subject to certain limitations. Our subsidiaries engaged in the financial services segment do not guarantee our other publicly traded debt securities and therefore will not guarantee the notes. If we cannot make payments on the notes when they are due, the guarantor subsidiaries must make them.
Ranking		The notes are our general obligations and will not be secured by any collateral. Your right to payment under the notes will be:
		• effectively junior to the rights of our secured creditors to the extent of the value of their security in our assets;
		• equal with the rights of creditors under our other unsecured unsubordinated debt; and
		• senior to the rights of creditors under our debt that is expressly subordinated to these notes.
		The guarantees will also not be secured by any collateral. Your right to payment under any guarantee will be:
		• effectively junior to the rights of secured creditors to the extent of their security in the guarantors’ assets;
		• equal with the rights of creditors under the guarantors’ other unsecured unsubordinated debt; and
		• senior to the rights of creditors under the guarantors’ debt that is expressly subordinated to the guarantees.
		The notes will be effectively subordinated to the indebtedness and liabilities of our non-guarantor subsidiaries.
		At March 31, 2009, assuming we had completed this offering of notes, D.R. Horton, Inc. and the guarantors would have had approximately $3,267.6 million of debt outstanding, including the notes being offered by this prospectus supplement. Of this debt, $37.2 million would have been secured debt, $3,215.1 million would have been unsubordinated unsecured debt that ranked equally with the notes being offered by this prospectus supplement, and $15.3 million would have been subordinated to these notes. In addition, at such date, our non-guarantor subsidiaries had approximately $44.4 million of debt outstanding.
Use of Proceeds		We intend to use the net proceeds of this offering for general corporate purposes, which may include repayment or repurchase of outstanding indebtedness. For more details, see “Use of Proceeds.”

United States Federal Income Tax Consequences		For certain United States federal income tax consequences of the acquisition, disposition and conversion of the notes, and the acquisition and disposition of shares of our common stock, see “Certain United States Federal Income Tax Consequences.”
Listing		We have applied to list the notes, the related guarantees and the shares of stock issuable upon conversion of the notes on the New York Stock Exchange.
New York Stock Exchange Symbol for Our Common Stock		Our common stock is listed on the New York Stock Exchange under the symbol “DHI.”

		Six Months Ended
		March 31,								Year Ended September 30,
		2009				2008				2008				2007				2006				2005				2004
		(In millions, except per share amounts and number of homes)
Statement of operations data:
Revenues:
Home sales		$	1,656.4			$	3,204.8			$	6,164.3			$	10,721.2			$	14,545.4			$	13,376.6			$	10,491.1
Land/lot sales			19.2				126.8				354.3				367.6				215.1				252.0				166.9
Total homebuilding			1,675.6				3,331.6				6,518.6				11,088.8				14,760.5				13,628.6				10,658.0
Financial services			20.4				67.9				127.5				207.7				290.8				235.1				182.8
Gross profit — home sales			240.0				379.4				691.2				1,848.9				3,497.6				3,416.0				2,416.5
Inventory impairments and land option cost write-offs			104.4				1,079.5				2,484.5				1,329.5				270.9				17.1				20.1
Gross profit (loss) — homebuilding			138.8				(677.2	)			(1,763.2	)			603.7				3,342.2				3,488.3				2,460.7
Goodwill impairment			—				—				79.4				474.1				—				—				—
Income (loss) before income taxes:
Homebuilding			(149.0	)			(1,106.3	)			(2,666.9	)			(1,020.0	)			1,878.7				2,273.0				1,508.2
Financial services			(15.3	)			18.8				35.1				68.8				108.4				105.6				74.7
Net income (loss)			(171.1	)			(1,434.5	)			(2,633.6	)			(712.5	)			1,233.3				1,470.5				975.1
Net income (loss) per share(1):
Basic			(0.54	)			(4.55	)			(8.34	)			(2.27	)			3.94				4.71				3.14
Diluted			(0.54	)			(4.55	)			(8.34	)			(2.27	)			3.90				4.62				3.09
Cash dividends declared per common share(1)			0.075				0.30				0.45				0.60				0.44				0.3075				0.215
Selected operating data:
Gross profit margin — home sales			14.5	%			11.8	%			11.2	%			17.2	%			24.0	%			25.5	%			23.0	%
Gross profit margin — homebuilding			8.3	%			(20.3	)%			(27.0	)%			5.4	%			22.6	%			25.6	%			23.1	%
Number of homes closed			7,653				13,268				26,396				41,370				53,099				51,172				43,567
Net sales orders (homes)(2)			6,937				11,773				21,251				33,687				51,980				53,232				45,263
Net sales orders ($ value)(2)		$	1,412.0			$	2,588.1			$	4,677.2			$	8,230.6			$	13,895.2			$	14,643.4			$	11,406.2
Sales order backlog at end of period (homes)(3)			4,581				8,947				5,297				10,442				18,125				19,244				17,184
Sales order backlog at end of period ($ value)(3)		$	963.0			$	2,077.8			$	1,207.4			$	2,694.4			$	5,185.1			$	5,835.2			$	4,568.5
Other financial data:
Net cash provided by (used in) operating activities		$	978.6			$	1,010.0			$	1,879.9			$	1,355.5			$	(1,190.8	)		$	(620.7	)		$	(422.5	)
Cash (used in) investing activities			(4.5	)			(6.8	)			(6.6	)			(39.8	)			(83.3	)			(68.2	)			(55.2	)
Net cash (used in) provided by financing activities			(846.2	)			(711.9	)			(755.6	)			(1,633.7	)			711.9				1,320.7				412.8
Interest expensed:
Expensed directly(4)			49.7				13.3				42.7				23.6				37.1				21.2				9.3
Amortized to cost of sales			58.7				133.2				227.9				220.3				237.1				225.0				249.0
Provision for (benefit from) income taxes			6.8				347.0				1.8				(238.7	)			753.8				908.1				607.8
Depreciation and amortization			14.7				29.1				53.2				64.4				56.5				52.8				49.6
Interest incurred(4)(5)			107.9				121.5				240.4				327.9				362.5				294.1				242.6

		As of March 31,				As of September 30,
		2009				2008				2007				2006				2005				2004
						(In millions)
Balance sheet data:
Cash and cash equivalents		$	1,515.2			$	1,387.3			$	269.6			$	587.6			$	1,149.8			$	518.0
Inventories			4,168.0				4,683.2				9,343.5				11,343.1				8,486.8				6,567.4
Deferred income taxes, net of valuation allowance			213.5				213.5				863.8				374.0				265.1				180.4
Deferred income tax valuation allowance			1,019.2				961.3				4.7				4.7				6.6				6.6
Total assets			6,477.7				7,709.6				11,556.3				14,820.7				12,514.8				8,985.2
Notes payable			2,912.0				3,748.4				4,376.8				6,078.6				4,909.6				3,499.2
Stockholders’ equity			2,647.3				2,834.3				5,586.9				6,452.9				5,360.4				3,960.7

(1)		All basic and diluted income per share amounts and cash dividends declared per share amounts reflect the effects of the four-for-three stock split (effected as a 331/3% stock dividend) of March 16, 2005.
(2)		Represents homes placed under contract during the period, net of cancellations.
(3)		Represents homes under contract but not yet closed at the end of the period, many of which are subject to contingencies, including mortgage loan approval. A portion of the contracts in backlog will not result in closings, principally due to cancellations, which have increased significantly from historical levels in the current market conditions. We cannot assure you that homes subject to pending sales contracts will close.
(4)		Includes losses on early retirement of debt of $4.4 million and $3.0 million in fiscal years 2005 and 2004, respectively.
(5)		Interest incurred consists of all interest costs, whether expensed or capitalized, including amortization of debt issuance costs, if applicable.

		Six Months Ended
		March 31,				Year Ended September 30,
		2009				2008				2007				2006				2005				2004
Ratio(1)(2)			—				—				—				5.78				8.60				7.39

(1)		For purposes of computing the ratio of earnings to fixed charges, earnings consist of income, including distributions received from equity investments, before income taxes, interest expensed, interest amortized to cost of sales and income attributable to minority interests. Fixed charges consist of interest incurred, whether expensed or capitalized, including amortization of debt issuance costs, if applicable, and the portion of rent expense deemed to represent interest.
(2)		Earnings for the six months ended March 31, 2009 and the fiscal years ended September 30, 2008 and 2007 were insufficient to cover fixed charges for the periods by $159.6 million, $2,454.3 million and $998.4 million, respectively.

 

Investing in the notes or our common stock issuable upon conversion of the notes involves risks. Our business is influenced by many factors that are difficult to predict and beyond our control and that involve uncertainties that may materially affect our results of operations, financial condition or cash flows, or the value of the notes or our common stock. These risks and uncertainties include those described in the risk factor and other sections of the documents that are incorporated by reference in this prospectus supplement. The risks and uncertainties incorporated by reference in this prospectus supplement are not the only risks and uncertainties we may confront. Moreover, risks and uncertainties not presently known to us or currently deemed immaterial by us may also adversely affect our business, results of operations, financial condition or cash flows, or the value of the notes or our common stock. You should carefully consider these risks and uncertainties and all of the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus before you invest in the notes or our common stock issuable upon conversion of the notes.

 

Risks Relating to Our Business

 

Certain risks relating to us and our business are described under the heading “Risk Factors” in our annual report on Form 10-K for the fiscal year ended September 30, 2008 and our quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, which are incorporated by reference into this prospectus supplement and supersede any risk factors included in the accompanying prospectus.

 

Risks Related to Our Common Stock

 

The market price of our common stock has been and may continue to be volatile and may decline.

 

The market price of our common stock may fluctuate widely. Over the 12-month period beginning on May 5, 2008 through May 5, 2009, the market price of our common stock has ranged from $3.79 to $16.94 per share. The market price of our common stock may further fluctuate widely due to many factors, including:

 

 

Any of these factors could have a material adverse effect on an investment in our common stock and may prevent investors from being able to sell their shares of common stock at or above the price at which they acquired such shares on conversion.

 

We are subject to anti-takeover provisions in our charter and bylaws that could delay or prevent an acquisition of us even if such an acquisition would be beneficial to our stockholders.

 

Certain provisions of our certificate of incorporation and bylaws could delay or prevent a third party from acquiring us, even if doing so might be beneficial to our stockholders, or could limit the price investors might be willing to pay for our common stock. These provisions include:

 

 

 

These provisions may delay stockholder actions with respect to business combinations and the election of new members to our board of directors. As such, the provisions could discourage open market purchases of our common stock because a stockholder who desires to participate in a business combination or elect a new director may consider them disadvantageous. Additionally, the issuance of preferred stock could delay or prevent a change of control or other corporate action.

 

Adverse financial results or other factors may limit our ability to pay dividends.

 

Our board of directors decides whether we will pay dividends on our common stock. That decision depends upon, among other things, future earnings, cash flows, capital requirements, our financial condition and general business conditions, as well as compliance with any applicable covenants that may be contained in our debt agreements from time to time. If any of these factors are adversely affected, it may impact our ability to pay dividends on our common stock. Our board of directors has reduced dividends twice in recent periods and could determine to further reduce or eliminate dividends payable on our common stock in the future.

 

Risks Related to the Notes

 

Recent developments in the convertible debt markets may adversely affect the market value of the notes.

 

The convertible debt markets have experienced unprecedented disruptions resulting from, among other things, the recent instability in the credit and capital markets and the emergency orders issued by the SEC on September 17 and 18, 2008 (and extended on October 1, 2008). These SEC orders were issued as a stop-gap measure while Congress worked to provide a comprehensive legislative plan to stabilize the credit and capital markets. Among other things, these SEC orders temporarily imposed a prohibition on effecting short sales of the common stock of certain financial companies. As a result, the SEC orders made the convertible arbitrage strategy that many convertible notes investors employ difficult to execute for outstanding convertible notes of those companies whose common stock was subject to the short sale prohibition. The SEC orders expired on October 8, 2008. However, the SEC and New York Stock Exchange are currently considering instituting other limitations on effecting short sales (such as the up-tick rule), and other regulatory organizations may do the same. Any future governmental actions that interfere with the ability of convertible notes investors to effect short sales on the underlying common stock could significantly affect the market value of convertible securities, including the notes.

 

The notes are not protected by restrictive covenants. We will have the ability to incur substantially more indebtedness, including secured indebtedness.

 

The indenture governing the notes will not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. If we and our subsidiaries incur significant additional indebtedness, the related risks that we face could intensify. In addition, the indenture does not contain covenants or other provisions to afford protection to holders of the notes in the event of a fundamental change involving us except to the extent described under “Description of Notes — Fundamental Change” and “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.”

Your right to receive payments on the notes is effectively junior to those lenders who have a security interest in our assets.

 

Our obligations under the notes will be unsecured. If we incur additional secured indebtedness and subsequently default under that indebtedness, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets securing such indebtedness to the exclusion of holders of the notes, even if an event of default exists under the indenture governing the notes at such time. In any such event, because the notes will not be secured by any of our assets, it is possible that there would be no assets remaining from which payments could be made on the notes or, if any assets remained, they might be insufficient to satisfy fully our obligations under the notes. Additionally, in the event of our bankruptcy, liquidation, reorganization or other winding up, assets that secure debt will be available to pay obligations on the notes only after all debt secured by those assets has been repaid in full.

 

If you hold notes, you are not entitled to any rights with respect to our common stock, but you are subject to all changes made with respect to our common stock.

 

If you hold notes, you are not entitled to any rights with respect to our common stock, including voting rights and rights to receive any dividends or other distributions on our common stock, but you are subject to all changes affecting the common stock. You will have the rights with respect to our common stock only if you receive our common stock upon conversion and only as of the date when you become an owner of the shares of our common stock upon such conversion. For example, in the event that an amendment is proposed to our charter or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date you are deemed the owner of the shares of our common stock, if any, due upon conversion, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock once you become a stockholder.

 

There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock and the value of the notes.

 

Except as described under the heading “Underwriting,” we are not restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of additional shares of our common stock will dilute the ownership interest of our existing common stockholders.

 

Sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of the notes, our common stock, or both, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock or the value of the notes. The price of our common stock could be affected by possible sales of our common stock by investors who view the notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity. The hedging or arbitrage could, in turn, affect the market price of the notes.

 

The market price of the notes is expected to be significantly affected by the market price of our common stock, which may be volatile and will be affected by factors beyond our control.

 

We expect that the market price of the notes will be significantly affected by the market price of our common stock. This may result in greater volatility in the market price of the notes than would be expected for nonconvertible debt securities. The market price of our common stock will likely continue to fluctuate in response to the factors discussed elsewhere in “Risk Factors,” including under the subheading, “— Risks Related to Our Common Stock,” and in “Forward-Looking Statements,” among others, many of which are beyond our control.

Upon conversion of the notes, we will pay a settlement amount consisting of cash, shares of our common stock or a combination of cash and shares of our common stock, based upon a specified cash settlement averaging period, and you may receive less proceeds than expected.

 

Generally, we will satisfy our conversion obligation to holders by paying a settlement amount in cash, shares of our common stock or a combination of cash and shares of our common stock, based upon a 20 trading-day cash settlement averaging period. Accordingly, upon conversion of a note, holders might not receive any shares of our common stock, or they might receive fewer shares of common stock than would be implied by the conversion value of the note as of the conversion date (as defined under “Description of Notes — Conversion Rights — Settlement upon Conversion”). In addition, because of the 20 trading-day cash settlement averaging period, settlement generally will be delayed until at the least the 23rd trading day following the related conversion date unless we elect to satisfy the conversion obligation by issuing common stock only. See “Description of Notes — Conversion Rights — Settlement upon Conversion.” Upon conversion of the notes, you may receive consideration worth less than the conversion value of the note as of the conversion date because the value of our common stock may decline (or not appreciate as much as you may expect) between the conversion date and the end of the cash settlement averaging period.

 

Our failure to convert the notes into cash, shares of our common stock or a combination of cash and shares of our common stock, upon exercise of a holder’s conversion right in accordance with the provisions of the indenture, would constitute a default under the indenture. In addition, a default under the indenture could lead to a default under existing and future agreements governing our indebtedness. If, due to a default, the repayment of related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and the notes.

 

We may invest or spend the net proceeds of this offering in ways with which you may not agree and in ways that may not earn a profit.

 

We intend to use the net proceeds of this offering for general corporate purposes, which may include repayment or repurchase of other indebtedness. These purposes could also include acquisitions or other investments. However, we will retain broad discretion over the use of the net proceeds from this offering. You may not agree with the ways we decide to use these proceeds, and our use of the proceeds may not yield any profits.

 

The conversion rate for notes may not be adjusted for all dilutive events.

 

The conversion rate of the notes is subject to adjustment for certain events, including, but not limited to, the issuance of stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness or assets, certain cash dividends and certain issuer tender or exchange offers as described under “Description of Notes — Conversion Rights — Conversion Rate Adjustments.” Such conversion rate will not be adjusted, however, for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the notes or our common stock. In addition, an event that adversely affects the value of the notes may occur, and that event may not result in an adjustment to such conversion rate.

 

We may not have the ability to raise the funds necessary to purchase the notes upon a fundamental change as required by the indenture governing the notes.

 

Holders may require us to purchase their notes upon a fundamental change as described under “Description of Notes — Fundamental Change.” Other of our senior and senior subordinated notes, which constituted $1.0 billion in aggregate principal amount as of March 31, 2009, also require us to offer to purchase such notes if a change of control occurs as defined in the indentures governing them. A fundamental change may also constitute an event of default, and result in the effective acceleration of the maturity, of other then-existing indebtedness. There can be no assurance that we would have sufficient financial resources, or would be able to arrange financing, to pay the fundamental change purchase price for the notes surrendered by

the holders in cash. Failure by us to purchase the notes when required will result in an event of default with respect to the notes.

 

Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to purchase the notes.

 

Upon the occurrence of certain fundamental change transactions described under “Description of Notes — Fundamental Change,” you have the right to require us to repurchase your notes. However, the fundamental change provisions will only afford protection to holders of notes in the event of certain transactions. Other transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the notes. In the event of any such transaction, the holders would not have the right to require us to repurchase the notes, even though each of these transactions could increase the amount of our indebtedness or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of notes.

 

The adjustment to the applicable conversion rate for notes converted in connection with a specified corporate transaction may not adequately compensate you for any lost value of your notes as a result of such transaction.

 

If a specified corporate transaction constituting a make-whole fundamental change, as described under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions,” occurs, under certain circumstances we will increase the applicable conversion rate by a number of additional shares of our common stock for notes converted in connection with such specified corporate transaction. The increase in the applicable conversion rate will be determined based on the date on which the specified corporate transaction becomes effective and the price paid per share of our common stock in, or the price of our common stock over a five trading-day period immediately preceding the effective date of, such transaction, as described under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.” The adjustment to the applicable conversion rate for notes converted in connection with a specified corporate transaction may not adequately compensate you for any lost value of your notes as a result of such transaction. In addition, if the stock price for such transaction (determined as described under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions”) is greater than $      per share, or if such price is less than $      per share (each such price, subject to adjustment), no adjustment will be made to the applicable conversion rate.

 

Our obligation to increase the applicable conversion rate in connection with any such specified corporate transaction could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies.

 

The net share settlement feature of the notes may have adverse consequences.

 

The net share settlement feature of the notes, as described under “Description of Notes — Conversion Rights — Settlement upon Conversion,” may:

 

 

The fundamental change provisions may delay or prevent an otherwise beneficial takeover attempt of us.

 

The fundamental change purchase rights, which will allow noteholders to require us to purchase all or a portion of their notes upon the occurrence of a fundamental change, as defined in “Description of Notes —

Fundamental Change,” and the provisions requiring an increase to the conversion rate for conversions in connection with make-whole fundamental changes may in certain circumstances delay or prevent a takeover of us and the removal of incumbent management that might otherwise be beneficial to investors.

 

Conversion of the notes may dilute the ownership interest of existing stockholders, including holders who have previously converted their notes.

 

The conversion of some or all of the notes may dilute the ownership interests of existing stockholders. Any sales in the public market of any of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the notes into shares of our common stock or a combination of cash and shares of our common stock could depress the price of our common stock.

 

You may be subject to tax upon an adjustment to, or a failure to adjust, the conversion rate of the notes even though you do not receive a corresponding cash distribution.

 

The conversion rate of the notes will be adjusted in certain circumstances. See the discussion under the heading “Description of Notes — Conversion Rights — Conversion Rate Adjustments” and “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.” Adjustments to the conversion rate of the notes (or failures to make adjustments to other classes of outstanding convertible instruments, options or warrants) that have the effect of increasing your proportionate interest in our assets or earnings may in some circumstances result in a taxable constructive distribution to you for U.S. federal income tax purposes, notwithstanding the fact that you do not receive an actual distribution of cash or property. In addition, you may be subject to U.S. federal withholding taxes in connection with such a constructive distribution. If we pay withholding taxes on your behalf as a result of an adjustment to the conversion rate of the notes (or a failure to make other adjustments), we may, at our option and pursuant to certain provisions of the indenture, set off such payments against payments of cash and common stock on the notes. You are urged to consult your tax advisors with respect to the U.S. federal income tax consequences resulting from an adjustment to the conversion rate of the notes (or a failure to make other adjustments). See the discussions under the headings “Certain United States Federal Income Tax Consequences — Tax Consequences to U.S. Holders — Constructive Dividends” and “Certain United States Federal Income Tax Consequences — Tax Consequences to Non-U.S. Holders — Dividends.”

 

Non-U.S. holders may be subject to U.S. taxation, and purchasers may be required to withhold certain amounts, under the Foreign Investment in Real Property Tax Act.

 

We may currently be, and may remain, a “United States real property holding corporation” for U.S. federal income tax purposes. As a result, under U.S. federal income tax laws enacted as part of the Foreign Investment in Real Property Tax Act, non-U.S. holders of the notes or common stock may be subject to U.S. federal withholding tax or U.S. federal income tax, or both, in respect of certain payments made or deemed made in respect of the notes or common stock, and purchasers may be required to withhold certain amounts upon the acquisition of notes or common stock. Non-U.S. holders are urged to consult their tax advisors with respect to the U.S. federal income tax consequences that arise from our status as a United States real property holding corporation. See the discussion under the heading “Certain United States Federal Income Tax Consequences — Tax Consequences to Non-U.S. Holders — Foreign Investment in Real Property Tax Act.”

 

The accounting method for convertible debt securities that may be settled in cash, such as the notes, is the subject of recent changes that could have a material effect on our reported financial results.

 

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). Under FSP APB 14-1, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of FSP APB 14-1 on the accounting for the notes is that the equity component would be included in

additional capital in the stockholders’ equity section of our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and for interim periods within those fiscal years, with retrospective application required. As a result, because of our adoption of FSP APB 14-1 for fiscal 2010 (effective October 1, 2009), we will be required to retrospectively restate our results for the third and fourth quarters of fiscal 2009 and record a greater amount of non-cash interest expense in these and future periods presented as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report lower net income in our financial results upon adoption of FSP APB 14-1, which will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the notes.

 

The notes will be structurally subordinated to indebtedness of our non-guarantor subsidiaries.

 

The notes will be structurally subordinated to all existing and future debt and other liabilities of our non-guarantor subsidiaries, and the claims of creditors of those subsidiaries will have priority as to the assets of those subsidiaries. At March 31, 2009, our non-guarantor subsidiaries had approximately $44.4 million of debt outstanding. The indenture under which the notes will be issued will permit our non-guarantor subsidiaries to incur additional indebtedness. In addition, subject to certain limitations, the indenture will permit the creation of non-guarantor subsidiaries and the release of subsidiaries from the guarantees.

 

Federal and state laws allow courts, under specific circumstances, to void guarantees and to require you to return payments received from guarantors.

 

Although you will be direct creditors of the guarantors by virtue of the guarantees, a court could void or subordinate any guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such guarantor were successful in establishing that:

 

 

 

The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. Generally, however, a company would be considered insolvent for purposes of the foregoing if:

 

 

An active trading market for the notes may not develop.

 

The notes are a new issue of securities and an active trading market for the notes may not develop. We have applied for listing of the notes and the related guarantees on the New York Stock Exchange; however, we

can give no assurance that the notes and related guarantees will be so listed. Each underwriter has advised us that it intends to make a market in the notes, but no underwriter is obligated to do so. Any underwriter may discontinue market making at any time in its sole discretion without notice. Accordingly we cannot assure you that a liquid trading market will develop for the notes, that you will be able to sell your notes at a particular time or that the prices you receive when you sell will be favorable.

 

We estimate that the net proceeds from this offering after payment of fees and expenses will be approximately $      million (or $      million if the over-allotment option is exercised in full). We intend to use the net proceeds of this offering for general corporate purposes, including repayment or repurchase of outstanding indebtedness.

 

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2009 and as adjusted to reflect the sale of $400 million aggregate principal amount of notes (assuming no exercise of the underwriters’ over-allotment option) and the application of the estimated net proceeds thereof as described under “Use of Proceeds.”

 

 

 

 

Our common stock is listed on the New York Stock Exchange under the symbol “DHI.” The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock, as reported by the NYSE, and the quarterly cash dividends declared per common share.

 

 

As of May 5, 2009, the closing price of our common stock on the NYSE was $12.35. On April 30, 2009, there were approximately 610 holders of record of our common stock.

 

The declaration of future cash dividends is at the discretion of our board of directors and will depend upon, among other things, future earnings, cash flows, capital requirements, our financial condition and general business conditions, as well as compliance with any applicable covenants that may be contained in our debt agreements from time to time. Our board of directors reduced the amount of our quarterly dividend during the third quarter of fiscal 2008, and they further reduced our dividend amount during the first quarter of fiscal 2009. You should read the information in this section in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, incorporated by reference in this prospectus supplement.

 

The following description of the particular terms of the Notes offered hereby supplements and, to the extent inconsistent therewith, replaces the description of the general terms of the Debt Securities set forth under the heading “Description of Debt Securities” in the accompanying prospectus, to which description reference is hereby made. The Notes will be issued under an Indenture dated as of June 9, 1997, among the Company, the guarantors party thereto and American Stock Transfer & Trust Company, LLC, as trustee (the “Trustee”), as supplemented by a supplemental indenture (as supplemented, the “Indenture”). The following is a summary of the material terms and provisions of the Notes. The terms of the Notes include those set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), as in effect on the date of the Indenture. The Notes are subject to all such terms, and prospective purchasers of the Notes are referred to the Indenture and the Trust Indenture Act for a statement of such terms. As used in this “Description of Notes,” the term “Company” refers to D.R. Horton, Inc. and not any of its Subsidiaries.

 

Definitions of certain terms are set forth under “Certain Definitions” and throughout this description. Capitalized terms that are used but not otherwise defined herein have the meanings assigned to them in the Indenture, and those definitions are incorporated herein by reference.

 

General

 

The Notes will bear interest from May   , 2009, payable semi-annually on May 15 and November 15, of each year (each, an “Interest Payment Date”), commencing November 15, 2009, to Holders of record at the close of business on May 1 or November 1, as the case may be, immediately preceding each such interest payment date. The Notes bear interest at     % per annum and will mature on May 15, 2014. All of the Notes will be issued in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

 

An aggregate principal amount of $400,000,000 of Notes will be issued in this offering (or $460,000,000 if the underwriters exercise their over-allotment option in full). Additional Notes (the “Additional Notes”) in an unlimited amount may be issued in one or more series from time to time on the same terms and conditions and with the same CUSIP numbers as the Notes offered hereby without the consent of Holders of the Notes. Any Additional Notes issued will have the same CUSIP number as the Notes offered hereby only if they are fungible for federal income tax and securities law purposes with the Notes offered hereby.

 

The Notes will be guaranteed by each of the Guarantors pursuant to the guarantees of the Notes (the “Guarantees”) described below. On the Issue Date substantially all of our homebuilding subsidiaries will be Guarantors. The Guarantors currently do not include our subsidiaries that are engaged in the financial services segment or certain insignificant subsidiaries.

 

The Notes may be converted at an initial conversion rate of      shares of our common stock per $1,000 principal amount of Notes (equal to an initial conversion price of approximately $      per share of common stock). The applicable conversion rate is subject to adjustment if certain events occur.

 

Upon conversion of a Note, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof at our election as described below under “— Conversion Rights — Settlement upon Conversion.” Holders will not receive any additional cash payment for interest or additional interest, if any, accrued and unpaid to the conversion date except under the circumstances described below under “— Conversion Rights — General.”

 

The Notes will not be subject to the provision described in the accompanying prospectus under the caption “Description of Debt Securities — Defeasance.”

 

Ranking

 

The Notes are general unsecured obligations of the Company and rank senior in right of payment to all existing and future Indebtedness of the Company that is, by its terms, expressly subordinated in right of payment to the Notes and pari passu in right of payment with all existing and future unsecured Indebtedness

of the Company that is not so subordinated. The Guarantees described below will be general unsecured obligations of the Guarantors and will rank senior in right of payment to all existing and future Indebtedness of the Guarantors that is, by its terms, expressly subordinated in right of payment to the Guarantees and will rank pari passu in right of payment with all existing and future unsecured Indebtedness of the Guarantors that is not so subordinated.

 

Secured creditors of the Company and the Guarantors will have a claim on the assets which secure the obligations of the Company and the Guarantors to such creditors prior to claims of Holders of the Notes against those assets.

 

At March 31, 2009, assuming we had completed this offering of Notes on such date, the Company and the Guarantors would have had approximately $3,267.6 million of Indebtedness (including the Notes) outstanding. Of this Indebtedness, $37.2 million would have been secured debt, $3,215.1 million would have ranked pari passu in right of payment with the Notes, and $15.3 million would have been subordinated to the Notes. In addition, at such date, our non-guarantor subsidiaries had approximately $44.4 million of Indebtedness outstanding. The Notes are effectively subordinated in right of payment to the existing and future debt and other liabilities of our non-guarantor subsidiaries since their creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before these assets are available to creditors of the Company.

 

Optional Redemption

 

No sinking fund is provided for the Notes.

 

The Notes will not be redeemable prior to their maturity date.

 

The Guarantees

 

The Notes will be guaranteed by each of the Guarantors pursuant to the Guarantees.

 

Each of the Guarantors will unconditionally guarantee on a joint and several basis all of the Company’s obligations under the Notes, including its obligations to pay principal, premium, if any, and interest, if any, with respect to the Notes. The Guarantees will be general unsecured obligations of the Guarantors and will rank pari passu with all existing and future unsecured Indebtedness of the Guarantors that is not, by its terms, expressly subordinated in right of payment to the Guarantees. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee will be entitled to a contribution from each other Guarantor in an amount equal to such Guarantor’s pro rata share of such payment, determined based on the net assets of each Guarantor (including the funding Guarantor) and in accordance with GAAP. Except as provided in the covenants described under “Certain Covenants — Limitations on Mergers, Consolidation and Sales of Assets” below, the Company is not restricted from selling or otherwise disposing of the capital stock or assets of any of the Guarantors.

 

The Indenture requires each existing and future Subsidiary that guarantees any other Publicly Traded Debt Securities to be a Guarantor. A Guarantor will be automatically and unconditionally released from its Guarantee (i) if it no longer guarantees any other Publicly Traded Debt Securities (other than by reason of payment under any guarantee of any such Publicly Traded Debt Securities), (ii) if as a result of the sale or other disposition of its Capital Stock, it ceases to be a Subsidiary of the Company, (iii) upon a sale or other disposition of all or substantially all of its assets, or (iv) upon a merger or consolidation of a Guarantor with a Person other than the Company or another Guarantor, subject, in the case of (ii), (iii) and (iv), to the provisions of the covenant described below under “Certain Covenants — Limitations on Mergers, Consolidation and Sales of Assets” below.

The Guarantees with respect to a Note are not convertible and will automatically terminate when that Note is converted into common stock.

 

Conversion Rights

 

General

 

Holders may convert each of their Notes at an initial conversion rate of      shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $      per share of common stock) at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date for the Notes. Upon conversion of a Note, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination thereof at our election, all as set forth below under “— Settlement upon Conversion.” If we satisfy our conversion obligation solely in cash or through payment and delivery of a combination of cash and shares of our common stock, the amount of cash and shares of our common stock, if any, due upon conversion will be based on a daily conversion value (as defined below under “— Settlement upon Conversion”) calculated on a proportionate basis for each trading day in the 20 trading-day cash settlement averaging period (as defined below under “— Settlement upon Conversion”).

 

The conversion rate and the corresponding conversion price in effect at any given time are referred to as the “applicable conversion rate” and the “applicable conversion price,” respectively, and will be subject to adjustment as described below under “— Conversion Rate Adjustments” and “— Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.” The applicable conversion price at any given time will be computed by dividing $1,000 by the applicable conversion rate at such time. A Holder may convert fewer than all of such Holder’s Notes so long as the Notes converted are $2,000 or an integral multiple of $1,000 principal amount in excess thereof.

 

Upon conversion, a Holder will not receive any additional cash payment for accrued and unpaid interest and additional interest, if any, unless such conversion occurs between a regular record date and the interest payment date to which it relates. Except in such case, our settlement of conversions as described below under “— Settlement upon Conversion” will be deemed to satisfy our obligation to pay:

 

 

As a result, accrued and unpaid interest and additional interest, if any, to, but not including, the conversion date will be deemed to be paid in full rather than cancelled, extinguished or forfeited.

 

Notwithstanding the preceding paragraph, if Notes are converted after 5:00 p.m., New York City time, on a regular record date but prior to 9:00 a.m., New York City time, on the immediately following interest payment date, Holders of such Notes at 5:00 p.m., New York City time, on the regular record date will receive payment of the interest and additional interest, if any, payable on such Notes on the corresponding interest payment date notwithstanding the conversion of such Notes at any time after the close of business on the applicable regular record date. Any Notes surrendered for conversion by a Holder during the period from 5:00 p.m., New York City time, on any regular record date to 9:00 a.m., New York City time, on the immediately following interest payment date, must be accompanied by funds equal to the amount of interest and additional interest, if any, payable on the Notes so converted; provided that no such payment need be made:

 

 

If a Holder converts Notes, we will pay any documentary, stamp or similar issue or transfer tax due on the issuance of any shares of our common stock upon the conversion, unless the tax is due because the Holder requests any shares to be issued in a name other than the Holder’s name, in which case the Holder will pay that tax.

 

The “conversion date” with respect to a Note means the date on which the Holder of the Note has complied with all requirements under the Indenture to convert a Note.

 

Conversion Procedures

 

If you hold a beneficial interest in a global note, to convert you must comply with DTC’s procedures for converting a beneficial interest in a global note and, if required, pay funds equal to the amount of interest and additional interest, if any, payable on the next interest payment date and all transfer or similar taxes, if any.

 

If you hold a certificated Note, to convert you must:

 

 

If a Holder has already delivered a purchase notice as described under “— Fundamental Change” with respect to a Note, the Holder may not surrender that Note for conversion until the Holder has withdrawn the purchase notice in accordance with the Indenture.

 

Settlement upon Conversion

 

Upon conversion, we may choose to deliver either cash, shares of our common stock or a combination of cash and shares of our common stock, as described below.

 

All conversions on or after the 23rd scheduled trading day immediately preceding the maturity date will be settled in the same relative proportions of cash and/or shares of our common stock, which we refer to as the “settlement method.” If we have not delivered a notice of our election of settlement method prior to the 23rd scheduled trading day immediately preceding the maturity date, we will be deemed to have elected to deliver cash and shares of our common stock in respect of our conversion obligation, as described in the third bullet point of the third paragraph below, and the specified dollar amount (as defined below) will be equal to $1,000.

 

On any conversion date prior to the 23rd scheduled trading day immediately preceding the maturity date, we will use the same settlement method for all conversions occurring on such conversion date. Except for any conversions that occur on or after the 23rd scheduled trading day immediately preceding the maturity date, we will not have any obligation to use the same settlement method with respect to conversions that occur on different trading days.

 

In other words, we may choose on one trading day to settle conversions in shares of our common stock only, and choose on another trading day to settle in cash, shares of our common stock or a combination of cash and shares of our common stock. If we elect to do so, we will inform Holders so converting through the Trustee of the settlement method we have selected (including the specified dollar amount, if applicable) no later than the second business day immediately following the related conversion date. If we do not make such an election, we will be deemed to have elected to deliver cash and shares of our common stock in respect of our conversion obligation, as described in the third bullet point below, and the specified dollar amount will be equal to $1,000.

Settlement amounts will be computed as follows:

 

 

The “daily settlement amount,” for each of the 20 consecutive trading days during the cash settlement averaging period, will consist of:

 

 

“daily conversion value” means, for each of the 20 consecutive trading days during the cash settlement averaging period, one-twentieth (1/20th) of the product of (i) the applicable conversion rate and (ii) the daily VWAP of our common stock on such trading day.

 

“daily VWAP” of our common stock, in respect of any trading day, means the per share volume-weighted average price on the New York Stock Exchange as displayed under the heading “Bloomberg VWAP” on Bloomberg page DHI.N <equity> AQR (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day (or if such volume-weighted average price is unavailable, the market value of one share of our common stock on such trading day as determined by our board of directors in a commercially reasonable manner, using a volume-weighted average price method) and will be determined without regard to after-hours trading or any other trading outside of the regular trading session.

 

“cash settlement averaging period,” with respect to any Note, means the 20 consecutive trading day period beginning on, and including, the third trading day immediately following the related conversion date, except that “cash settlement averaging period” means, with respect to any conversion date occurring during the period beginning on, and including, the 23rd scheduled trading day immediately preceding the maturity date and ending at 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, the 20 consecutive trading day period beginning on, and including, the 22nd scheduled trading day immediately preceding the maturity date.

 

“trading day” means a day during which trading in our common stock generally occurs on the primary exchange or quotation system on which our common stock then trades or is quoted and there is no market disruption event.

 

“market disruption event” means (1) a failure by the primary exchange or quotation system on which our common stock trades or is quoted to open for trading during its regular trading session or (2) the occurrence or existence, prior to 1:00 p.m., New York City time, on any trading day for our common stock, of an aggregate one half-hour period of any suspension or limitation imposed on trading (by reason of movements

in price exceeding limits permitted by the stock exchange or otherwise) in our common stock or in any options, contracts or future contracts relating to our common stock.

 

“scheduled trading day” means any day that is scheduled to be a trading day.

 

We generally will deliver the conversion consideration in respect of any Notes that you convert by the third trading day immediately following the last trading day of the cash settlement averaging period. However:

 

 

Notwithstanding the foregoing, if any information required in order to calculate the conversion consideration deliverable will not be available as of the applicable settlement date, we will deliver the additional shares of our common stock resulting from that adjustment on the third trading day after the earliest trading day on which such calculation can be made. Further, if application of the provisions described in the second sentence of this paragraph would result in settlement of a conversion during the 10 trading days immediately following the effective date of a fundamental change, settlement will instead take place on the tenth trading day following the relevant effective date.

 

We will not issue fractional shares of our common stock upon conversion of Notes. Instead, we will pay cash in lieu of fractional shares based on the daily VWAP of our common stock on the relevant conversion date (if we elect to satisfy our conversion obligation solely in shares of our common stock) or based on the daily VWAP of our common stock on the last trading day of the relevant cash settlement averaging period (in the case of any other settlement method).

 

Conversion Rate Adjustments

 

The applicable conversion rate will be adjusted as described below, except that we will not make any adjustments to the conversion rate if Holders of the Notes participate (as a result of holding the Notes, and at the same time as common stockholders participate) in any of the transactions described below as if such Holders of the Notes held a number of shares of our common stock equal to the applicable conversion rate, multiplied by the principal amount (expressed in thousands) of Notes held by such Holder, without having to convert their Notes.

 

(1) If we issue solely shares of our common stock as a dividend or distribution on all or substantially all of our shares of our common stock, or if we effect a share split or share combination of our common stock, the applicable conversion rate will be adjusted based on the following formula:

 

CR

=

CRo

×

OS

OSo

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the ex-dividend date for such dividend or distribution, or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be;

 

CR = the applicable conversion rate in effect immediately after the open of business on the ex-dividend date for such dividend or distribution, or immediately after the open of business on the effective date of such share split or share combination, as the case may be;

OS_o = the number of shares of our common stock outstanding immediately prior to the open of business on the ex-dividend date for such dividend or distribution, or immediately prior to the open of business on the effective date of such share split or share combination, as the case may be; and

 

OS = the number of shares of our common stock outstanding immediately after such dividend or distribution, or immediately after the effective date of such share split or share combination, as the case may be.

 

As used in this section, “ex-dividend date” means the first date on which the shares of our common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance or distribution in question.

 

(2) If we distribute to all or substantially all holders of our common stock any rights, options or warrants entitling them for a period of not more than 60 calendar days from the record date for such distribution to subscribe for or purchase shares of our common stock, at a price per share less than the average of the last reported sale prices of our common stock for the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the declaration date for such distribution, the applicable conversion rate will be increased based on the following formula (provided that the applicable conversion rate will be readjusted to the extent that such rights, options or warrants are not exercised prior to their expiration):

 

CR

=

CRo

×

OSo + X

OSo + Y

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the ex-dividend date for such distribution;

 

CR = the applicable conversion rate in effect immediately after the open of business on the ex-dividend date for such distribution;

 

OS_o = the number of shares of our common stock outstanding immediately prior to the open of business on the ex-dividend date for such distribution;

 

X = the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and

 

Y = the number of shares of our common stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the average of the last reported sale prices of our common stock over the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution.

 

For purposes of this clause (2), in determining whether any rights, options or warrants entitle the Holders to subscribe for or purchase our common stock at less than the average of the last reported sale prices of our common stock for each trading day in the applicable 10 consecutive trading-day period, there shall be taken into account any consideration we receive for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration if other than cash to be determined by our board of directors.

 

(3) If we distribute shares of our capital stock, evidences of our indebtedness or other assets or property of ours to all or substantially all holders of our common stock, excluding

 

 

then the applicable conversion rate will be increased based on the following formula:

 

CR

=

CRo

×

SPo

SPo – FMV

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the ex-dividend date for such distribution;

 

CR = the applicable conversion rate in effect immediately after the open of business on the ex-dividend date for such distribution;

 

SP_o = the average of the last reported sale prices of our common stock over the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution; and

 

FMV = the fair market value (as determined by our board of directors) of the shares of capital stock, evidences of indebtedness, assets or property distributed with respect to each outstanding share of our common stock as of the open of business on the ex-dividend date for such distribution.

 

With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on our common stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit and such capital stock or similar equity interest distributed to holders of our common stock is traded or quoted on an exchange or quotation system, which we refer to as a “spin-off,” the applicable conversion rate will be increased based on the following formula:

 

CR

=

CRo

×

FMV + MPo

MPo

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the ex-dividend date for the spin-off;

 

CR = the applicable conversion rate in effect immediately after the open of business on the ex-dividend date for the spin-off;

 

FMV = the average of the last reported sale prices of the capital stock or similar equity interest distributed to holders of our common stock applicable to one share of our common stock over the first 10 consecutive trading-day period immediately following, and including, the ex-dividend date for the spin-off (for this purpose trading day refers to a day during such trading in such capital stock or similar equity interest generally occurs on the primary exchange or quotation system where such capital stock or equity interest is traded or quoted and there is no market disruption event); and

 

MP_o = the average of the last reported sale prices of our common stock over the first 10 consecutive trading-day period immediately following, and including, the ex-dividend date for the spin-off (such period, the “valuation period”).

 

The adjustment to the applicable conversion rate under the preceding paragraph of this clause (3) will be made immediately after the open of business on the day after the last day of the valuation period, but will be given effect as of the open of business on the ex-dividend date for the spin-off. If the ex-dividend date for the spin-off is less than 10 trading days prior to, and including, the end of the cash settlement averaging period in respect of any conversion, references within this clause (3) to 10 trading days shall be deemed replaced, for purposes of calculating the affected daily conversion rates in respect of that conversion, with such lesser number of trading days as have elapsed from, and including, the ex-dividend date for the spin-off to, and including, the last trading day of such cash settlement averaging period. For purposes of determining the applicable conversion rate, in respect of any conversion during the 10 trading days commencing on the ex-dividend date for any spin-off, references within the portion of this clause (3) related to “spin-offs” to 10

trading days shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the ex-dividend date for such spin-off to, but excluding, the relevant conversion date.

 

(4) If we make or pay a cash dividend or distribution in excess of $0.0375 per share in any fiscal quarter (the “initial dividend threshold”) to all, or substantially all, holders of our outstanding common stock, the applicable conversion rate will be increased based on the following formula:

 

CR

=

CRo

×

SPo

SPo – C

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the ex-dividend date for such dividend or distribution;

 

CR = the applicable conversion rate in effect immediately after the open of business on the ex-dividend date for such dividend or distribution;

 

SP_o = the average of the last reported sale prices of our common stock over the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the ex-dividend date for such dividend or distribution; and

 

C = the amount in cash per share we pay or distribute to holders of our common stock in excess of the initial dividend threshold.

 

The initial dividend threshold is subject to adjustment in a manner inversely proportional to adjustments to the conversion rate, provided that no adjustment will be made to the dividend threshold amount for any adjustment made to the conversion rate under this clause (4).

 

(5) If we or any of our subsidiaries makes a payment in respect of a tender offer or exchange offer for our common stock and, if the cash and value of any other consideration included in the payment per share of common stock exceeds the average of the last reported sale prices of our common stock over the 10 consecutive trading-day period commencing on, and including, the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “expiration date”), the applicable conversion rate will be increased based on the following formula:

 

CR

=

CRo

×

AC + (SP × OS)

OSo × SP

 

where,

 

CR_o = the applicable conversion rate in effect immediately prior to the open of business on the trading day next succeeding the expiration date;

 

CR = the applicable conversion rate in effect immediately after the open of business on the trading day next succeeding the expiration date;

 

AC = the aggregate value of all cash and any other consideration (as determined by our board of directors) paid or payable for shares purchased in such tender or exchange offer;

 

OS_o = the number of shares of our common stock outstanding immediately prior to the time (the “expiration time”) such tender or exchange offer expires (prior to giving effect to such tender offer or exchange offer);

 

OS = the number of shares of our common stock outstanding immediately after the expiration time (after giving effect to such tender offer or exchange offer); and

 

SP = the average of the last reported sale prices of our common stock over the 10 consecutive trading-day period commencing on, and including, the trading day next succeeding the expiration date.

 

The adjustment to the applicable conversion rate under the preceding paragraph of this clause (5) will be given effect at the open of business on the trading day next succeeding the expiration date. If the trading day

next succeeding the expiration date is less than 10 trading days prior to, and including, the end of the cash settlement averaging period in respect of any conversion, references within this clause (5) to 10 trading days shall be deemed replaced, for purposes of calculating the affected daily conversion rates in respect of that conversion, with such lesser number of trading days as have elapsed from, and including, the trading day next succeeding the expiration date to, and including, the last trading day of such cash settlement averaging period. For purposes of determining the applicable conversion rate, in respect of any conversion during the 10 trading days commencing on the trading day next succeeding the expiration date, references within this clause (5) to 10 trading days shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the trading day next succeeding the expiration date to, but excluding, the relevant conversion date.

 

If:

 

 

then, without duplication to any conversion rate adjustment set forth in clauses (1) to (5) above, we will adjust the number of shares that we deliver to you in respect of the relevant trading day to reflect the relevant distribution or transaction.

 

If:

 

 

then, without duplication to any conversion rate adjustment set forth in clauses (1) to (5) above, we will adjust the number of shares that we deliver to you in respect of the relevant trading day to reflect the relevant distribution or transaction.

 

Except with respect to a spin-off, in cases where the fair market value of the shares of capital stock, evidences of indebtedness, assets or property or the amount of the cash dividend or distribution applicable to one share of our common stock distributed to all, or substantially all, holders of our outstanding common stock:

 

 

rather than being entitled to an adjustment in the conversion rate, the Holder of a Note will be entitled to receive upon conversion, in addition to shares of our common stock, cash or a combination of cash and shares of our common stock, the kind and amount of shares of capital stock, evidences of indebtedness, assets or property or cash comprising the distribution, if any, that such Holder would have received if such Holder had held a number of shares of our common stock equal to the principal amount of the Notes held divided by the conversion price in effect immediately prior to the ex-dividend date determining the holders of our common stock entitled to receive the distribution.

Except as stated herein, we will not adjust the applicable conversion rate for the issuance of shares of our common stock or any securities convertible into or exchangeable for shares of our common stock or the right, option or warrant to purchase shares of our common stock or such convertible or exchangeable securities.

 

If any declared dividend or distribution described in clauses (1) through (5) above results in an adjustment in the conversion rate but such dividend or distribution is not so paid or made, the new conversion rate shall be readjusted to the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

If we adjust the conversion rate pursuant to the above provisions, we will notify the Trustee and issue a press release containing the relevant information (and make the press release available on our website).

 

In the event of:

 

 

in each case, in which holders of our outstanding common stock are entitled to receive cash, securities or other property for their shares of our common stock (“reference property”), you will be entitled thereafter to convert your Notes into the kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that a holder of a number of shares of our common stock equal to the conversion rate immediately prior to such transaction would have owned or been entitled to receive upon such transaction; provided that, at and after the effective time of any such transaction, any amount otherwise payable in cash upon conversion of the Notes will continue to be payable as described under the provision under “— Settlement upon Conversion,” including our right to determine the form of consideration as described therein.

 

If the Notes become convertible into reference property, we will notify the Trustee and issue a press release containing the relevant information (and make the press release available on our website).

 

For purposes of the foregoing, the type and amount of consideration that holders of our common stock are entitled to in the case of reclassifications, consolidations, mergers, combinations, binding share exchanges, sales or transfers of assets or other transactions that cause our common stock to be converted into the right to receive more than a single type of consideration because the holders of our common stock have the right to elect the type of consideration they receive will be deemed to be the weighted average of the types and amounts of consideration received by the holders of our common stock that affirmatively make such an election. We will notify Holders and the Trustee of the weighted average as soon as practicable after such determination is made.

 

We are permitted to increase the applicable conversion rate of the Notes by any amount for a period of at least 20 business days if our board of directors determines that such increase would be in our best interest. We may also (but are not required to) increase the applicable conversion rate to avoid or diminish income tax to holders of our common stock or rights to purchase shares of our common stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event. We will not take any action that would result in adjustment of the conversion rate, pursuant to the provisions described above, in such a manner as to result in the reduction of the conversion price to less than the par value per share of our common stock.

 

A Holder may, in some circumstances, including the distribution of cash dividends to holders of our common stock, be deemed to have received a distribution or dividend subject to U.S. federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the applicable conversion rate. For a discussion of the U.S. federal income tax treatment of an adjustment to the applicable conversion rate, see “Certain United States Federal Income Tax Consequences” elsewhere in this prospectus supplement.

 

To the extent that we have a rights plan in effect upon conversion of the Notes (i.e., a poison pill), you will receive, in addition to any common stock received in connection with such conversion, the rights under the rights plan, unless prior to any conversion, the rights have separated from the common stock, in which

case the applicable conversion rate will be adjusted at the time of separation as if we distributed to all holders of our common stock, shares of our capital stock, evidences of indebtedness or other assets or property as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

The applicable conversion rate will not be adjusted:

 

 

Adjustments to the applicable conversion rate will be calculated to the nearest 1/10,000th of a share. We will not be required to make an adjustment in the conversion rate unless the adjustment would require a change of at least 1% in the conversion rate. However, we will carry forward any adjustments that are less than 1% of the conversion rate and make such carried forward adjustment, regardless of whether the aggregate adjustment is less than 1%, (i) upon any conversion of Notes and (ii) on each of the 22 scheduled trading days immediately preceding the maturity date. Except as described in this section or in “— Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions,” we will not adjust the conversion rate.

 

Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions

 

If you elect to convert your Notes at any time from, and including, the effective date of a make-whole fundamental change (as defined below) to, and including, the second scheduled trading day immediately preceding the related fundamental change purchase date (as defined below), or if a make-whole fundamental change does not also constitute a fundamental change as described under “— Fundamental Change” the 20th trading day immediately following the effective date of such make-whole fundamental change (such period, the “make-whole fundamental change period”), the applicable conversion rate will be increased by an additional number of shares of our common stock (these shares being referred to as the additional shares) as described below. We will notify Holders and the Trustee of the anticipated effective date of such make-whole fundamental change and issue a press release (and make the press release available on our website) as soon as practicable after we first determine the anticipated effective date of such make-whole fundamental change. We will use commercially reasonable efforts to make such determination in time to deliver such notice no later than 50 business days in advance of such anticipated effective date.

 

A “make-whole fundamental change” means any transaction or event that constitutes a fundamental change under clause (1), (2) or (3) of the definition of fundamental change as described under “— Fundamental Change” below (in the case of any fundamental change described in clause (3) of the definition thereof, determined without regard to the proviso in such definition, but subject to the paragraphs immediately following clause (6) of the definition thereof).

 

The number of additional shares by which the conversion rate for the Notes will be increased for conversions that occur during the make-whole fundamental change period will be determined by reference to the table below, based on the date on which the make-whole fundamental change occurs (the “effective date”) and the price (the “stock price”) paid or deemed paid per share of our common stock in the make-whole fundamental change. If holders of our common stock receive only cash in the case of a make-whole fundamental change described in clause (3) under the definition of fundamental change, the stock price shall

be the cash amount paid per share of our common stock. In the case of any other make-whole fundamental change, the stock price shall be the average of the last reported sales prices of our common stock over the five trading-day period ending on the trading day immediately preceding the effective date of such make-whole fundamental change.

 

The stock prices set forth in the first row of the table below (i.e., column headers) will be adjusted as of any date on which the applicable conversion rate of the Notes is otherwise adjusted. The adjusted stock prices will equal the stock prices applicable immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the applicable conversion rate in effect immediately prior to the adjustment giving rise to the stock price adjustment and the denominator of which is the applicable conversion rate as so adjusted. The number of additional shares will be adjusted in the same manner as the applicable conversion rate as set forth under “— Conversion Rate Adjustments.”

 

The following table sets forth numbers of additional shares to be received per $1,000 principal amount of Notes based on hypothetical stock prices and effective dates:

 

 

The exact stock prices and effective dates may not be set forth in the table above, in which case:

 

 

Notwithstanding the foregoing, in no event will the total number of shares of our common stock issuable upon conversion of Notes exceed           per $1,000 principal amount of such Notes, subject to adjustments in the same manner as the applicable conversion rate as set forth under “ — Conversion Rate Adjustments.”

 

Fundamental Change

 

If a fundamental change (as defined below in this section) occurs at any time, you will have the right, at your option, to require us to purchase all of your Notes or any portion of the principal amount thereof that is equal to $2,000, or an integral multiple of $1,000 in excess thereof, on a date (the date being referred to as the “fundamental change purchase date”) of our choosing that is not less than 20 or more than 35 business days after the date on which we notify Holders and the Trustee of the occurrence of the effective date for such fundamental change. The price we are required to pay is equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, including any additional interest, to but excluding the fundamental change purchase date (unless the fundamental change purchase date is after a regular record date and on or prior to the interest payment date to which it relates, in which case interest accrued to the interest payment date will be paid to Holders of the Notes as of the preceding record date and the price we are required to pay to the Holder surrendering the Note for repurchase will be equal to 100% of the principal amount of Notes subject to repurchase and will not include any accrued and unpaid interest, including any additional interest). Any Notes purchased by us will be paid for in cash.

A “fundamental change” will be deemed to have occurred at the time after the Issue Date when any of the following occurs:

 

(1) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act other than us, our Subsidiaries or “permitted holders” (as defined below), files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of the voting power of our common equity;

 

(2) any permitted holder has, or any permitted holders have, become the direct or indirect beneficial owners of our common equity representing more than 80%, in the aggregate, of the voting power of our common equity;

 

(3) consummation of any binding share exchange, exchange offer, tender offer, consolidation or merger of us pursuant to which our common stock will be converted into cash, securities or other property or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of us and our Subsidiaries, taken as a whole, to any person other than one or more of our Subsidiaries (any such exchange, offer, consolidation, merger, transaction or series of transactions being referred to herein as a “merger event”); provided, however, that any such merger event where the holders of more than 50% of our shares of common stock immediately prior to such merger event, own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving person or transferee or the parent thereof immediately after such merger event shall not be a fundamental change;

 

(4) the first day on which continuing directors cease to constitute at least a majority of our board of directors;

 

(5) our stockholders approve any plan or proposal for our liquidation or dissolution (other than any liquidation or dissolution that is part of a merger event and excluded from the definition of fundamental change by reason of the proviso in clause (3) above); or

 

(6) our common stock (or other common stock into which the Notes are then convertible) ceases to be quoted or listed on at least one United States national or regional securities exchange.

 

No transaction or merger event described in clause (3) above will constitute a fundamental change if:

 

 

If any transaction in which our common stock is replaced by the securities of another entity occurs, following completion of any related make-whole fundamental change period and any related fundamental change purchase date, references to us in the definition of “fundamental change” above will apply to such other entity instead. In addition, a filing that would otherwise constitute a fundamental change under clause (1) above will not constitute a fundamental change if (x) the filing occurs in connection with a transaction in which our common stock is replaced by the securities of another entity and (y) no such filing is made or is in effect with respect to common equity representing more than 50% of the voting power of such other entity.

 

“permitted holder” means any of Donald R. Horton, Terrill J. Horton, or their respective wives, children, grandchildren and other descendants, or any trust or other entity controlled by any of such individuals.

 

“continuing director” means a director who either was a member of our board of directors on the Issue Date or who becomes a member of our board of directors subsequent to that date and whose election,

appointment or nomination for election by our stockholders, is duly approved by a majority of the continuing directors on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by us on behalf of our entire board of directors in which such individual is named as nominee for director.

 

On or before the 20th day after the occurrence of a fundamental change, we will provide to all Holders of the Notes and the Trustee and paying agent a notice of, and issue a press release (and make the press release available on our website) in respect of, the occurrence of the fundamental change and of the resulting purchase right. Such notice will state, among other things:

 

 

To exercise your fundamental change purchase right, you must deliver, on or before the scheduled trading day immediately preceding the fundamental change purchase date, the Notes to be purchased, duly endorsed for transfer, together with a written purchase notice and the form entitled “Form of Fundamental Change Purchase Notice” on the reverse side of the Notes duly completed, to the paying agent. Your purchase notice must state:

 

 

If the Notes are not in certificated form, the notice given by each Holder must comply with appropriate DTC procedures.

 

You may withdraw any purchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to 5:00 p.m., New York City time, on the scheduled trading day immediately preceding the fundamental change purchase date. The notice of withdrawal must state:

 

 

We will be required to purchase the Notes that have been validly surrendered for purchase and not withdrawn on the fundamental change purchase date. You will receive payment of the fundamental change

purchase price promptly following the later of the fundamental change purchase date or the time of book-entry transfer or the delivery of your Notes. If the paying agent holds money or securities sufficient to pay the fundamental change purchase price of the Notes on the fundamental change purchase date, then:

 

 

The purchase rights of the Holders could discourage a potential acquirer of us, even if the acquisition may be beneficial to you. The fundamental change purchase feature, however, is not the result of management’s knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions.

 

The term fundamental change is limited to specified transactions and may not include other events that might adversely affect our financial condition. In addition, the requirement that we offer to purchase the Notes upon a fundamental change may not protect Holders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

 

No Notes may be repurchased by us at the option of the Holders upon a fundamental change if the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to such date.

 

The definition of fundamental change includes a phrase relating to the sale, lease or other transfer of “all or substantially all” of our consolidated assets. There is no precise, established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a Holder of the Notes to require us to purchase its Notes as a result of the sale, lease or other transfer of less than all of our assets may be uncertain.

 

If a fundamental change were to occur, we may not have enough funds to pay the fundamental change purchase price. In addition, we have, and may in the future incur, other indebtedness with similar change of control provisions permitting our debt holders to accelerate upon the occurrence of similar events and that may contain negative covenants limiting our ability to purchase the Notes upon the occurrence of a fundamental change. See “Risk Factors — Risks Relating to the Notes — We may not have the ability to raise the funds necessary to purchase the notes upon a fundamental change as required by the indenture governing the notes.” If we fail to purchase the Notes when required following a fundamental change, we will be in default under the Indenture.

 

In connection with any fundamental change purchase offer, we will:

 

 

We will not be required to make a fundamental change purchase offer if a third party makes the fundamental change purchase offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a fundamental change purchase offer made by us and purchases all Notes validly tendered and not withdrawn under such fundamental change purchase offer.

 

Certain Covenants

 

Limitations on Mergers, Consolidations and Sales of Assets.  The Indenture provides that neither the Company nor any Guarantor will consolidate or merge with or into, or sell, lease, convey or otherwise dispose

of all or substantially all of its assets (including, without limitation, by way of liquidation or dissolution), to any Person (in each case other than in a transaction in which the Company or a Guarantor is the survivor of a consolidation or merger, or the transferee in a sale, lease, conveyance or other disposition) unless:

 

(1) the Person formed by or surviving such consolidation or merger (if other than the Company or the Guarantor, as the case may be), or to which such sale, lease, conveyance or other disposition 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, and

 

(2) immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing.

 

The foregoing provisions shall not apply to:

 

(a) a transaction involving the sale or disposition of Capital Stock of a Guarantor, or the consolidation or merger of a Guarantor, or the sale, lease, conveyance or other disposition of all or substantially all of the assets of a Guarantor where such Capital Stock, or the assets of the Guarantor being merged or consolidated or the assets being sold, leased, conveyed or otherwise disposed of, as the case may be, do not constitute all or substantially all of the assets of the Company (determined on a consolidated basis), or

 

(b) a transaction the purpose of which is to change the state of incorporation of the Company or any Guarantor.

 

Upon any such consolidation, merger, sale, lease, conveyance or other disposition, the Successor will be substituted for the Company or the relevant Guarantor under the Indenture. The Successor may then exercise every power and right of the Company or the relevant Guarantor under the Indenture, and the Company or the relevant Guarantor will be released from all of its liabilities and obligations in respect of the Notes and the Indenture. If the Company or a Guarantor leases all or substantially all of its assets, the lessee will be the Successor to the Company or such Guarantor and may exercise every power and right of the Company or such Guarantor under the Indenture, but the Company or such Guarantor will not be released from its obligations to pay the principal of and premium, if any, and interest, if any, on the Notes.

 

Although these types of transactions are permitted under the Indenture, certain of the foregoing transactions could constitute a fundamental change (as defined above) permitting each Holder to require the Company to purchase the Notes of such Holder as described above.

 

Reports

 

The Indenture provides that any documents or reports that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act must be furnished by the Company to the Trustee within 15 days after the same are required to be filed with the Commission (giving effect to any grace period provided by Rule 12b-25 under the Exchange Act). Documents filed by the Company with the Commission via the IDEA (f/k/a EDGAR) system will be deemed furnished to the Trustee as of the time such documents are filed via IDEA.

 

Events of Default

 

The following are Events of Default in respect of the Notes under the Indenture:

 

(1) the failure by the Company to pay interest on any such Note when the same becomes due and payable and the continuance of any such failure for a period of 30 days;

 

(2) the failure by the Company to pay the principal or premium of any such Note when the same becomes due and payable at maturity, upon acceleration or otherwise;

(3) the failure by the Company or any of its Subsidiaries to comply with any of its agreements or covenants in, or provisions of, such Notes, the Guarantees or the Indenture and such failure continues for the period and after the notice specified below (except in the case of a default under the covenant described under “Limitations on Mergers, Consolidations and Sales of Assets,” which will constitute an Event of Default with notice but without passage of time);

 

(4) the acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Guarantor that has an outstanding principal amount of $50 million or more, individually or in the aggregate, and such acceleration does not cease to exist, or such Indebtedness is not satisfied, in either case within 30 days after such acceleration;

 

(5) the failure by the Company or any Guarantor to make any principal or interest payment in an amount of $50 million or more, individually or in the aggregate, in respect of Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Guarantor within 30 days of such principal or interest becoming due and payable (after giving effect to any applicable grace period set forth in the documents governing such Indebtedness);

 

(6) the Company or any Guarantor that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

 

(A) commences a voluntary case,

 

(B) consents to the entry of an order for relief against it in an involuntary case,

 

(C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or

 

(D) makes a general assignment for the benefit of its creditors;

 

(7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

 

(A) is for relief against the Company or any Guarantor that is a Significant Subsidiary as debtor in an involuntary case,

 

(B) appoints a Custodian of the Company or any Guarantor that is a Significant Subsidiary or a Custodian for all or substantially all of the property of the Company or any Guarantor that is a Significant Subsidiary, or

 

(C) orders the liquidation of the Company or any Guarantor that is a Significant Subsidiary, and the order or decree remains unstayed and in effect for 60 days;

 

(8) any Guarantee of a Guarantor that is a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Guarantee and the Indenture) or is declared null and void and unenforceable or found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor from its Guarantee in accordance with the terms of the Indenture and the Guarantee);

 

(9) the failure by the Company to comply with the obligation to convert the Notes into common stock, cash or a combination of cash and common stock, as applicable, upon exercise of a Holder’s conversion right and such failure continues for five days; or

 

(10) the failure by the Company to timely issue a fundamental change notice in accordance with the terms of the Indenture described in “— Fundamental Change.”

 

A Default as described in subclause (3) above will not be deemed an Event of Default until the Trustee notifies the Company, or the Holders of at least 25 percent in principal amount of the then outstanding Notes notify the Company and the Trustee, of the Default and (except in the case of a default with respect to the covenant described under “Limitations on Mergers, Consolidations and Sales of Assets”) the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand

that it be remedied and state that the notice is a “Notice of Default.” If such a Default is cured within such time period, it ceases.

 

If an Event of Default (other than an Event of Default with respect to the Company resulting from subclauses (6) or (7) above), shall have occurred and be continuing under the Indenture, the Trustee by notice to the Company, or the Holders of at least 25 percent in principal amount of the Notes then outstanding by notice to the Company and the Trustee, may declare all such Notes to be due and payable immediately. Upon such declaration of acceleration, the amounts due and payable on such Notes will be due and payable immediately. If an Event of Default with respect to the Company specified in subclauses (6) or (7) above occurs, such an amount will ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee and the Company or any Holder.

 

Notwithstanding the foregoing, if the Company so elects, any failure to file reports as described under “— Reports” will not result in the occurrence of an Event of Default until the expiration of the first 180 days after the date (the “Specified Date”) on which an Event of Default would otherwise occur as a result of any such failure (which would be the 120th day after written notice is provided to the Company in accordance with subclause (3) above), provided the Company pays additional interest on the Notes at an annual rate equal to (x) 0.25% of the outstanding principal amount of the Notes for the first 90 days of such 180-day period and (y) 0.50% of the outstanding principal amount of the Notes for the remaining 90 days of such 180-day period. Additional interest will be payable in arrears on each interest payment date following the Specified Date in the same manner as regular interest on the Notes. On the 181st day after the Specified Date (if such violation is not cured or waived prior to such 181st day), an Event of Default will be deemed to occur and the Notes will be subject to acceleration as provided above. The provisions of the Indenture described in this paragraph will not affect the rights of Holders of Notes in the event of the occurrence of any other Event of Default. In the event we do not elect to pay additional interest upon any such failure to file reports as described under “— Reports” in accordance with this paragraph, an Event of Default will be deemed to occur and the Notes will be subject to acceleration as provided above.

 

In order to elect to pay additional interest relating to the failure to comply with the reporting obligations in accordance with the immediately preceding paragraph, the Company must notify all Holders of record of the Notes and the Trustee and paying agent of such election on or before the close of business on the 5th business day after the Specified Date. Upon our failure to timely give such notice or pay additional interest, the Notes will be immediately subject to acceleration as provided above.

 

The Holders of a majority in principal amount of the Notes then outstanding by written notice to the Trustee and the Company may waive any Default or Event of Default (other than any Default or Event of Default in payment of principal or interest) on such Notes under the Indenture. Holders of a majority in principal amount of the then outstanding Notes may rescind an acceleration and its consequence (except an acceleration due to nonpayment of principal or interest on such Notes) if the rescission would not conflict with any judgment or decree and if all existing Events of Default (other than the non-payment of accelerated principal) have been cured or waived.

 

The Holders may not enforce the provisions of the Indenture, the Notes or the Guarantees except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power, provided, however, that such direction does not conflict with the terms of the Indenture. The Trustee may withhold from the Holders notice of any continuing Default or Event of Default (except any Default or Event of Default in payment of principal or interest on the Notes) if the Trustee determines that withholding such notice is in the Holders’ interest.

 

The Company is required to deliver to the Trustee an annual statement regarding compliance with the Indenture, and include in such statement, if any Officer of the Company is aware of any continuing Default or Event of Default, a statement specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. In addition, the Company is required to deliver to the Trustee prompt written notice of the occurrence of any continuing Default or Event of Default.

Discharge of Indenture

 

The Company and the Guarantors may satisfy and discharge their obligations under the Indenture by delivering to the registrar for cancellation all outstanding Notes or by depositing with the Trustee and delivering to Holders, as applicable, after the Notes have become due and payable, whether at the stated maturity, any fundamental change purchase date or upon conversion or otherwise, cash or cash and shares of common stock, if any (solely to satisfy outstanding conversions, if applicable), sufficient to pay all of the outstanding Notes and all other sums payable under the Indenture. Such discharge is subject to the terms contained in the Indenture.

 

Amendment, Supplement and Waiver

 

Subject to certain exceptions, the Indenture, the Notes or the Guarantees may be amended or supplemented with the consent (which may include consents obtained in connection with a purchase of, or a tender offer or exchange offer for Notes) of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing Default under, or compliance with any provision of the Indenture may be waived (other than any continuing Default or Event of Default in the payment of interest on or the principal of the Notes) with the consent (which may include consents obtained in connection with a purchase of, or a tender offer or exchange offer for the Notes) of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture, the Notes or the Guarantees to cure any ambiguity, defect or inconsistency; to comply with the “Limitations on Mergers, Consolidations and Sales of Assets” covenant set forth in the Indenture; to provide for uncertificated Notes in addition to or in place of certificated Notes; to make any change that does not adversely affect the legal rights of any Holder; or to delete a Guarantor which, in accordance with the terms of the Indenture, ceases to be liable on its Guarantee.

 

Without the consent of each Holder affected, the Company and the Trustee may not:

 

(1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver;

 

(2) reduce the rate of or change the time for payment of interest, including default interest, on any Note;

 

(3) reduce the principal of or change the fixed maturity of any Note or make the Notes redeemable at the option of the Company;

 

(4) make any change that impairs or adversely affects the conversion rights of any Notes;

 

(5) after a fundamental change has occurred, reduce the fundamental change purchase price of any Note or amend or modify in any manner adverse to the Holders of Notes the Company’s obligation to make payment of that price, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;

 

(6) make any Note payable in money or securities other than that stated in such Note,

 

(7) make any change in the “Waiver of Past Defaults and Compliance with Indenture Provisions,” “Rights of Holders to Receive Payment” or the “With Consent of Holders” sections set forth in the Indenture;

 

(8) modify the ranking or priority of the Notes or any Guarantee;

 

(9) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the Indenture; or

 

(10) waive a continuing Default or Event of Default in the payment of principal of or interest on the Notes.

 

The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such

Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture.

 

Calculations in Respect of the Notes

 

Except as otherwise provided above, the Company will be responsible for making all calculations called for under the Indenture and the Notes. These calculations include, but are not limited to, determinations of the last reported sale prices of common stock, accrued interest payable on the Notes and the applicable conversion rate. The Company will make all these calculations in good faith and, absent manifest error, the Company’s calculations will be final and binding on Holders of Notes.

 

Concerning the Trustee

 

The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Indenture), it must eliminate such conflict or resign. In the ordinary course of its business, the Trustee provides, and may continue to provide, service to the Company as transfer agent for the common stock and as trustee for other debt securities of the Company.

 

The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is not cured, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in similar circumstances in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to the Trustee.

 

The Trustee will initially act as the conversion agent.

 

Governing Law

 

The Indenture, the Notes and the Guarantees are governed by the laws of the State of New York without giving effect to principles of conflict of laws.

 

Book-Entry, Settlement and Clearance

 

The Global Notes

 

The Notes will be initially issued in the form of one or more registered notes in global form, without interest coupons, which we refer to as the global notes. Upon issuance, each of the global notes will be deposited with the Trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.

 

Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC, which we refer to as DTC participants, or persons who hold interests through DTC participants. We expect that under procedures established by DTC:

 

 

Beneficial interests in global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below.

 

Book-Entry Procedures for the Global Notes

 

All interests in the global notes will be subject to the operations and procedures of DTC. We provide the following summary of those operations and procedures solely for the convenience of investors. The operations and procedures of DTC are controlled by that settlement system and may be changed at any time. Neither we nor the underwriters are responsible for those operations or procedures.

 

DTC has advised us that it is:

 

 

DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’s participants include securities brokers and dealers, including the underwriters; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.

 

So long as DTC’s nominee is the registered owner of a global note, that nominee will be considered the sole owner or holder of the notes represented by that global note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a global note:

 

 

As a result, each investor who owns a beneficial interest in a global note must rely on the procedures of DTC to exercise any rights of a holder of notes under the Indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of DTC participant through which the investor owns its interest).

 

Payments of principal and interest (including any additional interest) with respect to the Notes represented by a global note will be made by the Trustee to DTC’s nominee as the registered holder of the global note. Neither we nor the Trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.

 

Neither we, nor the Trustee, the registrar, paying agent nor conversion agent have or will have any responsibility for the performance by DTC or any DTC participants or indirect participants of their respective obligations under the rules and procedures governing their operations. DTC has advised us that it will take any action permitted to be taken by a Holder of the Notes, including the presentation of the Notes for exchange, only at the direction of one or more of DTC’s participants to whose account interests in the global notes are

credited, and only in respect of the principal amount of the Notes represented by the global notes as to which the DTC participant or DTC participants has or have given such direction.

 

Payments by participants and indirect participants in DTC to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.

 

Transfers between participants in DTC will be effected under DTC’s procedures and will be settled in same-day funds.

 

Certificated Notes

 

Notes in physical, certificated form will be issued and delivered to each person that DTC identifies as a beneficial owner of an interest in a global note only if:

 

 

Certain Definitions

 

Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all terms used in the Indenture.

 

“Additional Notes” has the meaning set forth in “— General.”

 

“Bankruptcy Law” means title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.

 

“board of directors” means the board of directors of the Company or, other than when used in “— Fundamental Change” above, any authorized committee thereof.

 

“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.

 

“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.

 

“Commission” means the Securities and Exchange Commission.

 

“control” means, when used with respect to any Person, 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.

 

“Currency Agreement” of any Person means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values.

 

“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

 

“Default” means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default.

 

“Event of Default” has the meaning set forth in “— Events of Default.”

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“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 from time to time.

 

“Guarantee” means the guarantee of the Notes by each Guarantor under the Indenture.

 

“Guarantors” means (i) initially, each of:

 

C. Richard Dobson Builders, Inc., a Virginia corporation;

CH Investments of Texas, Inc., a Delaware corporation;

CHI Construction Company, an Arizona corporation;

CHTEX of Texas, Inc., a Delaware corporation;

Continental Homes, Inc., a Delaware corporation;

Continental Homes of Texas, L.P., a Texas limited partnership;

Continental Residential, Inc., a California corporation;

D.R. Horton — Emerald, Ltd., a Texas limited partnership;

D.R. Horton, Inc. — Birmingham, an Alabama corporation;

D.R. Horton, Inc. — Chicago, a Delaware corporation;

D.R. Horton, Inc. — Dietz-Crane, a Delaware corporation;

D.R. Horton, Inc. — Fresno, a Delaware corporation;

D.R. Horton, Inc. — Greensboro, a Delaware corporation;

D.R. Horton, Inc. — Gulf Coast, a Delaware corporation;

D.R. Horton, Inc. — Jacksonville, a Delaware corporation;

D.R. Horton, Inc. — Louisville, a Delaware corporation;

D.R. Horton, Inc. — Minnesota, a Delaware corporation;

D.R. Horton, Inc. — New Jersey, a Delaware corporation;

D.R. Horton, Inc. — Portland, a Delaware corporation;

D.R. Horton, Inc. — Sacramento, a California corporation;

D.R. Horton, Inc. — Torrey, a Delaware corporation;

D.R. Horton LA North, Inc., a Delaware corporation;

D.R. Horton Los Angeles Holding Company, Inc., a California corporation;

D.R. Horton Management Company, Ltd., a Texas limited partnership;

D.R. Horton Materials, Inc., a Delaware corporation;

D.R. Horton OCI, Inc., a Delaware corporation;

D.R. Horton VEN, Inc., a California corporation;

D.R. Horton — Schuler Homes, LLC, a Delaware limited liability company;

D.R. Horton — Texas, Ltd., a Texas limited partnership;

DRH Cambridge Homes, Inc., a California corporation;

DRH Cambridge Homes, LLC, a Delaware limited liability company;

DRH Construction, Inc., a Delaware corporation;

DRH Regrem VII, LP, a Texas limited partnership;

DRH Regrem VIII, LLC, a Delaware limited liability company;

DRH Regrem XI, Inc., a Delaware corporation;

DRH Regrem XII, LP, a Texas limited partnership;

DRH Regrem XIII, Inc., a Delaware corporation;

DRH Regrem XIV, Inc., a Delaware corporation;

DRH Regrem XV, Inc., a Delaware corporation;

DRH Regrem XVI, Inc., a Delaware corporation;

DRH Regrem XVII, Inc., a Delaware corporation;

DRH Regrem XVIII, Inc., a Delaware corporation;

DRH Regrem XIX, Inc., a Delaware corporation;

DRH Regrem XX, Inc., a Delaware corporation;

DRH Regrem XXI, Inc., a Delaware corporation;

DRH Regrem XXII, Inc., a Delaware corporation;

DRH Regrem XXIII, Inc., a Delaware corporation;

DRH Regrem XXIV, Inc., a Delaware corporation;

DRH Regrem XXV, Inc., a Delaware corporation;

DRH Southwest Construction, Inc., a California corporation;

DRH Tucson Construction, Inc., a Delaware corporation;

HPH Homebuilders 2000 L.P., a California limited partnership;

KDB Homes, Inc., a Delaware corporation;

Meadows I, Ltd., a Delaware corporation;

Meadows II, Ltd., a Delaware corporation;

Meadows VIII, Ltd., a Delaware corporation;

Meadows IX, Inc., a New Jersey corporation;

Meadows X, Inc., a New Jersey corporation;

Melmort Co., a Colorado corporation;

Melody Homes, Inc., a Delaware corporation;

Schuler Homes of Arizona, LLC, a Delaware limited liability company;

Schuler Homes of California, Inc., a California corporation;

Schuler Homes of Oregon, Inc., an Oregon corporation;

Schuler Homes of Washington, Inc., a Washington corporation;

Schuler Mortgage, Inc., a Delaware corporation;

Schuler Realty Hawaii, Inc., a Hawaii corporation;

SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company;

SHA Construction LLC, a Delaware limited liability company;

SHLR of California, Inc., a California corporation;

SHLR of Colorado, Inc., a Colorado corporation;

SHLR of Nevada, Inc., a Nevada corporation;

SHLR of Utah, Inc., a Utah corporation;

SHLR of Washington, Inc., a Washington corporation;

SRHI LLC, a Delaware limited liability company;

SSHI LLC, a Delaware limited liability company;

Vertical Construction Corporation, a Delaware corporation;

Western Pacific Funding, Inc., a California corporation;

Western Pacific Housing Co., a California Limited Partnership, a California limited partnership;

Western Pacific Housing Management, Inc., a California corporation;

Western Pacific Housing, Inc., a Delaware corporation;

Western Pacific Housing — Antigua, LLC, a Delaware limited liability company;

Western Pacific Housing — Aviara, L.P., a California limited partnership;

Western Pacific Housing — Boardwalk, LLC, a Delaware limited liability company;

Western Pacific Housing — Broadway, LLC, a Delaware limited liability company;

Western Pacific Housing — Canyon Park, LLC, a Delaware limited liability company;

Western Pacific Housing — Carmel, LLC, a Delaware limited liability company;

Western Pacific Housing — Carrillo, LLC, a Delaware limited liability company;

Western Pacific Housing — Communications Hill, LLC, a Delaware limited liability company;

Western Pacific Housing — Copper Canyon, LLC, a Delaware limited liability company;

Western Pacific Housing — Creekside, LLC, a Delaware limited liability company;

Western Pacific Housing — Culver City, L.P., a California limited partnership;

Western Pacific Housing — Del Valle, LLC, a Delaware limited liability company;

Western Pacific Housing — Lomas Verdes, LLC, a Delaware limited liability company;

Western Pacific Housing — Lost Hills Park, LLC, a Delaware limited liability company;

Western Pacific Housing — McGonigle Canyon, LLC, a Delaware limited liability company;

Western Pacific Housing — Mountaingate, L.P., a California limited partnership;

Western Pacific Housing — Norco Estates, LLC, a Delaware limited liability company;

Western Pacific Housing — Oso, L.P., a California limited partnership;

Western Pacific Housing — Pacific Park II, LLC, a Delaware limited liability company;

Western Pacific Housing — Park Avenue East, LLC, a Delaware limited liability company;

Western Pacific Housing — Park Avenue West, LLC, a Delaware limited liability company;

Western Pacific Housing — Playa Vista, LLC, a Delaware limited liability company;

Western Pacific Housing — Poinsettia, L.P., a California limited partnership;

Western Pacific Housing — River Ridge, LLC, a Delaware limited liability company;

Western Pacific Housing — Robinhood Ridge, LLC, a Delaware limited liability company;

Western Pacific Housing — Santa Fe, LLC, a Delaware limited liability company;

Western Pacific Housing — Scripps, L.P., a California limited partnership;

Western Pacific Housing — Scripps II, LLC, a Delaware limited liability company;

Western Pacific Housing — Seacove, L.P., a California limited partnership;

Western Pacific Housing — Studio 528, LLC, a Delaware limited liability company;

Western Pacific Housing — Terra Bay Duets, LLC, a Delaware limited liability company;

Western Pacific Housing — Torrance, LLC, a Delaware limited liability company;

Western Pacific Housing — Torrey Commercial, LLC, a Delaware limited liability company;

Western Pacific Housing — Torrey Meadows, LLC, a Delaware limited liability company;

Western Pacific Housing — Torrey Multi-Family, LLC, a Delaware limited liability company;

Western Pacific Housing — Torrey Village Center, LLC, a Delaware limited liability company;

Western Pacific Housing — Vineyard Terrace, LLC, a Delaware limited liability company;

Western Pacific Housing — Windemere, LLC, a Delaware limited liability company;

Western Pacific Housing — Windflower, L.P., a California limited partnership;

WPH — Camino Ruiz, LLC, a Delaware limited liability company;

 

and (ii) each of the Company’s Subsidiaries which becomes a guarantor of the Notes pursuant to the provisions of the Indenture, in the case of (i) and (ii) until subsequently released from its Guarantee 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.

 

“Indebtedness” of any Person means, without duplication,

 

(1) any liability of such Person (a) for borrowed money or under any reimbursement obligation relating to a letter of credit or other similar instruments (other than standby letters of credit or similar instruments issued for the benefit of or surety, performance, completion or payment bonds, earnest money notes or similar purpose undertakings or indemnifications issued by, such Person in the ordinary course of business), (b) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind or with services incurred in connection with capital expenditures (other than any obligation to pay a contingent purchase price as long as such obligation remains contingent), or (c) in respect of Capitalized Lease Obligations (to the extent of the capitalized amount thereof determined in accordance with GAAP),

 

(2) any Indebtedness of others described in clause (1) above that such Person has guaranteed to the extent of the guarantee, and

 

(3) all Indebtedness of others described in clause (1) above secured by a Security Interest on any property 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 or obligations under Currency Agreements or Interest Protection Agreements.

 

“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.

“Issue Date” means the date on which the Notes are originally issued under the Indenture.

 

“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 any accessions thereto and proceeds thereof) and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 180 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 or tax warranties and indemnities and such other representations, warranties, covenants and indemnities as are customarily required in such transactions, 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 received by the borrower from secured assets to be paid to the lender, waste and mechanics’ liens.

 

“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.

 

“Publicly Traded Debt Securities” means any issue of debt securities of the Company or any of its Subsidiaries originally issued in a public offering registered with the Commission or in an offering pursuant to Rule 144A under the Securities Act and of which issue at least $50.0 million aggregate principal amount is outstanding.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Security Interest” means any mortgage, pledge, lien, or other security interest which secures the payment or performance of an obligation.

 

“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 (as such definition is in effect on the Issue Date).

 

“Subsidiary” of any Person means any corporation or other entity of which a majority of the Capital Stock having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions is at the time directly or indirectly owned or controlled by such Person.

 

“Successor” has the meaning set forth in “— Certain Covenants — Limitations on Mergers, Consolidations and Sale of Assets.”

 

“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.

 

Our authorized capital stock is 1,000,000,000 shares of common stock, $.01 par value, and 30,000,000 shares of preferred stock, $.10 par value. At April 30, 2009, 316,939,559 shares of common stock and no shares of preferred stock were outstanding.

 

Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The vote of the holders of a majority of the stock represented at a meeting at which a quorum is present is generally required to take stockholder action, unless a greater vote is required by law. The holders are not entitled to cumulative voting in the election of directors. Directors are elected by plurality vote. However, under our Corporate Governance Principles, a nominee for director who receives a greater number of “withheld” than “for” votes in an uncontested election will tender his resignation for the board of directors’ consideration and subsequent approval or rejection. The holder or holders of a majority of the outstanding shares of common stock will be able to elect our entire board of directors. At our 2009 annual meeting of stockholders held on January 29, 2009, the stockholders voted to approve a stockholder proposal requesting that the board of directors amend our governance documents to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of stockholders, with a plurality vote standard retained for contested director elections. We intend to amend our bylaws to implement the proposal prior to our next annual meeting.

 

Holders of common stock have no preemptive rights. They are entitled to such dividends as may be declared by our board of directors out of funds legally available for such purpose. The common stock is not entitled to any sinking fund, redemption or conversion provisions. On our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in our net assets remaining after the payment of all creditors and liquidation preferences of preferred stock, if any. The outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable.

 

The transfer agent and registrar for the common stock is American Stock Transfer & Trust Company, LLC, which currently serves as trustee for our senior notes and senior subordinated notes and will serve as trustee under the indenture for the notes offered by this prospectus supplement.

 

The following provisions in our charter or bylaws may make a takeover of our company more difficult:

 

 

These provisions may delay stockholder actions with respect to business combinations and the election of new members to our board of directors. As such, the provisions could discourage open market purchases of our common stock because a stockholder who desires to participate in a business combination or elect a new director may consider them disadvantageous. Additionally, the issuance of preferred stock could delay or prevent a change of control or other corporate action.

 

As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an “interested stockholder” from engaging in a “business combination” with us for three years following the date that person became an interested stockholder, unless:

 

 

 

An “interested stockholder” is generally a person owning 15% or more of our outstanding voting stock. A “business combination” includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder.

 

The following summary describes certain United States federal income tax consequences of the acquisition, ownership and disposition of the notes and the shares of common stock into which the notes may be converted. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury regulations and administrative and judicial decisions as of the date hereof. Legislative, judicial and administrative changes may occur, possibly with retroactive effect, that could affect the accuracy of the statements described herein. This summary is addressed only to original purchasers of the notes for their original offering price in this offering, deals only with notes or common stock held as capital assets and does not purport to address all United States federal income tax matters that may be relevant to investors in special tax situations, such as insurance companies, tax-exempt organizations, financial institutions, dealers in securities or currencies, traders in securities that elect to mark to market, holders of notes or common stock that are held as a hedge or as part of a hedging, straddle or conversion transaction, partnerships or other pass-through entities or investors therein, persons subject to alternative minimum tax, former citizens or residents of the United States, or U.S. Holders (as defined below) whose functional currency is not the United States dollar.

 

If a partnership (including an entity treated as a partnership for United States federal income tax purposes) holds a note or common stock, the treatment of a partner in the partnership will generally depend upon the status of the partner and upon the activities of the partnership. A holder of a note or common stock that is a partnership, and the partners in such a partnership, should consult their tax advisors about the United States federal income tax consequences of holding and disposing of the notes and common stock.

 

This discussion does not address any tax other than U.S. federal income tax. Persons considering the purchase of the notes should consult their own tax advisors concerning the application of United States federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdictions and the application of any United States federal tax other than the income tax, including, but not limited to the United States federal gift tax and estate tax, to their particular situations.

 

We are taking the position and this discussion assumes that the notes will not be treated as contingent payment debt instruments under the applicable Treasury Regulations. We are taking this position even though we may be required to pay additional interest if we fail to timely file certain required documents with the SEC, because we believe the likelihood that we will be obligated to pay any such additional interest is remote, and that any such payments would be considered incidental. Our position is not binding on the Internal Revenue Service (“IRS”). If the IRS were to successfully challenge our position, a holder of the notes subject to U.S. federal income tax may be required to accrue interest income based upon a “comparable yield,” regardless of the holder’s method of accounting. The “comparable yield” is the yield at which we would issue a fixed rate non-convertible debt instrument with no contingent payments, but with terms and conditions similar to those of the notes, and such yield would be higher than the stated coupon on the notes. In addition, any gain on the sale, exchange, retirement or other taxable disposition of the notes (including any gain realized on the conversion of a note) would be recharacterized as ordinary income.

 

Tax Consequences to U.S. Holders

 

As used herein, the term “U.S. Holder” means a beneficial owner of a note, or shares of common stock received upon conversion thereof, that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation (including an entity treated as a corporation for United States federal income tax purposes) created or organized in the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to United States federal income tax regardless of its source, or (iv) a trust if a United States court can exercise primary supervision over the trust’s administration and one or more “United States persons” (as defined under the Code) are authorized to control all substantial decisions of the trust (and certain trusts that have made a valid election to be treated as a United States person).

Payments of Interest

 

Interest paid on a note will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with the U.S. Holder’s method of accounting for federal income tax purposes.

 

Sale, Exchange or Retirement of the Notes (Other Than a Conversion)

 

Except as described below under “— Conversion of the Notes into Common Stock” and “— Conversion of the Notes into Common Stock and Cash”, upon the sale, exchange or retirement of a note (including any purchase of notes by us in the case of a fundamental change), a U.S. Holder will recognize taxable gain or loss equal to the difference between the amount realized on the sale, exchange or retirement and the U.S. Holder’s adjusted tax basis in the note. For these purposes, the amount realized does not include any amount attributable to accrued interest. Amounts attributable to accrued interest are treated as interest as described under “— Payments of Interest” above. A U.S. Holder’s adjusted tax basis in a note will generally equal the amount that the U.S. Holder paid for the note.

 

Gain or loss realized on the sale, exchange or retirement of a note will generally be capital gain or loss and will be long-term capital gain or loss if at the time of sale, exchange or retirement the note has been held for more than one year. Long-term capital gains recognized by non-corporate U.S. Holders currently are taxed at a maximum 15 percent federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20 percent). The deductibility of capital losses may be subject to limitations.

 

Conversion of the Notes into Common Stock

 

Except as discussed below, a U.S. Holder generally will not recognize gain or loss upon the conversion of a note solely into shares of our common stock. The fair market value of any common stock received with respect to accrued interest will be taxed as such, as discussed under “— Payments of Interest” above.

 

A U.S. Holder’s tax basis in the common stock received upon a conversion of a note (other than common stock received with respect to accrued interest) will equal the tax basis of the note that was converted (excluding the portion of such tax basis that is allocable to any cash in lieu of a fractional share, as described in the paragraph below). A U.S. Holder’s tax basis in the common stock received with respect to accrued interest will equal the fair market value of the stock received.

 

Receipt of cash in lieu of a fractional common share will generally be treated as if such fractional common share were issued and then sold back to us immediately thereafter, and a U.S. Holder will recognize capital gain or loss upon such sale in an amount equal to the difference between the amount of cash received and the amount of adjusted tax basis allocable to the fractional common share. A U.S. Holder’s tax basis in a fractional share will be determined by allocating the holder’s tax basis in the notes being converted between the common stock received upon conversion and the fractional share, in accordance with their respective fair market values.

 

The U.S. Holder’s holding period for the common stock received will include the holder’s holding period for the note converted, except that the holding period of any common stock received with respect to accrued interest will commence on the day after the date of receipt.

 

Conversion of the Notes into Cash

 

If a U.S. Holder converts a note and receives from us solely cash, the holder will recognize gain or loss in the same manner as if such holder had disposed of the note in a taxable disposition as described under “— Sale, Exchange or Retirement of the Notes (Other Than a Conversion)” above.

 

Conversion of the Notes into Common Stock and Cash

 

If a U.S. Holder converts a note and receives from us a combination of common stock and cash, we intend to take the position (and the following discussion assumes except where otherwise expressly noted) that

the conversion will be treated as a recapitalization for U.S. federal income tax purposes, although the tax treatment is uncertain.

 

Assuming such treatment is correct, a U.S. Holder will recognize capital gain, but not loss, equal to the excess of the sum of the fair market value of the common stock (including any fractional share for which cash is received) and cash received (other than amounts attributable to accrued interest, which will be taxed as ordinary interest income to the extent not previously so taxed, and any cash received in lieu of a fractional share) over the holder’s adjusted tax basis in the note, but in no event will the capital gain recognized exceed the amount of cash received (excluding cash attributable to accrued interest or received in lieu of a fractional share).

 

In such circumstances, a U.S. Holder’s tax basis in the common stock received upon a conversion of a note (other than common stock received with respect to accrued interest, but including any basis allocable to a fractional share) will equal the tax basis of the note that was converted, reduced by the amount of cash received (excluding cash received in lieu of a fractional share and cash attributable to accrued interest), and increased by the amount of gain, if any, recognized as described in the preceding paragraph. A U.S. Holder’s tax basis in the common stock received with respect to accrued interest will equal the fair market value of the stock received.

 

Receipt of cash in lieu of a fractional common share will generally be treated as if such fractional common share were issued and then sold back to us immediately thereafter, and a U.S. Holder will recognize capital gain or loss upon such sale in an amount equal to the difference between the amount of cash received and the amount of adjusted tax basis allocable to the fractional common share. A U.S. Holder’s tax basis in a fractional share will be determined by allocating the portion of the holder’s tax basis in the note being converted that is allocated to common stock in accordance with the preceding paragraph (including any basis allocable to a fractional share) between the common stock received upon conversion and the fractional share, in accordance with their respective fair market values.

 

Capital gain recognized by U.S. Holders upon conversion will be long-term capital gain if at the time of conversion the notes have been held for more than one year. Long-term capital gains recognized by non-corporate U.S. Holders currently are taxed at a maximum 15 percent federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20 percent).

 

A U.S. Holder’s holding period for common stock received upon conversion will include the period during which such holder held the notes, except that the holding period of any common stock received with respect to accrued interest will commence on the day after the date of receipt.

 

The conversion of a note and consequent receipt of both common stock and cash might alternatively be characterized as a sale of a portion of the note for the cash received which would be subjected to tax in the manner described under “— Sale, Exchange or Retirement of the Notes (Other Than a Conversion)” above and as a conversion of a portion of the note into common stock, which would be treated in the manner described under “— Conversion of the Notes Into Common Stock” above. Under this alternative characterization, a U.S. holder would not recognize gain or loss with respect to our common stock received (other than stock attributable to accrued interest and any fractional share deemed sold for cash), and the U.S. Holder’s holding period for such stock would include the period during which such holder held the notes. In such case, the holder’s basis in the note being converted would be allocated pro rata between the common stock (other than any stock attributable to accrued interest, but including any fractional share for which cash is received) and cash received, in accordance with their fair market values.

 

U.S. Holders should consult their tax advisors regarding the tax treatment of the receipt of cash and common stock for notes upon conversion.

 

Possible Effect of a Consolidation or Merger

 

In certain situations, we may consolidate with or merge into another entity (as described above under “Description of Notes — Conversion Rights”). Depending on the circumstances, a change in the obligor of the notes as the result of a consolidation or merger could result in a deemed taxable exchange to a U.S. Holder

and the modified note could be treated as newly issued at that time, potentially resulting in the recognition of taxable gain or loss.

 

Constructive Dividends

 

The conversion rate of the notes will be adjusted in certain circumstances. See the discussion under the heading “Description of Notes — Conversion Rights — Conversion Rate Adjustments” and “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Certain Corporate Transactions.” Adjustments (or failures to make adjustments to other classes of outstanding convertible instruments, options or warrants) that have the effect of increasing a U.S. Holder’s proportionate interest in our assets or earnings may in some circumstances result in a deemed distribution to a U.S. Holder for U.S. federal income tax purposes. Adjustments to the conversion rate made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing the dilution of the interest of the holders of the notes, however, will generally not be considered to result in a deemed distribution to a U.S. Holder. Certain of the possible conversion rate adjustments provided in the notes (including, without limitation, adjustments in respect of taxable dividends to holders of our common stock) will not qualify as being pursuant to a bona fide reasonable adjustment formula. If such adjustments are made, a U.S. Holder will be deemed to have received a distribution even though the U.S. Holder has not received any cash or property as a result of such adjustments. Any deemed distributions will be taxable as a dividend, return of capital, or capital gain in accordance with the earnings and profits rules under the Code. It is not clear under existing law whether a constructive dividend deemed paid to a non-corporate U.S. Holder would be eligible for the preferential rates of U.S. federal income tax applicable in respect of certain dividends received. It is also unclear under existing law whether corporate holders would be entitled to claim the dividends received deduction with respect to any such constructive dividends. Because a constructive dividend deemed received by a U.S. Holder would not give rise to any cash from which any applicable withholding tax could be satisfied, if we pay backup withholding taxes on behalf of a U.S. Holder (because such U.S. Holder failed to establish an exemption from backup withholding), we may, at our option and pursuant to certain provisions of the indenture, set-off any such payment against payments of cash and common stock payable on the notes.

 

Taxation of Distributions Paid On Common Stock

 

To the extent paid out of current or accumulated earnings and profits, distributions paid on common shares, other than certain pro rata distributions of common shares, will be treated as a taxable dividend when received. If a distribution exceeds our current and accumulated earnings and profits, the excess will be first treated as a tax-free return of the U.S. Holder’s investment, up to the U.S. Holder’s tax basis in the common stock (determined on a share-by-share basis). Any remaining excess will be treated as a capital gain. Dividends received by non-corporate U.S. Holders in tax years beginning prior to 2011 will be eligible to be taxed at reduced rates if the U.S. Holders meet certain holding period and other applicable requirements. Dividends received by corporate U.S. Holders will be eligible for the dividends-received deduction if the U.S. Holders meet certain holding period and other applicable requirements.

 

Sale or Other Disposition of Common Stock

 

For U.S. federal income tax purposes, gain or loss a U.S. Holder realizes on the sale or other disposition of common stock generally will be capital gain or loss, and generally will be long-term capital gain or loss if the holding period for the common stock is more than one year. The amount of the U.S. Holder’s gain or loss will be equal to the difference between the amount realized on the disposition and the U.S. Holder’s adjusted tax basis in the common stock disposed of. Long-term capital gains recognized by non-corporate U.S. Holders currently are taxed at a maximum 15 percent federal rate (effective for tax years through 2010, after which the maximum rate is scheduled to increase to 20 percent). The deductibility of capital losses may be subject to limitations.

Backup Withholding and Information Reporting

 

Information returns will be filed with the IRS in connection with payments on the notes, dividends on the common stock and the proceeds from a sale or other disposition of the notes or the common stock. A U.S. Holder will be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

 

Tax Consequences to Non-U.S. Holders

 

A “Non-U.S. Holder” is a beneficial owner of a note, or common stock received upon conversion thereof, that is an individual, corporation, estate or trust and is not a U.S. Holder.

 

Payments on the Notes

 

Subject to the discussion below concerning backup withholding, payments of interest on the notes that is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States to any Non-U.S. Holder will not be subject to U.S. federal withholding tax, provided that,

 

 

Interest that does not meet the foregoing requirements will be subject to a 30% U.S. federal withholding tax unless (i) such withholding tax is eliminated or reduced by an applicable income tax treaty or (ii) such interest is effectively connected with a U.S. trade or business of the Non-U.S. Holder.

 

Interest on a note that is not effectively connected income will not be exempt from withholding tax unless the beneficial owner of the note certifies on a properly executed IRS Form W-8BEN, under penalties of perjury, that it is not a United States person, and, if required, that it is eligible for the benefits of an applicable income tax treaty.

 

If a Non-U.S. Holder of a note is engaged in a trade or business in the United States, and if interest, on the note is effectively connected with the conduct of this trade or business, the Non-U.S. Holder, although exempt from the withholding tax discussed in the preceding paragraphs (provided that the Non-U.S. Holder provides us a properly executed IRS Form W-8ECI or W-8BEN), will generally be taxed in the same manner as a U.S. Holder (see “Tax Consequences to U.S. Holders” above), subject to an applicable income tax treaty providing otherwise. In addition, a corporate Non-U.S. Holder may be subject to a branch profits tax at a rate of 30 percent (or a lower treaty rate) with respect to its effectively connected earnings and profits attributable to the interest.

 

Sale, Exchange or Other Disposition of Notes or Shares of Common Stock

 

A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain recognized on a sale or other disposition of notes or common stock, unless:

 

 

 

If a Non-U.S. Holder is described in the first bullet point above, the Non-U.S. Holder will generally be taxed in the same manner as a U.S. Holder (see “Tax Consequences to U.S. Holders” above), subject to an applicable income tax treaty providing otherwise. In addition, a corporate Non-U.S. Holder may be subject to a branch profits tax at a rate of 30 percent (or a lower treaty rate) with respect to its effectively connected earnings and profits attributable to the gain. If a Non-U.S. Holder is described in the second bullet point, the Non-U.S. Holder will be subject to a 30% flat rate tax on the gain (offset by certain U.S. source capital losses) unless an applicable income tax treaty provides otherwise.

 

Regarding the third bullet point, we believe we may currently be, and we anticipate we may continue to be, a USRPHC, and in any event we can give no assurance that in the future we will not be a USRPHC. See “Foreign Investment in Real Property Tax Act,” below.

 

Dividends

 

Dividends (including deemed dividends on the notes described above under “Tax Consequences to U.S. Holders — Constructive Dividends”) paid to a Non-U.S. Holder of common stock generally will be subject to withholding tax at a 30 percent rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a Non-U.S. Holder will be required to provide a properly executed IRS Form W-8BEN certifying its entitlement to benefits under a treaty. In the case of any constructive dividend, it is possible that the U.S. federal withholding tax on the constructive dividend would be withheld from interest, shares of common stock or sales proceeds subsequently paid or credited to a Non-U.S. Holder.

 

The withholding tax does not apply to dividends paid to a Non-U.S. Holder who provides a properly executed Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the Non-U.S. Holder were a U.S. Holder. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30 percent (or a lower treaty rate) on such Non-U.S. Holder’s earnings and profits attributable to such dividends.

 

Foreign Investment in Real Property Tax Act

 

Under U.S. federal income tax laws enacted as part of the Foreign Investment in Real Property Tax Act (“FIRPTA”), any person that acquires a “United States real property interest” (“USRPI”) (as described below) from a Non-U.S. Holder, or that makes a distribution to a Non-U.S. Holder with respect to a USRPI, generally must deduct a U.S. federal withholding tax equal to 10% of the gross proceeds paid to the Non-U.S. Holder (or possibly, in the case of a distribution, equal to 30% if such person follows certain procedures under U.S. Treasury Regulations under section 1441 of the Code) (referred to as “FIRPTA withholding”). In addition, a Non-U.S. Holder that disposes of a USRPI, or that receives a distribution with respect to a USRPI, may be required to pay additional U.S. federal income tax with respect to such disposition or distribution to the extent that any FIRPTA withholding is not sufficient to otherwise fully satisfy such Non-U.S. Holder’s tax liabilities (referred to as the “FIRPTA tax”). In general, a Non-U.S. Holder that is subject to FIRPTA withholding or the FIRPTA tax will be required to timely file a U.S. federal income tax return reporting any required amounts as income effectively connected with the conduct of a trade or business in the U.S. and pay any FIRPTA tax due upon the filing of such return (or, depending upon the circumstances, earlier through estimated payments).

 

For purposes of FIRPTA withholding and the FIRPTA tax, a USRPI generally includes any interest (other than an interest solely as a creditor) in a U.S. corporation, unless it is established under specified procedures

that the U.S. corporation was not a USRPHC at any time during the shorter of either (i) the 5-year period ending on the date of the relevant disposition or distribution or (ii) the period during which the applicable Non-U.S. Holder held an interest in the U.S. corporation. In general, a U.S. corporation is classified as a USRPHC if the fair market value of its interests in U.S. real property equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus any other assets used or held for use in its trade or business. However, even if a U.S. corporation is generally classified as a USRPHC, an exemption to FIRPTA withholding and the FIRPTA tax may be available pursuant to U.S. Treasury Regulations issued under section 897 and section 1445 of the Code. In particular, although existing law is not entirely clear, under U.S. Treasury Regulation sections 1.897-1(c)(2)(iii)(A) and 1.897-9T(b) an interest held by a Non-U.S. Holder generally will not be treated as a USRPI (and therefore an exemption to FIRPTA withholding and the FIRPTA tax generally will be available) if (i) a class of the U.S. corporation’s convertible notes or stock is regularly traded on an established securities market and (ii) such non-U.S. Holder has never directly, indirectly, or constructively held more than 5% of the total fair market value of that class of notes or stock (such a Non-U.S. Holder is referred to as a “non-significant Non-U.S. Holder”). For purposes of determining whether a Non-U.S. Holder is a non-significant Non-U.S. Holder, a number of special rules apply, including certain ownership attribution rules.

 

Based on the current and potential future composition of our assets, we believe that we may currently be a USRPHC and, even if we are not currently a USRPHC, we can give no assurance that we may not become a USRPHC in the future or that we may not have been a USRPHC in the past. However, based on our expectation that both the notes and our common stock will be regularly traded on an established securities market by the end of 2009 and will remain so in the future, we intend to take the position that (i) neither the notes nor our common stock will constitute USRPIs to a non-significant Non-U.S. Holder and (ii) no FIRPTA withholding will be required (even if a Non-U.S. Holder is not a non-significant Non-U.S. Holder).

 

However, it is possible the IRS could disagree with our position, in which case we may be liable for our failure to withhold amounts in respect of FIRPTA withholding and Non-U.S. Holders may be liable for FIRPTA tax, including interest and penalties if they fail to timely file a U.S. federal income tax return and pay such tax when due. Furthermore, purchasers may generally be required to withhold amounts in respect of FIRPTA withholding upon their acquisition of a note or common stock from a Non-U.S. Holder, and may not agree with the position that we intend to take regarding the applicability of the potential exceptions to FIRPTA described above. If a Non-U.S. Holder does not qualify as a non-significant Non-U.S. Holder by providing timely certification in a manner acceptable to us using forms effectively provided by us, or if we otherwise determine in our sole discretion that a change in applicable facts and circumstances or change in applicable law or guidance or interpretation thereof has occurred, we generally intend to withhold 10% of certain amounts payable to Non-U.S. Holders in respect of the notes or common stock (or possibly 30% with respect to distributions pursuant to procedures under section 1441 of the Code) in order to satisfy our FIRPTA withholding obligations (including, without limitation, upon a conversion of the notes).

 

Non-U.S. Holders are urged to consult their own tax advisors as to whether the sale, exchange, repurchase, redemption, or conversion of the notes or possibly a sale, exchange, repurchase, or redemption of the common stock, or whether any actual or deemed distributions, may be subject to U.S. federal income tax under FIRPTA, regardless of whether we or any other purchaser withholds in order to satisfy FIRPTA withholding obligations. In addition, Non-U.S. Holders are urged to consult their own tax advisors regarding the tax consequences of acquiring, owning and disposing of a note or common stock, including any potential obligation of a purchaser to withhold certain amounts under FIRPTA upon the acquisition of a note or common stock. If an applicable exemption is available (by reason of a Non-U.S. Holder qualifying as a non-significant Non-U.S. Holder or otherwise), any amounts withheld by us or other purchasers generally will be refunded or credited against a Non-U.S. Holder’s U.S. federal income tax liability provided the required forms and information are timely furnished to the IRS.

 

Backup Withholding and Information Reporting

 

Information returns will be filed with the IRS in connection with payments on the notes and on the common stock. Unless the Non-U.S. Holder complies with certification procedures to establish that it is not a

United States person, information returns may be filed with the IRS in connection with the proceeds from a sale or other disposition (including a retirement or redemption) of the notes or common stock and the Non-U.S. Holder may be subject to United States backup withholding on payments on the notes and on the common stock and on the proceeds from a sale or other disposition (including a retirement or redemption) of the notes or common stock. The certification procedures required to claim the exemption from withholding tax on interest described above will satisfy the certification requirements necessary to avoid the backup withholding tax as well. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

 

Citigroup Global Markets Inc. is acting as book running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the aggregate principal amount of notes set forth opposite the underwriter’s name:

 

 

The underwriters are committed to purchase all of the notes offered by us (other than those covered by the over-allotment option described below) if they purchase any notes. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

 

The underwriters propose to offer the notes directly to the public at the initial public offering price set forth on the cover page of this prospectus supplement and to certain dealers at a discount from the initial public offering price of up to     % of the principal amount of the notes. After the initial offering of the notes to the public, the offering price and other selling terms may be changed by the underwriters. Sales of notes made outside of the United States may be made by affiliates of the underwriters.

 

The underwriters have an option to buy up to an additional $60,000,000 aggregate principal amount of notes at the initial offering price less the underwriters’ discount. Notes issued pursuant to the exercise, if any, of this option, must be issued not later than June 10, 2009. The underwriters may exercise the option solely to cover over-allotments. If any notes are purchased with this over-allotment option, the underwriters will purchase notes in approximately the same proportion as shown in the table above. If any additional notes are purchased, the underwriters will offer the additional notes on the same terms as those on which the notes are being offered.

 

The following table shows the per note and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us of the offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option.

 

 

 

 

The estimated offering expenses payable by us, exclusive of underwriting discounts and commissions, are approximately $1 million.

 

We have agreed with the underwriters not to sell, contract to sell or otherwise dispose of any shares of common stock (other than any shares issued upon conversion of the notes) or any securities convertible into or exercisable or exchangeable for common stock (other than the notes), or grant any options, warrants or other rights to purchase common stock, for a period of 60 days after the date of this prospectus supplement, without the prior written consent of Citigroup Global Markets Inc.; provided, however, that we are not prohibited from (i) the grant of options pursuant to stock option or other employee benefit plans, (ii) the issuance of common stock upon exercise of options or other rights to acquire common stock granted under stock option or other employee benefit plans, or (iii) contracts for and the sale or issuance of common stock or options, warrants or

other rights to purchase common stock in connection with the acquisition of a business or property or assets by us or any of our subsidiaries or in connection with any business combination.

 

Our directors and executive officers have entered into lock up agreements with the underwriters pursuant to which our directors and executive officers, for a period of 60 days after the date of this prospectus supplement, may not, without the prior written consent of Citigroup Global Markets Inc., (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock, (2) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, (3) make any demand for or exercise any right with respect to the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock or (4) publicly disclose the intention to take any action described in clauses (1), (2) or (3) above.

 

Notwithstanding the above, the underwriters have agreed in the underwriting agreement that the lock-up agreement will not apply with respect to (i) sales of any shares of common stock issuable upon exercise of any options to purchase common stock that will expire during the 60-day lock up period; (ii) sales of common stock issued upon exercise of outstanding options to purchase common stock in amounts not to exceed the cost of covering the exercise price of such options and any taxes associated with such exercise; (iii) transfers to us of common stock in connection with the exercise of outstanding options to purchase common stock solely to pay the option exercise price or any taxes required to be withheld by us; and (iv) transfers of shares of common stock or any security convertible into common stock as a bona fide gift or by will or intestacy, or to a trust, partnership or other entity for the benefit of the director or officer or the immediate family of the director or officer; provided that any donee, distributee or transferee thereof shall deliver a lock-up agreement in substantially the same form as the letter agreement delivered by the director or officer and that the transfer shall not involve any disposition for value; provided further, that notwithstanding anything to the contrary in the lock up agreement, the foregoing shall not restrict the sale of up to 100,000 shares of common stock by our Chairman of the Board and up to 50,000 shares of common stock by each other director or executive officer.

 

We have applied for listing of the notes, the related guarantees and the shares of stock issuable upon conversion of the notes on the New York Stock Exchange. The notes are a new issue of securities and there is currently no trading market for the notes. Each underwriter has advised us that it intends to make a market in the notes, but no underwriter is obligated to do so. Any underwriter may discontinue any market making in the notes at any time in its sole discretion without notice. Accordingly, we cannot assure you that a liquid trading market will develop for the notes, that you will be able to sell your notes at a particular time or that the prices you receive when you sell will be favorable.

 

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling notes in the open market for the purpose of preventing or retarding a decline in the market price of the notes while this offering is in progress. These stabilizing transactions may include making short sales of the notes, which involves the sale by the underwriters of a greater number of notes than they are required to purchase in this offering, and purchasing notes on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ over allotment option referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over allotment option, in whole or in part, or by purchasing notes in the open market. In making this determination, the underwriters will consider, among other things, the price of notes available for purchase in the open market compared to the price at which the underwriters may purchase notes through the over allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the notes in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase notes in the open market to cover the position. As an additional means of facilitating this

offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

 

The underwriters have advised us that, pursuant to Regulation M promulgated under the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the notes, including the imposition of penalty bids. This means that if the representative of the underwriters purchase notes in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those notes as part of this offering to repay the underwriting discount received by them.

 

These activities may have the effect of raising or maintaining the market price of the notes or preventing or retarding a decline in the market price of the notes, and, as a result, the price of the notes may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions in the over the counter market or otherwise.

 

A prospectus supplement and accompanying prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate an aggregate principal amount of notes to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

 

Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking (including letter of credit arrangements), financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

 

We expect that delivery of the notes will be made against payment therefor on or about the closing date specified on the cover page of this prospectus supplement, which will be the fifth business day following the date of pricing the notes (such settlement cycle being referred to as “T+5”). Under Rule 15c6-1 of the SEC under the Exchange Act, trades in the secondary market generally are required to settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes on the date of pricing or the next two succeeding business days will be required, by virtue of the fact that the notes initially will settle in T+5, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the notes who wish to trade the notes on the date of pricing or the next two succeeding business days should consult their own advisors.

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Notice to Prospective Investors in the European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), from and including the date on which the European Union Prospectus Directive (the “EU Prospectus Directive”) is implemented in that Relevant Member State (the “Relevant Implementation Date”) an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of notes to the public in that Relevant Member State at any time:

 

 

For the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State and the expression EU Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

 

Notice to Prospective Investors in the United Kingdom

 

This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

Notice to Prospective Investors in France

 

Neither this prospectus supplement nor any other offering material relating to the notes de-scribed in this prospectus supplement has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The notes have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor any other offering material relating to the notes has been or will be:

 

 

Such offers, sales and distributions will be made in France only:

 

 

The notes may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.

 

Notice to Prospective Investors in Hong Kong

 

The notes may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

Notice to Prospective Investors in Singapore

 

This prospectus supplement has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

 

Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

 

 

The validity of the notes offered by this prospectus supplement and the common stock issuable upon conversion of the notes will be passed upon for us by Gibson, Dunn & Crutcher LLP, Dallas, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cahill Gordon & Reindel LLP, New York, New York.

 

The financial statements of D.R. Horton, Inc. as of September 30, 2008 and for the year then ended and management’s assessment of the effectiveness of internal control over financial reporting as of September 30, 2008 (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this prospectus supplement by reference to the annual report on Form 10-K of D.R. Horton, Inc. for the year ended September 30, 2008 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

The consolidated financial statements of D.R. Horton, Inc. as of September 30, 2007 and for the two years in the period ended September 30, 2007 appearing in D.R. Horton, Inc.’s Annual Report (Form 10-K) for the year ended September 30, 2008 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

PROSPECTUS

 

D.R. Horton, Inc.

 

Debt Securities,

Preferred Stock, Depositary Shares,

Common Stock, Warrants,

Stock Purchase Contracts and Stock Purchase Units

 

Trust Preferred Securities of DRH Capital Trust I,
DRH Capital Trust II and DRH Capital Trust III
and Related Subordinated Trust Debt Securities
and Guarantees of D.R. Horton, Inc.

 

Units of These Securities

 

 

 

 

We will provide specific terms of these securities in supplements to this prospectus at the time we offer or sell any of these securities. You should read this prospectus and any supplement carefully before you invest.

 

Investing in these securities involves risks. See “Risk Factors” beginning on page 1 and in the prospectus supplement we will deliver with this prospectus.

 

Our common stock is listed on the New York Stock Exchange under the symbol “DHI.”

 

 

 

 

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

This prospectus is dated June 13, 2006

 

You should rely only on the information contained in or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

TABLE OF CONTENTS

 

 

Unless the context otherwise requires, the terms the “Company,” “we” and “our” refer to D.R. Horton, Inc., a Delaware corporation, and its predecessors and subsidiaries.

 

The statements contained in this prospectus and the information incorporated by reference into this prospectus include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “projection,” “seek,” “strategy,” “target” or other words of similar meaning. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from the expectations or results we discuss in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

 

 

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in additional documents incorporated into this prospectus by reference should be consulted.

 

For further factors you should consider, please refer to the “Risk Factors” section beginning on page 1 of this prospectus and the “Risk Factors” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in our annual report on Form 10-K for the year ended September 30, 2005 and our quarterly reports on Form 10-Q for the quarters ended December 31, 2005 and March 31, 2006.

 

Before purchasing any securities we may offer, you should consider all of the information set forth in this prospectus, in the prospectus supplement we will deliver with this prospectus, and in the information incorporated by reference. In particular, you should evaluate the risk factors relating to our business set forth below and the risk factors set forth in the prospectus supplement we will deliver with this prospectus. It is anticipated that the prospectus supplement will contain a description of the risks relating to the securities we may offer with the prospectus supplement.

 

Because of the cyclical nature of our industry, future changes in general economic, real estate construction or other business conditions could adversely affect our business or our financial results.

 

Cyclical Industry.  The homebuilding industry is cyclical and is significantly affected by changes in general and local economic conditions, such as:

 

 

These may occur on a national scale or may affect some of the regions or markets in which we operate more than others. If adverse conditions affect any of our larger markets, they could have a proportionately greater impact on us than on some other homebuilding companies.

 

An oversupply of alternatives to new homes, such as rental properties and used or foreclosed homes, including homes held for sale by investors, could also depress new home prices and reduce our margins on the sales of new homes.

 

Risks Related to National Security.  Continued military deployments in the Middle East and other overseas regions, terrorist attacks, other acts of violence or threats to national security, and any corresponding response by the United States or others, or related domestic or international instability, may adversely affect general economic conditions or cause a slowdown of the national economy.

 

Inventory Risks.  Inventory risks can be substantial for our homebuilding business. Our long-term ability to build homes depends upon our acquiring land suitable for residential building at affordable prices in locations where our potential customers want to live. We must anticipate demand for new homes and continuously seek and make acquisitions of land for replacement and expansion of land inventory within our current markets and for expansion into new markets. In some markets, this has become more difficult and costly.

 

Our current goal is to own or control approximately a three to four year supply of land and building lots. The risks inherent in controlling or purchasing and developing land increase as consumer demand for housing decreases. Thus, we may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. Our deposits for building lots controlled under option or similar contracts may be put at risk. The market value of undeveloped land, building lots and housing inventories can also fluctuate significantly as a result of changing market conditions. We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.

 

In addition, inventory carrying costs can be significant and can result in reduced margins or losses in a poorly performing project or market. In the event of significant changes in economic or market conditions, we may have to sell homes or land for a lower profit margin or at a loss.

Supply Risks.  The homebuilding industry has from time to time experienced significant difficulties that can affect the cost or timing of construction, including:

 

 

Risks from Nature.  Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic activity, droughts, floods and wildfires, can harm our homebuilding business. These can delay home closings, adversely affect the cost or availability of materials or labor, or damage homes under construction. The climates and geology of many of the states in which we operate, including California, Florida and Texas, where we have some of our larger operations, present increased risks of adverse weather or natural disaster.

 

Possible Consequences.  As a result of the foregoing matters, in the future, potential customers may be less willing or able to buy our homes, or we may take longer or incur more costs to build them. We may not be able to recapture increased costs by raising prices in many cases because of market conditions or because we fix our prices in advance of delivery by signing home sales contracts. We may be unable to change the mix of our home offerings or the affordability of our homes to maintain our margins or satisfactorily address changing market conditions in other ways. In addition, cancellations of home sales contracts in backlog may increase beyond historical rates as homebuyers cancel or do not honor their contracts.

 

Our financial services business is closely related to our homebuilding business as it originates mortgage loans principally to purchasers of the homes we build. A decrease in the demand for our homes because of the foregoing matters could also adversely affect the financial results of this segment of our business. A return of consumer preferences for adjustable-rate and other low-margin loans could also adversely affect our financial services results. An increase in the default rate on the mortgages we originate could adversely affect the pricing we receive upon the sale of mortgages that we originate in the future.

 

Future increases in interest rates, reductions in mortgage availability or increases in the effective costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or our financial results.

 

Most of our customers finance their home purchases through lenders providing mortgage financing. In recent years interest rates have been at historical lows. Many homebuyers have also chosen adjustable rate, interest only or other mortgages that involve initial lower monthly payments. As a result, new homes have been more affordable. Increases in interest rates or decreases in the availability of mortgage financing, however, could reduce the market for new homes. Potential homebuyers may be less willing or able to pay the increased monthly costs or to obtain mortgage financing that exposes them to interest rate changes. Lenders may increase the qualifications needed for mortgages or adjust their terms to address any increased credit risk. Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their current homes to potential buyers who need financing. These matters could adversely affect the sales or pricing of our homes and could also reduce the volume or margins in our financial services business. The impact on our financial services business could be compounded to the extent we are unable to match interest rates and amounts on loans we have committed to originate through the various hedging strategies we employ.

 

In addition, we believe that the availability of FHA and VA mortgage financing is an important factor in marketing some of our homes. We also believe that the liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry is important to the housing market. However, the federal government has sought to limit the size of the home-loan portfolios and operations of these two government-sponsored enterprises. Any limitations or restrictions on the availability of the financing or on the liquidity provided by them could adversely affect interest rates, mortgage financing and our sales of new homes and mortgage loans.

Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for an individual’s federal, and in some cases state, income taxes, subject to various limitations under current tax law and policy. If the federal government or a state government changes its income tax laws, as has been discussed, to eliminate or substantially modify these income tax deductions, the after-tax cost of owning a new home could increase for many of our potential customers. The resulting loss or reduction of homeowner tax deductions, if such tax law changes were enacted without offsetting provisions, could adversely impact demand for and sales prices of new homes.

 

Governmental regulations could increase the cost and limit the availability of our development and homebuilding projects or affect our related financial services operations and adversely affect our business or our financial results.

 

We are subject to extensive and complex regulations that affect land development and home construction, including zoning, density restrictions, building design and building standards. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water or sewage facilities, roads or other local services. In addition, in many markets government authorities have implemented no growth or growth control initiatives. Any of these can limit, delay or increase the costs of development or homebuilding.

 

New housing developments may be subject to various assessments for schools, parks, streets and other public improvements, which could cause an increase in the effective prices for our homes. In addition, increases in property tax rates by local governmental authorities, as experienced in response to reduced federal and state funding, can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes.

 

We also are subject to a variety of local, state and federal laws and regulations concerning protection of health, safety and the environment. The impact of environmental laws varies depending upon the prior uses of the building site or adjoining properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available. These matters may result in delays, may cause us to incur substantial compliance, remediation and other costs, and could prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or areas.

 

Our financial services operations are also subject to numerous federal, state and local laws and regulations. These include eligibility requirements for participation in federal loan programs and compliance with consumer lending and similar requirements such as disclosure requirements, prohibitions against discrimination and real estate settlement procedures. They may also subject our operations to examination by the applicable agencies. These may limit our ability to provide mortgage financing or title services to potential purchasers of our homes.

 

Our substantial debt could adversely affect our financial condition.

 

We have a significant amount of debt. As of March 31, 2006, our consolidated debt was $5,523.7 million. In the ordinary course of business, we may incur significant additional debt, to the extent permitted by our revolving credit facility and our indentures.

 

Possible Consequences.  The amount of our debt could have important consequences. For example, it could:

 

 

 

Dependence on Future Performance.  Our ability to meet our debt service and other obligations will depend upon our future financial performance. We are engaged in businesses that are substantially affected by changes in economic conditions. Our revenues and earnings vary with the level of general economic activity in the markets we serve. Our businesses are also affected by financial, political, business and other factors, many of which are beyond our control. The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of debt or equity securities, the refinancing of debt, or the sale of assets. Changes in prevailing interest rates may affect our ability to meet our debt service obligations, because borrowings under our credit facilities bear interest at floating rates and our “interest rate swap” agreements fix our interest rate for only a portion of these borrowings.

 

As of March 31, 2006, the scheduled maturities of principal on our outstanding debt for the subsequent 12 months totaled $711.1 million, including $675.0 million in financial services debt that must be renewed annually. This amount includes $340.0 million under our mortgage warehouse loan facility that we renewed in April 2006 and $335.0 million under our commercial paper conduit facility that we plan to renew and extend prior to its maturity on June 29, 2006. Based on the current level of operations, we believe our cash flow from operations, available cash, available borrowings under our credit facilities and our ability to access the capital markets and to refinance or renew our credit facilities in a timely manner will be adequate to meet our future cash needs. We cannot, however, make any assurances that in the future our business will generate sufficient cash flow from operations or that borrowings or access to the capital markets or refinancing or renewal facilities will be available to us in amounts sufficient to enable us to pay or refinance our indebtedness or to fund other cash needs.

 

Indenture and Revolving Credit Facility Restrictions.  Our revolving credit facility and the indentures governing our senior subordinated notes impose restrictions on our operations and activities. The most significant restrictions relate to limits on investments, cash dividends, stock repurchases and other restricted payments, incurrence of indebtedness, creation of liens and asset dispositions, and require maintenance of a maximum leverage ratio, a minimum ratio of EBITDA to interest incurred, minimum levels of tangible net worth and compliance with other financial covenants. In addition, the indentures governing our senior notes impose restrictions on the creation of liens. If we fail to comply with any of these restrictions or covenants, the trustees, the noteholders or the lending banks, as applicable, could cause our debt to become due and payable prior to maturity. If we do not maintain our current credit ratings, available credit under our revolving credit facility is subject to limitations based on specified percentages of unsold homes, developed lots and lots under development included in inventory and the amount of other senior unsecured indebtedness.

 

Change of Control Purchase Options.  If a change of control occurs as defined in the indentures governing many other series of our senior and senior subordinated notes, constituting $2,294.8 million principal amount in the aggregate as of March 31, 2006, we would be required to offer to purchase such notes at 101% of their principal amount, together with all accrued and unpaid interest, if any. Moreover, a change of control may also result in the acceleration of our revolving credit facility. If purchase offers were required under the indentures for these notes or our revolving credit facility debt were accelerated, we can give no assurance that we would have sufficient funds to pay the amounts that we would be required to repurchase or repay. We currently would not have sufficient funds available to purchase all of such outstanding debt upon a change of control.

 

Impact of Financial Services Debt.  Our financial services business is conducted through subsidiaries that are not restricted by our indentures or revolving credit facility. The ability of our financial services segment to provide funds to our homebuilding operations, however, is subject to restrictions in its own credit facilities. These funds would not be available to us upon the occurrence and during the continuance of defaults under these facilities. Moreover, our right to receive assets from these subsidiaries upon liquidation or recapitalization will be subject to the prior claims of the creditors of these subsidiaries. Any claims we may have to funds from this segment would be subordinate to subsidiary indebtedness to the extent of any security for such indebtedness and to any indebtedness otherwise recognized as senior to our claims.

Homebuilding and financial services are very competitive, and competitive conditions could adversely affect our business or our financial results.

 

The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable properties, financing, raw materials and skilled labor. We compete with other local, regional and national homebuilders, including those with a sales presence on the Internet, often within larger subdivisions designed, planned and developed by such homebuilders. The competitive conditions in the homebuilding industry could result in: