-----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, O2ego+GpQPfktU3Tht9pKKIH2qkjjO6DKmPr1n6xc7dyU9f/wyQYB4hbAEJKP+WU a1jP+JUr1yAlILlCFrl5Iw== 0000950144-97-003539.txt : 19970401 0000950144-97-003539.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003539 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORIOLE HOMES CORP CENTRAL INDEX KEY: 0000074928 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 591228702 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06963 FILM NUMBER: 97570624 BUSINESS ADDRESS: STREET 1: 1690 S CONGRESS AVE STE 200 CITY: DELRAY BEACH STATE: FL ZIP: 33445 BUSINESS PHONE: 4072742000 FORMER COMPANY: FORMER CONFORMED NAME: ORIOLE LAND & DEVELOPMENT CORP DATE OF NAME CHANGE: 19720615 10-K405 1 ORIOLE HOMES 10-K405 12/31/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K Annual Report pursuant to Section 13 of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 File No. 1-6963 ORIOLE HOMES CORP. ------------------------------------------------------------------ 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (561) 274-2000 Florida 59-1228702 ------------------------ --------------------- (State of Incorporation) (I.R.S. Employer I.D.) Securities registered pursuant of Section 12(b) of the act: Name of Each Exchange on Title of Each Class Which Registered - ------------------------------------ ------------------------ Class A Common Stock, $.10 par Value American Stock Exchange Class B Common Stock, $.10 par Value American Stock Exchange 12 1/2% Senior Notes due 2003 ---------- The Registrant (1) HAS filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding twelve months; and (2) HAS been subject to the filing requirements for at least the past 90 days. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]. As of March 17, 1997, the Company had outstanding 1,874,949 shares of its Class A Common Stock and 2,750,575 shares of its Class B Common Stock. The aggregate market value of voting stock held by non-affiliates of the Registrant is $24,173,243 as of March 17, 1997. Part II is partially incorporated by reference from the Registrant's Annual Report to Shareholders for the year ended December 31, 1996, and Part III is incorporated by reference from the Registrant's Proxy statement for the 1997 Annual Meeting. 2 PART I ITEMS 1 AND 2 BUSINESS AND PROPERTIES - ------------- ----------------------- Oriole Homes Corp. ("Oriole" or the "Company") has built and sold single-family homes, patio homes, townhouses, villas, duplexes and low- and mid-rise condominiums in planned communities in southeast Florida since 1963. During each of the last five years, Oriole was the largest builder of condominiums for active adults in Palm Beach County, both in dollar volume and number of units sold. The Company's attributes have been, (i) construction of quality homes within communities that offer a wide range of amenities, (ii) satisfied customers who provide a continual source of referrals, (iii) offering a wide selection of moderately priced housing, (iv) extensive knowledge of the southeast Florida market, (v) effective cost control policies, and (vi) a land acquisition and development strategy that permits development and construction in phases, and ensures availability of strategically located land for future development. The Company will continue to adhere to most of its prior attributes but will also refine and adopt new strategies as it determines appropriate to meet evolving market conditions. In this regard, the Company is now extending its geographic market into Bonita Springs (southwest Florida) and the Ocala (central Florida) area to take advantage of the accelerated growth in those communities. It is also reducing its reliance on purchasing large tracts of land and building a large variety of homes in a community. The combination of land carrying costs and a reduction in the rate of price appreciation is making it prudent to purchase property that is ready for immediate development. Going forward, the Company wil place greater emphasis on analyzing current trends and then taking advantage of opportunities in the market. Approximately 64 percent of Oriole's revenues are derived from sales in communities designed exclusively for active adults (age 55 and over), the fastest growing demographic segment in the United States. The Company alters its product mix to meet changes in the housing preferences of this market, which enjoys a high percentage of discretionary income. Home prices range from $117,000 to $280,000 in the Company's active adult communities. In 1996, approximately 64 percent of Oriole's sales of homes and condominiums in communities designed for active adults were cash sales. The sales prices of Oriole's residences averaged approximately $165,283 for condominiums and $177,254 for single-family homes during the year ended December 31, 1996. The Company was incorporated in the State of Florida in 1968 as the successor to six corporations engaged in the construction and sale of single-family homes since 1963. Unless the context otherwise requires, the terms "Company" and "Oriole" refer to Oriole Homes Corp. and its consolidated subsidiaries. The Company's principal executive offices are located at 1 3 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445, and its telephone number is (561) 274-2000. HOME BUILDING DATA (IN 000'S) The following table sets forth information concerning sales, new contracts and backlog for each of the past five years for the Company's single-family homes, patio homes, townhomes, villas, duplexes and low- and mid-rise condominiums.
Years Ended December 31, (Dollars in Thousands) ----------------------------------------------- 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Total Sales Sales value $ 89,423 $ 98,302 $110,116 $ 73,409 $100,661 Number of homes 708 771 775 433 597 Total New Contracts Sales value $ 91,216 $108,180 $100,109 $ 79,410 $110,122 Number of homes 743 788 661 483 670 Total Backlog (1) Sales value $ 29,477 $ 39,355 $ 29,348 $ 35,349 $ 44,810 Number of homes 240 257 143 193 266
- ---------- (1) Backlog as of the end of the period. The Company expects to fill substantially all backlog, both in number of homes and dollar amount, within a twelve month period. It typically takes the Company four to eight months after receipt of a sales contract to build and deliver the completed home to the purchaser. The Company's backlog historically tends to increase between January and May. These contracts are generally with active adults who are planning their retirement and desire occupancy of their homes in the months of October through December. OPERATING POLICIES QUALITY CONSTRUCTION AND DIVERSE AMENITIES. The Company is a developer of moderately-priced residential housing and related amenities, which create a total lifestyle unique to Oriole communities. The Company's communities include extensive recreational facilities, which range from social clubhouses and swimming pools in its single-family communities to multi-million dollar clubhouses, with tennis courts, indoor and outdoor swimming pools, theaters for the performing arts and health clubs/spas, in its active adult communities. 2 4 The development of planned communities and the construction of such amenities require financial resources unavailable to many home builders, thereby limiting the number of builders that might otherwise compete directly with the Company. The Company believes that its planned communities appeal to purchasers and permit the Company to offer its customers various housing products in one location. The Company has built over 21,500 homes in southeast Florida, and satisfied purchasers provide the Company with a continual source of referrals. PRODUCT DIVERSIFICATION. The Company's homes appeal to a wide variety of buyers and lifestyles. Accordingly, the Company offers a diversity of home styles and price ranges at various locations. The Company sells single-family homes, patio homes, townhomes, villas, duplexes and low- and mid-rise condominiums. Home designs are continually reviewed and refined to reflect changing tastes. Sales prices presently range from approximately $90,000 to $400,000, and the average sales price of homes delivered during 1996 was approximately $168,600. See "Communities Currently Under Development or Construction." FLORIDA MARKET. The Company's residential developments are all located in the State of Florida and primarily in Southeast Florida (Broward, Palm Beach and Martin Counties). The Company also has developments in Bonita Springs and the Ocala area, Florida. COST CONTROLS AND COMPANY POLICIES. The Company has attempted to control costs by (i) acquiring large tracts of undeveloped land and developing the land in phases, (ii) developing planned communities, which permit the Company to take advantage of certain economies of scale, (iii) generally beginning construction only when homes are under contract, and (iv) acting as general contractor and hiring subcontractors on a fixed-price or other cost-effective basis. The Company's general policy is not to begin construction of single-family homes prior to the execution of a sales contract, which minimizes the costs and risk of completed but unsold inventory. The Company maintains a limited inventory of completed homes for sale. There were 21 single family homes completed and unsold in inventory (not including model homes) at December 31, 1996. In many instances, the Company will begin multi-family construction (duplex, townhouse, villa and multi-story complexes) when sales contracts are in effect for a predetermined percentage of the units. As of December 31, 1996, the Company's inventory included 78 unsold completed units in multi-family projects. LAND ACQUISITION AND DEVELOPMENT. The Company selects locations for its developments on the basis of accessibility to major highways and thoroughfares, proximity to shopping areas, medical facilities and community cultural and recreation centers. The Company generally acquires large tracts of land that require site improvements prior to 3 5 construction. The tracts of land are separated into phases for both development and construction. The Company typically acquires land on which construction can begin within three years. The Company spends considerable effort in developing design and marketing concepts for each of its communities. The design concepts determine the size, style and price range of homes, the layout of streets and individual lots and the overall community design. The product line offered in a particular community depends upon many factors, including the housing generally available in the area, the needs of the particular market and the cost of building lots. After finalizing the design concepts, the Company undertakes development activities that include site planning and engineering, construction of roads, sewer, water and drainage facilities, recreational facilities and other amenities. 4 6 RESIDENTIAL PROJECTS AND PRODUCT LINES The following table summarizes information as of December 31, 1996 with respect to the Company's principal projects under development or construction during 1996.
Units Sold Units Sold Name and Year Total and and Location of Development Units Delivered Delivered Units Under Units Under Remaining Development Started Type Planned Thru 1996 in 1996 Construction(1) Contract Units(2) ----------- ------- ---- ------- --------- --------- --------------- -------- -------- At December 31, 1996 --------------------------------------- Lakeshore at 1981 Mixed 1,160 426(3) -- -- -- 200 University Park Miramar Country Glen 1993 Single 300 70 43 22 30 200 Cooper City Family Cypress Bend 1980 Mixed 1,583 1,551(4) 2 -- -- -- Pompano Beach Sandpiper Landing 1995 Single 145 18 18 23 28 99 Coconut Creek Family Boca Springs 1990 Single 214 214 1 -- -- -- Boca Raton Family Fairway Point 1993 Active 60 59 17 -- -- 1 Boca Raton Adult Coral Lakes 1992 Active 1,253(6) 332 145 61 71 850 Delray Beach Adult Palm Isles 1991 Active 992 888 94 12 8 96 Boynton Beach Adult Majestic Isles 1994 Active 450 80 76 65 48 322 Boynton Beach Adult Palm Isles West 1995 Active 235 36 36 19 17 182 Boynton Beach Adult
5 7 RESIDENTIAL PROJECTS AND PRODUCT LINES - Continued
Units Sold Units Sold Name and Year Total and and Location of Development Units Delivered Delivered Units Under Units Under Remaining Development Started Type Planned Thru 1996 in 1996 Construction(1) Contract Units(2) ----------- ------- ---- ------- --------- ---------- --------------- -------- -------- At December 31, 1996 --------------------------------------- Cypress Woods 1989 Single 152 62(5) 22 -- -- -- Lake Worth Family Summer Chase 1989 Active 221 129 19 7 9 83 Lake Worth Adult Whispering Sound 1991 Active 230 133 40 12 12 85 Palm City/Stuart Adult Sandpiper Isles 1995 Mixed 116(6) 18 17 4 4 94 Bonita Springs Sandpiper Greens 1995 Mixed 60 4 4 -- 1 55 Bonita Springs Stonecrest 1995 Active 239(7) 63 63 23 38 138 Ocala Adult
(1) Includes model units. (2) Includes model units and potential units to be constructed. (3) Does not include 535 rental units. (4) Does not include 32 rental units. (5) Does not include 90 lots sold. (6) Reduction in original number of units planned. (7) Includes purchase of additional land. 6 8 COMMUNITIES UNDER DEVELOPMENT OR CONSTRUCTION COUNTRY GLEN is a community of single-family homes located in Cooper City, Florida. The community consists of 300 units with recreational facilities and is presently under development and construction. Prices range from $230,000 to $390,000. SANDPIPER LANDING is a 240 acre master planned private gated community consisting of 145 3 and 4 bedroom, two-car garage residences, priced from $125,000 to $160,000, located in Coconut Creek, Florida. CORAL LAKES is an active adult community at Delray Beach. The community of 1,253 units features condominiums in two- and four-story buildings, villas, duplexes and a section of single-family residences with two-car garages. Prices range from $98,000 to $183,000. This community has a multi-million dollar on-site clubhouse and spa, similar to but larger than the completed facility at Palm Isles, and also feature satellite swimming pools. PALM ISLES is an active adult community of 992 residences at Boynton Beach. Prices in this community range from $125,000 to $135,000, and home styles include villas, duplexes, lakefront two-story condominiums and single-family residences. The community has a multi-million dollar on-site clubhouse and spa with eight tennis courts. The community also features satellite swimming pools. PALM ISLES WEST, an active adult community in Boynton Beach, features 235 duplexes and single-family residences priced from $123,000 to $184,000. Residents of this community will share Palm Isles' multi-million dollar clubhouse, spa, and tennis courts, plus enjoy the convenience of a satellite swimming pool and sun deck within Palm Isles West. MAJESTIC ISLES is an active adult community of 450 duplexes and single-family residences located in Boynton Beach. Prices range from $121,000 to $183,000. The community will feature an intimate, luxury clubhouse with swimming pool and tennis courts. CYPRESS WOODS is a single-family home community located in Lake Worth and consists of 152 luxury single-family homes. Prices are from $150,000 to $185,000. Recreational facilities include a private family park area with basketball, tennis courts and a play area for children. This community was sold out in 1996. SUMMER CHASE is a community for active adults located in Lake Worth. The community features 221 single-family residences with two-car garages. The price range is from $138,000 to $162,000. A social clubhouse is available to all residents along with tennis courts and pool. 7 9 WHISPERING SOUND is an active adult community of 230 duplex residences located in Martin County at Palm City/Stuart. The residences range in price from $110,000 to $118,000. The community includes natural preserved areas offering backyard privacy for nearly every residence. The social clubhouse is available to all residents along with tennis courts and pool. SANDPIPER ISLES is a 116 home neighborhood of luxury 3 bedroom, 2 bath coach homes surrounded by lakes and preserves, priced from $185,000 and luxury 3 bedroom, 3 1/2 bath mid-rise condominiums, priced from $225,000, all with private social clubhouse, lakeside pool and gated entry, located in Bonita Springs, Florida. SANDPIPER GREENS is a neighborhood of sixty 3 bedroom, 2 bath garden mid-rise residences adjoining a country club with a championship 18-hole golf course, priced from $170,000 to mid $200's, located in Bonita Springs, Florida. Residents have the option of becoming members of such country club. ORIOLE AT STONECREST is a 239 home active adult community consisting of 2 and 3 bedroom single-family homes and villas, priced from $90,000 to $125,000, offering championship golf, social recreational clubhouse with pool, located in Marion County close to Ocala, Florida. CONSTRUCTION The Company acts as the general contractor for the construction of its developments except in the Bonita Springs and Ocala projects. Company employees monitor the construction of each project, participate in design and building decisions, coordinate the activities of subcontractors and suppliers, maintain quality and cost controls and monitor compliance with zoning and building codes. Subcontractors typically are retained for a specified phase of development pursuant to a contract that obligates the subcontractor to complete construction at a fixed price. Agreements with the Company's subcontractors are generally entered into after competitive bidding. The Company does not have any long-term contractual commitments with any of its subcontractors. The Company generally constructs single-family homes only after the execution of a sales contract. The Company attempts to minimize cancellations by requiring a down payment and qualifying its customers for mortgage approval prior to commencement of construction. The Company offers a variety of options for each of its homes. These options permit buyers to customize their homes and permit the Company to offer variations on standard models while maintaining the efficiencies of a production builder. The 8 10 Company believes the availability of these options increases the appeal of the Company's homes and makes them suitable to the needs of a wide variety of buyers. At December 31, 1996, the Company employed approximately 61 people in the construction operation. Most construction materials are obtained by subcontractors and are readily available from numerous sources. The Company has not experienced any material delays in construction due to shortages of materials or labor, however, the fact that there has been a significant increase in construction activities in southeast Florida could result in the Company or its subcontractors experiencing shortages in the labor market. MARKETING AND SALES The Company sells its homes through sales managers and independent commissioned salespersons, who typically work in model sales centers or from sales offices located in model homes and condominiums in the Company's communities. The Company also cooperates with independent real estate brokers. The Company trains sales personnel on the availability of financing, construction schedules, marketing and advertising plans. The Company's sales and marketing organization consists of approximately 69 Company employees and sales personnel, all of whom are licensed real estate agents in the State of Florida. The concentration of the Company's projects in southeast Florida permits the Company to engage independent commission salespersons on a long-term, rather than a project-by-project basis, which management believes results in reduced training costs and a more motivated sales force with extensive knowledge of the Company's operating policies and housing products. The Company advertises in newspapers and magazines, by direct mail and on billboards. In fiscal 1996, the Company's aggregate advertising costs were approximately $2.1 million. The Company maintains model homes and condominiums in all its communities, and management believes that these model units play a particularly important role in the Company's marketing efforts. The Company expends a significant effort in creating an attractive atmosphere at its models, where interior decorations are based upon the lifestyles of the target buyers. COMPETITION AND MARKET FACTORS The business of developing and selling residential properties is highly competitive and fragmented. The Company competes with numerous large and small builders on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price. Some of these competing builders have nationwide operations and greater financial resources. The Company's products must also compete with resales of existing homes and condominiums and available rental housing. Management 9 11 believes that the Company's primary competitive strengths have been (i) satisfied customers who provide a continual source of referrals, (ii) its ability to offer quality residences with certain customized features at a wide range of prices, (iii) the location of its communities, and (iv) its reputation for service, innovative design and value pricing. The Company maintains a strong position in the active adult community market in southeast Florida and has been the leading builder of condominiums in Palm Beach County in each of the last five years. The Company focuses on providing a high-quality, active lifestyle for adults. The housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. A variety of other factors affect the housing industry and the demand for new homes, including the availability and increase in the cost of labor and materials, changes in costs associated with home ownership, such as increases in property taxes and energy cost, changes in consumer preferences, demographic trends and the availability of mortgage financing programs. CUSTOMER FINANCING The Company works with a number of mortgage lenders to provide home buyers with a variety of conventional mortgage financing programs. By making available a variety of attractive mortgage programs, the Company is able to better coordinate and expedite the entire sales transaction by assuring that mortgage commitments are obtained and that closings take place on a timely and efficient basis. In 1996, approximately 64 percent of Oriole's sales of homes and condominiums were cash sales. RENTAL APARTMENTS The Company owns 480 rental units known as The Pier Club, in Miramar, Florida. The Company also rents an additional 55 units in other developments. The Company rents these apartments, typically under one-year leases. The Company's future plans do not presently include the construction of any additional rental communities. JOINT VENTURES As of December 31, 1996, Oriole had funded $5.1 million in a joint venture with Regency Homes, Inc., a prominent builder of residential housing in South Florida. The joint venture project, funded in 1993, approved for 1,100 units known as Regency Lakes was entered into in 1994. Oriole Homes Corp. has purchased from the joint venture 145 sites for $3.3 million. Also as of December 31, 1996, Oriole has funded $1.4 million in a joint venture with Gordon Family Homes, Inc., a builder of luxury homes in Delray Beach, Florida. The 10 12 project will contain 89 single family home and is located on Jog Road south of Linton Boulevard in Palm Beach County, Florida. GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS In developing a community, the Company must obtain the approval of numerous government authorities that regulate such matters as permitted land uses, density levels, the installation of utilities such as water, drainage and waste disposal, and the dedication of acreage for open space, parks, schools and other community purposes. Several authorities in Florida, including Broward and Palm Beach counties, have imposed impact fees as a means of defraying the costs of providing certain governmental services to developing areas. The amount of these impact fees has increased significantly during recent years. Building codes in these counties require the use of specific construction material which increases the energy efficiency of homes. In addition, each county in which the Company is building has imposed restrictive zoning and density requirements in order to limit the number of persons who live and work within their boundaries. Counties and cities within the State of Florida have also, at times, declared moratoriums on the issuance of building permits and imposed other restrictions in the areas where sewage treatment facilities and other public facilities do not reach minimum standards. To date, restrictive zoning laws and imposition of moratoriums have not had a material adverse effect on the Company's development activities. However, there is no assurance that such restrictions will not adversely affect the Company in the future. The Company is also subject to a variety of federal, state and local statutes, ordinances, rules and regulations concerning protection of the environment. Environmental laws vary greatly depending on the community's location, the site's environmental conditions and the present and former uses of the site. These environmental laws may result in delays, causing the Company to incur substantial compliance and other costs, and prohibit or severely restrict development. Prior to consummating the purchase of land, the Company engages independent environmental engineers to evaluate such land for the presence of hazardous or toxic materials, wastes, or substances. The Company has not been adversely affected to date by the presence or potential presence of such materials, but there is no assurance that environmental problems will not adversely affect the Company in the future. Certain permits and approvals will be required to complete the communities under development and currently being planned by the Company. The ability to obtain necessary permits and approvals is often beyond the Company's control and could restrict or prevent the development of otherwise desirable property. The length of time necessary to obtain permits and approvals increases the carrying costs of unimproved property. In addition, the continued effectiveness of permits already granted is subject to 11 13 factors such as changes in policies, and the interpretation and application of rules and regulations. The Florida Local Government Comprehensive Planning and Land Development Regulation Act (the "Act") provides that public facilities, including, but not limited to, sewer, solid waste, drainage, potable water, parks, roads and recreation facilities, shall be available concurrently with the impact of land development projects that would use such facilities. This requirement is known as the "concurrency" requirement. Counties and cities are required to implement concurrency by adopting local comprehensive plans and land development regulations. These plans and regulations establish the guidelines for concurrency review and the exemptions from the concurrency requirement. All of the Company's development projects in Palm Beach and Broward Counties have been found to satisfy concurrency requirements. The Company must also comply with regulations by federal and state authorities relating to the sale and advertising of residential real estate. In order to advertise and sell condominiums, the Company has been required to prepare registration statements or other disclosure documents and, in some cases, to file such materials with designated regulatory agencies. The Company advertises its condominium units in New York and has prepared registration statements in connection with sales in New York and in the State of Florida. The State of Florida requires that customer deposits be held in segregated bank accounts. As of December 31, 1996, the Company has posted bonds of $2.5 million and had entered into an escrow agreement with a bank and the State of Florida that allows the Company to use customer deposits. See Note I of Notes to Consolidated Financial Statements. 12 14 EMPLOYEES The Company employs approximately 218 persons, of whom approximately 46 are executive and supervisory personnel. The Company has had no major work stoppages as a result of labor disputes and believes that relations with its employees and its subcontractors are good. CORPORATE HEADQUARTERS The Company rents 22,500 square feet of space in a two-story office building. The lease expires January 1, 1998. The Company has the option to renew such lease for an additional five year period. See Note N of Notes to Consolidated Financial Statements. ITEM 3 LEGAL PROCEEDINGS The Company is a party to various lawsuits, all of which are of a routine nature and are incidental to the Company's present business activities. These proceedings are not material, nor would the adverse resolution thereof materially affect the business or properties of the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDER No matters were submitted to security holders during the 4th quarter. The annual Meeting of Shareholders of the Registrant has been scheduled for May 22, 1997. The Company will file its definitive proxy material pursuant to Regulation 14, prior to April 30, 1997. PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Information required by this item is incorporated by reference to the Registrant's 1996 Annual Report to Shareholders. ITEM 6 SELECTED FINANCIAL DATA Information required by this item is incorporated by reference to the Registrant's 1996 Annual Report to Shareholders. 13 15 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW General. The following table sets forth for the periods indicated certain items of the Company's Consolidated Financial Statements expressed as a percentage of the Company's total revenues:
Percentage of Total Revenues Years Ended December 31, 1994 1995 1996 ---- ---- ---- Sale of houses and condominiums 91.8% 89.3% 90.2% Sale of land 1.6 2.0 1.5 Other operating revenues 2.8 3.7 2.8 Interest, rentals and other income 3.6 4.8 3.4 Gain on sale of property and land held for investment, net 0.2 0.2 2.1 Selling, general and administrative expenses 13.6 18.9 15.5 Net income (loss) 3.4 (14.3) 0.1
Backlog. The following table sets forth the Company's backlog at December 31, 1994, 1995 and 1996.
December 31, Number of Units Aggregate Dollar Value - ------------ --------------- ---------------------- 1994 143 $29,348,000 1995 193 $35,349,000 1996 266 $44,810,000
The Company's backlog generally represents units under contract for which a full deposit has been received, any statutory rescission right has expired, and in the case of a mortgage contingency, the buyer has been qualified for a mortgage loan. The Company generally fills all backlog within twelve months. The Company estimates that the period between receipt of a sales contract and delivery of the completed home to the purchaser is four to eight months. The Company's backlog historically tends to increase between January and May. Trends in the Company's backlog are subject to change from period to period for a number of economic conditions including consumer confidence levels, interest rates and the availability of mortgages. 14 16 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 The Company's revenues from home sales increased $27.3 million (or 37.1%) during the calendar year 1996 as compared to the same period in 1995. The Company delivered 597 homes in 1996 compared to 433 in 1995, with a decrease of 0.5% in the average selling price of homes delivered (from $169,500 to $168,600). The number of new contracts signed (670) and the aggregate dollar value of those new contracts ($110.1 million) increased in 1996 from 483 and $79.4 million, repectively, in 1995. The average selling price of new contracts entered into in 1996 was $164,361, which was subtantially the same as 1995. Other operating revenues increased to $3.2 million during 1996 from $3.1 million in 1995 due to a lower vacancy rate on our rental apartments. Interest, rentals and other income decreased to $3.8 million in 1996 from $4.0 million in 1995 due to a lower return on joint venture investments. Cost of home sales increased to $87.6 million in 1996 from $62.2 million in 1995 primarily as a result of an increase in the number of homes delivered. As a percentage of home sales, cost of home sales increased to 87.1% in 1996 from 85.7% in 1995 due to the absorption of higher construction costs and the impact of higher previously capitalized interest. It should be noted that the Company's gross margins during 1996 were adversely impacted by the decision made last year to reduce prices on certain models in order to spur sales at some of our communities. This action was undertaken following an evaluation of the marketplace in 1995 resulting in a determination that there was growing buyer resistance to the higher home prices the Company was seeking to obtain. The Company's higher prices resulted from increases in costs of building homes due to increases in material and labor costs, new building code provisions and accumulated capitalized interest on units in older subdivisions. Throughout 1996, the Company focused its efforts on promoting its reduced pricing in the marketplace and generating sales and cash flow. At the same time, the Company has sought to introduce new models that can be priced competitively and sold at a faster pace. The Company believes that through these efforts it will be able to increase cash flow, reduce interest expense and increase net income. There can be no assurance that the Company will be successful in these efforts. Selling, general and administrative expenses ("SG&A") increased to $17.3 million in 1996 from $15.5 million in 1995, but as a percentage of total revenues, these expenses decreased to 15.5% in 1996 from 18.9% in 1995. The Company's interest cost incurred in 1996 was $11.0 million as compared to $10.7 million the same period in 1995. 15 17 Net income increased to $0.08 million in 1996 from a net loss of $11,761,564 in 1995. Included in these net results are non cash pre-tax writedowns of $1.7 million in 1996 and $13.9 million in 1995, pertaining to the carrying cost of certain land inventory. Included in net results for 1996 is a pre-tax gain of $2,355,119 on the sale of non-residential parcels of land, the sale of a Recreation Lease and the sale of a group of residential lots. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 The Company's revenues from home sales decreased $36.7 million (or 33.3%) during the calendar year 1995 as compared to the same period in 1994. The Company delivered 433 homes in 1995 compared to 775 in 1994, with an increase of 19.3% in the average selling price of homes delivered (from $142,100 to $169,500). The increase in the average selling price per home is primarily the result of the Company's entry into an upscale condominium community where the average selling price is $565,000 and a single family home community where the average selling price is $272,000. The decrease in home sales is believed to be the result of resistance to higher home prices that were precipitated by increases in material costs and by new building codes requiring greater hurricane protection. Also, resales were weak thoughout the country which negatively affected the ability of the Company's prime customers, active adults, to sell their present homes and use those funds to purchase retirement homes in Florida. The number of new contracts signed (483) and the aggregate dollar value of these new contracts ($79.4 million) decreased in 1995 from 661 and $100.1 million in 1994. The Company's backlog has increased from $29.3 million at December 31, 1994 to $35.3 million as of December 31, 1995. A decrease in interest rates in the second half of 1995 contributed to a larger number of new sales contracts received by the Company and this trend continued in early 1996 and is expected to remain through 1996. Other operating revenues decreased to $3.1 million during 1995 from $3.4 million in 1994 primarily as a result of higher vacancies in the rental units project. Interest, rentals and other income decreased to $4.0 million from $4.3 million in 1994. Cost of home sales decreased to $62.2 million in 1995 from $91.8 million in 1994 as a result of a decrease in the dollar volume of homes delivered. As a percentage of home sales, cost of home sales increased to 84.8% from 83.4% due to increased competition, the absorption of higher construction costs and the impact of higher previously capitalized interest. 16 18 Selling, General and Administrative expenses ("SG&A") decreased to $15.5 million in 1995 from $16.3 million in 1994, but as a percentage of total revenues, these expenses increased to 18.9% from 13.6% in the same period of 1994. Interest costs incurred in 1995 increased to $10.7 million from $10.4 million in 1994. The Company incurred a net loss for the year ended December 31, 1995 of $11.8 million or $2.54 per share, after a non-cash pre-tax write down of $13.9 million as of December 31, 1995, pertaining to the carrying cost of certain land inventory. In 1994 the Company had a net income of $4.1 million or $.89 per share. The write-down affects the carrying cost of land inventory for approximately 360 unsold housing units located in three developments originally purchased in 1989 and 1991. Land inventories are carried at cost, plus accumulated development and construction costs, including capitalized interest and real estate taxes. As these developments are among the Company's oldest and slower selling projects, they have been materially affected by the accumulated cost allocations. As a result, the accumulated cost of this inventory was in excess of its net realizable value. Results for 1995 also include a reduction of $686,744 in the Company's reserve for construction defects, which reflects unused warranty reserve related to finished projects. LIQUIDITY AND CAPITAL RESOURCES The Company's financing needs depend primarily upon sales volume, asset turnover, land acquisition, inventory balances and disposition of non-residential parcels of land. The Company has financed its working capital needs through funds generated by operations, sale of land, borrowings and the periodic issuance of common stock. On January 13, 1993, the Company issued $70.0 million of its 12 1/2% Senior Notes ("Notes") due January 15, 2003. The Notes are senior unsecured obligations of the Company subject to redemption, at the Company's option, on or after January 15, 1998 at 105% of the principal amount and thereafter at prices declining annually to 100% on or after January 15, 2001. The indenture under which the Notes were issued requires sinking fund payments of $17.5 million on January 15, 2001 and January 15, 2002. The indenture contains provisions restricting the amount and type of indebtedness the Company may incur, the purchase by the Company of its stock and the payment of dividends. At December 31, 1996, dividend payments were restricted and will continue to be restricted until the Company posts cumulative net income in excess of $20.5 million. The Company had, as of December 31, 1996, a $20.0 million revolving line of credit of which $17.3 million was available at a rate of prime plus 1.5%, which line expires on July 1, 1997. This line is secured by assets aggregating not less than 2 times 17 19 the amount of the line and in addition to typical restrictions and covenants the Company must: a) maintain a consolidated tangible net worth of not less than $60.0 million. b) The issuance of additional debt is restricted by covenants in the agreement. The Company anticipates that it would be able to either renew its existing line of credit or obtain a new line of credit on terms satisfactory to the Company prior to the expiration of the existing line. This line can be used to finance ongoing development, construction of residential real estate and other short-term capital needs. The Company had outstanding an aggregate balance of approximately $12.6 million of a purchase money mortgage at an interest rate of 7.15% which is collateralized by land and buildings. Of this mortgage, $.2 million is due in 1997 and $12.4 million is payable by 2003. INFLATION The Company, as well as the home building industry in general, may be adversely affected during periods of high inflation, primarily because of higher land and construction costs. In addition, higher mortgage interest rates may significantly affect the affordability and availability of permanent mortgage financing to prospective purchasers. Inflation also increases the Company's cost of labor and materials. The Company attempts to pass through to its customers any increases in its costs through increased selling prices. During the last three years, the Company has experienced a reduction in gross margins on the sale of homes. In some part, these reduced margins are the result of the Company being unable to raise selling prices and pass on increased construction and capitalized interest costs. There is no assurance that inflation will not have a material adverse impact on the Company's future results of operations. ACCOUNTING METHODS The Company is required to apply the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes guidance for when to recognize and how to measure impairment losses of long-lived assets and certain identifiable intangible assets. The Company was required to implement this standard in its fiscal year 1996. The implementation of SFAS 121 did not have a material effect on the Company's financial position or results of operations. The Company is required to apply the provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No.123"), "Accounting for Stock-Based Compensation." The Company is required to present additional disclosures regarding the fair value of stock options. The Company was required to implement this standard in fiscal year 1996. The implementation of SFAS No. 123 did not have a material effect on the Company's financial position or results of operations. 18 20 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ---- ---- Cash and cash equivalents $ 2,409,376 $ 3,275,615 Receivables Mortgage notes (Note B) 277,205 280,562 Due at closing -- 114,700 Income taxes (Note H) 2,398,914 1,660,846 ------------ ------------ 2,676,119 2,056,108 ------------ ------------ Inventories (Notes A and C) Land 90,105,428 103,435,218 Houses and condominiums completed or under construction 51,080,872 48,306,006 Model houses and condominiums 4,776,274 3,386,194 ------------ ------------ 145,962,574 155,127,418 Less estimated costs of completion included in inventories 14,184,967 23,699,916 ------------ ------------ 131,777,607 131,427,502 ------------ ------------ Property and equipment (at cost) (Notes A and N) Land 7,046,758 7,168,046 Buildings 20,728,053 22,283,655 Furniture, fixtures and equipment 4,724,882 5,445,387 ------------ ------------ 32,499,693 34,897,088 Less accumulated depreciation 9,648,463 10,892,078 ------------ ------------ 22,851,230 24,005,010 ------------ ------------ Other Prepaid expenses 2,709,076 2,378,932 Unamortized debt issuance costs 1,810,237 2,098,760 Investment in and advances to joint ventures (Note E) 6,531,000 5,625,000 Land held for investment (at cost) 2,346,772 3,001,783 Deferred income taxes (Note H) -- 458,375 Other assets 2,434,473 5,151,232 ------------ ------------ 15,831,558 18,714,082 ------------ ------------ Total assets $175,545,890 $179,478,317 ============ ============
(continued) 19 21 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED DECEMBER 31, LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995 ---- ---- Liabilities Line of credit (Note F) $ 2,700,000 $ 8,500,000 Mortgage notes payable (Note G) 12,641,501 15,041,573 Accounts payable 10,742,182 7,328,804 Customer deposits (Note I) 7,583,571 6,072,046 Accrued expenses and other liabilities (Note J) 6,588,489 8,393,132 Deferred income taxes (Note H) 1,387,473 -- Senior notes (Note K) 66,155,936 66,481,313 ------------ ------------ Total liabilities 107,799,152 111,816,868 ------------ ------------ Shareholders' equity (Notes L and M) Class A common stock, $.10 par value Authorized - 10,000,000 shares issued and outstanding - 1,874,949 in 1996 and 1,891,249 in 1995 187,495 189,125 Class B common stock, $.10 par value Authorized - 10,000,000 shares issued and outstanding - 2,750,575 in 1996 and 2,734,275 in 1995 275,058 273,428 Additional paid-in capital 19,267,327 19,267,327 Retained earnings 48,016,858 47,931,569 ------------ ------------ Total shareholders' equity 67,746,738 67,661,449 ------------ ------------ Total liabilities and shareholders equity $175,545,890 $179,478,317 ============ ============
The accompanying notes are an integral part of these statements. 20 22 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1996 1995 1994 ---- ---- ---- Revenues Sales of houses and condominiums $ 100,661,096 $ 73,409,093 $ 110,116,572 Sales of land 1,649,356 1,610,441 1,959,779 Other operating revenues 3,171,936 3,070,455 3,365,024 Gain on sales of property and land held for investment, net 2,355,119 173,619 202,374 Interest, rentals and other income (Note N) 3,781,788 3,972,662 4,333,548 ------------- ------------- ------------- 111,619,295 82,236,270 119,977,297 ------------- ------------- ------------- Costs and expenses Cost of houses and condominiums sold 87,645,345 62,232,488 91,778,577 Non-recurring charge to inventory (Note C) 1,723,130 13,917,025 -- Cost of land sold 1,714,696 1,384,516 1,726,119 Costs relating to other operating revenues 3,017,109 3,180,214 2,804,767 Selling, general and administrative expenses 17,312,095 15,532,512 16,313,685 Interest costs incurred 11,010,976 10,653,413 10,430,616 Interest capitalized (deduct) (10,336,279) (9,898,999) (9,736,452) ------------- ------------- ------------- 112,087,072 97,001,169 113,317,312 ------------- ------------- ------------- (Loss) income before (benefit from) provision for income taxes (467,777) (14,764,899) 6,659,985 (Benefit from) provision for income taxes (Note H) (553,066) (3,003,335) 2,523,065 ------------- ------------- ------------- Net income (loss) $ 85,289 $ (11,761,564) $ 4,136,920 ============= ============= ============= Net income (loss) per Class A and Class B common share $ .02 $ (2.54) $ .89 ============= ============= =============
The accompanying notes are an integral part of these statements. 21 23 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Common Stock ---------------------------------------------------- Class A Class B --------------------- --------------------- Additional Paid-in Retained Shares Amount Shares Amount Capital Earnings ------ ------ ------ ------ ----------- -------- Balance at January 1, 1994 1,895,549 $ 189,555 2,729,975 $ 272,998 $ 19,267,327 $ 57,311,700 Net income for 1994 -- -- -- -- -- 4,136,920 Stock conversion (2,200) (220) 2,200 220 -- -- Cash dividends Class A common stock $.35 per share -- -- -- -- -- (663,002) Class B common stock $.40 per share -- -- -- -- -- (1,092,485) --------- ----------- --------- --------- ------------ ------------ Balance at December 31, 1994 1,893,349 189,335 2,732,175 273,218 19,267,327 59,693,133 Net loss for 1995 -- -- -- -- -- (11,761,564) Stock conversion (2,100) (210) 2,100 210 -- -- --------- ----------- --------- --------- ------------ ------------ Balance at December 31, 1995 1,891,249 189,125 2,734,275 273,428 19,267,327 47,931,569 Net income for 1996 -- -- -- -- -- 85,289 Stock conversion (16,300) (1,630) 16,300 1,630 -- -- --------- ----------- --------- --------- ------------ ------------ Balance at December 31, 1996 1,874,949 $ 187,495 2,750,575 $ 275,058 $ 19,267,327 $ 48,016,858 ========= =========== ========= ========= ============ ============
The accompanying notes are an integral part of these statements. 22 24 ORIOLE HOMES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
1996 1995 1994 ---- ---- ---- Cash flows from operating activities Net income (loss) $ 85,289 $(11,761,564) $ 4,136,920 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 1,356,947 1,258,516 1,234,118 Amortization 559,382 437,006 474,897 Deferred income taxes 1,845,848 (1,563,081) 382,344 Gain on sales of property and land held for investment, net (2,355,119) (173,619) (202,374) (Increase) decrease in operating assets Receivables (620,011) (789,811) 356,362 Inventories (2,685,734) (4,596,546) 1,575,418 Other assets 2,369,615 (2,477,874) (2,512,938) Increase (decrease) in operating liabilities Accounts payable 3,413,378 864,387 (43,474) Customer deposits 1,511,525 1,096,847 (1,116,371) Accrued expenses and other liabilities (1,804,643) 572,802 (113,292) ------------ ------------ ------------ Total adjustments 3,591,188 (5,371,373) 34,690 ------------ ------------ ------------ Net cash provided by (used in) operating activities 3,676,477 (17,132,937) 4,171,610 ------------ ------------ ------------ Cash flows from investing activities (Investment in) return of joint ventures (906,000) 1,375,000 (3,500,000) Land held for investment (13,530) (4,882) (205,451) Capital expenditures (1,667,524) (1,212,533) (702,466) Proceeds from sales of property and equipment 6,840,646 747,170 780,966 ------------ ------------ ------------ Net cash provided by (used in) investing activities 4,253,592 904,755 (3,626,951) ------------ ------------ ------------ Cash flows from financing activities Proceeds from mortgage notes -- 345,508 3,444,962 Payment of mortgage notes (2,400,072) (2,723,185) (425,191) Borrowings under line of credit agreement 33,500,000 20,500,000 9,500,000 Repayments under line of credit agreement (39,300,000) (12,000,000) (9,596,317) Repurchase of senior notes (500,000) (126,000) (1,910,000) Issuance costs (96,236) (108,606) (75,000) Dividends paid -- (993,409) (1,524,156) ------------ ------------ ------------ Net cash (used in) provided by financing activities (8,796,308) 4,894,308 (585,702) ------------ ------------ ------------ Net decrease in cash and cash equivalents (866,239) (11,333,874) (41,043) Cash and cash equivalents at beginning of year 3,275,615 14,609,489 14,650,532 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 2,409,376 $ 3,275,615 $ 14,609,489 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid during the year for: Interest (net of amount capitalized) $ 528,720 $ 610,777 $ 624,828 Income taxes $ 619 $ 643,049 $ 3,268,315 Supplemental disclosure of non-cash financing activities: Refinancing of mortgage notes payable $ 12,800,000 $ -- $ --
The accompanying notes are an integral part of these statements. 23 25 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION PRINCIPLES OF CONSOLIDATION The accompanying Consolidated Financial Statements include the accounts of Oriole Homes Corp. and all wholly-owned subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. OPERATIONS The Company, a Florida corporation, is engaged principally in the design, construction, marketing and sale of single and multi-family residential homes (including condominiums) primarily in southeast (Palm Beach, Broward and Martin Counties) Florida. The Company also has developments in Naples and Ocala, Florida. REVENUE RECOGNITION The Company records revenues and profits from sales of real estate in accordance with generally accepted accounting principles governing profit recognition for real estate transactions. INVENTORIES Inventories are carried at cost, plus accumulated development and construction costs (including capitalized interest and real estate taxes). House and condominium inventories which are completed and being held for sale aggregate approximately $13,516,000 in 1996 and $13,275,000 in 1995. The accumulated costs of land, houses and condominiums are not in excess of estimated net realizable value. Estimated net realizable value is based upon sales achieved and backlog in the normal course of business less estimated cost to complete and dispose of the property. The Company's management, on an on-going basis, reviews individual projects in inventory for impairment. INTEREST CAPITALIZATION The Company capitalizes certain interest costs incurred on land under development and houses and condominiums under construction. Such capitalized interest is included in cost of house and condominium sales when the units are delivered. During the years 1996, 1995, and 1994 respectively, the Company capitalized interest in the amount of $10,336,279, $9,898,999 and $9,736,452 and expensed as a component of cost of goods sold $6,727,484, $6,270,173 and $9,313,121. (continued) 24 26 ORIOLE HOMES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION - Continued DEPRECIATION The Company provides for depreciation of property and equipment by the straight-line and accelerated methods over the following estimated useful lives of the various classes of depreciable assets: Buildings 25 to 27 years Furniture, fixtures and equipment 5 to 7 years DEBT ISSUANCE COSTS AND UNAMORTIZED DISCOUNT Costs incurred in connection with obtaining debt have been deferred and are being amortized by the interest method over the term of the debt. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased. NET INCOME PER SHARE Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each year: 4,625,524 shares in 1996, 1995 and 1994. ADVERTISING The Company expenses advertising costs as incurred, except for sales brochures and site plans which are accounted for in "Other Assets." Sales brochures and site plans are expensed as the materials are used or distributed to customers. Advertising expense for the years ended December 31, 1996, 1995 and 1994 was $2,112,364, $1,411,412 and $1,713,158, respectively. (continued) 25 27 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION - Continued ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. FINANCIAL STATEMENT RECLASSIFICATION Certain amounts reflected in the consolidated financial statements for the year ended December 31, 1995 have been reclassified to conform to the presentation for the year ended December 31, 1996. NOTE B - MORTGAGE NOTES First and second mortgage notes receivable bear interest at rates ranging from 8% to 10%. The Company's receivables are primarily mortgages which are collateralized by real estate. Minimum payments required on the first and second mortgage notes subsequent to December 31, 1996 are: 1997 - $3,844; 1998 - $4,167; 1999 - $266,421 and 2000 - $2,773. NOTE C - SPECIAL CHARGES The Company recorded, in the fourth quarter 1996, a non-recurring charge of $1,723,130 ($1,137,266, net of tax benefit, or $.25 per common share) related to the write-down in the book value of a parcel of land located in southern Broward County that is under contract for sale and scheduled to close in 1997. (continued) 26 28 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SPECIAL CHARGES - Continued During the fourth quarter 1995, the Company recorded a non-recurring charge of $13,917,025 ($11,079,381, net of tax benefit, or $2.40 per common share) related to the write-down of certain land inventory to its estimated net realizable value. The write-down pertains to land inventory for approximately 360 unsold housing units located in three developments. These three developments were originally purchased in 1989 and 1991. NOTE D - LIFE INSURANCE The Company purchased life insurance on the lives of two of its officers and their spouses who own significant shares of common stock of the Company. An irrevocably designated trustee of the officers is the beneficiary. Upon the death of the officers or termination of the policies, the Company shall receive an amount equal to the aggregated premiums paid less any policy loans and unpaid interest or cash withdrawals received by the Company. The accumulated premiums paid by the Company on the above policies during the years ended December 31, 1996 and 1995 were $668,085 and $641,352, respectively, and are classified as other assets. In connection with the policies, the Company has an option with the officers to acquire all or any part of the Class A or Class B common stock of the Company owned by such individuals at the market price of such securities at the time of their death. NOTE E - INVESTMENT IN JOINT VENTURES The Company has three and two joint venture agreements in 1996 and 1995, respectively. The joint ventures construct and sell homes. The Company is guaranteed a preferred return ranging from 10% to 15% on these investments. All risks of loss are borne by the joint venturee. The joint ventures are accounted for using the cost method. At December 31, 1996 and 1995, there were no advances from the Company to the joint ventures. NOTE F - LINE OF CREDIT A revolving loan agreement (line of credit) with a bank, collateralized by land, provides up to $20,000,000 of borrowings, at an interest rate of prime plus 1.5%, of which $17,300,000 is available at December 31, 1996. The agreement expires July 1, 1997. (continued) 27 29 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - LINE OF CREDIT - Continued The line of credit can be used to finance ongoing development and construction of residential real estate and short-term capital needs and only requires monthly interest payments. The credit agreement has no compensating balance arrangements and contains typical restrictions and covenants, the most restrictive of which include the following: a. The Company shall maintain, at all times through the life of the loan, its consolidated tangible net worth at not less than $60,000,000. b. The Company's ability to incur additional debt is restricted by covenants in the agreement. Average interest rates and balances outstanding, for revolving lines of credit payable to banks, based on a weighted average are as follows:
1996 1995 1994 ---- ---- ---- Daily average outstanding borrowings $ 13,703,000 $ 7,045,000 $ 1,805,944 Average interest rate during the period 10.1% 8.2% 8.6% Interest rate at the end of the period 9.75% 10.0% 10.0% Maximum outstanding during the year $ 20,000,000 $ 12,500,000 $ 7,010,000
NOTE G - MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995, are summarized as follows:
1996 1995 ---- ---- Mortgage note, interest at 7.15%, requires monthly payments of $91,696 including interest, final balloon payment due at maturity on March 1, 2003; collateralized by land and buildings $ 12,641,501 $ -- Mortgage notes payable refinanced and paid in 1996 -- 15,041,573 ------------- -------------- $ 12,641,501 $ 15,041,573 ============= =============
28 30 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - MORTGAGE NOTES PAYABLE - Continued Aggregate maturities of the mortgage note payable as of December 31, 1996, is as follows: 1997 $ 185,577 1998 216,768 1999 232,785 2000 249,986 2001 268,458 Thereafter 11,487,927 ----------- $12,641,501 =========== NOTE H - INCOME TAXES Deferred income taxes and benefits are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences which give rise to significant deferred tax assets (liabilities) follow:
1996 1995 ----------- ----------- State net operating loss carryforward $ 636,970 $ 310,986 Inventory write-down adjustment 3,269,606 5,232,802 Reserve for warranties on houses and condominiums 741,339 770,245 Percentage of completion 32,655 174,878 Inventory capitalization 144,997 184,757 ----------- ----------- Total deferred tax assets, before valuation allowance 4,825,567 6,673,668 Less: Valuation allowance 2,307,012 2,706,144 ----------- ----------- Total deferred tax assets, net of valuation allowance 2,518,555 3,967,524 ----------- ----------- Deferred expenses (3,752,133) (3,333,765) Accelerated depreciation (153,895) (175,384) ----------- ----------- Total deferred tax liabilities (3,906,028) (3,509,149) ----------- ----------- Net deferred tax (liability) asset $(1,387,473) $ 458,375 =========== ===========
(continued) 29 31 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES - Continued At December 31, 1995, the Company recorded a valuation allowance for the deferred tax assets relating to the inventory adjustment as the Company's ability to realize these benefits is not "more likely than not". During 1996, the Company decreased the valuation based on management's reevaluation of the likelihood of realization. The Company files consolidated income tax returns. The components of the provision for (benefit from) income taxes are as follows:
1996 1995 1994 ----------- ----------- ------------ Current provision: Federal $(2,398,914) $(1,440,254) $ 1,848,612 State -- -- 292,109 ----------- ----------- ----------- (2,398,914) (1,440,254) 2,140,721 Deferred provision: Federal 1,845,848 (1,582,344) 305,537 State -- 19,263 76,807 ----------- ----------- ----------- 1,845,848 (1,563,081) 382,344 ----------- ----------- ----------- $ (553,066) $(3,003,335) $ 2,523,065 =========== =========== ===========
The reasons for the difference between the total tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
1996 1995 1994 ----------- ----------- ----------- (Benefit from) provision for taxes at statutory rates (34%) $ (159,045) $(5,020,066) $ 2,264,395 Change in valuation allowance (399,132) 2,706,144 -- (Benefit from ) provision for state income taxes (25,730) (811,999) 241,644 Other 30,841 122,586 17,026 ----------- ----------- ----------- Net tax (benefit) expense $ (553,066) $(3,003,335) $ 2,523,065 =========== =========== ===========
(continued) 30 32 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES - Continued The Company has a Federal net operating loss carryback and a State net operating loss carryforward of $7,055,630 and $11,581,273, respectively. The Federal net operating loss will be carried back and fully absorbed in 1993 and 1994. The State net operating loss carryforward expires in the years 2010 and 2011. NOTE I - CUSTOMER DEPOSITS Certain customer deposits, pursuant to statutory regulations of the State of Florida or by agreement between the buyer and seller, are held in segregated bank accounts. At December 31, 1996 and 1995, cash in the amounts of approximately $216,000 and $289,000, respectively, was so restricted. The Company entered into an escrow agreement with a bank and the Division of Florida Land Sales and Condominiums which allowed the Company to use customer deposits which were previously maintained in an escrow account. Deposits of up to $900,000 in 1996 and $1,100,000 in 1995, which could be released to the Company, are guaranteed by performance bonds aggregating $2,500,000 for 1996 and $5,000,000 for 1995. NOTE J - ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities include the following:
1996 1995 ---------- ---------- Accrued interest $3,865,125 $3,893,771 Accrued warranties on houses and condominiums 1,929,574 1,983,202 Accrued real estate and property taxes 67,427 1,648,948 Other accrued liabilities 726,363 867,211 ---------- ---------- $6,588,489 $8,393,132 ========== ==========
31 33 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - SENIOR NOTES Senior Notes are comprised as follows:
1996 1995 ------------ ----------- 12 1/2% senior notes due January 15, 2003 with an effective interest rate of 13.02% $70,000,000 $70,000,000 Repurchase of senior notes to be used as part of sinking fund (2,536,000) (2,036,000) Unamortized discount (1,308,064) (1,482,687) ----------- ----------- $66,155,936 $66,481,313 =========== ===========
On January 13, 1993, the Company issued 12 1/2% senior notes ("Notes"), due January 15, 2003. The Notes have a face value of $70,000,000 and were issued at a discount of $1,930,000. The notes are senior unsecured obligations of the Company subject to redemption at the Company's option on or after January 15, 1998 at 105% of the principal amount and thereafter at prices declining annually to 100% of the principal amount on or after January 15, 2001. The indenture under which senior notes were issued requires sinking fund payments of $17,500,000 on January 15, 2001 and January 15, 2002. The indenture, contains provisions restricting the amount and type of indebtedness the Company may incur, the purchase by the Company of its stock and the payment of cash dividends. At December 31, 1996, dividend payments are restricted and will be restricted until the Company posts cumulative net income in excess of $20,500,000. NOTE L - STOCK OPTIONS The Company has two stock option plans accounted for under APB Opinion 25 and Related Interpretations. The plans allow the Company to grant options to employees for up to 400,000 shares of Class B common stock and nonemployee directors for up to 20,000 shares of Class B common stock. The options have terms of five years for employees and ten years for nonemployee directors when issued. The stock options for employees vest at the end of the second year, and stock options for nonemployee directors vest 50% each after the first and second year. The exercise price of each option equals the market price of the Company's stock on the date of grant. (continued) 32 34 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - STOCK OPTIONS - Continued Accordingly, no compensation cost has been recognized for the plan. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation (SFAS 123), the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below. Disclosure of such amounts is not required for the fiscal year ended December 31, 1994 and accordingly is not presented below:
1996 1995 ------------ ------------- Net income (loss) As reported $ 85,289 $ (11,761,564) Pro forma (22,738) $ (11,814,556) Primary earnings (loss) per share As reported $ .02 $ (2.54) Pro forma $ (.01) $ (2.54)
The fair value of each option grant is estimated on the date of grant using the binomial options-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: expected volatility of 37.18 and 36.33 percent; risk-free interest rate of 6.43 and 7.45 percent; and expected life of 5.3 and 5.4 years. A summary of the status of the Company's fixed stock option plan as of December 31, 1996 and 1995, and changes during the years ending on those dates is presented below:
1996 1995 ------------------------ ------------------ Weighted Weighted Average Average Shares Exercise Shares Exercise (000) Price (000) Price ------- --------- ----- -------- Outstanding at beginning of year 45.2 $ 7.06 3.6 $ 8.62 Granted 43.5 7.63 41.6 6.93 Exercised -- -- -- -- Forfeited -- -- -- -- ------ ------- ------ ------- Outstanding at end of year 88.7 $ 7.34 45.2 $ 7.06 Options exercisable at year end 3.6 $ 8.62 1.8 $ 8.62 Weighted-average fair value of options granted during the year -- $ 3.37 -- $ 3.19
33 35 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - STOCK OPTIONS - Continued The following information applies to options outstanding at December 31, 1996: Number outstanding 88,700 Range of exercise prices $6 to $9 Weighted-average exercise price $7.34 Weighted-average remaining contractual life 4.5 years NOTE M - COMMON STOCK Class A common stock and Class B common stock have identical dividend rights with the exception that the Class B common stock is entitled to a $.025 per share additional dividend. Class A common stock is entitled to one vote per share, while Class B common stock is entitled to one-tenth vote per share. Holders of Class B common stock are entitled to elect 25% of the Board of Directors as long as the number of outstanding shares of Class B common stock is at least 10% of the number of outstanding shares of both classes of common stock. At the option of the holder of record, each share of Class A common stock may be converted at any time into one share of Class B common stock. NOTE N - LEASING ARRANGEMENTS RENTAL PROPERTIES In connection with certain housing developments, the Company leases recreation facilities. The Company also leases rental units. These leases are accounted for as operating leases. The following schedule provides an analysis of the Company's property under operating leases (included in property and equipment) by major classes as of December 31, 1996 and 1995:
1996 1995 ---- ---- Land $ 7,046,758 $ 7,168,046 Buildings 20,728,053 22,283,655 Furniture, fixtures and equipment 967,842 965,277 ----------------- ----------------- 28,742,653 30,416,978 Less accumulated depreciation 7,665,119 7,216,168 ----------------- ----------------- $ 21,077,534 $ 23,200,810 ================= =================
34 36 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - LEASING ARRANGEMENTS - Continued The following is a schedule of approximate future minimum rental income required under these leases as of December 31, 1996: 1997 $ 2,204,000 1998 562,000 1999 562,000 2000 562,000 2001 562,000 Thereafter 46,404,000 ----------------- $ 50,856,000 ================= OFFICES AND WAREHOUSE The Company leases its offices and warehouse under lease agreements extending through 1997, with options to renew for up to five years, accounted for as operating leases. The approximate future minimum rental payments as of December 31, 1996 are as follows: 1997 - $135,000. Total rent expense, including common area maintenance expenses, for each of the years ended December 31, 1996, 1995 and 1994 amounted to approximately $300,000, $320,000 and $320,000, respectively. NOTE O - DEFERRED COMPENSATION PLAN The Company has a defined contribution plan established pursuant to Section 401(K) of the Internal Revenue Code. Employees contribute to the plan a percentage of their salaries, subject to certain dollar limitations, and the Company matches a portion of the employees' contributions. The Company's contribution to the plan amounted to $68,238 in 1996, $72,981 in 1995 and $63,685 in 1994. 35 37 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments does not purport to represent the aggregate net fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS The carrying amount approximates fair value because of the short maturity of those instruments. MORTGAGE NOTES RECEIVABLES The carrying amount approximates fair value due to interest rates currently offered for loans with similar terms to borrowers of similar credit quality not being significantly different. LINE OF CREDIT The carrying amount of the line of credit approximates fair value due to the length of the maturities and interest rates being tied to market indices. MORTGAGE NOTES PAYABLE The carrying amounts of mortgage notes payable approximate fair value due to the interest rates not being significantly different from the current market rates available to the Company. SENIOR NOTES Quoted market prices offered to the Company are used to estimate fair value of the Company's senior notes. All of the Company's financial instruments are held for purposes other than trading. The carrying amounts in the table below are the amounts at which the financial instruments are reported in the financial statements. (continued) 36 38 Oriole Homes Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - FINANCIAL INSTRUMENTS - Continued The estimated fair values of the Corporation's financial instruments, at December 31, are as follows:
1996 1995 ----------------------------------- ----------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value of Assets of Assets of Assets of Assets (Liabilities) (Liabilities) (Liabilities) (Liabilities) ------------- ------------- ------------- ------------- Cash and cash equivalents $ 2,409,376 $ 2,409,376 $ 3,275,615 $ 3,275,615 Mortgage notes receivable 277,205 277,205 280,562 280,562 Line of credit (2,700,000) (2,700,000) (8,500,000) (8,500,000) Mortgage notes payable (12,641,501) (12,641,501) (15,041,573) (15,041,573) Senior notes (66,155,936) (65,777,400) (66,481,313) (55,730,000)
NOTE Q - CONTINGENCIES The Company is involved, from time to time, in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the Company's consolidated financial position or results of operations. 37 39 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Oriole Homes Corp. We have audited the accompanying consolidated balance sheets of Oriole Homes Corp. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oriole Homes Corp. and Subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Miami, Florida March 7, 1997 38 40 ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item of this part is incorporated by reference to Registrant's definitive proxy statement for the Annual Meeting of Shareholders. ITEM 11 EXECUTIVE COMPENSATION The information required by this item of this part is incorporated by reference to Registrant's definitive proxy statement for the Annual Meeting of Shareholders. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item of this part is incorporated by reference to Registrant's definitive proxy statement for the Annual Meeting of Shareholders. ITEM 13 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS The information required by this item of this part is incorporated by reference to Registrant's definitive proxy statement for the Annual Meeting of Shareholders. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of Oriole Homes Corp. and subsidiaries are included in Part II of this annual report and in the Company's 1996 Annual Report to Shareholders. Consolidated balance sheets as of December 31, 1996 and 1995. Consolidated statements of operations for the three years ended December 31, 1996. Consolidated statements of cash flows for the three years ended December 31, 1996. Consolidated statements of shareholders' equity for the three years ended December 31, 1996. Notes to consolidated financial statements. Report of independent certified public accountants. 39 41 Selected Quarterly Financial Data for the years ended December 31, 1996 and 1995 included in the Company's 1996 Annual Report to Shareholders which is incorporated by reference as Part II of this annual report. 2. Financial Statement Schedules The following financial statement schedules of Oriole Homes Corp. and subsidiaries are included in Part IV of this report: Report of independent certified public accountants. All other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits
Page No. (b) 3.1 Articles of Incorporation of Registrant * 3.2 By-Laws of Registrant * 4.2 Form of indenture between the Registrant and Sun Bank National Association, Trustee. * 10.1 Lease Agreement, dated May 7, 1991 between Oriole Homes Corp. and Arbors Associates, Ltd. * 10.6 Registrant's 401(k) Defined Contribution Benefit Plan * 10.7 Joint Venture Agreement between the Company and Regency Homes, Inc. dated December 31, 1993 as amended December 31, 1995. ** 10.8 Joint Venture Agreement between the Company and Gordon Family Homes at Morikami Park dated October 2, 1996. 10.9 The Company's 1994 Stock Option Plan for Employees and the 1994 Stock Option Plan for Non Employee Directors, filed in the Proxy Statement dated April 5, 1994 are incorporated herein by reference. 22.1 List of Registrant's Subsidiaries (Filed as Exhibit 22 to the Company's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference). (*) Filed as exhibits to the Registration Statement of the Registrant on Form S-2 declared effective on January 13, 1993. (File No. 33-51680). (**) Filed as an exhibit to the Registrant's Annual Report on Form 10-K filed in March 1994. (b) Reports on Form 8-K There were no reports on Form 8-K for the three months ended December 31, 1996.
42 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be Signed on its behalf by the undersigned, thereunto duly authorized. ORIOLE HOMES CORP. DATE 3-24-97 s/ R.D. Levy ----------------------- -------------------------------- R.D. Levy, Chairman of the Board Chief Executive Officer, Director DATE 3-24-97 s/ A. Nunez ----------------------- -------------------------------- A. Nunez, Senior Vice President, Treasurer, Chief Financial Officer, Chief Accounting Officer, Director Pursuant to the requirements of the Securities Exchange Act of 1934 this Annual Report has also been signed by the following persons on behalf of the Registrant in the capacities indicated. MEMBER OF THE BOARD OF DIRECTORS DATE 3-25-97 s/ Harry A. Levy ----------------------- ---------------------------------- Harry A. Levy, Director DATE 3-24-97 s/ E. E. Hubshman ----------------------- ---------------------------------- E.E. Hubshman, Director DATE 3-24-97 s/ Mark A. Levy ----------------------- ---------------------------------- Mark A. Levy, Director DATE 3-24-97 s/ Eugene H. Berns ----------------------- ---------------------------------- Eugene H. Berns, Director DATE 3-28-97 s/ Donald C. McClosky ----------------------- ---------------------------------- Donald C. McClosky, Director DATE 3-28-97 s/ Paul R. Lehrer ----------------------- ---------------------------------- Paul R. Lehrer, Director DATE 3-26-97 s/ George R. Richards ----------------------- ---------------------------------- George R. Richards, Director
EX-10.8 2 JOINT VENTURE AGREEMENT 1 Exhibit 10.8 JOINT VENTURE AGREEMENT OF GORDON FAMILY HOMES AT MORIKAMI PARK DATED: AS OF OCTOBER 2, 1996 2 TABLE OF CONTENTS
Page ---- ARTICLE I INCORPORATION BY REFERENCE AND DEFINITIONS......................................1 1.1 Incorporation by Reference....................................1 1.2 Certain Definitions...........................................1 ARTICLE II FORMATION, NAME, PRINCIPAL OFFICE AND PURPOSE...................................7 2.1 Formation.....................................................7 2.2 Name..........................................................7 2.3 Principal Office and Place of Business........................8 2.4 Purpose and Scope of the Venture..............................8 2.5 Term..........................................................8 2.6 Title.........................................................8 2.7 Designated Person.............................................8 ARTICLE III CAPITAL CONTRIBUTION; FINANCING.................................................9 3.1 Initial Capital Contributions.................................9 3.3 Third Party Financing........................................10 3.4 Other Matters Relating to Capital............................10 ARTICLE IV MANAGEMENT AND OPERATION OF THE VENTURE........................................11 4.1 Major Decisions..............................................11 4.2 Operational Responsibilities.................................12 4.3 No Venturer Fees.............................................13 4.4 Liability and Indemnification................................13 4.5 Competition..................................................14 ARTICLE V ALLOCATIONS AND DISTRIBUTIONS..................................................14 5.1 Allocations from Operations and from Capital Transactions....14 5.2 Separate Allocations.........................................15 5.3 Distribution of Available Cash...............................16
(i) 3 5.4 Distribution Following Terminating Capital Transaction.......17 5.5 Distribution in Cash Only....................................17 ARTICLE VI FISCAL MATTERS.................................................................17 6.1 Accounting Year..............................................17 6.2 Books and Records............................................17 6.3 Reports and Statements.......................................17 6.4 Tax Returns..................................................18 6.5 Tax Status...................................................18 6.6 Tax Elections................................................18 6.7 Bank Accounts................................................18 ARTICLE VII TRANSFER OF VENTURE INTEREST...................................................18 7.1 General Prohibition..........................................18 7.2 Rights of Assignee...........................................19 7.3 Admission of Venturers.......................................19 7.4 Oriole's Put Right...........................................20 7.5 Venture Redemption Right.....................................20 ARTICLE VIII DISSOLUTION; TERMINATION.......................................................21 8.1 Dissolution..................................................21 8.2 Wind-Up......................................................22 ARTICLE IX GENERAL PROVISIONS.............................................................23 9.1 Relationship.................................................23 9.2 Notices......................................................23 9.3 Entire Agreement.............................................23 9.4 Agency.......................................................24 9.5 Binding Effect; No Assignment................................24 9.6 Amendment....................................................24 9.7 No Waiver....................................................24 9.8 Gender and Use of Singular and Plural........................24 9.9 Counterparts.................................................24 9.10 Headings.....................................................24 9.11 Governing Law................................................24
(ii) 4 9.12 Further Assurances...........................................24 9.13 Provisions Severable.........................................24 9.14 Litigation...................................................25 9.15 Remedies.....................................................25 9.16 No Foreign Person Withholding................................25 9.17 No Recordation...............................................25
(iii) 5 JOINT VENTURE AGREEMENT OF GORDON FAMILY HOMES AT MORIKAMI PARK THIS JOINT VENTURE AGREEMENT ("Agreement") is made and entered into as of the 2nd day of October, 1996, by and between Oriole Joint Venture, Limited, a Florida limited partnership ("Oriole"), and Gordon Family Homes, Inc., a Florida corporation ("Gordon"). Oriole and Gordon are sometimes hereinafter referred to individually as "Venturer" and collectively as "Venturers." WITNESSETH: WHEREAS, Gordon has acquired rights to acquire certain real property located in Palm Beach County, Florida as more fully described in Exhibit A to this Agreement (the "Property"), but requires additional equity capital to purchase such real properties; WHEREAS, the Venturers desire to participate together in a joint venture ("Venture") formed under the general partnership law of the State of Florida for the acquisition, development, operation and disposition of the Property; and WHEREAS, the Venturers desire by this Agreement to establish the Venture and to set forth all the terms, provisions, conditions and covenants by which the Venture will be governed. NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions contained herein, the parties hereby agree as follows: ARTICLE I INCORPORATION BY REFERENCE AND DEFINITIONS 1.1 INCORPORATION BY REFERENCE. The foregoing recitals are hereby acknowledged to be true and are incorporated herein by reference, and all Exhibits annexed hereto and referred to herein are incorporated herein by reference. 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings hereinafter set forth, except as otherwise provided herein: (a) ADJUSTED NET INCOME AND ADJUSTED NET LOSS. "Adjusted Net Income" or "Adjusted Net Loss" means the net income or loss of the Venture resulting from Venture operations during any stated period, as calculated by the Venture Accountants for federal income tax purposes; provided that gain or loss resulting from any disposition of property 1 6 with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value. (b) AFFILIATE. Any of the following: (i) any person or entity directly or indirectly controlling, controlled by or under common control with a Venturer; (ii) a person or entity owning or controlling ten percent (10%) or more of the outstanding voting equity of a Venturer; (iii) any officer, director or partner of a Venturer or an employee acting in a similar capacity; and (iv) if such other person is an officer, director, partner or similar employee of a Venturer, any entity for which such person acts in any such capacity. (c) AGREEMENT. This Joint Venture Agreement of Gordon Family Homes at Morikami Park, a Florida general partnership, as originally executed and as amended from time to time, as the context requires. (d) APPROVED MORTGAGE. The loan from Barnett Bank, N.A. to the Venture more fully described in Section 3.3 hereof, as same may be modified, from time to time, as permitted herein. (e) AVAILABLE CASH. Cash of the Venture, excluding cash proceeds from a Terminating Capital Transaction, if any, not needed to satisfy current liabilities, upcoming capital expenditures or as a reasonable reserve for either and thus available for distribution to the Venturers, which may include, but shall not be limited to, cash proceeds generated by Venture operations and Interim Capital Transactions, including financing and refinancing (which term, "refinancing," is defined, for all purposes under this Agreement, to include financing which has been recast, modified, extended or increased). (f) BANKRUPTCY. As used in this Agreement, the term "Bankruptcy," with respect to the Venture or a Venturer, shall refer to: (i) the appointment of a receiver, conservator, rehabilitator or similar officer for the Venture, a Venturer or any person or entity that has majority voting rights with respect to any Venturer, unless the appointment of such officer shall be vacated and such officer discharged within one hundred twenty (120) days of the appointment; (ii) the taking of possession of, or the assumption of control over, all or any substantial part of the property of the Venture, any Venturer or any person or entity that has majority voting rights with respect to any Venturer by any receiver, conservator, rehabilitator or similar officer or by the United States Government or any agency thereof, unless such property is relinquished within one hundred twenty (120) days of the taking; (iii) the filing of a petition in bankruptcy or the commencement of any proceeding under any present or future federal or state law relating to bankruptcy, insolvency, debt relief or reorganization of debtors by or against the Venture, any Venturer or any person or entity that has majority voting rights with respect to any Venturer provided, if filed against the Venture, any Venturer or the person or entity that has majority voting 2 7 rights with respect to any Venturer, such petition or proceeding is not dismissed within sixty (60) days of the filing of the petition or the commencement of the proceeding; (iv) the making of an assignment for the benefit of creditors or a private composition, arrangement or adjustment with the creditors of the Venture, any Venturer or any person or entity that has majority voting rights with respect to any Venturer; or (v) the commencement of any proceedings supplementary to the execution of any judgment against the Venture, any Venturer or any person or entity that has majority voting rights with respect to any Venturer, unless such proceeding is dismissed within sixty (60) days of the date it was commenced. (g) BUSINESS PLAN. The business plan to be pursued by the Venture, as same is described in Section 2.4(b) hereof, and as same may, from time to time be modified, as provided herein. (h) CAPITAL ACCOUNTS. Throughout the full term of the Venture, each Venturer shall have a separate Capital Account determined and maintained in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv), promulgated under Code Section 704(b). (i) CAPITAL CONTRIBUTION. The total amount of money or the agreed fair market value of property other than money contributed by each Venturer to the capital of the Venture, as reflected in the books of the Venture. (j) CAPITAL TRANSACTION. An Interim Capital Transaction or a Terminating Capital Transaction. (k) CODE. The Internal Revenue Code of 1986, as amended from time to time, or any corresponding provision or provisions of any federal internal revenue law enacted in substitution of the Internal Revenue Code of 1986. (l) DEPRECIATION. For each fiscal year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted tax basis (for federal income tax purposes) at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis, provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Venturers. (m) DESIGNATED PERSON. The person selected to represent each Venturer, as more fully set forth in Section 2.7 hereof. 3 8 (n) EVENT OF TERMINATION. Any of the events that result in dissolution of the Venture as set forth in Section 8.1 hereof. (o) GORDON. Gordon Family Homes, Inc., a Florida corporation, which is owned and controlled by Gary Gordon and his Affiliates. (p) GROSS ASSET VALUE. With respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Venturer to the Venture shall be the amount credited as a Capital Contribution increased by the amount of any liability assumed or incurred by the Venture in connection with the contribution; (ii) The Gross Asset Value of each Venture asset shall be adjusted to equal its gross fair market value, as determined by the Venturers, as of the following times; (a) the acquisition of an additional interest in the Venture by any new or existing Venturer in exchange for more than a DE MINIMUS Capital Contribution; (b) the distribution by the Venture to a Venturer of more than a DE MINIMUS amount of Venture property other than money by the Venture to a retiring or continuing Venturer as consideration for an interest in the Venture, unless all Venturers receive simultaneous distributions of undivided interests in the distributed Property in proportion to their Venture Percentages in the Venture; and (c) the liquidation of the Venture within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g) ("Liquidation"); (iii) The Gross Asset Value of any Venture asset distributed to any Venturer shall be the gross fair market value of such asset on the date of distribution; and (iv) In the event the Venture makes an election pursuant to Code Section 754, the Gross Asset Value of each Venture asset shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Value shall not be adjusted pursuant to this subparagraph to the extent the Venturers determine that an adjustment pursuant to subparagraph (ii) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraphs (i), (ii) or (iv) hereof, such Gross Asset Value shall thereafter be adjusted 4 9 by the Depreciation taken into account with respect to such asset for purposes of computing Adjusted Net Income or Adjusted Net Loss. (q) INTERIM CAPITAL TRANSACTION. A transaction pursuant to which the Venture borrows funds or refinances existing debt, a sale, condemnation, exchange, abandonment or other disposition of a portion (which is less than substantially all) of the assets of the Venture, an insurance recovery or any other transaction, other than a Terminating Capital Transaction, that, in accordance with generally accepted accounting principles, is considered capital in nature. (r) LAW. The Florida Revised Uniform Partnership Act. (s) MANAGING VENTURER. Gordon, unless terminated as same pursuant to Section 4.2 hereof. (t) ORIOLE. Oriole Joint Venture Limited, a Florida limited partnership. (u) ORIOLE REDEMPTION. The right of the Venture to redeem Oriole's Venture Interest in accordance with Section 7.5 hereof. (v) ORIOLE'S UNRETURNED CAPITAL CONTRIBUTION. The amount which, at any given point in time, is equal to a Oriole's total Capital Contribution, as reflected on the Venture's books and records, reduced, but not below zero, by all prior distributions made to Oriole pursuant to Sections 5.3(b) and 8.2(e) hereof. (w) PER LOT AMOUNT. The sum of Three Thousand Dollars ($3,000), if Oriole's Unreturned Capital Contribution has been reduced to zero on or prior to December 31, 1996, and, an amount equal to Six Thousand Dollars ($6,000), in all other events. (x) PREFERRED RETURN. The amount which, at any given point in time, is equal to thirteen percent (13%) per annum on Oriole's Unreturned Capital Contribution, as the same exists from time to time, calculated from the date Oriole's Capital Contribution was received by the Partnership through the date of calculation, reduced by distributions in satisfaction of the Preferred Return theretofore made to Oriole pursuant to Sections 5.3(a) or 8.3(d) hereof. (y) PROPERTY. The real property located in Palm Beach County, Florida, more fully described in EXHIBIT A annexed hereto. (z) PURCHASE CONTRACT That certain Purchase Contract entered into by and between Gordon, as purchaser, and VRV, Inc., as seller, dated as of February 26, 1996, as amended from time to time, with respect to the purchase and sale of the Property. 5 10 (aa) PUT CLOSING. The closing of the sale of Oriole's Venture Interest to Gordon in connection with the exercise of a Put Right, as more fully set forth in Section 7.4 hereof. (bb) PUT NOTICE. The notice delivered by Oriole exercising its Put Right, as more fully set forth in Section 7.4 hereof. (cc) PUT PRICE. The price that Gordon will pay to acquire Oriole's Venture Interest upon exercise of its Put Right, as determined in accordance with Section 7.4 hereof. (dd) PUT RIGHT. The right of Oriole, pursuant to Section 7.4 hereof, to cause Gordon to purchase its Venture Interest, as more fully set forth in Section 7.4 hereof. (ee) REDEMPTION CLOSING. The closing of the redemption of Oriole's Venture Interest by the Venture in connection with the exercise of a Redemption Right, as more fully set forth in Section 7.5 hereof. (ff) REDEMPTION NOTE. The promissory note to be delivered by the Venture to Oriole to pay the Redemption Price in accordance with Section 7.5 hereof. (gg) REDEMPTION NOTICE. The notice delivered by the Venture exercising its Redemption Right, as more fully set forth in Section 7.5 hereof. (hh) REDEMPTION PRICE. The price that the Venture will pay to redeem Oriole's Venture Interest upon exercise of its Redemption Right, as determined in accordance with Section 7.5 hereof. (ii) REDEMPTION RIGHT. The right of the Venture, pursuant to Section 7.5 hereof, to redeem Oriole's entire Venture Interest, as more fully set forth in Section 7.5 hereof. (jj) STIPULATED RATE. The rate of interest, calculated annually, equal to two percent (2%), plus the annual rate of simple interest announced from time to time by Citibank, N.A. as its commercial lending rate to its most credit worthy borrowers for loans maturing within ninety (90) days, but not higher than the highest nonusurious rate of simple interest for commercial loans under applicable law, nor lower than the lowest interest rate that may be charged without causing the imputation of interest for federal income tax purposes. (kk) TERM. The period commencing as of the date of this Agreement and ending upon the occurrence of an Event of Termination. 6 11 (ll) TERMINATING CAPITAL TRANSACTION. A sale, condemnation, exchange or other disposition, whether by foreclosure, abandonment or otherwise, of all or substantially all of the then remaining assets of the Venture or a transaction that will result in a dissolution of the Venture. (mm) TREASURY REGULATIONS OR "REGULATIONS". Treasury Regulations shall mean regulations promulgated by the United States Treasury Department interpreting the Code. (nn) VENTURE. Gordon Family Homes at Morikami Park, the joint venture organized and existing pursuant to this Agreement and the Law. (oo) VENTURE'S ACCOUNTANTS. The accountants for the Venture as selected, from time to time, by the Managing Venturer. (pp) VENTURE INTEREST OR INTERESTS. The entire ownership interest of a Venturer in the Venture at any particular time, including any and all distributions, allocations and other incidents of participation in the Venture to which such Venturer may be entitled as provided in this Agreement and under the Law, together with the obligations of such Venturer to comply with all of the terms and provisions of this Agreement and the Law, and further including its Capital Account hereunder. (qq) VENTURE PERCENTAGE. The percentage interest of each Venturer in the Venture which, as of the date hereof, is as follows: (i) Oriole - 50% (ii) Gordon - 50% ARTICLE II FORMATION, NAME, PRINCIPAL OFFICE AND PURPOSE 2.1 FORMATION. The Venturers hereby form a joint venture partnership pursuant to the Law and all other applicable laws of the State of Florida, for the purposes set forth herein. 2.2 NAME. The name of the Venture shall be "Gordon Family Homes at Morikami Park" and the business and affairs of the Venture initially shall be conducted under said name. The Venture may conduct business under such other name or fictitious name as may be determined, from time to time, by the Managing Venturer. The Venturers shall execute all assumed or fictitious name certificates necessary or appropriate to be filed in the applicable records of any county or jurisdiction in which the Venture is doing business. 7 12 2.3 PRINCIPAL OFFICE AND PLACE OF BUSINESS. The principal office of the Venture to which all notices to the Venture shall be sent shall be located at 101 South Congress Avenue, Delray Beach, Florida 33445, or at such other location in the State of Florida as may be determined by the Managing Venturer. 2.4 Purpose and Scope of the Venture. (a) The business, purpose and scope of the Venture is to acquire, own, develop, improve, maintain, manage, operate, sell, lease, mortgage, exchange and otherwise use all or any portion of the Property for the production of income and profit, and to engage in all manner of transactions and activities incidental to the foregoing. (b) It is the present intent of the Venturers to acquire the Property and pursue the Business Plan. The Business Plan provides for the Venture to develop, construct and market 89 single family homes to the public. In furtherance thereof, the Venture shall undertake the necessary planning and permitting to enable the Property to be subdivided into 89 single family residential lots, undertake necessary land development, construct a model and sales center, and market and construct 89 single family homes. The Venturers agree that, notwithstanding the generality of Section 2.4(a) hereof, the purpose and scope of the Venture shall be as more specifically provided in this paragraph and by decisions, from time to time, of both Venturers, and the authority of any Venturer to act on behalf of the Venture shall be limited to activities within the scope of the Venture, as so limited. 2.5 TERM. The term of the Venture as a general partnership shall commence as of the date of this Agreement and shall continue in full force and effect until terminated in accordance with Article VIII of this Agreement or as otherwise provided by the Law. 2.6 TITLE. Legal title to the Venture's property shall be held in the name of the Venture. 2.7 DESIGNATED PERSON. For purposes of facilitating the performance of the terms and provisions of this Agreement and the operation of the Venture, each Venturer designates the person(s) set forth below opposite such Venturer's name ("Designated Person") as such Venturer's authorized representative and attorney-in-fact to take all actions, make all decisions and execute and deliver all documents on its behalf which such Venturer, in its capacity as Venturer, is permitted or required to take, make or execute and deliver pursuant to this Agreement. Either Venturer may change its Designated Person by delivering to the other Venturers and to the Venture, written notice thereof, which notice shall be by written certification of the President, if the Venturer is a corporation, or shall be signed by all general partners if the Venturer is a partnership. The foregoing is intended to estop any Venturer from denying the authority of its Designated Person to act on its 8 13 behalf with respect to Venture matters and shall not be construed to preclude other duly authorized persons from acting on any Venturer's behalf. The Designated Persons, as of the date hereof, are as follows: DESIGNATED PERSON Oriole Richard D. Levy or Mark Levy (only one required) Gordon Gary Gordon ARTICLE III CAPITAL CONTRIBUTION; FINANCING 3.1 INITIAL CAPITAL CONTRIBUTIONS. Each Venturer shall make the following Capital Contributions to the Venture: (a) Oriole The sum of One Million Four Hundred Thousand Dollars ($1,400,000) in cash for which Oriole shall receive a credit to its Capital Account in the amount thereof. Oriole shall make its Capital Contribution in connection with a closing at which the Property will be conveyed to the Venture, free and clear of any liens or encumbrances other than the Approved Mortgage. (b) Gordon Simultaneous with the execution hereof, Gordon shall contribute all of its right, title and interest in and to the Purchase Contract, all studies, appraisals, reports, plans, specifications, drawings, designs, tests, marketing analyses, contracts and other assets, tangible and intangible, owned by Gordon or any Affiliate of Gordon and relating to the Property or the Business Plan and, to the extent transferable, all governmental approvals or permits relating to the Property, to the Venture. The Venture shall hereafter assume all obligations of the "Purchaser" under the Purchase Contract and indemnify and hold harmless Gordon with respect thereto. Gordon and the Venture shall execute an Assignment and Assumption Agreement to accomplish the foregoing, which document shall be in the form of EXHIBIT B hereto.
9 14 Gordon will receive no credit to its Capital Account with respect to the assignment of the Purchase Contract or any of the other items referred to in this Section 3.1(b). 3.2 ADDITIONAL CAPITAL. No Venturer shall be required to contribute any additional capital to the Venture. 3.3 THIRD PARTY FINANCING. Gordon has obtained a commitment for financing a portion of the Venture's acquisition of the Property from Barnett Bank, N.A. in the initial amount of $3,775,000 (the "Approved Mortgage"). The Approved Mortgage shall be non-recourse as to Oriole and Oriole shall have no obligation to guarantee such financing. Gordon may secure such third-party financing with a first mortgage lien on the Property and any other assets of the Venture and shall, to the extent required to obtain such third-party financing, cause Gary Gordon, Elvine Gordon, Gordon and Gary Gordon Construction Company to personally guarantee such financing. Gary Gordon, Elvine Gordon, Gordon and Gary Gordon Construction Company shall execute a Joinder hereto acknowledging the foregoing obligation. The Venturers acknowledge and agree that the Approved Mortgage is for a one year term and that the Venture will be required to refinance such loan to obtain additional funding required for the development of the Property and construction of single family residences thereon. The Venture shall not modify the Approved Mortgage, obtain any additional third-party financing, or enter into any commitments or agreements with respect to same without the prior approval of all Venturers. 3.4 OTHER MATTERS RELATING TO CAPITAL. (a) Loans by any Venturer to the Venture shall not be considered Capital Contributions. If not expressly provided otherwise, loans to the Venture from a Venturer shall accrue interest at the Stipulated Rate. Any loan by a Venturer to the Venture must be authorized and agreed to by the Managing Venturer. (b) Except as may be expressly provided herein, no Venturer shall be entitled to withdraw or to the return of any part of the Capital Contribution of such Venturer or to receive property or assets other than cash from the Venture for any reason whatsoever. To the extent that any distributions which any Venturer is entitled to receive pursuant to Article V hereof would constitute a return of capital, each of the Venturers consent to the withdrawal of such capital. (c) No Venturer shall be entitled to priority over any other Venturer with respect to return of his or her loans or Capital Contribution, except to the extent expressly provided in this Agreement. 10 15 (d) No interest shall be paid by the Venture on Capital Contributions, except to the extent expressly provided in this Agreement. ARTICLE IV MANAGEMENT AND OPERATION OF THE VENTURE 4.1 MAJOR DECISIONS. No decision shall be made with respect to any of the major decisions enumerated below ("Major Decisions") unless and until same has been approved in writing by all Venturers. The Major Decisions are: (a) The sale, exchange or other disposition of all, or substantially all, of the property and assets of the Venture; (b) A decision to enter into any financing arrangements including, without limitation, the Approved Mortgage, any other financing arrangements with respect to development, construction or permanent financing of the Property or for operating the Property and any material modifications to any single financing; (c) Any material modification to the Business Plan; (d) The admission of any additional parties as members of the Venture, whether by issuance of a new interest in the Venture or by transfer of all or any part of a Venturer's interest in the Venture; (e) A decision by the Venture to acquire any real property other than the roperty; (f) A decision to dissolve the Venture; (g) Any transaction, not expressly authorized herein, between the Venture and a Venturer or any Affiliate of a Venturer; (h) Making all federal income tax elections available to the Venture and approving all federal, state and local income tax returns of the Venture prior to their submission to the appropriate governmental entity; and (i) Such other decisions as, pursuant to the terms hereof, are vested in both Venturers. 11 16 4.2 OPERATIONAL RESPONSIBILITIES. (a) The Venturers hereby designate Gordon as the Managing Venturer of the Venture to serve for the entire term of the Venture unless earlier terminated in the manner hereinafter set forth. The Managing Venturer shall act in a capacity analogous to that of a chief operating officer of the Venture and shall be responsible for conducting the business and affairs of the Venture. The Managing Venturer's scope of authority and responsibilities shall include, without in any way limiting the generality of the foregoing, the following: (i) Preparing and revising annual budgets for the Venture for submission to the Venturers for approval; (ii) Negotiating contracts with respect to development and other activities of the Venture and executing such contracts on behalf of the Venture and supervising performance of same; (iii) Appearing before applicable governmental authorities, on behalf of the Venture, to pursue land use, zoning, environmental and other permits and licenses required by the Venture in connection with its activities; (iv) Retaining services of engineers, surveyors, appraisers, architects, attorneys, real estate brokers, mortgage brokers, corporate fiduciaries, escrow agents, insurers, advertising personnel and such other technical or administrative advisors as are useful to carry out the purposes of the Venture; (v) Retaining agents and employees for the Venture, including project managers for all or any portion of the development and management of the Property and directing such agents or employees with respect to the implementation of its decisions in the conduct of the day-to-day operations of the Venture; (vi) Negotiating and entering into and executing agreements and other documents and instrument customarily employed in the real estate industry in connection with the acquisition, sale, development, construction and operation of real properties, as well as personal or mixed property connected therewith; (vii) Negotiating all necessary financing for the Venture for submission to the Venturers for approval; and (viii) Such other matters as are, from time to time, delegated to the Managing Venturer by both Venturers. 12 17 (b) Gordon agrees to make available the services of Gary Gordon as Gordon's responsible officer who will undertake to perform, on Gordon's behalf, the services of Managing Venturer in accordance with this Agreement. In the event Gary Gordon is unable, on behalf of Gordon, to perform the services of Managing Venturer as a result of his death or disability (i.e., the inability due to physical or mental reasons to perform full-time services for a continuous period of ninety (90) days or is unwilling, in violation of this Agreement, to perform the services of Managing Venturer, on behalf of Gordon), Oriole may elect, by written notice to Gordon, to terminate Gordon's role as Managing Venturer hereunder and to exercise such other remedies as are available hereunder or under applicable law. Selection of a replacement Managing Venturer shall require unanimous consent of the Venturers, which decision, notwithstanding any other provision of this Agreement, shall be made by each Venturer, in good faith, and in the best interests of the Venture. 4.3 NO VENTURER FEES. Gordon shall receive no compensation from the Venture for performing the functions, on behalf of the Venture, specified in Section 4.2(a) hereof or otherwise. Moreover, Gordon acknowledges that it shall not be entitled to receive any reimbursement from the Venture for the overhead expenditures it will incur in carrying out its responsibilities on behalf of the Venture. Neither Gordon, Oriole nor any Affiliate of either shall receive any fee, distributions or other payment whatsoever, directly or indirectly, from the Venture except as provided herein. 4.4 LIABILITY AND INDEMNIFICATION. No Venturer nor any of its members, or their respective officers, shareholders, directors, Designated Persons, employees or agents shall be liable to the Venture or any Venturer for any loss or liability incurred in connection with any act or omission in the conduct of the business of the Venture in accordance with the terms hereof, except for any loss or liability which the Venture or Venturer incurs in connection with such person's or entity's fraud, willful and wanton misconduct or gross negligence. The Venture, to the fullest extent permitted by law, hereby agrees to defend and indemnifies and holds harmless each Venturer and its members and their respective officers, directors, shareholders, Designated Persons, employees and agents from and against any and all liability, loss, cost, expense or damage incurred or sustained by reason of any act or omission in the conduct of the business of the Venture in accordance with the terms hereof including, but not limited to, reasonable attorneys' and paralegals' fees through any and all negotiations, and trial, appellate, bankruptcy and collection levels; provided, however, the Venture shall not indemnify such person or entity or hold it harmless with respect to any of the foregoing incurred in connection with such person's or entity's fraud, willful and wanton misconduct or gross negligence. Notwithstanding the foregoing, the Venture shall advance, on behalf of any Venturer against whom a claim is filed with respect to any alleged act or omission in the conduct of the business of the Venture, all costs and expenses of litigation, including reasonable attorneys' and paralegals' fees through any and all negotiations, at trial, appellate, bankruptcy and collection levels, and will be entitled to seek reimbursement from the Venturer for such 13 18 sums advanced only to the extent such Venturer is ultimately determined, by a final non-appealable order or judgment, to have been guilty of fraud, willful or wanton misconduct or gross negligence and only to the extent the Venture is not reimbursed by any insurance policies with respect to such costs and expenses. The provisions of this Section 4.4 shall survive termination of this Agreement. 4.5 COMPETITION. Each Venturer may have other business interests and may engage in any other business or trade, individually, in partnership or association with others or in any capacity whatsoever, whether or not such business competes with the Venture. No Venturer shall be required to devote its entire time or attention to the business of the Venture or, in any event, more time or attention than shall reasonably be required to carry out its obligations under this Agreement. Each Venturer recognizes specifically that the other Venturers (directly or through Affiliates) are actively engaged in competitive businesses with the Venture and that nothing contained in this Agreement or otherwise shall be deemed to restrict in any way the rights of any Venturer, or any officer, director or Affiliate of any Venturer (or member thereof) to engage in, or to conduct any other activity, trade or business, independently or with others (including the development of competing land sites) whether or not any such activity, trade or business is adverse to, competes with or is complementary with the business of the Venture or the other Venturers and neither the Venture nor the other Venturers shall have any rights in or to such trade, business or activity or the income or profits therefrom. The Venturers hereby expressly agree that each is aware of, and consents to, all existing and future business activities of the other Venturers that are in any way competitive with the business of the Venture and that the conduct of such activities shall not constitute a breach of any Venturer's loyalty obligation to the Venture or the other Venturers under the Law. ARTICLE V ALLOCATIONS AND DISTRIBUTIONS 5.1 ALLOCATIONS FROM OPERATIONS AND FROM CAPITAL TRANSACTIONS. Except as provided below, the Adjusted Net Income or Adjusted Net Loss of the Venture from operations and any income (including gain) or losses resulting from any Interim or Terminating Capital Transactions as calculated for federal income tax purposes and reported by the Venture on its U.S. Partnership Return of Income for each fiscal year (or portion thereof) during the term of this Agreement, shall be allocated to the Venturers as follows: (a) Until the amount of Adjusted Net Income allocated to Oriole equals the aggregate amount of distributions of Preferred Return to Oriole, any Adjusted Net Income shall be allocated as follows: 14 19 (i) First, to Oriole, an amount equal to the Preferred Return distributed to Oriole during the current and all prior fiscal years until the aggregate Adjusted Net Income allocated to Oriole equals the aggregate amount of such distributions; (ii) Second, to any Venturer previously allocated losses under subsection 5.1(b), Adjusted Net Income shall be allocated ratably and in the inverse order to the manner in which such losses were allocated, until the cumulative Adjusted Net Income allocated pursuant to this subsection 5.1(a)(ii) hereof for the current and all prior fiscal years is equal to the cumulative losses allocated pursuant to subsection 5.1(b) hereof for all prior periods; and (iii) Thereafter, Adjusted Net Income shall be allocated to the Venturers in accordance with their respective Venture Percentages. (b) Any Adjusted Net Loss shall be allocated: (i) First, to the Venturers, to the extent and in proportion to any Adjusted Net Income previously allocated to the Venturers pursuant to Section 5.1(a)(ii); and (ii) Thereafter, to Adjusted Net loss shall be allocated 99% to Gordon and 1% to Oriole. 5.2 SEPARATE ALLOCATIONS. The following rules apply notwithstanding the provisions of Section 5.1 hereof: (a) DEPRECIATION RECAPTURE. Notwithstanding anything to the contrary in this Article Five, and for purposes of determining the nature (as ordinary or capital) of the income or gain allocable under such provisions, gain (if any) recognized as ordinary income in respect of a Capital Transaction pursuant to Code Sections 1245 and 1250 shall be deemed to be allocated to the Venturers in proportion to their accumulated depreciation allocations. (b) COMPLIANCE WITH REGULATORY PROVISIONS. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Agreement shall be construed, and allocations shall be made, in a manner consistent with Treasury Regulations promulgated under Code Sections 704 and 752 (collectively, the "Section 704 and 752 Regulations"). In the event of a conflict between the provisions of this Agreement and the requirements of the Section 704 and 752 Regulations, the Section 704 and 752 Regulations shall govern. (c) CODE SECTION 704(c). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property 15 20 contributed to the capital of the Venture shall, solely for tax purposes, be allocated among the Venturers so as to take account of any variation between the adjusted basis of such property to the Venture for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Venture asset is adjusted pursuant to the second paragraph of the definition of Gross Asset Value, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Venturers in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 5.2(c) are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Venturer's Capital Account or share of Adjusted Net Income, Adjusted Net Loss, other items or distributions pursuant to any provision of this Agreement. (d) CERTAIN DISALLOWED DEDUCTIONS. In the event fees paid to a Venturer or its Affiliates pursuant to this Agreement or any other agreement between the Venture and such Venturer or Affiliate and deducted by the Venture, in reliance on Sections 162 or 707(a) or (c) of the Code or otherwise, are disallowed as deductions to the Venture and treated as Venture distributions, then the Adjusted Net Income or Adjusted Net Loss of the Venture, as the case may be, for the taxable year or years in which such fees are disallowed, shall be increased or decreased, as the case may be, by such disallowed amounts and there shall be allocated to the Venturer who received (or whose Affiliate received) such payments an amount of gross income for such taxable year or years equal to the amount of the fees which are disallowed and treated as Venture distributions. 5.3 DISTRIBUTION OF AVAILABLE CASH. Periodically as determined by the Managing Venturer, the Available Cash of the Venture, if any, shall be distributed to the Venturers in accordance with the provisions of this Section 5.3. Available Cash will be distributed to the Venturers as follows and in the following order of priority: (a) FIRST: To Oriole, until such time as the Preferred Return on Oriole's Unreturned Capital Contribution is fully satisfied, an amount equal to the Preferred Return. (b) SECOND: To Oriole, until such time as the Oriole Unreturned Capital Contribution is zero, an amount equal to its Unreturned Capital Contribution. (c) THIRD: To each Venturer, in accordance with their respective Venture Percentages. 16 21 5.4 DISTRIBUTION FOLLOWING TERMINATING CAPITAL TRANSACTION. Distributions following a Terminating Capital Transaction shall be distributed in the manner set forth in Section 8.2 hereof. 5.5 DISTRIBUTION IN CASH ONLY. No Venturer in his capacity as a Venturer shall have the right to demand or receive property other than cash (as and when provided herein) from the Venture for any reason whatsoever and no Venturer shall have the right to sue for partition of the Venture or for the Venture's assets. ARTICLE VI FISCAL MATTERS 6.1 ACCOUNTING YEAR. The fiscal year of the Venture for accounting purposes ("Accounting Year") and for income tax purposes shall end on December 31, or on such other day as may be agreed upon by the Venturers or as may be required by applicable law. 6.2 BOOKS AND RECORDS. The Managing Venturer shall keep, or cause to be kept, full and accurate books and records of all transactions of the Venture on the accrual method of accounting. All organizational records of the Venture and other records required to be kept by the Venture under the Law shall, at all times, be maintained at the Venture's principal office referred to in Section 2.3 hereof, and shall be open during ordinary business hours for inspection and copying upon the reasonable request and at the expense of any Venturer and its authorized representatives. 6.3 REPORTS AND STATEMENTS. (a) ANNUAL REPORTS. Within ninety (90) days after the end of each Accounting Year, the Managing Venturer shall, at the expense of the Venture, cause to be delivered to the Venturers the following unaudited financial statements, prepared in accordance with generally accepted accounting principles, which shall be prepared by the Venture Accountants: (i) A balance sheet of the Venture as of the end of such Accounting Year; and (ii) A profit and loss statement for such Accounting Year. Such financial statements shall be accompanied by such other information as, in the judgment of the Managing Venturer, may be reasonably necessary for the Venturers to be advised of the financial status and results of operations of the Venture. 17 22 (b) OTHER REPORTS. Unless Oriole agrees otherwise, Gordon, as Managing Venturer shall, at the expense of the Venture, cause current reports of Venture affairs to be prepared and disseminated to the Venturers including, without limitation, periodic unaudited financial statements of the Venture, periodic budget and cash flow comparisons, narrative descriptions of the Venture's operations during a preceding period and its financial condition at the end of such period, reports with respect to any litigation pending or threatened against the Venture and information concerning any actual or potential material default by the Venture under any of its contractual obligations. 6.4 TAX RETURNS. The Managing Venturer shall prepare or cause to be prepared, all tax returns and statements, if any, that must be filed on behalf of the Venture with any taxing authority and shall make or cause to be made the timely filing thereof. The tax returns shall be prepared and distributed to the Venturers for approval not later than the March 31 following the end of each Accounting Year. 6.5 TAX STATUS. Any provision hereof to the contrary notwithstanding, solely for United States federal income tax purposes, the Venture hereby recognizes and agrees that it shall be subject to all provisions of Subchapter K of Chapter 1 of Subtitle A of the Code. The filing with the Service of U.S. Returns of Partnership Income shall not be construed to expand the purposes of the Venture or any obligations or liabilities of the Venturers. 6.6 TAX ELECTIONS. The Managing Venturer shall recommend, from time to time, whether or not to make or attempt to revoke any and all tax elections regarding depreciation methods and recovery periods, capitalization of construction period expenses, amortization of organizational and start-up expenditures, basis adjustments upon admission or retirement of Venturers, and any other federal, state or local income tax election, which elections shall be made if approved by all of the Venturers. 6.7 BANK ACCOUNTS. The Managing Venturer may authorize the establishment of Venture accounts for the Venture at banks, savings and loan associations or other financial institutions ("Accounts") selected by the Managing Venturer. The Managing Venturer shall designate the authorized signatories for all the Accounts. No funds of the Venture shall be commingled with funds of any Venturer or any other individual or entity. ARTICLE VII TRANSFER OF VENTURE INTEREST 7.1 GENERAL PROHIBITION. Except as expressly provided herein and except with the prior written consent of all the Venturers, no Venturer shall sell, transfer, assign, syndicate, pledge, encumber or otherwise dispose of, either voluntarily, involuntarily, by operation of law or otherwise ("Transfer") all or any part of its Venture Interest unless made pursuant to and in compliance with this Article Seven and unless a copy of an executed 18 23 and acknowledged assignment effecting such Transfer has been filed with the Venture. A transaction which results in any person other than Gary Gordon, directly or indirectly, owning all of the outstanding equity interest in Gordon shall constitute a transfer of Gordon's Venture Interest. Any purported Transfer of a Venture Interest in violation of the provisions of this Agreement shall be void ab initio. 7.2 RIGHTS OF ASSIGNEE. Any Transfer of a Venture Interest (or any part thereof) to a person ("Assignee") who is not admitted to the Venture as a Venturer shall vest in such person only rights of an assignee, and shall not entitle the Assignee to be admitted to the Venture as a Venturer. An Assignee who has not been admitted to the Venture as a Venturer shall only have the right to receive the share of profits, losses, tax credits and distributions of the Venture to which the assigning Venturer would have been entitled with respect to the Venture Interest (or a portion thereof) so assigned and shall have no right to require any information or accounting of the Venture's transactions or finances or to inspect Venture books, or to exercise any powers or other rights including voting and consent rights, incidental to ownership of a Venture Interest. Admission of an Assignee to the Venture as a Venturer in the manner hereinafter provided shall vest in such person all rights and powers, and subject such person to all duties and all obligations thereafter arising, of a Venturer. 7.3 ADMISSION OF VENTURERS. A Venturer may Transfer all or any part of its Venture Interest to an Assignee to be admitted to the Venture as a Venturer if all of the following conditions are met: (a) All other Venturers consent in writing to the Transfer and the admission of the Assignee as a Venturer, which consent may be withheld in the sole discretion of each Venturer, it being agreed that each Venturer has entered into this Agreement in reliance upon the special expertise and experience of the other Venturers; (b) The Assignee agrees in writing to be bound by the provisions of this Agreement; (c) The Assignee executes any and all documents, including an amendment to this Agreement, required to effectuate or evidence its admission to the Venture; (d) The Venture has received an opinion of counsel to the effect that the contemplated Transfer and admission of the Assignee as a Venturer will not cause the termination of the Venture for federal income tax purposes or cause the Venture not to be treated as a partnership for federal income tax purposes or cause any other materially adverse impact to the Venture or any Venturer; 19 24 (e) The Assignee reimburses the Venture for all reasonable costs and expenses (including reasonable attorney's fees) incurred in connection with the Transfer and admission; (f) The Assignee shall have delivered to the Venture, in writing, the consent or waiver of the applicable parties to any note, mortgage, loan agreement, contract or similar instrument or document to which the Venture is a party and as to which the proposed Transfer may be a violation, event of default under, or give rise to a right of acceleration; and (g) The Assignee is not a minor or legally incompetent. 7.4 ORIOLE'S PUT RIGHT. In the event (a) Oriole's Unreturned Capital Contribution has not been reduced to zero by the first anniversary of this Agreement or (b) an Event of Termination has occurred on or prior to the first anniversary of this Agreement, Oriole shall have the right ("Put Right"), subject to the prior right of owner of the Approved Mortgage to be repaid in full with respect to the Approved Mortgage, at any time thereafter, to cause Gordon to purchase all, but not less than all, of Oriole's Venture Interest. If it elects to do so, Oriole shall exercise its Put Right by delivering written notice to Gordon ("Put Notice") setting forth: (i) its decision to sell its entire Venture Interest to Gordon for the Put Price, and (ii) the amount of the Put Price. The Put Price shall be an amount equal to the sum of (i) the remaining balance of Oriole's Unreturned Capital Contribution; (ii) the accrued and outstanding Preferred Return; and (iii) $534,000 (in the event the Put Right is exercised as a result of an event described in subsection (a) of the preceding paragraph), or $267,000 (in the event the Put Right is exercised as a result of the occurrence of an Event of Termination on or prior to the first anniversary of this Agreement). Provided that the Approved Mortgage has been repaid in full, the closing ("Put Closing") of the sale of Oriole's Venture Interest to Gordon shall occur on a date and at a time and place mutually agreed to by Oriole and Gordon, but not later than thirty (30) days after the Put Notice is delivered to Gordon. The Put Price shall be paid at the Put Closing by Gordon paying 100% of the Put Price by cashier's check, federal funds wire or law firm trust account check. At the Put Closing, Oriole shall, in writing, represent and warrant to Gordon that Oriole's Venture Interest is owned by Oriole free and clear of all claims and encumbrances and that valid title to Oriole's Venture Interest will be vested in Gordon (or its designees) upon consummation of the transaction. Gordon may designate one or more persons to take title to all or any portion of the Venture Interest being conveyed. Gary Gordon, Elvine Gordon and Gary Gordon Construction Company shall personally guarantee Gordon's obligation to pay the Put Price at the Put Closing and they shall execute a Joinder hereto acknowledging the foregoing obligation. 20 25 7.5 VENTURE REDEMPTION RIGHT. Provided that Oriole's Unreturned Capital Contribution has been reduced to zero, the Venture, by the decision of the Managing Venturer, shall have the right ("Redemption Right") exercisable on or before the date that the Venture closes on its first sale of an individual lot (whether or not improved with a residential dwelling), to purchase all, but not less than all, of Oriole's Venture Interest. If it elects to do so, the Venture shall exercise its Redemption Right by delivering written notice to Oriole ("Redemption Notice") setting forth: (i) its decision to purchase Oriole's entire Venture Interest for the Redemption Price, and (ii) the amount of the "Redemption Price". The Redemption Price shall be an amount equal to (a) $267,000, in the event Oriole's Unreturned Capital Contribution was reduced to zero on or prior to December 31, 1996 or (b) $534,000, in all other events. The closing ("Redemption Closing") of the redemption of Oriole's Venture Interest by the Venture shall occur on a date and at a time and place mutually agreed to by Oriole and the Venture, but not later than the earlier of (x) the closing by the Venture on the first sale of an individual lot, or (y) thirty (30) days after the Redemption Notice is delivered to Oriole. The Redemption Price shall be paid at the Redemption Closing by delivery of a promissory note of the Venture ("Redemption Note") in the principal amount of the Redemption Price. The Redemption Note shall not bear interest and shall be payable by the Venture to Oriole by paying Oriole the Per Lot Amount for each lot for which a contact of sale is entered into by the Venture on the earlier to occur of (i) the closing of the conveyance of the lot; or (ii) that date which is five (5) months after the date a building permit for a dwelling to be constructed on the lot under a contract with a purchaser was obtained by the Venture. At the Redemption Closing, Oriole shall, in writing, represent and warrant to the Venture that Oriole's Venture Interest is owned by Oriole free and clear of all claims and encumbrances and that valid title to Oriole's Venture Interest will be vested in the Venture (or its designees) upon consummation of the transaction. The Venture may designate one or more persons to take title to all or any portion of the Venture Interest being conveyed. ARTICLE VIII DISSOLUTION; TERMINATION 8.1 DISSOLUTION. It is the intention of the Venturers that the business of the Venture be continued by the Venturers pursuant to the provisions of this Agreement until such time as the occurrence of an "Event of Termination," as hereinafter defined, at which time the Venture shall dissolve. The occurrence of any of the following shall be deemed an "Event of Termination:" (a) The sale of all or substantially all of the assets of the Venture; 21 26 (b) The written decision by the Venturers that the Venture should be dissolved; (c) The date on which the Venture or a Venturer shall suffer a Bankruptcy; or (d) December 31, 2022. 8.2 WIND-UP. Upon the dissolution of the Venture, the Managing Venturer shall make a final accounting of the business and affairs of the Venture and shall proceed with reasonable promptness to liquidate the business, property and assets of the Venture and to distribute the proceeds in the following order of priority: (a) To the payment of expenses of any sale, disposition or transfer of the Venture assets in liquidation of the Venture; (b) To the payment of just debts and liabilities of the Venture to those parties not affiliated with a Venturer, in the order of priority provided by law; (c) To the establishment of a reasonable reserve for contingent expenses, final legal, accounting and similar expenses incurred in connection with liquidating the Venture and for other unforeseen and miscellaneous expenses, which reasonable reserve, when no longer needed for the purposes established, shall be distributed as provided in subparagraphs (e) and (f) below; (d) To Oriole, its Preferred Return, until such Preferred Return has been paid in full; (e) To Oriole, the Oriole Unreturned Capital Contribution, until the Oriole Unreturned Capital Contribution is paid in full; and (f) To the Venturers, pro rata, in accordance with their then respective Capital Accounts, if positive. In the event the Venture is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Article Eight to the Venturers who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(2), and (b) if any Venturer's Capital Account has a deficit balance (after giving effect to all contributions, distributions, and allocations for all Years, including the Accounting Year during which such liquidation occurs), such Venturer shall contribute to the capital of the Venture the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(ii)(b)(3). 22 27 The Venturers may elect to distribute the remaining property and assets of the Venture, if any, in kind, in lieu of selling them, based upon the then existing fair market value thereof and after allocating to the Venturers, in accordance with their respective interests in the Venture, any unrealized gain inherent in such assets. The wind-up of the affairs of the Venture shall be conducted by the Managing Venturer. In liquidating the assets of the Venture, all tangible assets of a saleable value shall be sold at such price and terms as the Managing Venturer determines to be fair and equitable. Any Venturer may purchase such assets at such sale. It shall not be necessary to sell any intangible assets of the Venture. A reasonable time shall be allowed for the orderly liquidation of the assets of the Venture and the discharge of liabilities to creditors to minimize the losses that might otherwise occur upon liquidation. ARTICLE IX GENERAL PROVISIONS 9.1 RELATIONSHIP. Nothing contained in this Agreement shall be deemed or construed to constitute any Venturer as a general partner, employee or agent of the other Venturer, other than in connection with activities included within the purpose and scope of the Venture as set forth herein and subject to limitations upon same, as set forth herein. 9.2 NOTICES. All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly given only upon hand delivery thereof, including by recognized overnight courier, or upon the first business day after mailing by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: To Oriole: c/o Oriole Homes Corp. 1690 S. Congress Blvd. Delray Beach, Florida 33445 Attention: Mr. Richard D. Levy To Gordon: Gordon Family Homes, Inc. 101 S. Congress Blvd. Delray Beach, Florida 33445 Attention: Gary Gordon To Venture: c/o Gordon Family Homes, Inc. 101 S. Congress Blvd. Delray Beach, Florida 33445 Attention: Gary Gordon 23 28 or at such other address, or to such other person and at such address for that person, as any party shall designate in writing to the other Venturer for such purpose in the manner hereinabove set forth. 9.3 ENTIRE AGREEMENT. This Agreement sets forth all the promises, covenants, agreements, conditions and understandings between the parties hereto, and supersedes all prior and contemporaneous agreements, understandings, inducements or conditions expressed or implied, oral or written, except as herein contained. 9.4 AGENCY. Except as provided herein, nothing herein contained shall be construed to constitute any Venturer the agent of any other Venturer or to limit in any manner the Venturers in the carrying on of their own respective businesses or activities. 9.5 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon the parties hereto, their heirs, administrators, successors and assigns. No party may assign or transfer its interests herein, or delegate its duties hereunder, except as expressly provided herein. 9.6 AMENDMENT. The parties hereby irrevocably agree that no attempted amendment, modification, termination, discharge or change (collectively, "Amendment") of this Agreement shall be valid and effective, unless the parties shall unanimously agree in writing to such Amendment. 9.7 NO WAIVER. No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the party against whom it is asserted, and any such written waiver shall only be applicable to the specific instance to which it relates and shall not be deemed to be a continuing or future waiver. 9.8 GENDER AND USE OF SINGULAR AND PLURAL. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties, or their personal representatives, successors and assigns may require. 9.9 COUNTERPARTS. This Agreement and any amendments may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 9.10 HEADINGS. The article and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement. 9.11 GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Florida and any proceeding arising between the parties in any manner 24 29 pertaining or related to this Agreement shall, to the extent permitted by law, be held in Palm Beach County, Florida. 9.12 FURTHER ASSURANCES. The parties hereto will execute and deliver such further instruments and do such further acts and things as may be reasonably required to carry out the intent and purposes of this Agreement. 9.13 PROVISIONS SEVERABLE. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules, and regulations of the jurisdiction in which the parties do business. If any provision of this Agreement, or the application thereof to any person or circumstance shall, for any reason or to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. 9.14 LITIGATION. If any party hereto is required to engage in litigation against any other party hereto, either as plaintiff or as defendant, in order to enforce or defend any of its rights under this Agreement, and such litigation results in a final judgment in favor of such party ("Prevailing Party"), then the party or parties against whom said final judgment is obtained shall reimburse the Prevailing Party for all direct, indirect or incidental expenses incurred by the Prevailing Party in so enforcing or defending its rights hereunder including, but not limited to, all attorney's fees, paralegal fees, court costs and other expenses incurred throughout all negotiations, trials, collection, bankruptcy or appeals undertaken in order to enforce the Prevailing Party's rights hereunder. 9.15 REMEDIES. Each party hereto recognizes and agrees that the violation of any term, provision or condition of this Agreement may cause irreparable damage to the other parties which may be difficult to ascertain, and that the award of any sum of damages may not be adequate relief to such parties. Each party, therefore, agrees that, in addition to other remedies available in the event of a breach of this Agreement, any party shall have a right to equitable relief including, but not limited to, the remedy of specific performance. 9.16 NO FOREIGN PERSON WITHHOLDING. Each of the Venturers hereby represent and warrant for the benefit of the other that it is not a "foreign person" within the meaning of Code Section 1445. 9.17 NO RECORDATION. Neither this Agreement nor any memorandum thereof shall be recorded among the public records of any governmental authority. 25 30 IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. Signed, sealed and delivered in the presence of: ORIOLE JOINT VENTURE LIMITED, a Florida limited partnership By: ORIOLE LIMITED, INC., its general partner [witness] By: /s/ Richard D. Levy - ------------------------------ ----------------------------------------- Name: Richard D. Levy [witness] Title: C.E.O. - ------------------------------ GORDON FAMILY HOMES, INC., a Florida corporation [witness] By: /s/ Gary Gordon - ------------------------------ ----------------------------------------- Name: Gary Gordon [witness] Title: President - ------------------------------ 26 31 JOINDER Reference is hereby made to that certain Joint Venture Agreement of Gordon Family Homes at Morikami Park dated as of the 2nd day of October, 1996 ("Agreement"). The undesigned, by execution of this Joinder, hereby acknowledge that they have reviewed the Agreement and hereby agree that in the event the Venture is required to obtain third party financing as provided in Section 3.3 of the Agreement ("Debt"), or in the event Oriole exercised its Put Right in accordance with Section 7.4 of the Agreement ("Put Debt"), the undersigned shall absolutely and unconditionally guarantee the Debt and the Put Debt, as the case may be, and shall execute and deliver such instruments as reasonably requested by the payee of the Debt or the Put Debt, as the case may be, to evidence such guarantee. Except as set forth above, the undersigned shall have no further obligations to personally guaranty any contractual obligation of the Venture pursuant to the terms of the Agreement. Dated this 2nd day of October, 1996. By: /s/ Gary Gordon --------------------------------------- Gary Gordon By: /s/ Elvine Gordon --------------------------------------- Elvine Gordon GARY GORDON CONSTRUCTION COMPANY BY: /s/ Gary Gordon --------------------------------------- Gary Gordon, President GORDON FAMILY HOMES, INC. By: /s/ Gary Gordon --------------------------------------- Gary Gordon, President 27 EX-27 3 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,409,376 0 2,676,119 0 131,777,607 0 32,499,693 (9,648,463) 175,545,890 0 81,497,437 0 0 462,553 67,284,185 175,545,890 102,310,452 111,619,295 89,360,041 94,100,280 17,312,095 0 674,697 (467,777) (553,066) 85,289 0 0 0 85,289 .02 .02 Company reports on a non-classified Balance Sheet.
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