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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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.
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1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445
(561) 274-2000
Florida 59-1228702
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(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
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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
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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.
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PART I
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
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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
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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.
<TABLE>
<CAPTION>
Years Ended December 31, (Dollars in Thousands)
-----------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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(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.
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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
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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.
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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.
<TABLE>
<CAPTION>
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
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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RESIDENTIAL PROJECTS AND PRODUCT LINES - Continued
<TABLE>
<CAPTION>
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
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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.
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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.
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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
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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
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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
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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
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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.
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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.
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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:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Years Ended December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
Backlog. The following table sets forth the Company's backlog at
December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
December 31, Number of Units Aggregate Dollar Value
- ------------ --------------- ----------------------
<S> <C> <C>
1994 143 $29,348,000
1995 193 $35,349,000
1996 266 $44,810,000
</TABLE>
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.
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 20
ORIOLE HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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
============ ============
</TABLE>
(continued)
19
<PAGE> 21
ORIOLE HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 22
ORIOLE HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 23
ORIOLE HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Class A Class B
--------------------- --------------------- Additional
Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
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
========= =========== ========= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 24
ORIOLE HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
NOTE G - MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1996 and 1995, are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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
============= =============
</TABLE>
28
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
(continued)
29
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
(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
=========== =========== ===========
</TABLE>
(continued)
30
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
31
<PAGE> 33
Oriole Homes Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SENIOR NOTES
Senior Notes are comprised as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C> <C>
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)
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
(000) Price (000) Price
------- --------- ----- --------
<S> <C> <C> <C> <C>
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
</TABLE>
33
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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
================= =================
</TABLE>
34
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
of Assets of Assets of Assets of Assets
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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)
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
(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.
</TABLE>
<PAGE> 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
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 1
Exhibit 10.8
JOINT VENTURE AGREEMENT
OF
GORDON FAMILY HOMES AT MORIKAMI PARK
DATED: AS OF OCTOBER 2, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
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
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
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
</TABLE>
(iii)
<PAGE> 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
<PAGE> 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
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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.
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(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
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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.
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(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.
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(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.
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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
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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:
<TABLE>
<S> <C> <C>
(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.
</TABLE>
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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.
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(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.
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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.
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(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
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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:
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(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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,409,376
<SECURITIES> 0
<RECEIVABLES> 2,676,119
<ALLOWANCES> 0
<INVENTORY> 131,777,607
<CURRENT-ASSETS> 0
<PP&E> 32,499,693
<DEPRECIATION> (9,648,463)
<TOTAL-ASSETS> 175,545,890
<CURRENT-LIABILITIES> 0
<BONDS> 81,497,437
0
0
<COMMON> 462,553
<OTHER-SE> 67,284,185
<TOTAL-LIABILITY-AND-EQUITY> 175,545,890
<SALES> 102,310,452
<TOTAL-REVENUES> 111,619,295
<CGS> 89,360,041
<TOTAL-COSTS> 94,100,280
<OTHER-EXPENSES> 17,312,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 674,697
<INCOME-PRETAX> (467,777)
<INCOME-TAX> (553,066)
<INCOME-CONTINUING> 85,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,289
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
Company reports on a non-classified Balance Sheet.
</FN>
</TABLE>
