THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Orleans Homebuilders, Inc. (OHB)

10/27/2005 Proxy Information

Convertible Note

In 1996, Mr. Orleans advanced $3 million to the Company evidenced by a $3 million Convertible Subordinated 7% Note. The issuance of the $3 million Convertible Subordinated 7% Note was approved in advance by a Special Committee of non-employee directors after receiving an opinion from an investment-banking firm that the terms were fair to the Company's stockholders, other than Mr. Orleans, from a financial point of view. During the fiscal year ended June 30, 2002, the maturity date of the $3 million Convertible Subordinated 7% Note was extended one year to January 1, 2005. The $3 million Convertible Subordinated 7% Note, as modified by certain deferral agreements, provides for interest payable quarterly at 7% per annum and annual principal payments of $1 million beginning January 1, 2003. The $3 million Convertible Subordinated 7% Note contains commercially standard default and other provisions. The holder of the $3 million Convertible Subordinated 7% Note may convert all or any portion (in integral multiples of $1 million) of the principal amount of the $3 million Convertible Subordinated 7% Note into shares of the Company's Common Stock at a conversion price of $1.50 per share, subject to adjustment for splits, combinations, and other capital changes. The closing price of the Company's Common Stock on the American Stock Exchange on July 8, 1996, the date the board of directors approved the terms of the borrowing, was $1.125 per share. In January 2003 and December 2003, respectively, Mr. Orleans exercised his right to convert the first and second annual principal payments of $1 million each into shares of Common Stock and received 666,666 shares of Common Stock with respect to each conversion. In December 2004, Mr. Orleans exercised his right to convert the third annual principal payment of $1 million into 666,668 shares of Common Stock.

Relationship with A.P. Orleans Insurance Agency, Inc.

The Company places a majority of its corporate insurance through A.P. Orleans Insurance Agency, Inc., of which Mr. Orleans is the sole stockholder. The Company also uses A.P. Orleans Insurance Agency, Inc. to issue surety bonds that the Company is required to maintain with various municipalities as part of its ongoing operations as a developer on specific projects in those municipalities. The Company incurred aggregate expenses of approximately $3,207,000 and $2,961,000 for Fiscal 2005 and Fiscal 2004, respectively, for these insurance policies and surety bonds. A.P. Orleans Insurance Agency, Inc. received customary commissions from the insurance companies for serving as broker.

Relationship with Title Insurer

During Fiscal 2005, Messrs. Goldman and Orleans each owned a 31% equity interest in a limited partnership that has a consulting agreement with a third party real estate title insurance company. The Company purchases real estate title insurance and related closing services from that third party real estate title insurance company for various parcels of land the Company acquires. The Company paid the third party real estate title insurance company approximately $800,000 and $178,000 for Fiscal 2005 and Fiscal 2004, respectively. In addition, the Company's homebuyers may elect to utilize the third party real estate title insurance company for the purchase of real estate title insurance and real estate closing services but, the homebuyers are under no obligation to do so.

Under the terms of the consulting agreement, which was set to expire in July 2007, the limited partnership providing the consulting services was entitled to receive 50% of the pre-tax profits attributable to certain operations of the third party real estate title insurance company, subject to certain adjustments. In addition, the limited partnership and the principals of the limited partnership, including Mr. Goldman and Mr. Orleans, have agreed not to engage in the real estate title insurance business or the real estate closing business during the term of the consulting agreement. The consulting agreement was terminated in July 2005.

Other

The Company through its wholly-owned subsidiary Orleans Affordable Housing LP, is a limited partner in OKKS Development LP, a Pennsylvania limited partnership, and a member of OKK LLC, a Pennsylvania limited liability company. OKK LLC is the general partner of OKKS Development LP. In the aggregate, the Company indirectly owns a 28.33% equity interest in OKKS Development LP. OKKS Development LP was formed for the purpose of engaging in certain residential development activities which are primarily government assisted. The other limited partners of OKKS Development LP and other members of OKK LLC include a trust for the benefit of certain members of the family of Lewis Katz, a member of the Company's board of directors. In the year ended June 30, 2003, OKKS Development LP was capitalized with initial contributions by the limited partners of $50,000 each and each partner contributed an additional $50,000 in each of Fiscal 2004 and Fiscal 2005. During Fiscal 2005 and Fiscal 2004 no profits were distributed to the limited partners of OKKS Development LP or the members of OKK LLC.

Mr. Orleans owns a 33.5% equity interest in Marne Associates, LLC and trusts for the benefit of certain members of his family collectively own a 16.5% equity interest in Marne Associates, LLC. Mr. Benjamin Goldman, the Company's Vice Chairman, is the trustee of each of the trusts. The Company has executed a lease with Marne Associates, LLC for 8,000 square feet of office space in a shopping center constructed by Marne Associates, LLC. The initial term is five years at $14 per square foot. The Company has the option to renew the lease at the end of the initial term for an additional five years at $16 per square foot.

The Company owns fractional interests in aircraft. Mr. Orleans is given access to Company-owned aircraft for personal use. Mr. Orleans is, however, required to reimburse the Company for the costs associated with such personal use. In Fiscal 2005, Mr. Orleans reimbursed the Company $647,000 for his personal use of Company-owned aircraft.

On March 20, 2000, Thomas Vesey, the brother of Michael T. Vesey, the Company's President and Chief Operating Officer, was hired to assist the Company in evaluating and identifying opportunities for expansion into additional market areas. Presently, Mr. Vesey is the Division President for Charlotte, North Carolina. During Fiscal 2005, Mr. Thomas Vesey's annual salary was $150,000 and he received a performance related bonus of $521,825.

Prior to December 8, 2004, J. Russell Parker, III, President, Parker & Lancaster Corporation and Parker & Orleans Homebuilders, Inc. and Jeffrey C. Guernier, Greensboro Division President, owned 50.7% and 8%, respectively, of the equity of Moorefield Title Agency, L.C. The balance of the equity interests were owned by persons not affiliated with the Company. On December 8, 2004, the Company, through a wholly-owned subsidiary, purchased from each of the equity owners 50% of that equity owner's interest in Moorefield Title resulting in the following ownership: the Company, through a wholly-owned subsidiary, 50%; J. Russell Parker, III, 25.35%; Jeffrey C. Guernier, 4%; and others 20.65%. The Company paid an aggregate of $10 for the 50% interest it acquired. This purchase was pursuant to an agreement entered into in connection with the Company's acquisition of Parker & Lancaster Corporation in July 2003.

The Company made payments to Moorefield Title of approximately $56,000 in Fiscal 2005 and $96,000 in Fiscal 2004 for title insurance and related services and to reimburse Moorefield Title for certain expenses relating to Moorefield Title employees that perform services for the Company from time to time.

Robert M. Segal, one of the Company's directors, is a partner in the law firm Wolf, Block, Schorr and Solis-Cohen LLP, which serves as the Company's general counsel. Lewis Katz, one of the Company's directors, is Of Counsel to the law firm Katz, Ettin & Levine, P.A., which has performed legal services for the Company in the past year.

In the opinion of the board of directors, all of the transactions described above, insofar as they involve transactions with affiliates of the Company, are on terms that are comparable to or not less favorable than, terms which would have been obtainable by the Company from unaffiliated third parties.