-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M7+HJDSUCSV3GlXc0CWFTaSmOZ+dplwMhpLfKjJACrBH6oaX44BdnSUrxASJqQt3 D0I8ZBOu+d6qVVExq6wFIw== 0000882184-00-000008.txt : 20000515 0000882184-00-000008.hdr.sgml : 20000515 ACCESSION NUMBER: 0000882184-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14122 FILM NUMBER: 627795 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 MAIL ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: SUITE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 10-Q 1 SECOND QUARTER FORM 10-Q FOR D.R. HORTON, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2000 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Transition Period From ______________ To _______________ Commission file number 1-14122 --------- D.R. HORTON, INC. ------------------ (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 --------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 856-8200 --------------- (Registrant's telephone number, including area code) ------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $.01 par value -- 61,823,505 shares as of May 10, 2000 ------------- This Report contains 20 pages. ---- INDEX D.R. HORTON, INC. PART I. FINANCIAL INFORMATION. Page - ------------------------------ ---- ITEM 1. Financial Statements. Consolidated Balance Sheets--March 31, 2000 and September 30, 1999. 3 Consolidated Statements of Income--Three Months and Six Months Ended March 31, 2000 and 1999. 4 Consolidated Statement of Stockholders' Equity-- Six Months Ended March 31, 2000. 5 Consolidated Statements of Cash Flows--Six Months Ended March 31, 2000 and 1999. 6 Notes to Consolidated Financial Statements. 7-9 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. 10-16 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II. OTHER INFORMATION. - --------------------------- ITEM 2. Changes in Securities. 18 ITEM 4. Submission of Matters to a Vote of Security Holders. 18 ITEM 6. Exhibits and Reports on Form 8-K. 19 SIGNATURES. 20 - ---------- D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, September 30, 2000 1999 ---------------------------- (In thousands) (Unaudited) ASSETS Homebuilding: Cash $ 79,618 $ 122,208 Inventories: Finished homes and construction in progress 1,114,921 952,015 Residential lots - developed and under development 1,032,460 909,586 Land held for development 4,286 4,507 ---------- ---------- 2,151,667 1,866,108 Property and equipment (net) 40,335 36,972 Earnest money deposits and other assets 136,112 96,807 Excess of cost over net assets acquired (net) 113,120 112,456 ---------- ---------- 2,520,852 2,234,551 ---------- ---------- Financial Services: Cash 5,779 6,360 Mortgage loans held for sale 91,433 113,786 Other assets 7,039 7,111 ---------- ---------- 104,251 127,257 ---------- ---------- $2,625,103 $2,361,808 ========== ========== LIABILITIES Homebuilding: Accounts payable and other liabilities $ 342,070 $ 365,506 Notes payable: Unsecured: Revolving credit facility due 2002 500,000 395,000 8% senior notes due 2009, net 383,014 382,941 8 3/8% senior notes due 2004, net 148,348 148,150 10% senior notes due 2006, net 147,338 147,278 10 1/2% senior notes due 2005, net 149,415 - Other secured 8,617 12,904 ---------- ---------- 1,136,732 1,086,273 ---------- ---------- 1,678,802 1,451,779 ---------- ---------- Financial Services: Accounts payable and other liabilities 2,746 3,268 Notes payable to financial institutions 76,800 104,350 ---------- ---------- 79,546 107,618 ---------- ---------- 1,758,348 1,559,397 ---------- ---------- Minority interests 4,678 4,802 ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 200,000,000 shares authorized, 64,396,305 at March 31, 2000 and 64,267,073 at September 30, 1999, issued and outstanding. 644 643 Additional capital 420,643 419,259 Retained earnings 477,737 400,111 Treasury stock, 2,589,200 shares at March 31, 1999 and 1,484,300 shares at September 30, 1999, at cost (36,947) (22,404) ---------- ---------- 862,077 797,609 ---------- ---------- $2,625,103 $2,361,808 ========== ========== See accompanying notes to consolidated financial statements. -3- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Six Months Ended March 31, Ended March 31, ------------------ ------------------- 2000 1999 2000 1999 ------- ------ ------ ------ (In thousands, except net income per share) (Unaudited) Homebuilding: Revenues Home sales................ $780,156 $683,174 $1,562,528 $1,294,875 Land/lot sales............ 7,958 7,426 23,150 48,553 -------- -------- ---------- ----------- 788,114 690,600 1,585,678 1,343,428 -------- -------- ---------- ----------- Cost of sales Home sales................ 636,990 562,138 1,272,822 1,056,141 Land/lot sales............ 7,332 6,154 18,137 42,931 -------- -------- ---------- ----------- 644,322 568,292 1,290,959 1,099,072 -------- -------- ---------- ----------- Gross profit Home sales................ 143,166 121,036 289,706 238,734 Land/lot sales............ 626 1,272 5,013 5,622 -------- -------- ---------- ----------- 143,792 122,308 294,719 244,356 Selling, general and administrative expense........ 82,133 68,648 164,830 137,591 Interest expense.............. 1,561 3,088 4,856 5,881 Other (income)................ (644) (734) (725) (1,724) -------- -------- ---------- ----------- 60,742 51,306 125,758 102,608 -------- -------- ---------- ----------- Financial Services: Revenues...................... 10,750 8,481 22,126 16,283 Selling, general and administrative expense........ 8,022 5,229 15,997 10,203 Interest expense.............. 1,157 669 2,706 1,412 Other (income)................ (1,290) (760) (3,023) (1,639) -------- -------- ---------- ----------- 2,861 3,343 6,446 6,307 -------- -------- ---------- ----------- INCOME BEFORE INCOME TAXES.. 63,603 54,649 132,204 108,915 Provision for income taxes.... 24,169 21,229 50,238 42,800 -------- -------- ---------- ----------- NET INCOME.................. $39,434 $33,420 $81,966 $66,115 ======== ======== ========== =========== Net income per share: Basic..................... $0.64 $0.53 $1.32 $1.08 Diluted................... $0.63 $0.52 $1.31 $1.05 ======== ======== ========== =========== Weighted average number of shares of stock outstanding: Basic..................... 61,839 63,334 62,247 61,367 Diluted................... 62,265 64,251 62,711 62,960 ======== ======== ========== =========== Cash dividends per share...... $0.04 $0.03 $0.07 $0.0525 ======== ======== ========== =========== See accompanying notes to consolidated financial statements. -4- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Total Common Additional Retained Treasury Stockholders' Stock Capital Earnings Stock Equity -------------------------------------------------- (In thousands) (Unaudited) Balances at October 1, 1999 $643 $419,259 $400,111 ($22,404) $797,609 Net income - - 81,966 - 81,966 Issuances under D.R. Horton, Inc. employee benefit plans (31,025 shares) - 329 - - 329 Exercise of stock options (98,207 shares) 1 1,055 - - 1,056 Purchase of treasury stock (1,104,900 shares) (14,543) (14,543) Dividends declared ($.07 per share) - - (4,340) - (4,340) -------------------------------------------------- Balances at March 31, 2000 $644 $420,643 $477,737 ($36,947) $862,077 ================================================== See accompanying notes to consolidated financial statements. -5- D. R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended March 31, -------------------- 2000 1999 --------- --------- (In thousands) (Unaudited) OPERATING ACTIVITIES Net income $ 81,966 $ 66,115 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,508 9,017 Changes in operating assets and liabilities: Increase in inventories (280,602) (238,421) Increase in earnest money deposits and other assets (25,259) (28,744) Decrease in mortgage loans held for sale 22,353 (6,638) Decrease in accounts payable, accrued expenses and customer deposits (24,082) 24,624 -------- -------- NET CASH USED IN OPERATING ACTIVITIES (215,116) (174,047) -------- -------- INVESTING ACTIVITIES Net purchase of property and equipment (8,848) (13,336) Net investment in venture capital entities (15,071) --- Net cash paid for acquisitions (4,800) (1,300) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (28,719) (14,636) -------- -------- FINANCING ACTIVITIES Proceeds from notes payable 355,000 366,825 Repayment of notes payable (285,302) (576,060) Issuance of Senior Notes payable 148,464 377,134 Repurchase of treasury stock (14,543) (536) Proceeds from common stock offerings and stock associated with certain employee benefit plans 1,385 2,497 Payment of cash dividends (4,340) (3,238) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 200,664 166,622 -------- -------- INCREASE (DECREASE) IN CASH (43,171) (22,061) Cash at beginning of period 128,568 76,754 -------- -------- Cash at end of period $ 85,397 $ 54,693 ======== ======== Supplemental cash flow information: Interest paid $ 7,399 $ 6,868 ======== ======== Income taxes paid $ 68,009 $ 47,000 ======== ======== Supplemental disclosures of noncash activities: Notes payable assumed related to acquisitions $ 0 $103,384 ======== ======== Conversion of subordinated notes to common stock $ 0 $ 59,327 ======== ======== Issuance of common stock related to acquisition $ 0 $ 55,000 ======== ======== See accompanying notes to consolidated financial statements. -6- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2000 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. (the "Company") and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year. Operating results for the three and six month periods ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending September 30, 2000. Business - The Company is a national builder that is engaged primarily in the construction and sale of single-family housing in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land or lots it has developed. The Company also provides title agency and mortgage brokerage services to its homebuyers. NOTE B - SEGMENT INFORMATION The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with approximately 99% of consolidated revenues for the three and six months ended March 31, 2000 and 1999. The homebuilding operations segment generates the majority of its revenues from the sale of completed homes with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. NOTE C - NET INCOME PER SHARE Basic net income per share for the three and six month periods ended March 31, 2000 and 1999, is based on the weighted average number of shares of common stock outstanding. Diluted net income per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. The following table sets forth the computation of basic and diluted earnings per share (in thousands): Three months ended Six months ended March 31, March 31, ------------------- ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- Denominator for basic earnings per share--- weighted average shares 61,839 63,334 62,247 61,367 Effect of dilutive securities: 6 7/8% convertible subordinated notes - - - 659 Employee stock options 426 917 464 934 ------- ------- ------- ------- Denominator for diluted earnings per share---adjusted weighted average shares and assumed conversions 62,265 64,251 62,711 62,960 ======= ======= ======= ======= Options to purchase 1,991,000 and 1,612,000 shares of common stock at various prices were outstanding during the six months ended March 31, 2000 and 1999, respectively, but were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, their effect would be antidilutive. -7- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) March 31, 2000 NOTE D - INTEREST The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the homebuyer. Interest costs are (in thousands): Three months ended Six months ended March 31, March 31, ------------------------ --------------------- 2000 1999 2000 1999 ------ ------ ------ ------ Capitalized interest, beginning of period $ 46,463 $ 32,759 $ 41,525 $ 35,153 Interest incurred -homebuilding 24,971 22,868 47,072 38,151 Interest expensed: Directly-homebuilding (1,561) (3,088) (4,856) (5,881) Amortized to cost of sales (14,725) (12,956) (28,593) (27,840) -------- -------- -------- -------- Capitalized interest, end of period $ 55,148 $ 39,583 $ 55,148 $ 39,583 ======== ======== ======== ======== NOTE E - SUMMARIZED FINANCIAL INFORMATION The 8%, 8 3/8%, 10% and 10 1/2% Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries other than certain inconsequential subsidiaries. Each of the Guarantors is a wholly-owned subsidiary. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that they are not material to investors. Summarized financial information of the Company and its subsidiaries, including the non-guarantor subsidiaries, is presented below. Additional financial information relating to the non-guarantor financial services subsidiaries is included in the accompanying financial statements. As of and for the six months ended March 31, 2000 and 1999, and for the year ended September 30, 1999 (in thousands):
March 31, 2000 Nonguarantor Subsidiaries (Unaudited) D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ---------- Total assets............. $2,301,199 $1,893,233 $105,109 $50,624 ($1,725,062) $2,625,103 Total liabilities........ 1,439,122 1,468,247 81,933 38,755 (1,265,031) 1,763,026 Total equity............. 862,077 424,986 23,176 11,869 (460,031) 862,077 Revenues................. 237,006 1,334,698 22,125 13,975 - 1,607,804 Gross profit............. 38,582 252,195 - 3,596 346 294,719 Net income............... 81,966 78,874 4,214 (75) (83,013) 81,966 March 31, 1999 Nonguarantor Subsidiaries (Unaudited) D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ----------- Total assets............. $1,809,736 $1,759,925 $87,213 $31,602 ($1,585,704) $2,102,772 Total liabilities........ 1,081,135 1,405,400 78,893 20,593 (1,211,850) 1,374,171 Total equity............. 728,601 354,525 8,320 11,009 (373,854) 728,601 Revenues................. 261,060 1,070,182 16,283 12,186 - 1,359,711 Gross profit............. 34,402 202,052 - 2,503 - 238,957 Net income............... 66,115 49,861 3,829 (258) (53,432) 66,115 September 30, 1999 Nonguarantor Subsidiaries D.R. ------------------------- Inter- Horton, Guarantor Financial company Inc. Subsidiaries Services Other Eliminations Total ---------- -------------- ----------- --------- ------------- ----------- Total assets............. $1,996,311 $1,865,148 $125,895 $31,302 ($1,656,848) $2,361,808 Total liabilities........ 1,198,702 1,465,596 108,476 19,663 (1,228,238) 1,564,199 Total equity............. 797,609 399,552 17,419 11,639 (428,610) 797,609 Revenues................. 551,696 2,540,077 37,251 27,187 - 3,156,211 Gross profit............. 95,509 456,302 - 6,069 334 558,214 Net income............... 159,827 144,575 7,929 78 (152,582) 159,827
-8- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued) March 31, 2000 NOTE E - SUMMARIZED FINANCIAL INFORMATION - Continued Summarized cash flow information for the non-guarantor financial services subsidiaries is presented below: Six months ended March 31, 2000 1999 ---------- ---------- (In thousands) OPERATING ACTIVITIES Net income......................................... $ 3,999 $ 3,829 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 555 247 Changes in operating assets and liabilities: Decrease in other assets..................... 22 245 Decrease/(increase) in mortgage loans held for sale................................... 22,353 (6,637) Increase in accounts payable and other liabilities.......................... 1,930 772 ------- ------- NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 28,859 (1,544) ------- ------- INVESTING ACTIVITIES Purchase of property and equipment................. (505) (599) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (505) (599) ------- ------- FINANCING ACTIVITIES Net (repayments of)/proceeds from notes payable.... (27,549) 35,717 Decrease in amounts payable to parent.............. (1,386) (42,986) ------- ------- NET CASH USED IN FINANCING ACTIVITIES (28,935) (7,269) ------- ------- DECREASE IN CASH (581) (9,412) Cash at beginning of period.......................... 6,360 13,017 ------- ------- Cash at end of period................................ $ 5,779 $ 3,605 ======= ======= Cash flows for the other non-guarantor subsidiaries are not significant in any period presented. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - CONSOLIDATED D. R. Horton, Inc. and subsidiaries (the "Company") provide homebuilding activities in 23 states and 40 markets through its 47 homebuilding divisions. Through its financial services segment, the Company also provides mortgage banking and title agency services in many of these same markets. Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Consolidated revenues for the three months ended March 31, 2000, increased 14.3%, to $798.9 million, from $699.1 million for the comparable period of 1999, primarily due to increases in home sales revenues. Income before income taxes for the three months ended March 31, 2000, increased 16.4%, to $63.6 million, from $54.6 million for the comparable period of 1999. As a percentage of revenues, income before income taxes for the three months ended March 31, 2000, increased 0.2%, to 8.0%, from 7.8% for the comparable period of 1999, primarily due to the increase in gross margin percentage achieved by the homebuilding segment and a decrease in homebuilding interest expense. The consolidated provision for income taxes increased 13.8%, to $24.2 million for the three months ended March 31, 2000, from $21.2 million for the same period of 1999, due to the corresponding increase in income before income taxes. The effective income tax rate decreased 0.8%, to 38.0%, from 38.8% for the comparable period of 1999, primarily due to changes in the estimated overall effective state income tax rate. Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999 Consolidated revenues for the six months ended March 31, 2000, increased 18.2%, to $1,607.8 million, from $1,359.7 million for the comparable period of 1999, primarily due to increases in home sales revenues. Income before income taxes for the six months ended March 31, 2000, increased 21.4%, to $132.2 million, from $108.9 million for the comparable period of 1999. As a percentage of revenues, income before income taxes for the six months ended March 31, 2000, increased 0.2%, to 8.2%, from 8.0% for the comparable period of 1999, primarily due to the increase in gross margin percentage achieved by the homebuilding segment. The consolidated provision for income taxes increased 17.4%, to $50.2 million for the six months ended March 31, 2000, from $42.8 million for the same period of 1999, primarily due to the corresponding increase in income before income taxes. The effective income tax rate decreased 1.3%, to 38.0%, from 39.3% for the comparable period of 1999, primarily due to changes in the estimated overall effective state income tax rate. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for the Company's homebuilding activities:
Percentages of Homebuilding Revenues Three Months Ended Six Months Ended March 31, March 31, 2000 1999 2000 1999 Costs and expenses: ------ ------ ------ ------ Cost of sales........................ 81.8% 82.3% 81.4% 81.8% Selling, general and administrative expense.............................. 10.4% 9.9% 10.4% 10.2% Interest expense..................... 0.2% 0.5% 0.3% 0.5% ------ ------ ------ ------ Total costs and expenses..................... 92.4% 92.7% 92.1% 92.5% Other (income)............................... (0.1%) (0.1%) 0.0% (0.1%) ------ ------ ------ ------ Income before income taxes................... 7.7% 7.4% 7.9% 7.6% ====== ====== ====== ====== Homes Closed Three Months Ended March 31, Six Months Ended March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Homes Homes Homes Homes Closed Revenues Closed Revenues Closed Revenues Closed Revemues -------- -------- -------- -------- -------- -------- -------- -------- ($'s in millions) ($'s in millions) Mid-Atlantic......... 680 $133.7 707 $130.0 1,327 $ 257.6 1,339 $ 243.4 Midwest.............. 443 95.9 375 71.3 954 200.9 621 117.5 Southeast............ 656 109.4 589 94.5 1,248 207.5 1,184 188.3 Southwest............ 1,825 270.1 1,795 244.7 3,715 545.2 3,440 463.5 West................. 760 171.1 697 142.7 1,612 351.3 1,425 282.2 -------- -------- -------- -------- -------- --------- -------- --------- 4,364 $780.2 4,163 $683.2 8,856 $1,562.5 8,009 $1,294.9 ======== ======== ======== ======== ======== ========= ======== ========= New Sales Contracts (net of cancellations) Three Months Ended March 31, Six Months Ended March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Homes Homes Homes Homes Sold $ Sold $ Sold $ Sold $ -------- -------- -------- -------- -------- -------- -------- -------- ($'s in millions) ($'s in millions) Mid-Atlantic......... 761 $153.2 930 $170.8 1,330 $ 275.3 1,501 $ 282.4 Midwest.............. 476 110.0 566 111.6 841 208.0 794 157.1 Southeast............ 824 142.5 813 131.3 1,442 243.3 1,358 216.3 Southwest............ 2,360 363.2 2,289 324.4 3,994 616.4 3,934 553.9 West................. 1,013 226.1 1,033 200.0 1,678 374.4 1,581 309.1 -------- -------- -------- -------- -------- --------- -------- --------- 5,434 $995.0 5,631 $938.1 9,285 $1,717.4 9,168 $1,518.8 ======== ======== ======== ======== ======== ========= ======== ========= Sales Backlog March 31, 2000 1999 ---- ---- Homes $ Homes $ -------- --------- -------- --------- ($'s in millions) Mid-Atlantic................................. 1,094 $ 260.5 1,094 $ 219.9 Midwest...................................... 1,021 254.3 1,044 212.5 Southeast.................................... 1,030 176.4 907 144.3 Southwest.................................... 3,360 544.1 3,537 514.3 West......................................... 1,233 276.1 1,370 278.3 -------- --------- -------- -------- 7,738 $1,511.4 7,952 $1,369.3 ======== ========= ======== ======== The Company's market regions consist of the following markets: Mid-Atlantic Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Myrtle Beach, New Jersey, Newport News, Raleigh/Durham, Richmond, Suburban Washington D.C. and Wilmington Midwest Chicago, Cincinnati, Louisville, Minneapolis/St. Paul and St. Louis Southeast Atlanta, Birmingham, Jacksonville, Nashville, Orlando, Pensacola and South Florida Southwest Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson West Denver, Las Vegas, Los Angeles, Portland, Sacramento, Salt Lake City and San Diego
-11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Revenues from homebuilding activities increased 14.1%, to $788.1 million (4,364 homes closed) for the three months ended March 31, 2000, from $690.6 million (4,163 homes closed) for the comparable period of 1999. Revenues from homebuilding activities increased in all of the Company's market regions, with percentage increases ranging from 2.8% in the Mid-Atlantic region to 34.4% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand throughout the majority of the Company's markets. The average selling price of homes closed during the three months ended March 31, 2000 was $178,800, up 9.0% from $164,100 for the same period in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. The value of new net sales contracts increased 6.1%, to $995.0 million (5,434 homes) for the three months ended March 31, 2000, from $938.1 million (5,631 homes) for the same period of 1999. The value of new net sales contracts increased in three of the Company's five market regions, with percentage increases ranging from 8.5% in the Southeast to 13.0% in the West. The value of new net sales contracts declined 1.4% and 10.3% in the Midwest and Mid-Atlantic regions, respectively. The average price of a new net sales contract in the three months ended March 31, 2000 was $183,100, up 9.9% over the $166,600 average in the three months ended March 31, 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. At March 31, 2000, the Company's backlog of sales contracts was $1,511.4 million (7,738 homes), up 10.4% from the comparable amount at March 31, 1999. The average sales price of homes in sales backlog was $195,300 at March 31, 2000, up 13.4% from the $172,200 average at March 31, 1999. The average sales price of homes in backlog typically is higher than the sales price of closed homes because it takes longer to construct more expensive homes. Cost of sales increased by 13.4%, to $644.3 million for the three months ended March 31, 2000, from $568.3 million for the comparable quarter in 1999. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues was down 0.7%, to 81.6% for the three months ended March 31, 2000, from 82.3% for the comparable period of 1999, primarily due to the application of purchase accounting in 1999 causing a $7.4 million inventory write-up associated with homes acquired with Cambridge and closed subsequent to the acquisition. Cost of land/lot sales increased to 92.1% of land/lot sales revenues for the three months ended March 31, 2000, from 82.9% for the comparable period of 1999. Total homebuilding cost of sales was 81.8% of total homebuilding revenues, down 0.5% from 82.3% for the comparable period of 1999. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 19.6%, to $82.1 million in the three months ended March 31, 2000, from $68.6 million in the comparable period of 1999. As a percentage of revenues, SG&A expenses increased to 10.4% for the three months ended March 31, 2000, from 9.9% for the comparable period of 1999. The increase in SG&A expenses as a percentage of revenue is primarily due to higher costs incurred in order to ensure that the Company is properly positioned for its peak home-closing season, which normally occurs during the second half of the fiscal year. Interest expense associated with homebuilding activities decreased to $1.6 million in the three months ended March 31, 2000, from $3.1 million in the comparable period of 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.2% for the three months ended March 31, 2000, from 0.5% in the comparable period of 1999. In anticipation of the spring selling season, the Company rapidly increased its inventory during the three months ended March 31, 2000. As a result, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, compared to 1999, a larger proportion of total incurred interest was capitalized to inventory in the second quarter of fiscal 2000. The -12- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999 Revenues from homebuilding activities increased 18.0%, to $1,585.7 million (8,856 homes closed) for the six months ended March 31, 2000, from $1,343.4 million (8,009 homes closed) for the comparable period of 1999. Revenues from homebuilding activities increased in all of the Company's market regions, with percentage increases ranging from 5.8% in the Mid-Atlantic region to 71.0% in the Midwest region. The increases in both revenues and homes closed were due to strong housing demand and the increases attributable to the acquisition of Cambridge Homes in January, 1999. In markets where the Company operated throughout both six-month periods, home sales revenues increased by 15.6%, to $1,493.0 million (8,538 homes closed). The average selling price of homes closed during the six months ended March 31, 2000 was $176,400, up 9.1% from $161,700 for the same period in 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. The value of new net sales contracts increased 13.1%, to $1,717.4 million (9,285 homes) for the six months ended March 31, 2000, from $1,518.8 million (9,168 homes) for the same period of 1999. The value of new net sales contracts increased in four of the Company's five market regions, with percentage increases ranging from 11.3% in the Southwest to 32.4% in the Midwest. The value of new net sales contracts declined 2.5% in the Mid-Atlantic region. The overall increase in the value of new net sales contracts was due in part to sales achieved by Cambridge Homes, acquired in January, 1999. In markets where the Company operated throughout both six-month periods, the value of new net sales contracts increased 8.9%, to $1,648.7 million, and the number of new net sales contracts decreased 1.2%, to 9,038 homes. The average price of a new net sales contract in the six months ended March 31, 2000 was $185,000, up 11.6% over the $165,700 average in the six months ended March 31, 1999. The increase in average selling price was due to changes in the mix of homes closed and, with the strong housing demand, the Company's ability to sell more custom features with its homes and to raise prices to cover increased costs. Cost of sales increased by 17.5%, to $1,291.0 million for the six months ended March 31, 2000, from $1,099.1 million for the comparable period of 1999. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues was down 0.1%, to 81.5% for the six months ended March 31, 2000, from 81.6% for the comparable period of 1999. Cost of land/lot sales decreased to 78.3% of land/lot sales revenues for the six months ended March 31, 2000, from 88.4% for the comparable period of 1999. Total homebuilding cost of sales was 81.4% of total homebuilding revenues, down 0.4% from 81.8% for the comparable period of 1999. Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 19.8%, to $164.8 million in the six months ended March 31, 2000, from $137.6 million in the comparable period of 1999. As a percentage of revenues, SG&A expenses increased to 10.4% for the six months ended March 31, 2000, from 10.2% for the comparable period of 1999. The increase in SG&A expenses as a percentage of revenue is primarily due to higher costs incurred in order to ensure that the Company is properly positioned for its peak home- closing season, which normally occurs during the second half of the fiscal year. Interest expense associated with homebuilding activities decreased to $4.9 million in the six months ended March 31, 2000, from $5.9 million in the comparable period of 1999. As a percentage of homebuilding revenues, homebuilding interest expense decreased to 0.3% for the six months ended March 31, 2000, from 0.5% for the comparable period of 1999. In anticipation of the spring selling season, the Company rapidly increased its inventory during the second quarter. As a result, inventory under construction or development grew at a more rapid pace than interest-bearing debt. Therefore, in both the three and six months -13- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ended March 31, 2000, a larger proportion of total incurred interest was capitalized to inventory than in the comparable periods of fiscal 1999. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. RESULTS OF OPERATIONS - FINANCIAL SERVICES The following table summarizes financial and other information for the Company's financial services operations: Three months ended Six months ended March 31, March 31, --------------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- ($'s in thousands) Number of loans originated....... 1,831 1,911 3,773 3,668 ------ ------ ------ ------- Loan origination fees............ $2,146 $2,030 $4,345 $3,772 Sale of servicing rights and gains from sale of mortgages... 4,514 4,025 9,267 7,964 Other revenues................... 994 918 2,202 1,723 ------ ------ ------ ------- Total mortgage banking revenues.. 7,654 6,973 15,814 13,459 Title policy premiums, net....... 3,096 1,508 6,312 2,824 ------ ------ ------ ------- Total revenues.................. 10,750 8,481 22,126 16,283 General and administrative expenses........................ 8,022 5,229 15,997 10,203 Interest expense................. 1,157 669 2,706 1,412 Interest/other (income).......... (1,290) (760) (3,023) (1,639) ------ ------ ------ ------- Income before income taxes....... $2,861 $3,343 $6,446 $6,307 ====== ====== ====== ======= Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Revenues from the financial services segment increased 26.8%, to $10.8 million in the three months ended March 31, 2000, from $8.5 million in the comparable period of 1999. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. These activities are being expanded to additional markets served by the homebuilding segment. SG&A expenses associated with financial services increased 53.4%, to $8.0 million in the three months ended March 31, 2000, from $5.2 million in the comparable period of 1999. As a percentage of financial services revenues, SG&A expenses increased by 12.9%, to 74.6% in the three months ended December 31, 1999, from 61.7% in the comparable period in 1999, due primarily to 2000 startup expenses in new markets with limited revenues. Six months Ended March 31, 2000 Compared to Six months Ended March 31, 1999 Revenues from the financial services segment increased 35.9%, to $22.1 million in the six months ended March 31, 2000, from $16.3 million in the comparable period of 1999. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment. These activities are being expanded to additional markets served by the homebuilding segment. SG&A expenses associated with financial services increased 56.8%, to $16.0 million in the six months ended March 31, 2000, from $10.2 million in the comparable period of 1999. As a percentage of financial services revenues, SG&A expenses increased by 9.6%, to 72.3% in the six months ended December 31, 1999, from 62.7% in the comparable period in 1999, due primarily to 2000 startup expenses in new markets with limited revenues. -14- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Company had available cash and cash equivalents of $85.4 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at March 31, 2000, had increased by $285.6 million since September 30, 1999, due to a general increase in business activity and the expansion of operations in the Company's market areas. The inventory increase was financed largely by issuing $150 million in senior notes, borrowing an additional $105.0 million under the revolving credit facility and by retaining earnings. As a result, the Company's ratio of homebuilding notes payable to total capital at March 31, 2000, increased 3.1% to 60.8%, from 57.7% at September 30, 1999. The stockholders' equity to total assets ratio decreased 1.0%, to 32.8% at March 31, 2000, from 33.8% at September 30, 1999. The Company has an $825 million, unsecured revolving credit facility, consisting of a $775 million four-year revolving loan and a $50 million four-year letter of credit facility that matures in 2002. Additionally, the Company has another $25 million standby letter of credit agreement and a $16.8 million non-renewable letter of credit facility acquired with the Cambridge acquisition. At March 31, 2000, the Company had outstanding homebuilding debt of $1,336.7 million, of which $500 million represented advances under the revolving credit facility. Under the debt covenants associated with the revolving credit facility, at March 31, 2000, the Company had additional homebuilding borrowing capacity of $275 million. The Company has entered into multi-year interest rate swap agreements, aggregating $200 million, that fix the interest rate on a portion of the variable rate revolving credit facility. An additional interest rate swap agreement, with a notional amount of $148.5 million, was entered into in December, 1999. The new agreement has the effect of converting part of the Company's fixed rate debt to a variable rate which is currently less than the related fixed rate. The new agreement helps re-establish the Company's balance of fixed and variable rate debt at historical levels. On March 21, 2000, under an existing shelf registration statement, the Company issued $150 million aggregate principal amount of 10 1/2% Senior Notes, due 2005. The proceeds of the notes were used to repay outstanding debt under our revolving credit facility and for general corporate purposes. The Company has $450 million remaining on its currently effective universal shelf registration statement, which facilitates access to the capital markets. At March 31, 2000, the financial services segment has mortgage loans held for sale of $91.4 million and loan commitments for $107.6 million at fixed rates. The Company hedges the interest rate market risk on these mortgage loans held for sale and loan commitments through the use of best-efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments. The financial services segment has a $175 million, one-year bank warehouse facility that is secured by mortgage loans held for sale. The warehouse facility is not guaranteed by the parent company. As of March 31, 2000, $76.8 million had been drawn under this facility. In the future, it is anticipated that all mortgage company activities will be financed under the warehouse facility. The Company's rapid growth and acquisition strategy require significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds and existing credit facilities. Additionally, an effective shelf registration contains about 7.4 million shares of common stock issuable to effect, in whole or in part, possible future acquisitions. In the future, the Company intends to maintain effective shelf registration statements that would facilitate access to the capital markets. During the six months ended March 31, 2000, the Company's Board of Directors declared one quarterly cash dividend of $0.03 per common share and one quarterly cash dividend of $0.04 per common share, the last of which was paid on February 7, 2000. In November, 1998, the Company's Board of Directors approved stock and debt repurchase programs for up to $100 million each. These programs are intended to allow the Company to repurchase securities at attractive prices should favorable market conditions occur. During the six months ended March 31, 2000, the Company repurchased in the open market $14.5 million of its common stock, or 1,104,900 shares at an average cost of $13.16. -15- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In July 1999, the Company formed GP-Encore, Inc. and Encore II, Inc., which have since entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans will permit the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company has agreed to invest up to $125 million through these limited partnerships over the next four years. These investments will be concentrated primarily in e-commerce businesses that serve the homebuilding, real estate and financial services industries, as well as in strategic opportunities that allow for diversification of the Company's operations. As of March 31, 2000, the Company had made such investments totaling $15.3 million, which are reported in homebuilding other assets. Except for ordinary expenditures for the construction of homes, the acquisition of land and lots for development and sale of homes, at March 31, 2000, the Company had no material commitments for capital expenditures. SAFE HARBOR STATEMENT Certain statements contained herein, as well as statements made by the Company in periodic press releases and oral statements made by the Company's officials to analysts and stockholders in the course of presentations about the Company may be construed as "Forward-Looking Statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements may involve unstated risks, uncertainties and other factors that may cause actual results to differ materially from those initially anticipated. Such risks, uncertainties and other factors include, but are not limited to: o The Company's substantial leverage o Changes in general economic and business conditions o Changes in interest rates and the availability of mortgage financing o Governmental regulations and environmental matters o Changes in costs and availability of material, supplies and labor o Competitive conditions within the homebuilding industry o The availability of capital o The Company's ability to effect its growth strategies successfully o The success of the Company's diversification efforts -16- ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to interest rate risk on its long term debt. The Company manages its exposure to changes in interest rates by optimizing the use of variable and fixed rate debt. In addition, the Company has hedged its exposure to changes in interest rates on its variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of those borrowings. Finally, in order to maintain a more appropriate balance of variable and fixed rate debt, the Company entered into an interest rate swap agreement exchanging a variable rate interest payment for a fixed rate payment on a notional amount equal to the $148.5 million principal amount of the 10% Senior Notes due 2006. The variable payment for which the Company is obligated is fixed through the 10% Senior Notes' first call date, April 15, 2001, and will ensure that the Company will have received a net amount of $2.3 million as of that date. Thereafter, the variable payment will be made through the 10% Senior Notes' maturity, April 15, 2006, and will be based upon the 90-day LIBOR rate, plus 2.745%. The following table shows, as of March 31, 2000, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts and weighted average interest rates of the Company's interest rate swaps.
Six Months Ended Sept. 30, Year ended September 30, ---------- -------------------------------------------------------------------------------- ($ in millions) FMV @ 2000 2001 2002 2003 2004 Thereafter Total 3/31/00 ----- ----- ----- ----- ----- ---------- -------- --------- Debt: Fixed rate.............. $4.7 $0 $2.0 $0 $149.4 $680.6 $836.7 $754.2 Average interest rate... 8.63% --- 6.00% --- 8.46% 9.32% 8.92% --- Variable rate........... $76.8 $0 $500.0 $0 $0 $0 $576.8 $576.8 Average interest rate... 7.13% --- 7.03% --- --- --- 7.04% --- Interest Rate Swaps: Variable to fixed....... $200.0 $200.0 $200.0 $200.0 $200.0 $200.0 --- $3.4 Average pay rate........ 5.10% 5.10% 5.10% 5.10% 5.10% 5.08% --- --- Average receive rate.... 90-day LIBOR Fixed to variable....... $148.5 $148.5 $148.5 $148.5 $148.5 $148.5 --- ($1.8) Average pay rate........ 8.745% * 90-day LIBOR + 2.745% --- --- Average receive rate.... 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% --- --- * - 8.745% until April 15, 2001; 90-day LIBOR + 2.745% thereafter.
-17- PART II. OTHER INFORMATION ITEM 2. Changes in Securities. On March 21, 2000 the Company issued $150 million principal amount of its 10-1/2 % Senior Notes, due 2005 (the "Notes"). As part of that issuance, the Company executed an Eighth Supplemental Indenture, dated as of March 21, 2000, among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as Trustee, authorizing the Notes. The Supplemental Indenture, and the Indenture to which it relates (dated June 9, 1997, as supplemented), impose limitations on the ability of the Company and its subsidiaries guaranteeing the Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's 8% Senior Notes, due 2009, and related Indentures and Supplemental Indentures. Other information concerning the offering and issuance of the Notes has previously been reported in, and is described in, the Company's Registration Statement on Form S-3 (Registration Number 333-76175) dated April 13, 1999, the Company's Prospectus Supplement, dated March 16, 2000 and filed with the Securities Exchange Commission (the "Commission") on March 17, 2000 pursuant to Rule 424(b), and the Company's current report on Form 8-K, dated March 17, 2000 and filed with the Commission on March 17, 2000, each of which is incorporated herein by reference. ITEM 4. Submission of Matters to a Vote of Security Holders. (a) On January 20, 2000, the Company held its Annual Meeting of Stockholders (the "Meeting"). At the Meeting, the stockholders re-elected nine members of the Board of Directors of the Company to serve until the Company's next annual meeting of stockholders and until their respective successors are elected and qualified. The names of the nine directors, the votes cast for and the number of votes withheld were as follows: Name Votes For Votes Withheld ---- --------- -------------- Bradley S. Anderson 54,678,867 972,456 Richard Beckwitt 54,335,593 1,315,730 Richard I. Galland 54,671,515 979,808 Donald R. Horton 54,546,766 1,104,557 Richard L. Horton 54,533,394 1,117,929 Terrill J. Horton 54,533,944 1,117,379 Francine I. Neff 54,661,522 989,801 Scott J. Stone 54,336,504 1,314,819 Donald J. Tomnitz 54,532,323 1,119,000 (b) At the Meeting, a vote was taken for the approval and adoption of a proposal to adopt the D.R. Horton, Inc. 2000 Incentive Bonus Plan. The following votes were cast upon this proposal: For: 54,273,615 Against: 1,306,503 Abstain: 71,204 -18- ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 4.1 Indenture, dated as of June 9, 1997, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to Senior Debt Securities, is incorporated herein by reference from Exhibit 4.1(a) to the Company's Registration Statement on Form S-3 (Registration No. 333-27521), filed with the Commission on May 21, 1997. 4.2 Sixth Supplemental Indenture, dated as of February 4, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 8% Senior Notes due 2009, including the form of the Company's 8% Senior Notes due 2009, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K, filed with the Commission on February 2, 1999. 4.3 Seventh Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is incorporated herein by reference from Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed with the Commission on December 10, 1999. 4.4 Eighth Supplemental Indenture, dated as of March 21, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, relating to the 10- 1/2% Senior Notes due 2005, is incorporated herein by reference from Exhibit 4.1 to the Company's Form 8-K, filed with the Commission on March 17, 2000. 4.5 Ninth Supplemental Indenture, dated as of March 31, 2000, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee, is filed herewith. 10.1 The D.R. Horton, Inc. 2000 Incentive Bonus Plan is incorporated by reference from Exhibit A to the Company's Proxy Statement, filed with the Commission on December 10, 1999. 10.2 First Amendment to Non-Qualified Stock Option Agreements, dated as of March 15, 2000, between the Company and Richard Beckwitt is filed herewith. 10.3 Letter Agreement concerning partial bonus under Incentive Bonus Plan, dated March 15, 2000, between the Company and Richard Beckwitt is filed herewith. 10.4 Limited Partnership Agreement of Encore Venture Partners II (Texas), L.P., dated as of March 21, 2000, among GP-Encore, Inc. (formerly, Encore I, Inc.), Encore II, Inc., EVP Capital, L.P. (formerly, Encore Capital (Texas), L.P.) and Richard Beckwitt is filed herewith. 27 Financial Data Schedule for the six months ended March 31, 2000 is filed herewith. (b) Reports on Form 8-K. On March 17, 2000, the Company filed a Current Report on Form 8-K (Items 5 and 7), which filed an underwriting agreement, a supplemental indenture and a statement of computation of ratio of earnings to fixed changes, all relating to the offering and issuance of $150 million principal amount of the Company's 10 1/2% Senior Notes, due 2005. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. D.R. HORTON, INC. Date: May 12, 2000 By: /s/ Samuel R. Fuller ----------------------- Samuel R. Fuller, on behalf of D.R. Horton, Inc. and as Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -20- EX-4.5 2 NINTH SUPPLEMENTAL INDENTURE EXHIBIT 4.5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO AND AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee ------------------ NINTH SUPPLEMENTAL INDENTURE Dated as of March 31, 2000 ------------------ 10 1/2 % SENIOR NOTES DUE 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NINTH SUPPLEMENTAL INDENTURE, dated and effective as of March 31, 2000, to the Indenture, dated as of June 9, 1997 (as amended, modified or supplemented from time to time in accordance therewith, the "Indenture"), by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (as defined herein) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the "Trustee"). RECITALS WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance from time to time of senior debt securities (the "Securities") to be issued in one or more series as the Indenture provides; WHEREAS, pursuant to the Eighth Supplemental Indenture dated as of March 21, 2000 (the "Eighth Supplemental Indenture"), among the Company, the guarantors party thereto ( the "Existing Guarantors") and the Trustee, the Company issued a series of Securities designated as its 10 1/2 % Senior Notes due 2005 in the aggregate principal amount of up to $150,000,000 (the "10 1/2 % Notes"); WHEREAS, pursuant to Section 4.05 of the Indenture, if the Company organizes, acquires or otherwise invests in another Subsidiary which becomes a Restricted Subsidiary, then such Subsidiary shall execute and deliver a supplemental indenture pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities on the terms set forth in the Indenture; WHEREAS, the execution of this Ninth Supplemental Indenture has been duly authorized by the Boards of Directors of the Company and the Additional Guarantors and all things necessary to make this Ninth Supplemental Indenture a valid, binding and legal instrument according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company, the Additional Guarantors and the Existing Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. ADDITIONAL GUARANTORS 1.1. As of March 31, 2000, and in accordance with Section 4.05 of the Indenture, the following Restricted Subsidiaries (the "Additional Guarantors") hereby unconditionally guarantee NINTH SUPPLEMENTAL INDENTURE Page 1 all of the Company's obligations under the 10 1/2 % Notes on the terms set forth in the Indenture, including without limitation Article Nine thereof, Article One of the Eighth Supplemental Indenture thereto and the Guarantees affixed thereto: Jurisdiction of Name Organization - ---- ------------ Astante Luxury Communities, Inc. Delaware DRH Cambridge Homes, LLC Delaware DRH Southwest Construction, Inc. California DRH Title Company of Colorado, Inc. Colorado Meadows VIII, Ltd. Delaware 1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the 10 1/2 % Notes. ARTICLE II. MISCELLANEOUS PROVISIONS 2.1 This Ninth Supplemental Indenture constitutes a supplement to the Indenture. The Indenture, and all Supplemental Indentures thereto, including without limitation this Ninth Supplemental Indenture, by and among the Company, the guarantors thereto and the Trustee, shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 2.2 The parties may sign any number of copies of this Ninth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 2.3 In case any one or more of the provisions contained in this Ninth Supplemental Indenture or the Securities, including without limitation the 10 1/2 % Notes, shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Ninth Supplemental Indenture or the Securities, including without limitation the 10 1/2 % Notes. 2.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 2.5 Any capitalized term used in this Ninth Supplemental Indenture that is defined in the Indenture and not defined herein shall have the meaning specified in the Indenture, unless the context shall otherwise require. NINTH SUPPLEMENTAL INDENTURE Page 2 2.6 All covenants and agreements in this Ninth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Ninth Supplemental Indenture shall bind its successors and assigns. 2.7 The laws of the State of New York shall govern this Ninth Supplemental Indenture, the Securities of each Series and the Guarantees. 2.8 Except as amended by this Ninth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 2.9 This Ninth Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Ninth Supplemental Indenture. 2.10 All liability described in paragraph 12 of the 10 1/2 % Notes, of any director, officer, employee or stockholder, as such, of the Company is waived and released. 2.11 The Trustee accepts the modifications of the trust effected by this Ninth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Additional Guarantors, and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Ninth Supplemental Indenture, and the Trustee makes no representation with respect thereto. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ Samuel R. Fuller -------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer NINTH SUPPLEMENTAL INDENTURE Page 3 ADDITIONAL GUARANTORS: --------------------- Astante Luxury Communities, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. Meadows VIII, Ltd. By: /s/ Samuel R. Fuller --------------------------- Samuel R. Fuller, Treasurer DRH Cambridge Homes, LLC By D.R. Horton, Inc. - Chicago, a member By: /s/ Samuel R. Fuller ---------------------------- Samuel R. Fuller, Treasurer EXISTING GUARANTORS - ------------------- C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. (formerly L&W Investments, Inc.) D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Louisville D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton, Inc. - San Diego D.R. Horton, Inc. - Torrey D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton San Diego Holding Company, Inc. NINTH SUPPLEMENTAL INDENTURE Page 4 DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ Samuel R. Fuller ------------------------- Samuel R. Fuller, Treasurer CH Investments of Texas, Inc. Meadows II, Ltd. By: /s/ William K. Peck -------------------------- William K. Peck, President Continental Homes of Texas, L.P. By CHTEX of Texas, Inc., its general partner By: /s/ Samuel R. Fuller -------------------------- Samuel R. Fuller, Treasurer D.R. Horton Management Company, Ltd. D.R. Horton - Texas, Ltd. By Meadows I, Ltd., its general partner By: /s/ Samuel R. Fuller --------------------------- Samuel R. Fuller, Treasurer NINTH SUPPLEMENTAL INDENTURE Page 5 SGS Communities at Grande Quay, LLC By Meadows IX, Inc., a member By: /s/ Samuel R. Fuller ----------------------------- Samuel R. Fuller, Treasurer and By Meadows X, Inc., a member By: /s/ Samuel R. Fuller ----------------------------- Samuel R. Fuller, Treasurer NINTH SUPPLEMENTAL INDENTURE Page 6 AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: /s/ Herbert J. Lemmer ------------------------------ Name: Herbert J. Lemmer ------------------------------ Title: Vice President ------------------------------ NINTH SUPPLEMENTAL INDENTURE Page 7 EX-10.2 3 FIRST AMENDMENT TO NON-QUALIFIED STOCK OPTION EXHIBIT 10.2 FIRST AMENDMENT TO NON-QUALIFIED STOCK OPTION AGREEMENTS THIS FIRST AMENDMENT is made as of the 15th day of March, 2000, by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), and RICHARD BECKWITT (the "Participant"). WHEREAS, the Company and Participant entered into Non-Qualified Stock Option Agreements on March 12, 1993, July 20, 1995, July 18, 1996, July 28, 1997 and July 23, 1998 (the "Agreements"); WHEREAS, Participant is a director of the Company; and WHEREAS, the parties hereto desire hereby to amend the Agreements; NOW, THEREFORE, in consideration of the premises and promises herein contemplated, the parties agree as follows: ARTICLE I 1.1 The second sentence of paragraph 1.(A) of the Agreements is hereby amended to read as follows: Except as otherwise provided in paragraph 3, this option shall be exercisable only if the Participant shall have been a director of the Company, or in the continuous employ of the Company or any Subsidiary, from the date hereof until this option is exercised. 1.2 Paragraph 1.(C) of the Agreements is hereby amended to read as follows: (C) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified at the time the Participant ceases to be a director of the Company or an employee of the Company or any Subsidiary upon the occurrence of the events described in subparagraph (B) or (D) of paragraph 3. 1.3 Paragraph 3 of the Agreements is hereby amended to read as follows: 3. This option shall terminate on the earliest of the following dates: 1 (A) Provided that Participant does not remain a director of the Company, three months after delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or a Subsidiary other than for any matter that constitutes a violation of the standard of employee conduct set forth in the Company's Employee Manual as in effect on the date of such termination or delivery to the Company by the Participant of notice of the voluntary termination by the Participant of the Participant's employment with the Company or a Subsidiary; (B) One year after the Participant ceases to be an employee of the Company or a Subsidiary by reason of retirement under a retirement plan of the Company or a Subsidiary, which retirement is at or after normal retirement age provided for in such retirement plan; (C) Immediately upon the delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or a Subsidiary for any matter that constitutes a violation of the standard of employee conduct set forth in the Company's Employee Manual as in effect on the date of such termination; (D) Two years after the death or permanent disability of the Participant if the Participant dies or becomes permanently disabled while a director of the Company or an employee of the Company or a Subsidiary; (E) Three months after Participant is no longer a director of the Company for any reason except as provided in Subparagraph (D) above; and (F) Ten years from the date on which this option was granted. Nothing contained in this option shall limit whatever right the Company or a Subsidiary might otherwise have to terminate the employment of the Participant. Except as otherwise provided in subparagraph (C) of paragraph 1, after the termination of the Participant's employment and term as a director this option shall be exercisable for the same number of shares for which it was exercisable prior to such termination. In the event that the Participant's employment and term as a director terminates on the 2 same date that a Change in Control of the Company occurs, the Change in Control will be deemed to have occurred prior to the termination of the Participant's employment and term as a director. ARTICLE II 2.1 Except as hereby modified, amended or supplemented, the Agreements shall remain in full force and effect, and any reference hereafter made by any party hereto to the Agreements shall be deemed to refer to the same as hereby amended, regardless of whether specific reference is made hereto. 2.2 All capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed thereto in the Agreements. 2.3 All terms of construction and interpretation set forth in the Agreements shall have equal effect in construing this Amendment. IN WITNESS WHEREOF, each party has executed and delivered this Amendment or caused this Amendment to be executed and delivered on its behalf by a duly authorized officer, all as of the date first above written. D.R. HORTON, INC. By: /s/ Donald R. Horton ------------------------- Title: Chairman of the Board ------------------------ Name: Donald R. Horton -------------------- /s/ Richard Beckwitt ---------------------- Richard Beckwitt 3 EX-10.3 4 LETTER AGREEMENT CONCERNING PARTIAL BONUS EXHIBIT 10.3 March 15, 2000 Richard Beckwitt 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006 Dear Rick, In connection with your resignation as an officer and employee of D.R. Horton, Inc. (the "Company"), you and the Company hereby agree that your bonus for the fiscal year 2000 under the D.R. Horton, Inc. 2000 Incentive Bonus Plan (the "Plan") shall be 45.83% of whatever Donald J. Tomntiz ("Tomnitz") would be entitled to receive under the Plan, assuming that he remained an employee in good standing with the Company throughout the fiscal year (subject to any adjustments to Tomnitz's award permitted or required under the Plan). In the event Tomnitz's bonus is for less than a full fiscal year, for the purpose of calculating your bonus in accordance with the preceding paragraph, the amount of Tomnitz's bonus shall be annualized. That is, it shall be multiplied by a fraction, the numerator of which is the number of days in the fiscal year, and the denominator of which is the number of days in the fiscal year for which Tomnitz received a bonus. That amount shall then be multiplied by 45.83% to determine your bonus. This letter agreement is entered into subject to approval of the Compensation Committee. Please confirm your agreement to this letter by signing in the space provided below. Very truly yours, D.R. HORTON, INC. By: /s/ Donald R. Horton ----------------------- Donald R. Horton, Chairman of the Board AGREED TO: /s/ Richard Beckwitt ------------------------- Richard Beckwitt EX-10.4 5 LIMITED PARTNERSHIP AGREEMENT EXHIBIT 10.4 ENCORE VENTURE PARTNERS II (TEXAS), L.P. LIMITED PARTNERSHIP AGREEMENT TABLE OF CONTENTS Page ARTICLE I. GENERAL PROVISIONS..........................................1 Section 1.1. Certain Definitions...................................1 Section 1.2. Partnership Name......................................5 Section 1.3. Fiscal Periods........................................5 Section 1.4. Principal Office......................................5 Section 1.5. Purposes of the Partnership...........................5 Section 1.6. Restrictions on Assignability.........................5 Section 1.7. Registered Office and Agent in Delaware...............6 ARTICLE II. MANAGEMENT OF PARTNERSHIP..................................6 Section 2.1. Management Generally..................................6 Section 2.2. Authority of Each General Partner.....................6 Section 2.3. Matters Requiring the Consent of the Majority General Partners......................................7 Section 2.4. Matters Requiring the Consent of All the General Partners..............................................8 Section 2.5. Reliance by Third Parties.............................8 Section 2.6. Activities of Class A General Partner.................8 Section 2.7. Exculpation...........................................9 Section 2.8. Indemnification of Partners...........................9 Section 2.9. Payment of Costs and Expenses........................10 Section 2.10. Management Fee......................................10 ARTICLE III. CAPITAL ACCOUNTS OF PARTNERS AND OPERATION THEREOF.......11 Section 3.1. Capital Contributions and Calls......................11 Section 3.2. Capital Accounts.....................................12 Section 3.3. Interest.............................................13 Section 3.4. Tax Allocations......................................13 Section 3.5. Determination by General Partners....................16 Section 3.6. Adjustments to Take Account of Interim Events........16 ARTICLE IV. WITHDRAWALS, DISTRIBUTIONS AND LOANS OF CAPITAL...........16 Section 4.1. Withdrawals and Distributions in General.............16 Section 4.2. Portfolio Distributions..............................17 Section 4.3. Restrictions on Distributions........................18 Section 4.4. Deemed Sale of Assets................................18 Section 4.5. Loans to Partners....................................19 Section 4.6. Withholding..........................................20 i ARTICLE V. WITHDRAWAL, DEATH, INCOMPETENCY............................20 Section 5.1. Withdrawal of Partners...............................20 Section 5.2. Effect of Withdrawal, Death, Etc.....................20 ARTICLE VI. DURATION AND TERMINATION OF PARTNERSHIP...................20 Section 6.1. Duration.............................................20 Section 6.2. Termination..........................................20 ARTICLE VII. TAX RETURNS; REPORTS TO PARTNERS.........................21 Section 7.1. Filing of Tax Returns................................21 Section 7.2. Tax Matters Partner..................................21 Section 7.3. Reports to Partners..................................21 Section 7.4. Tax Information......................................22 Section 7.5. Tax Elections........................................22 ARTICLE VIII. MISCELLANEOUS...........................................23 Section 8.1. General..............................................23 Section 8.2. Power of Attorney....................................23 Section 8.3. Amendments to Partnership Agreement..................24 Section 8.4. Choice of Law........................................24 Section 8.5. Notices..............................................24 Section 8.6. Headings.............................................24 Section 8.7. Construction and Interpretation......................24 ii LIMITED PARTNERSHIP AGREEMENT Dated as of March 21, 2000 The undersigned (the "Partners", which term shall include any persons hereafter admitted to the Partnership pursuant to this Agreement and shall exclude any persons who cease to be Partners pursuant to Article V of this Agreement) hereby agree to form and hereby form, as of March 21, 2000, a limited partnership (the "Partnership") pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") which shall be governed by, and operated pursuant to, the terms and provisions of this Limited Partnership Agreement (this "Agreement"). ARTICLE I. GENERAL PROVISIONS Section 1.1. Certain Definitions. Unless the context otherwise -------------------- specifies or requires, for purposes of this Agreement: "Adjusted Capital Account Deficit" shall mean, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Partner is obligated to restore or is deemed to be obligated to restore pursuant to Treasury Regulations sections 1.704-2(g) and 1.704-2(i)(5); and (b) debit to such Capital Account the items described in Treasury Regulations sections 1.704-1(b)(2)(ii)(d)(4), (5) and(6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations section 1 .704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Business Day" shall mean any day except Saturday, Sunday or other days on which commercial banks in New York City are authorized by law to close. "Capital Account" shall have the meaning specified in Section 3.2. "Capital Call" shall have the meaning specified in Section 3.1(c). "Capital Commitment" shall mean, with respect to each Partner, (a) the sum of (i) the amount of capital each such Partner commits to contribute to the Partnership as set forth under the heading "Capital Commitment" on the Schedule and (ii) such Partner's Rollover Commitment and (b) such Partner's obligation, if any, to contribute Fee and Expense Capital. "Capital Contribution" shall mean, with respect to each Partner, (i) the amount of capital each such Partner contributes to the Partnership, plus (ii) such Partner's Rollover Commitment Account. "Class A General Partner" shall mean Encore Capital (Texas), L.P., a Delaware limited partnership. "Class B General Partner" shall mean Encore I, Inc., an Arizona corporation. "Closing" shall mean the initial date upon which Interests are purchased. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Delaware Act" has the meaning provided in the preamble. "Fee and Expense Capital" shall mean Capital Contributions of the Limited Partners other than Richard Beckwitt for the payment of Management Fees and Overhead Expenses. "General Partner" shall mean the Class A General Partner or the Class B General Partner. "Immediate Family" shall mean father, mother, grandfather, grandmother, child, grandchild, father-in-law, mother-in-law, brother, sister, brother-in-law, sister-in-law, nephew, niece and cousin. "Indemnified Persons" shall mean each Partner, any officer, manager, director, stockholder, member or partner of a Partner, or any controlling Person of any of them. "Initial Capital Contribution" shall mean, with respect to each Partner, the amount of capital initially contributed by such Partner to the Partnership as set forth under the heading "Initial Capital Contribution" on the Schedule. "Interests" shall mean interests in the Partnership, which interests shall only be held by a Partner and which represent such Partner's share of the profits and losses of the Partnership and its right to receive distributions of the Partnership's assets in accordance with this Agreement. "Investment Period" shall have the meaning set forth in Section 3.1 (a)(ii). "Limited Partner" shall mean Encore II, Inc., an Arizona corporation, Richard Beckwitt, or any Person admitted as a limited partner of the Partnership pursuant to Section 1.6. "Losses" shall mean any and all losses, expenses, judgments, fees (including reasonable attorneys' fees and expenses), costs or damages. 2 "Majority General Partners" shall mean one or more General Partners holding at least a majority of the votes held by the General Partners. For such purpose, the Class A General Partner shall have one vote, and the Class B General Partner shall have two votes. The relative votes of the General Partners shall not be affected by the relative amounts in their Capital Accounts from time to time. "Management Fee" shall mean the fee paid to the Class A General Partner pursuant to Section 2.10. "Net Loss" shall mean the net loss, if any, of the Partnership with respect to a Fiscal Period, as determined for federal income tax purposes, provided that such loss shall be decreased by the amount of all income during such period which is exempt from federal income tax, and shall be determined by excluding all items of expense and income that are specially allocated to the Partners pursuant to Section 3.4(c) for such Fiscal Period, and increased by the amount of all expenditures made by the Partnership during such period which are not deductible for federal income tax purposes and which do not constitute capital expenditures. "Net Profit" shall mean the net income, if any, of the Partnership with respect to a Fiscal Period, as determined for federal income tax purposes, provided that such income shall be increased by the amount of all income during such period that is exempt from federal income tax, and shall be determined by excluding all items of income and expense that are specially allocated to the Partners pursuant to Section 3.4(c) for such Fiscal Period, and decreased by the amount of all expenditures made by the Partnership during such period which are not deductible for federal income tax purposes and which do not constitute capital expenditures. "Nonrecourse Deductions" shall have the meaning set forth in Treasury Regulations section 1.704-2(b)(1). "Nonrecourse Liability" shall have the meaning set forth in Treasury Regulations section 1.752-1(a)(2). "Organizational Expenses" shall mean all legal and accounting fees, costs and other expenses incurred by the Partnership in connection with the initial structuring, organization and closing of the Partnership. "Overhead Expenses" shall mean all expenses to be paid by the Partnership pursuant to Section 2.9(b)(ii). "Partners" shall mean the General Partners and the Limited Partners. "Partner Loan" shall refer to a loan from the Partnership to a Partner pursuant to Section 4.5. "Partner Nonrecourse Debt Minimum Gain" shall have the meaning set forth in Treasury Regulations section 1.704-(i)(2). 3 "Partnership Minimum Gain" shall have the meaning set forth in Treasury Regulations section 1.704-2(b)(2) and (d). "Person" means any individual, partnership, joint venture, corporation, limited liability company, unincorporated organization or association, trust (including the trustees thereof in their capacity as such), government (or agency or political subdivision thereof) or other entity. "Portfolio Distribution" shall have the meaning set forth in Section 4.2. "Portfolio Expenses" shall mean those expenses directly related to Portfolio Investments, including (without limitation), all taxes, all out-of-pocket expenses directly attributable to the purchase, holding and disposition of Portfolio Investments, such as due diligence and negotiation costs (including travel and entertainment costs), legal expenses, insurance expenses, and external accounting fees and expenses, and all extraordinary expenses, such as litigation and indemnification expenses; provided that such expenses shall not include the expenses described in Section 2.9(b)(ii). "Portfolio Investment" shall mean any private equity or other investment made by the Partnership. "Rollover Commitment" shall mean, with respect to each Partner, 50% of the aggregate amount, if any, by which (i) all Net Profits for any Fiscal Year of the Partnership, reduced for taxes thereon at an assumed combined federal and state income tax rate of 40%, that are allocated to such Partner exceeds (ii) all Net Losses for any Fiscal Year that are allocated to such Partner. "Rollover Commitment Account" shall mean an account maintained for each Partner having an opening balance equal to such Partner's Rollover Commitment, as adjusted from time to time, less (i) the principal amount of any Partner Loan received by such Partner, plus (ii) the amount of principal and interest repaid by such Partner to the Partnership with respect to any Partner Loan received by such Partner, and less (iii) all distributions received by such Partner under Section 4.2(a)(ii). "Schedule" shall mean the schedule attached hereto, setting forth each Partner's respective Initial Capital Contribution and Capital Commitment other than for Fee and Expense Capital. "Tax Matters Partner" shall have the meaning set forth in Section 7.2. "Termination Date" shall have the meaning set forth in Section 6.1. "Treasury Regulations" shall mean the income tax regulations, including temporary regulations promulgated, under the Code, as the same may be amended hereafter from time to time (including corresponding provisions of succeeding income tax regulations). 4 "Unfunded Capital Commitment" shall mean, with respect to a particular Partner at a particular time, the portion of such Partner's Capital Commitment other than for Fee and Expense Capital which has not yet been funded at such time. Section 1.2. Partnership Name. The Partnership shall do business under the name of Encore Venture Partners II (Texas), L.P. Should any Person cease being a Partner of the Partnership, such Person shall have no right to use the name "Encore Venture Partners" or "Encore" in any competing business, except that upon liquidation of the Partnership the Partnership's rights to use the name "Encore Venture Partners" or "Encore" shall be among the assets distributed to Encore II, Inc., as a Limited Partner. Section 1.3. Fiscal Periods. The "Fiscal Year" of the Partnership shall end on September 30 of each year. The "Fiscal Quarters" of the Partnership shall end on December 31, March 31, June 30 and September 30 of each Fiscal Year. A "Fiscal Period" of the Partnership shall commence (i) at the beginning of the Fiscal Year, (ii) on each date of the admission of any Partner, (iii) on each date of the acceptance by the Partnership of any additional Capital Contributions and (iv) on each date next following any withdrawal of capital from the Partnership by any Partner (whether or not the date of such withdrawal is September 30 of any year) and shall end on the date immediately preceding the next Fiscal Period or Fiscal Year. Section 1.4. Principal Office. The principal office of the Partnership shall be at 1901 Ascension Blvd., Arlington, Texas 76006, or such other place as may from time to time be designated by the Majority General Partners. The Class A General Partner shall give prompt notice of any change to each Partner. Section 1.5. Purposes of the Partnership. The Partnership is organized for the purposes of (a) seeking long-term capital appreciation through a variety of Portfolio Investments and (b) engaging in all activities and transactions as the General Partners may deem reasonably necessary or advisable or incidental in connection therewith; provided, however, the Partnership shall not invest or trade in, purchase or sell, sell short or cover any commodity or commodities contract that is regulated under the Commodity Exchange Act, as amended. Section 1.6. Restrictions on Assignability. ----------------------------- (a) Except with the express written consent of the other General Partner, neither the Class A General Partner nor the Class B General Partner may assign, sell, transfer, pledge, hypothecate or otherwise dispose of any of the attributes of its interest in the Partnership in whole or in part to any Person, whether directly or indirectly, by operation of law or otherwise. For purposes of the preceding sentence, a change in control of a General Partner or any Person controlling a General Partner, shall be deemed a transfer; provided that if, in the case of the Class B General Partner, the change in control results from the change in control of D.R. Horton, Inc., a Delaware corporation, or its successors, such change in control shall be deemed not to be a transfer. Any assignment, sale, transfer, pledge, hypothecation or other disposition made in violation of this Section 1.6(a) shall be void and of no effect. No transferee of an interest of a General Partner in the Partnership shall become a Partner except upon the consent of all the Partners. 5 (b) A Limited Partner may assign, sell, transfer, pledge, hypothecate or otherwise dispose of any of the attributes of its interest in the Partnership, in whole or in part, to any Person upon notice to the General Partners and compliance with any applicable laws to the satisfaction of the General Partners. No transferee of an interest of the Limited Partner in the Partnership shall become a Partner except upon the consent of the Majority General Partners. Section 1.7. Registered Office and Agent in Delaware. The address of the Partnership's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington in the County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. The Partnership may from time to time have such other place or places of business within or without the State of Delaware as may be designated by the Majority General Partners. ARTICLE II. MANAGEMENT OF PARTNERSHIP Section 2.1. Management Generally. The management of the Partnership shall be vested exclusively in the General Partners. The Limited Partners shall have no part in the management of the Partnership and shall have no authority or right to act on behalf of the Partnership in connection with any matter. Employees of the Partnership, if any, shall have authority to act on behalf and in the name of the Partnership to the extent authorized by the General Partners. Section 2.2. Authority of Each General Partner. Except as provided in Sections 2.3 or 2.4, or in other Sections of this Agreement, each General Partner shall have the authority on behalf and in the name of the Partnership to carry out any and all of the purposes of the Partnership, and to perform all acts and enter into and perform all contracts and other undertakings which it may deem necessary or advisable or incidental thereto, including, without limitation, the authority to: (a) act as an investment adviser to the Partnership and consult with the other General Partner in the performance of any of the following activities: identify potential Portfolio Investments; conduct due diligence, analysis, and evaluation thereof; negotiate the terms of potential Portfolio Investments; and monitor the progress of negotiations of Portfolio Investments; (b) open, maintain and close accounts with brokers, dealers, banks, currency dealers and others, and issue all instructions and authorizations to entities regarding the purchase and sale or entering into, as the case may be, of securities, options, certificates of deposit, bankers acceptances, repurchase and reverse repurchase agreements, agreements for the borrowing and lending of' portfolio securities and other assets, instruments and investments for the purpose of seeking to achieve the Partnership's purposes as well as to facilitate capital contributions, distributions, withdrawals, the payment of Partnership expenses; (c) open, maintain and close bank accounts and draw checks or other orders for the payment of monies; 6 (d) deposit, withdraw, pay, retain and distribute the Partnership's funds in a manner consistent with this Agreement; and (e) take any action that may be required by governmental authorities having jurisdiction over the Partnership. Section 2.3. Matters Requiring the Consent of the Majority General Partners. Subject to Section 2.4, a General Partner shall have the authority regarding the following matters only with the consent of the Majority General Partners: (a) delegate responsibility as investment adviser of the Partnership; (b) lease, sell or dispose of any assets or investments in the name or for the account of the Partnership or enter into any contract or endorsement in the name or for the account of the Partnership with respect to any such assets or investments or in any other manner bind the Partnership to lease, sell or dispose of any such assets or investments on such terms as the Majority General Partners may determine; (c) loan or borrow money, post margin on securities or enter into transactions having a similar leveraging effect or for temporary purposes on behalf of the Partnership, from any source or with any party, upon such terms and conditions as the Majority General Partners may deem advisable and proper, to execute promissory notes, drafts, bills of exchange and other instruments and evidences of indebtedness and to secure the payment thereof by mortgage, pledge or assignment of or security interest in all or any part of property then owned or thereafter acquired by the Partnership, and refinance, recast, modify or extend any of the obligations of the Partnership and the instruments securing those obligations; (d) lend, transfer, mortgage, pledge or otherwise deal in, and secure the payment of obligations of the Partnership by mortgage upon, or hypothecation or pledge of, all or part of the property of the Partnership, whether at the time owned or thereafter acquired, or participate in arrangements with creditors, institute and settle or compromise suits and administrative proceedings and other similar matters; (e) employ, retain or otherwise secure or enter into contracts, agreements and other undertakings with Persons by or on behalf of the Partnership, including, without limitation, any attorneys and accountants, providing for the payment by the Partnership for goods or services in one transaction or series of related transactions of $100,000 or more; (f) bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Partnership; (g) do any and all acts on behalf of the Partnership, and exercise all rights of the Partnership, with respect to its interest in any property or any Person, including, without limitation, the voting of securities, participation in arrangements with creditors, the institution and settlement or compromise of suits and administrative proceedings and other like or similar matters; 7 (h) authorize any officer, director, employee or other agent of a General Partner or a Limited Partner, or any employee or agent of the Partnership, to act for and on behalf of the Partnership in any or all of the matters incidental thereto; and (i) do any acts that the Majority General Partners deem advisable to further the purpose of the Partnership or this Agreement that are not prohibited by applicable law. Section 2.4. Matters Requiring the Consent of All the General Partners. A General Partner shall have authority regarding the following matters only with the consent of all the General Partners: (a) Make any Portfolio Investment; (b) Make any Capital Call other than for Fee and Expense Capital; (c) Enter into any contract, agreement or other undertakings or transaction on behalf of and in the name of the Partnership with any General Partner, any Limited Partner or any Person controlling, under common control with or controlled by any General Partner or any Limited Partner; (d) Issue any additional interests in the Partnership; (e) Merge with or transfer substantially all of the Partnership's assets to any other Person other than by mortgage, hypothecation, pledge or the grant of a security interest; and (f) Effect an initial public offering with respect to the Partnership's business. Section 2.5. Reliance by Third Parties. Persons dealing with the Partnership are entitled to rely conclusively upon the certificate of a General Partner to the effect that it is then acting as a General Partner and upon the power and authority of a General Partner and an employee or agent of the General Partner as set forth in this Agreement. Section 2.6. Activities of Class A General Partner. The Class A General Partner, its general partners and their respective general partners, members, managers, officers and employees, including Richard Beckwitt, shall devote substantially all of their business time to the business and affairs of the Partnership. The general partners, members, managers, officers, and employees of the Class A General Partner and its general partners shall not be permitted to provide investment advice to, or perform duties similar to the duties contemplated by this Agreement for, any other Person for compensation or other consideration other than members of the Immediate Family of Richard Beckwitt and his wife, or trusts for members of such family and any other Person approved in writing by the Majority General Partners; provided that nothing herein shall restrict the making of bona fide personal investments that do not interfere with or create a conflict of interest with respect to the business and affairs of the Partnership as reasonably determined by the Majority General Partners. Richard Beckwitt may not serve on the board of directors, managers or trustees (or the equivalent) of any business entity other than an affiliate of the Class B General Partner or business entities in which the Partnership has made a Portfolio Investment without the prior written approval of the Majority General Partners. 8 Section 2.7. Exculpation. No Indemnified Person shall be liable to any Partner or the Partnership for any act or failure to act on behalf of the Partnership, unless such act or failure to act resulted from the willful misfeasance, bad faith or gross negligence of the Indemnified Person. Each Indemnified Person may consult with counsel and accountants in respect of the Partnership business and affairs and shall be fully protected and justified in any action or inaction which is taken in accordance with the advice or opinion of such counsel or accountants. Notwithstanding any of the foregoing to the contrary, the provisions of this Section 2.7 shall not be construed so as to relieve (or attempt to relieve) any Indemnified Person of any liability, to the extent (but only to the extent) that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Section 2.7 to the fullest extent permitted by law. Section 2.8. Indemnification of Partners. --------------------------- (a) The Partnership, out of its own assets and not out of the assets of any Partner, shall indemnify and hold harmless each Indemnified Person from and against any and all Losses directly or indirectly relating to, arising out of or in connection with, or based upon (i) such Indemnified Person being or having been a Partner, a manager, member, officer, director, shareholder, partner, employee or agent (or a legal representative or controlling person of any of them) of a Partner, or a member of any committee or advisory board of a Partner or the Partnership, or (ii) any action or failure to act on the part of such Indemnified Person unless such act or failure to act was the result of the willful misconduct, bad faith or gross negligence of such Indemnified Person. The Partnership shall, in the sole discretion of the Majority General Partners, advance to any Indemnified Person reasonable attorneys' fees and other costs and expenses incurred in connection with the defense of any action or proceeding which arises out of conduct which is the subject of the indemnification provided hereunder. Each Partner hereby agrees, and each other Indemnified Person shall agree, as a condition to any such advance, that in the event such Indemnified Person receives such advance, such Indemnified Person shall reimburse the Partnership for such advance to the extent that it shall be finally judicially determined that such Indemnified Person was not entitled to indemnification under this Section 2.8. (b) The provisions of this Section 2.8 shall not be construed so as to provide for the indemnification of any Indemnified Person for any liability to the extent (but only to the extent) that such indemnification would be in violation of applicable law or such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Section 2.8 to the fullest extent permitted by law. (c) Notwithstanding anything expressed or implied to the contrary in this Agreement, the Majority General Partners are authorized to take any action that they determine to be necessary or appropriate to cause the Partnership to comply with any foreign or United States federal, state or local withholding requirement with respect to any allocation, payment or distribution by the Partnership to any Partner or other Person. All amounts so withheld shall be treated as distributions to the applicable Partners under the applicable provision of this Agreement. If any such withholding requirement with respect to any Partner exceeds the amount distributable to such Partner under this Agreement or if any such withholding requirement was not satisfied with respect to any amount previously allocated, paid or distributed to such Partner, such Partner or any successor or assignee with respect to such Partner's interest hereby indemnifies and agrees to hold harmless the other Partners and the Partnership for such excess amount or such withholding requirement, as the case may be, including interest on such amount and any penalties assessed on such amounts. 9 Section 2.9. Payment of Costs and Expenses. ----------------------------- (a) The Partnership will pay all Organizational Expenses and all Portfolio Expenses. (b) The Class A General Partner shall provide (i) all investment advice required for the purposes of the Partnership and (ii), at the expense of the Partnership through the Termination Date, staffing, equipment and facilities that are adequate, suitable and reasonably required for the business and affairs of the Partnership. In furtherance of the foregoing, but not in limitation thereof, the Partnership shall pay the rent of the offices which the Class A General Partner will occupy, the compensation and benefits of the staff of the Class A General Partner, the costs or expenses of maintenance of Partnership books and records, and the telephone charges, costs of computer equipment (and related software), communications equipment and other office equipment, and other overhead costs required for the business and affairs of the Partnership; provided that, in all cases, such amounts shall be reasonable in the judgment of the Majority General Partners. (c) The Majority General Partners shall have authority to determine all accounting practices of the Partnership and may establish reserves or similar adjustments as they deem appropriate or necessary to account for or accrue for expenses and liabilities (whether actual or contingent). Section 2.10. Management Fee. -------------- (a) The Partnership shall pay the Management Fee to the Class A General Partner, quarterly in advance. The first payment shall be $52,083 and shall be made at Closing, and all subsequent payments shall be made on or before the first day of each calendar quarter. (b) Until the fourth anniversary of the Closing, the annual Management Fee shall be 2.5% of the aggregate amount of the Capital Commitments other than for Fee and Expense Capital or Rollover Commitments of the Class B General Partner and the Limited Partners, but in no event more than $1,250,000. (c) After the fourth anniversary of the Closing, the annual Management Fee shall be equal to 2% of (i) the aggregate amount of Capital Contributions of the Class B General Partner and the Limited Partners other than for Fee and Expense Capital, less (ii) the aggregate amount of all distributions to the Class B General Partner and the Limited Partners in excess of the aggregate Net Profit allocated to such Partners, but in no event more than $1,250,000. (d) Notwithstanding the foregoing, the Management Fee shall not accrue from and after the Termination Date. 10 ARTICLE III. CAPITAL ACCOUNTS OF PARTNERS AND OPERATION THEREOF Section 3.1. Capital Contributions and Calls. ------------------------------- (a) Capital Commitments. (i) Each Partner hereby agrees to make the amount of Capital Contributions equal to the Capital Commitment set forth opposite its name in the Schedule if requested pursuant to Capital Calls within the Investment Period and has made the Initial Capital Contribution in the amount set forth opposite such Partner's name in the Schedule. In addition, the Limited Partners other than Richard Beckwitt agree to make Capital Contributions in such amounts as may be required to pay when due all Management Fees and Overhead Expenses. All Capital Contributions shall be made in cash in U.S. dollars. (ii) The General Partners shall have no obligation to make Capital Calls other than for Fee and Expense Capital required to pay Management Fees and Overhead Expenses when due. No General Partner shall be obligated to consent to a Portfolio Investment not acceptable to it in its sole discretion even though it or any Person affiliated with it has a Capital Commitment. All Capital Commitments other than for Fee and Expense Capital not called will terminate four years after the Closing, or (if earlier) (A) when all Capital Commitments other than for Fee and Expense Capital are drawn down or (B) when the Partnership is terminated (the "Investment Period"); provided that (1) the Majority -------- General Partners may extend the Investment Period in the case of Portfolio Investments with longer commitment periods than the Investment Period until the earlier of (x) the expiration of such Portfolio Investment's commitment period and (y) six years after the Closing. (iii) During the Investment Period, amounts drawn down will proportionately reduce a Partner's Capital Commitment other than for Fee and Expense Capital and not be subject to recall, except where: (A) an amount was drawn down in anticipation of a potential Portfolio Investment, such investment was not consummated and such amount was returned to the Partner, or (B) a Portfolio Investment was (1) sold within the Investment Period or after being held by the Partnership for less than a 6-month period and (2) the proceeds were distributed to the Partners, in which case a Partner's Capital Commitment will be increased by the lesser of (x) amounts drawn down for investment under clause (A) above or invested in a Portfolio Investment pursuant to clause (B) above, and (y) amounts actually distributed to such Partner with respect to any Portfolio Investment described in clauses (A) or (B) above. 11 (iv) Except as otherwise set forth in Section 3.1, at the end of the Investment Period, Capital Commitments not drawn down will be released from any further obligations and no Partner will be required to make any further Capital Contributions to the Partnership, except Capital Contributions necessary to (A) fund Rollover Commitments, (B) pay Management Fees and Overhead Expenses through the Termination Date or (C) complete Portfolio Investments which were in process as of the termination of the Investment Period. (b) Capital Contributions. On or about the Closing, each Partner will --------------------- have made its Initial Capital Contribution, unless all the Majority General Partners, in their sole discretion, require a different amount. (c) Capital Calls. The Majority General Partners, upon at least two Business Days' notice, may issue calls for Capital Contributions at any time, in the case of Capital Contributions other than for Fee and Expense Capital, and shall issue calls for Capital Contributions for Fee and Expense Capital when required to pay when due Management Fees and Overhead Expenses (each such call, a "Capital Call"). A Capital Call other than for Fee and Expense Capital may be in any amount up to a Partner's Unfunded Capital Commitment. All Capital Calls shall be made pro rata for all Partners or, in the case of Capital Calls for Fee and Expense Capital, the Limited Partners other than Richard Beckwitt according to their Capital Commitments other than for Fee and Expense Capital. The Capital Call shall specify the date, place and amount of the Capital Call, give a brief description of the transaction or purpose for which such call is being made, and set forth the depository institution and account into which such Capital Contribution shall be made. Each Partner agrees to comply with the terms of each Capital Call. Section 3.2. Capital Accounts. Capital accounts ("Capital Accounts") shall be established and maintained on the Partnership's books with respect to each Partner, in accordance with the provisions of Treasury Regulations section 1.704-1(b), including the following: (a) Each Partner's Capital Account shall be increased by: (i) the amount of capital such Partner contributes to the Partnership; (ii) the amount of Net Profit allocated to such Partner and all items of income or gain specially allocated to such Partner under this Agreement; (iii) the fair market value of any property (other than cash) contributed in the Partnership by such Partner (net of liabilities to which such property is subject); and (iv) any other increases required by the Code or Treasury Regulations. (b) Each Partner's Capital Account shall be decreased by: 12 (i) the amount of Net Loss allocated by such Partner and all items of deduction or loss specially allocated to such Partner under this Agreement; (ii) all amounts paid or distributed to such Partner pursuant to this Agreement, other than any amount required to be treated as a payment for property or services under the Code; (iii) the fair market value of any property distributed in kind to such Partner (net of any liabilities secured by such distributed property that such Partner is considered to assume or take subject to for purposes of section 752 of the Code); and (iv) any other decreases required by the Code or Treasury Regulations. (c) Capital Accounts shall be adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) and (g) upon the occurrence of any of the events set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(f)(5). Any gain or loss resulting from the adjustment of Capital Accounts shall be determined and allocated pursuant to Section 4.4. (d) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the Code and Treasury Regulations thereunder and shall be interpreted and applied in a manner consistent with such law. The Majority General Partners are hereby authorized to and shall make any necessary modifications to this Article III in the event unanticipated events occur that might otherwise cause this Agreement not to comply with such law or any changes thereto. Section 3.3. Interest. No interest shall be paid or credited to the Partners with respect to their Capital Commitments, Capital Contributions or Capital Accounts or upon any undistributed profits left on deposit with the Partnership. Section 3.4. Tax Allocations. --------------- (a) General Rule. Except as provided in this Section 3.4, Net Profit (and items thereof) and Net Loss (and items thereof) for any Fiscal Period shall be allocated among the Partners in a manner such that the Capital Account of each Partner, immediately after giving effect to such allocation, is, as nearly as possible equal (proportionately) to the amount of the distributions that would be made to such Partner during such Fiscal Period pursuant to Section 4.2, without regard to Section 4.2(c), if (i) the Partnership were dissolved and terminated; (ii) its affairs were wound up and each Partnership asset was sold for cash equal to its cost to the Partnership (except that any Partnership asset that is sold in such Fiscal Period shall be treated as if sold for an amount of cash equal to the sum of (x) the amount of any net cash proceeds actually received by the Partnership in connection with such disposition and (y) the fair market value of any property actually received by the Partnership in connection with such disposition); and 13 (iii) all Partnership liabilities were satisfied (limited with respect to each nonrecourse liability to the book value of the assets securing such liability). The Majority General Partners may, in their sole discretion, make such other assumptions (whether or not consistent with the above assumptions) as they deem necessary or appropriate in order to effectuate the intended economic arrangement of the Partners as reflected in Article IV. (b) Allocations Relating to Last Fiscal Year. Except as provided in this Agreement, if upon the dissolution and termination of the Partnership pursuant to Article VI, after all other allocations provided for in this Section 3.4 have been tentatively made as if this Section 3.4(b) were not in this Agreement, a distribution to the Partners under Section 6.2(c) would be different from a distribution to the Partners under Article IV, then Net Profit (and items thereof) and Net Loss (and items thereof) for the Fiscal Period of the dissolution and termination of the Partnership pursuant to Article VI shall be allocated among the Partners in a manner such that the Capital Account of each Partner, immediately after giving effect to such allocation, is, as nearly as possible, equal (proportionately) to the amount of the distributions that would be made to such Partner during such last Fiscal Period pursuant to Section 4.2(a). The Majority General Partners may, in their sole discretion, apply the principles of this Section 3.4(b) to any Fiscal Year preceding the Fiscal Period in which the Partnership dissolves and terminates (including through application of section 761(e) of the Code) if delaying application of the principles of this Section 3.4 would likely result in distributions under Section 6.2(c)that are materially different from distributions under Section 4.2(a) in the Fiscal Period in which the Partnership dissolves and terminates. (c) Regulatory and Related Allocations. Notwithstanding any other ------------------------------------ provision in this Agreement to the contrary, the following special allocations shall be made in the following order: (i) Minimum Gain Chargeback. Notwithstanding any other ------------------------- provision of this Article III, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Partner shall be specially allocated items of Partnership income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to the portion of such Partner's share of the net decrease in such Partnership Minimum Gain, determined in accordance with Treasury Regulations sections 1.704-2(d)(1)(f) and (g), that is allocable to the disposition of Partnership property, subject to Nonrecourse Liabilities. Such allocations shall be made in proportion to the respective amounts required to be allocated to the Partners pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations section 1.104-2. This clause (i) is intended to comply with the minimum gain chargeback requirement in such section of the Treasury Regulations and shall be interpreted consistently therewith. 14 (ii) Partnership Minimum Gain Chargeback. Notwithstanding ----------------------------------- any other provision of this Article III, if there is a net decrease in a Partner Nonrecourse Debt Minimum Gain attributable to a Partner nonrecourse debt (as defined in Treasury Regulations section 1.704-2(i)) during any Fiscal Year, each Partner shall be specially allocated items of Partnership income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to the portion of such Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner's nonrecourse debt, determined in accordance with Treasury Regulations section 1.704-2(i). This clause (ii) is intended to comply with the minimum gain chargeback requirements in such section of the Treasury Regulations and shall be interpreted consistently therewith. (iii) Qualified Income Offset. In the event any Partner ----------------------- unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations sections 1 .704-1(b)(2)(ii)(d)(4), (5) or (6) with respect to such Partner's Capital Account, items of Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to -------- this Section 3.4(c)(iii) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3.4 have been tentatively made as if this Section 3.4(c)(iii) were not in this Agreement. (iv) Nonrecourse Deductions. Any Nonrecourse Deductions ---------------------- attributable to Portfolio Investments for any Fiscal Period or other period shall be allocated to the Partners in accordance with their respective Capital Accounts. (v) Gross Income Allocation. In the event any Partner ----------------------- has an Adjusted Capital Account Deficit, items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate such Partner's Adjusted Capital Account Deficit as quickly as possible; provided that an allocation pursuant to this Section 3.4(c)(v) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3.4 (other than Section 3.4(c) (iii)) have been tentatively made as if this Section 3.4(c)(v) were not in this Agreement. (vi) Loss Allocation Limitation. No allocation of Net Loss (or items thereof) shall be made to any Partner to the extent that such allocation would create or increase an Adjusted Capital Account Deficit with respect to such Partner. 15 (vii) Section 754 Adjustments. Pursuant to Treasury ------------------------- Regulations section 1.704-1 (b)(2)(iv)(m), to the extent an adjustment to the adjusted tax basis of any Partnership asset under Code section 732, 734(b) or 743(b) is required to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Treasury Regulations. (viii) Certain Expense Allocations. All Management Fee ----------------------------- expense and Overhead Expense shall be specially allocated to the Limited Partner who contributes the Fee and Expense Capital to pay them. (d) Transfer of or Change in Interests. The Majority General Partners are authorized to adopt any convention or combination of conventions likely to be upheld for federal income tax purposes regarding the allocation and/or special allocation of items of Partnership income, gain, loss, deduction and expense with respect to a newly issued Interest, a transferred Interest and a redeemed Interest. A transferee of an Interest shall succeed to the Capital Account of the transferor Partner to the extent it relates to the transferred Interest. Section 3.5. Determination by General Partners. All matters concerning the computation of Capital Accounts, the allocation of Net Profit (and items thereof) and Net Loss (and items thereof), the allocation of items of Partnership income, gain, loss, deduction and expense for all purposes of this Agreement and the adoption of any accounting procedures, including reserves for expenses and contingencies not expressly provided for by the terms of this Agreement shall be determined in good faith by the Majority General Partners. Section 3.6. Adjustments to Take Account of Interim Events. If a Partner shall make additional Capital Contributions to the Partnership as of a date other than the first day of a Fiscal Quarter, withdraw from the Partnership or make a withdrawal from such Partner's Capital Account as of a date other than the last day of a Fiscal Year, the Majority General Partners shall make such adjustments in the determination and allocation among the Partners of Net Profit and Net Loss and items of income, deduction, gain, loss or credit for tax purposes and accounting procedures as shall equitably take into account such interim event and applicable provisions of law. ARTICLE IV. WITHDRAWALS, DISTRIBUTIONS AND LOANS OF CAPITAL Section 4.1. Withdrawals and Distributions in General. Except with the consent of all the General Partners in their sole discretion, no Partner shall be entitled to (i) receive distributions from the Partnership or (ii) withdraw any amount from such Partner's Capital Account, other than as provided in this Article IV and Article VI. 16 Section 4.2. Portfolio Distributions. ----------------------- (a) Subject to Section 4.3, after provision for Portfolio Expenses, sufficient working capital consistent with good fiscal operating policy and management, taxes payable, and such other needs as the Majority General Partners, in their sole discretion, shall deem appropriate, the Partnership will cause all funds received by the Partnership in connection with the liquidation or other disposition of the Portfolio Investments and from interest, dividend or other income from the Portfolio Investments to be distributed in such amounts and at such times as the Majority General Partners, in their sole discretion, shall determine (each such distribution of funds, a "Portfolio Distribution"), in the following order of priority: (i) 100% to the Partners, pro rata in proportion to their respective contributions of capital (other than Fee and Expense Capital) to the Partnership, until the Partners have received cumulative distributions in an amount equal to the Partners' contributions of capital (other than Fee and Expense Capital) to the Partnership; (ii) 100% to the Partners, pro rata in proportion to their respective Rollover Commitment Account balances, until the Partners have received cumulative distributions in an amount equal to the balance of their Rollover Commitment Accounts; (iii) 100% to the Class B General Partner and the Limited Partners, pro rata in proportion to their respective Capital Contributions other than for Fee and Expense Capital, until each such Partner has received an amount that, when combined with its distributions under subsection (i) above, results in such Partner having achieved a 10% internal rate of return on the aggregate amount of such Partner's Capital Contributions other than its Fee and Expense Capital and its Rollover Commitment Account; (iv) 100% to the Class A General Partner, until such Partner has received an amount that equals 5% of the aggregate amount distributed under subsection (iii) above and this subsection (iv); and (v) thereafter, all remaining proceeds will be distributed 95% to the Class B General Partner and the Limited Partners, pro rata in proportion to their respective Capital Contributions other than for Fee and Expense Capital, and 5% to the Class A General Partner. (b) The Majority General Partners may make distributions in cash or in kind in their sole discretion; provided that distributions shall be made so as -------- to distribute to the Partners the same proportionate amounts of cash or other assets to the greatest extent practicable. (c) Tax Distributions. Notwithstanding Section 4.2(a), the Partnership ------------------ shall, prior to any Portfolio Distribution pursuant to Section 4.2(a) with respect to Portfolio Investments, make distributions to the Partners from their respective Capital Accounts in amounts intended to enable the Partners (or any Person whose tax liability is determined by reference to the income of a Partner) to discharge their United States federal, state and local income tax liabilities arising from the allocations made pursuant to Section 3.4. The amount distributable pursuant to this Section 4.2(c) shall be determined by the Majority General Partners in their sole discretion, based on an assumed combined federal and state income tax rate of 40% and the amounts allocated to the Partners, and otherwise based on such reasonable assumptions as the Majority General Partners determine in good faith to be appropriate. The amount distributable to any Partner pursuant to Section 4.2(a) shall be reduced by the amount distributed to such Partner pursuant to this Section 4.2(c). 17 Section 4.3. Restrictions on Distributions. The provisions of this ----------------------------- Article IV to the contrary notwithstanding, no distribution shall be made: (a) if such distribution would violate any contract or agreement to which the Partnership is then a party or any law, rule, regulation, order or directive of any governmental authority then applicable to the Partnership; (b) to the extent that the Majority General Partners determine in good faith that any amount otherwise distributable should be retained by the Partnership to pay, or to establish a reserve for the payment of, any actual or estimated liability or obligation of the Partnership, whether liquidated, fixed, contingent or otherwise; or (c) to the extent that the Majority General Partners determine in good faith that (i) the cash available to the Partnership is insufficient to permit such distribution or (ii) the amount to be distributed pursuant to this Article IV is immaterial. Section 4.4. Deemed Sale of Assets. --------------------- (a) Any property (other than cash) that is distributed or to be distributed in kind to one or more Partners with respect to a Fiscal Period (including, without limitation, any non-cash property which is distributed or to be distributed upon the dissolution and winding up of the Partnership) or, under the principles of Section 3.2(c), revalued in the Partners' Capital Accounts shall be deemed to have been sold for cash equal to its value as determined under the principles of Section 4.4(b) (net of any relevant liabilities secured by such property), and the unrealized gain or loss inherent in such property shall be treated as recognized gain or loss for purposes of determining the Net Profit and Net Loss of the Partnership to be allocated pursuant to Section 3.4 for such Fiscal Period. (b) For purposes of determining the value of Partnership assets in the event of (and thus the resulting Net Profits and Net Loss arising from) a distribution or revaluation under Section 4.4(a): (i) Any security that is traded principally on a market for which daily transaction prices are published generally shall be valued at the last sale price on the date of valuation. If there has been no sale of such security on such day, such security shall be valued at the mean of the closing bid and asked prices on such day. If no bid or asked prices are quoted on such day, such security shall be valued by such method as the Majority General Partners shall determine in good faith to reflect its fair market value. 18 (ii) Any security traded principally in a market for which daily transaction prices are not published but for which bid and ask quotations are available generally shall be valued at the latest bid price available on the date of valuation for long positions and the asked price for short positions. (iii) All other securities or investments and assets of the Partnership including securities whose market value cannot be readily determined (whether or not a bid, ask or sale price exists) (the "Other Assets") shall be valued at fair market value as determined by the Majority General Partners in good faith, except as follows: (A) Other Assets consisting of equity securities of any Person distributed to the Partners upon termination of the Partnership to effect an initial public offering shall be valued at the offering price of such securities in such initial public offering; (B) all Other Assets to be valued as a result of a termination of the Partnership by the Class A General Partner pursuant to Section 6.1 shall be valued at the lower of cost or fair market value (as determined in good faith by the Majority General Partners) unless at the time notice of such termination is given the Limited Partners other than Richard Beckwitt are in material default of any obligation to contribute Fee and Expense Capital and such default shall have continued uncured for 30 days after the Class A General Partner shall have provided written notice to such Limited Partners describing such default and requesting that it be cured; and (C) all Other Assets to be valued as a result of a termination of the Partnership by the Class B General Partner pursuant to Section 6.1 shall be valued at the lower of cost or fair market value (as determined in good faith by the Majority General Partners) if at the time notice of such termination is given the Class A General Partner (or, in the case of Section 2.6, Richard Beckwitt) is in material breach of its (or his) obligations under this Agreement or as a general partner of the Partnership and such breach shall have continued uncured for 30 days after the Class B General Partner shall have provided written notice to the Class A General Partner describing such breach and requesting that it be cured. (iv) All values stated in a foreign currency shall be converted into U.S. dollars at the average interbank currency exchange rate at the close of business on the valuation day. (c) Any values determined for the purposes of this Section 4.4 shall not be used for purposes of computing Net Profit and Net Loss under Section 3.4(a)(ii) except as expressly provided in Section 4.4(a). Section 4.5. Loans to Partners. If the Partnership has cash available in excess of its needs for working capital and for which it has no current reinvestment plans, it shall, upon the request of a Partner, make a loan to such Partner in an amount not to exceed such Partner's Rollover Commitment Account; provided that prior to making a Partner Loan, the Partnership shall have received security for such loan in the form of an irrevocable letter of credit drawn on a nationally recognized financial institution issued on behalf of the Partner requesting such Partner Loan. Any Partner Loan shall be in the form of a demand note, callable by the Majority General Partners, and shall bear interest at the 90-day London Inter-Bank Offering Rate (LIBOR) as announced from time to time by BankAmerica, N.A. 19 Section 4.6. Withholding. Notwithstanding anything expressed or implied to the contrary in this Agreement, the Majority General Partners are authorized to take any action that they determine to be necessary or appropriate to cause the Partnership to comply with any foreign or United States federal, state or local withholding requirement with respect to any allocation, payment or distribution by the Partnership to any Partner or other Person. All amounts so withheld, and, in the manner determined by the Majority General Partners in their sole discretion, amounts withheld with respect to any allocation, payment or distribution by any person to the Partnership, shall be treated as distributions to the applicable Partners under the applicable provision of this Agreement. If any such withholding requirement with respect to any Partner exceeds the amount distributable to such Partner under this Agreement, or if any such withholding requirement was not satisfied with respect to any amount previously allocated, paid or distributed to such Partner, such Partner or any successor or assignee with respect to such Partner's Interest hereby indemnifies and agrees to hold harmless the other Partners and the Partnership for such excess amount or such withholding requirement, as the case may be. ARTICLE V. WITHDRAWAL, DEATH, INCOMPETENCY Section 5.1. Withdrawal of Partners. No Partner may withdraw from the Partnership without the consent of all the General Partners in their sole discretion. No partial withdrawal will be permitted. If a General Partner resigns or withdraws as a general partner of the Partnership in violation of this Section 5.1, its interest in the Partnership shall thereupon become a Limited Partner's interest in the Partnership, except that the amounts distributable pursuant to Article IV shall continue to be those provided for such General Partner prior to such event. The Partners shall have no right to remove or replace a General Partner. Section 5.2. Effect of Withdrawal, Death, Etc. The withdrawal, death, disability, incapacity, incompetency, bankruptcy, insolvency or dissolution of a Partner shall not dissolve the Partnership, unless there shall cease to be any general partners of the Partnership. ARTICLE VI. DURATION AND TERMINATION OF PARTNERSHIP Section 6.1. Duration. The Partnership will dissolve and terminate on March 31, 2006 (the "Termination Date"); provided that the Majority General Partners may twice extend the Termination Date for a period of one year upon written notice to all of the Partners at least 90 days prior to the Termination Date, as extended; provided further that either of the General Partners may terminate the Partnership at any time upon 180 days' written notice. Section 6.2. Termination. On termination of the Partnership, the General Partners or, if there is only one General Partner, the remaining General Partner (or in the absence of the General Partners, a liquidator selected by a majority in Partnership interest of the Limited Partners) shall, within no more than 30 days after completion of a final audit of the Partnership's books and records (which shall be performed within 90 days of such termination), make distributions, out of assets of the Partnership, in the following manner and order: 20 (a) to payment and discharge (or the provision therefor) of the claims of all creditors of the Partnership who are not Partners; (b) to payment and discharge (or the provision therefor) of the claims of all creditors of the Partnership who are Partners; (c) to the Partners pro rata in accordance with their respective positive Capital Accounts after giving effect to any allocations pursuant to Article III with respect to the Fiscal Year ending on the date of termination. In the event that the Partnership is terminated on a date other than the last day of a Fiscal Year, the date of such termination shall be deemed to be the last day of a Fiscal Year for purposes of adjusting the Capital Accounts of the Partners pursuant to Article III. ARTICLE VII. TAX RETURNS; REPORTS TO PARTNERS Section 7.1. Filing of Tax Returns. The Tax Matters Partner shall prepare and file, or cause the accountants of the Partnership to prepare and file, a federal information tax return in compliance with section 6031 of the Code and any required state and local income tax and information returns for each tax year of the Partnership. The Class A General Partner shall provide the Tax Matters Partner with such assistance in the preparation of such returns as the Tax Matters Partner shall require. Section 7.2. Tax Matters Partner. The Class B General Partner, or (in its absence) the Class A General Partner, shall be designated on the Partnership's annual federal information tax return as the Tax Matters Partner of the Partnership (the "Tax Matters Partner") as provided in section 6231(a)(7) of the Code. In the event the Partnership shall be the subject of an income tax audit by any federal, state or local authority, to the extent the Partnership is treated as an entity for purposes of such audit including administrative settlement and judicial review, the Tax Matters Partner shall act in accordance with the decisions and restrictions of the Majority General Partners. All expenses incurred in connection with any such audit, investigation, settlement or review shall be borne by the Partnership. The Tax Matters Partner shall use reasonable efforts to inform the other Partners of any audit or administrative or judicial proceeding involving the Partnership. Section 7.3. Reports to Partners. Subject to its receiving all necessary information from third parties, within 120 days after the end of each Fiscal Year, the Class B General Partner shall prepare and mail to each Partner, or shall cause others to do so, a financial report setting forth the following: (a) a balance sheet of the Partnership as of the close of such Fiscal Year; 21 (b) a statement showing the Net Profit or Net Loss of the Partnership for such Fiscal Year in reasonable detail; (c) a statement indicating the balance of such Partner's Capital Account as of the beginning of such Fiscal Year; (d) a statement indicating the amount of Net Profit or Net Loss allocated to such Partner's Capital Account for such Fiscal Year; (e) a statement indicating any distribution to such Partner from, and any withdrawals from or additional Capital Contributions to, the Capital Account of such Partner during such Fiscal Year; and (f) a statement indicating the balance of such Partner's Capital Account as of the end of such Fiscal Year. The Partnership shall provide to each Partner such other information concerning the business and affairs of the Partnership, and access to its books and records, as such Partner may reasonably request. Section 7.4. Tax Information. Subject to its receiving all necessary information from third parties, within 90 days (or longer, if the date for filing the Partnership's income tax return is extended) after the end of each Fiscal Year, the Tax Matters Partner shall send each Person who was a Partner at any time during the fiscal year then ended a Schedule K-1 and such Partnership tax information as the Majority General Partners reasonably believe shall be necessary for the preparation by such Person of his United States federal, state and local tax returns in accordance with any applicable laws, rules and regulations then prevailing. Such information shall include a statement showing such Person's share of distributions, income, gain, loss, deductions and expenses and other relevant fiscal items of the Partnership for such fiscal year. Promptly upon the request of any Partner, the Class B General Partner will furnish to such Partner: (a) all United States federal, state and local income tax returns or information returns, if any, which the Partnership is required to file; and (b) such other information as such Partner may reasonably request for the purpose of applying for refunds of any withholding taxes. Section 7.5. Tax Elections. ------------- (a) The Tax Matters Partner (and to the extent necessary to effectuate any election, the other Partners) shall make the following elections (including the filing of any forms necessary therefor) on behalf of the Partnership: (i) to be treated as a partnership for federal income tax purposes and, where possible, for state and local tax purposes; (ii) to elect the year ending September 30 as the Fiscal Year if permitted by applicable law; 22 (iii) to elect to treat all organization and start-up costs of the Partnership as deferred expenses amortizable over 60 months under sections 195 and 709 of the Code for federal, state and local tax purposes; and (iv) to elect with respect to such other tax matters involving any United States or other tax authority as the Majority General Partners may determine from time to time in their sole discretion. (b) Section 754 Election. In the event of a transfer of an Interest as permitted hereunder, or in the event of a transfer of an Interest as permitted hereunder and if requested to do so by any transferring Partner or by the transferee by notice given to the General Partners, the Majority General Partners shall have the right (exercisable in their sole discretion), but not the obligation, to cause the Partnership to make a timely election under section 754 of the Code (and a corresponding election under applicable state and local law). The Majority General Partners also may cause the Partnership to make a timely election under section 754 of the Code in the event of a distribution of property to a Partner. ARTICLE VIII. MISCELLANEOUS Section 8.1. General. This Agreement (a) shall be binding on the executors, administrators, estates, heirs, successors and permitted assigns of the Partners; and (b) may be executed through the use of separate signature pages or in any number of counterparts with the same effect as if the parties executing such counterparts had all executed one counterpart; provided that the counterparts, in the aggregate, shall have been signed by all of the Partners. Section 8.2. Power of Attorney. Each of the Partners hereby appoints the Class A General Partner or (in its absence) the Class B General Partner, or any manager or officer of either, acting individually, as the true and lawful representative of such Partner and attorney-in-fact, in such Partner's name, place and stead: (a) to receive and pay over to the Partnership on behalf of such Partner, to the extent set forth in this Agreement, all funds received hereunder, and (b) to make, execute, sign, acknowledge, swear to and file: (i) a Certificate of Limited Partnership of the Partnership and all amendments thereto as may be required under the Delaware Act including, without limitation, any such filing for the purpose of admitting the undersigned and others as Partners and describing their initial or any increased Capital Contributions in accordance with this Agreement; (ii) any and all instruments, certificates, and other documents which may be deemed necessary or desirable to effect the winding-up and termination of the Partnership (including, but not limited to, a Certificate of Cancellation of the Certificate of Limited Partnership); 23 (iii) any business certificate, fictitious name certificate, amendment thereto, or other instrument, agreement or document of any kind that the Majority General Partners consider necessary or desirable to accomplish the business, purpose and objectives of the Partnership, or required by any applicable federal, state or local law; and (iv) all other filings with agencies of the federal government, of any state or local government, or of any other jurisdiction, which the Majority General Partners consider necessary or desirable to carry out the purposes of this Agreement and the business of the Partnership. The power of attorney hereby granted by each of the Partners is coupled with an interest, is irrevocable, shall survive the transfer of the Partner's interest in the Partnership and shall survive, and shall not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of such Partner. Such attorney-in-fact shall not have any right, power or authority to amend or modify this Agreement when acting in such capacity. Section 8.3. Amendments to Partnership Agreement. The terms and -------------------------------------- provisions of this Agreement may be modified or amended only with the written consent of all the Partners. Section 8.4. Choice of Law. Notwithstanding the place where this Agreement may be executed by any of the parties thereto, the parties expressly agree that all the terms and provisions hereof shall be construed under the laws of the State of Delaware and, without limitation thereof, that the Delaware Act as now adopted or as may be hereafter amended shall govern this Agreement. Section 8.5. Notices. Except as provided in this Agreement, each notice relating to this Agreement shall be in writing and delivered in person, by facsimile or by registered or certified mail. All notices to the Partnership shall be addressed to its principal office and place of business. All notices addressed to a Partner shall be addressed to such Partner at the address set forth in the Schedule. Any Partner may designate a new address by notice to that effect given to the Partnership. Unless otherwise specifically provided in this Agreement, a notice shall be deemed to have been effectively given when faxed or mailed by registered or certified mail to the proper address or when delivered in person. Section 8.6. Headings. The titles of the Articles and the headings of -------- the Sections of this Agreement are for convenience of reference only, and are not to be considered in construing the terms and provisions of this Agreement. 24 Section 8.7. Construction and Interpretation. Whenever possible, the provisions of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if' any provision of this Agreement shall be unenforceable or invalid under any applicable law, such provision shall be ineffective only to the extent of such unenforceability or invalidity, and the remaining provisions of this Agreement shall continue to be binding and in full force and effect. [SIGNATURES ON NEXT PAGE] 25 IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first set forth above. CLASS A GENERAL PARTNER: LIMITED PARTNERS: ENCORE CAPITAL (TEXAS), L.P. ENCORE II, INC. By: ENCORE MANAGEMENT, LLC, its general partner By: /s/ Don C. Merrell ------------------ Name: Don C. Merrell Title: Vice President By: /s/ Richard Beckwitt --------------------- Name: Richard Beckwitt Title: Member CLASS B GENERAL PARTNER: /s/ Richard Beckwitt --------------------------- RICHARD BECKWITT ENCORE I, INC. By: /s/ Donald R. Horton ----------------------- Name: Donald R. Horton Title: Chairman 26 ENCORE VENTURE PARTNERS II (TEXAS), L.P. SCHEDULE OF CAPITAL CONTRIBUTIONS PART I General Partners Initial Capital Capital - ----------------------------------- Contribution Commitment(1)(2) Name and Address ----------------- ----------------- - ----------------------------------- ENCORE CAPITAL (TEXAS), L.P. 1901 Ascension Blvd. $0 $0 Arlington, Texas 76006 Attn: General Partner ENCORE I, INC. $10 $500,000 1901 Ascension Blvd. Suite 100 Arlington, Texas 76006 Attn: D.R. Horton PART II Limited Partners Initial Capital Capital - ----------------------------------- Contribution Commitment(1)(2) Name and Address ---------------- ----------------- - ----------------------------------- ENCORE II, INC. $990 $49,500,000 7001 N. Scottsdale Rd. Suite 2050 Scottsdale, AZ 85253 Attn: Don C. Merrell RICHARD BECKWITT $0 $100,000 1901 Ascension Blvd. Arlington, Texas 76006 (1) Includes Initial Capital Contribution. (2) Subject to termination as provided in Section 3.1(a)(ii). 27 EX-27 6 FDS FOR D.R. HORTON, INC.
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and Consolidated Statements of Income found on pages 3 and 4 of the Company's Form 10-Q for the year-to-date, and is qualified in its entirety by reference to such financial statements. 1000 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 85397 0 0 0 2151667 2328497 40335 0 2625103 344816 0 0 0 644 861433 2625103 1585678 1607804 1290959 1290959 0 0 7562 132204 50238 81966 0 0 0 81966 1.32 1.31
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