-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SkvdXMPwOg4wzXdN8BNjRifcIWlyXBt9CSsao8Z9X4usyUTTDEJdaarT7k8bg/j0 oNbzEaKq4IgSGIaw1kS4hQ== 0000950116-98-001936.txt : 19980929 0000950116-98-001936.hdr.sgml : 19980929 ACCESSION NUMBER: 0000950116-98-001936 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORLEANS HOMEBUILDERS INC CENTRAL INDEX KEY: 0000038570 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 590874323 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06830 FILM NUMBER: 98716370 BUSINESS ADDRESS: STREET 1: ONE GREENWOOD SQUARE STREET 2: 3333 STREET ROAD SUITE 101 CITY: BENSALEM STATE: PA ZIP: 19020 BUSINESS PHONE: 2152457500 MAIL ADDRESS: STREET 1: ONE GREENWOOD SQUARE STREET 2: 3333 STREET RD STE 101 CITY: BENSALEM STATE: PA ZIP: 19020 FORMER COMPANY: FORMER CONFORMED NAME: FPA CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FLORIDA PALM AIRE CORP DATE OF NAME CHANGE: 19720106 FORMER COMPANY: FORMER CONFORMED NAME: FLORIDA PLAN AIRE CORP DATE OF NAME CHANGE: 19700217 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 1-6830 ORLEANS HOMEBUILDERS, INC. (formerly FPA Corporation) (Exact name of registrant as specified in its charter) Delaware 59-0874323 One Greenwood Square, #101 (State or other jurisdiction of (I.R.S. Employer 3333 Street Road incorporation or organization) Identification No.) Bensalem, PA 19020 (Address of Principal Executive Office) (215) 245-7500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title Name of Each Exchange ----- on which Registered Common Stock, $.10 Par Value Per Share --------------------- (also formerly registered under Section 12(g) of the Act)................ American 14 1/2% Subordinated Debentures due September 1, 2000........................ American Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Rule 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 The aggregate market value of voting stock held by nonaffiliates of the registrant as of September 11, 1998 was approximately $3,800,000. Number of shares of outstanding Common Stock as of September 11, 1998 was 11,356,018, shares (excluding 1,342,113 shares held in Treasury). Part III (except for information included under Part I relating to executive officers of the registrant) is incorporated by reference from the proxy statement for the annual meeting of Stockholders scheduled to be held in December, 1998. TABLE OF CONTENTS PART I ------
PAGE ---- ITEM 1. Business. 1 General 1 Residential Development 2 Operating Policies and Construction 4 Sales and Customer Financing and Land Policy 5 Joint Ventures and Government Regulation 6 Environmental Regulation and Litigation 7 Competition and Employees 7 Economic Conditions 8 ITEM 2. Properties. Lease of Executive Offices 8 ITEM 3. Legal Proceedings 8 ITEM 4. Submission of Matters to a Vote of Security Holders 8 ITEM 4A. Executive Officers of the Registrant 9 PART II ------- ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters 10 ITEM 6. Selected Financial Data 11 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 19 ITEM 8. Financial Statements and Supplementary Data 20 ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 42 PART III -------- ITEM 10. Directors and Executive Officers of Registrant 42 ITEM 11. Executive Compensation 42 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 42 ITEM 13. Certain Relationships and Related Transactions 42 PART IV ------- ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
Item l. Business. - ------- --------- General - ------- Effective July 1998, the Registrant (formerly FPA Corporation) changed its name to Orleans Homebuilders, Inc. ("OHB") (the "Company"). The Company believes that changing its name will be beneficial because it capitalizes on the positive name recognition associated with the Orleans Family, which has been one of the preeminent home builders in the region for 80 years. The Company develops residential communities in southeastern Pennsylvania and central and southern New Jersey. The Company's operations in Pennsylvania and New Jersey are in the Philadelphia metropolitan area, primarily in Bucks, Chester and Delaware Counties in Pennsylvania and in Burlington, Camden and Gloucester counties in New Jersey. During fiscal 1997, the Company commenced development of communities in Chester and Delaware Counties in Pennsylvania and is further endeavoring to increase its scope of operations in these counties. In addition, during fiscal 1997, the Company commenced development in the Princeton, New Jersey area. During fiscal 1998, the Company purchased land adjacent to counties in which the Company already operates, in Somerset County in Central New Jersey. The Company plans to commence operations in this county in fiscal 1999. The Company operates as both a developer and builder. The Company builds and sells condominiums, townhouses and single-family homes; and sells land and developed homesites. During the fiscal year ended June 30, 1998, the Company delivered 589 residential units as compared to 562 units in fiscal 1997. Revenues earned from residential property activities during fiscal 1998 were $106,246,000. During fiscal 1997, revenues earned from residential property activities were $96,104,000. At June 30, 1998, the Company's backlog was $70,995,000, representing 340 units, compared to $38,260,000 and 210 units, at June 30, 1997. In addition, as of June 30, 1998, there were reservation deposits relating to 37 units at the Company's various developments which had an aggregate sales value of $7,162,000, as compared to 24 units aggregating $4,440,000 at June 30, 1997. The Company's predecessor, Florida Palm-Aire Corporation, was formed in 1959 and was merged into Orleans Homebuilders, Inc., which had been incorporated in Delaware on September 4, 1969. In 1965, the late Marvin Orleans and Orleans Construction Co., a general partnership substantially owned and controlled by Marvin Orleans and his late father, A.P. Orleans, acquired the controlling interest in the Company. In 1993, the Company acquired Orleans Construction Corp. ("OCC") from Jeffrey P. Orleans. Unless otherwise indicated, the terms the "Company" and "OHB" include Orleans Homebuilders, Inc. 1 (formerly FPA Corporation) and all of its Subsidiaries. Jeffrey P. Orleans, the son of Marvin Orleans and Chairman of the Board and Chief Executive Officer of the Company, owns, directly or indirectly, approximately 7,232,708 shares of Common Stock, par value $.10 per share ("Common Stock"), which represents approximately 63.7% of the outstanding shares, excluding treasury shares, as of September 11, 1998. If Mr. Orleans were to convert his Convertible Subordinated 7% Note (See Note 8 of Notes to Consolidated Financial Statements) into common shares, he would then own 69.1% of the then outstanding shares. Further, if Mr. Orleans were to convert his Series D Preferred Stock (See Note 13 of Notes to Consolidated Financial Statements) into common shares, he would then own 73.1% of the then outstanding shares. Residential Development - ----------------------- The Company's activities in developing residential communities include the sale of residential properties and the sale of land and developed homesites to independent builders. The Company participates in joint ventures in certain of these activities. The following table sets forth certain information at June 30, 1998 with respect to land holdings, active communities of the Company under development and those where construction is expected to commence in the near future. 2 RESIDENTIAL DEVELOPMENTS AS OF JUNE 30, 1998 --------------------------------------------
No. of Total Units Total Units Total Units Reservation Unit Price Remaining ------- ----------- ----------- ----------- ----------- ---------- --------- State Communities Approved Delivered Under Contract Deposits Range(1) Approved Units(2) - ----- ----------- -------- --------- -------------- -------- -------- ----------------- PA 15 1,370 782 122 15 $ 115,000 451 $ 450,000 NJ 25 3,311 1,376 218 22 $ 110,000 1,695 ------ ----- ------- --- --- $ 360,000 ----- 40 4,681 2,158 340 37 2,146
1. Range of base prices of residential dwelling units currently being offered for sale by the Company. In addition, the Company sells homesites from time to time at its various developments to unaffiliated builders at prices substantially lower than its dwelling units. 2. Although zoning and certain preliminary master plan approvals have been received for these units, final plans are subject to substantial review and approval by appropriate governmental agencies. No assurance can be given that the Company will be able to obtain the required final approvals for the indicated units or will ultimately elect to develop the properties in accordance with presently anticipated development plans. 3 The following table sets forth certain detail as to residential sales activity. The information provided is for the twelve months ended June 30, 1998, 1997 and 1996 in the case of revenues earned and new orders, and as of June 30, 1998, 1997 and 1996 in the case of backlog. Year Ended June 30, --------------------------------------- 1998* 1997* 1996 ----- ----- ---- (Dollars in Thousands) Revenues earned $106,246 $ 96,104 $ 86,061 Units 589 562 531 Average price per unit $ 180 $ 171 $ 162 New orders $139,129 $ 94,158 $ 80,438 Units 719 553 486 Average price per unit $ 194 $ 170 $ 166 Backlog $ 70,995 $ 38,260 $ 40,206 Units 340 210 219 Average price per unit $ 209 $ 182 $ 184 * Included in new order data for fiscal 1997 are 31 low income housing units to be purchased by Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company. The units had an aggregate sales value of $1.8 million. Five such units were delivered in fiscal 1997 and the remaining 26 units, with an aggregate sales value of $1.4 million, are included in backlog data at June 30, 1997 and fiscal 1998 revenues. The selling prices for these units, which are determined by state statute, are the same as if the units had been sold to unaffiliated third parties. These transactions will satisfy, in part, the Company's low income housing requirements in Mount Laurel Township, New Jersey. Operating Policies - ------------------ Construction ------------ The Company has historically designed its own products with the assistance of unaffiliated architectural firms as well as supervised the development and building of its projects. When the Company constructs units, it acts as a general contractor and employs subcontractors at specified prices for the installation of site improvements and construction of its residential units. Agreements with subcontractors provide for a fixed price for work performed or materials supplied and are generally short-term. The Company does not manufacture any of the materials or other items used in the development of its projects, nor does the Company maintain substantial inventories of materials. Standard building materials, appliances and other components are purchased in volume. The Company has not experienced significant delays in obtaining materials needed by it to date and has long-standing relationships with many of its major suppliers and contractors. None of the Company's suppliers accounted for more than 10% of the Company's total purchases in the fiscal year ended June 30, 1998. 4 Sales and Customer Financing ---------------------------- The Company conducts a marketing program that is directed to purchasers of primary residences. In Pennsylvania and New Jersey, A.P. Orleans Inc., a wholly-owned subsidiary of the Company, is the exclusive sales agent. Model homes and sales centers are constructed to promote sales. A variety of custom changes are permitted at the request of purchasers. The Company advertises extensively using newspapers, billboards and other types of media. The Company also uses brochures to describe each community. The Company's customers generally require mortgage financing to complete their purchases. During fiscal 1996, the Company established a mortgage department to assist its home buyers in obtaining financing from unaffiliated lenders. The Company receives a fee for its services. The Company applies for project financing approvals from the Federal Housing Administration, the Veterans Administration and the Federal National Mortgage Association for many of its moderately priced communities. These approvals assist customers in their ability to obtain competitive fixed and adjustable rate mortgages with moderate down payments and liberal underwriting requirements. The Company has obtained approvals for most projects and anticipates additional approvals during fiscal 1999; however, there can be no assurance that additional approvals will be obtained. Land Policy ----------- The Company acquires land in order to provide an adequate and well-located supply for its residential building operations. In evaluating possible opportunities to acquire land, the Company considers such factors as the feasibility of development, proximity to developed areas, population growth patterns, customer preferences, estimated cost of development and availability and cost of financing. As of June 30, 1998, the Company had contracted to purchase fourteen additional tracts for an aggregate purchase price of approximately $54,300,000. The Company anticipates completing a majority of these acquisitions during fiscal 1999 and 2000. The Company will continue to monitor economic and market conditions for residential units in each of its various communities in assessing the relative desirability of constructing units or selling parcels to other builders. The Company engages in many phases of development activity, including land and site planning, obtaining environmental and other regulatory approvals, construction of roads, sewer, water and drainage facilities, recreation facilities and other amenities. 5 Joint Ventures -------------- From time to time, the Company has developed and owned projects through joint ventures with other parties. As discussed in Note 1 of Notes to Consolidated Financial Statements, the Company, through a wholly owned subsidiary, is the General Partner in Versailles Associates, L.P., a limited partnership with private investors to purchase and develop a 102 multi-family unit community in Cherry Hill, New Jersey. As of June 30, 1998, all units have been delivered and liquidation of the partnership is expected to occur in fiscal 1999. As also discussed in Note 1 of Notes to Consolidated Financial Statements, OCC has entered into a joint venture with Bridlewood Associates, L.P. OCC is the general partner in this limited partnership formed to develop an 85 acre parcel of land in Mount Laurel, New Jersey. As of June 30, 1998, one unit remains to be sold. Liquidation of the partnership is expected to occur in fiscal 1999. Determinations by the Company to enter into joint ventures have traditionally been based upon a number of factors, including principally an alternative source for land acquisition financing. At the present time joint venture activities do not constitute a material portion of the Company's operations. Government Regulation --------------------- The Company and its subcontractors are subject to continuing compliance requirements of various federal, state and local statutes, ordinances, rules and regulations regarding zoning, plumbing, heating, air conditioning and electrical systems, building permits and similar matters. The intensity of development in recent years in areas in which the Company is actively developing real estate has resulted in increased restrictive regulation and moratoriums by governments with respect to density, sewer, water, ecological and similar matters. Further expansion and development will require prior approval of federal, state and local authorities and may result in delay or curtailment of development activities and costly compliance programs. In January 1983, the New Jersey Supreme Court rendered a decision known as the "Mount Laurel II" decision, which has the effect of requiring certain municipalities in New Jersey to provide housing for persons of low and moderate income. In order to comply with such requirements, municipalities in that state may require developers, including the Company, in connection with the development of residential communities, to contribute funds, on a per unit basis, or otherwise assist in the achievement of a fair share of low or moderate housing in such municipalities. In recent years, regulation by federal and state authorities relating to the sale and advertising of condominium interests and residential real estate has become more restrictive and intense. In order to 6 advertise and sell condominiums and residential real estate in many jurisdictions, including Pennsylvania and New Jersey, the Company has been required to prepare a registration statement or other disclosure document and, in some cases, to file such materials with a designated regulatory agency. Despite the Company's past ability to obtain necessary permits and authorizations for its projects, more stringent requirements may be imposed on developers and home builders in the future. Although the Company cannot predict the effect of such requirements, they could result in time-consuming and expensive compliance programs and substantial expenditures for environmental controls which could have a material adverse effect on the results of operations of the Company. In addition, the continued effectiveness of permits already granted is subject to many factors, including changes in policies, rules and regulations and their interpretation and application, which are beyond the Company's control. Environmental Regulation and Litigation --------------------------------------- Development and sale of real property creates a potential for environmental liability on the part of the developer, owner, or any mortgage lender for its own acts or omissions as well as those of current or prior owners of the subject property or adjacent parcels. If hazardous substances are discovered on or emanating from any of the Company's properties, the owner or operator of the property (including the prior owners) may be held liable for costs and liabilities relating to such hazardous substances. Environmental studies are undertaken in connection with property acquisitions by the Company. Further governmental regulation on environmental matters affecting residential development could impose substantial additional expense to the Company, which could adversely affect the results of operations of the Company or the value of properties owned, or under contract to purchase by the Company. (See Note 12 of Notes to Consolidated Financial Statements for a discussion of specific environmental litigation.) Competition ----------- The real estate industry is highly competitive. The Company competes on the basis of its reputation, location, design, price, financing programs, quality of product and related amenities, with regional and national home builders in its areas of development, some of which have greater sales, financial resources and geographical diversity than the Company. Numerous local residential builders and individual resales of residential units and homesites provide additional competition. Employees --------- The Company, as of June 30, 1998, employed 177 persons, 56 of whom were executive, administrative and clerical personnel, 48 were sales personnel, and 73 were construction supervisory personnel and laborers. The level of construction and sales employees varies throughout the year in relation to the level 7 of activities at the Company's various developments. The Company has had no major work stoppages and considers its relations with employees to be good. Economic Conditions ------------------- The Company's business is affected by general economic conditions in the United States and its related regions and particularly by the level of interest rates. The Company cannot predict whether interest rates will be at levels attractive to prospective home buyers or whether mortgage and construction financing will continue to be available. Item 2. Properties. - ------- ----------- Lease of Executive Offices -------------------------- Except as noted below, the Company's real property assets are described under Item 1 - Business. The Company is currently leasing office space comprising approximately 12,000 square feet at One Greenwood Square at 3333 Street Road, Bensalem, Pennsylvania. The annual rent is $199,000 with a lease expiring in December, 2001. Item 3. Legal Proceedings. - ------- ------------------ The Company is a plaintiff or defendant in various cases arising out of its usual and customary business. The Company believes that it has adequate insurance or meritorious defenses in all pending cases in which it is a defendant and that adverse decisions in any or all of the cases would not have a material effect upon the Company. (See Note 12 of Notes to Consolidated Financial Statements for a discussion of specific litigation). Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- On April 20, 1998, the Board of Directors of the Company approved and recommended to the stockholders of the Company an amendment (the "Amendment") to its Certificate of Incorporation changing the Company's name to "Orleans Homebuilders, Inc." On May 11, 1998, pursuant to Section 228 of the Delaware General Corporation Law, Mr. Jeffrey P. Orleans, the record holder of 7,085,675 shares, or approximately 62.4% of the Company's issued and outstanding shares of Common Stock on that date, approved by written consent (the "Consent") the Amendment. On or about June 22, 1998, pursuant to Rule 14c-2 of the Exchange Act, the Company mailed to the holders of Common Stock an Information Statement advising them of the adoption of the Amendment pursuant to the Consent. The Amendment was filed with the Secretary of State of the State of Delaware on, and became effective as of, July 13, 1998. See Item 1 - Business for the potential benefits of the Amendment. 8 Item 4A. Executive Officers of the Registrant. - -------- ------------------------------------- The following list contains certain information relative to executive officers of the Company. There are no family relationships among any executive officers. The term of each executive officer expires at the next annual meeting of the Board of Directors following the annual meeting of Stockholders scheduled to be held in December, 1998 or until their successors are duly elected and qualified.
Position Principal occupation and offices Name Age or office past 5 years - ---------- --- --------- ------------ Jeffrey P. 52 Chairman of the Board Served as Chairman of the Board and Orleans and Chief Executive Officer Chief Executive Officer since September 1986. Benjamin D. 52 Vice Chairman and Director Elected Vice Chairman in April Goldman 1998. Goldman Served as President from May 1992 to April 1998. Has served as a Director of the Company since May 1992. Michael T. 39 President and Chief Elected President and Chief Operating Vesey Operating Officer Officer in April 1998. Served as Executive Vice President from July 1994 through April 1998. Prior to July 1994, he was responsible for project management of the Company's Pennsylvania communities. Joseph A. 44 Chief Financial Officer, Elected Chief Financial Officer of the Santangelo Treasurer and Secretary Company in July 1994. He was elected Secretary of the Company in May 1992 and has been Treasurer since joining the Company in March 1987. He is a Certified Public Accountant.
9 Item 5. Market for Registrant's Common Stock and - ------- Related Stockholder Matters. --------------------------- The principal market on which the Company's Common Stock is traded is the American Stock Exchange, Inc. Effective July 1998, in conjunction with the Company's name change to Orleans Homebuilders, Inc., the Company's ticker symbol was changed from "FPO" to "OHB". (Symbol: OHB) The high and low sales prices on the Exchange for the periods indicated are as follows: Fiscal year ended June 30, High Low -------------- ---- --- 1997 First Quarter $ 1.188 $ 1.000 Second Quarter 1.125 .875 Third Quarter 1.625 .938 Fourth Quarter 1.188 .750 1998 First Quarter $ 1.125 $ .750 Second Quarter 1.625 .813 Third Quarter 1.438 .938 Fourth Quarter 2.938 1.125 The number of common stockholders of record of the Company as of September 11, 1998 was 320. The Company has not paid a cash dividend since December 1982. Payment of dividends will depend upon the earnings of the Company, its funds derived from operations, its working capital needs, its debt service requirements, its general financial condition and other factors (including, without limitation, certain agreements). No assurance can be given that the Company will pay dividends in the future. 10 Item 6. Selected Financial Data. - ------- ------------------------ The following table sets forth selected financial data for the Company and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included under Item 8 of this Form 10-K.
(In thousands except per share data) Year Ended June 30, ------------------------------------------------------------------------- Operating Data(1) 1998 1997 1996 1995 1994(2) - ----------------- ---- ---- ---- ---- ------- Earned revenues $ 108,998 $ 101,996 $ 94,359 $ 107,840 $ 66,618 Income (loss) from operations 1,668 1,615 1,235 1,201 (766) Income (loss) per share from continuing operations: Basic .15 .14 .11 .10 (.07) Diluted .14 .14 .10 .10 (.07) June 30, ------------------------------------------------------------------------- Balance Sheet Data 1998 1997 1996 1995 1994(3) - ------------------ ---- ---- ---- ---- ------- Residential properties $ 47,209 $ 35,355 $ 34,263 $ 35,757 $ 35,016 Land and improvements 64,044 60,067 46,654 52,921 46,681 Total assets 130,525 107,613 92,866 102,274 97,754 Mortgage obligations secured by real estate 65,136 53,637 42,524 40,721 36,806 Senior notes -- -- -- 371 664 Subordinated debentures 601 601 618 2,231 2,363 Other notes payable 14,970 13,618 12,782 13,112 13,928 Shareholders' equity 17,719 16,051 13,949 12,146 10,945
- ---------------- (1) The Company has not paid a cash dividend since December 1982. (2) Includes results of operations of OCC from October 22, 1993 (date of acquisition) through June 30, 1994. (3) Includes balance sheet data of OCC, acquired by the Company on October 22, 1993. 11 Item 7. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations - --------------------- Liquidity and Capital Resources - ------------------------------- The Company requires capital to purchase and develop land, to construct units, to fund related carrying costs and overhead and to fund various advertising and marketing programs to facilitate sales. The Company's sources of capital include funds derived from operations, sales of assets and various borrowings, most of which are secured. At June 30, 1998, the Company had approximately $56,674,000 available to be drawn under existing secured revolving and construction loans for planned development expenditures. These expenditures include site preparation, roads, water and sewer lines, impact fees and earthwork, as well as the construction costs of the homes and amenities. The Company believes that the funds generated from operations and financing commitments from commercial lenders will provide the Company with sufficient capital to meet its operating needs through fiscal 1999. The Company has continued its ongoing land acquisition efforts during fiscal 1998. During this period, the Company acquired twelve additional parcels of land with an aggregate purchase price of approximately $12,421,000. Marketing activities had commenced on a majority of these communities as of June 30, 1998. The remaining communities will commence marketing activities in fiscal 1999. The Company is continuing to expand its land acquisition efforts. As of June 30, 1998, the Company had contracted to purchase fourteen additional tracts for an aggregate purchase price of approximately $54,300,000. These purchase agreements are subject to due diligence review and are contingent upon the receipt of governmental approvals. The Company expects to utilize purchase money mortgages, secured financings and existing capital resources to finance these acquisitions. The Company anticipates completing a majority of these acquisitions during fiscal 1999 and 2000. Overview of Operations - ---------------------- The tables included in "Item 1 - Business" summarize the Company's revenues, new orders and backlog data for the year ended June 30, 1998 with comparable data for fiscal 1997 and 1996. New orders for fiscal 1998 increased by approximately 48% to $139,129,000 on 719 units compared to $94,158,000 on 553 units during fiscal 1997. The Company continues to expand its geographic marketing areas within Pennsylvania and New Jersey with new communities primarily in the same or adjacent counties to its existing development projects. This increase in new orders resulted from the opening of eight additional selling communities in fiscal 1998, including two new communities in Mount Laurel, Evesham and Lumberton Townships in Burlington County, as well as in Princeton Township in Mercer County, and Gloucester Township in Camden County. The average price per unit of revenues earned and new orders increased due to a change in product mix towards higher priced townhouse and 12 single family homes, along with the settlement of fewer condominiums, as well as price increases at certain existing communities. The Company expects this trend to continue. The dollar backlog at June 30, 1998 increased approximately 86% to $70,995,000 on 340 homes, as compared to the backlog at June 30, 1997 of $38,260,000 on 210 homes. The Company's continued geographic diversification with its new communities, coupled with favorable economic conditions and consumer sentiment, resulted in the increased backlog level. The Company anticipates delivering substantially all of its backlog units during fiscal 1999. Inflation - --------- Inflation can have a significant impact on the Company's liquidity. Rising costs of land, materials, labor, interest and administrative costs have generally been recoverable in prior years through increased selling prices. The Company has been able to increase prices to cover portions of these costs. However, there is no assurance the Company will be able to continue to increase prices to cover the effects of inflation in the future. Year 2000 - --------- The Company began assessing its Year 2000 ("Y2K") compliance issues at the beginning of fiscal 1998 and at that time, determined that its primary internal computer hardware and computer software were not Y2K compliant. Subsequently, the Company determined that it would be more cost efficient to install a new Y2K compliant software package than to modify the existing software package. In September 1998, after significant review of various software packages, the Company contracted to purchase a new software package, including several specific enhancements to modify the software to meet the Company's needs. As part of the Company's contingency plan, in order to mitigate the risks associated with the possibility that the software enhancements will not be completed on time, the Company has required that the base software package be placed in escrow. The Company believes that implementation of the base software package will require substantially less time than the enhanced software package. In addition, the Company has proposed to upgrade its existing primary computer hardware system to support the new computer software package. The Company is currently in the process of installing new hardware and software for the application development stage of its Y2K computer compliance program and the Company's goal is to complete the final phase, implementation, by June 30, 1999. The Company is also investigating the Y2K compliance status of its vendors, subcontractors and suppliers through the Company's own internal vendor compliance effort. This investigation is in its preliminary stages and the Company's goal is to complete this investigation, as well as any corrective efforts by March 31, 1999. Since the Company does not rely on any individual vendor, subcontractor or supplier for a significant portion of its operations, the potential impact of Y2K non-compliance risks in this 13 area are not considered significant to the Company. The Company has incurred approximately $100,000 to date, including consulting fees, internal staff costs and other expenses. The Company expects to incur additional expenditures of approximately $500,000 in the next fiscal year to be Y2K compliant. While the Company believes it is taking all appropriate steps to achieve internal Y2K compliance, any potential future business interruptions, costs, damages or losses related thereto, are also dependent upon the Y2K compliance of third parties. In the event that the Company or any of the Company's significant vendors, subcontractors or suppliers experience disruptions due to the Y2K issue, the Company's operations could be adversely affected. The Y2K issue is universal and complex, as virtually every computer operation will be affected in some way. Consequently, no assurance can be given that complete Y2K compliance can be achieved without significant additional costs. Forward Looking Statement - ------------------------- The Company's estimates of costs and completion dates for its Y2K readiness program represent management's best estimates. These estimates are based upon many assumptions, including the availability of external resources to assist with systems remediation and replacement efforts, key third party suppliers, vendors and customers being Y2K compliant and in the event of non-compliance, the Company's execution of its contingency plans. Fiscal Years Ended June 30, 1998 and 1997 ----------------------------------------- Results of Operations - --------------------- Operating Revenues ------------------ Earned revenues for fiscal 1998 increased $7,002,000, or 6.9%, compared with fiscal 1997. Residential property revenues (including related party amounts) for fiscal 1998 increased $10,142,000, or 10.6%, compared with fiscal 1997. Revenues from the sale of residential homes included 589 homes totaling $106,246,000 compared to 562 homes totaling $96,104,000 during fiscal 1997. The increase in revenues for fiscal 1998 is attributed to an increase in the number of units sold which is the result of the expanding geographic scope of the Company's operations and favorable economic conditions affecting unit sale volume. In addition, the average selling price per unit has increased to approximately $180,000 per unit during fiscal 1998 from $171,000 per unit during fiscal 1997. The increase in average selling price is due to a change in product mix towards larger townhouse and single family homes and less condominiums than in the previous year, as well as price increases at certain existing communities. Fiscal 1998 related party residential property revenues included 26 low income homes with an aggregate sales value of approximately $1,400,000, sold to Jeffrey P. Orleans, Chairman and Chief 14 Executive Officer of the Company. These transactions satisfied, in part, the Company's low income housing requirements in Mount Laurel Township, New Jersey. The selling prices for these homes, which are determined by state statute, are the same as if the homes had been sold to unaffiliated third parties. Revenue from land sales decreased approximately $2,742,000 or 71.2% compared with fiscal 1997. This decrease is primarily due to a decrease in the number and size of developed homesites sold during fiscal 1998 compared with fiscal 1997. Also, other income for fiscal 1998 decreased $398,000 or 19.5% compared with fiscal 1997. This decrease is primarily due to the fact that fiscal 1997 other income included non-recurring income items totaling approximately $632,000 from the final distribution of a joint venture partnership and insurance proceeds in excess of expenses incurred from a 1995 fire which destroyed the Company's corporate offices. Costs and Expenses ------------------ Costs and expenses for fiscal 1998 increased $6,369,000, or 6.4%, compared with fiscal 1997. This increase is primarily due to an increase in the cost of residential properties sold and selling, general and administrative expenses totaling $9,088,000, partially offset by a decrease in the cost of land sales of $2,775,000. The fiscal 1998 cost of residential properties increased $7,895,000, or 9.6%, when compared with fiscal 1997. This increase in residential property costs is slightly less than the overall percentage increase in residential property revenues when compared with fiscal 1997. Overall profit margins on residential properties improved nominally, due to increased selling prices, as the cost of residential properties as a percentage of residential property revenues was 85.1% in fiscal 1998 compared with 85.9% in fiscal 1997. The decrease in the cost of land sales of $2,775,000 or 75.7% when compared to fiscal 1997 is consistent with the overall decrease in fiscal 1998 revenue from land sales. Profit margins on land sales during fiscal 1998 improved to 19.7% from 4.8% during fiscal 1997. Fiscal 1998 selling, general and administrative expenses increased $1,193,000, or 9.6%, when compared with fiscal 1997. The fiscal 1998 increase in selling, general and administrative expenses is attributable to start-up costs associated with the opening of communities in new regions, along with having more overall communities open throughout fiscal 1998 when compared with the prior year. The selling, general and administrative expenses as a percentage of residential property revenues is relatively consistent with the prior year. Income Before Income Taxes -------------------------- Income before income taxes increased $633,000, or 30.8%, to $2,690,000 for fiscal 1998 compared with $2,057,000 during fiscal 1997. This increase is primarily due to an increase in gross profit as a result of higher residential property revenues, partially offset by an increase in selling, general and administrative expenses necessary to support the increased revenues. 15 Income Tax Expense ------------------ The Company's effective tax rate for fiscal 1998 increased to 38.0% from 21.5% during fiscal 1997. The increase is due to the fact that fiscal 1997 income tax expense was reduced as a result of the elimination of a valuation allowance on certain tax assets. (See Note 10 of Notes to Consolidated Financial Statements for more information.) Income From Operations Before Extraordinary Income and Net Income ----------------------------------------------------------------- Income from operations before extraordinary items was $1,668,000 or $.15 basic earnings per share for fiscal 1998, compared with $1,615,000 or $.14 basic earnings per share during fiscal 1997. The current year increase in income from operations before extraordinary item was offset by a higher effective income tax rate in fiscal 1998 when compared with fiscal 1997. Income from extraordinary items, net of tax expense, was $594,000 or $.05 per share during fiscal 1997. Net income was $1,668,000 or $.15 basic earnings per share for fiscal 1998, compared with $2,209,000 or $.19 basic earnings per share during fiscal 1997. The fiscal 1997 extraordinary gain, net of tax expense and the change in effective tax rate, accounts for substantially all of the decrease in net income during fiscal 1998 when compared with fiscal 1997. 16 Fiscal Years Ended June 30, 1997 and 1996 ----------------------------------------- Results of Operations - --------------------- Operating Revenues ------------------ Earned revenues for fiscal 1997 increased $7,637,000 or 8.1% compared to fiscal 1996. Residential property revenues for fiscal 1997 increased $10,043,000 or 11.7% compared with fiscal 1996. Revenues from the sale of residential homes included 562 homes totaling $96,104,000 compared to 531 homes totaling $86,061,000 during fiscal 1996. This increase in revenues is attributable to improvements in sales and home construction activities and the trend toward more townhome and single family homes being sold by the Company. Revenues from land sales decreased by $3,038,000 or 44.1% due to the timing of these transactions. Included in the increase in other income of $632,000 is approximately $318,000 from a non-recurring final distribution in excess of basis from a joint venture partnership received by the Company during fiscal 1997. The Company will have no future obligations or operating activities with respect to this entity. Also included in other income is $302,000 from insurance proceeds in excess of the expenses incurred and carrying costs of the contents of the Company's corporate offices, which were destroyed by fire in August, 1995. Costs and Expenses ------------------ Costs and expenses for fiscal 1997 increased $6,433,000 or 6.9% compared with fiscal 1996. The increase in cost of residential properties sold of $8,963,000 or 12.2% coupled with the decrease in land sales of $2,854,000 or 43.8% are the principal components of the overall increase. These amounts are consistent with the changes in earned revenues discussed previously. Selling, general and administrative costs increased $1,064,000 or 9.4% due to the increase in homes settled and start-up costs associated with the opening of six new communities for sale. Net interest expense decreased approximately $500,000 or 38.5% as a result of the continued reduction in higher yield indebtedness, including $1,522,000 of the Company's 14-1/2% Subordinated Debentures retired in June 1996 and the note obligations retired in July 1996, as discussed under Extraordinary Items under this item. As of June 30, 1997, the Company reduced its valuation allowance from 50% to 0% on certain tax assets which were dependent on future taxable income for realization. This conclusion was based on fiscal 1997 income before income taxes of $2,057,000, representing a significant improvement over fiscal 1996 income before taxes of $853,000. As of June 30, 1997, given the three consecutive years of profits and significant utilization of the existing deferred tax asset, the Company believed it to be appropriate to further adjust the valuation allowance to zero on its remaining tax assets. 17 Extraordinary Items - ------------------- In July, 1996, the Company completed a transaction to fully satisfy notes payable with an outstanding balance of approximately $1,650,000 and reacquired 183,177 shares of Common Stock in exchange for a cash payment of approximately $1,061,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of $594,000, net of income tax expense of approximately $100,000 in fiscal 1997. In June, 1996, the Company satisfied $1,522,000 of its then outstanding Subordinated Debentures and related accrued interest for a cash payment of $907,000. This transaction resulted in an extraordinary gain of $523,000, net of income tax expense of $92,000 in fiscal 1996. During the second quarter of fiscal 1996, the Company completed a transaction to fully satisfy a note payable with an outstanding balance of approximately $380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash payment of $235,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of $170,000, net of income tax expense of $30,000 in fiscal 1996. Net Income - ---------- Net income for fiscal 1997 was $2,209,000 ($.19 basic earnings per share) compared to fiscal 1996 net income of $1,928,000 ($.17 basic earnings per share). This increase is due to increases in earnings from the sale of residential properties, other income and the reduction in net interest expense, all previously discussed under this Item. These amounts were somewhat offset by a reduction in earnings from land sale activity and changes in the valuation allowance for certain tax assets, also previously discussed. 18 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the - ------------------------------------------------------------------------ Private Securities Litigation Reform Act of 1995. - ------------------------------------------------- The following important factors, among others, in some cases have affected, and in the future could affect, Orleans Homebuilders' actual results and could cause Orleans Homebuilders' actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of Orleans Homebuilders, Inc.: o changes in consumer confidence due to perceived uncertainty of future employment opportunities and other factors; o competition from national and local homebuilders in the Company's market areas; o building material price fluctuations; o changes in mortgage interest rates charged to buyers of the Company's units; o changes in the availability and cost of financing for the Company's operations, including land acquisition; o revisions in federal, state and local tax laws which provide incentives for home ownership; o delays in obtaining land development permits as a result of (i) federal, state and local environmental and other land development regulations, (ii) actions taken or failed to be taken by governmental agencies having authority to issue such permits, and (iii) opposition from third parties; and o increased cost of suitable development land. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. - -------- ----------------------------------------------------------- Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company, due to adverse changes in financial and commodity market prices and interest rates. The Company is exposed to market risk in the area of interest rate changes. A majority of the Company's debt is variable based on the prime rate, and, therefore, affected by changes in market interest rates. Based on current operations, an increase in interest rates of 100 basis points will increase cost of sales by approximately $500,000. Historically, the Company has been able to increase prices to cover portions of any increase in interest rates. As a result, the Company believes that reasonably possible near-term changes in interest rates will not result in a material effect on future earnings, fair values or cash flows of the Company. 19 Item 8. Financial Statements and Supplementary Data. - -------- -------------------------------------------- ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page ---- Report of independent accountants 21 Consolidated balance sheets at June 30, 1998 22 and June 30, 1997 Consolidated statements of operations and retained 23 earnings for the years ended June 30, 1998, 1997 and 1996 Consolidated statements of cash flows for the years ended June 30, 1998, 1997 and 1996 24 Notes to consolidated financial statements 25 All other schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. The individual financial statements of the Registrant's subsidiaries have been omitted since the Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the Registrant or its consolidated subsidiaries in amounts which together exceed 5 percent of total consolidated assets at June 30, 1998, excepting indebtedness incurred in the ordinary course of business. 20 Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders of Orleans Homebuilders, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Orleans Homebuilders, Inc. and its subsidiaries at June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, PA September 14, 1998 21 Orleans Homebuilders, Inc. and Subsidiaries Consolidated Balance Sheets
June 30, -------------------------------- 1998 1997 -------------------------------- (In Thousands) -------------------------------- Assets Cash $ 2,833 $ 1,582 Restricted cash - customer deposits 3,902 1,924 Real estate held for development and sale: Residential properties completed or under construction 47,209 35,355 Land held for development or sale and improvements 64,044 60,067 Property and equipment, at cost, less accumulated depreciation 1,892 507 Receivables, deferred charges and other assets 10,645 8,178 --------- --------- $ 130,525 $ 107,613 ========= ========= Liabilities and Shareholders' Equity Liabilities Accounts payable $ 15,378 $ 12,759 Accrued expenses 9,312 5,750 Customer deposits 3,902 1,924 Mortgage and other note obligations primarily secured by real estate held for development and sale 65,136 53,637 Subordinated debentures 601 601 Notes payable - related parties 12,052 10,721 Other notes payable 2,918 2,897 Deferred income taxes 2,961 2,587 Minority interests 546 686 --------- --------- Total liabilities 112,806 91,562 --------- --------- Commitments and contingencies Shareholders' equity Preferred stock, $1 par, 500,000 shares authorized Common stock, $.10 par, 20,000,000 shares authorized, 12,698,131 shares issued at June 30, 1998 and 1997 1,270 1,270 Capital in excess of par value - common stock 17,726 17,726 Retained earnings (deficit) (299) (1,967) Treasury stock, at cost (1,342,113 shares held at June 30, 1998 and 1997) (978) (978) --------- --------- Total Shareholders' equity 17,719 16,051 --------- --------- $ 130,525 $ 107,613 ========= =========
See notes to consolidated financial statements 22 Orleans Homebuilders, Inc. and Subsidiaries Consolidated Statements of Operations and Retained Earnings
For the year ended June 30, --------------------------- 1998 1997 1996 ---- ---- ---- (In Thousands, except per share data) ------------------------------------- Earned revenues Residential properties $ 106,246 $ 96,104 $ 86,061 Land sales 1,109 3,851 6,889 Other income 1,643 2,041 1,409 - --------------------------------------------------------------------------------------------------------- 108,998 101,996 94,359 - --------------------------------------------------------------------------------------------------------- Costs and expenses Residential properties 90,404 82,509 73,546 Land sales 891 3,666 6,520 Other 784 603 798 Selling, general and administrative 13,573 12,380 11,316 Interest Incurred 7,564 6,465 6,838 Less capitalized (6,786) (5,664) (5,538) Minority interests (122) (20) 26 - --------------------------------------------------------------------------------------------------------- 106,308 99,939 93,506 - --------------------------------------------------------------------------------------------------------- Income before income taxes 2,690 2,057 853 Income tax (expense) benefit (1,022) (442) 382 - --------------------------------------------------------------------------------------------------------- Income from operations before extraordinary items 1,668 1,615 1,235 - --------------------------------------------------------------------------------------------------------- Extraordinary items, net -- 594 693 - --------------------------------------------------------------------------------------------------------- Net income 1,668 2,209 1,928 Retained earnings (deficit) at beginning of year (1,967) (4,176) (6,104) - --------------------------------------------------------------------------------------------------------- Retained earnings (deficit) at end of year $ (299) $ (1,967) $ (4,176) ========================================================================================================= Basic earnings per share: Income before extraordinary items $ .15 $ .14 $ .11 Extraordinary gains -- .05 .06 - --------------------------------------------------------------------------------------------------------- Total $ .15 $ .19 $ .17 ========================================================================================================= Diluted earnings per share: Income before extraordinary items $ .14 $ .14 $ .10 Extraordinary gains -- .05 .06 - --------------------------------------------------------------------------------------------------------- Total $ .14 $ .19 $ .16 =========================================================================================================
See notes to consolidated financial statements 23 Orleans Homebuilders, Inc. and Subsidiaries Consolidated Statements of Cash Flows
For the year ended June 30, --------------------------- 1998 1997 1996 ---- ---- ---- (In Thousands) - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 1,668 $ 2,209 $ 1,928 Adjustments to reconcile net income to net cash used by operating activities: Extraordinary gains -- (594) (693) Reduction in deferred tax asset valuation allowance -- (528) (527) Depreciation and amortization 214 128 128 Changes in operating assets and liabilities: Restricted cash -customer deposits (1,978) 667 1,134 Real estate held for development and sale (15,831) (14,505) 7,761 Receivables, deferred charges and other assets (2,467) (1,905) 751 Accounts payable and other liabilities 6,415 1,908 (10,656) Customer deposits 1,978 (667) (148) - ------------------------------------------------------------------------------------------------------------- Net cash used by operating activities (10,001) (13,287) (322) - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (1,599) (167) (73) - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,599) (167) (73) - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Borrowings from loans secured by real estate assets 86,537 83,861 78,567 Repayment of loans secured by real estate assets (75,038) (72,748) (75,345) Repayment of subordinated debentures and senior notes payable -- (17) (1,461) Borrowings from other note obligations 3,752 10,826 5,597 Repayments of other note obligations (2,400) (9,396) (6,545) Purchase of treasury stock -- (107) (125) - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 12,851 12,419 688 - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 1,251 (1,035) 293 Cash at beginning of year 1,582 2,617 2,324 - ------------------------------------------------------------------------------------------------------------- Cash at end of year $ 2,833 $ 1,582 $ 2,617 =============================================================================================================
See notes to consolidated financial statements 24 Orleans Homebuilders, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies During fiscal 1998, the Company changed its name to Orleans Homebuilders, Inc. ("OHB") from FPA Corporation. Orleans Homebuilders, Inc. and its subsidiaries (the Company) are currently engaged in residential real estate development in Pennsylvania and New Jersey. A summary of the significant accounting principles and practices used in the preparation of the consolidated financial statements is as follows: Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The financial statements include the consolidated financial position and results of operations of Versailles Associates, L.P., and Bridlewood Associates, L.P., joint ventures in which a subsidiary of the Company is the sole General Partner. The outside limited partners have been allocated their portion of the income or loss and equity. These amounts are presented as minority interests in the financial statements. All material intercompany transactions and accounts have been eliminated. Earned revenues from real estate transactions The Company recognizes revenues from sales of residential properties at the time of closing. The Company also sells developed and undeveloped land in bulk and under option agreements. Revenues from sales of land and other real estate are recognized when the Company has received an adequate cash down payment and all other conditions necessary for profit recognition have been satisfied. To the extent that certain sales or portions thereof do not meet all conditions necessary for profit recognition, the Company uses other methods to recognize profit, including cost recovery and the deposit methods. These methods of profit recognition defer a portion or all of the profit to the extent it is dependent upon the occurrence of future events. Real estate capitalization and cost allocation Residential properties completed or under construction are stated at cost or estimated net realizable value, whichever is lower. Costs include land and land improvements, direct construction costs, construction overhead costs, interest on indebtedness and real estate taxes. Selling and advertising costs are expensed as incurred. Total estimated costs of multi-unit developments are allocated to individual units based upon specific identification methods. Land and improvement costs include land, land improvements, interest on indebtedness and real estate taxes. Appropriate costs are allocated to projects on the basis of acreage, dwelling units and relative sales value. Land held for development and sale and improvements are stated at cost or estimated net realizable value, whichever is lower. Land and land improvements applicable to condominiums, townhomes and single-family homes, are transferred to construction in progress when construction commences. Interest costs included in Costs and Expenses of residential properties and land sold for fiscal years 1998, 1997 and 1996 were $5,373,000, $5,617,000, and $4,588,000, respectively. 25 Advertising costs The total amount of advertising costs charged to expense was $2,163,000, $1,747,000 and $1,444,000 for the three years ended June 30, 1998, 1997 and 1996, respectively. Depreciation, amortization and maintenance expense Depreciation and amortization is primarily provided on the straight-line method at rates calculated to amortize the cost of the assets over their estimated useful lives. Expenditures for maintenance, repairs and minor renewals are expensed as incurred; major renewals and betterments are capitalized. At the time depreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciation of the assets are eliminated from the accounts and any profit or loss is recognized. Leases The Company's leasing arrangements as lessee include the leasing of certain office space, residential units and equipment. These leases have been classified as operating leases. Income taxes The Company and its subsidiaries file a consolidated federal income tax return. See Note 10 for an additional discussion of income tax matters. Earnings per share Effective in fiscal 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 simplifies the earnings per share (EPS) calculation by replacing primary EPS with basic EPS and fully diluted EPS with diluted EPS. All prior period EPS information has been restated to conform to the new requirements. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding. The weighted average number of shares used to compute basic EPS was 11,356,018 shares in fiscal 1998 and 1997, and 11,591,254 shares in fiscal 1996. Dilutive EPS includes additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The Company's dilutive shares consist of stock options granted to certain officers, directors and key employees of the Company. Additional common shares that would have been outstanding if the dilutive potential common shares had been issued was 209,750 shares in 1998, 148,048 shares in 1997 and 190,171 shares in 1996. The weighted average number of shares used to compute diluted EPS was 11,565,768, 11,504,066 and 11,781,425 shares in fiscal 1998, 1997 and 1996, respectively. A Convertible Subordinated 7% Note due January 1, 2002 issued to Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company, in the amount of $3,000,000 is convertible into common stock at $1.50 per share. This security was not included in the above computation of diluted EPS because to do so would be antidilutive. Disclosures about fair value of financial instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires the Company to disclose the estimated fair market value of its financial instruments. The Company believes that the carrying value of its financial instruments (primarily mortgages receivable and mortgage notes payable) approximates fair market value and that any differences are not significant. This assessment is based upon substantially all of the Company's debt obligations being based upon the prime rate of interest which is a variable market rate. 26 Reclassifications Certain amounts in the accompanying financial statements have been reclassified for comparative purposes. Segment reporting Since the Company operates primarily in a single extended geographical market with similar products at its various development projects, it is considered to represent a single operating segment for financial reporting purposes. Management's estimates and assumptions The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidated statements of cash flows For purposes of reporting cash flows, short-term investments with original maturities of ninety days or less are considered cash equivalents. Interest payments, net of amounts capitalized, for fiscal 1998, 1997 and 1996, were $459,000, $-0- and $143,000, respectively. Income taxes paid were $377,000, $109,000 and $165,000 for fiscal 1998, 1997 and 1996, respectively. In July, 1996, the Company completed a transaction to fully satisfy notes payable with an outstanding balance of approximately $1,650,000 and reacquired 183,177 shares of Common Stock in exchange for a cash payment of approximately $1,061,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of $594,000, net of income tax expense of approximately $100,000. During the second quarter of fiscal 1996, the Company completed a transaction to fully satisfy a note payable with an outstanding balance of approximately $380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash payment of $235,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of approximately $170,000, net of income tax expense of approximately $30,000. In June, 1996, the Company fully satisfied $1,522,000 of its then outstanding Subordinated Debentures and related accrued interest for a cash payment of $907,000. This transaction resulted in an extraordinary gain of $523,000, net of income tax expense of $92,000. Recent accounting pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 "Reporting Comprehensive Income", which is effective for fiscal years beginning after December 15, 1997 and establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company will adopt this standard during fiscal 1999. The adoption of this standard will only affect financial disclosure and therefore will not have an impact on the Company's financial condition or results of operations. The Company does not expect comprehensive income to be significantly different from net income. In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative 27 Instruments and Hedging Activities". This statement provides new accounting and reporting standards for use of derivative instruments. Management intends to have the Company adopt this statement, as required by the provisions of SFAS No. 133, effective July 1, 1999. Although not precluded from doing so, the Company and its subsidiaries have not historically used such instruments extensively and, accordingly, management does not believe adoption of SFAS No. 133 will have a material impact on the Company's financial statements. Note 2. Extraordinary Items In July, 1996, the Company completed a transaction to fully satisfy notes payable with an outstanding balance of approximately $1,650,000 and reacquired 183,177 shares of Common Stock in exchange for a cash payment of approximately $1,061,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of $594,000, net of income tax expense of approximately $100,000 in fiscal 1997. In June, 1996, the Company satisfied $1,522,000 of its then outstanding Subordinated Debentures and related accrued interest for a cash payment of $907,000. This transaction resulted in an extraordinary gain of $523,000, net of income tax expense of $92,000 in fiscal 1996. During the second quarter of fiscal 1996, the Company completed a transaction to fully satisfy a note payable with an outstanding balance of approximately $380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash payment of $235,000. These shares have been retained by the Company as Treasury Stock. This transaction resulted in an extraordinary gain of $170,000, net of income tax expense of $30,000 in fiscal 1996. Note 3. Joint Ventures During fiscal 1997, the Company received approximately $319,000 from a final non-recurring distribution in excess of basis from a joint venture partnership. The Company will have no future obligations or operating activities with respect to this entity. In October, 1992, a wholly owned subsidiary of the Company, Versailles at Europa, Inc. was established to act as the General Partner in a newly formed Versailles Associates, L.P. (the "Partnership"). The Partnership was formed to purchase and develop a tract of land in Cherry Hill, New Jersey. The terms of the Partnership Agreement provide that the General Partner be allocated 55% of the net profits and losses of the Partnership and have exclusive management and control over the development of the property. The financial statements of the Partnership are included in the consolidated financial statements of the Company. The limited partner's share of the income and capital from this entity has been presented as minority interest in the accompanying consolidated financial statements. As of June 30, 1998, all units have been delivered and liquidation of the partnership is expected to occur in fiscal 1999. Orleans Construction Corporation ("OCC"), a subsidiary of the Company, has entered into a joint venture agreement with Bridlewood Associates, L.P., a limited partnership formed to develop an 85 acre parcel of land in Mount Laurel, New Jersey. OCC is the managing general partner. OCC and the limited partner share equally in the profits or losses of the entity. The financial statements of the Partnership are included in the consolidated financial statements of the Company. The limited partner's share of the income and capital from this entity has been presented as minority interest in the accompanying consolidated financial 28 statements. As of June 30, 1998, one unit remains to be sold. Liquidation of the partnership is expected to occur in fiscal 1999. Note 4. Certain Transactions with Related Parties During fiscal 1998, Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company, purchased 26 low income homes with an aggregate sales value of approximately $1,400,000. These transactions satisfied, in part, the Company's low income housing requirements in Mount Laurel Township, New Jersey. The selling prices for these homes, which are determined by state statute, are the same as if the homes had been sold to unaffiliated third parties. Under the terms of an existing option agreement, the Company has exercised its final option during fiscal 1997 to purchase sections of land from Orleans Builders and Developers ("OB&D"), a limited partnership whose partners include Jeffrey P. Orleans and the Trust of Selma Orleans. These parcels were subsequently sold to an unaffiliated third party for a purchase price of $763,000 and $1,901,000 during fiscal 1997 and 1996. These transactions resulted in a profit to the Company before income taxes of $178,000 and $301,000 for these periods, respectively. See Note 8 to the consolidated financial statements for a discussion of other related party transactions. Note 5. Real Estate Held for Development and Sale Residential properties consist of the following: June 30, -------- 1998 1997 ------------------------ (In thousands) -------------- Condominiums and townhomes $26,539 $19,570 Single-family homes 20,670 15,785 - ------------------------------------------------------------------ $47,209 $35,355 ================================================================== Residential properties completed or under construction consist of the following: June 30, ------- 1998 1997 - ------------------------------------------------------------------ (In thousands) - ------------------------------------------------------------------ Under contract for sale $32,102 $21,300 Unsold 15,107 14,055 - ------------------------------------------------------------------ $47,209 $35,355 ================================================================== 29 Note 6. Mortgage Subsidiaries The Company has a wholly-owned financing subsidiary which had been involved, through unaffiliated companies, in issuing mortgage-collateralized bonds. Condensed financial information for the finance subsidiary is as follows: June 30, ----------------------- 1998 1997 ----------------------- (In thousands) ----------------------- Total assets, principally mortgage notes receivable $ 290 $324 Total liabilities, principally bonds payable 230 266 - ------------------------------------------------------------------ Advances from parent company $ 60 $ 58 ================================================================== Net income for the year ended $ 2 $ 6 ================================================================== Note 7. Property and Equipment June 30, ----------------------- 1998 1997 ----------------------- (In thousands) ----------------------- Property and equipment consists of the following: Equipment and fixtures $ 2,581 982 Less accumulated depreciation (689) (475) - ----------------------------------------------------------------- $ 1,892 $ 507 ================================================================== During fiscal 1998, a subsidiary of the Company used approximately $1,555,000 of the proceeds from a 1997 Chester County Industrial Development Authority Wastewater Treatment Revenue Bond Offering to construct and operate a waste water spray irrigation facility. See Note 8 for additional information on the revenue bonds. Depreciation expense, included in Other Costs and Expenses on the Company's Consolidated Statements of Operations and Retained Earnings, was $214,000, $128,000 and $128,000 during fiscal 1998, 1997 and 1996, respectively. Note 8. Mortgage and Other Note Obligations The maximum balance outstanding under construction and inventory loan agreements at any month end during fiscal 1998, 1997 and 1996 was $48,461,000, $38,178,000 and $33,473,000, respectively. The average month end balance during fiscal 1998, 1997 and 1996 was approximately $39,916,000, $30,608,000 and $29,327,000, respectively, bearing interest at an approximate average annual rate of 8.95%, 9.25% and 9.5%, respectively. Mortgage obligations secured by land held for development and sale and improvements aggregating $21,203,000 and $17,925,000 at June 30, 1998 and 1997, respectively, are due in varying installments through fiscal 2003 with annual interest at .50% to 1.0% above the prime rate (8.5% at June 30, 1998). 30 Maturities of land and improvement mortgage obligations, other than residential property construction loans, during the next five fiscal years are: 1999 - $7,304,000; 2000 - $11,856,000; 2001 - $1,542,000; 2002 - $253,000 and 2003 - $248,000. Obligations under residential property and construction loans amounted to $43,933,000 and $35,712,000 at June 30, 1998 and 1997, respectively, and are repaid at a predetermined percentage (approximately 85% on average) of the selling price of a unit when a sale is completed. The repayment percentage varies significantly from community to community and over time within the same community. Included in the Notes Payable - Related Parties balance of $12,052,000 at June 30, 1998 is a $3,000,000 Convertible Subordinated 7% Note dated August 8, 1996 issued to Jeffrey P. Orleans which matures January 1, 2002. This note is convertible into Orleans Homebuilders, Inc. common stock at $1.50 per share. Interest is payable quarterly and principal is due in annual installments of $1,000,000 beginning January 1, 2000. During fiscal 1997, the Company issued to Mr. Orleans for cash consideration a $2,000,000 Variable Rate Note due September 30, 2000, with annual interest at prime plus 2% payable quarterly. During fiscal 1998, Mr. Orleans advanced the Company $2,496,000 to fund various land acquisitions, in exchange for a $1,746,000 Demand Note and a $750,000 Revolving Working Capital Note. Interest on the $1,746,000 Demand Note is at prime plus 2% and is payable quarterly. The $750,000 Revolving Working Capital Note is due on November 30, 1998 but may be automatically renewed in one year increments. Interest accrues on the Revolving Working Capital Note at the prime rate and is payable monthly. In December 1997, the Company purchased land from Mr. Orleans in exchange for a $500,000 Purchase Money Mortgage ("PMM"). Subsequently, during fiscal 1998, the Company repaid $200,000 of the PMM and began development of the land. The remaining balance of $300,000 will be repaid from the proceeds of units sold at this development. The PMM bears interest at 7% annually and is due no later than 60 months from the date of issuance. Prior to October 22, 1993, the date of acquisition by the Company of Orleans Construction Corporation, a real estate company which was wholly owned by Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company, OCC had advanced funds to, borrowed funds from, and paid expenses and debt obligations on behalf of OB&D. Mr. Orleans owns or controls approximately 63.7% and 69.1% of the Company's outstanding and potentially outstanding stock (assuming conversion of certain convertible obligations described above), respectively, at June 30, 1998. At June 30, 1998 and 1997, amounts owed by the Company to the partnership aggregated $2,256,000 and $2,701,000, respectively. These advances are payable on demand and bear interest at 7% annually. Interest incurred on these advances amounted to $176,000, $201,000 and $236,000 for the years ended June 30, 1998, 1997 and 1996, respectively. Also included in the aggregate Notes Payable - Related Parties balance are Series B Notes Payable held by Mr. Orleans of approximately $650,000 with annual interest at prime plus 2% payable quarterly. Principal repayment of these obligations is from the proceeds of units sold at certain residential properties. Series B Notes are expected to be repaid in full during fiscal 2000. During fiscal 1996, Mr. Orleans agreed to defer up to $1,350,000 of interest and principal payments due him pursuant to the repayment terms of Series A and Series B Notes. As of June 30, 1998, the Company has deferred approximately $1,350,000 of these payments which are also included in Notes Payable - Related Parties. Interest is payable quarterly on this note. During fiscal 1998, the original maturity of April 1, 1998 was extended two years. In June, 1997, the Chester County Industrial Development Authority issued bonds in the amount of $1,855,000 and loaned the proceeds thereof to a subsidiary of the Company. The bonds mature November 1, 2006 and bear interest at 7% annually. The Bonds will be repaid at a predetermined amount from 31 settlement proceeds for each home sold with minimum annual repayments of approximately $200,000 commencing on November 1, 1998. The proceeds from this obligation were used to construct and operate a waste water spray irrigation facility which is servicing the Company's Quaker Farms community in Chester County, Pennsylvania. Included in Other Assets on the Company's Consolidated Balance Sheet at June 30, 1998 is $463,000 of restricted cash to be used for completion of the facility and repayment of the bonds. The total principal and accrued interest of $1,877,000 is included in Other Notes Payable at June 30, 1998. In addition, the Company has various working capital and property and equipment note obligations which require various monthly repayment terms with maturity dates from fiscal 1999 through 2002. 32 The following table summarizes the components of Other Notes Payable, including related party amounts.
Maturity Interest Outstanding Note Date Rate Balance as of June 30 1998 1997 (In thousands) Convertible Subordinated 1/2002 7% $ 3,000 $3,000 7% Note Variable Rate Note(1) 12/2000 Prime + 2% 2,000 2,000 Demand Note(1) On demand Prime +2% 1,746 - Deferred Series A and B Notes 4/2000 Prime +2% 1,350 1,350 Series A Notes 4/1998 Prime +2% - 420 Series B Notes 9/2000 Prime +2% 650 1,250 Revolving Working Capital Note 11/1998 Prime 750 - Purchase Money Mortgage 12/2002 7% 300 - Unsecured advance On demand 7% 2,256 2,701 ------ ------ Subtotal - related party notes payable(2) 12,052 10,721 ------ ------ Property & Equipment 1999-2002 9 1/2%-11 1/2% 811 776 Bonds Payable (secured by mortgage receivables) 1999-2017 10%-12% 230 266 Quaker Sewer Bonds 11/2006 7% 1,877 1,855 ------ ----- Subtotal - other notes payable 2,918 2,897 ------ ----- $ 14,970 $ 13,618 ======== ========= Maturities of these obligations during the next five fiscal years are (in thousands): 1999(3) $ 7,727 2000 3,250 2001 1,339 2002 1,264 2003 274 Thereafter 1,116 --------- $ 14,970 =========
- ------- (1) As more fully described in Note 13 subsequent to year end the Variable Rate Note and a portion of the Demand Note were exchanged for Company preferred stock. (2) The holder of the related party notes payable is Jeffrey P. Orleans or Orleans Builders & Developers a partnership in which Jeffrey Orleans owns a majority interest. (3) Includes all demand notes and unsecured advances payable on demand. Note 9. Subordinated Debentures On September 8, 1980, the Company sold 25,000 Units, each consisting of a $1,000 debenture bearing interest at 14 l/2% per annum and 5 shares of Common Stock. 33 The debentures, which are unsecured obligations and are subordinated to senior indebtedness, as defined, require semi-annual interest payments each September and March with the principal balance due on September 1, 2000. Optional prepayments may be made at 100% of the principal amount thereof. The debentures contain certain default provisions and impose restrictions on the amount of dividends or distributions to shareholders. The debentures are presented net of unamortized debt discount, which is being amortized as additional interest over the life of the debentures. As of June 30, 1998 total principal amount of $575,000 of original subordinated debentures remain outstanding. Note 10. Income Taxes The provision (benefit) for income taxes is summarized as follows:
For Year Ended June 30, ----------------------------- 1998 1997 1996 ----------------------------- (In Thousands) ----------------------------- Continuing operations Current $ 896 $ 271 $ 145 Deferred 126 109 (527) - ------------------------------------------------------------------------------------------------------ $ 1,022 $ 380 $ (382) - ------------------------------------------------------------------------------------------------------ Extraordinary Item Current $ - $ 162 $ 117 Deferred - - - - ------------------------------------------------------------------------------------------------------ $ - $ 162 $ 117 - ------------------------------------------------------------------------------------------------------ The differences between taxes computed at federal income tax rates and amounts provided for continuing operations are as follows: For Year Ended June 30, ----------------------------- 1998 1997 1996 ----------------------------- (In Thousands) ----------------------------- Amount computed at statutory rate $ 914 $ 597 $ 290 State income taxes, net of federal tax benefit 162 59 21 Unrealized (realized) benefits from net operating loss carry forwards and other tax credits net of changes in related valuation reserves (54) (276) (693) - ------------------------------------------------------------------------------------------------------ $1,022 $ 380 $ (382) ======================================================================================================
Deferred income taxes reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws in accordance with the provisions of SFAS No. 109 ("Accounting for Income Taxes"). The principal components of the Company's deferred tax liability of $2,961,000 at June 30, 1998 are temporary differences arising from interest and real estate taxes incurred prior to commencing active construction being capitalized for financial accounting purposes while being expensed for tax purposes. In addition, temporary differences arise from net realizable value adjustments recognized for financial accounting purposes but not for tax purposes. These temporary differences reverse ratably as the communities sellout. The principal items making up the deferred income tax provisions from continuing operations are as follows: 34 For Year Ended June 30, --------------------------- 1998 1997 1996 --------------------------- (In thousands) --------------------------- Interest and real estate taxes $246 $172 $238 Difference in tax accounting for land and property sales (net) (8) 13 (29) Unrealized (realized) tax net operating loss carryforwards and other tax credits, net of changes in related valuation reserves (122) 223 (962) Reserves for book not tax 12 (173) 142 Gain (loss) from joint ventures 15 (109) 2 Deferred compensation (35) (7) 34 Depreciation and other 18 (10) 48 - ------------------------------------------------------------------------------- $126 $109 $(527) =============================================================================== Temporary differences represent the cumulative taxable or deductible amounts recorded in the financial statements in different years than recognized in the tax returns. SFAS No. 109 requires the Company to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The ultimate realization of certain tax assets depends on the Company's ability to generate sufficient taxable income in the future, including the effects of future anticipated arising/reversing temporary differences and the Company had, in fact, realized substantial losses in years prior to 1995. In 1995 and prior years, while the Company had undergone substantial capital and operational restructurings in recent years and management anticipated that total deferred tax assets would be fully realized by future operating results and future tax planning strategies, the losses in recent years prior to 1995, along with continued volatility in the local real estate markets in which the Company operates, made it appropriate to record a valuation allowance equal to 100% of the total deferred income tax assets which were dependent upon future income for realization in certain tax jurisdictions. As of June 30, 1996, the Company reduced its valuation allowance from 100% to 50% on certain tax assets which were dependent on future taxable income for realization. As a consequence, the Company recognized a net tax benefit rather than net tax expense. The deferred tax assets for which the Company previously provided (prior to June 30, 1996) a 100% valuation allowance consisted of $199,000 of state net operating loss carryforwards and federal alternative minimum tax credits aggregating $856,000 at June 30, 1996. These credits do not have an expiration date. The loss carryforwards have expiration dates through 2005. In order to reduce or eliminate its valuation allowance, the Company needed to demonstrate that it was more likely than not that the Company would generate future taxable income in sufficient amounts to utilize its deferred tax assets. The positive evidence which the Company considered in reducing its valuation allowance included the following: - At June 30, 1996, the Company had concluded two consecutive fiscal years (1996 and 1995) with income from operations. - At June 30, 1996, the Company had a backlog of 219 homes with a sales value of $40,206,000. This amount represents approximately 47% of fiscal 1996 revenues from residential properties. 35 - The Company consummated a recapitalization plan in fiscal 1996 to acquire land, obtain more favorable pricing from the Company's contractors by reducing its outstanding accounts payable balances and retiring outstanding debt at a discount. An example of the negative evidence that the Company considered as of this date are as follows: The Company had a long history of significant losses from operations. The fiscal 1995 income from continuing operations of $1,201,000 represented the first profit from operations in more than a decade. After evaluating this evidence, the Company concluded that it would more likely than not realize all or a substantial portion (especially given the expiration dates of the loss carryforwards and tax credits which have no expiration date) of its deferred tax asset. However, given the above negative factors, the Company did not believe the evidence supported a complete removal of valuation allowance, given the passage of just one year's time since June 30, 1995. The Company concluded that the most prudent and conservative approach was to reduce the valuation allowance by one-half at June 30, 1996. Fiscal 1997 income before income taxes of $2,057,000 represented a significant improvement over fiscal 1996 income before income taxes of $853,000. Therefore, given the three consecutive years of profits and significant utilization of the existing deferred tax asset, the Company believed it to be appropriate to further adjust the valuation allowance to zero on its remaining tax assets as of June 30, 1997. The components of net deferred taxes payable consisted of the following (amounts in thousands): 36 1998 1997 ---- ---- Capitalized interest and real estate taxes $ 2,825 $ 3,025 State income taxes 1,136 754 Other 75 318 ------- ------- Gross deferred tax liabilities $ 4,036 $ 4,097 ------- ------- Reserves for books (146) (260) Partnership income (167) (126) Related party interest (98) (127) Executive bonus -- (80) Employment contracts (353) (273) Vacation accrual (73) (76) Inventory Section 263A adjustment (160) (152) Fixed assets (78) -- Net operating losses & tax credits -- (385) Other -- (31) ------- ------- Gross deferred tax assets (1,075) ( 1,510) ------- ------- Net deferred tax liabilities $ 2,961 $ 2,587 ======= ======= As of June 30, 1998, the Company has no remaining net operating loss or alternative minimum tax credit carryforwards. Note 11. Stock Option Plan In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive Option Plan relating to options for up to 560,000 shares (increased in December, 1996 to 910,000 shares) of Common Stock of the Company and (ii) the Non-Employee Directors Stock Option Plan relating to a maximum of 100,000 shares. During fiscal 1998, 170,000 options were granted at an exercise price of $1.19 per share, subject to shareholder approval increasing the number of options authorized for grant from 910,000 to 1,210,000. These options vest 25% per year beginning on the date of grant. During fiscal 1997, 200,000 options were granted at an exercise price of $1.50 per share. During fiscal 1996, 80,000 options were granted at an exercise price of $1.25 to $2.00 per share and 50,000 options were granted at an exercise price of $1.25 or the fair market value on the date of vesting, whichever is greater. In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan for Non-Employee Directors (the "1995 Directors Plan"), which provides for options of up to 100,000 shares. During fiscal 1998, 50,000 options were granted at an exercise price of $1.19 per share, subject to shareholder approval of an amendment to the 1995 Directors Plan increasing the number of options authorized for grant to 125,000 and certain other related amendments to the 1995 Directors Plan. The options vest 25% per year beginning on the date of grant. On February 28, 1995, 75,000 options were granted under this plan to three non-employee Directors. The option price per share under all plans was established at the fair market value at the dates of each grant which was $.69 to $2.81 per share. Total outstanding options under all three plans aggregated 967,500 shares with expiration dates between fiscal 2003 and 2007. The outstanding options do not include options granted which are subject to shareholder approval. 37 Effective in fiscal 1997, the Company was required to adopt the provisions of SFAS No. 123 "Accounting for Stock Based Compensation". As permitted, the Company has elected to continue to utilize the intrinsic value method and not to charge the fair value of such options as earned directly to the financial statements but to disclose the effects of such a charge. Had compensation costs for the option plans been determined based on the fair value at the grant date for awards and recognized over the related vesting period in 1998, 1997 and 1996, consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share for the three years ended June 30, 1998 would have been reduced to the pro forma amounts indicated below: For Year Ended June 30 ---------------------- 1998 1997 1996 -------------------------------------------- (In thousands, except for EPS data) Net Income - as reported $ 1,668 $ 2,209 $ 1,928 Net Income - pro forma 1,641 2,186 1,907 Diluted EPS - as reported .14 .19 .16 Diluted EPS - pro forma .14 .19 .16 The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option - Pricing Model with the following weighted average assumptions used for grants in 1997 and 1996, respectively: dividend yield of 0% for all years; expected volatility of 73.9%; risk free interest rates of 6.2% and expected lives of 10 years for all grants. The weighted average fair value of grants per share for fiscal 1997 and 1996 was $1.03 and $.83 per share, respectively. The fiscal 1998 option grants were not included in the pro forma calculation as they have not yet been approved by the shareholders. The pro forma disclosures above may not be indicative of the effects on reported net income and net income per share for future years, as the pro forma disclosures include the effects of only those awards granted on or after July 1, 1995. 38 The following summarizes stock option activity for the three plans during the three years ended June 30, 1998:
1998 1997 1996 ---- ---- ---- Weighted- Weighted- Weighted Number of Average Number of Average Number of Average Options Exercise Price Options Exercise Price Options Exercise Price Outstanding, beginning of year 967,500 $1.21 792,500 $ 1.13 665,000 $ 1.03 Granted - - 200,000 1.50 130,000 1.60 Exercised - - - - - - Canceled - - (25,000) 0.69 ( 2,500) 1.19 ------- ------- ------- Outstanding, end of year 967,500 1.21 967,500 1.21 792,500 1.13 ======= ======= ======= Exercisable, end of year 708,750 1.10 640,000 1.06 612,500 0.99 ======= ======= ======= Available for grant, end of year 92,500 92,500 - ======= ======= =======
The following table summarizes information about stock options outstanding at June 30, 1998.
Options Outstanding Options Exercisable ------------------- ------------------- Weighted- Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (in yrs) Price Exercisable Price $ .69 - $.81 480,000 4.5 $ .75 480,000 $ .75 $1.19 -$1.50 352,500 7.0 1.38 133,750 1.28 $2.00 -$2.81 135,000 6.0 2.45 95,000 2.64 ------- ------- $ .69 -$2.81 967,500 6.0 $1.21 708,750 $1.10 ======= ======= =======
Note 12. Commitments and Contingencies General At June 30, 1998, the Company had outstanding bank letters of credit amounting to $32,951,000 as surety for completion of improvements at various developments of the Company. At June 30, 1998 the Company had agreements to purchase land and approved homesites aggregating approximately 2,200 building lots with purchase prices totaling approximately $54,300,000 at fourteen locations. Purchase of the properties is contingent upon obtaining all governmental approvals and satisfaction of certain requirements by the Company and the Sellers. The Company expects to utilize purchase money mortgages, secured financings and existing capital resources to finance these acquisitions. 39 The Company anticipates completing a majority of these acquisitions in fiscal 1999 and 2000. As of June 30, 1998 and 1997, the Company had paid deposits and incurred other costs associated with the acquisition and development of these parcels aggregating $2,653,000 and $1,900,000, respectively, and are included in Other Assets. Environmental Liability Exposure Development and sale of real property creates a potential for environmental liability on the part of the developer, owner or any mortgage lender for its own acts or omissions as well as those of current or prior owners of the subject property or adjacent parcels. If hazardous substances are discovered on or emanating from any of the Company's properties, the owner or operator of the property (including the prior owners) may be held strictly liable for all costs and liabilities relating to such hazardous substances. Environmental studies are undertaken in connection with property acquisitions by the Company. Pursuant to an Order dated February 6, 1996 issued by the New Jersey Department of Environmental Protection ("NJDEP"), the Company submitted a Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA") for certain affected portions of Colts Neck Estates, a single family residential development built by the Company in Washington Township, Gloucester County, New Jersey. The affected areas include those portions of Colts Neck where solid waste allegedly was deposited. NJDEP approved the Plan and CEA on July 22, 1996. The Plan, in part, requires the Company to (i) perform gas monitoring for methane on a quarterly basis for a period of one year; (ii) vegetate and cover with clean fill affected areas; and (iii) deed restrict portions of the affected open space owned by it. NJDEP's approval of the CEA imposes restrictions on the use of ground water within the affected area. Neither the implementation of the Plan nor CEA is expected to have a material adverse effect on the Company's results of operations or its financial position although NJDEP as a standard condition of its approval of the Plan and CEA reserves the right to amend its approval to require additional remediation measures if warranted. Approximately 145 homeowners at Colts Neck instituted three lawsuits against the Company, which were separately filed in state and Federal courts between April and November, 1993. These suits were consolidated in the United States District Court for the District of New Jersey and were subject to court-sponsored mediation. Asserting a variety of state and federal claims, the plaintiffs in the consolidated action alleged that the Company and other defendants built and sold them homes which had been constructed on and adjacent to land which had been used as a municipal waste landfill and a pig farm. The complaints asserted claims under the federal Comprehensive Environmental Response, Compensation and Liability Act, the Federal Solid Waste Disposal Act, the New Jersey Sanitary Landfill Facility Closure and Contingency Act, the New Jersey Spill Compensation and Control Act, as well as under theories of private nuisance, public nuisance, common law fraud, latent defects, negligent misrepresentation, consumer fraud, negligence, strict liability, vendor liability, and breach of warranty, among others. The Company, in turn, asserted third-party claims against the former owners and operators of the Colts Neck property as well as claims against the generator of the municipal waste allegedly disposed on the property. In September, 1993 the Company brought an action in New Jersey state court against more than 30 of its insurance companies seeking indemnification and reimbursement of costs of defense in connection with the three Colts Neck actions referred to above. As a result of the court sponsored mediation, the Company and the plaintiffs in the consolidated litigation entered into a settlement agreement. Under that agreement, which has been approved by the Court, a $6,000,000 Judgment was entered against the Company in favor of a class comprising most of the current and former homeowners. The 40 Company, which has paid $650,000 on August 28, 1996 to the class, has no liability for the remainder of the Judgment. The remainder of the Judgment is to be paid solely from the proceeds of the state court litigation against the Company's insurance companies. Although, under the settlement agreement the Company is obligated to prosecute and fund the litigation against its insurance companies, the Company is entitled to obtain some reimbursement of those expenses. Specifically, under the settlement agreement, the Company may obtain reimbursement of its aggregate litigation expenses in excess of $100,000 incurred in connection with its continued prosecution of the insurance claims to the extent that settlements are reached and to the extent that the portion of those settlement funds designated to fund the litigation are not exhausted. The Company's right to reimbursement may, under certain circumstances, be limited to a total of $300,000. The Company is currently prosecuting the litigation against its insurance companies in state court. Prosecution of those claims was pursued in federal court between 1994 and 1996, but has since been remanded to state court on jurisdictional grounds. The state court insurance litigation is being actively pursued. To date, settlements totaling $577,500 have been reached with seven defendants, half of which have been or will be paid to the plaintiff class, and half of which has been or will be used to fund the continued litigation. The likelihood of a favorable judgment or additional settlements in the litigation is uncertain. In addition, the Company has reached a $205,000 tentative settlement of its third party claims in the above-mentioned federal litigation. One-half of the proceeds of any such settlement will be payable to the plaintiff class under the 1995 settlement agreement with the class. The Company has accrued estimated costs of environmental testing as well as all other reasonably estimable future investigatory, engineering, legal and litigation costs and expenses. The Company believes that neither the implementation of the settlement agreement nor the resolution of the insurance claims through further litigation will have a material effect on its results of operations or its financial position. The Company is not aware of any other environmental liabilities associated with any of its other projects. Other Significant Litigation During fiscal 1998, a judgment in the amount of $2,500,000 was rendered against OHB, and in the amount of $1,250,000 against the Estate of Marvin Orleans and Jeffrey P. Orleans, trading as Orleans Construction Company, a partnership (collectively, "O.C.C.") by the Court of Common Pleas of Bucks County, in an action brought against OHB, O.C.C. and an unrelated party arising out of injuries to two workmen at an OHB project during its construction phase. The plaintiffs have also requested "delay damages" based upon an allegation, which OHB and O.C.C. will contest, that OHB and O.C.C. inappropriately delayed the trial. Although the amount of delay damages, if awarded, is uncertain, the portion thereof allocable to OHB and O.C.C. could be as much as approximately $2,250,000 between them. OHB and O.C.C. have filed post-trial motions challenging the judgment. One of OHB's subcontractors is insured for up to $2,000,000 under two insurance policies, that subcontractor's insurance company provided a defense to OHB and O.C.C. and its limits stand in front of OHB's primary insurance policy. OHB and O.C.C. are insured up to $1,000,000 under its primary policy in effect at that time, and OHB and O.C.C. are further insured under an umbrella policy for $15,000,000. The subcontractor's insurance company, OHB's primary insurance company, and OHB's excess insurer, have acknowledged coverage up to their aggregate policy limits. Therefore, the full amount of the judgment, including delay damages, is expected to be satisfied from insurance proceeds. Accordingly, the Company has recorded an accrued expense for $2,500,000 for its portion of the judgment discussed above. The Company also has recorded a receivable for $2,500,000, representing the amount the 41 Company believes it will recover from the various insurance carriers to satisfy its portion of the judgment. Based upon the outcome of post-trial motions challenging the judgment and any potential future award of delay damages, the Company will adjust its liability and insurance recovery amounts accordingly. Note 13. Subsequent Events. In September 1998, the Board of Directors took final action to authorize the issuance of shares of Series D Preferred Stock (the "Series D Stock") to Jeffrey P. Orleans in exchange for an aggregate amount of $3 million in Company notes held by Mr. Orleans. The 100,000 shares of Series D Stock will be distributed from the 500,000 shares of Preferred Stock authorized. The Series D Stock will have a liquidation value of $3,000,000, or $30 per share, and will require annual dividends of 7% of the liquidation value. The dividends are cumulative and are payable quarterly with the first payment due December 1, 1998. The Series D Stock may be redeemed by the Company at any time after December 31, 2003, in whole or in part, at a cash redemption price equal to the liquidation value plus all accrued and unpaid dividends on such shares to the date of redemption. The Series D Stock is convertible into 2,000,000 shares of Common Stock upon the approval by the American Stock Exchange of a supplemental listing application covering such shares. 42 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------ Financial Disclosure. --------------------- There are no matters required to be reported hereunder. PART III Item 10. Directors and Executive Officers of the Registrant. - -------- --------------------------------------------------- Incorporated herein by reference from the Company's definitive proxy statement for its annual meeting of Stockholders to be held in December, 1998. Information concerning the executive officers is included under the separate caption Item A. "Executive Officers of the Registrant" under Part I of this Form 10-K. Item 11. Executive Compensation. - -------- ----------------------- Incorporated herein by reference from the Company's definitive proxy statement for its annual meeting of Stockholders to be held in December, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------- -------------------------------------------------------------- Incorporated herein by reference from the Company's definitive proxy statement for its annual meeting of Stockholders to be held in December, 1998. Item 13. Certain Relationships and Related Transactions. - -------- ----------------------------------------------- Incorporated herein by reference from the Company's definitive proxy statement for its annual meeting of Stockholders to be held in December, 1998. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - -------- ----------------------------------------------------------------- (a) Financial Statements and Financial Statement Schedules 1. Financial Statements -------------------- The financial statements listed in the index on the first page under Item 8 are filed as part of this Form 10-K. 2. Financial Statement Schedules ----------------------------- None. 43 3. Exhibits -------- Exhibit Number - -------------- 3.l Certificate of Incorporation of the Company dated September 4, 1969 (incorporated by reference to Exhibit 2.l of the Company's Registration Statement on Form S-7, filed with the Securities and Exchange Commission (S.E.C. File No. 2-68662) (herein referred to as "Form S-7")). 3.2 Amendment to Certificate of Incorporation of the Company filed July 25, 1983 (incorporated by reference to Exhibit 3.2 of Amendment No. 2 to the Company's Registration Statement on Form S-2 filed with the Securities and Exchange Commission (S.E.C. File No. 2-84724)). 3.3 Amendment to Certificate of Incorporation of the Company filed May 27, 1992 (incorporated by reference to Exhibit 3.6 of Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission (S.E.C. File No. 33-43943) (the "Form S-1")). 3.4 Agreement and Plan of Merger dated as of October 22, 1993, by and among the Company, FPA Merger Subsidiary, Inc. a Pennsylvania corporation; Orleans Construction Corp. ("OCC"); and Jeffrey P. Orleans, including the Certificate of Designation respecting the Series C Preferred Stock incorporated by reference to Exhibit 3.5 to the Company's Form 8-K dated October 22, 1993 filed with the Securities and Exchange Commission (the "1993 Form 8-K"). 3.5 Certificate of Designation filed by the Company on September 6, 1991 with the Secretary of State of Delaware respecting the Series A Preferred Stock and Series B Junior Preferred Stock (incorporated by reference to Exhibit 4.4 of the Company's Form 8-K dated September 11, 1991 ("1991 Form 8-K")). 3.6 Subsequent Certificate to Certificate of Designations, Preferences and Rights of Series A Preferred Stock and Series B Junior Preferred Stock of FPA Corporation adopted September 14, 1992 and filed with the Secretary of State of Delaware. (incorporated by reference to Exhibit 4.19 to Registrant's Form 10-K for the fiscal year ended June 30, 1994.) 3.7 Subsequent Certificate to Certificate of Designations, Preferences and Rights of Series A Preferred Stock and Series B Junior Preferred Stock of FPA Corporation filed on September 2, 1993 with the Secretary of State of Delaware. 3.8 Certificate of Designations, Preferences and Rights of Series C Preferred Stock filed by the Company on October 21, 1993 with the Secretary of State of Delaware respecting the Series C Preferred Stock. (incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated October 22, 1993). 3.9* Certificate of Elimination to Certificate of Designations, Preferences and Rights of Series C Preferred Stock of FPA Corporation filed on October 18, 1996 with the Secretary of State of Delaware. 44 3.10* Amendment to Certificate of Incorporation filed with the Secretary of State of Delaware on July 13, 1998. 3.11* By-Laws, as last amended on April 20, 1998. 4.l Form of the Company's 14 l/2% Subordinated Debentures due September l, 2000 (contained in, and beginning on page 12 of, Exhibit 4.2). 4.2 Form of Indenture dated September l, 1980, between the Company and The Fidelity Bank (the "Debenture Indenture"), relating to the Company's 14 l/2% Subordinated Debentures due September l, 2000 (incorporated by reference to Exhibit 2.3 of Amendment No. 2 to the Company's Form S-7). 4.3 Form of Second Supplemental Indenture dated March 30, 1990 to the Debenture Indenture (incorporated by reference to Exhibit 4.3 to the 1990 Form 8-K). 4.4 Note Exchange Agreement, dated September 11, 1991, respecting the issuance of $5,032,935.38 aggregate principal amount of 12 5/8% Senior Notes due February 15, 1996, with the form of the Company's 12 5/8% Senior Notes due February 15, 1996 attached as Exhibit A thereto (incorporated by reference to Exhibit 4.5 to the 1991 Form 8-K). 4.5 Debenture Exchange Agreement, dated September 11, 1991, respecting the issuance of $2,356,282.50 aggregate principal amount of 1991 14 1/2% Subordinated Debentures due September 1, 2000 with the form of the Company's 1991 14 1/2% Subordinated Debentures due September 1, 2000 attached as Exhibit A thereto (incorporated by reference to Exhibit 4.6 to the 1991 Form 8-K). 4.6 Form of Note Purchase Agreement dated as of October 22, 1993, together with form of Series A Variable Rate Notes due September 15, 1998 issued by the Company attached thereto (incorporated by reference to Exhibit 4.2 to the 1993 Form 8-K). 4.7 Form of Note Purchase Agreement dated October 22, 1993, together with form of Series B Variable Rate Mortgage Notes due September 15, 1998 issued by the Company attached thereto (incorporated by reference to Exhibit 4.24 to the 1993 Form 8-K). 4.8 Form of Note Purchase Agreement, dated as of August 1, 1996, together with form of $2,000,000 Variable Rate Note due September 30, 2000 (incorporated by reference to Exhibit 4.8 to the 1996 Form 10-K). 4.9 Form of Note Purchase Agreement, dated as of August 1, 1996, together with form of $3,000,000 Convertible Subordinated 7% Note due January 1, 2002 (incorporated by reference to Exhibit 4.9 to the 1997 Form 10-K). 10.1 Form of Indemnity Agreement executed by the Company with Directors of the Company (incorporated by reference to Exhibit B to the Company's Proxy Statement respecting its 1986 Annual Meeting of Stockholders). 45 10.2 Employment Agreement between the Company and Jeffrey P. Orleans, dated June 26, 1987 (incorporated by reference to Exhibit 10.2 to the Form S-1.) 10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey P. Orleans, respecting property in Washington Township, Gloucester County, New Jersey (incorporated by reference to Exhibit 10.3 to the 1992 Form 8-K). 22.* Subsidiaries of Registrant. 23.* Consents of Experts and Counsel. 25.* Power of Attorney (included on Signatures page). 27.* Financial Data Schedule (included in electronic filing format only). - -------------- * Exhibits included with this filing. (b) Reports on Form 8-K ------------------- On May 27, 1998, the Company filed a Form 8-K announcing the Company's change of name to "Orleans Homebuilders, Inc." from "FPA Corporation". 46 SIGNATURES and POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey P. Orleans, Benjamin D. Goldman and Joseph A. Santangelo and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or each of them, of their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: s/Jeffrey P. Orleans September 25, 1998 - -------------------------- Jeffrey P. Orleans Chairman of the Board and Chief Executive Officer s/Benjamin D. Goldman September 25, 1998 - -------------------------- Benjamin D. Goldman Vice Chairman and Director s/Sylvan M. Cohen September 25, 1998 - -------------------------- Sylvan M. Cohen Director s/Robert N. Goodman September 25, 1998 - -------------------------- Robert N. Goodman Director s/Andrew N. Heine September 25, 1998 - -------------------------- Andrew N. Heine Director s/David Kaplan September 25, 1998 - -------------------------- David Kaplan Director 47 s/Lewis Katz September 25, 1998 - ------------------------------------ Lewis Katz Director s/Michael T. Vesey September 25, 1998 - ------------------------------------- Michael T. Vesey President and Chief Operating Officer s/Joseph A. Santangelo September 25, 1998 - ------------------------------------- Joseph A. Santangelo Chief Financial Officer, Treasurer and Secretary 48 EX-3.9 2 CERTIFICATE OF ELIMINATION Exhibit 3.9 CERTIFICATE OF ELIMINATION TO CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C PREFERRED STOCK OF FPA CORPORATION FPA CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation, as amended, of said Corporation, and pursuant to the provisions of Section 151(g) of Title 8 of the Delaware Code of 1953, the Board of Directors duly adopted resolutions by unanimous written consent dated October 11, 1996, providing for the elimination from the Certificate of Incorporation of all matters with respect to Series C Preferred Stock set forth in the Certificate of Designations, Preferences and Rights of Series C Preferred Stock filed with the Office of the Delaware Secretary of State on October 21, 1993, which resolutions have not been modified, revoked or amended, and read as follows: WHEREAS, on October 21, 1993, this Corporation filed a Certificate of Designations, Preferences and Rights (the "Certificate of Designations") of Series C Preferred Stock (the "Series C Preferred Stock"); and WHEREAS, on October 22, 1993, in accordance with the provisions of the Certificate of Designations, this Corporation issued 50,000 shares of Series C Preferred Stock, par value $1.00 (the "Issued Series C") in exchange for good and valuable consideration delivered to this Corporation; and WHEREAS, on August 19, 1994, in accordance with the provisions of the Certificate of Designations, at a Meeting of Stockholders of this Corporation, the Stockholders approved the conversion of the Issued Series C to 6,000,000 shares of Common Stock, par value $.10, of this Corporation, whereupon the Issued Series C was automatically converted on September 8, 1994, following listing of the 6,000,000 shares of Common Stock on the American Stock Exchange; and WHEREAS, none of the authorized shares of the Series C Preferred Stock is currently outstanding. NOW, THEREFORE, be it RESOLVED, That none of the authorized shares of the Series C Preferred Stock will be issued subject to the Certificate of Designations of Series C Preferred Stock filed with the Delaware Secretary of State on October 21, 1993; and FURTHER RESOLVED, That the President, any Vice President, the Secretary and the Treasurer, or any one of them (the "Designated Officers") be, and each of them acting alone or in concert is hereby, authorized and empowered, without further action or direction from the Board of Directors of this Corporation, to execute, deliver and appropriately file on behalf of this Corporation a Certificate (the "Certificate") in accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware setting forth the Resolutions adopted herein; and FURTHER RESOLVED, That when such Certificate becomes effective (i) it shall have the effect of eliminating from the Certificate of Incorporation of this Corporation all matters set forth in the Certificate of Designations with respect to the Series C Preferred Stock, and (ii) this Corporation shall have 500,000 shares of Preferred Stock, par value $1.00, authorized, as to which no designation of series has been made. IN WITNESS WHEREOF, FPA Corporation has caused this Certificate to be executed this 11th day of October, 1996. FPA CORPORATION By: /s/ Benjam D. Goldman --------------------- Name: Benjamin D. Goldman Title: President -2- EX-3.10 3 CERTIFICATE OF AMENDMENT Exhibit 3.10 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF FPA CORPORATION FPA CORPORATION, a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY THAT: FIRST: The Board of Directors of the Corporation has adopted the following resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation: RESOLVED, that Article First of the Corporation's Certificate of Incorporation, be, subject to the requisite stockholder approval, amended to read in its entirety as follows (the "Amendment"): "FIRST: The name of the Corporation is Orleans Homebuilders, Inc." FURTHER RESOLVED, that the Board of Directors of the Corporation hereby finds and declares that the adoption of the Amendment is advisable and in the best interests of the Corporation. SECOND: Thereafter, in lieu of a meeting and vote of stockholders, the holder of record of an aggregate of 7,085,675 shares of the 11,356,018 outstanding shares of common stock of the Corporation, having not less than the minimum number of votes necessary to authorize the Amendment, gave a written consent to the Amendment in accordance with the provisions of Section 228 of the Delaware General Corporation Law. THIRD: The Amendment has been duly adopted in accordance with the provisions of Sections 228 and 242 of the Delaware General Corporation Law. FOURTH: The Amendment shall not be effective until 11:59 p.m. on July 13, 1998. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by a duly authorized officer this 13th day of July, 1998. FPA CORPORATION By: /s/ Joseph A. Santangelo ------------------------- Name: Joseph A. Santangelo Title: Treasurer and Secretary EX-3.11 4 BY-LAWS Exhibit 3.11 BY-LAWS OF ORLEANS HOMEBUILDERS, INC. ARTICLE I. Offices. 1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle, and the Agent in charge thereof shall be The Corporation Trust Company. The Corporation may also have offices at such other places within or without of the State of Delaware as the Board of Directors may from time to time appoint or as the business of the Corporation may require. 1.2 Principal Offices. The registered office of the Corporation in the State of Delaware need not be identical with the principal office, and may be changed from time to time as the Board of Directors may determine. ARTICLE II. Stockholders. 2.1 Annual Meeting. The annual meeting of the stockholders shall be held on the third Friday of October in each year, at such hour and place as may be designated by the Chairman of the Board. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the annual meeting has not been held during a calendar year, it may be called by the following procedure set forth in Section 2.2 hereof. At the annual meeting, the stockholders shall elect Directors for the ensuing year and may transact such other business as may properly come before the meeting. 2.2 Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board or the President, or by resolution of the Board of Directors. Upon written request of any person or persons who have duly called a special meeting, the Secretary shall fix the date of the meeting to be held not more than ninety (90) days after receipt of the request and give due notice thereof to the stockholders entitled to vote thereat. If the Secretary shall neglect or refuse to fix such date or give such notice, the person or persons calling the meeting may do so. 2.3 Place of Meeting. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual or special meeting of the stockholders. If no designation is made by the Board of Directors, the place of meeting shall be at the principal office of the Corporation in the State of Delaware. 2.4 Notice of Meeting. Written notice shall, unless otherwise provided by statute, be given to stockholders entitled to vote at the meeting who are stockholders as of the record date as provided in Section 2.6 hereof, not less than ten (10) nor more than fifty (50) days before the date of the meeting to the address of the stockholder appearing on the books of the Corporation, or supplied by the stockholder to the Corporation for the purpose of notice. Such notice shall state the place, date and hour of the meeting. When required by these By-Laws or by statute such notice shall also state the general nature of the business to be transacted. 2.5 Sufficiency of Notice. Any notice required hereunder shall be deemed to have been given to the person entitled thereto (a) if sent by mail, when deposited in the United States mail, post prepaid, or (b) when lodged with a telegraph office for transmission with charges prepaid, or (c) when delivered personally. Whenever notice is required to be given, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before or after the time stated, shall be deemed equivalent to the giving of such notice. Attendance of a person at any meeting, either in person or by proxy, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express and stated purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. 2.6 Record Date. The Board of Directors may fix in advance a date as the record date for the determination of stockholders entitled to notice of, or to vote at, any meeting of stockholders or stockholders entitled to receive payment of any dividend or distribution, or in order to make a determination of stockholders for any other proper purpose, such date in any case to be not more than sixty (60) days and, in case of a meeting of stockholders, not less than ten (10) days, prior to the date for which such determination of stockholders is necessary or proper. If no record date is fixed for the determination of stockholders entitled to receive notice of, or to vote at, a meeting of stockholders, or stockholders entitled to receive payment of a dividend or such other entitlement, the date next preceding the date on which notice of the meeting is mailed, or the date next preceding the date on which the resolution of the Board of Directors declaring such dividend or other entitlement is adopted, as the case may be, shall be the record date for such determination of stockholders. 2.7 Voting List. The officer or agent having charge of the transfer book for shares of the Corporation shall make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, with the address and the number of shares held by each. The list shall be kept on file at the principal office of the Corporation and shall be subject to inspection by any stockholder at any time during usual business hours, and shall also be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any stockholder during the whole time of the meeting. 2.8 Quorum. Except as otherwise required by law, the presence of stockholders, in person or by proxy, entitled to cast at least a majority of the votes which all Common stockholders (plus such other stockholders who may from time to time be entitled to vote with the holders of Common Shares) are -2- entitled to cast shall constitute a quorum. With respect to the consideration of any particular matter as to which the stockholders of any class or series shall be entitled to cast a vote separate from the vote of the Common stockholders, the presence of stockholders, in person or by proxy, entitled to cast at least a majority of the votes which all such class or series of stockholders are entitled to cast on such particular matter shall constitute a quorum of such class or series of stockholders for the purpose of considering such matters. The stockholders present at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting to such time and place as they may determine. A meeting at which Directors are to be elected, however, shall be adjourned only from day to day, or for such longer periods not exceeding fifteen (15) days each, until such Directors have been elected. Except as otherwise provided by law, whenever a meeting called for any purpose has been adjourned for lack of a quorum, the presence of stockholders, in person or by proxy, entitled to cast at least one-third of the votes which each such class or series of stockholders is entitled to vote at the reconvened meeting, although less than a quorum as fixed in these By-Laws or in the Certificate of Incorporation or by statute, shall nevertheless constitute a quorum. 2.9 Acts of Stockholders. Unless a greater or different vote shall be required as to a particular matter by the Certificate of Incorporation or by these By-Laws or by applicable statute, an act authorized by the vote of a majority of those Common Shares (plus such other shares which may from time to time be entitled to vote with the Common Shares) present in person or by proxy at a duly organized meeting shall be the act of the stockholders. 2.10 Adjournment. Adjournment or adjournments at any annual or special meeting may be taken as may be directed by a majority of votes cast by the stockholders present in person or by proxy entitled to cast the votes which the Common stockholders (plus such other stockholders who shall at the time be entitled to vote with the holders of the Common Shares on the matters to be considered at the meeting), may cast, but any meeting at which Directors are to be elected shall be adjourned only from day to day, or for such longer periods not exceeding fifteen (15) days each, until such Directors have been elected. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting other than an announcement at the meeting at which such adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.11 Proxies. At all meetings of stockholders, a stockholder entitled to vote on a particular matter may vote in person or may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the stockholder, or by his duly authorized attorney in fact. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of the proxy shall not be effective until notice thereof has been given to the Secretary of the Corporation. The Secretary may treat any proxy delivered to him as valid, unless before the vote is counted or the authority is exercised, written notice of any invalidity, together with such supporting information as shall enable a judgment to be rendered, is given to the Secretary. -3- 2.12 Voting Rights. Unless otherwise provided in the Certificate of Incorporation or in a duly filed statement establishing the rights of classes or series, only the holders of Common Stock shall be entitled to vote at a meeting of the stockholders and every stockholder having the right to vote shall be entitled to one vote for every share of Common Stock standing in his name on the books of the Corporation. 2.13 Nomination of Directors. Nominations for election to the office of Director at an annual or special meeting of stockholders shall be made by the Board of Directors, or by the Executive Committee, and may be made by petition in writing delivered to the Secretary of the Corporation not fewer than thirty-five (35) days prior to such stockholders' meeting, signed by the holders of at least one percent (1%) of the stockholders' shares entitled to be voted in the election of Directors. Unless nominations shall have been made as aforesaid, they shall not be considered at such stockholders' meeting unless the number of persons nominated as aforesaid, or nominated and still able or willing to be nominees, shall be fewer than the number of persons to be elected to the office of Director at such meeting, or unless persons duly nominated shall have failed of election at such meeting and the persons elected as Directors shall be fewer than the number of persons to be elected to the office of Director at such meeting, in which events nominations may be made at the stockholders' meeting by any person entitled to vote in the election of Directors. 2.14 Election by Ballot. The election of Directors shall be by ballot upon demand, before the voting begins, by a stockholder entitled to vote at such election. Unless so demanded voting need not be by ballot. 2.15 Judges of Election. In advance of any meeting of stockholders, the Board of Directors may appoint Judges of Election, who need not be stockholders, to act at such meeting or any adjournment thereof. The number of Judges shall be one or three. The Judges of Election shall apprise themselves of the number of shares outstanding and the voting power of each; tabulate the shares represented at the meeting; the existence of a quorum; determine the authenticity, validity and effect of proxies; hear and determine all challenges and questions arising in connection with the right to vote; receive, count and tabulate all votes or ballots, and determine the result; and do such other acts as may be necessary and proper to conduct the election or vote with fairness to all stockholders. On request of the Chairman of the Meeting, or of any stockholder or his proxy, the Judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. If there be three Judges of Election, the decision, act or certificate of a majority shall be effective in all respects as the decision and/or certificate of all. Any report or certificate made by the Judges of Election shall be prima facie evidence of the facts stated therein. ARTICLE III. Board of Directors. 3.1 Number, Tenure and Qualifications. The business and affairs of the Corporation shall be managed by its Board of Directors (sometimes referred to herein as the "Board"). The number of Directors which shall constitute the -4- whole Board shall be such as from time to time is fixed by the Board of Directors, but in no case shall there be more than fifteen (15) or less than five (5) Directors. The Directors shall be natural persons of full age and need not be stockholders in the Corporation. 3.2 Powers and Authorization. In addition to the powers and authority expressly conferred by these By-Laws, the Board of Directors may exercise all of the powers of the Corporation and do all lawful acts not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done only by the stockholders. The Board shall have the power to delegate any of the powers exercised or exercisable by the Board to any standing or special committee, or to any officer or agent, or to appoint any person to be the agent of the Corporation, with such powers, including the power to subdelegate, and upon such terms as the Board shall deem appropriate. 3.3 Meetings. Meetings of the Board of Directors shall be held at such times and places either within or without the State of Delaware, as may be fixed by Resolution of the Board, or by the President, or upon written demand of any three Directors. 3.4 Notice. Notice of a meeting of Directors or of any Committee of the Board of Directors shall be delivered at least one day prior to such meeting by oral, telegraphic or written notice. If mailed, such notice shall be deemed to be delivered on the day following the day deposited in the United States mail, addressed to the Director at his business address, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered on the day the telegram is delivered prepaid to the telegraph company, addressed to the Director at his business office. Notice of a meeting need only state the place, day and hour of the said meeting. A Director may waive notice of any meeting in a writing signed either before or after the time stated. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. 3.5 Quorum. A majority of the Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such quorum is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. Directors shall be deemed present at a meeting of the Board of Directors if by means of conference telephone or similar communications equipment all persons participating in the meeting can hear each other. The act of the majority of Directors voting at a meeting at which a quorum is present shall be the act of the Board of Directors. -5- 3.6 Unanimous Consent. Any action which may be taken at a meeting of the Directors, or by action of the members of the Executive Committee or by the members of any other committee appointed by the Board, may be taken without a meeting, if a consent or consents in writing setting forth the action so taken shall be signed by all of the Directors or the members of the committee, as the case may be, and filed with the Secretary of the Corporation. 3.7 Compensation. Directors as such need not receive any compensation for their services. By Resolution of the Board, a stated salary may be fixed for the Directors, or a fixed sum for, and expenses of, attendance may be allowed for attendance at each annual, regular or special meeting of the Board. Nothing herein contained shall be construed to preclude any Director from serving the Corporation as a member of a committee or an officer or in any other capacity and receiving compensation therefor. 3.8 Committee of the Board. The Board may, by resolution adopted by a majority of the whole Board, delegate two or more of its number to constitute (a) an Executive Committee which, unless otherwise provided in such resolution, shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Corporation, and (b) any other committee or committees which shall have such powers of the Board as authorized by such resolution. Members of any such committee or committees shall hold office for such period as may be prescribed by the vote of a majority of the whole Board of Directors, subject, however, to removal at any time by the vote of a majority of the whole Board of Directors. Vacancies in membership of any such committee or committees shall be filled by a majority vote of the whole Board of Directors. Each such committee may adopt its own rules of procedure and may meet at stated times or on such notice as such committee may determine. Except as otherwise permitted by Section 3.6 of these By-Laws, each such committee shall keep regular minutes of its proceedings and report the same to the Board when required. The presence in person or as hereafter provided of one-half (1/2) of the members of the Executive Committee or any other committee shall constitute a quorum for the transaction of business at any meeting of such committee, and the act of a majority of those members of such committee voting at a meeting at which a quorum is present shall be the act of the committee. Members of the Executive Committee or any other committee shall be deemed as being present at a meeting of such committee if by means of conference telephone or similar communications equipment all persons participating in the meeting can hear each other. 3.9 Removal of Directors. Any individual Director may be removed from office without assigning any cause by the vote of stockholders entitled to cast at least a majority of votes which all stockholders would be entitled to cast at any annual election of Directors. The entire Board of Directors may be removed from office without assigning any cause by the vote of stockholders entitled to cast at least a majority of the votes which all stockholders would be entitled to cast at any annual election of Directors. The Board of Directors may declare vacant the office of a Director if he be declared of unsound mind by an order of court, or convicted of a felony or other crime, or for any other proper cause. -6- 3.10 Vacancies. Vacancies in the Board of Directors, including vacancies resulting from an increase in the number of Directors, shall be filled by a majority vote of the remaining members of the Board though less than a quorum. A Director elected to fill a vacancy shall be a Director until a successor is elected by the stockholders, who shall make such election at the next annual meeting of the stockholders or any special meeting duly called for that purpose and held prior thereto. ARTICLE IV. Officers. 4.1 Executive Officers. The Executive Officers of the Corporation shall be chosen by the Directors and shall be a Chairman of the Board, Vice Chairman of the Board, President, Secretary and Treasurer. The Board of Directors may also choose an Executive Vice President, one or more Vice Presidents and such officers and agents as shall be necessary, who shall hold their offices for such terms and shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. 4.2 Qualifications. Any number of offices may be held by the same person. The President and Secretary shall be natural persons of full age. The Treasurer, if a natural person, shall be of full age. It shall not be necessary for the officers to be Directors. 4.3 Salaries. The salaries of the President, the Chairman of the Board, the Vice Chairman of the Board, the Executive Vice President, any Vice President, the Secretary and the Treasurer of the Corporation shall be fixed by the Board of Directors. 4.4 Term of Office; Removal. The officers of the Corporation shall hold office for one year and until their successors are elected and qualified. Notwithstanding the foregoing, every officer and agent may be removed at any time by the Board of Directors, without assigning any cause therefor. 4.5 Duties of the Chairman of the Board. The Chairman of the Board shall be the Chief Executive Officer of the Corporation. He shall have such powers and duties as may be assigned to him from time to time by resolution of the Board of Directors. The Board of Directors may, by resolution, grant the Chairman of the Board such powers and privileges as may be expressly assigned by other provisions of these By-Laws to the President, in which event the Chairman of the Board shall be entitled, if he so chooses, to exercise such concurrent powers and privileges. 4.5A. Duties of the Vice Chairman. The Vice Chairman of the Board shall have all of the powers and duties which are granted herein to the Chairman of the Board in the event that the Chairman of the Board is absent or in the event the office of Chairman of the Board becomes vacant for any reason until such time as the Chairman of the Board is able to exercise his powers and to perform his duties or until such vacancy is filled. In addition, he shall have such powers and shall perform such duties as may be assigned to him by the Chairman of the Board or the Board of Directors. -7- 4.6 Duties of the President. The President shall be the Chief Operating Officer of the Corporation and shall have such powers and duties as may be assigned to him from time to time by resolution of the Board of Directors or by the Chairman of the Board. 4.7 Duties of the Executive Vice President. The Executive Vice President shall have all of the powers and duties which are granted herein to the President in the event that the President is absent or in the event the presidency becomes vacant for any reason until such time as the President is able to exercise his powers and to perform his duties or until such vacancy is filled. In addition, he shall have such powers and shall perform such duties as may be assigned to him by the President or the Board of Directors. 4.8 Duties of the Vice President. Each Vice President shall have such powers and shall perform such duties as may be assigned to him by the President or Board of Directors. 4.9 Duties of Secretary. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and act as clerk thereof, and record all the votes of the Corporation and the minutes of all its transactions in a book to be kept for that purpose; and shall perform like duties for all committees of the Board of Directors when required. He shall give, or cause to be given, notice of all meetings of the stockholders and the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, and under whose supervision he shall be. He shall keep in safe custody the corporate seal of the Corporation, and when authorized by the Board or President affix the same to any instrument requiring it. 4.10 Duties of the Treasurer. The Treasurer shall have the custody of all funds, securities, evidences of indebtedness and other valuable documents of the Corporation; he shall receive and give or cause to be given receipts and acquitances for money paid in on account of the Corporation and shall pay out of the funds on hand all just debts of the Corporation of whatever nature upon maturity of the same; he shall enter or cause to be entered in the books of the Corporation to be kept for that purpose full and accurate accounts of all monies received and paid out on account of the Corporation and, whenever required by the President or the Board, he shall render to the President and Board, at the regular meetings of the Board, or whenever they may require it, a statement of his cash accounts and an account of all his transactions as Treasurer and of the financial condition of the Corporation; he shall keep or cause to be kept such other books as will show a true record of expenses, losses, gains, assets and liabilities of the Corporation; he shall, unless otherwise determined by the Board, have charge of the original stock books, transfer books and stock ledgers and act as transfer agent in respect to the stock securities of the Corporation; and he shall perform all the other duties incident to the office of Treasurer of a corporation. He shall give the Corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board shall prescribe. 4.11 Vacancies. If the office of any officer or agent, one or more, becomes vacant for any reason, the Board of Directors may choose a successor or successors, who shall hold office at the pleasure of the Board. -8- ARTICLE V. Indemnification. 5.1 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 5.2 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. 5.3 For purposes of indemnification eligibility under Sections 5.1 and 5.2 hereof, and without limiting the foregoing, service as a director, officer, employee, committee member, or agent, in a corporation, partnership, joint venture, trust or other enterprise, 50% or more of the voting stock or equitable interest of which shall be owned by this Corporation, shall be deemed to be service at the request of the Corporation, unless the Board of Directors shall otherwise determine. 5.4 To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 5.1 and 5.2 hereof, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. -9- 5.5 Any indemnification under Sections 5.1 and 5.2 hereof (unless ordered by a court) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 5.1 and 5.2 hereof. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 5.6 Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article 5. 5.7 The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any other by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 5.8 The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. Such insurance may be in addition to any other insurance or benefit which the Board of Directors may from time to time determine to be appropriate. 5.9 For purposes of this Article, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. -10- 5.10 For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a Director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such Director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. 5.11 The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VI. Corporate Records and Statement. 6.1 Records. There shall be kept at the principal office of the Corporation an original or duplicate record of the proceedings of the stockholders and of the Directors, and the original or copy of its By-Laws, including all amendments or alterations thereto to date. An original or duplicate share register shall also be kept at the principal office or at the office of its transfer agent or registrar, giving the names of the stockholders, their respective addresses, and the number and classes of shares held by each. The Corporation shall also keep appropriate, complete and accurate books or records of account, which may be kept at its principal office. 6.2 Annual Statement. The President and Board of Directors shall present at each annual meeting of stockholders such statement of the business and affairs of the Corporation for the preceding year as they shall deem appropriate. ARTICLE VII. Share Certificates, Transfer of Stock, Dividends, Etc. 7.1 Issuance. The Board of Directors shall have the power, by resolution duly adopted, to issue from time to time, in whole or in part, the kinds or classes of shares authorized in the Certificate of Incorporation. Share certificates shall bear the signature of the Chairman of the Board or the Vice Chairman of the Board or the President and the signature of the Secretary and the corporate seal, which may be a facsimile, engraved or printed. Where such certificate is signed by a transfer agent or a registrar, the signatures of the Chairman of the Board or President and the signature of the Secretary on such certificate may be a facsimile, engraved or printed. 7.2 Transfers of Shares. Transfer of shares shall be made on the books of the Corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. No transfer need be made inconsistent with the provisions of the Uniform Commercial Code or other applicable Federal, State or Local Law. -11- No transfer or assignment shall affect the right of the Corporation to pay any dividend due upon the stock, or to treat the registered holder as the holder in fact, until such transfer or assignment is registered on the books of this Corporation. 7.3 Closing of the Books. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of a period not exceeding sixty (60) days, and in such case, written or printed notice thereof shall be mailed at least ten (10) days before the closing thereof to each stockholder of record at the address appearing on the records of the Corporation as supplied by him to the Corporation for the purpose of notice. While the stock transfer books of the Corporation are closed, no transfer of shares shall be made thereon. 7.4 Absolute Owner. The Corporation shall be entitled to treat the registered holder of any shares as the absolute owner thereof, and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share, on the part of any other person, whether or not it shall have express or other notice thereof. 7.5 Lost, Destroyed or Mutilated Certificates. In the event that a share certificate shall be lost, destroyed or mutilated, a new certificate may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. ARTICLE VIII. Miscellaneous Provisions. 8.1 Signatures on Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. 8.2 Securities of Other Corporations. The President, or the Secretary, shall have full power to vote, appoint proxies, or otherwise perform any act as a stockholder with respect to any shares or other securities of any corporation owned by this Corporation, including the power to sell, convert, exchange, pledge or encumber such securities. 8.3 Fiscal Year. The fiscal year shall begin the first day of July of each year. 8.4 Seal. The corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its creation and the words "Corporate Seal-1969-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX. Amendments. 9.1 These By-Laws may be altered, amended or repealed by a majority of the members of the Board of Directors, or by the holders of a majority of those Common Shares (plus such other shares as may then be entitled to vote with the Common Shares) present in person or by proxy at any regular or special meeting duly organized. -12- EX-22 5 EXHIBIT 22 Exhibit 22 ---------- Subsidiaries of Registrant - -------------------------- The Company owns all of the outstanding stock of the subsidiaries listed below, each of which is included in the Consolidated Financial Statements of the Company. All other former subsidiaries of the Company were either merged with and into the Company or a subsidiary of the Company listed below. Name State of Incorporation ---- ---------------------- A.P. Orleans, Inc. Pennsylvania A.P. Orleans, Inc. New Jersey Fawn Hollow, Inc. Pennsylvania FPA Mortgage Corporation Florida FPA Mortgage Investments, Inc. Florida FPA Voorhees, Inc. New Jersey Orleans Construction Corporation Pennsylvania Orleans Corporation Pennsylvania Orleans Corporation of New Jersey New Jersey Orleans Property Management Services Corp. Pennsylvania Quaker Sewer, Inc. Pennsylvania Timber Glen, Inc. New Jersey Versailles at Europa, Inc. New Jersey EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-87694, 33-87696, 333-59917, 333-59925) of Orleans Homebuilders, Inc. of our report dated September 14, 1998, appearing on page 21 of this Form 10-K. Philadelphia, PA /s/ PricewaterhouseCoopers, LLP September 25, 1998 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JUN-30-1998 JUN-30-1998 2,833 0 3,902 0 111,253 0 2,581 689 130,525 0 80,707 0 0 1,270 16,449 130,525 107,355 108,998 91,295 106,308 662 0 778 2,690 1,022 0 0 0 0 1,668 .15 .14
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