-----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, UqYmtYiz7Y/fCmXmnRCebm2snA0QswAzVrjL3097W+RFjOmsyJ4i8SeUCMDFsctL 9A+7+3sdtWQI9bS+SuZlGQ== 0000717216-97-000006.txt : 19970414 0000717216-97-000006.hdr.sgml : 19970414 ACCESSION NUMBER: 0000717216-97-000006 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970411 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALTON INC CENTRAL INDEX KEY: 0000717216 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 222433361 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08846 FILM NUMBER: 97578920 BUSINESS ADDRESS: STREET 1: 500 CRAIG RD CITY: MANALAPAN STATE: NJ ZIP: 07726-8790 BUSINESS PHONE: 9087801800 MAIL ADDRESS: STREET 1: 500 CRAIG RD CITY: MANALAPAN STATE: NJ ZIP: 07726-8790 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended November 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file no. 1-8846 CALTON, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2433361 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 Craig Road Manalapan, New Jersey 07726-8790 (Addresses of principal Zip Code executive offices) Registrant's telephone number, including area code: (908) 780-1800 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of each exchange Title of each class on which registered Common Stock, $.01 par value per share American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No The aggregate market value (based upon the last sales price reported by the American Stock Exchange) of voting shares held by non-affiliates of the registrant as of March 31, 1997 was $8,489,000. As of March 31, 1997, 26,538,000 shares of Common Stock were outstanding. Certain items in Parts I and II incorporate information by reference from the 1996 Annual Report to Shareholders. Except for portions which are expressly incorporated by reference herein, the Annual Report is not deemed filed a part hereof. Disclosure Concerning Forward-Looking Statements All statements, other than statements of historical fact, included in this Form 10-K, including without limitation the statements incorporated by reference in Part II, Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the statements under "Business," are, or may be deemed to be, "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements, including the statements pertaining to the Company's ability to comply with the covenants contained in its revolving credit facility which are incorporated by reference in Part II - Items 7 and 8, involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-K. Such potential risks and uncertainties, include without limitation, matters related to national and local economic conditions, the effect of governmental regulation on the Company, the competitive environment in which the Company operates, changes in interest rates, home prices, availability and cost of land for future growth, the timing of land acquisition and product development, availability of working capital and the availability and cost of labor and materials, and other risk factors detailed herein and in other of the Company's Securities and Exchange Commission filings. The forward-looking statements are made as of the date of this Form 10-K and the Company assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements. PART I Item 1. BUSINESS (a) General Development of Business General Calton, Inc. (the "Company" or "Calton") and its subsidiaries design, construct and sell single family detached homes primarily in central New Jersey and central Florida. The Company markets primarily to first and second time move-up buyers with the 549 homes delivered in fiscal 1996 having an average sales price of approximately $201,000. The Company's current homebuilding activities are conducted primarily through two divisions: the Northeast and the Florida division. Calton was incorporated in 1981 for the purpose of acquiring all of the issued and outstanding capital stock of Kaufman and Broad of New Jersey, Inc., a New Jersey corporation, from Kaufman and Broad, Inc., a Maryland corporation. After the acquisition, the name of Kaufman and Broad of New Jersey, Inc. was changed to Calton Homes, Inc. ("Calton Homes") which continues as a wholly owned subsidiary of Calton. Calton maintains its executive offices at 500 Craig Road, Manalapan, New Jersey 07726 and its telephone number is (908) 780-1800. On March 9, 1993, Calton and certain of its subsidiaries filed petitions under Chapter 11 of the United States Bankruptcy Code. The United States Bankruptcy Court confirmed the Plan of Reorganization (the "Reorganization") on May 6, 1993 and the Reorganization was consummated on May 28, 1993. The Reorganization resulted in the discharge of approximately $61.5 million of indebtedness and $22.8 million of interest payments owed to certain creditors. In exchange for the discharge of these obligations, these creditors were issued a combination of cash, equity securities and short-term debt instruments which were retired in September 1993. The equity securities issued to the creditors represented approximately 93.5% of the voting power of the Company's capital stock. On November 21, 1995, the Company had a significant shift in stock ownership and voting rights. In addition, changes occurred on the Board of Directors and in the Company's management. Since 1969, the Company and its predecessor have constructed and sold approximately 17,200 units in 143 residential developments in New Jersey, Florida, Pennsylvania, California and Illinois. At November 30, 1996, the Company had 20 communities open for sales. The Company builds single-family -1- detached homes ranging in base price from $96,000 to $199,000 in the Florida division and $180,000 to $515,000 in the Northeast division. The average base selling price of homes to be built on unsold lots, as of November 30, 1996, was approximately $148,000 and $285,000 for the Florida and Northeast divisions, respectively. Because of the timing of home deliveries, the average base selling price of homes under development may not be indicative of the average revenue per home sold in any fiscal year. See Item 1(c), "Residential Development." In 1996, the Company began its entry into the active adult housing market in Ocean County, New Jersey. Through this community, marketed under the name Renaissance, the Company will offer nine different single-family detached home types. The Company has the contractual right to purchase up to 2,000 finished lots on a rolling-option basis with the land seller funding the construction of the amenities. This community is anticipated to be a major part of the Northeast division's future deliveries and results. The Renaissance community will offer a wide array of amenities, including a 24-hour attended gatehouse, a 25,000 square foot clubhouse and an eighteen-hole golf course. (b) Financial Information About Industry Segments Substantially all revenues and equity in earnings, operating profits and assets of the Company and its subsidiaries are attributable to one line of business, the development and sale of residential housing and the acquisition and sale of real property. (c) Description of Business General The Company designs, constructs and sells single family detached homes, primarily in central New Jersey and central Florida. The Company markets primarily to first and second time move-up buyers with the 549 homes delivered in fiscal 1996 having an average sales price of approximately $201,000. Corporate Operations The Company operates through separate divisions, which are located within or near the markets in which they operate. Each division is managed by an executive with substantial experience in the markets served. In addition, each division is staffed with personnel equipped with the skills to complete the functions of land acquisition, entitlement processing, land development, construction, marketing, sales and product service. The Company's corporate staff is responsible for: (i) evaluating the suitability of and selecting geographic markets; (ii) allocating capital resources among divisions; (iii) maintaining the Company's relations with its lenders to regulate the flow of financial resources; and (iv) monitoring the divisional operations. Capital commitments are determined through consultation among senior management and division managers. Centralized financial controls are also maintained through the standardization of accounting and financial policies and procedures, which are applied uniformly throughout the Company. The Company's operating strategy generally consists of: (i) targeting primarily the second and third time move-up buyer and, beginning in 1997, the active adult community buyer in New Jersey; (ii) conducting homebuilding activities in markets that, based on economic and demographic trends, demonstrate strong -2- growth potential; (iii) designing each residential community to meet the needs of the particular market based on local conditions and demographic factors; (iv) minimizing land risks by purchasing entitled tracts of well-located property through options or contingent purchase contracts and limiting land holdings to those which can be developed within two years from the date of purchase or where available purchasing finished lots on a rolling option basis; (v) developing residential communities in phases which enables the Company to reduce financial exposure, control construction and operating expenses and adapt quickly to changes in customer demands and other market conditions; (vi) utilizing subcontractors to perform land development and home construction on a fixed price basis; and (vii) emphasizing the quality, features and value of its homes. Geographic Markets The Company's current business operations are principally located in central New Jersey and the greater Orlando, Florida area. Generally, the Company has organized divisions that are located in markets that demonstrate a strong growth profile. The Company selects locations within these markets for its residential housing communities that have ready access to metropolitan areas by public transportation and major arterial highways and which have experienced increased housing demand. In March 1995, the Company consolidated its New Jersey-North and New Jersey- South divisions into the Northeast division. The Northeast division conducts homebuilding activities in Burlington, Hunterdon, Monmouth, Middlesex, Ocean and Mercer counties in New Jersey. The Company's Florida division conducts homebuilding activities in the Orange and Seminole County areas, concentrating in the suburban Orlando area. The Company does not anticipate that it will expand into any new geographic areas in fiscal 1997 and, therefore, plans to focus its operating locations and available capital in the Northeast and Florida divisions. Products The Company offers a variety of homestyles tailored to meet the specific needs of the particular geographic and demographic markets served, including the second and third time move-up buyer and, to a lesser extent, the first time and first time move-up buyer. Homestyles, prices and sizes are tailored to each community based upon the Company's assessment of specific market conditions and the restrictions imposed by local jurisdictions. In certain projects, recreational amenities such as tennis courts and playground areas are constructed by the Company. The Company believes that its current product strategy which primarily focuses on the second and third time move up and active adult buyer enables it to mitigate some of the risks inherent in the homebuilding industry by providing it with a product mix that supplies particular markets that are not as susceptible to changing market conditions including interest rate changes. The Company generally standardizes its product line within geographic markets it serves. This standardization improves the quality of construction and permits efficient production techniques and bulk purchasing of materials and components, thus reducing construction costs and the time required to build a home. See "Sales and Marketing." -3- Land Acquisition, Planning and Development Substantially all of the land acquired by the Company is purchased only after necessary entitlements have been obtained so that the Company has certain rights to begin development or construction as market conditions dictate. The term "entitlements" refers to developmental approvals, tentative maps or recorded plats, depending on the jurisdiction within which the land is located. Entitlements generally give a developer the right to obtain building permits upon compliance with certain conditions that are usually within the developer's control. Although entitlements are ordinarily obtained prior to the Company's purchase of the land, the Company is still required to obtain a variety of other governmental approvals and permits during the development process. The Company primarily buys finished lots that are ready for construction in the Florida market. Although finished lots are generally not available in the Northeast markets, the Company has entered into a contract to purchase up to 2,000 finished lots on a rolling option basis in Ocean County, New Jersey, in its active adult community marketed under the name Renaissance. The Company's general policy has been to control land for future development or sale through the use of purchase options or contingent purchase contracts whenever practicable and where market conditions permit. The Company endeavors to acquire property for development either (i) on an installment method, with closings on a portion of a project on a periodic basis or (ii) through the use of purchase money mortgages. In certain cases, when available, the Company acquires finished lots on a rolling option basis. These policies enable the Company to limit its financial commitments, including cash expenditures and interest and other carrying costs, and avoid large land inventories which exceed the Company's near term development needs. At the same time, the Company retains any appreciation in the value of the parcel prior to exercising the option or closing the contingent purchase contract. During the option or contingency period, the Company performs feasibility studies, technical, engineering and environmental surveys and obtains the entitlements. In making land acquisitions, the Company considers such factors as: (i) current market conditions; (ii) internal and external demographic and marketing studies; (iii) environmental conditions; (iv) proximity to developed and recreational areas; (v) availability of mass transportation and major arterial highways and ready access to metropolitan areas and other employment centers; (vi) industrial and commercial growth patterns; (vii) financial review as to the feasibility of the proposed community, including projected profit margins, returns on capital employed and payback periods; (viii) the ability to secure governmental approvals and entitlements; (ix) customer preferences; (x) access to materials and subcontractors; and (xi) management's judgement as to the real estate market, economic trends and the Company's experience in a particular market. The Company's development activities include land planning and securing entitlements. These activities are performed by the Company's employees, together with independent engineers, architects and other consultants. The Company's employees also develop long-term planning of future communities. Construction The Company employs production managers who are responsible for coordinating all functions pertaining to the construction process. All construction work for the Company is performed by subcontractors on a fixed price basis, with the Company acting as general contractor. In order to maintain control over costs, -4- quality and work schedules, the Company employs an on-site superintendent who is responsible for supervising subcontractor work at each project. The Company's housing is constructed according to standardized design plans that are then customized to each individual contract preference. Generally, the Company seeks to develop communities having a number of lots to absorb deliveries over a minimum one year period in order to reduce the per unit cost of the housing products which it sells. Advantages achieved by volume building include lower unit prices paid to subcontractors and reduced material costs per unit. Generally, the Company's policy is to commence construction of a detached housing unit beyond the foundation after a sales contract for that unit has been signed. The Company does, however, ordinarily attempt to maintain a predetermined inventory of homes in-process in order to match the construction times of homes with the mortgage application process and to accommodate customers who require immediate occupancy, such as relocation buyers. In addition, in order to permit construction and delivery of housing units on a year round basis, the Company, in anticipation of winter in the Northeast, will start construction of foundations prior to having signed sales contracts. Materials and Subcontractors The Company attempts to maintain efficient operations by utilizing standardized material available from a variety of sources. Prices for materials may fluctuate due to various factors, including demand levels or supply shortages. During 1996, major building material prices for lumber, asphalt and appliances remained relatively flat while prices for concrete increased modestly. The price of gypsum remained flat overall, increasing during the first half of the year with a corresponding decrease during the second half. The Company enters into contracts with numerous subcontractors representing all building trades in connection with the construction of its homes, and has established long-term relationships with a number of subcontractors. These subcontractors bid competitively for each phase of the work at each project and are selected based on quality, price and reliability. Subcontractor bids are solicited after an internal job cost budget estimate has been prepared based on estimated material quantities. These internal estimates serve as the formal baseline budget against which the cost of each trade is measured. Each division is responsible for contracting all trades in each of its communities. Production costs are monitored monthly to assess actual versus contracted amounts. The Company closely monitors subcontractor performance and expenditures on each community to assess project profitability. Additionally, the Company is generally able to obtain reduced prices from many of its subcontractors due to the volume of work it provides to its subcontractors. Agreements with subcontractors generally are for three to twelve months, and provide a fixed price for labor and materials. The Company has, from time to time, experienced minor temporary construction delays due to shortages of materials or availability of subcontractors. Such construction delays may extend the period of time between the signing of a purchase contract and the receipt of revenues by the Company at the time of delivery of the home to the buyer. To date, the Company has experienced no material adverse financial effects as a result of construction delays. Currently, sufficient materials and subcontractors are available to meet the -5- Company's demands; however, the Company cannot predict the extent to which shortages in necessary materials or labor may occur in the future. Sales and Marketing Each division establishes marketing objectives, determines retail pricing, formulates sales strategies and develops advertising programs, which in each case, are subject to periodic market analyses conducted by the division. The Company typically constructs, furnishes and landscapes model homes for each community and maintains an on-site sales office staffed with its own sales personnel. The Company makes use of newspaper, billboard and direct mail advertising, special promotional events and illustrated brochures in a comprehensive marketing program. The Company has established a web site on the Internet (http://www.caltonhomes.com) to provide its customers with additional information on the Company's communities and homes. In marketing its products, the Company emphasizes quality, features and value and provides a 15 year limited warranty on its homes. In addition, the Company offers a customization program in order to make the products the Company builds more attractive to homebuyers by tailoring them to individual customer needs. The Company's sales personnel participate in an intensive sales training program to develop their skills and knowledge. The Company consults with these personnel in the product development process to obtain and consider feedback from customers and information with respect to the Company's competitors. Sales of the Company's homes are made pursuant to standard sales contracts that are customary in the markets served by the Company. Such contracts require a customer deposit (generally up to 5% of the base selling price unless limited by local law) at time of contract signing and provide the customer with a mortgage contingency, if necessary. The contingency period typically is sixty (60) days following execution of the contract. In certain instances, contracts are contingent on the sale of a purchaser's existing home. In such cases, the Company retains the right to sell the home to a different buyer during the period in which the "house-to-sell" condition is not satisfied. The cancellation rate for new contracts signed was approximately 22% for fiscal 1996. Cancellation rates may vary from year to year. The Company attempts to limit cancellations by training its sales force to determine at the sales office the qualifications of potential homebuyers and by obtaining financial information about the prospective purchaser. At March 31, 1997, the Company employed 50 full-time and part-time sales personnel who are paid on a salary and/or sales commission basis. The Company also utilizes the services of independent real estate brokers through a cooperative broker referral plan. Customer Financing The Company sells its homes to customers who generally finance their purchase through conventional and government insured mortgages. The Company provides its customers with information on a wide selection of conventional mortgage products and various mortgage lenders to assist the homebuyer through the mortgage process. Mortgages arranged by mortgage providers in recent years have been mortgage loans underwritten and made directly by a lending institution to the customer. The Company is not liable for repayment of any mortgage loans. -6- Backlog At November 30, 1996, the Company had a backlog of signed contracts for 165 homes with an aggregate sales price of $40.2 million as compared to a backlog of signed contracts for 166 homes with an aggregate sales price of $36.0 million at November 30, 1995. All of the November 30, 1996 backlog is expected to be completed and delivered by November 30, 1997. Backlog includes contracts containing financing and certain other contingencies, including, in certain instances, contracts which are contingent on the buyer selling their homes. Due to changes in product offerings, the uncertainty of future market conditions and the general economic environment, the sales backlog achieved in the current period may not be indicative of those to be realized in succeeding periods. Residential Development The Company markets and sells varying types of residential homes ranging in base selling prices from $96,000 to $199,000 in the Florida division and $180,000 to $515,000 in the Northeast division. Current average base selling prices for the Company's homes are approximately $262,000 in New Jersey and $154,000 in Florida. Average base selling prices of homes sold in any period or unsold at any point in time will vary depending on the specific projects and style of homes under development. The Company continually monitors prevailing market conditions, including interest rates and the level of resale activity in the markets in which it operates. The Company may, from time to time, sell all or a portion of a residential project prior to its development by the Company. -7- As of November 30, 1996, the Company had 20 residential communities open for sales which include an aggregate of 1,150 single family detached homes to be delivered. The following sets forth certain information as of November 30, 1996 with respect to communities being developed by each of the Company's operating divisions: Homes Deliv- Homes Homes ered Un- Year Deliv- Yr. der of Lots ered Ended Con- First Ap- Incep-Nov. tract Un- Deliv- proved tion 30, (Back- sold ery (a) To Date1996 log) Lots Price Range Northeast ------ ----- ----- ---- ---- ---- ----------------- Belmont at Steeplechase (Burlington) 1995 291 55 31 8 228 $179,990-$231,990 Bey Brook Estates (Dover) 1997 31 0 0 4 27 $396,990-$424,990 Crown Pointe (West Windsor) 1996 94 3 3 13 78 $384,990-$475,990 Jockey Club at Steeplechase (Burlington) 1995 177 88 41 15 74 $137,990-$171,990 Manalapan Chase (Manalapan) 1996 52 19 19 22 11 $328,990-$406,990 Monmouth Ridings (Howell) 1994 144 125 38 9 10 $184,990-$223,990 Regency Oaks (Marlboro) 1995 39 26 9 8 5 $338,990-$429,990 Stanton Ridge (Readington) 1997 14 0 0 2 12 $415,990-$514,990 Other (commun- ities with fewer than 5 homes unsold) 754 752 119 1 1 ----- ----- ---- ---- ---- Total 1,596 1,068 260 82 446 Orlando, Florida Beechwoods (Altamonte Springs) 1995 57 38 27 3 16 $133,900-$174,990 Brookhaven Oaks (Ocoee) 1996 42 5 5 23 14 $145,990-$179,990 Cambridge Com- mons (Apopka) 1995 87 52 29 9 26 $ 99,990-$121,990 Cheshire Woods (Ocoee) 1996 100 20 20 7 73 $108,990-$127,990 Conway Harbor (Orlando) 1997 63 0 0 1 62 $119,990-$139,990 Crescent Park (Orlando) 1995 108 33 21 5 70 $156,990-$185,990 Cypress Lakes (Orlando) 1996 79 24 24 6 49 $ 95,990-$114,990 Heather Glen at Eastwood (Orlando) 1997 28 0 0 1 27 $139,990-$171,990 Longwood Club (Longwood) 1997 52 0 0 2 50 $159,990-$198,990 The Meadows (Oviedo) 1995 49 22 13 8 19 $140,990-$176,990 Saddlebrook (Gotha) 1995 52 45 27 1 6 $130,990-$173,990 Sand Lake Cove (Dr. Phillips) 1996 97 26 26 9 62 $164,990-$198,990 Other (com- munities with fewer than 5 homes unsold) 295 282 66 8 5 ----- ----- ---- ---- ---- Total 1,109 547 258 83 479 Chicago, Illinois 1995 78 74 31 0 4 ----- ----- ---- ---- ---- TOTAL 2,783 1,689 549 165 929 ===== ===== ==== ==== ==== (a) Includes dwelling units completed and delivered, units under construction and units designated on subdivision or site plans where preliminary and final subdivision or site plan approvals, which in certain instances may be subject to the fulfillment of certain conditions imposed thereby, have been received. Also includes approximately 252 planned homes under rolling options in 6 communities in New Jersey and Florida currently being developed and marketed by the Company, which will require cash payments of $4.8 million in 1997, $3.6 million in 1998 and $390,000 in 1999. -8- Land Inventory The Company acquires options or contingent purchase contracts on land where practicable and where market conditions and lending availability permit. In other instances, the Company has endeavored to acquire property either subject to purchase money mortgages, or on an installment method, with closings on a portion of a project on a periodic basis. In order to ensure the availability of land for future development, the Company believes it is necessary to control land in New Jersey at an earlier point in time than in other markets. As of November 30, 1996, if all of the options held by the Company were exercised and all of the contingent purchase contracts to which the Company is a party were closed, the Company would have sufficient land to maintain its anticipated level of deliveries for the next five years in the Northeast market. The Company believes that additional acquisitions of new communities will be required for anticipated deliveries in 1999 and beyond in the Florida market. The Company's revolving credit facility (the "Facility") contains provisions limiting the amount of land which the Company may acquire in any one year (other than land acquisitions utilizing proceeds of purchase money mortgages) to $22.0 million in 1997. The following table sets forth certain information, as of November 30, 1996, with respect to options held by the Company and contingent purchase contracts to which the Company is a party: Number of Proposed Residential Planned Communities Homes (1) ----------- --------- Northeast 10 3,459 Orlando, Florida 2 152 ----------- --------- Total 12 3,611 =========== ========= (1) Final development approvals have not been obtained with respect to certain properties included in the above table. Accordingly, the number of units approved for development, if any, may differ from the number of planned units reflected in the table. In addition, prior to exercising an option or closing a contingent purchase contract, the Company conducts feasibility studies and other analyses with respect to a proposed community. In certain instances, a determination may be made by the Company not to proceed with certain communities. Accordingly, no assurance can be given that the Company will ultimately pursue the development of every community reflected in the table above. As of November 30, 1996, the Company held options or was a party to contingent contracts to purchase 12 parcels of land in New Jersey and Florida for which it has paid options fees and earnest money aggregating $2.1 million (which includes $900,000 applied to the purchase price of a property acquired in December, 1996). A total of 3,611 homes, of which 3,297 homes are single family and 314 are townhomes, are planned for these parcels. Through November 30, 1996, the Company has spent an additional $3.7 million in predevelopment costs on such land, $2.6 million of which costs would not be recoverable in the event these options were not exercised or the contracts were not closed, as the case may be. Assuming that in each year the Company makes payments with respect to either options or contingent contracts, exercises options, or closes such contracts with respect to the minimum amount of land necessary to retain its rights to acquire the remainder of the subject properties, the aggregate amount required to retain or exercise such options or close or extend such contingent contracts in periods subsequent to November 30, 1996 is approximately -9- $11.7 million in 1997, $13.3 million in 1998, $9.7 million in 1999, $11.9 million in 2000, $8.3 million in 2001 and $59.8 million thereafter. Assuming the Company exercises such options and contingent contracts, the Company will be in a position to acquire title to approximately 313, 469, 425, 618, and 293 lots during fiscal years 1997 through 2001, respectively, and 1,493 lots thereafter. The Renaissance community represents the majority of the capital requirements and lots which are currently planned for development subsequent to the year 2001. Commercial Land and Buildings Pursuant to management's continued focus on its core homebuilding business, the Company sold four of its commercial properties in 1996 for approximately $3.2 million. The sales resulted in an aggregate pre-tax gain of approximately $1.1 million and provided approximately $1.8 million of additional cash for operations. The Company owns certain undeveloped properties in New Jersey, Florida, California and Pennsylvania. These properties include 60 acres of commercial property in Manalapan, New Jersey; 14 acres consisting of two parcels in Orange County, Florida; and three other properties, two in Pennsylvania and one in California. Each of these properties are currently available for sale except for one of the Pennsylvania properties, which has certain acreage under contract for sale. Joint Ventures The Company has participated in joint ventures in the past that were engaged in land and residential housing development. During 1996, the Company received $460,000 of a fully reserved note receivable from a previous joint venture and received $725,000 from the liquidation of a joint venture in which it previously participated. However, as of November 30, 1996, the Company had no involvement in any active joint ventures. Competition The Company's business is highly competitive. Homebuilders compete for desirable properties, financing, raw materials and skilled labor among other things. The Company competes in each of the geographic areas in which it operates with numerous real estate developers, ranging from small local to larger regional and national builders and developers, some of which have greater sales and financial resources than the Company. Resales of housing provide additional competition. The Company competes primarily on the basis of quality, features, value, reputation, price, location, design and amenities. Regulation and Environmental Matters The Company is subject to various local state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulation which imposes restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular locality. In addition, the Company is subject to registration and filing requirements in connection with the construction, advertisement and sale of its communities in certain states and localities in which it operates even if any or all necessary government approvals have been obtained. Generally, the Company must obtain numerous government approvals, licenses, permits, and agreements before it can commence development and construction. Certain governmental authorities impose -10- fees as a means of defraying the cost of providing certain governmental services to developing areas, or have required developers to donate land to the municipality or make certain off-site land improvements. The Company may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums that could be implemented in the future in the states in which it operates. Generally, such moratoriums relate to insufficient water or sewage facilities. The Company is also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of health and the environment ("environmental laws"). The particular environmental laws which apply to any given community vary greatly according to the community site, the site's environmental conditions and the present and former uses of the site. These environmental laws may result in delays, may cause the Company to incur substantial compliance and other costs, and can prohibit or severely restrict development in certain environmentally sensitive regions or areas. For example, in July 1987, New Jersey adopted the Fresh Water Wetlands Protection Act which restricts building in or near certain protected geographic areas designated as fresh water wetlands. The preservation of wetlands located within a project may lessen the number of units that may be built in a particular project. The Company has planned all of its projects containing wetlands to comply with the regulations adopted under the Fresh Water Wetlands Protection Act and does not believe that this legislation will adversely affect its present development activities in New Jersey. The State of Florida has adopted a wide variety of other environmental protection laws. The laws regulate developments of substantial size and developments in or near certain specified geographic areas within the State of Florida, including the Big Cypress, Green Swamp and Florida Keys areas, imposing requirements for development approvals which are more stringent than those which the Company would have to meet in Florida for development outside of these geographic areas. Further, the State of Florida regulates certain types of developments located in or near certain types of geographic areas, plant life or animal life. The Company does not believe that any land owned by it that is planned for development is the site of any protected plant or animal life. Although the Company owns land in or near certain protected types of geographic areas, the Company designs its various communities to avoid disturbing such areas so that certain regulations with respect to these areas are not applicable. When the Company undertakes development activity in or near or which may have an impact on any protected areas, it is required to satisfy more stringent requirements for developmental approval than would otherwise be applicable. In addition, the laws of the State of Florida require the use of construction materials which reduce the energy consumption required for heating and cooling. The Florida Growth Management Act of 1985 requires that an infrastructure, including roads, sewer and water lines, must be in existence or funded concurrently with the construction of the development. If such infrastructure will not be concurrently available or funded, then the project cannot be developed. This will have an effect on limiting the amount of land available for development and may delay construction and completion of some developments. In July 1985, New Jersey adopted the Fair Housing Act which established an administrative agency to adopt criteria by which municipalities will determine and provide for their fair share of low and moderate income housing ("Mt. Laurel" housing). This agency promulgated regulations with respect to such criteria effective August 1986. -11- The Company may be required to set aside Mt. Laurel housing in certain municipalities in which it owns or has the right to acquire land. In order to comply with such requirements, the Company may be required to (i) sell some homes at prices which would result in no gain or loss and an operating margin less than would have resulted otherwise, or (ii) contribute to public funding of affordable housing, which contribution will increase the costs of homes to be developed in a community. The Company attempts to recover some of these potential losses or reduced margins through increased density, certain cost saving construction and land development measures and reduced land prices for the sellers of property. Despite the Company's past ability to obtain necessary permits and development approvals for its communities, it can be anticipated that increasingly stringent requirements will be imposed on developers and homebuilders in the future. Although the Company cannot predict the effect of these requirements, they could result in time consuming and expensive compliance programs and substantial expenditures for pollution and water quality control, which could materially adversely affect the Company. In addition, the continued effectiveness of permits already granted or development approvals already obtained is dependent upon many factors, some of which are beyond the Company's control, such as changes in policies, rules and regulations and their interpretation and application. The foregoing does not purport to be a full description of all of the legislation and regulations impacting the business of the Company. The Company may be subject to numerous other governmental rules and regulations regarding building standards, labor practices, environmental matters and other aspects of real estate development in each jurisdiction in which it does business. Employees As of March 31, 1997, the Company employed approximately 116 full-time personnel, including 15 corporate employees, 63 employees in the Northeast division and 38 employees in the Florida division. The Company also employs approximately 20 part-time employees in various locations. The Company believes its employee relations are satisfactory. Item 2. COMPANY FACILITIES The Company leases approximately 19,413 square feet of office space (of which 3,629 square feet are sublet to tenants) and 6,200 square feet of storage space in a two-story office building in Manalapan, New Jersey, which houses the Company's corporate headquarters and its Northeast division. In addition, the Company leases 5,280 square feet of office space in Florida. Management believes that these arrangements provide adequate space for the Company to conduct its operations. The Company also has remote sales offices when not utilizing a model home and construction offices on each of its project sites, some of which include mobile units which are leased for terms varying from one month to one year. From time to time the Company also leases model homes in some of its communities which the Company has previously sold to third parties under a lease-back arrangement. The current leases on model homes have terms up to two years. -12- Item 3. LEGAL PROCEEDINGS In July 1994, an action was filed against Calton Homes, Inc., the Township of Plainsboro, New Jersey and its planning board, certain real estate brokers and certain unnamed officers of Calton Homes, Inc., by approximately 60 purchasers in the Company's Princeton Manor development seeking compensatory and punitive damages arising out of an alleged failure to disclose that a portion of the property adjacent to the community could be developed by Plainsboro Township as a public works site. The Company is vigorously contesting this matter and, although there can be no assurances, does not believe that the case will have any material effect on the financial position, results of operations or cash flows of the Company. In addition, the Company believes that it is contractually entitled to indemnification from Plainsboro Township in the event that any liability should arise. In June 1996, the Federal Deposit Insurance Corporation (the "FDIC"), in its capacity as Liquidating Agent/Receiver of Eliot Savings Bank, instituted an action in the United States District Court, District of Massachusetts, seeking recovery of amounts owed under a $5.7 million promissory note (the "Note") issued to Eliot Savings Bank by the Residences at the Surf joint venture (the "Joint Venture"), an entity in which a Talcon, L.P. ("Talcon") subsidiary had an interest. This action relates to a loan on property owned by the Joint Venture. The loan was placed on the property before Talcon was formed. Accordingly, in connection with the creation of Talcon, the interest in the Joint Venture was transferred upstream to Calton, Inc. and then transferred downstream into Talcon, and eventually into the Talcon subsidiary. In its suit, the FDIC alleges, among other things, that Calton, by virtue of the assignment of the interest in the Joint Venture to Calton in 1987, has liability as a general partner in the Joint Venture and is seeking to collect approximately $8.7 million in principal and interest from Calton and other parties. While no discovery has occurred to date, based upon a preliminary analysis of this matter, Calton believes that the FDIC's position is contrary to applicable law and that Calton does not have any obligations under the Note by virtue of the assignment of the interest in the Joint Venture to Calton or otherwise. The Company will vigorously contest this matter but there can be no assurances that the case will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Calton and its subsidiaries are involved from time to time in routine litigation. Management does not believes that any of this litigation is material to the financial position, results of operations or cash flows of the Company. Calton's by-laws contain provisions which provide indemnification rights to officers, directors and employees under certain circumstances with respect to liabilities and damages incurred in connection with any proceedings brought against such persons by reason of their being officers, directors or employees of Calton. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1996, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. -13- PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information pertaining to the market for the Registrant's Common Stock, high and low sales prices of the Common Stock in 1996 and 1995 and the number of holders of Common Stock is presented on page 24 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. The Company has not paid dividends on its capital stock in the past. In addition, the terms of the Facility prohibit the payment of dividends. Item 6. SELECTED FINANCIAL DATA The financial highlights data is presented on page one of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is presented on pages 5 through 11 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, including the Report of Independent Accountants thereon and the unaudited Quarterly Financial Results, are presented on pages 12 through 24 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -14- PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company as of March 31, 1997 are listed below and brief summaries of their business experience and certain other information with respect to them is set forth in the following table and in the information which follows the table. Name Age Position Anthony J. Caldarone 59 Chairman, President and Chief Executive Officer Robert A. Fourniadis 39 Senior Vice President- Legal and Secretary Bradley A. Little 46 Senior Vice President- Finance, Treasurer and Chief Financial Officer J. Ernest Brophy 72 Director Mark N. Fessel 40 Director Frank Cavell Smith, Jr. 51 Director Mr. Caldarone was reappointed as Chairman, President and Chief Executive Officer of Calton in November 1995, having previously served in such capacities from the inception of the Company in 1981 through May 1993 when the Company consummated the Reorganization. From June 1993 through October 1995, Mr. Caldarone served as a Director of the Company. Mr. Fourniadis was named Senior Vice President, Secretary and Corporate Counsel of Calton in June 1993 following the consummation of the Reorganization. Prior thereto, Mr. Fourniadis served as Vice President and Corporate Counsel of Calton Homes from 1988 to 1993. Mr. Little was named Senior Vice President, Treasurer and Chief Financial Officer of Calton in June 1993 following the consummation of the Reorganization. Prior thereto, Mr. Little had served as Vice President of Accounting of Calton from 1989 to June 1993. Mr. Brophy, a self-employed attorney and certified public accountant specializing in tax consultation to clients engaged in the construction business, was reappointed as a Director of Calton in November 1995, having served in such capacity from March 1983 through November 1985 and from April 1986 until through May 1993 when the Company consummated the Reorganization. -15- Since 1992, Mr. Brophy has served as Chief Financial Officer and a director of Hurdy-Gurdy International, Inc., a company that markets sorbet products. Mr. Fessel was designated as a Director of Calton by the holders of a majority in outstanding principal amount of the Company's 12-5/8% Subordinated Notes (the "Subordinated Notes") pursuant to the Reorganization in May 1993. Since 1985, Mr. Fessel has owned and operated a real estate company and has acted as principal in numerous commercial and residential real estate developments throughout the northeast. In 1984, Mr. Fessel served as the Vice President of Acquisitions of the Meredith Organization, a nationally recognized real estate developer. Mr. Smith was designated as a Director of Calton by the holders of a majority in outstanding principal amount of Subordinated Notes pursuant to the Reorganization in May 1993. Since 1990, Mr. Smith has been associated with the MEG Companies as a Senior Consultant responsible for corporate real estate consulting activities. From 1977 to 1990, Mr. Smith served as a Real Estate Consultant and Real Estate Development Manager for The Spaulding Co., Inc. Mr. Smith also is an adjunct faculty member at Boston University and a member of the Board of Trustees of Shelter, Inc. Item 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company and its subsidiaries for the fiscal years ended November 30, 1996, 1995 and 1994, of the Chief Executive Officer of the Company in fiscal 1996 and the other executive officers of the Company who earned salary and bonuses in fiscal 1996 in excess of $100,000 (collectively, the "Named Officers"): SUMMARY COMPENSATION TABLE Long Term Compen- sation Awards Securities All Other Under- Compen- Name and Salary Bonus lying sation Principal Position (1) Year ($)(2) ($)(2) Options (#) ($)(4)(5) - ---------------------- ---- -------- --------- ----------- ---------- Anthony J. Caldarone 1996 $250,000 $ 20,000 -- $13,007(6) Chairman, Chief 1995 7,692 -- 500,000(7) 240 Executive Officer & 1994 -- -- -- -- President(8) Bradley A. Little 1996 140,000 15,000 25,000 7,586 Sen. Vice President- 1995 137,917 -- 185,000(9) 14,004 Finance & Treasurer 1994 126,250 100,000 60,000 11,922 Robert A. Fourniadis 1996 122,500 10,000 10,000 7,014 Sen. Vice President- 1995 120,417 -- 185,000(9) 13,812 Legal & Secretary 1994 108,333 90,000 60,000 11,470 ___________________ (1) Each of the individuals named in the above table served as an officer of the Company's wholly owned subsidiary, Calton Homes, Inc. ("Calton Homes"), during all or a portion of the three years ended November 30, 1996. All cash compensation included in the above table was paid or accrued by Calton Homes. -16- (2) Represents amounts accrued in fiscal 1994 and fiscal 1996 and payable in the subsequent fiscal year to the Named Officers pursuant to the Company's Incentive Compensation Plan (the "Incentive Plan"). No Incentive Plan Awards were made with respect to fiscal 1995. The Incentive Plan provides for an incentive compensation pool equal to ten percent (10%) of the Company's annual pre-tax income, subject to certain adjustments to pre-tax income that may be made by the Compensation Committee to remove the effect of events or transactions not in the ordinary course of the Company's operations. No such adjustments were made for the fiscal years 1994 or 1996, and the incentive compensation pools for such years were $656,000 in fiscal 1994 (of which $620,000 was awarded) and $120,000 in fiscal 1996 (of which $119,000 was awarded). Officers and key operations and senior corporate management employees (the "Eligible Employees") of the Company and its subsidiaries are eligible for participation in the Incentive Plan. In addition, up to 10% of the incentive compensation pool established under the Incentive Plan may be used for bonuses to full time employees who do not otherwise have an opportunity for commissions or bonuses. The Eligible Employees are determined each fiscal year by the Compensation Committee based on the recommendations of the President and Chief Executive Officer of the Company. An Eligible Employee may not receive a distribution from the incentive compensation pool for any fiscal year that exceeds the lesser of twenty percent (20%) of the available incentive compensation pool or one hundred percent (100%) of the Eligible Employee's base salary for such fiscal year, unless otherwise provided in the Eligible Employee's employment agreement with the Company. The Compensation Committee ultimately determines the percentage, if any, of the incentive compensation pool for a fiscal year to be awarded to an Eligible Employee. (3) Includes amounts contributed by the Company under its 401(k) Plan (the "401(k) Plan"). All full-time employees who have completed more than one year of service with the Company are eligible to participate in the 401(k) Plan which allows eligible employees to save up to 18% of their pre-tax compensation (subject to a maximum amount per year established annually pursuant to the Internal Revenue Code of 1986, as amended) through a pay- roll deduction. Subject to the discretion of its Board of Directors, the Company may make matching contributions to the 401(k) Plan in the form of cash or Common Stock. The Company's matching contribution for fiscal 1996 was made primarily in Common Stock and the Company anticipates that its matching contribution for the next fiscal year will be made in the form of Common Stock. Amounts contributed by the Company to the accounts of the Named Officers for fiscal 1996 (including the dollar value of contri- butions made in the form of Common Stock) were as follows: Mr. Caldarone - $475; Mr. Little - $475; and Mr. Fourniadis - $273. (4) Includes the reimbursement by the Company of automobile expenses in fiscal 1996 as follows: Mr. Caldarone - $8,040; Mr. Little - $6,000; and Mr. Fourniadis - $6,000. (5) Includes cost of premiums paid by the Company under a program which provides officers of the Company with additional life insurance (supplementing the coverage available under the Company's group life insurance plan) as follows: Mr. Caldarone - $3,450; Mr. Little - $1,111; and Mr. Fourniadis - $741. (6) Includes $1,042 paid to Mr. Caldarone in connection with his election not to participate in the Company's group health insurance plan. (7) Represents options to purchase Common Stock which were granted to Mr. Caldarone effective January 31, 1996 pursuant to his employment agreement with the Company. (8) Mr. Caldarone was reappointed Chairman, President and Chief Executive Officer of the Company on November 21, 1995 having previously served in such capacities from the Company's inception until June 1993. -17- (9) Represents 25,000 shares underlying options granted in January 1996 for services rendered in fiscal 1995 and 160,000 shares underlying options granted in respect of prior fiscal years which were repriced in 1995. Directors' Compensation Members of the Board of Directors who are not full time employees of Calton were each entitled in fiscal 1996 to annual compensation of $20,000 for service as a director. Calton paid or accrued a total of $69,000 in director fees to members of the Board of Directors during fiscal year 1996. Directors are reimbursed for travel expenses incurred in connection with attendance at Board and committee meetings. Directors who are not full time employees are paid a participation fee of $1,000 for each committee meeting attended. In addition, under the terms of the Company's 1996 Equity Incentive Plan (the "1996 Option Plan") each non-employee director who has attended 75% or more of the Board meetings and meetings of the committees on which he serves is awarded options to purchase 10,000 shares of the Company's Common Stock each time such director is re-elected to the Board of Directors. Options to purchase an aggregate of 30,000 shares of Common Stock at an exercise price of $.53125 per share (the fair market value of the Common Stock on the date of grant) were granted to non-employee directors pursuant to the 1996 Option Plan in fiscal 1996. The exercise price of these options was adjusted to $.41 per share (the fair market value of the Common Stock on the date of the adjustment) in January 1997. Employment Agreement with Chief Executive Officer Effective November 21, 1995, the Company entered into an Employment Agreement (the "Employment Agreement") with Anthony J. Caldarone, Chairman, President and Chief Executive Officer of the Company. The term of the Employment Agreement will end on November 30, 1998; provided, that such term will be automatically extended annually for periods of one (1) year unless a notice of non-extension is issued by the Company or Mr. Caldarone. Pursuant to the Employment Agreement, Mr. Caldarone will receive a minimum annual salary of $250,000 ("Base Compensation") which may be increased by the Board or a committee thereof. Mr. Caldarone is entitled to participate in any bonus compensation or benefit plan or arrangement provided by the Company to its employees or senior level executives, including the Company's Incentive Plan. Under the Employment Agreement, Mr. Caldarone may be awarded up to thirty percent (30%) of the Incentive Plan's designated incentive compensation for any fiscal year and, subject to such limitation, is entitled to not less than one-half of the average percentage that all awards to other Eligible Participants are of the respective Eligible Participants' base salary for the relevant fiscal year. Mr. Caldarone is entitled to be reimbursed by the Company for certain automobile expenses and was granted options to purchase 500,000 shares of Common Stock under the 1996 Option Plan pursuant to the Employment Agreement. If the Employment Agreement is terminated by reason of Mr. Caldarone's death, the Company is obliged to reimburse Mr. Caldarone's designated beneficiaries the cost of COBRA benefits, other than long-term disability coverage, for a period of 18 months following the date of death. If the Employment Agreement is -18- terminated by reason of Mr. Caldarone's disability, Mr. Caldarone will be entitled to receive a lump sum cash payment equal to one years' Base Compensation (the "Severance Compensation") from the Company as well as the cost of COBRA benefits, other than long-term disability, for him and his family for a period of 18 months following the date of termination, and continue to participate in any group life insurance or supplemental life insurance program of the Company then in effect for a period of 18 months following the date of termination (collectively, the "Severance Benefits"). The Company may terminate the Employment Agreement for just cause in the event Mr. Caldarone is convicted of a felony in connection with his duties as an officer of the Company, if the commission of such felony resulted in a personal financial benefit to Mr. Caldarone. Upon termination for just cause by the Company, Mr. Caldarone is not entitled to receive any Severance Compensation or Severance Benefits. If the Company terminates the Employment Agreement without just cause, Mr. Caldarone is entitled to the Severance Compensation and Severance Benefits. If the Company terminates the Employment Agreement by issuing a notice of non-extension, Mr. Caldarone is entitled to receive a lump sum cash payment equal to one years' Base Compensation as well as the Severance Benefits. Mr. Caldarone may terminate the Employment Agreement for just cause and receive Severance Compensation and Severance Benefits, if (i) the Board fails to re-elect him as each of Chairman, President and Chief Executive Officer of the Company, (ii) the Board significantly reduces the nature and scope of his authorities, powers, duties and functions, (iii) the Company breaches any material covenant of the Employment Agreement, or (iv) the Company consents to Mr. Caldarone's retirement. If Mr. Caldarone terminates the Employment Agreement without just cause or by issuing a notice of non-extension, he is not entitled to the Severance Compensation or Severance Benefits. After the date of termination of Mr. Caldarone' employment for any of the reasons specified herein and in the Employment Agreement, Mr. Caldarone will not receive any further salary payments under the Employment Agreement. For the term of the Employment Agreement and for a period of twelve (12) months following termination of Mr. Caldarone' employment, other than for just cause by the Company or without just cause by Mr. Caldarone, Mr. Caldarone is restricted from competing with the Company in certain regions in which the Company is actively engaged in business. Severance Policy Arrangements For Senior Executives The Company has established a severance compensation policy for senior level executives who have been employed by the Company for more than one year (the "Severance Policy"). To become eligible to participate in the Severance Policy, a senior level executive must be selected by the Company's Compensation Committee and approved by the Board of Directors ("Eligible Participants"). Under the Severance Policy, an Eligible Participant whose employment is terminated is entitled to receive one month's base salary for each year employed by the Company, pro rated for any partial year, but in no event less than six month's base salary; provided, however, that the Eligible Participants who were designated to participate in the Severance Policy in August 1993 (Mr. Little and Mr. Fourniadis) are entitled to receive twelve month's base salary. In addition, the Company will pay all amounts required to be paid by the -19- Eligible Participants to continue insurance coverage under COBRA for a period of time equal to the number of months on which the severance compensation is based. The severance compensation for Eligible Participants who are parties to employment agreements will be governed by the terms of such agreements. Eligible Participants who resign voluntarily or who are terminated for cause (as defined in the Severance Policy) will not be eligible for severance compensation. Option Grants Shown below is further information with respect to grants during fiscal 1996 of stock options to the Named Officers by the Company which are reflected in the Summary Compensation Table set forth under the caption "Executive Compensation." Individual Grants ------------------ % of Total Potential Options Realizable Granted Value at Assumed to Exer- Annual Rates No. of Employ- cise of Stock Price Securities ees or Appreciation for Underlying in Base Option Term Options Fiscal Price Expiration ----------------- Name Granted (#) Year ($/Sh) Date (1) 5% ($) 10% ($) - -------------------- ---------- ----- ------- ---------- -------- -------- Bradley A. Little 25,000(1) 3.2% $.53125(2) 4/24/2006 $8,353 $21,166 Robert A. Fourniadis 10,000(2) 1.3% .53125(2) 4/24/2006 3,341 8,467 (1) Represents shares of Common Stock underlying options granted in April 1996. The options are exercisable cumulatively in five equal annual installments commencing on the first anniversary of the date of grant. (2) The exercise price of these options was adjusted to $.41 per share in January 1997. The potential realizable value of the adjusted options held by the individuals identified in the above table is as follows: Mr. Little - $5,849 (assuming a 5% annual appreciation rate) and $14,523 (assuming a 10% annual appreciation rate); and Mr. Fourniadis - $2,340 (assuming a 5% annual appreciation rate) and $5,809 (assuming a 10% appreciation rate). Option Exercises and Fiscal Year-End Values Shown below is information with respect to unexercised options to purchase the Company's Common Stock held by the Named Officers at November 30, 1996. On such date, the exercise price of each of such options equaled or exceeded the closing price of the Company's Common Stock on the American Stock Exchange ($.3125 per share) on November 29, 1996 (the last day of fiscal 1996 on which the Common Stock was traded on the American Stock Exchange). No options were exercised in fiscal 1996. Number of Securities Underlying Unexercised Options Held at FY-End (#)(1) ----------------------------- Exercisable Unexercisable ----------- ------------- Anthony J. Caldarone 500,000 --- Bradley A. Little 120,000 90,000 Robert A. Fourniadis 120,000 75,000 -20- Compensation Committee Interlocks and Insider Participation The Compensation Committee currently consists of Mark N. Fessel and Frank Cavell Smith, Jr. No such person was an officer or employee of the Company during fiscal 1996 or was formerly an officer of the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning beneficial ownership of the Company's Common Stock as of March 31, 1997 by (i) each person known by the Company to be the beneficial owner (as defined in Rule 13d-3 ("Rule 13d-3") of the Securities Exchange Act of 1934) of more than five percent (5%) of the Company's Common Stock and (ii) each of the Named Officers who was employed by the Company at March 31, 1997. Except as set forth in the footnotes to the table, the shareholders have sole voting and investment power over such shares: Amount and Nature of Percent Name of Beneficial Owner Beneficial Ownership of Class - ------------------------ -------------------- -------- Anthony J. Caldarone 7,433,618(1) 27.5% Joyce P. Caldarone 4,775,618(2) 17.7% Apollo Homes Partners, L.P.(3) 2,658,000(4) 10.0% Frederick J. Jaindl(5) 2,195,350 8.3% Goldman Sachs & Co.(6) 1,344,600 5.1% Robert A. Fourniadis 168,919(7) (8) Bradley A. Little 166,276(9) (8) J. Ernest Brophy 23,770(10) (8) Mark N. Fessel 14,390(10) (8) Frank Cavell Smith, Jr. 10,000(10) (8) All Directors and Executive Officers as a Group (6 persons)(1)(7)(9)(10) 7,816,973 28.7% ____________________ (1) Includes an aggregate of 1,395,209 shares held by Joyce P. Caldarone, Mr. Caldarone's wife, as to which shares he disclaims any beneficial interest, 500,000 shares subject to currently exercisable options granted under the Company's 1996 Equity Incentive Plan (the "1996 Option Plan"), 8,837 shares held through the Company's 401(k) Plan and 2,658,000 shares held by Apollo Homes Partners, L.P. ("Apollo Homes"), which Mr. Caldarone has the right to vote in the election of directors pursuant to a proxy granted to him by Apollo Homes. In addition, under the terms of a stock purchase agreement between Mr. Caldarone and Apollo Homes, Mr. Caldarone was granted certain rights of first offer with respect to the shares of Calton Common Stock owned by Apollo. The agreement also grants Apollo certain "tag-along rights" to sell shares of Calton Common Stock in the event of, and along with, certain transfers of Common Stock made by Mr. and/or Mrs. Caldarone, and contains provisions requiring (a) Apollo, under certain circumstances, to sell the Common Stock owned by it in the event that Mr. and Mrs. Caldarone sell all of the securities of the Company that they own and (b) Mr. and Mrs. Caldarone to offer to Apollo, under certain circumstances, the opportunity to purchase a pro rata portion of additional securities acquired by Mr. and/or Mrs. Caldarone from the Company. -21- (2) Includes an aggregate of 3,380,409 shares beneficially owned by Anthony J. Caldarone, Mrs. Caldarone's husband, as to which shares she disclaims any beneficial interest. (3) The sole general partner of Apollo Homes is AIF II, L.P., a Delaware limited partnership. The managing general partner of AIF II, L.P. is Apollo Advisors, whose principal offices are located at Two Manhattanville Road, Purchase, New York 10577. Apollo Capital Management, Inc. ("ACM") is the general partner of Apollo Advisors. Shareholdings information is based upon Apollo Homes' Schedule 13D, as amended to November 21, 1995. (4) See note 1 above for a description of certain rights granted by Apollo Homes to Anthony J. Caldarone with respect to these shares. (5) Such holder maintains an address at c/o Jaindl Farms, 3150 Coffeetown Road, Orefield, Pennsylvania 12609. Shareholdings information is based upon the Schedule 13D of such holder, as amended to January 14, 1997. (6) The principal offices of such shareholder are located at 85 Broad Street, New York, New York 10004. Shareholdings information is based upon the Schedule 13D, as amended to May 5, 1995, of Goldman Sachs & Co., the direct owner, and The Goldman Sachs Group, L.P., which indicates that each of such entities is a beneficial owner of such shares. (7) Includes 148,333 shares subject to currently exercisable options granted under the Company's Amended and Restated 1993 Non-Qualified Stock Option Plan (the "1993 Option Plan" and 20,586 shares held through the Company's 401(k) Plan. (8) Shares beneficially owned do not exceed 1% of the Company's outstanding Common Stock. (9) Includes 148,333 shares subject to currently exercisable options granted under the 1993 Option Plan and 17,943 shares held through the Company's 401(k) Plan. (10) Includes 10,000 shares subject to currently exercisable options granted under the 1996 Option Plan. Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Goldman, Sachs & Co. is the beneficial owner of more than 5% of the Company's Common Stock and is affiliated with one of the lenders under the Facility. This affiliate held a 22.5% interest in amounts outstanding under the Facility, which totaled $39.5 million, at November 30, 1996. -22- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page (a) 1. and 2. Financial statements and financial statement schedules Reference is made to the Index of Financial Statements and Financial Statement Schedules hereinafter contained F-1 3. Exhibits Reference is made to the Index of Exhibits hereinafter contained F-5 and F-6 (b) Reports on Form 8-K None -23- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALTON, INC. (Registrant) By: /s/ Bradley A. Little BRADLEY A. LITTLE, Senior Vice President-Finance Pursuant to the requirements of the Securities Exchange 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 date indicated. Signature Title Date /s/ Anthony J. Caldarone Chairman, Chief Executive April 11, 1997 (Anthony J. Caldarone) Officer and President (Principal Executive Officer) /s/ Bradley A. Little Senior Vice President-Finance April 11, 1997 (Bradley A. Little) & Treasurer (Principal Financial & Accounting Officer) /s/ J. Ernest Brophy Director April 11, 1997 (J. Ernest Brophy) /s/ Mark N. Fessel Director April 11, 1997 (Mark N. Fessel) /s/ Frank Cavell Smith, Jr. Director April 11, 1997 (Frank Cavell Smith, Jr.) -24- CALTON, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page Number Consolidated Balance Sheet at November 30, 1996 and 1995. . . . . . . .* Consolidated Statement of Operations for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . .* Consolidated Statement of Cash Flows for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . .* Consolidated Statement of Shareholders' Equity for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . .* Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .* Report of Independent Accountants . . . . . . . . . . . . . . . . . *,F-2 Consent of Independent Accountants. . . . . . . . . . . . . . . . . . .F-3 Schedules** II-Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . .F-4 * The financial statements and notes thereto together with the Report of Independent Accountants on pages 12 through 24 of the 1996 Annual Report to Shareholders are incorporated herein by reference. ** Schedules other than the schedule listed above have been omitted because of the absence of the conditions under which they are required or because the required information is presented in the financial statements or the notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Calton, Inc. and Subsidiaries, dated January 10, 1997, except for Notes 1 and 5, as to which the date is April 11, 1997, has been incorporated by reference in this Form 10-K from page 24 of the 1996 Annual Report to Shareholders of Calton, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Princeton, New Jersey January 10, 1997 F-2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Calton, Inc. and Subsidiaries on Form S-8 (Nos. 33-35176 and 33-75184) of our report, dated January 10, 1997, except for Notes 1 and 5, as to which the date is April 11, 1997, on our audits of the consolidated financial statements and financial statement schedule of Calton, Inc. and Subsidiaries as of November 30, 1996, and 1995 and for the years ended November 30, 1996, 1995 and 1994, which report has been incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Princeton, New Jersey April 11, 1997 F-3 SCHEDULE II CALTON, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Amounts in Thousands) Additions ---------------------- Balance Charged Balance at Begin- to Costs Charged to at ning of and to Other End of Description Year Expenses Accounts Deductions Year - -------------------- -------- -------- ----------- ---------- ------ Year ended November 30, 1994: Net realizable value reserves for inventory $ -- $ 400 $ -- $ -- $ 400 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 39,365 $ -- $ -- $ 2,473 $36,892 ======== ======== =========== ========== ======= Year ended November 30, 1995: Net realizable value reserves for inventory $ 400 $ 1,593 $ -- $ -- $ 1,993 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 36,892 $ -- $ -- $ 18,245(A) $18,647 ======== ======== =========== ========== ======= Year ended November 30, 1996: Net realizable value reserves for inventory $ 1,993 $ -- $ -- $ 880 $ 1,113 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 18,647 $ -- $ 981 $ -- $19,628 ======== ======== =========== ========== ======= (A) Represents the impact of the recalculation of the Section 382 limitation and the utilization against taxable income attributable to Talcon, L.P. F-4 INDEX TO EXHIBITS 2. Plan of Reorganization of the Registrant and Subsidiaries incorporated by reference to Exhibit 2 to Amendment No. 1 to Form S-1 Registration Statement under the Securities act of 1933, Registration No. 33-60022. 3.1 Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State, State of New Jersey on May 28, 1993, incorporated by reference to Exhibit 3.2 to Amendment No. 1 to Form S-1 Registration Statement under the Securities Act of 1933, Registration No. 33-60022 and Certificate Amendment to Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State, State of New Jersey on April 27, 1994, incorporated by reference to Exhibit 3(b) to Form S-1 Registration Statement under the Securities Act of 1933, Registration No. 33-76312. 3.2 By Laws of Registrant, as amended, incorporated by reference to Exhibit 3.1 of Form 10-K of Registrant for the fiscal year ended November 30, 1990. 4. Second Amended and Restated Loan and Security Agreement dated as of April 10, 1997, among the Registrant, Calton Funding, Inc. and a group of financial institutions. Upon request of the Securities and Exchange Commission, the Registrant agrees to furnish a copy of the exhibits and schedules identified in such agreement. (*)10.1 1996 Equity Incentive Plan. (*)10.3 Registrant's Amended and Restated 1993 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.3 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (*)10.4 Incentive Compensation Plan of Registrant. (*)10.6 Severance Policy for Senior Executives of Registrant incorporated by reference to Exhibit 10.6 of Form 10-K of Registrant for the fiscal year ended November 30, 1994. (**)10.7 Executive Employment Agreement dated as of November 21, 1995 between Registrant and Anthony J. Caldarone, incorporated by reference to Exhibit 10.7 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (**)10.8 Supplemental Executive Compensation Agreement dated as of May 12, 1995 between the Registrant and Douglas T. Noakes, incorporated by reference to Exhibit 10.8 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (**)10.9 Supplemental Executive Compensation Agreement dated as of May 12, 1995 between the Registrant and Bradley A. Little, incorporated by reference to Exhibit 10.9 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. An agreement substantially identical in term and content and executed by the Registrant and Robert A. Fourniadis has not been reproduced herein. 13. Certain pages of Registrant's 1996 Annual Report to Shareholders which, except for those portions expressly incorporated herein by reference, are not deemed filed a part hereof. 21. Subsidiaries of the Registrant. 27. Financial Data Schedule. (*) Constitutes a compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (**) Constitutes a management contract required to be filed pursuant to Item 14(c) of Form 10-K. F-5 EX-4 2 EXHIBIT 4 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Dated As Of April 10, 1997 Amending the Amended and Restated Loan and Security Agreement Dated as of May 28, 1993, as Amended Among Calton, Inc., as Borrower, Calton Funding, Inc. as Borrower, The Subsidiaries of Calton, Inc. Listed Herein, as Guarantors, The Lenders Listed Herein, as Lenders, The Chase Manhattan Bank, as Agent, and The Chase Manhattan Bank, as Collateral Agent NOTE: Please refer to the end of Exhibit 4 for an index to this Agreement, Exhibits and Schedules CALTON, INC. This Second Amended and Restated Loan and Security Agreement (this "Amended Loan Agreement") dated as of April 10, 1997, amending and restating the Original Loan Agreement (as defined below), as amended prior to the date hereof, is entered into among (Company) Calton, Inc., a New Jersey corporation ("Company"), Calton Funding, Inc., a New Jersey corporation ("Calton Funding;" Company and Calton Funding are sometimes each referred to herein individually as a "Borrower" and collectively as "Borrowers"), each subsidiary of Company identified herein as a Guarantor (each a "Guarantor" and collectively "Guarantors"), the financial institutions listed on the signature pages hereof (each a "Lender" and collectively "Lenders"), The Chase Manhattan Bank, a New York banking corporation formerly known as Chemical Bank ("Chase"), in its capacity as agent for the Lenders (the "Agent") and Chase, in its capacity as collateral agent for the Lenders (the "Collateral Agent"). BACKGROUND 1. The Amended and Restated Loan and Security Agreement (the "Original Loan Agreement") was entered into as of May 28, 1993 among Company, Calton Funding, the financial institutions listed on the signature pages thereof as lenders, Chemical Bank, in its capacity as agent for the lenders, and Chemical Bank in its capacity as collateral agent for the lenders. 2. The Original Loan Agreement has been amended by nine previous amendments thereto: the First Amendment to Amended and Restated Loan and Security Agreement dated as of September 27, 1993; the Second Amendment to Amended and Restated Loan and Security Agreement dated as of October 14, 1993; the Third Amendment to Amended and Restated Loan and Security Agreement dated as of January 19, 1994; the Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of February 28, 1994; the Fifth Amendment to Amended and Restated Loan and Security Agreement dated as of February 23, 1995; the Sixth Amendment to Amended and Restated Loan and Security Agreement dated as of May 31, 1995; the Seventh Amendment to Amended and Restated Loan and Security Agreement dated as of February 23, 1996; the Eighth Amendment to Amended and Restated Loan and Security Agreement dated as of January 31, 1997; the Ninth Amendment to Amended and Restated Loan and Security Agreement dated as of February 28, 1997; and the Tenth Amendment to Amended and Restated Loan and Security Agreement dated as of March 31, 1997. (The Original Loan Agreement, as amended to the date hereof, is referred to herein as the "Existing Loan Agreement"). 3. Borrowers, Guarantors, Lenders, Agent, and Collateral Agent desire to amend and restate the Existing Loan Agreement in its entirety in order to provide, among other things, that (i) the aggregate amount of the Tranche A Commitments and Tranche B Commitments shall be reduced on the Effective Date to $46,000,000; (ii) on the Effective Date, all outstanding Tranche A Loans and Tranche B Loans under the Existing Loan Agreement shall be continued as Tranche A Loans and Tranche B Loans hereunder; (iii) the interest rates payable on the Loans shall be revised as set forth herein; (iv) the scheduled reductions in Commitments shall be revised as set forth herein; (v) the financial covenants shall be revised as set forth herein; and (vi) the terms and provisions of the Existing Loan Agreement shall otherwise be modified as set forth herein. 4. On the Effective Date, Borrowers will confirm and agree that their existing pledge and grant of a security interest in substantially all of their present and future real and personal property will continue as security for the payment and performance of the Obligations of Borrowers. 5. On the Effective Date, Guarantors will confirm and agree that (i) the existing guaranty by such Guarantor of the obligations of Borrowers under the Existing Loan Agreement will continue as a guaranty of the Obligations hereunder and (ii) the existing grant of a security interest by Guarantors in substantially all of their respective assets to secure such guaranty will continue as security for the payment and performance of such guaranty. 6. The parties hereto wish to amend and restate the Existing Loan Agreement in its entirety as set forth herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Guarantors, Lenders, Agent and Collateral Agent agree that, upon the satisfaction of the conditions to effectiveness set forth in Section 4.1 hereof, the Existing Loan Agreement, as heretofore amended, shall be amended and restated to read in its entirety as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Account Collateral" means (a) all rights with respect to the Concentration Accounts and all amounts from time to time on deposit therein; (b) all investments related thereto made by Collateral Agent pursuant to the terms of Section 5 of the Account Collateral Security Agreement, including all certificates, instruments and securities from time to time representing or evidencing such investments and any account or accounts in which such investments may be held by, or in the name of, Collateral Agent for or on behalf of any Credit Party; (c) all notes, certificates of deposit, checks and other instruments and all deposits and uncertified securities from time to time hereafter transferred to or otherwise possessed by, or held in the name of, Collateral Agent for or on behalf of any Credit Party in substitution for or in addition to any or all of the Account Collateral; (d) all interest, dividends, cash, instruments, securities and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of the Account Collateral; and (e) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Account Collateral. "Account Collateral Security Agreement" means the Account Collateral Security Agreement dated as of May 28, 1993, executed and delivered by the Credit Parties pursuant to the Existing Loan Agreement, pursuant to which Company and its Subsidiaries established the Concentration Accounts and granted to Collateral Agent on behalf of Lenders a first priority security interest in such accounts, as such Account Collateral Security Agreement has been amended and as it may hereafter be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. "Acknowledgement and Confirmation" means an Acknowledgement and Confirmation Agreement dated as of the Effective Date, substantially in the form of Exhibit I hereto, pursuant to which each Credit Party shall acknowledge and confirm that its obligations under the Guaranty Agreement and the Security Documents to which it is a party shall continue to guaranty or secure, as the case may be, the Obligations of Borrowers hereunder, as such Acknowledgement and Confirmation Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "Additional Mortgaged Property" has the meaning assigned to that term in subsection 3.2D(i)(b). "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" means The Chase Manhattan Bank, as agent for the Lenders, and also means and includes any successor Agent appointed pursuant to subsection 9.5. "Amended Loan Agreement" means this Second Amended and Restated Loan and Security Agreement dated as of April 10, 1997 amending and restating the Existing Loan Agreement, as the same may be further amended, supplemented or otherwise modified from time to time. "Asset Sale" means the sale by Company or any of its Subsidiaries to any Person other than a Credit Party of (i) any of the stock of any of its Subsidiaries, (ii) any assets of Company or any of its Subsidiaries with an aggregate Book Value in excess of $500,000, except for sales of single houses with Book Values in excess of $500,000 in the ordinary course of business, (iii) any assets of Company or any of its Subsidiaries at a price which is less than seventy percent (70%) of the Book Value of such assets, or (iv) any other assets of Company or any of its Subsidiaries outside of the ordinary course of business. "Assignment and Assumption" means an Assignment and Assumption entered into by a Lender and an Eligible Assignee, and accepted by Agent, in substantially the form of Exhibit C annexed hereto. "Auditor's Letter" means a letter substantially in the form of Exhibit D annexed hereto delivered to Lenders by Coopers & Lybrand pursuant to subsection 4.1C. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Rate" means, at any time, the Prime Rate plus 2.50% per annum. "Bi-Weekly Inventory Release Reports" means the inventory release reports to be delivered to Agent, Collateral Agent and, upon request, the Lenders on a bi-weekly basis pursuant to subsection 6.1(i)(b). "Book Value" means, for any property, the value for such property calculated by Company for financial accounting purposes according to GAAP and consistent with past practices. "Borrower Pledge Agreement" means that certain Borrower Pledge Agreement dated as of May 28, 1993, executed and delivered by Borrowers and Collateral Agent pursuant to the Existing Loan Agreement, as the same has been amended to the date hereof and as it may hereafter be amended, supplemented, or otherwise modified from time to time. "Borrower Security Agreement" means that certain Borrower Security Agreement dated as of May 28, 1993, executed and delivered by Borrowers and Collateral Agent pursuant to the Existing Loan Agreement, as the same has been amended to the date hereof and as it may hereafter be amended, supplemented, or otherwise modified from time to time. "Borrowers" means Company and Calton Funding, Inc., a New Jersey corporation, as joint and several obligors. "Borrowing Base" means, as of any date, an amount equal to the sum of (i) 80% of the Eligible Inventory Cost of each Eligible Property shown on the most recent Borrowing Base Certificate plus (ii) 30% of the remaining principal amount owed to the Credit Parties under the Mays Landing Mortgage. "Borrowing Base Certificate" means a certificate of the chief financial officer of Company in substantially the form of Exhibit G annexed hereto. "Borrowing Base Deficiency" means as of any day the amount, if any, by which (i) the Total Utilization on such day exceeds (ii) the Borrowing Base on such day. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Cash" means money, currency or a credit balance in a Deposit Account. "Cash Equivalents" means (i) marketable direct obligations issued by the United States Government and backed by the full faith and credit of the United States, in each case maturing within 30 days from the date of acquisition thereof; (ii) commercial paper maturing no more than 30 days from the date of creation thereof and (x) issued by Chase (to the extent available for issuance to Borrowers) or (y) at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation and at least P-1 from Moody's Investors Service, Inc.; and (iii) certificates of deposit or bankers' acceptances maturing within 30 days from the date of acquisition thereof issued by any Lender. "Cash Proceeds" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale. "Change of Control" means an event or series of events by which any Person or Persons and any Affiliates of such Person or Persons otherwise acting in concert shall, whether in a single transaction or a series of related transactions, acquire, directly or indirectly, an amount of capital stock of Company necessary to enable such Person or Persons to cast more than 50% of the votes necessary for the election of directors of Company or possessing in excess of 50% of the total voting power of the voting capital stock of Company (in each case, on a fully diluted basis); provided that a Change of Control shall not be deemed to occur if the acquisition of capital stock otherwise causing a Person, Persons or their Affiliates to meet or exceed the levels of voting power specified above is caused solely by the purchase by any Person of capital stock of Company from Company. "Chase" has the meaning assigned to that term in the introduction to this Amended Loan Agreement. "Collateral" means, collectively, all real, personal and mixed property collateral securing the Obligations pursuant to the Security Documents in accordance with Section 3. "Collateral Agent" means Chase, as collateral agent for the benefit of the Lenders, and also means and includes any successor Collateral Agent appointed pursuant to subsection 10.4. "Commitment Reduction Date" means the first date on which (i) the Commitments have been permanently reduced to an amount not exceeding $20,000,000, (ii) the Total Utilization has been reduced to an amount not exceeding $20,000,000, and (iii) no Event of Default shall have occurred that has not been either waived by Lenders in accordance with subsection 11.6 or (with respect to Events of Default that can be cured) cured by Borrowers. "Commitment Termination Date" means the earlier of (i) the Scheduled Expiry Date and (ii) the date on which all Obligations are paid in full, including the repayment, expiration, termination or cash collateralization of all Letters of Credit, and the Commitments are reduced to zero. "Commitments" means, collectively, the Tranche A Commitments and the Tranche B Commitments. "Company" means Calton, Inc., a New Jersey corporation. "Company Common Stock" means the common stock of Company, par value $0.01 per share. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit H delivered to Lenders by Borrowers pursuant to subsection 6.1(vi). "Concentration Account A" means account no. 808-010689 established by the Company with the Collateral Agent and maintained pursuant to the terms of the Account Collateral Security Agreement for the deposit of certain cash receipts of the Credit Parties pursuant to the terms of the Account Collateral Security Agreement. "Concentration Account B" means account no. 808-010697 established by the Company with the Collateral Agent and maintained pursuant to the terms of the Account Collateral Security Agreement for the deposit of certain cash receipts of the Credit Parties pursuant to the terms of the Account Collateral Security Agreement. "Concentration Accounts" means Concentration Account A and Concentration Account B. "Consolidated Adjusted EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii) Consolidated Interest Expense net of capitalized interest, (iv) capitalized interest amortized, (v) total depreciation expense, (vi) total amortization expense, excluding capitalized interest amortized, and (vii) other non-cash items reducing Consolidated Net Income less the sum of non-cash items increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "Consolidated Adjusted Tangible Net Worth" means, as at any date of determination, the excess of (i) all amounts which, in conformity with GAAP, would be included in shareholder's equity on such date over (ii) the sum of (a) the aggregate amount of all Investments in Joint Ventures on such date, plus (b) the aggregate amount of all Deferred Charges of Company and its Subsidiaries as of such date, plus (c) the aggregate stated balance sheet amount of any goodwill of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries plus (ii) to the extent not covered by clause (i) hereof, the aggregate of all expenditures by Company and its Subsidiaries during that period to acquire (by purchase or otherwise) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person. "Consolidated Cash Interest Expense" means, for any period, Consolidated Interest Expense but excluding, however, amortization of discount, deferred financing costs and interest expense not payable in cash. "Consolidated Interest Expense" means, for any period, total interest expense (including that portion attributable to Capital Leases in accor- dance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements. "Consolidated Land Acquisition Costs" means, for any period, the aggregate of all Land Acquisition Costs for Company and its Subsidiaries during that period. "Consolidated Land Development Costs" means for any period, the aggregate of all Land Development Costs for Company and its Subsidiaries during that period. "Consolidated Net Income" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net non-cash extraordinary losses. "Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid under all Capital Leases and Operating Leases of Company and its Subsidiaries as lessee. "Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Interest Rate Agreements and Currency Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non- performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (x) to purchase, repurchase or other- wise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (x) or (y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Credit Parties" means, collectively, the Borrowers and the Guarantors, each a "Credit Party." "Deemed Voting Lender" has the meaning set forth in Subsection 11.6A. "Deferred Charges" means, for any period, the sum of the amounts for such period of prepaid amounts with respect to directors and officers insurance, prepaid architectural fees and prepaid property taxes. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Effective Date" means the date on or before April 15, 1997, when each of the conditions to effectiveness set forth in Section 4.1 has been satisfied or waived by Requisite Lenders (or, in the case of the conditions set out in clauses 4.1E or 4.1F, satisfaction thereof shall have been waived by all Lenders). "Eligible Assignee" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country, or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds and lease financing companies, in each case (under clauses (i) through (iv) above) that has a net worth or net asset value of at least $100,000,000 and (B) any Lender. "Eligible Inventory Cost" means, at any time, with respect to any Eligible Property, the sum of the Land Acquisition Costs and Land Development Costs incurred with respect to such Eligible Property through such time less (i) all fresh start reserve adjustments incurred with respect to such Eligible Property, (ii) all adjustments required to determine the net realizable value of such Eligible Property in accordance with GAAP and all other reserves required by FASB 121 for such Eligible Property, and (iii) all new Soft Costs incurred with respect to such Eligible Property in respect of the period, commencing immediately following the date as of which the fresh start adjustments were made, through such date of determination. "Eligible Property" means any Real Estate Project owned in fee by a Credit Party which is subject to no Liens other than (i) a first priority Lien granted to the Collateral Agent for the benefit of the Lenders and (ii) Liens of the types set forth in clauses (i) and (iv) of the definition of Permitted Encumbrances, and with respect to which Collateral Agent has received from a title insurer reasonably satisfactory to Collateral Agent a binding commitment to issue a Mortgage Policy complying with subsection 3.2D(i)(d). "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is, or was at any time, maintained or contributed to by any Credit Party or any of their ERISA Affiliates. "Environmental Claim" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction (conditional or otherwise) by any governmental authority or any Person for any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment or to natural resources, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions, in each case relating to, resulting from or in connection with Hazardous Materials and relating to Company, any of its Subsidiaries, any of their respective Affiliates or any Facility. "Environmental Laws" means all statutes, ordinances, orders, rules, regulations, plans, policies or decrees and the like relating to (i) environmental matters, including, without limitation, those relating to the evaluation of the environmental impacts of Real Estate Projects, development of natural habitat such as wetlands, development within the coastal zone, preservation of aquifers, conformance to regional or community plans, clean up of industrial sites upon a transfer, fines, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any or their respective properties, including, without limitation, the Industrial Site Recovery Act (N.J.S.A. Sec. 13:1K-6 et seq.), the National Environmental Policy Act (42 U.S.C. Sec. 4324 et seq.), the Coastal Zone Management Act (16 U.S.C. Sec. 1451 et seq.), the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Sec. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.), the Clean Air Act (42 U.S.C. Sec. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Sec.136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Sec. 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Sec. 11001 et seq.), each as amended or supplemented, and any analogous future or present local, state and federal statutes and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA Affiliate", as applied to any Person, means (i) any corporation which is, or was at any time, a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is, or was at any time, a member; (ii) any trade or business (whether or not incorporated) which is, or was at any time, a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is, or was at any time, a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is, or was at any time, a member. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by Company or any of its ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Company or any of its ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Company or any of its ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company or any of its ERISA Affiliates in connection with any such Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 401(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Event of Default" means each of the events set forth in Section 8. "Excess Funding Borrower" has the meaning assigned to that term in subsection 11.21. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Existing Letter of Credit" means each Letter of Credit (as defined in the Existing Loan Agreement) outstanding on the Effective Date that has not expired or been cancelled as of the Effective Date. "Existing Loan Agreement" means the Original Loan Agreement as amended and in effect immediately prior to the Effective Date. "Existing Loan Documents" means the Account Collateral Security Agreement, the Borrower Pledge Agreement, the Borrower Security Agreement, the Existing Mortgages, the Guarantor Pledge Agreement, the Guarantor Security Agreement, the Guaranty Agreement and that certain Subordination Agreement dated as of May 28, 1993 made by the Company and each of its subsidiaries identified as a Credit Party therein, in favor of the Lenders. "Existing Loans" means the Existing Tranche A Loans and Existing Tranche B Loans. "Existing Mortgages" means the Mortgages listed on Schedule 5.22 annexed hereto, each issued by a Borrower or Guarantor to the Collateral Agent with respect to certain real property owned by such Borrower or Guarantor, and filed in the locations indicated on Schedule 5.22 annexed hereto. "Existing Mortgaged Properties" means the parcels of real property listed on Schedule 5.22 annexed hereto, each encumbered by an Existing Mortgage pursuant to the Existing Loan Agreement by a Borrower or Guarantor to the Collateral Agent. "Existing Notes" has the meaning assigned to that term in subsection 2.1. "Existing Tranche A Loan" has the meaning specified in subsection 2.1E. "Existing Tranche B Loan" has the meaning specified in subsection 2.1E. "Facilities" means any and all real property (including, without limitation, all buildings, fixtures and other improvements located thereon) now, hereafter or heretofore, owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent. "Florida Division" means all tangible assets of the Company and its Subsidiaries located in Florida, including the assets of Calton Homes of Florida, Inc., and the capital stock of Calton Homes of Florida, Inc. "Funding Date" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination. "General Release" means a General Release Agreement dated as of the Effective Date, substantially in the form of Exhibit N hereto, executed and delivered by the Credit Parties. "Government Authorization" means any permit, entitlement, license, order, approval, exemption, authority, certification, franchise, building permit, plot plan approval, subdivision approval, site plan review, environmental approval (including an environmental impact statement or report if required under applicable law), sewer and waste discharge permit, national pollutant discharge elimination system permit, water permit, zoning and land use entitlement or other authorization whether now existing or hereafter issued or obtained by the Company or any of its Subsidiaries given or issued by any federal, state, local, or other governmental authority, department, commission, court, board, bureau, agency or instrumentality. "Guarantor Pledge Agreement" means the Guarantor Pledge Agreement dated as of May 28, 1993, executed and delivered by Guarantors (other than the Restricted Talpro Entities) and Collateral Agent pursuant to the Existing Loan Agreement, as such agreement has been amended to the date hereof and as the same may hereafter be further amended, supplemented or otherwise modified from time to time. "Guarantor Security Agreement" means the Guarantor Security Agreement dated as of May 28, 1993, executed and delivered by Guarantors (other than the Restricted Talpro Entities) and Collateral Agent pursuant to the Existing Loan Agreement, as such agreement has been amended to the date hereof and as the same may hereafter be further amended, supplemented or otherwise modified from time to time. "Guaranty Agreement" means that certain Amended and Restated Guaranty and Security Agreement dated as of May 28, 1993, executed and delivered by Guarantors pursuant to the Existing Loan Agreement, as the same has been amended to the date hereof and as it may hereafter be amended, supplemented or otherwise modified from time to time. "Guarantors" means each of the Credit Parties that is a party to the Guaranty Agreement including any Persons added after the Effective Date pursuant to subsection 3.2(E), but excluding Persons identified in subsection 5.24 that are dissolved after the Effective Date pursuant to subsection 6.12. "Hazardous Materials" means (i) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials," "extremely hazardous waste", "restricted hazardous waste," "infectious waste," "toxic substances" or any other formulations intended to define, list or classify substances by reason of deleterious properties such as ignitibility, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws or publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) asbestos in any form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million; (ix) pesticides and herbicides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of the Facilities. "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (A) due more than six months from the date of incurrence of the obligation in respect thereof or (B) evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements constitute Contingent Obligations and not Indebtedness. "Indemnitee" has the meaning assigned to that term in subsection 11.3. "Intellectual Property" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of the business of Company and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and its Subsidiaries, taken as a whole. "Intercompany Loan" means any loan, advance or other extension of credit made by any Borrower to another Credit Party. "Intercompany Loan Recipient" means the recipient of an Intercompany Loan. "Intercompany Note" means an intercompany note evidencing indebtedness owed by any Credit Party to a Borrower, substantially in the form of Exhibit K annexed hereto. "Interest Payment Date" means the first Business Day of each month commencing on the first such date to occur after the Effective Date. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect Company or any of its Subsidiaries against fluctuations in interest rates. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Inventory Property" means any real property, or interest in real property, together with all improvements thereon held for sale or lease by any Credit Party in the ordinary course of its business. "Inventory Property Closing" means the closing of the sale by a Credit Party of an Inventory Property (or portion thereof) in the ordinary course of its business. "Investment" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a beneficial interest in, stock or other Securities of any other Person, or (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person, including all Indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "Issuing Lender" means Chase with respect to any Letter of Credit issued by Chase pursuant to the terms of Section 2.8 hereof. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that, as to any such arrangement in corporate form, such corporation shall not, as to any Person of which such corporation is a Subsidiary, be considered to be a Joint Venture to which such Person is a party. "Land Acquisition Costs" means any expenditures (whether paid in cash or other consideration or accrued as a liability) to acquire real property or interests in real property, whether by purchase or otherwise, other than Land Development Costs and expenditures funded from proceeds of Purchase Money Mortgage Obligations permitted by Section 7.1 hereof. "Land Development Costs" means any expenditures (whether paid in cash or other consideration or accrued as a liability) to develop or improve real property, including without limitation, carrying costs, development and planning costs, direct construction costs, direct engineering costs and direct costs of obtaining governmental approvals. "Leasehold Consent" has the meaning assigned to that term in subsection 3.2D(i)(c). "Lender" and "Lenders" means the Tranche A Lenders and the Tranche B Lenders and, with respect to Letters of Credit, the Issuing Lender and the Lenders purchasing participations therein. "Letter of Credit Usage" means as of any date of determination, with respect to all outstanding Letters of Credit, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under such Letters of Credit plus (ii) the aggregate amount of all drawings under such Letters of Credit honored by the Issuing Lender thereof and not theretofore reimbursed by Borrowers. "Letters of Credit" means any of the standby letters of credit issued or to be issued by Issuing Lender for the account of Borrowers pursuant to subsection 2.8. "Lien" means any lien, mortgage, deed of trust, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means one or more of the Revolving Loans or any combination thereof. "Loan Documents" means this Amended Loan Agreement, the Existing Loan Documents, the New Loan Documents and, to the extent not included in the foregoing, the Security Documents. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company and its Subsidiaries taken as a whole or (ii) the impairment of the ability of any Credit Party to perform, or of Agent, Collateral Agent or Lenders to enforce, the Obligations. "Monthly Date" means the first day of each month commencing with the first such date immediately following the Effective Date. "Monthly Inventory Activity Report" means the inventory activity reports delivered to Agent, Collateral Agent, and, upon request, the Lenders, on a monthly basis pursuant to subsection 6.1(i)(a). "Monthly Inventory Certification Reports" means the inventory certification reports to be delivered to Agent, Collateral Agent and, upon request, the Lenders on a monthly basis pursuant to subsection 6.1(i)(c)(1). "Mortgage Policies" has the meaning assigned to that term in subsection 3.2D(i)(d). "Mortgaged Properties" means the Existing Mortgaged Properties and any Additional Mortgaged Properties. "Mortgages" shall mean each of the mortgages, deeds of trust, leasehold mortgages, leasehold deeds of trust, collateral assignment of leases or other real estate security documents (including any Existing Mortgages as amended by any Mortgage Amendments) heretofore, now or hereafter delivered by any Credit Party to Collateral Agent (or its subagent) with respect to any Mortgaged Properties or Additional Mortgaged Properties, as the same may be amended, supplemented or otherwise modified from time to time. Any mortgage or leasehold mortgage shall be substantially in the form of the Existing Mortgages, as modified by the Mortgage Amendments. "Mortgage Amendments" has the meaning assigned thereto in subsection 6.14. "Multiemployer Plan" means a "multiemployer plan", as defined in Section 3(37) of ERISA, to which any Credit Party or any of its ERISA Affiliates is contributing, or ever has contributed, or to which a Credit Party or any of its ERISA Affiliates has, or ever has had, an obligation to contribute. "Net Cash Proceeds" means, with respect to any Asset Sale, Cash Proceeds of such Asset Sale net of bona fide direct costs of sale including (i) income taxes reasonably estimated to be actually payable as a result of such Asset Sale within two years of the date of such Asset Sale and (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) required to be repaid under the terms thereof as a result of such Asset Sale. "Net Closing Proceeds" means, with respect to any sale of a Release Property or any other Real Estate by a Credit Party, the gross sales price to be paid by the purchaser for such property less sums attributable to (i) closing costs, including without limitation, legal costs of the seller in connection with the sale of such property, transfer taxes, fees for recording the applicable lien release, and typical closing adjustments for real property closing (such as prorations for real property taxes and utility charges), in each case to the extent customarily paid by sellers of real property in the relevant jurisdiction and in reasonable amounts, (ii) in the case of any property subject to a Purchase Money Mortgage approved by the Lenders, any amount which must be applied in repayment of the related Purchase Money Mortgage Obligation pursuant to the terms of the documents governing such Purchase Money Mortgage Obligation, and (iii) such other items as shall have been pre-approved as to item and amount by the Agent and Requisite Lenders. "Net Realizable Value" means, with respect to any real property, the net realizable value of such real property as calculated by Company for financial accounting purposes, according to GAAP and consistent with past practices of Company. "New Loan Documents" means this Amended Loan Agreement, the Notes, the General Release, the Acknowledgement and Confirmation, and all other new agreements to be executed by the Credit Parties on the Effective Date. "Notes" means one or more of the Revolving Notes. "Notice of Borrowing" means a notice substantially in the form of Exhibit M annexed hereto delivered by Borrowers to Agent and each Lender pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Issuance/Amendment" means a notice delivered by Borrowers substantially in the form of Exhibit O annexed hereto with respect to a proposed issuance or amendment of a Letter of Credit. "Obligations" means all obligations of every nature of each Credit Party from time to time owed to Agent, Collateral Agent, Lenders or any of them under the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise. "Officers' Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the effectiveness of the Amended Loan Agreement or the making of any Loans or issuing of any Letters of Credit hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Amended Loan Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "Original Loan Agreement" means the Amended Loan and Security Agreement dated as of May 28, 1993 among Company, Calton Funding, Inc., the financial institutions listed therein as Lenders and Chemical Bank, as agent and collateral agent for the Lenders. "Other Borrower Obligations" has the meaning assigned to that term in subsection 11.21. "Partial Release" means a lien release executed by the Collateral Agent releasing the Lien held by the Collateral Agent in an Inventory Property (or a portion thereof) in connection with an Inventory Property Closing, all pursuant to the terms of subsection 3.2D(ii). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor thereto). "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Encumbrances" means the following types of Liens (other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if bonded to the extent required to preserve the Liens granted to the Collateral Agent (for the benefit of the Lenders) under the Loan Documents, and if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii)Liens on personal property incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of vendors, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); provided that (x) Liens other than deposits shall be unperfected or, if perfected, shall be junior to the Liens granted to the Collateral Agent (for the benefit of the Lenders) unless such Liens are validly perfected and of record immediately prior to the Effective Date and (y) the aggregate amount of such deposits shall not exceed $5,000,000 at any time; (iv) Any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) Easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries and, as to the property affected by such Lien, not interfering with the intended use and development of that property; (vi) Any interest or title of a lessor or sublessor under any lease permitted by subsection 7.9; (vii)Liens in favor of the Collateral Agent (for the benefit of the Lenders) created pursuant to the terms of the Loan Documents; and (viii)Liens set forth on Schedule 5.8 annexed hereto. "Person" means and includes natural persons, corporations, limited partnerships, limited liability companies, general partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Prime Rate" means the rate that Chase announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Chase or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Pro Rata Share" means, with respect to all computations and other matters relating to the Commitments of any Lender or any payments, computations or other matters with respect to the Revolving Loans of any Lender, the participation of any Lender in a Letter of Credit, and the indemnification obligation of any Lender, the percentage obtained by dividing (x) the Commitments of that Lender by (y) the aggregate Commitments of all Lenders, as such percentage may be adjusted by assignments or conversions permitted pursuant to subsection 11.1. The initial Pro Rata Share of each Lender is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. "Public Information" means (i) all reports, proxy statements and other statements or schedules that have been filed with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), by Company or any of its Subsidiaries (except reports filed pursuant to Section 16(a) of the 1934 Act); (ii) all registration statements and prospectuses that have been filed by Company or any of its Subsidiaries with the SEC under the Securities Act, as amended, except those on Form S-8; (iii) any reports and other information that have been disseminated generally to holders of any class of Company's publicly traded equity or debt securities; and (iv) any press releases that have been issued by Company or any of its Subsidiaries. "Purchase Money Mortgage Lien" means a Lien on a real estate asset of Company or one of its Subsidiaries securing Purchase Money Mortgage Obligations incurred in connection with the acquisition of such real estate asset. "Purchase Money Mortgage Obligations" means any Indebtedness of Calton or any of its Subsidiaries incurred in connection with the acquisition of a real estate asset which is non-recourse to such Person and secured only by a Lien on such real estate asset. "Real Estate" means any and all real property (including, without limitation, all buildings, fixtures and other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Real Estate Project" means each parcel of real property of Company or any of its Subsidiaries, which constitutes, or will be developed as, a single subdivision or development (including in each case all buildings, fixtures and other improvements located thereon). "Redeemable Preferred Stock" means the redeemable preferred stock of Company, par value $0.10 per share. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of any Facility, including the movement of any Hazardous Material through the air, soil, surface water, groundwater or property. "Release Property" means an Inventory Property (or part thereof) released pursuant to a Partial Release from a lien of Collateral Agent for the benefit of the Lenders. "Renaissance Real Estate Project" means a Real Estate Project in Manchester Township, Ocean County, New Jersey, for an approximately 2,300 unit active adult community development. "Requisite Lenders" means Requisite Tranche A Lenders and Requisite Tranche B Lenders. "Requisite Tranche A Lenders" means Tranche A Lenders having (i) 66- 2/3% or more of the Tranche A Commitments or (ii) if the Tranche A Commitments have been terminated, Tranche A Lenders holding 66-2/3% or more of the Tranche A Loans. "Requisite Tranche B Lenders" means (i) Tranche B Lenders having 66- 2/3% or more of the Tranche B Commitments or (ii) if the Tranche B Commitments have been terminated, Tranche B Lenders holding 66-2/3% or more of the Tranche B Loans. "Restricted Credit Party" means Calton California Equity Corp., Calton Capital, Inc., Calton Capital II, Inc., Calton General, Inc., Calton Homes Finance, Inc., Calton Homes Finance II, Inc., Calcap Commercial Management, Inc., Calcap X, Inc., Calcap XV, Inc., Calcap XXXI, Inc., Calcap XXXII, Inc., Calcap XXXIII, Inc., Calcap 36, Inc., Talcon Title, L.P., Talpro 31, L.P., Talpro 32, L.P., Talpro 33, L.P. "Restricted Talpro Entities" means Talpro 31, L.P., Talpro 32, L.P. and Talpro 33, L.P. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Company or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Company or any of its Subsidiaries now or hereafter outstanding, and (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company or any of its Subsidiaries now or hereafter outstanding. "Revolving Loans" means one or more of the Tranche A Loans or the Tranche B Loans or any combination thereof. "Revolving Notes" means the promissory notes of Company issued pursuant to subsection 2.1D, to evidence the Tranche A Loans and Tranche B Loans of Lenders, substantially in the form of Exhibit A annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Sales and Closing Reports" means the reports to be delivered to the Lenders on a monthly basis pursuant to the terms of subsection 6.1(ii)(b). "Sales/Acquisition Forecasts" means the forecasts to be delivered to Agent, Collateral Agent and, upon request, the Lenders on a monthly basis pursuant to the terms of subsection 6.1(i)(c)(2). "Scheduled Expiry Date" means the date determined pursuant to subsection 2.1F. "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of inter- est, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Security Documents" means the Account Collateral Security Agreement, the Borrower Security Agreement, the Guarantor Security Agreement, the Borrower Pledge Agreement, the Guarantor Pledge Agreement, the Mortgages, the Mortgage Policies, the Leasehold Consents and all deeds of trust, mortgages, security agreements, pledge agreements, assignments, licenses, landlord consents and releases and all other instruments or documents (including, without limitation, UCC-1 financing statements, fixture filings or similar documents required in order to perfect the security interests created by the Security Documents and/or any other Loan Document) delivered by a Credit Party pursuant to this Amended Loan Agreement or any other Loan Document in order to grant to Collateral Agent on behalf of Lenders Liens in real, personal or mixed property of that Credit Party. "Soft Costs" means, with respect to any Eligible Property, all capitalized interest expense, marketing costs and administrative expenses attributable to such Eligible Property. "Solvent" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including Contingent Obligations) of such Person and (z) greater than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is sufficient to carry on its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to preferential or fraudulent transfers and conveyances. "Spec Unit" means any dwelling units under development by Company and its Subsidiaries that have progressed beyond the foundation/slab/utility connection stage and are not subject to an executed contract of sale with a bona fide third party purchaser who has made a cash deposit with the appropriate Credit Party in an amount consistent with the Credit Parties' normal practices. "Subsidiary" means, with respect to any Person, any corporation, partnership, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, however, that (i) for purposes of subsections 4.1, 5.1, 5.10, the term "Subsidiary" shall not include Calton Homes of Tampa, Inc., or Calcap 42, Inc. and (ii) for purposes of Sections 7.1, 7.2A, 7.3, 7.4, 7.9, 7.12, 8.2 and 8.8, the term "Subsidiary" shall not include Calton Capital, Inc., Calcap VII, Inc., Calcap XV, Inc., Calcap XXII, Inc., Calcap XXIV, Inc., Calcap XXVI, Inc., Calcap 35, Inc., Haddon General, Inc. and Calcap 46, Inc. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise). "Total Utilization" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Loans, and (ii) the Letter of Credit Usage. "Tranche A Commitments" means the commitments of Tranche A Lenders to make Tranche A Loans as set forth in subsection 2.1A. "Tranche A Lender" means those persons identified as "Tranche A Lenders" on Schedule 2.1 annexed hereto, together with their successors and permitted assigns, pursuant to subsection 11.1; provided, however, that if at any time a Tranche A Lender fails to satisfy the requirements of subsection 11.1D(i), such Lender shall automatically be a Tranche B Lender hereunder; and provided, further, that if at any time a Tranche B Lender satisfies the requirements of subsection 11.1D(i), such Lender may, pursuant to the terms of subsection 11.1D(ii) hereof, elect to become a Tranche A Lender hereunder. The term "Tranche A Lenders," when used in the context of a particular Commitment, shall mean Lenders having that Commitment. "Tranche A Letter of Credit Usage" means, as of any date of determination, the product of (i) the Letter of Credit Usage as of such date multiplied by (ii) a ratio, the numerator of which is the Pro Rata Shares of all Tranche A Lenders and the denominator of which is the Pro Rata Shares of all Lenders. "Tranche A Loans" means the Revolving Loans made by Tranche A Lenders pursuant to subsection 2.1A(i); provided that, upon any conversion of a Lender from one tranche to another, such Lender's Revolving Loans shall automatically convert to the appropriate tranche. "Tranche A Utilization" means, as of any date of determination, the sum of (i) the aggregate principal amount of all Tranche A Loans outstanding, plus (ii) the Tranche A Letter of Credit Usage as of such date. "Tranche B Commitments" means the commitments of Tranche B Lenders to make Tranche B Loans as set forth in subsection 2.1A. "Tranche B Lender" means those Persons identified as "Tranche B Lenders" on Schedule 2.1 annexed hereto, together with their successors and permitted assigns, pursuant to subsection 11.1; provided, however, that if at any time a Tranche A Lender fails to satisfy the requirements of subsection 11.1D(i), such Lender shall automatically be a Tranche B Lender hereunder; and provided, further, that if at any time a Tranche B Lender satisfies the requirements of subsection 11.1D(i), such Lender may, pursuant to the terms of subsection 11.1D(ii) hereof, elect to become a Tranche A Lender hereunder. The term "Tranche B Lenders," when used in the context of a particular Commitment, shall mean Lenders having that Commitment. "Tranche B Letter of Credit Usage" means, as of any date of determination, the product of (i) the Letter of Credit Usage as of such date multiplied by (ii) a ratio, the numerator of which is the Pro Rata Shares of all Tranche B Lenders and the denominator of which is the Pro Rata Shares of all Lenders. "Tranche B Loans" means the Revolving Loans made by Tranche B Lenders pursuant to subsection 2.1A(ii); provided that, upon any conversion of a Lender from one tranche to another, such Lender's Revolving Loans shall automatically convert to the appropriate tranche. "Tranche B Utilization" means, as of any date of determination, the sum of (i) the aggregate principal amount of all Tranche B Loans outstanding, plus (ii) the Tranche B Letter of Credit Usage as of such date. "Weekly Inventory Activity Reports" means the inventory activity reports to be delivered to Agent, Collateral Agent and, upon request, the Lenders on a weekly basis pursuant to subsection 6.1(i)(a). 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement. Except as otherwise expressly provided in this Amended Loan Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (iii), (iv), (v) and (xv) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(vii)). Calculations in connection with the definitions, covenants and other provisions of this Amended Loan Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 5.6. 1.3 Other Definitional Provisions. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Amended Loan Agreement unless otherwise specifically provided. Any of the terms defined in subsection 1.1 may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. SECTION 2. AMOUNTS AND TERMS OF LOANS AND LETTERS OF CREDIT 2.1 Commitments; Revolving Loans. A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Credit Parties herein set forth, each Lender hereby severally agrees to make the Revolving Loans described in this subsection 2.1A. (i) Tranche A Loans. Each Tranche A Lender severally agrees, subject to the limitations set forth in subsection 2.1A(iii) below with respect to the maximum amount of Loans permitted to be outstanding from time to time, to lend to Borrowers, as joint and several obligors, from time to time during the period from the Effective Date to but excluding the Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate Commitments to be used for the purposes identified in subsection 2.5A. Each Tranche A Lender's commitment to make Tranche A Loans to Borrowers pursuant to this subsection 2.1A is herein called its "Tranche A Commitment" and such commitments of all Tranche A Lenders in the aggregate are herein called the "Tranche A Commitments." The amount of each Lender's Tranche A Commitment as of the Effective Date is set forth opposite its name on Schedule 2.1 hereto and the aggregate Tranche A Commitments as of the Effective Date are $35,650,000; provided, that the amount of the Tranche A Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4. Each Lender's Tranche A Commitment shall expire on the Commitment Termination Date and all Tranche A Loans and all other amounts owed hereunder shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(i) may be repaid and reborrowed to but excluding the Commitment Termination Date. (ii) Tranche B Loans. Each Tranche B Lender hereby severally agrees, subject to the limitations set forth in subsection 2.1A(iii) below with respect to the maximum amount of Loans permitted to be outstanding from time to time, to lend to Borrowers, as joint and several obligors, from time to time during the period from the Effective Date to but excluding the Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate Commitments to be used for the purposes identified in subsection 2.5A. Each Tranche B Lender's commitment to make Tranche B Loans to Borrowers pursuant to this subsection 2.1A is herein called its "Tranche B Commitment" and such commitments of all Tranche B Lenders in the aggregate are herein called the "Tranche B Commitments." The amount of each Lender's Tranche B Commitment as of the Effective Date is set forth opposite its name on Schedule 2.1 hereto and the aggregate Tranche B Commitments as of the Effective Date is $10,350,000; provided, that the amount of the Tranche B Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4. Each Lender's Tranche B Commitment shall expire on the Commitment Termination Date and all Tranche B Loans and all other amounts owed hereunder shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A may be repaid and reborrowed to but excluding the Commitment Termination Date. (iii)Limitations on Loans. (a) The Loans and the Commitments shall be subject to the following limitations in the amounts and during the periods indicated: (1) the Total Utilization may not at any time exceed the Borrowing Base as in effect at such time; (2) the Total Utilization may not at any time exceed the Commitments; (3) the amount otherwise available for borrowing under the Tranche A Commitments as of any time of determination (other than to reimburse the Issuing Lender for the amount of any drawings under any Letters of Credit honored by Issuing Lender and not theretofore reimbursed by Borrowers) shall be reduced by the Tranche A Letter of Credit Usage as of such time of determination; and (4) the amount otherwise available for borrowing under the Tranche B Commitments as of any time of determination (other than to reimburse the Issuing Lender for the amount of any drawings under any Letters of Credit honored by the Issuing Lender and not theretofore reimbursed by Borrowers) shall be reduced by the Tranche B Letter of Credit Usage as of such time of determination. (b) Borrowers shall not make any borrowing under this subsection 2.1A the proceeds of which are used to make an Intercompany Loan unless, as of the date of the making of such Intercompany Loans: (1) the Intercompany Loan shall be permitted by subsection 7.1(iv) and shall be made as a direct loan to the Intercompany Loan Recipient and shall be reflected as a loan on the books and accounts of both the Intercompany Loan Recipient and the Person making the Intercompany Loan; and (2) the obligation of the Intercompany Loan Recipient to repay the Intercompany Loan (x) shall be evidenced by an Intercompany Note, which shall be pledged to Collateral Agent to secure the Obligations, and (y) shall be subordinated in right and time of payment to the payment in full of the Obligations, and any payment by such Intercompany Loan Recipient under its Guaranty, if any, shall result in a pro tanto reduction of the amount owing by such Intercompany Loan Recipient to Borrowers in respect of Intercompany Loans. B. Borrowing Mechanics. Revolving Loans made on any Funding Date shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Whenever Borrowers desire that Lenders make Revolving Loans, they shall deliver to Agent and each Lender a Notice of Borrowing no later than 12:00 noon (New York time) at least three Business Days in advance of the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), and (ii) the amount of Revolving Loans requested. In lieu of delivering the above-described Notice of Borrowing, a Borrower may give Agent and each Lender telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Agent and each Lender on or before the applicable Funding Date. Neither Agent nor any Lender shall incur any liability to Borrowers in acting upon any telephonic notice referred to above that Agent or such Lender believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of a Borrower or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Revolving Loans by Lenders in accordance with this Amended Loan Agreement pursuant to any such telephonic notice Borrowers shall have effected Revolving Loans hereunder. C. Disbursement of Funds. Except as otherwise provided in the next sentence, all Revolving Loans under this Amended Loan Agreement shall be made by Tranche A Lenders and Tranche B Lenders simultaneously and proportionately to their respective Pro Rata Shares of the aggregate Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Revolving Loan requested hereunder nor shall the Commitment of any Lender to make a Revolving Loan requested hereunder be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereun- der. If any conditions to funding set forth in Section 4 hereof have not been satisfied in connection with a borrowing requested pursuant to subsection 2.1B and Requisite Tranche A Lenders or Requisite Tranche B Lenders, as the case may be, have agreed to waive such conditions with respect to funding for their tranche in accordance with subsection 11.6, (i) Lenders in such tranche shall simultaneously fund their Pro Rata Shares of the borrowing requested pursuant to subsection 2.1B, and (ii) Lenders in the other tranche shall have no obligation to fund the remaining portion of such requested borrowing. Promptly after receipt by each Lender of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), and upon satisfaction or waiver of the conditions precedent specified in Section 4 with respect to a particular tranche, Lenders in such tranche shall make the proceeds of Revolving Loans in such tranche available to the Borrowers on the Funding Date by causing an amount of same day funds equal to the proceeds of all such Revolving Loans to be credited to the account of Borrowers at the office of Agent specified in the preceding sentence. D. Revolving Notes. Borrowers shall execute and deliver to each Lender (or to Agent for that Lender) on the Effective Date a Revolving Note substantially in the form of Exhibit A hereto to evidence that Lender's Tranche A Loans and Tranche B Loans, in the principal amount of that Lender's Commitments. The Tranche A Loans and Tranche B Loans made or continued hereunder shall be evidenced by such Revolving Notes. Upon the execution and delivery to any Lender of a Revolving Note pursuant to this subsection 2.1D, the Revolving Note that was executed and delivered to such Lender pursuant to the Existing Loan Agreement (the "Existing Note") shall be null and void, and such Lender shall promptly return such Existing Note to Borrowers for cancellation. Agent may deem and treat the payee of any Revolving Note as the owner thereof for all purposes hereof unless and until an Assignment and Assumption effecting the assignment or transfer thereof shall have been accepted by Agent as provided in subsection 11.1B(iii). Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Revolving Note shall be conclusive and binding on any subsequent holder, assignee or transferee of that Revolving Note or of any Revolving Note or Notes issued in exchange therefor. E. Conversion of Existing Tranche A Loans and Existing Tranche B Loans into Tranche A Loans and Tranche B Loans. Upon satisfaction or written waiver by Requisite Lenders of the conditions set forth in subsections 4.1 and 4.3, as of the Effective Date all Tranche A Loans and Tranche B Loans (as defined in the Existing Loan Agreement) outstanding under the Existing Loan Agreement as of, and at the time of, the Effective Date (such loans being the "Existing Tranche A Loans" and "Existing Tranche B Loans," respectively) shall be converted into and deemed to be Tranche A Loans and Tranche B Loans, respectively, for all purposes under this Amended Loan Agreement. Any amounts of accrued interest or other amounts owed (whether or not presently due and payable) by Borrowers to the Lenders under or in respect of the Existing Tranche A Loans and Existing Tranche B Loans shall, as of the Effective Date, continue to be due and payable to the Lenders under the Revolving Notes issued to the Lenders under this Amended Loan Agreement. The conversion of the Existing Tranche A Loans and Existing Tranche B Loans hereunder shall not be deemed to be repayment thereof, and Borrowers shall not be required to deliver any notice of prepayment or notice of borrowing or to satisfy any other condition relating to required amounts of prepayments or borrowings hereunder with respect to such conversion of the Existing Tranche A Loans and Existing Tranche B Loans. F. Extension of Scheduled Expiry Date. On the Effective Date, the Scheduled Expiry Date is February 28, 1998. If the Commitment Reduction Date occurs on or before February 28, 1998, the Scheduled Expiry Date shall automatically and without further action by the Borrowers or the Lenders be extended from February 28, 1998 to August 31, 1998. 2.2 Interest on the Loans. A. Rate of Interest. Subject to the provisions of subsections 2.2C and 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the Base Rate; provided, that from and after the Commitment Reduction Date, subject to the provisions of subsections 2.2C and 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at the Base Rate minus 0.50% per annum. B. Interest Payments. Subject to the provisions of subsection 2.2C, interest on each Loan shall be payable in arrears on and to each Interest Payment Date, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity). C. Post Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans and any fees and other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest (including post- petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the Base Rate; provided, however, that the increased rate of interest provided for in this subsection 2.2C shall not apply (i) with respect to Tranche A Loans if Requisite Tranche A Lenders have agreed in writing to waive such increased interest with respect to their Loans and (ii) with respect to Tranche B Loans if Requisite Tranche B Lenders have agreed in writing to waive such increased interest with respect to their Loans. Payment or acceptance of the increased rates of interest provided for in this sub- section 2.2C is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent, Collateral Agent or any Lender. D. Computation of Interest. Interest on the Loans shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the immediately preceding Interest Payment Date shall be included, and the date of payment of such Loan or, on an Interest Payment Date, such Interest Payment Date shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 2.3 Fees. A. Commitment Fees. Borrowers jointly and severally agree to pay to Lenders in proportion to each Lender's Pro Rata Share, commitment fees for the period from and including the Effective Date to and excluding the Commitment Termination Date in an aggregate amount equal to the average of the daily excess of the Commitments over the aggregate amount of Total Utilization multiplied by 1/2 of 1% per annum, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable monthly in arrears on the first day of each month, commencing on the first such date to occur after the Effective Date, and on the Commitment Termination Date. B. Letter of Credit Fees. Borrowers jointly and severally agree to pay the following amounts to the Issuing Lender with respect to each Letter of Credit issued by it: (i) an annual administrative fee equal to the greater of (i) $5,000 and (ii) 1/4 of 1% per annum of the maximum amount available from time to time to be drawn under each Letter of Credit, payable quarterly in arrears on each March 31, June 30, September 30 and December 31 of each year and upon expiration of such Letter of Credit and calculated on the basis of a 360-day year and the actual number of days elapsed; (ii) a commission equal to 2.00% per annum of the maximum amount available from time to time to be drawn under any Letter of Credit, payable quarterly in arrears on each March 31, June 30, September 30 and December 31 of each year and upon expiration of such Letter of Credit and calculated on the basis of a 360-day year and the actual number of days elapsed; (iii)with respect to drawings made under any Letter of Credit, interest, payable on demand, on the amount paid by the Issuing Lender in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by Borrowers (including any such reimbursement out of the proceeds of Loans pursuant to subsection 2.8(C)) at a rate which is at all times equal to 2% per annum in excess of the Base Rate; and (iv) with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder (without duplication of the fees payable under subdivision (1) above), documentary and processing charges in accordance with the Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be, or as otherwise agreed to be the Issuing Lender. Promptly upon receipt by Issuing Lender of any amount described in clauses (ii) or (iii) of this subsection 2.3B with respect to a Letter of Credit, the Issuing Lender shall distribute to each Lender which has purchased a participation in such Letter of Credit pursuant to subsection 2.8A, its Pro Rata Share of such amount. C. Restructure Fees. Borrowers jointly and severally agree to pay to Agent for distribution to Lenders in proportion to their Pro Rata Shares a Restructuring Fee in the amount of $1,350,000, which shall be payable on the following dates and in the following amounts: $225,000 shall be due and payable on the Effective Date; $112,500 shall be due and payable on August 30, 1997; $112,500 shall be due and payable on September 30, 1997, $450,000 shall be due and payable on October 30, 1997; and $450,000 shall be due and payable on November 30, 1997; provided, however, that any installment of such Restructure Fee that is scheduled to become due and payable on or after the Commitment Reduction Date shall be waived. D. Interest and Fees Due Under Existing Loan Agreement. Borrowers shall pay to Agent for distribution to the Lenders (i) all interest and commitment fees that have accrued under the Existing Loan Agreement through the Effective Date, (ii) all accrued and unpaid fees and commissions with respect to all Existing Letters of Credit that have accrued through the Effective Date and (iii) all other fees and amounts owed under the Existing Loan Agreement (other than the portion of the principal amount of the Existing Loans that shall continue to be owed hereunder and under the Revolving Notes). All such interest shall be due and payable on the first Interest Payment Date after the Effective Date. All such commitment fees shall be due and payable together with the first payment of commitment fees under subsection 2.3A. All such unpaid fees and commissions with respect to all Existing Letters of Credit shall be due and payable on June 30, 1997. All such other fees and amounts owed under the Existing Credit Agreement shall be due and payable on June 30, 1997. E. Other Fees. Borrowers jointly and severally agree to pay to Agent and/or Collateral Agent such other fees in the amounts and at the times separately agreed upon between Borrowers, Agent, and/or Collateral Agent. 2.4 Prepayments; Reductions in Commitments; General Provisions Regarding Payments. A. Voluntary Prepayments. Borrowers may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Agent and each Lender, at any time and from time to time prepay the Loans in whole or in part on any Business Day in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. B. Voluntary Reductions of Commitments. Borrowers may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Agent and each Lender, at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Commitments in an amount up to the amount by which the Commitments exceed the Total Utilization at the time of such proposed termination or reduction; provided that any such partial reduction of the Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Borrowers' notice to Agent and Lenders shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Commitments shall be effective on the date specified in Borrowers' notice and shall reduce the Commitment of each Lender proportionately to its Pro Rata Share. C. Mandatory Reductions of Commitments. (i) Scheduled Reductions. The aggregate Commitments will be reduced (but not increased) on each date set forth below to the amount set forth opposite such date: Date Commitments July 15, 1997 $43,000,000 August 31, 1997 $40,000,000 November 30, 1997 $30,000,000 (ii) Reductions from Asset Sales (other than Florida Division). No later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of Cash Proceeds of any Asset Sale, the Commitments shall be permanently reduced in an amount equal to 80% of the Net Cash Proceeds of such Asset Sale provided, however, that the reduction in the Commitments set forth in this subsection 2.4C(ii) shall not apply with respect to (y) the sale of the Florida Division or any portion thereof (which sales are subject subsection 2.4C(v)) or (z) any real property purchased by the Borrowers or any of their Subsidiaries after the Effective Date if, prior to consummation of such purchase, (x) the Borrower or Subsidiary, as the case may be, has entered into one or more valid and binding written agreements to sell such real property to one or more third party purchasers not affiliated with the Borrowers or any of their Subsidiaries, and (y) the sale to the third party of such real property actually takes place within thirty (30) calendar days of the closing of the purchase thereof by the Borrower or Subsidiary, as the case may be. Concurrently with any reduction of the Commitments pursuant to this subsection 2.4C(ii), Borrowers shall deliver to Agent an Officers' Certificate demonstrating the derivation of the Net Cash Proceeds of the correlative Asset Sale from the gross sales price thereof. In the event that Borrowers shall, at any time after receipt of Cash Proceeds of any Asset Sale requiring a reduction of the Commitments pursuant to this subsection 2.4C(ii), determine that the reductions of the Commitments previously made in respect of such Asset sale were in an aggregate amount less than that received by the terms of this subsection 2.4C(ii), Borrowers shall promptly deliver to Agent an Officers' Certificate demonstrating the derivation of the additional Net Cash Proceeds resulting in such deficit and the Commitments shall be permanently reduced on the date such notice is delivered in an amount equal to the amount of any such deficit. (iii)Reductions Due to Receipt of Insurance or Condemnation Awards. On the date of receipt by Company or any of its Subsidiaries of any payment from an insurance company or any condemnation award relating to any of such Person's assets, the Commitments shall be permanently reduced in an amount (the "Net Award Amount") equal to 100% of such insurance company payment or condemnation award, net of any costs incurred in obtaining such payment or award (without taking into account the costs of maintaining insurance such as premiums), including any incremental taxes payable as a result thereof. (iv) Reductions Due to Reversion of Surplus Assets of Pension Plans. On the date of return to Company or any of its Subsidiaries of any surplus assets of any pension plan of Company or any of its Subsidiaries, the Commitments shall be permanently reduced in an amount (the "Net Reversion Amount") equal to 100% of such returned surplus assets, net of transaction costs and expenses incurred in obtaining such return, including incremental taxes payable as a result thereof. (v) Reductions due to Sale of Florida Division. No later than the second Business Day following the date of receipt by Company or any of its Subsidiaries of Cash Proceeds of any Asset Sale of the Florida Division or any portion thereof, the Commitments shall be permanently reduced in an amount equal to the following: (1) If the aggregate amount of Net Cash Proceeds received by Company and its Subsidiaries from all Asset Sales of the Florida Division (the "Total Florida Division Proceeds") as of the date of receipt of such Cash Proceeds is less than $15,000,000, then 100% of the Net Cash Proceeds of such Asset Sale; or (2) if the Total Florida Division Proceeds as of the date of receipt of such Cash Proceeds is equal to or greater than $15,000,000 but is less than $17,000,00, then the sum of (x) $15,000,000 plus (y) 80% of the amount of such excess; or (3) if the Total Florida Division Proceeds as of the date of receipt of such Cash Proceeds is equal to or greater than $17,000,000 but is less than $20,000,00, then the sum of (x) $16,600,000 plus (y) 65% of the amount of such excess; or (4) if the Total Florida Division Proceeds as of the date of receipt of such Cash Proceeds is equal to or greater than $20,000,000, then the sum of (x) $18,550,000 plus (y) 50% of the amount of such excess. Concurrently with any reduction of the Commitments pursuant to this subsection 2.4C(v), Borrowers shall deliver to Agent an Officers' Certificate demonstrating the derivation of the Net Cash Proceeds of the Asset Sale of the Florida Division from the gross sales price thereof. In the event that Borrowers shall, at any time after receipt of Cash Proceeds of the Asset Sale of the Florida Division requiring a reduction of the Commitments pursuant to this subsection 2.4C(v), determine that the reductions of the Commitments previously made in respect of such Asset Sale were in an aggregate amount less than that required by the terms of this subsection 2.4C(v), Borrowers shall promptly deliver to Agent an Officers' Certificate demonstrating the derivation of the additional Net Cash Proceeds resulting in such deficit and the Commitments shall be permanently reduced on the date such notice is delivered in an amount equal to the amount of any such deficit. D. Mandatory Prepayments Due to Reductions or Restrictions of Commitments; Restrictions of Borrowing Base; Cash Collateral Restrictions. Borrowers shall from time to time prepay the Loans to the extent necessary (1) so that the Total Utilization shall not at any time exceed the Commitments then in effect; (2) so that the Total Utilization shall not at any time exceed the Borrowing Base then in effect; and (3) so that the aggregate amount on deposit in the Concentration Accounts does not at any time exceed $6,000,000; provided that the Borrowers shall not be required to make any prepayment under clause (3) of this subsection 2.4D to the extent such prepayment would be less than $500,000. Prepayments based on reductions of the Commitments shall be due on the date the Commitments are reduced. Prepayments required to comply with the Borrowing Base shall be due on the date the Borrowing Base Certificate (showing a Borrowing Base Deficiency) is delivered. E. Repayment at Maturity. On the Commitment Termination Date, Borrowers shall repay all Revolving Loans and all other Obligations then outstanding. F. Application of Certain Prepayments; Reductions of Commitments. (i) Application of Commitment Reductions to Tranche A Commitments and Tranche B Commitments. All reductions in Commitments pursuant to subsection 2.4B or 2.4C shall be applied to the Tranche A Commitments and Tranche B Commitments ratably in proportion to the amounts of such Commitments. (ii) Application to Loans and Letters of Credit. All prepayments shall be applied first to repay the Loans to the full extent thereof, and second to fully secure outstanding Letters of Credit. (iii)Application to Principal and Interest. All prepayments shall include payment of accrued interest on the principal amount being prepaid and shall be applied to the payment of interest before application to principal. G. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Borrowers of principal, interest, fees and other Obligations hereunder and under the other Loan Documents shall be made in same day funds and without defense, set off or counterclaim, free of any restriction or condition, and delivered to the appropriate Lender not later than 12:00 Noon (New York time) on the date due at such Lender's principal address set forth below its name on the signature pages hereof or at such other place as such Lender may from time to time designate (with verification of such payment to Agent); funds received by such Lender after that time on such due date shall be deemed to have been paid by Borrowers on the next succeeding Business Day. Borrowers hereby authorize Agent to charge their accounts with Agent in order to cause timely payment to be made to Agent and Lenders of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Apportionment of Payments. Principal and interest payments shall be apportioned among all outstanding Loans and amounts due with respect to Letters of Credit proportionately to the amounts then due and owing each Lender according to the Lender's respective Pro Rata Shares of the Loans or other amounts due with respect to Letters of Credit to which such payments relate. (iii)Payments on Business Days. Whenever any payment to be made hereunder or under any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the fees hereunder, as the case may be. (iv) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obliga- tions of Borrowers hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. 2.5 Use of Proceeds. A. Loans. The proceeds of the Loans shall be applied by Borrowers for general corporate purposes, which may include the making of intercompany loans to any of the Guarantors, in accordance with subsections 2.1A(iii)(b) and 7.1(iv), for their own general corporate purposes. B. Letters of Credit. Letters of Credit shall be issued solely for the purpose of supporting (i) the obligations of third party insurers of a Credit Party arising by virtue of the laws of any jurisdiction requiring third party insurers, and (ii) performance, payment, deposit or surety obligations of a Credit Party, in any case if required by law or governmental rule or regulation or in accordance with custom and practice in the industry; provided that Letters of Credit may not be issued for the purpose of supporting trade payables. C. Margin Regulations. No portion of the proceeds of any borrowing under this Amended Loan Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation T, Regulation U or Regula- tion X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. D. Benefits to Guarantors. In consideration for the Guaranty Agreement, Borrowers have and agree to continue to make certain of the benefits of the Loans and Letters of Credit available to the Subsidiaries of Company executing and delivering such Guaranty Agreement in accordance with subsections 2.1A(iii)(b) and 7.1(iv). 2.6 Increased Costs; Taxes; Capital Adequacy. A. Compensation for Increased Costs and Taxes. In the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Amended Loan Agreement or any of the Loans or any of its obligations hereunder, or changes the basis of taxation of payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of Tax on the overall net income of such Lender or its applicable lending office); (ii) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender; or (iii)imposes any other condition on or affecting such Lender (or its applicable lending office) or its obligations hereunder; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Borrowers agree, jointly and severally, to promptly pay to such Lender, upon demand, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender on an after-tax basis for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Borrowers a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.6A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Borrowers under this Amended Loan Agreement and the other Loan Documents shall be paid free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Borrowers or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If Borrowers or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Borrowers to Agent, Collateral Agent or any Lender under any of the Loan Documents: (a) Borrowers shall notify Agent of any such requirement or any change in any such requirement as soon as such Borrowers become aware of it; (b) Borrowers, jointly and severally, shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on either Borrower) for its own account or (if that liability is imposed on Agent, Collateral Agent or such Lender, as the case may be) on behalf of and in the name of Agent, Collateral Agent or such Lender; (c) the sum payable by Borrowers in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Agent, Collateral Agent or such Lender, as the case may be, receives on the due date and retains (free from any liability in respect of any such deduction, with- holding or payment) a net sum equal to what it would have received and so retained had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Borrowers shall deliver to Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to Agent, Collateral Agent or any Lender under clause (c) above except to the extent that any change after the Effective Date in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the Effective Date in respect of payments to such Lender, Agent or Collateral Agent. (iii)U.S. Tax Certificates. Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof shall deliver to Agent for transmission to Borrowers, on or prior to the Effective Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment and Assumption pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Borrowers or Agent (each in the reasonable exercise of its discretion), such certificates, documents or other evidence, properly completed and duly executed by such Lender (including, without limitation, Internal Revenue Service Form 1001 or Form 4224 or any other certificate or statement of exemption required by Treasury Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that such Lender is not subject to deduction or withholding of United States federal income tax under Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under any comparable provisions of any successor statute) with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents. C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or other obligations hereunder to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after demand by such Lender (with a copy of such demand to Agent), Borrowers shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this subsection 2.6C, will give prompt written notice thereof to Borrowers, which notice shall set forth the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of Borrowers' obligations to pay additional amounts under this subsection 2.6C. D. Lenders' Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering the Loans under this Amended Loan Agreement becomes aware of the occurrence of an event or the existence of a condition that would entitle such Lender to receive payments under subsection 2.6A or 2.6C, it will, to the extent not inconsistent with such Lender's internal policies, use reasonable efforts (i) to make, fund or maintain the Commitments of such Lender or the affected Loans of such Lender through another lending office of such Lender, or (ii) take such other measures as such Lender may deem reasonable, if as a result thereof the additional amounts which would otherwise be required to be paid to such Lender pursuant to subsection 2.6A or 2.6C would be materially reduced and if, as determined by such Lender in its sole discretion, the making, funding or maintaining of such Commitments or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or the interests of such Lender; provided that such Lender will not be obligated to utilize such other lending office pursuant to this subsection 2.6D unless Borrowers agree to pay all expenses incurred by such Lender in utilizing such other lending office. A certificate as to the amount of any such expenses payable by Borrowers pursuant to this subsection 2.6D (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Borrowers shall be conclusive absent manifest error. E. Issuing Lender. For purposes of this subsection 2.6, references to Loans shall be deemed to include any Letter of Credit. 2.7 [Omitted] 2.8 Letters of Credit A. Letters of Credit. In addition to Borrowers requesting that Lenders make Revolving Loans pursuant to subsection 2.1A, Borrowers may request, in accordance with the provisions of this subsection 2.8 on or after the Effective Date to but excluding the Commitment Termination Date, that the Issuing Lender issue Letters of Credit for the account of Borrowers on the terms and con- ditions set forth in this subsection 2.8; provided that Borrowers shall not request that the Issuing Lender issue (and the Issuing Lender shall not issue) any Letter of Credit if, after giving effect to such issuance, (i) the Total Utilization would exceed the Commitments; (ii) the Total Utilization would exceed the Borrowing Base; or (iii) the Letter of Credit Usage would exceed $5,000,000. In no event shall the Issuing Lender issue any Letter of Credit having an expiration date later than the earlier of (x) the Commitment Termination Date, (y) the date which is one year from the date of issuance of such Letter of Credit; provided that this clause (y) shall not prevent the Issuing Lender from agreeing that a Letter of Credit will automatically be extended for a period not to exceed one year unless the Issuing Lender elects not to extend for such additional period. Each Letter of Credit shall be in a minimum stated amount of at least $100,000. It shall be a condition precedent to the issuance of any Letter of Credit in accordance with the provisions of this subsection 2.8 that each condition set forth in subsections 4.2 and 4.3 shall have been satisfied. Immediately upon the issuance of each Letter of Credit, the Issuing Lender shall promptly notify Agent and each Lender of such issuance and each Tranche A Lender and Tranche B Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and drawings thereunder in an amount equal to such Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. Each Letter of Credit may provide that the Issuing Lender may (but shall not be required to) pay the beneficiary thereof upon the occurrence of an Event of Default and the acceleration of the maturity of the Tranche A Loans or the Tranche B Loans or, if payment is not then due to the beneficiary, provide for the deposit of funds by Borrowers in an amount sufficient to secure payment to the beneficiary of the Letter of Credit if conditions to such payment are satisfied, which amount shall be returned to the Issuing Lender for distribu- tion to Lenders (or, if all Obligations shall have been indefeasibly paid in full, to Borrowers) if no payment to the beneficiary has been made and the final date available for drawings under the Letter of Credit has passed. Each payment or deposit of funds by the Issuing Lender as provided in this paragraph shall be treated for all purposes of this Amended Loan Agreement as a drawing duly honored by the Issuing Lender under the related Letter of Credit. B. Notice of Issuance or Amendment. Whenever either of the Borrowers desires to cause the Issuing Lender to issue or amend a Letter of Credit, such Borrower shall deliver to the Issuing Lender, Agent and each Lender a Notice of Issuance/Amendment no later than 12:00 noon (New York time) at least seven Business Days in advance of the proposed date of issuance or amendment or such shorter time as may be acceptable to the Issuing Lender. The notice shall specify (i) the proposed date of issuance or amendment (which shall be a Business Day), (ii) the face amount of the Letter of Credit, (iii) the expiration date of the Letter of Credit, and (iv) the name and address of the beneficiary, and shall include such other documents or materials as the Issuing Lender may reasonably request, and the verbatim text of the proposed Letter of Credit or the proposed terms and conditions, including a precise description of any documents required to be complied with by the beneficiary which, if so complied with prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit. The Issuing Lender, in its reasonable discretion, may require changes in any such documentation and shall not be required to issue or amend any Letter of Credit that by its terms requires payment thereunder prior to the third Business Day following receipt by the Issuing Lender of such documentation. Promptly upon the issuance or amendment of a Letter of Credit, the Issuing Lender shall notify each other Lender of the issuance or amendment and the amount of each such other Lender's respective participation therein determined in accordance with subsection 2.8A. C. Payment of Amounts Drawn Under Letter of Credit. In determining whether to honor any request for drawing under the Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to determine that the documentation required to be delivered under the Letter of Credit has been delivered and that it complies on its face with the requirements of such Letter of Credit. In the event the Issuing Lender has determined to honor such a request for drawing, the Issuing Lender shall immediately notify Borrowers, Agent and each Lender, and Borrowers shall reimburse the Issuing Lender on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing. Anything contained in this Amended Loan Agreement to the contrary notwithstanding, (i) unless prior to 12:00 noon (New York time) on the date of such drawing (a) Borrowers shall have notified the Issuing Lender, Agent and each Lender that Borrowers intend to reimburse the Issuing Lender for the amount of such drawing with funds other than the proceeds of Revolving Loans or (b) Borrowers shall have delivered a Notice of Borrowing requesting Loans in an amount equal to the amount of such drawing, Borrowers shall be deemed to have given a Notice of Borrowing to Agent and each Lender requesting Tranche A Lenders and Tranche B Lenders to make Revolving Loans on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) if a Notice of Borrowing has been given or is deemed to have been given by Borrowers, Tranche A Lenders and Tranche B Lenders shall, on the date of such drawing, make Revolving Loans in the amount of such drawing, the proceeds of which shall be applied directly by Agent to reimburse the Issuing Lender for the amount of such drawing. If for any reason proceeds of Loans are not received by the Issuing Lender on such date in an amount equal to the amount of such drawing, Borrowers shall reimburse the Issuing Lender, on the Business Day immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Loans, if any, which are so received, plus accrued interest on such amount at the rate set forth in subsection 2.3B(3). D. Payment by Lenders. If Borrowers shall fail to reimburse the Issuing Lender, for any reason, as provided in subsection 2.8C (including, without limitation, by means of the making of Loans by Tranche A Lenders and Tranche B Lenders pursuant to the terms of subsection 2.8C) in an amount equal to the amount of any drawing honored by the Issuing Lender under a Letter of Credit issued by it, the Issuing Lender shall promptly notify each Tranche A Lender and Tranche B Lender of the unreimbursed amount of such drawing and of such Lender's respective participation therein based on such Lender's Pro Rata Share. Each Tranche A and Tranche B Lender shall make available to the Issuing Lender an amount equal to its respective participation, in same day funds, at the office of the Issuing Lender specified in such notice, not later than 12:00 noon (New York time) on the Business Day after the date notified by the Issuing Lender. If any Lender fails to make available to the Issuing Lender the amount of such Lender's participation in such Letter of Credit as provided in this subsection 2.8D, the Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest at the Federal Funds Effective Rate for one Business Day and thereafter at the Base Rate. Nothing in this subsection 2.8D shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this subsection 2.8D if it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by the Issuing Lender in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of the Issuing Lender. The Issuing Lender shall distribute to each other Lender which has paid all amounts payable by it under this subsection 2.8D with respect to any Letter of Credit issued by the Issuing Lender such other Lender's proportionate share (based upon the aggregate amount of payments made by the Lender under the Letter of Credit to which such amounts relate to the aggregate amount of all payments made by Lenders thereunder) of all payments received by the Issuing Lender from Borrowers in reimbursement of drawings honored by the Issuing Lender under such Letter of Credit when such payments are received. E. Obligations Absolute. The obligation of Borrowers to reimburse the Issuing Lender for drawings made under the Letters of Credit issued by it and to repay any Loans made by Lenders pursuant to subsection 2.8C and the obligations of Tranche A Lenders and Tranche B Lenders under subsection 2.8D shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Amended Loan Agreement under all circumstances including, without limitation, the following circumstances. (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which a Borrower or a Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such transferee may be acting), any Lender or any other Person or in the case of a Lender, against a Borrower or any of its Subsidiaries, whether in connection with this Amended Loan Agreement, the transactions contemplated herein or any unrelated transaction including any underlying transaction between a Borrower or any of its Subsidiaries and the beneficiary for which the Letter of Credit was procured); (iii)any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Lender under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (v) any adverse change in the condition (financial or otherwise) of Company or any of its Subsidiaries; (vi) any breach of this Amended Loan Agreement or any other Loan Document by any party thereto; (vii)any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (viii)the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided that neither Borrowers nor any Lender shall be required to pay any such amounts to the extent they arise from the gross negligence or willful misconduct of the Issuing Lender (as determined by a court of competent jurisdiction). F. Indemnification; Nature of Issuing Lender's Duties. In addition to amounts payable as elsewhere provided in this subsection 2.8, Borrowers hereby jointly and severally agree to protect, indemnify, pay and save harmless the Issuing Lender and each other Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees and disbursements of counsel) which the Issuing Lender or any other Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, other than as a result of gross negligence or willful misconduct of the Issuing Lender or the Issuing Lender failing to use reasonable care to determine that the documents and certificates required to be delivered under such Letter of Credit had been delivered and that they complied on their face with the requirements of that Letter of Credit as determined by a court of competent jurisdiction or (ii) the failure of the Issuing Lender to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Government Acts"). Each Tranche A Lender and Tranche B Lender, proportionately to its Pro Rata Share, severally agrees to indemnify Issuing Lender to the extent Issuing Lender shall not have been reimbursed in accordance with the terms of the Loan Documents for drawings under any Letter of Credit, for and against any of the foregoing claims, demands, liabilities, damages, losses, costs, charges and expenses to which Issuing Lender is entitled to reimbursement under the Loan Documents. As between Borrowers and the Issuing Lender, Borrowers assume all risks of the acts and omissions of, or misuse of such Letters of Credit issued by, the beneficiary or beneficiaries of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender shall not be responsible (absent gross negligence or willful misconduct (as determined by a court of competent jurisdiction)) for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any documents required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) any consequences arising from causes beyond the control of the Issuing Lender, including, without limitation, any Government Acts, and none of the above shall affect impair, or prevent the vesting of any of the Issuing Lender's rights or powers hereunder. G. Existing Letters of Credit. Each Existing Letter of Credit outstanding on the Effective Date shall be deemed to be a Letter of Credit hereunder. Section 3. GUARANTY; SECURITY INTERESTS. 3.1 Guaranty. On the Effective Date, each of the Guarantors shall execute and deliver to Collateral Agent on behalf of Lenders the Acknowledgement and Confirmation confirming the continuing guaranty by the Guarantors under the Guaranty Agreement of the full performance of the Obligations. 3.2 Security for Obligations. A. Borrower Security. On the Effective Date, each of the Borrowers shall execute and deliver to Collateral Agent on behalf of Lenders the Acknowledgement and Confirmation confirming the continuing grant of security interest in property of such Borrower created pursuant to the terms of the Existing Loan Agreement and related documents (including, without limitation, the Borrower Pledge Agreement, the Borrower Security Agreement and the Existing Mortgages) in favor of the Collateral Agent for the benefit of the Lenders and shall further grant a first priority Lien in favor of the Collateral Agent for the benefit of the Lenders on all property of such Borrower now owned or hereafter acquired, subject only to validly perfected and enforceable Permitted Encumbrances or otherwise permitted under the terms of this Amended Loan Agreement. B. Security for Guaranties. On the Effective Date, each Guarantor shall execute and deliver to Collateral Agent on behalf of Lenders the Acknowledgement and Confirmation confirming the continuing grant of security interest in property of such Guarantor created pursuant to the Security Documents to which it is a party (including, without limitation, the Guarantor Pledge Agreement, the Guarantor Security Agreement and the Existing Mortgages) in favor of the Collateral Agent for the benefit of the Lenders and shall further grant a first priority Lien in favor of the Collateral Agent for the benefit of the Lenders on all property of such Guarantor now owned or hereafter acquired, subject only to validly perfected and enforceable Permitted Encumbrances of record immediately prior to the Effective Date listed on Schedule 5.8 hereto or otherwise permitted under the terms of this Amended Loan Agreement. C. Cash Collateral. Each Credit Party shall comply with the terms of the Account Collateral Security Agreement and all Net Closing Proceeds from the sale of Inventory Properties shall be deposited directly in the appropriate Concentration Account in accordance with the terms of the Account Collateral Security Agreement and all other receipts of cash, monies and cash equivalents by the Credit Parties will be deposited directly into the appropriate Concentration Account or as otherwise provided in the Account Collateral Security Agreement. The Concentration Accounts shall be under the sole dominion and control of the Collateral Agent (for the benefit of the Lenders). D. Real Estate. (i) Confirmation and Granting of Liens. (a) [intentionally omitted]. (b) In connection with any acquisition of real property by a Credit Party after the Effective Date, such Credit Party shall (x) at least thirty (30) days prior to the closing of the acquisition deliver to the Collateral Agent and the Lenders the following items, each in form and substance satisfactory to the Collateral Agent (i) a feasibility study for such real property, including comparisons with other similar projects, (ii) a report outlining the approval status of such real property (indicating expiration dates of approvals), (iii) a legal description of such real property sufficient for a mortgage and establishing that the property constitutes a legal lot or parcel under applicable subdivision laws, (iv) a report by an independent consultant satisfactory to Agent regarding investigation of such property for Hazardous Materials and compliance with Environmental Laws, with such report in form and substance satisfactory to Agent, (v) a cash flow schedule for such real property, (vi) a summary report updating land acquisition activity year-to-date, including a description of all future development commitments, and (vii) such other documents, instruments and information with respect to such real property as the Collateral Agent or any Lender shall reasonably request, and (y) no more than thirty (30) days after the closing of the acquisition deliver to the Collateral Agent and the Lenders, in a form and substance satisfactory to the Collateral Agent, a current appraisal of such real property performed by an appraiser satisfactory to Agent. Collateral Agent may from time to time designate any real property of any Credit Party which is not Mortgaged Property (including any real property acquired after the Effective Date) as "Additional Mortgaged Property," in which case such Credit Party shall as promptly as possible (and in any event within thirty (30) days after such designation) deliver to Collateral Agent a fully executed Mortgage, in form and substance satisfactory to Collateral Agent together with title insurance policies and surveys as required by subsections 3.2D(i)(d) and 3.2D(i)(e) and any other documents or instruments as Collateral Agent shall reasonably request to perfect a valid and enforceable first priority mortgage on the respective Additional Mortgage Property, free and clear of all defects and encumbrances except for validly perfected and enforceable Permitted Encumbrances. (c) Concurrently with the placement of a Mortgage on any Additional Mortgage Property, the Collateral Agent shall receive such estoppel letters, consents and waivers from the landlords and non- disturbance agreements from any holders of mortgages or deeds of trust on such real estate ("Leasehold Consents") as may be requested by Collateral Agent, which documents shall be in form and substance satisfactory to Collateral Agent. (d) Within thirty (30) days following delivery of any Mortgage with respect to Additional Mortgaged Property, Company shall deliver or cause to be delivered to Collateral Agent ALTA lenders title insurance policies issued by title insurers reasonably satisfactory to Collateral Agent (the "Mortgage Policies"), in form and substance, and in amounts, reasonably satisfactory to Collateral Agent assuring Lenders that the Mortgages are valid and enforceable first priority mortgage liens on the respective Additional Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances. The Mortgage Policies shall be in form and substance reasonably satisfactory to Collateral Agent and shall include a last dollar endorsement (to the extent permitted by applicable laws and regulations) and an endorsement for future advances under this Amended Loan Agreement, the Notes and the other Loan Documents, for mechanics' liens and for any other matter that Collateral Agent may reasonably request, and shall provide for affirmative insurance and such reinsurance as Collateral Agent may request all of the foregoing in form and substance satisfactory to Collateral Agent. (e) Within thirty (30) days following delivery of any Mortgage with respect to any Additional Mortgaged Property, Company shall deliver or cause to be delivered to Collateral Agent current surveys, certified by a licensed surveyor (or, with the Collateral Agent's consent, current approved subdivision maps), for such Mortgaged Property. All such surveys shall be certified to the Collateral Agent and the title insurer as having been prepared in accordance with the minimum standard detail requirement for land title surveys as adopted by the American Land Title Association and by the American Congress of Surveying and Mapping. (f) Collateral Agent may obtain, at the Borrowers' expense, (i) appraisals of any Mortgaged Property and Additional Mortgaged Property and (ii) annual updates to appraisals (including updates of any appraisals obtained pursuant to clause (i) of this subsection 3.2D(i)(f)). All such appraisals shall be in form and substance satisfactory to Collateral Agent. Collateral Agent may also obtain, at the Borrowers' expense, such audits of the Collateral as Collateral Agent may request; provided that the Collateral Agent may not request more than four audits in any Fiscal Year. Such audits may include, without limitation, on site inspections of the Collateral. Such audits will be conducted by Collateral Agent, Lenders or, in Collateral Agent's discretion, third parties satisfactory to Collateral Agent. (ii) Release Of Liens. (a) Provided that no Event of Default or Potential Event of Default has occurred and is continuing, on a bi-weekly basis, Collateral Agent shall deliver to either the General Counsel of Calton, a title insurance company acceptable to the Collateral Agent, or such other Person as shall be acceptable to the Collateral Agent, in each case as escrow agent, a Partial Release prepared and delivered by Borrowers to Collateral Agent for each Inventory Property, listed on the most recent Bi-Weekly Inventory Release Report delivered pursuant to subsection 6.1(i)(b), subject to an Inventory Property Closing during the fifteen (15) day period beginning on the day the next Bi-Weekly Inventory Release Report is due. Unless such escrow agent has been notified that an Event of Default or Potential Event of Default has occurred hereunder, a Partial Release may be released from escrow and delivered for recording at the applicable Inventory Property Closing. If a Partial Release has been delivered to an escrow agent (on behalf of a Credit Party) for an Inventory Property Closing and the Inventory Property Closing is cancelled and not rescheduled or is delayed and does not occur within seventy (70) days from the date of such delivery, the Partial Release shall be promptly returned to Collateral Agent. Upon the occurrence of an Event of Default or Potential Event of Default, releases of Partial Releases from escrow shall be suspended and all Partial Releases held in escrow at such time shall be promptly returned to the Collateral Agent. (b) The Net Closing Proceeds from the sale of any Inventory Property shall be deposited directly into the appropriate Concentration Account according to the terms of the Account Collateral Security Agreement and all other receipts of cash, monies and cash equivalents by the Credit Parties shall be deposited directly into the appropriate Concentration Account or as otherwise provided under the terms of the Account Collateral and Security Agreement. E. Further Assurances Regarding Security; Additional Security; Addition of New Guarantors. Each Credit Party shall, from time to time, execute and deliver to Collateral Agent on behalf of Lenders, such additional Security Documents, statements, documents, agreements and reports as Collateral Agent may from time to time reasonably request to evidence, perfect or otherwise implement or assure the security for repayment of the Obligations. Company will notify Collateral Agent promptly in the event (i) a Person becomes a Subsidiary of Company after the date hereof, or (ii) any Credit Party proposes to make an Investment in a Subsidiary of Company. Company at any time, at Collateral Agent's request, shall cause any Subsidiary to execute and deliver to Collateral Agent on behalf of Lenders such documents as shall be required in the discretion of the Collateral Agent to join such person as a Guarantor under the Guaranty Agreement and such Security Documents, and the appropriate Credit Party shall execute such further Security Documents, as may be required to grant and perfect a security interest in all of the capital stock and assets of such Subsidiary, all as may be requested by Collateral Agent. Section 4. CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS AND LETTERS OF CREDIT The effectiveness of this Amended Loan Agreement and the obligations of Lenders to make Loans and of Issuing Lender to issue Letters of Credit hereunder are subject to the satisfaction of all of the following conditions. 4.1 Conditions to Effectiveness. The Amended Loan Agreement shall become effective on the date (the "Effective Date") on which all of the conditions specified in Section 4.1 below shall have been satisfied or the satisfaction thereof shall have been waived by Requisite Lenders (or, in the case of the conditions set out in clauses 4.1E and 4.1F, all Lenders). A. Credit Party Documents. On or before the Effective Date, each Credit Party shall deliver or cause to be delivered to Lenders (or to Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, unless otherwise noted, for each of the Credit Parties and dated the Effective Date: (i) If such Credit Party is a corporation, signature and incumbency certificates of its officers executing each of the New Loan Documents to which it is a party; (ii) Executed originals of each of the New Loan Documents to which it is a party; and (iii) Such other documents as Agent may reasonably request. B. Opinions of Credit Parties' Counsel. Lenders and their respective counsel shall have received originally executed copies of one or more favorable written opinions of Giordano, Halleran & Ciesla, counsel for the Credit Parties, in form and substance reasonably satisfactory to Agent and its counsel, dated as of the Effective Date and setting forth substantially the matters in the opinions designated in Exhibit R annexed hereto and as to such other matters as Agent acting on behalf of Lenders may reasonably request. C. Intentionally omitted. D. Intentionally omitted. E. Intentionally omitted. F. Reduction in Principal amount of Existing Loans. Borrowers shall have paid to Agent for distribution to the Lenders under the Existing Loan Agreement principal on the Existing Tranche A Loans in an amount equal to the excess of the aggregate principal amount of such loans on the Effective Date over $35,650,000. Borrowers shall have paid to Agent for distribution to the Lenders under the Existing Loan Agreement principal on the Existing Tranche B Loans in an amount equal to the excess of the aggregate principal amount of such loans on the Effective Date over $10,350,000. Borrowers shall have paid to Agent for distribution to Lenders under the Existing Loan Agreement all principal and interest on the Standby Loans, if any, as such term is defined in the Existing Loan Agreement. G. No Material Adverse Effect. Since November 30, 1995, no Material Adverse Effect (in the sole reasonable opinion of Agent) shall have occurred. If the Company shall have complied with its obligations under the Existing Loan Agreement to prepay the Existing Tranche A Loans and Existing Tranche B Loans from the proceeds of Asset Sales (as such term is defined in the Existing Loan Agreement), no Asset Sale shall constitute a Material Adverse Effect for purposes of this subsection 4.1G. H. Representations and Warranties; Performance of Agreements. Each Credit Party shall have delivered to Agent an Officer's Certificate, in form and substance satisfactory to Agent, to the effect that the representations and warranties made by such Credit Party in the Loan Documents are true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date and that such Credit Party shall have performed in all material respects all agreements and satisfied all conditions which any of the Loan Documents provides shall be performed or satisfied by it on or before the Effective Date except as otherwise disclosed to and agreed to in writing by Agent and Requisite Lenders. I. Insurance. Each of the Lenders shall have received an insurance report performed by experts satisfactory to the Lenders and such insurance certificates and endorsements as the Lenders shall reasonably request, each in form and substance reasonably satisfactory to the Lenders. J. Borrowing Base Certificate. Each of the Lenders shall have received a Borrowing Base Certificate certified by the chief financial officer of Company and dated the Effective Date (i) calculating the Borrowing Base as of the last day of the most recent month ending more than 30 days prior to the Effective Date (the "Initial Borrowing Base") and demonstrating compliance hereunder with the Initial Borrowing Base after giving effect to the making of Loans hereunder, if any, and the other transactions contemplated by the Loan Documents to occur on the Effective Date and (ii) containing a statement by the chief financial officer of Company that he or she is aware of no circumstances which would lead him or her to reasonably believe that a Borrowing Base calculated as of the Effective Date would have a materially lower value than the Initial Borrowing Base. K. Corporate and Capital Structure. The composition of the board of directors of Company and the corporate structure, capital structure and management of Company and its Subsidiaries on the Effective Date shall be reasonably satisfactory to the Lenders. L. Intentionally omitted. M. Payment of Fees and Expenses. Borrowers shall have paid to Agent, for distribution to Lenders in accordance with their Pro Rata Shares, the installment of the Restructure Fee in the amount of $225,000 due on the Effective Date as set forth in subsection 2.3C. Borrowers shall have paid all of the actual costs and expenses, including reasonable attorneys' fees (including outside counsel's fees, printing, reproduction, document delivery and communication costs, and all allocated costs of Lenders' in-house counsel), incurred by Lenders in connection with the negotiation and/or preparation of the Loan Documents, the termsheets and commitment letters relating thereto, and any other contracts, instruments and documents required hereunder and the perfection of the Liens and other actions required pursuant to subsection 4.1L. N. Completion of Other Proceedings. All other corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Agent and such counsel, and Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Agent may reasonably request. 4.2 Conditions to Letters of Credit. The obligation of the Issuing Lender to issue any Letter of Credit is, in addition to the conditions precedent specified in subsections 4.1 and 4.3, subject to the further condition precedent that on or before the date of issuance of such Letter of Credit, the Issuing Lender shall have received, in accordance with the provisions of subsection 2.8B, a notice requesting the issuance of such Letter of Credit and all other information specified in subsection 2.8B, and such other documents as such Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. 4.3 Conditions to All Loans. The obligations of Lenders to make Loans on each Funding Date are, in addition to the conditions precedent to effectiveness set forth in Section 4.1, subject to the satisfaction of each of the following further conditions precedent: A. Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief executive officer, the chief financial officer or the treasurer of each Borrower or by any executive officer of the such Borrower designated by any of the above-described officers on behalf of such Borrower in a writing delivered to Agent. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (iii)Each Borrower shall have performed in all material respects all agreements and satisfied all conditions which this Amended Loan Agreement provides shall be performed or satisfied by it on or before that Funding Date; (iv) No order, judgment or decree of any court, arbitrator or govern- mental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; (v) The making of the Loans requested on such Funding Date shall not violate any law including, without limitation, Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; (vi) There shall not be pending or, to the knowledge of either Borrower, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries that has not been disclosed by Borrowers in writing pursuant to subsection 5.9 or 6.1(xii) prior to the making of the last preceding Loans (or, in the case of the initial Loans following the Effective Date, prior to the Effective Date), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, could reasonably be expected to have a Material Adverse Effect; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Amended Loan Agreement; (vii)Agent and Collateral Agent shall have received on behalf of Lenders such approvals, filings, opinions and documents as Agent or Collateral Agent may reasonably request; and (viii)No event or change shall have occurred that would cause or evidence, either in any case or in the aggregate, a Material Adverse Effect. The acceptance by Borrowers of the proceeds of any Loans shall be deemed to constitute, as of the date of such acceptance, (i) a representation and warranty by Borrowers that the conditions in this Section 4.3 have been satisfied and (ii) a confirmation by Borrowers of the granting and continuance of the Collateral Agent's Lien (on behalf of the Lenders) in the Collateral pursuant to the Loan Documents. Section 5. CREDIT PARTIES' REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amended Loan Agreement and to make the Loans and issue Letters of Credit hereunder, each Credit Party jointly and severally represents and warrants to each Lender, on the Effective Date and on each Funding Date, that the following statements are true, correct and complete: 5.1 Corporate Existence and Qualifications; Compliance with Law. A. Schedule 5.1(a) annexed hereto lists the state of organization of Company and each Subsidiary of Company and all other states or jurisdictions in which Company or such Subsidiary is qualified to do business as a foreign corporation or partnership. Company and each Subsidiary of Company (i) is a corporation or partnership duly organized, validly existing and in good standing under the laws of the state of its organization; (ii) is duly qualified as a foreign corporation or partnership and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing could not reasonably be expected to have a Material Adverse Effect); (iii) has the requisite corporate or partnership power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; and (iv) is in compliance with its certificate or articles of incorporation and bylaws or partnership agreement, as applicable. B. Company and each Subsidiary of Company (i) has, or will by the Effective Date have, all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all governmental authorities having jurisdiction, to the extent required for the ownership, operation and conduct of its properties and business as now, heretofore and proposed to be owned, operated and conducted; and (ii) is in compliance with all applicable provisions of law, the failure to comply with which would have a Material Adverse Effect. 5.2 Executive Offices. The respective current locations of Company's and each of its Subsidiaries' chief executive offices and principal places of business are set forth on Schedule 5.2 annexed hereto. 5.3 Subsidiaries. Schedule 5.3 sets forth all Subsidiaries of Company, together with (i) in the case of Subsidiaries of Company which are corporations, the authorized and outstanding capital stock of each such Subsidiary, by class and number and percentage of each class legally owned by Company or a Subsidiary of Company or any other Person, or to be so owned by the Effective Date and (ii) in the case of all other Subsidiaries of Company, all issued and outstanding ownership interests of each such Subsidiary by class and number and percentage of each class owned by Company or a Subsidiary of Company or any other Person, or to be so owned by the Effective Date. There are no options, warrants, rights to purchase or similar rights covering capital stock or other ownership interests for any such Subsidiary. 5.4 Conduct of Business. Company and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. 5.5 Authorization of Borrowing, etc. A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate or partnership action on the part of each Credit Party thereto. B. No Conflict. The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to such Credit Party or any order, judgment or decree of any arbitrator, court or other agency of government binding on such Credit Party, (ii) violate any provision of the Certificate or Articles of Incorporation or Bylaws of such Credit Party if it is a corporation or of the general partner or other person authorized to act on behalf of such Credit Party if it is not a corporation, (iii) violate any provision of its partnership, joint venture or similar organizational agreement if such Credit Party is not a corporation, (iv) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of such Credit Party, (v) result in or require the creation or imposition of any Lien upon any of the properties or assets of such Credit Party (other than any Liens created under any of the Loan Documents in favor of Collateral Agent on behalf of Lenders), or (vi) require any approval of stockholders, any partner or any approval or consent of any Person under any Contractual Obligation of such Credit Party, except for such approvals or consents which will be obtained on or before the Effective Date and disclosed in writing to Lenders. C. Governmental Consents. The execution, delivery and performance by each Credit Party of the Loan Documents to which such Credit Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other govern- mental authority or regulatory body. D. Binding Obligation. Each of the Loan Documents has been duly executed and delivered by each Credit Party which is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against each such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 5.6 Financial Condition. Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) a financial forecast dated February 27, 1997, for Company and its Subsidiaries for the period through November 30, 1999, (ii) the audited consolidated and consolidating balance sheets of Company and its Subsidiaries as at November 30, 1995, and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for the Fiscal Year then ended and (iii) the unaudited consolidated and consolidating balance sheets of Company and its Subsidiaries as at January 30, 1997, and the related unaudited consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for the three months then ended. All such statements were prepared in conformity with GAAP and fairly present the financial position (on a consolidated and, where applicable, consolidating basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated and, where applicable, consolidating basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. Company does not (and will not following the Effective Date) have any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company and its Subsidiaries taken as a whole. 5.7 No Material Adverse Change; No Restricted Junior Payments. Since November 30, 1995, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. Neither Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so. 5.8 Title to Properties; Liens. Company and its Subsidiaries have, and following the Effective Date will have, good, marketable and legal title, subject only to Permitted Encumbrances, to all of their respective properties and assets reflected in the financial statements referred to in subsection 5.6 or in the most recent financial statements delivered pursuant to subsection 6.1, except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as permitted by this Amended Loan Agreement, all such properties and assets are, and following the Effective Date will be, free and clear of Liens. Except for the Guarantors, no Subsidiary of Company has, or following the Effective Date will have, assets with a fair market value in excess of $50,000. The Liens granted to the Collateral Agent (for the benefit of the Lenders) will be fully perfected first priority Liens in and to the Collateral on the Effective Date and thereafter, subject only to any validly perfected and enforceable Permitted Encumbrances of record immediately prior to the Effective Date identified on Schedule 5.8 annexed hereto. 5.9 Litigation; Adverse Facts. Except as described in Schedule 5.9 annexed hereto, there is no action, suit, proceeding, arbitration or governmental investigation (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of any Credit Party, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries that has had, or could reasonably be expected to result in, a Material Adverse Effect. Neither Company nor any of its Subsidiaries is (i) in violation of any applicable law that has had, or could reasonably be expected to result in, a Material Adverse Effect or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that has had, or could reasonably be expected to result in, a Material Adverse Effect. 5.10 Payment of Taxes. Except to the extent permitted by subsection 6.3, all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes, assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. No Credit Party knows of any proposed tax assess- ment against Company or any of its Subsidiaries (other than any proposed tax assessment which Company or such Subsidiary expects to pay in the ordinary course of its business when due) which is not being actively contested by Company or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 5.11 Performance of Agreements; Materially Adverse Agreements. A. Neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. B. Neither Company nor any of its Subsidiaries is a party to or is otherwise subject to any agreement or instrument or any charter or other internal restriction which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect. 5.12 Governmental Regulation. Neither Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 5.13 Securities Activities. Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 5.14 Employee Benefit Plans. A. The Credit Parties and each of their ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. B. No ERISA Event has occurred or is reasonably expected to occur. C. Except to the extent required under Section 4980B of the Internal Revenue Code, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employees of any Credit Party or any of their ERISA Affiliates. D. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed $250,000. 5.15 Certain Fees. No broker's or finder's fee or commission will be payable with respect to this Amended Loan Agreement or any of the transactions contemplated hereby, and Borrowers hereby indemnify Lenders against, and agree that they will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.16 Environmental Protection. Except as set forth in Schedule 5.16 annexed hereto: (i) the operations of Company and each of its Subsidiaries (including, without limitation, all operations and conditions at or in the Facilities) comply in all material respects with all Environmental Laws; (ii) Company and each of its Subsidiaries have obtained all Governmental Authorizations under Environmental Laws necessary to their respective current operations and have no reason to believe they will be unable to obtain all Governmental Authorizations under Environmental Laws necessary to their respective future operations, and all such current Governmental Authorizations are in good standing, and Company and each of its Subsidiaries are in compliance with all material terms and conditions of such Governmental Authorizations; (iii)neither Company nor any of its Subsidiaries has received (a) any notice or claim to the effect that it is or may be liable to any Person as a result of or in connection with any Hazardous Materials or (b) any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9604) or comparable state laws, and, to the best of each Credit Party's knowledge, none of the operations of Company or any of its Subsidiaries is the subject of any federal or state investigation relating to or in connection with any Hazardous Materials at any Facility or at any other location; (iv) none of the operations of Company or any of its Subsidiaries is subject to any judicial or administrative proceeding alleging the violation of or liability under any Environmental Laws which if adversely determined is reasonably likely to have a Material Adverse Effect; (v) neither Company nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order or agreement with any governmental authority or private party relating to (a) any Environmental Laws or (b) any Environmental Claims; (vi) neither Company nor any of its Subsidiaries has, to the best knowledge of each Credit Party, any contingent liability in connection with any Release of any Hazardous Materials by Company or any of its Subsidiaries; (vii)neither Company nor any of its Subsidiaries nor, to the best knowledge of each Credit Party, any predecessor of Company or any of its Subsidiaries (including without limitation any prior owner or operator of any Facility) has filed any notice under any Environmental Law indicating past or present treatment or Release of Hazardous Materials at any Facility, and none of Company's or any of its Subsidiaries' operations nor, to the best knowledge of each Credit Party, any predecessor of Company or any of its Subsidiaries (including without limitation any prior owner or operator of any Facility) involves the generation, transportation, treatment, storage or disposal of Hazardous Materials; (viii)no Hazardous Materials exist on, under or about any Facility in a manner that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect, and neither Company nor any of its Subsidiaries has filed (or should have filed) any notice or report of a Release of any Hazardous Materials that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect; (ix) neither Company nor any of its Subsidiaries nor, to the best knowledge of each Credit Party, any of their respective predecessors (including without limitation any prior owner or operator of a Facility) has disposed of any Hazardous Materials in a manner that has a reasonable possibility of giving rise to an Environmental Claim having a Material Adverse Effect; (x) to the best knowledge of each Credit Party, no underground storage tanks or surface impoundments are on, under or at any Facility; and (xi) no Lien in favor of any Person relating to or in connection with any Environmental Claim has been filed or has been attached to any Facility. 5.17 Employee Matters. There is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that may have a Material Adverse Effect. 5.18 Outstanding Stock. On the Effective Date, the authorized capital of Company will consist of (i) 53,700,000 shares of Company Common Stock, of which approximately 26,550,000 shares will be issued and outstanding, and (ii) 2,600,000 shares of Redeemable Preferred Stock, of which no shares will be outstanding, and (iii) 10,000,000 shares of Class A Preferred Stock, of which none will be issued or outstanding. Schedule 5.18 identifies each Person who on the Effective Date will hold beneficially 5% or more of the Company Common Stock or the Redeemable Preferred Stock or who will hold Securities representing 5% or more of the combined voting power of all Securities of Company entitled to vote in the election of directors. On the Effective Date, Company will have no outstanding rights, options, warrants, or agreements pursuant to which it may be required to issue or sell any capital stock or other equity security, except as set forth in Schedule 5.18. 5.19 Insurance Policies. Schedule 5.19 lists all insurance of any nature maintained for current occurrences by Company and its Subsidiaries, as well as a summary of the terms of such insurance. All of such policies are in full force and effect and provide coverage of such risks and for such amounts as is customarily maintained for businesses of the scope and size of that of Company and its Subsidiaries. 5.20 Schedule of Deposit Accounts. Schedule 5.20 lists all material Deposit Accounts, of Company and its Subsidiaries, and such Schedule 5.20 correctly identifies the name and address of each depository, the name in which the account is held, the purpose of the account and the complete account number. 5.21 Solvency. On the Effective Date each Credit Party will be and, upon the incurrence of any Obligations by such Credit Party on any date on which this representation is made, will be, Solvent. 5.22 Mortgaged Properties. All of the Real Estate owned or leased by the Credit Parties and their Subsidiaries is described in Schedule 5.22 annexed hereto. Except as set forth on Schedule 5.22, all of the Real Estate described in said Schedule constitutes the Mortgaged Properties. 5.23 Disclosure. No representation or warranty of any Credit Party contained in any Loan Document or in any other document, certificate or written statement fur- nished to Lenders by or on behalf of such Credit Party for use in connection with the transactions contemplated by this Amended Loan Agreement contains any untrue statement of a material fact or omits to state a material fact (known to such Credit Party, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Credit Parties to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known (or which should upon the reasonable exercise of diligence be known) to any Credit Party (other than matters of a general economic nature) that has had, or could reasonably be expected to result in, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. 5.24 Financial Condition of Certain Subsidiaries. On the Effective Date each of the following entities has no assets and on the date of the dissolution thereof pursuant to subsection 6.12, each of the following entities shall have no assets: Calton Homes of Tampa, Inc.; Calcap 42, Inc.; Calton Lindenwood Corporation; Calton Manzanita Corporation; Calton California Equity Corporation; Calton Tamarack Corporation; Calcap XXXIII, Inc.; Calcap Commercial Management Inc.; Calton General Inc.; Talpro 31, L.P.; Talpro 32, L.P.; Calcap XXXII, Inc.; Talpro 33, L.P.; Calcap X, Inc.; and Calcap XXI, Inc. 5.25 Survival of Rights Created under Existing Loan Agreement. Notwithstanding the modification or deletion of certain representations and warranties of Borrowers contained in the Existing Loan Agreement (including, without limitation, the deletion of representations and warranties as to the future consequences of certain events which occurred prior to the date of this Amended Loan Agreement), but subject to the waiver of certain Events of Default provided in subsection 11.23 hereof, each Borrower acknowledges and agrees that any choses in action or other rights created in favor of any Lender and their respective successors and assigns arising out of the representations and warranties of Borrowers contained in or delivered (including representations and warranties delivered in connection with the making of loans thereunder) in connection with the Existing Loan Agreement, shall survive the execution and delivery of this Amended Loan Agreement. Each Borrower and Lenders acknowledge that certain representations and warranties made by Borrowers under the Existing Loan Agreement (including representations and warranties as to the future consequences of certain events which occurred prior to the date of this Amended Loan Agreement) were made subject to changes in the facts and conditions on which such representations and warranties were based, which such changes were permitted or required under the Existing Loan Agreement or this Amended Loan Agreement and any such representations and warranties incorporated herein are so incorporated subject to such changes permitted or required under the Existing Loan Agreement or this Amended Loan Agreement. Section 6. CREDIT PARTIES' AFFIRMATIVE COVENANTS Each Credit Party covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the repayment in full of all amounts due under, or the cancellation or expiration of all Letters of Credit and all other amounts owing hereunder, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6 applicable to it. 6.1 Financial Statements and Other Reports. Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Lenders (or, in the case of subsection 6.1(i), to Agent, Collateral Agent and, upon request, Lenders): (i) Inventory Reports: (a) on a monthly basis, with reports due by the 5th day of each month commencing with the first such date after the Effective Date, a report in form and substance reasonably satisfactory to Agent, certified by the chief financial officer of Company (each a "Monthly Inventory Activity Report"), listing (1) all sales of Real Estate by Company or any of its Subsidiaries during the previous month, providing reasonable detail on a per unit (lot) basis regarding the date on which the closing of the sale of the unit (lot) occurred, the gross sales price of the unit (lot), the amount of settlement costs paid by the seller, the amount of Net Closing Proceeds received by the seller, the account number of the Concentration Account into which the Net Closing Proceeds were deposited (together with reasonable detail regarding sales of Inventory Properties to which such deposit relates), the date of such deposit, and (2) all acquisitions of Real Estate or interests in Real Estate (including information on the acquisition of options on Real Estate and the exercise of options on Real Estate), during the previous month, providing reasonable detail on a per unit (lot) basis regarding the date the closing of the acquisition of the unit (lot) occurred, the purchase price paid, and the date and place (including book and page) of recording of real estate security instruments granting Liens to the Collateral Agent; provided that if Collateral Agent determines in its sole discretion that the Monthly Inventory Activity Report does not provide the Collateral Agent information on a timely enough basis to accurately determine the status of lots that have been released or other inventory information, on the written request of Collateral Agent, such reports shall thereafter be delivered on a weekly basis with such reports due by the first Business Day of each week (such reports, if delivered on a weekly basis shall be referred to hereunder as "Weekly Inventory Activity Reports"); (b) on a bi-weekly basis, with reports due by the 1st and 15th day of each month commencing with the first such date after the Effective Date, a schedule signed by an officer of the Company or its legal counsel (each a "Bi-Weekly Inventory Release Report"), identifying all Partial Releases required for scheduled closings for the two week period beginning on the date the next Bi-Weekly Inventory Release Report is due; (c) on a monthly basis, with the reports due by the 15th day of each month commencing with the first such date after the Effective Date, (1) a certificate in form and substance reasonably satisfactory to Agent and signed by the chief financial officer of Company (each a "Monthly Inventory Certification Report") verifying the accuracy of the most recent inventory report prepared by the Collateral Agent and submitted to Company with respect to the Real Estate of Company and its Subsidiaries (together, if necessary, with a schedule containing such additions or deletions to the inventory report as the party certifying its accuracy shall deem necessary for an accurate description of such Real Estate), and (2) a forecast of sales and acquisition activity for the next month in form and substance satisfactory to the Agent and certified by the chief financial officer of Company (each a "Sales/Acquisition Forecast") listing (A) all planned real property closings (on a lot/unit basis) for the next month with reasonable detail regarding the projected closing dates, sales prices, settlement costs to be paid by the seller and net sales proceeds to be received by the seller and (B) all planned real property acquisitions for the next month (with lot/unit data if applicable) and reasonable detail regarding the projected closing dates and acquisition costs; and (ii) Borrowing Base Certificate; Sales and Closing Report: as soon as available and in any event within 30 days after the end of each month ending after the Effective Date (a) a borrowing base certificate in form and substance satisfactory to Agent and certified by the chief financial officer of Company (each a "Borrowing Base Certificate") listing in summary fashion (on a division basis) the Eligible Inventory Cost and Net Realizable Value of each Eligible Property and demonstrating in reasonable detail compliance with the Borrowing Base restrictions contained in subsection 2.4D with an attached schedule listing in reasonable detail borrowing base information for each Real Estate Project of Company and its Subsidiaries, including the project name, project location, project type, status, lot information (including total lots, lots closed, Spec Units and total lots remaining) and inventory value information (including Eligible Inventory Cost, Net Realizable Value, inventory reserves and 80% availability figures), all as of the end of the previous month, and (b) a summary report in form and substance satisfactory to Agent and signed by the chief financial officer of Company (each a "Sales and Closing Report") listing all sales and deliveries of Real Estate by Company and its Subsidiaries on a weekly basis for the three month period ending as of the end of the previous month; and (iii)Monthly Financials: as soon as available and in any event within 30 days after the end of the first two months of each fiscal quarter of each Fiscal Year after the Effective Date and within 45 days after the end of each month ending a fiscal quarter after the Effective Date, (a) the consolidated and, upon request by any Lender, consolidating balance sheets of Company and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xv), to the extent prepared on a monthly basis, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condi- tion of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, and (b) at the request of Agent, a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such month and for the period from the beginning of the then current Fiscal Year to the end of such month; and (iv) Quarterly Financials: as soon as available and in any event within 45 days after the end of each fiscal quarter of each Fiscal Year, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such fiscal quarter and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xv), all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, and (b) at the request of Agent, a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such fiscal quarter and for the period from the beginning of the then current Fiscal Year to the end of such fiscal quarter; (v) Year-End Financials: within 10 days after the Effective Date (in the case of the Fiscal Year ended November 30, 1996) and as soon as available and in any event within 90 days after the end of each Fiscal Year thereafter, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xv), all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, (b) a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year, and (c) in the case of such consolidated financial statements, a report thereon of Coopers & Lybrand or other independent certified public accountants of recognized national standing selected by Company and satisfactory to Agent, which report shall be unqualified, shall express no doubts about the ability of Company and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; provided, however, that Company shall deliver preliminary drafts of the financial statements referred to in clause (a) above within 45 days after the end of such Fiscal Year; (vi) Officers' and Compliance Certificates: together with each delivery of financial statements of Company and its Subsidiaries pursuant to subdivisions (iii), (iv) and (v) above, (a) an Officers' Certificate of Company stating that the signers have reviewed the terms of this Amended Loan Agreement and have made, or caused to be made under their super- vision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7; (vii)Reconciliation Statements: if, as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 5.6, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions, (iii), (iv), (v) or (xv) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then (a) together with the first delivery of financial statements pursuant to subdivision (iii), (iv), (v) or (xv) of this subsection 6.1 following such change, consolidated financial statements of Company and its Subsidiaries for (y) the current Fiscal Year to the effective date of such change and (z) the two full Fiscal Years immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (b) together with each delivery of financial statements pursuant to subdivision (iii), (iv), (v) or (xv) of this subsection 6.1 following such change, a written statement of the chief accounting officer or chief financial officer of Company setting forth the differences which would have resulted if such financial statements had been prepared without giving effect to such change; (viii)Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (v) above, a written statement by the independent certified public accountants giving the report thereon stating whether, in connection with their audit examination, anything has come to their attention that caused them to believe that the Company has failed to comply with any term or provisions hereof and if any such failure to comply has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination; (ix) Accountants' Reports: promptly upon receipt thereof (unless restricted by applicable professional standards), copies of all reports submitted to Company by independent certified public accountants in connection with each annual, interim or special audit of the financial statements of Company and its Subsidiaries made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (x) SEC Filings and Press Releases: promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; (xi) Events of Default, etc.: promptly upon any officer of Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender, Agent or Collateral Agent has given any notice or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Company were required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (xii)Litigation: (a) promptly upon any officer of Company obtaining knowledge of (X) the institution of, or non-frivolous threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries (collectively, "Proceedings") not previously disclosed in writing by Company to Lenders or (Y) any material development in any Proceeding that, in any case: (1) if adversely determined, is reasonably likely to cause a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; and (b) within twenty days after the end of each fiscal quarter of Company, a schedule of all Proceedings involving an alleged liability of, or claims against or affecting, Company or any of its Subsidiaries equal to or greater than $500,000, and promptly after request by Agent such other information as may be reasonably requested by Agent to enable Agent and its counsel to evaluate any of such Proceedings; (xiii)ERISA Events: promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action the applicable Credit Party or any of its ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xiv)ERISA Notices: with reasonable promptness, copies of (a) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Credit Party or any of its ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (b) all notices received by any Credit Party or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) such other documents or governmental reports or filings relating to any Employee Benefit Plan as Agent shall reasonably request; (xv) Financial Plans: as soon as practicable and in any event no later than 30 days prior to the beginning of each Fiscal Year, a consolidated and consolidating plan and financial forecast for the next 2 succeeding Fiscal Years, including, without limitation, (a) forecasted consolidated and consolidating balance sheets and forecasted consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, (b) forecasted consolidated and consolidating statements of income and cash flows of Company and its Subsidiaries for each quarter of such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, and (c) such other information and projections as any Lender may reasonably request; (xvi)Insurance: as soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Agent outlining all material insurance coverage maintained as of the date of such report by Company and its Subsidiaries and all material insurance coverage planned to be maintained by Company and its Subsidiaries in the immediately succeeding Fiscal Year; (xvii)Environmental Audits and Reports: as soon as practicable following receipt thereof, copies of all environmental audits and reports, whether prepared by personnel of Company or any of its Subsidiaries or by independent consultants, which relate to an Environmental Claim which could result in a Material Adverse Effect, or with respect to environmental matters at any Facility; (xviii)Board of Directors: with reasonable promptness, written notice of any change in the Board of Directors of Company or any of its Subsidiaries; and (xix)Other Information: with reasonable promptness, such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender. 6.2 Corporate Existence, etc. Each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided, however, that (i) no Credit Party shall be required to preserve the corporate existence, rights or franchises of any of its Subsidiaries which are not Credit Parties where the preservation thereof is no longer desirable in the context of the business of Company and its Subsidiaries taken as a whole and where such modification or elimination would not have a Material Adverse Effect and (ii) the Credit Parties identified in subsection 5.24 may be dissolved. 6.3 Payment of Taxes and Claims; Tax Consolidation. A. Each Credit Party will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. B. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). 6.4 Maintenance of Properties; Insurance. A. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of such Credit Party and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. B. Each Credit Party will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and businesses and the properties and businesses of its Subsidiaries against loss or damage of the kinds customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses. Without limiting the generality of the foregoing, each of the Credit Parties will maintain the following policies of insurance with respect to their properties and businesses and the properties and businesses of their Subsidiaries, in form and substance reasonably satisfactory to Collateral Agent: (i) with respect to any improvements on the Real Estate as to which construction has commenced but has not been completed and any personal property used or to be used in connection with such improvements, builder's "all risk" insurance ("completed value" form), including "course of construction" coverage; (ii) with respect to any improvements on the Real Estate as to which construction has been completed and any personal property used or to be used in connection with such improvements, property "all risk" insurance; (iii)commercial general liability insurance in favor of Company and its Subsidiaries (and naming Collateral Agent as an additional insured) in an aggregate amount not less than $11,000,000 (or such greater amount as may be specified by Collateral Agent from time to time) combined single limit; and (iv) such other insurance as may be required by applicable statutes, ordinances, orders, rules, regulations, decrees or the like (including worker's compensation and employer's liability insurance) or as Collateral Agent may reasonably require from time to time (including comprehensive form boiler and machinery insurance, if applicable). In addition, each Credit Party shall, and shall cause each of its Subsidiaries to, cause each contractor and subcontractor engaged to perform work in connection with the Real Estate to maintain a policy of commercial general liability insurance and, upon request by Collateral Agent, shall cause architects and engineers engaged to perform work in connection with the Real Estate to maintain policies of professional liability insurance, in each case for such periods and in such amounts as Collateral Agent may reasonably require from time to time. Each policy of property insurance required by this subsection 6.4 shall be in an amount not less than the full replacement cost of the property covered by such policy, shall contain a "full replacement cost" endorsement and an agreed value clause, shall insure against flood loss risk if the Real Estate (or any part thereof) is located in a Flood Hazard Area, and shall contain a mortgage clause insuring Collateral Agent pursuant to Form BFU 438 or other form approved by Collateral Agent. Each policy of commercial general liability insurance required by this subsection 6.4 shall cover personal injury, property damage, owner/contractor protective, blanket contractual liability and (where applicable) completed operations, with x, c and u exclusions deleted, shall name Collateral Agent as an additional insured, and such insurance shall be primary and non-contributing with any other insurance available to Collateral Agent. All insurance policies shall be in form and substance and issued by insurers reasonably satisfactory to Collateral Agent, and shall contain such deductibles and such endorsements as Collateral Agent may reasonably require. Upon request by Collateral Agent from time to time, Company shall deliver or cause the delivery to Collateral Agent of originals or copies of all such insurance policies and certificates evidencing such policies. Each such policy of insurance shall provide for at least 30 days prior written notice to Agent and Collateral Agent of any modification or cancellation of such policy. On or before the end of the first fiscal quarter of each Fiscal Year, Company shall submit to Agent (i) an Officer's Certificate setting forth in detail the type and amount of insurance maintained pursuant to this subsection 6.4 and (ii) a certificate from an independent insurance brokerage confirming that such insurance satisfies the requirements of this subsection 6.4. 6.5 Inspection; Lender Meeting. Each Credit Party shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of such Credit Party or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that such Credit Party may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. Without in any way limiting the foregoing, each Credit Party will, upon the request of Agent, Requisite Lenders, Requisite Tranche A Lenders, or Requisite Tranche B Lenders, participate in a meeting of Agent and Lenders, Agent and Tranche A Lenders or Agent and Tranche B Lenders, as requested, to be held at Company's corporate offices (or such other location as may be agreed to by such Credit Party and Agent) at such time as may be agreed to by such Credit Party and Agent. 6.6 Compliance with Laws, etc. Each Credit Party shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which is reasonably likely to cause a Material Adverse Effect and with the requirements of all Governmental Authorizations affecting any Facility or Real Estate Project noncompliance with which is reasonably likely to cause a Material Adverse Effect. 6.7 Environmental Disclosure and Inspection. A. Each Credit Party shall, and shall cause each of its Subsidiaries to, exercise all due diligence in order to comply and cause (i) all tenants under any leases or occupancy agreements affecting any portion of the Facilities and (ii) all other Persons on or occupying such property, to comply with all Environmental Laws. B. Each Credit Party agrees that Agent may, from time to time and in its sole and absolute discretion, retain, at Borrowers' expense, an independent professional consultant to review any report relating to Hazardous Materials prepared by or for Company or any of its Subsidiaries and to conduct its own investigation of any Facility currently or proposed to be owned, leased, operated or used by Company or any of its Subsidiaries, and each Credit Party agrees to use its best efforts to obtain permission for Agent's professional consultant to conduct its own investigation of any Facility previously owned, leased, operated or used by Company or any of its Subsidiaries. Each Credit Party hereby grants to Agent and its agents, employees, consultants and contractors the right to enter into or on to the Facilities currently owned, leased, operated or used by Company or any of its Subsidiaries to perform such tests on such property as are reasonably necessary to conduct such a review and/or investigation. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by Company and Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at any such Facility or to cause any damage or loss to any property at such Facility. Each Credit Party and Agent hereby acknowledge and agree that any report resulting from any investigation conducted at the request of Agent pursuant to this subsection 6.7B will be obtained and shall be used by Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests and Liens, created by the Loan Documents and to maintain the security for the Loans free from liability for Environmental Claims. Agent agrees to deliver a copy of any such report to Company with the understanding that each Borrower acknowledges and agrees that (i) Borrowers will indemnify and hold harmless Agent and each Lender from any costs, losses or liabilities relating to the use of or reliance on such report by Company, (ii) neither Agent nor any Lender makes any representation or warranty with respect to such report, and (iii) by delivering such report to Company, neither Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. C. Each Credit Party shall promptly advise Lenders in writing and in reasonable detail of (i) any Release of any Hazardous Materials required to be reported by it to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (ii) any and all written communications with respect to any Environmental Claims that have a reasonable possibility of giving rise to a Material Adverse Effect or with respect to any Release of Hazardous Materials required to be reported to any federal, state or local governmental or regulatory agency, (iii) any remedial action taken by such Credit Party or any other Person in response to (x) any Hazardous Materials on, under or about any Facility, the existence of which has a reasonable possibility of resulting in an Environmental Claim having a Material Adverse Effect, or (y) any Environmental Claim that could have a Material Adverse Effect, (iv) such Credit Party's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws, and (v) any request for information from any governmental agency that suggests such agency is investigating whether such Credit Party or any of its Subsidiaries may be potentially responsible for a Release of Hazardous Materials. D. Each Credit Party shall promptly notify Lenders of (i) any proposed acquisition of stock, assets, or property by such Credit Party or any of its Subsidiaries that could reasonably be expected to expose such Credit Party or any of its Subsidiaries to, or result in, Environmental Claims that could have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on any Governmental Authorization then held by such Credit Party or any of its Subsidiaries and (ii) any proposed action to be taken by such Credit Party or any of its Subsidiaries to commence manufacturing, industrial or other operations that could reasonably be expected to subject such Credit Party or any of its Subsidiaries to additional laws, rules or regulations, including, without limitation, laws, rules and regulations requiring additional environmental permits or licenses. E. Each Credit Party shall, at its own expense, provide copies of such documents or information as Agent may reasonably request in relation to any matters disclosed pursuant to this subsection 6.7. 6.8 Credit Parties' Remedial Action Regarding Hazardous Materials. Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all necessary remedial action in connection with the presence, storage, use, disposal, transportation or Release of any Hazardous Materials on, under or about any Facility in order to comply with all applicable Environmental Laws and Governmental Authorizations. In the event a Credit Party or any of its Subsidiaries undertakes any remedial action with respect to any Hazardous Materials on, under or about any Facility, such Credit Party or such Subsidiary shall conduct and complete such remedial action in compliance with all applicable Environmental Laws, and in accordance with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, such Credit Party's or such Subsidiary's liability for such presence, storage, use, disposal, transportation or discharge of any Hazardous Materials is being contested in good faith by such Credit Party or such Subsidiary. 6.9 Environmental Indemnity. Borrowers shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless each Indemnitee from and against any action, suit, proceeding, claim or loss suffered or incurred by that Indemnitee under or on account of any Environmental Claims; provided that Borrowers shall have no obligation to pay, perform, discharge, defend, indemnify or hold harmless any Indemnitee hereunder to the extent that the claim or loss suffered or incurred by such Indemnitee arose solely from the gross negligence or willful misconduct of such Indemnitee, all as evidenced by a final judgment of a court of competent jurisdiction. 6.10 Security for Obligations. Each Credit Party shall, and shall cause each of its Subsidiaries, to comply with each of the agreements and undertakings set forth in Section 3 hereof applicable to it. 6.11 [omitted] 6.12 Dissolution of Certain Subsidiaries. As soon as reasonably practicable, Company shall cause the corporate or partnership dissolution and liquidation of each of the entities identified in subsection 5.24, and shall deliver to Agent copies of certificates of dissolution for each such entity filed with the secretary of state of the state of incorporation or organization for each such entity. Company shall cause each such entity to have no assets on and after the Effective Date. After the dissolution thereof, each such entity shall cease to be a Guarantor or a Credit Party. 6.13 Other Land and Sale Options Borrowers shall use their best efforts to complete the Land and Land Option sales identified in "strategy one" as set forth in that certain business analysis and corporate restructuring strategy - Phase 1 Report, dated January, 1997, in the form delivered to the Lenders before the date hereof. 6.14 Post-Closing Matters. A. Perfection of Security Interests. Not more than 30 days after the Effective Date Each Credit Party shall have taken or caused to be taken (and Collateral Agent shall have received satisfactory evidence thereof) such actions in such a manner so that, as of such date, Collateral Agent has, on behalf of the Lenders, valid and perfected first priority Liens in the entire Collateral (except to the extent any such security interest cannot be granted under applicable laws), subject only to valid, perfected and enforceable Permitted Encumbrances. Such actions shall include, without limitation, the following: (i) The receipt by the Collateral Agent of (a) evidence satisfactory to it that amendments ("Mortgage Amendments") to each Existing Mortgage have been executed and acknowledged and will be recorded in all jurisdictions as may be necessary or, in the opinion of Collateral Agent, desirable to effectively create or maintain in effect valid and perfected Liens created by the Existing Mortgages securing the Obligations, as such Obligations have been amended or modified by this Amended Loan Agreement; and (b) favorable written opinions of counsel in the states of New Jersey, Florida, and Pennsylvania (who shall be reasonably satisfactory to Collateral Agent) regarding the execution, delivery, enforceability and effect of the Mortgage Amendments, and as to such other matters as Collateral Agent may reasonably request, in form and substance satisfactory to Collateral Agent; and (c) title reports obtained by Company in respect of each Mortgaged Property. (ii) The receipt by the Collateral Agent of evidence that fully executed and acknowledged Mortgages covering the real property (including fixtures) designated on Schedule 5.22 annexed hereto have been recorded in all places to the extent necessary or desirable, in the judgment of Collateral Agent, so as to effectively create a valid and enforceable first priority perfected Lien on the Mortgaged Properties in favor of Collateral Agent (or in favor of a mortgagee acting on behalf of Collateral Agent or a trustee for the benefit of the Collateral Agent as may be required or desired under local law) for the benefit of Lenders subject only to any valid, perfected and enforceable Permitted Encumbrances. (iii) The receipt by the Collateral Agent of evidence satisfactory to it that all other filings, recordings and other actions Collateral Agent deems necessary or advisable to establish, preserve and perfect the first priority Liens subject only to valid, perfected and enforceable Permitted Encumbrances granted to Collateral Agent in the Collateral (including, without limitation, Collateral subject to the Lien of any Collateral Document executed and delivered pursuant to the Existing Loan Agreement) shall have been made. B. Payment of Fees and Expenses. Not more than 30 days after the Effective Date, Borrowers shall have paid all of the actual costs and expenses, including reasonable attorneys' fees (including outside counsel's fees, printing, reproduction, document delivery and communication costs, and all allocated costs of Lenders' in-house counsel), incurred by Lenders in connection with the actions required by subsection 6.14A. C. Other Post Closing Matters. Not later than the 30th day after the Effective Date, Borrowers shall have complied with each of the covenants set forth on Schedule 6.14 hereto. Section 7. CREDIT PARTIES' NEGATIVE COVENANTS Each Credit Party hereby covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the repayment in full of all amounts due under, or the cancellation or expiration of all Letters of Credit and all other amounts owing hereunder, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7 applicable to it. 7.1 Indebtedness. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) Borrowers may become and remain liable with respect to the Obligations; (ii) the Credit Parties may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corre- sponding to the Contingent Obligations so extinguished; (iii)the Credit Parties may become and remain liable with respect to Indebtedness in respect of Capital Leases; provided that such Capital Leases are permitted under the terms of subsection 7.9; (iv) any Guarantor may become and remain liable with respect to Indebtedness to either Borrower to the extent permitted by subsection 7.3; provided that (a) all such intercompany Indebtedness shall be evidenced by Intercompany Notes, which shall be pledged to the Collateral Agent to secure the obligations pursuant to the Security Documents, (b) the obligations of each obligor for all such intercompany Indebtedness shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any Guarantor under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any intercompany Indebtedness owed by such Guarantor to either Borrower; (v) the Credit Parties may remain liable with respect to Indebtedness described in Schedule 7.1 annexed hereto; (vi) the Credit Parties may become and remain liable with respect to Purchase Money Mortgage Obligations; provided that (A) in each case such Purchase Money Mortgage Obligation has been expressly approved in writing by all Lenders and (B) the aggregate amount of such Purchase Money Mortgage Obligations does not at any time exceed $5,000,000; and (vii)the Credit Parties may become and remain liable with respect to other Indebtedness, not described in clauses (i) through (vi) above, in an aggregate principal amount not to exceed $250,000 at any time. 7.2 Liens and Related Matters. A. Prohibition on Liens. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or record or permit the recording of any mortgage or file or permit the filing of any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the recording laws or the Uniform Commercial Code of any State or under any similar recording or notice statute, except: (i) Permitted Encumbrances; (ii) Purchase Money Mortgage Liens securing Purchase Money Mortgage Obligations; provided that the Purchase Money Mortgage Obligations to which such Liens relate are permitted by the terms of Section 7.1 and the purchase of the asset subject to such Lien is permitted under the terms of subsection 7.7; (iii)Liens described in Schedule 5.8 annexed hereto; (iv) Liens securing purchase money obligations to vendors of appliances incurred in the ordinary course of business, provided that the amount of obligations secured by such Liens shall not exceed $250,000 in the aggregate at any time and such Liens shall cover only appliances sold by such vendors; (v) Liens on cash deposited with bonding companies securing Contingent Obligations with respect to performance and surety bonds permitted by subsection 7.4(vii), provided, that the aggregate amount of cash deposited with bonding companies subject to such Liens shall not at any time exceed $4,000,000; and (vi) Liens granted in favor of Collateral Agent for the benefit of Lenders pursuant to the Security Documents. B. No Further Negative Pledges. Except with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale, each Credit Party shall not, and shall not permit any of its Subsidiaries to, enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. C. No Restrictions on Subsidiary Distributions to Company or Other Subsidiaries. Except as provided herein, each Credit Party shall not, and shall not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by Company or any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or advances to Company or any other Subsidiary of Company, or (iv) transfer any of its property or assets to Company or any other Subsidiary of Company. 7.3 Investments; Joint Ventures. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: (i) the Credit Parties may make and own Investments in Cash Equivalents in an aggregate amount not to exceed $6,500,000 at any time; (ii) the Borrowers may make Intercompany Loans to Guarantors to the extent permitted under subsection 7.1(iv), provided that (x) the aggregate amount of Intercompany Loans made to Restricted Credit Parties shall not at any time exceed $500,000, unless consented to in writing by the Lenders and (y) no Intercompany Loans may be made to any Restricted Talpro Entity until such entity shall have entered into Security Documents and/or amendments to Security Documents in form and substance reasonably satisfactory to Agent and Requisite Lenders, creating a validly perfected and enforceable security interest in all assets of such Restricted Talpro Entity subject only to Permitted Encumbrances and other Liens permitted by the terms of this Amended Loan Agreement; (iii)the Credit Parties may make or incur Consolidated Capital Expenditures, Consolidated Land Acquisition Costs and Consolidated Land Development Costs permitted by subsection 7.8, provided that this clause (iii) shall not permit an Investment by a Credit Party in any Person that is not otherwise permitted by the terms of this Section 7.3; (iv) the Credit Parties may continue to own the Investments owned by them and described in Schedule 7.3(iv) annexed hereto; (v) [intentionally omitted]; (vi) the Credit Parties may make and own other Investments in any of their wholly-owned Subsidiaries in an aggregate amount not at any time to exceed $50,000, provided that prior to making any such Investment the Subsidiary receiving such Investment shall have been added as a Guarantor hereunder and shall have granted to the Collateral Agent (for the benefit of the Lenders) a valid and enforceable first priority Lien in all of its assets, real, personal and mixed, in accordance with the terms of subsection 3.2E. 7.4 Contingent Obligations. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) the Credit Parties may become and remain liable with respect to Contingent Obligations pursuant to the Loan Documents; (ii) the Credit Parties may become and remain liable with respect to Contingent Obligations resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; (iii)[omitted] (iv) the Credit Parties may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets; (v) the Credit Parties may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Company and its Subsidiaries in an aggregate amount not to exceed at any time $500,000; (vi) the Credit Parties may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness permitted by subsection 7.1 (other than subsection 7.1(ii)); (vii)the Credit Parties may become liable with respect to Contingent Obligations in respect of performance and surety bonds incurred in the ordinary course of business and customary indemnification obligations to bonding companies incurred in connection with the issuance of such bonds; provided that the aggregate amount of such Contingent Obligations does not, at any time before November 30, 1997 exceed $30,000,000 and does not at any time on or after that date exceed $20,000,000; and (viii)Company and its Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed hereto. 7.5 Restricted Junior Payments. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment. 7.6 Financial Covenants. A. Minimum Consolidated Adjusted EBITDA. The Credit Parties shall not permit Consolidated Adjusted EBITDA for the four quarter periods ending on the dates set forth below to be less than the correlative amount indicated: Minimum Consolidated Date Adjusted EBITDA February 28, 1997 $ 7,000,000 May 31, 1997 $ 6,500,000 August 31, 1997 $ 7,500,000 November 30, 1997 $ 7,250,000 February 28, 1998 $ 8,500,000 May 31, 1998 $ 9,500,000 August 31, 1998 $ 9,500,000 B. Minimum Consolidated Adjusted Tangible Net Worth. The Credit Parties shall not permit Consolidated Adjusted Tangible Net Worth as of each of the dates set forth below to be less than the correlative amount indicated: Minimum Consolidated Date Adjusted Tangible Net Worth February 28, 1997 $24,800,000 May 31, 1997 $22,500,000 August 31, 1997 $25,000,000 November 30, 1997 $27,000,000 February 28, 1998 $28,000,000 May 31, 1998 $28,000,000 August 31, 1998 $29,000,000 C. Minimum Consolidated Interest Expense Coverage Ratio. The Credit Parties shall not permit the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Cash Interest Expense for the four fiscal quarter periods ending on the dates set forth below to be less than the correlative amount indicated: Date Minimum Interest Coverage February 28, 1997 1.35:1.0 May 31, 1997 1.20:1.0 August 31, 1997 1.35:1.0 November 30, 1997 1.11:1.0 February 28, 1998 1.40:1.0 May 31, 1998 1.87:1.0 August 31, 1998 2.45:1.0 7.7 Restriction on Fundamental Changes; Asset Sales. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of Company or any of its Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liqui- dation or dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or fixed assets, whether now owned or hereafter acquired, or acquire (other than in the ordinary course of business) by purchase or otherwise all or any portion of the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, except: (i) any Guarantor may be merged or consolidated with or into Company or any other Guarantor (which is not a Restricted Credit Party), or be liquidated, wound up or dissolved, or all or any substantial part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any other Guarantor (which is not a Restricted Credit Party); provided that, in the case of such a merger or consolidation, Company or such other Guarantor (which is not a Restricted Credit Party) shall be the continuing or surviving corporation; (ii) the Credit Parties may make or incur Consolidated Capital Expenditures, Consolidated Land Acquisition Costs, and Consolidated Land Development Costs permitted under subsection 7.8; (iii)subject to subsection 7.12, the Credit Parties may sell or otherwise dispose of assets in the ordinary course of business in transactions which do not constitute Asset Sales; provided, in each case, that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (iv) the Credit Parties may make Asset Sales of assets; provided that the lesser of Book Value and fair market value of each such Asset Sale (or group of assets sold over time that constitute a unified transaction) does not exceed $500,000; and provided further that (x) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (y) the sole consideration received shall be cash; and (z) the proceeds of such Asset Sales shall be applied as required by subsection 2.4C(ii); (v) the Credit Parties may make Asset Sales of assets of the Florida Division; provided that (x) the consideration received for such assets shall be in an amount at least equal to the greater of (1) the fair market value thereof and (2) 80% of the Eligible Inventory Cost of such assets, as reflected on the most recent Borrowing Base Certificate; (y) the sole consideration received shall be cash; and (z) the proceeds of such Asset Sales shall be applied as required by subsection 2.4C(v); and (vi) any wholly-owned Subsidiary of any Credit Party which is not a Credit Party may enter into a transaction of merger or consolidation with, or transfer all or any part of its assets to, a Credit Party or another wholly-owned Subsidiary of a Credit Party; provided that, in the case of a merger with a Credit Party, the Credit Party shall be the surviving corporation and after giving effect to such merger no Event of Default or Potential Event of Default would exist hereunder. 7.8 Certain Expenditure Limits. A. The Credit Parties shall not, and shall not permit any of their Subsidiaries to, make or incur Consolidated Capital Expenditures, in any fiscal quarter of the Company, in an amount in excess of $400,000 for period from December 1, 1996 to November 30, 1997 or in excess of $100,000 for each fiscal quarter ending after November 30, 1997. B. The Credit Parties shall not, and shall not permit any of their Subsidiaries to make or incur any Land Acquisition Costs or Land Development Costs with respect to any Real Estate Project unless the Credit Party which owns such Real Estate shall have complied with the terms of Section 3.2(D); C. The Credit Parties shall not, and shall not permit any of their Subsidiaries to make or incur Consolidated Land Acquisition Costs, in any period set forth below, in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Land Acquisition Costs") set forth below for such period. Maximum Consolidated Period Land Acquisition Costs December 1, 1996 to November 30, 1997 $22,000,000 December 1, 1997 to February 28, 1998 3,500,000 March 1, 1998 to May 31, 1998 500,000 June 1, 1998 to August 31, 1998 2,700,000 D. The Credit Parties shall not, and shall not permit any of their Subsidiaries to, make or incur Consolidated Land Development Costs, in any period set forth below, in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Land Development Costs") set forth below for such period: Maximum Consolidated Period Land Development Costs December 1, 1996 to November 30, 1997 $17,000,000 December 1, 1997 to February 28, 1998 2,700,000 March 1, 1998 to May 31, 1998 2,200,000 June 1, 1998 to August 31, 1998 1,800,000 E. The Credit Parties shall not, and shall not permit any of their Subsidiaries to make or incur any expenditures in an aggregate amount in excess of $2,000,000 with respect to any Real Estate Project if all Government Authorizations required for development of such Real Estate Project have not been obtained. F. The Credit Parties shall not, and shall not permit any of their Subsidiaries to make or incur Land Acquisition Costs or any other expenditures for the acquisition of land (including amounts funded through Purchase Money Mortgage Obligations) in an aggregate amount in excess of $4,000,000 with respect to any Real Estate Project other than the Renaissance Real Estate Project. G. The Credit Parties shall not, and shall not permit any of their Subsidiaries to make or incur Land Acquisition Costs or any other expenditures for the acquisition of land (including amounts funded through Purchase Money Mortgage Obligations) with respect to the Renaissance Real Estate Project in an aggregate amount in excess of $7,000,000 for period from December 1, 1996 to November 30, 1997 or in excess of $6,000,000 for the period from December 1, 1997 to August 31, 1998. 7.9 Restriction on Leases. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, become liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any lease, whether an Operating Lease or a Capital Lease (other than intercompany leases between Credit Parties which are not Restricted Credit Parties) unless, immediately after giving effect to the incurrence of liability with respect to such lease, the Consolidated Rental Payments at the time in effect during the then current Fiscal Year or any future period of 12 consecutive calendar months shall not exceed $2,000,000. 7.10 Sales and Lease-Backs. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than a Credit Party which is not a Restricted Credit Party) or (ii) which Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company or any of its Subsidiaries to any Person (other than a Credit Party which is not a Restricted Credit Party) in connection with such lease, except for the sale and lease-back of model homes in the ordinary course of business to the extent permitted by subsection 7.9. 7.11 Transactions with Shareholders and Affiliates. Each Credit Party shall not, and shall not permit any of its Sub- sidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Company or with any Affiliate of Company or of any such holder, on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (i) any transaction between any Credit Parties (other than between Credit Parties and Restricted Credit Parties) or (ii) reasonable and customary fees paid to members of the Boards of Directors of Company and its Subsidiaries. 7.12 Disposal of Subsidiary Stock. Except as required by the Loan Documents, no Credit Party shall: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries, except to qualify directors if required by applicable law; or (ii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Subsidiaries (including such Subsidiary), except to a Credit Party (other than a Restricted Credit Party), or to qualify directors, if required by applicable law. 7.13 Conduct of Business. Except as set forth on Schedule 7.13, from and after the Effective Date, each Credit Party shall not, and shall not permit any of its Subsidiaries to, (a) engage in any business other than (i) the businesses engaged in by the Credit Parties and their Subsidiaries on the Effective Date and similar or related businesses, and (ii) such other lines of business as may be consented to by Requisite Lenders or (b) engage in any business in any jurisdiction other than (i) New Jersey, (ii) Pennsylvania, (iii) California, (iv) Florida, (v) Illinois and (vi) such other jurisdictions as may be consented to by Requisite Lenders. 7.14 [intentionally omitted]. 7.15 Fiscal Year. The Credit Parties shall not change their Fiscal Year-end from November 30. 7.16 Restrictions On Purchase of Environmentally Contaminated Property. Each Credit Party shall not, and shall not permit any of its Subsidiaries to, purchase, lease or otherwise acquire any Facility with respect to which an environmental audit or other report (as referred to in subsection 3.2D(i)(b)(iv)) by an independent consultant satisfactory to Agent regarding investigation of such Facility for Hazardous Materials and compliance with Environmental Laws shows the presence of Hazardous Materials in such quantities or concentrations as may materially reduce the value of such property or materially impair the ability of such Credit Party or its Subsidiary to develop, operate or dispose of such property free from any Environmental Claim or may otherwise subject such Credit Party or its Subsidiary to an Environmental Claim. Section 8. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: 8.1 Failure to Make Payments When Due. Failure to pay any installment of principal of or interest on any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; failure to pay any amount payable in reimbursement of an Issuing Lender in respect of a Letter of Credit when due or failure to pay any fee or any other amount due under this Amended Loan Agreement or any other Loan Document within five days after the date due; or 8.2 Default in Other Agreements. (i) Failure of any Credit Party or any of its respective Subsidiaries to pay when due (a) any principal of or interest on any Indebtedness (other than Indebtedness referred to in subsection 8.1) in an individual principal amount of $500,000 or more or any items of Indebtedness with an aggregate principal amount of $500,000 or more or (b) any Contingent Obligation in an individual principal amount of $500,000 or more or any Contingent Obligations with an aggregate principal amount of $500,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by any Credit Party or any of its respective Subsidiaries with respect to any other material term of (a) any evidence of any Indebtedness in an individual principal amount of $500,000 or more or any items of Indebtedness with an aggregate principal amount of $500,000 or more or any Contingent Obligation in an individual principal amount of $500,000 or more or any Contingent Obligations with an aggregate principal amount of $500,000 or more or (b) any loan agreement, mortgage, indenture or other agreement relating to such Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3 Breach of Certain Covenants. Failure of any Credit Party to perform or comply with any term or condition contained in subsection 2.4, 2.5, 6.2, 6.4, 6.9 or Section 7 of this Amended Loan Agreement; or 8.4 Breach of Warranty. Any material representation, warranty, certification or other statement made by any Credit Party or any of its respective Subsidiaries in any Loan Document or in any statement or certificate at any time given by any Credit Party or any of its respective Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 Other Defaults Under Loan Documents. Any Credit Party shall default in the performance of or compliance with any material term contained in this Amended Loan Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 10 days after the earlier of (i) an officer of the applicable Credit Party becoming aware of such default or (ii) receipt by the applicable Credit Party of notice from Agent or any Lender of such default; provided that any such default which is not capable of being cured by a Credit Party within 10 days shall not constitute an Event of Default under this subsection 8.5 if, within 10 days of the earlier of the events described in clauses (i) and (ii) above, the applicable Credit Party shall have commenced appropriate efforts to cure such default and thereafter diligently pursued such efforts and such Default shall have been remedied or waived within 30 days of the earlier of the events described in clauses (i) and (ii) above; or 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of any Credit Party or any of their respective Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against any Credit Party or any of their respective Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Credit Party or any of their respective Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of any Credit Party or any of their respective Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of any Credit Party or any of their respective Subsidiaries, and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; provided, however, that any such actions described in this subsection 8.6 relating solely to any Subsidiaries of Company which are not Credit Parties shall not constitute an Event of Default under this subsection 8.6 unless such actions (either individually or in the aggregate) would have a Material Adverse Effect; or 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Any Credit Party or any of their respective Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or any Credit Party or any of their respective Subsidiaries shall make any assignment for the benefit of creditors; or (ii) any Credit Party or any of their respective Sub- sidiaries shall be unable or shall fail, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of any Credit Party or any of their respective Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); provided, however, that any such actions described in this subsection 8.7 relating solely to any Subsidiaries of Company which are not Credit Parties shall not constitute an Event of Default under this subsection 8.7 unless such actions (either individually or in the aggregate) would have a Material Adverse Effect; or 8.8 Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving in an individual case or in the aggregate at any time an amount in excess of $500,000 (not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against any Credit Party or any of their respective Subsid- iaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); provided, however, that any such money judgment, writ or warrant of attachment or similar process relating to the matters described on Schedule 5.9 hereto under item K and not involving liability against any Credit Party other than Calton Capital, Inc. (and for which adequate reserves have been established) shall not constitute an Event of Default under this subsection 8.8; or 8.9 Dissolution. Any order, judgment or decree shall be entered against any Credit Party or any of their respective Subsidiaries decreeing the dissolution or split up of such Credit Party or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; provided, however, that any such order, judgment or decree entered against any Subsidiary of Company which is not a Credit Party shall not constitute an Event of Default under this subsection 8.9 unless such decree, order or judgment individually or together with any other such decrees, orders or judgments against Subsidiaries of Company would have a Material Adverse Effect; or 8.10 Employee Benefit Plans. There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of any Credit Party or any of their respective ERISA Affiliates in excess of $250,000 during the term of this Amended Loan Agreement; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $250,000; or 8.11 Material Adverse Effect. Any event or change shall occur that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect; or 8.12 Change in Control. Any Change of Control shall occur; or 8.13 Invalidity of Guaranty Agreement. The Guaranty Agreement for any reason, other than the satisfaction in full of all Obligations, ceases to be in full force and effect (other than in accordance with its terms) or is declared to be null and void, or any Credit Party denies that it has any further liability, including without limitation with respect to future advances by Lenders, under any Loan Document to which it is a party, or gives notice to such effect; or 8.14 Failure of Security. Any Security Document shall, at any time, cease to be in full force and effect (other than by reason of a release of collateral in accordance with the terms hereof and thereof) or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Credit Party, or the Collateral Agent shall not have or cease to have a valid and perfected first priority Lien on the Collateral (subject only to validly perfected and enforceable Permitted Encumbrances of record immediately prior to the Effective Date or otherwise permitted under the terms of this Amended Loan Agreement); THEN (i) upon the occurrence of any Event of Default described in the foregoing subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any Letter of Credit shall have been presented or be entitled to present, the drafts and other documents required to draw under the Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Borrower, and the obligation of each Lender to make any Loan or to issue any Letter of Credit shall thereupon terminate, provided that the foregoing shall not affect in any way the obligations of Tranche A Lenders and Tranche B Lenders under subsection 2.8D, and (ii) upon the occurrence and during the continuation of any other Event of Default, Agent shall (a) upon the written request of Requisite Tranche A Lenders, by written notice to Company, declare all or any portion of the Tranche A Loans and the amounts described in clauses (i)(b) and (i)(c) above (other than the Tranche B Loans unless Tranche B Lenders have accelerated Tranche B Loans) to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Tranche A Lender to make any Tranche A Loan and the obligation of the Issuing Lender to issue any Letter of Credit shall thereupon terminate provided, that the foregoing shall not affect in any way the obligations of Tranche A Lenders and Tranche B Lenders under subsection 2.8D and (b) upon written request of Requisite Tranche B Lenders, by written notice to Company, declare all or any portion of the Tranche B Loans and the amounts described in clauses (i)(b) and (i)(c) above (other than the Tranche A Loans unless Tranche A Lenders have accelerated Tranche A Loans) to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Tranche B Lender to make any Tranche B Loan and the obligation of the Issuing Lender to issue any Letter of Credit shall thereupon terminate, provided that the foregoing shall not affect in any way the obligations of Tranche A Lenders and Tranche B Lenders under subsections 2.8D. So long as any Letter of Credit shall remain outstanding, any amounts described in clause (i)(b) above with respect to Letters of Credit, when received by the Issuing Lender, shall be held by the Issuing Lender, pursuant to such documentation as the Issuing Lender shall request, as cash collateral for the obligation of Borrowers to reimburse the Issuing Lender in the event of any drawing under such Letters of Credit, and so much of such funds shall at all times remain on deposit as cash collateral as aforesaid as shall equal the maximum amount available at any time for drawing under all Letters of Credit (the "Maximum Available Amount"); provided further that in the event of cancellation or expiration of any Letter of Credit or any reduction in the Maximum Available Amount, the Issuing Lender shall apply the difference between the Maximum Available Amount immediately prior to such cancellation, expiration or reduction and the Maximum Available Amount immediately after such cancellation, expiration or reduction first to the payment of any outstanding Obligations, and then to the payment to whomsoever shall be lawfully entitled to receive such funds. Section 9. AGENT 9.1 Appointment. Chase is hereby appointed Agent hereunder and under the other Loan Documents and each Tranche A Lender and Tranche B Lender hereby authorizes Agent to act as its agent in accordance with the terms of this Amended Loan Agreement and the other Loan Documents. Agent agrees to act upon the express conditions contained in this Amended Loan Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agent and Lenders and neither Company nor any of its Subsidiaries shall have rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Amended Loan Agreement, Agent shall act solely as an agent of Tranche A Lenders and Tranche B Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. 9.2 Powers; General Immunity. A. Duties Specified. Each Tranche A Lender and Tranche B Lender irrevocably authorizes Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other Loan Documents as are specifically delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Agent shall have only those duties and responsibilities that are expressly specified in this Amended Loan Agreement and the other Loan Documents and it may perform such duties by or through its agents or employees. Agent shall not have, by reason of this Amended Loan Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Amended Loan Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Amended Loan Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. Agent shall not be responsible to any Tranche A Lender or Tranche B Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Amended Loan Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by Agent to Lenders or by or on behalf of Company or any of its Subsidiaries to Agent or any Lender in connection herewith or therewith, nor shall Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Event of Default or Potential Event of Default. Anything contained in this Amended Loan Agreement to the contrary notwithstanding, Agent shall not have any liability arising from confirmations of the amount of outstanding Loans. C. Exculpatory Provisions. Neither Agent nor any of its officers, directors, employees or agents shall be liable to Tranche A Lenders and Tranche B Lenders for any action taken or omitted hereunder or in connection herewith by Agent except to the extent caused by Agent's gross negligence or willful misconduct. If Agent shall request instructions from Lenders, Tranche A Lenders or Tranche B Lenders, as applicable, with respect to any act or action (including any decision not to act) in connection with this Amended Loan Agreement or any of the other Loan Documents, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders, Requisite Tranche A Lenders or Requisite Tranche B Lenders in accordance with subsection 11.6B. Without prejudice to the generality of the foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instru- ment or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Tranche A Lender or Tranche B Lender shall have any right of action whatsoever against Agent as a result of Agent acting or (where so instructed) refraining from acting under this Amended Loan Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders, Requisite Tranche A Lenders, or Requisite Tranche B Lenders in accordance with subsection 11.6B. Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Amended Loan Agreement or any of the other Loan Documents unless and until it has obtained the instructions of Requisite Lenders, Requisite Tranche A Lenders or Requisite Tranche B Lenders, as applicable, in accordance with subsection 11.6B. D. Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company and its subsidiaries for services in connection with this Amended Loan Agreement and otherwise without having to account for the same to Lenders. Without limiting the generality of the foregoing, Agent in its individual capacity as a Lender hereunder shall be entitled to meet separately with any other Lender or Lenders and shall have no obligation to disclose such discussions to any Lenders not a party thereto. 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness. Each Tranche A Lender and Tranche B Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with the making of the Loans hereunder and has made and shall continue to make its own appraisal of the creditworthiness of Borrowers. Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of Tranche A Lenders and Tranche B Lenders or to provide any Tranche A Lender or Tranche B Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and Agent shall not have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 9.4 Right to Indemnity. Each Tranche A Lender and Tranche B Lender, in proportion to its Pro Rata Share of the aggregate Commitments, severally agrees to indemnify Agent, to the extent that Agent shall not have been reimbursed by Borrowers, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Agent in any way relating to or arising out of this Amended Loan Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5 Successor Agent. Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company, and Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its duties and obligations under this Amended Loan Agreement. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Amended Loan Agreement. Section 10. COLLATERAL AGENT 10.1 Appointment. Chase is hereby appointed Collateral Agent hereunder and under the other Loan Documents and each Tranche A Lender and Tranche B Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms of this Amended Loan Agreement and the other Loan Documents. Collateral Agent agrees to act upon the express conditions contained in this Amended Loan Agreement and the other Loan Documents, as applicable. The provisions of this Section 10 are solely for the benefit of Collateral Agent (and its subagents) and Lenders and neither Company nor any of its Subsidiaries shall have rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Amended Loan Agreement, Collateral Agent shall act solely as an agent of Tranche A Lenders and Tranche B Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. 10.2 Powers; General Immunity. A. Duties Specified. Each Tranche A Lender and Tranche B Lender irrevocably authorizes Collateral Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other Loan Documents as are specifically delegated to Collateral Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Collateral Agent shall have only those duties and responsibilities that are ex- pressly specified in this Amended Loan Agreement and the other Loan Documents and it may perform such duties by or through its agents or employees. Collateral Agent shall not have, by reason of this Amended Loan Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Amended Loan Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Collateral Agent any obligations in respect of this Amended Loan Agreement or any of the other Loan Documents except as expressly set forth herein or therein. Collateral Agent may delegate its duties hereunder to affiliates, agents, attorneys-in-fact, receivers (which term includes receivers as managers) and, if required by applicable law, mortgagees or co-mortgages or trustees with respect to any Lien selected in good faith by Collateral Agent, and may grant to such Persons the same rights and powers, indemnities and exculpations as are granted to Collateral Agent hereunder. B. No Responsibility for Certain Matters. Collateral Agent shall not be responsible to any Tranche A Lender or Tranche B Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Amended Loan Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by Collateral Agent to Lenders or by or on behalf of Company or any of its Subsidiaries to Collateral Agent or any Lender in connection herewith or therewith, nor shall Collateral Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Event of Default or Potential Event of Default. C. Exculpatory Provisions. Neither Collateral Agent nor any of its officers, directors, employees or agents shall be liable to Tranche A Lenders or Tranche B Lenders for any action taken or omitted hereunder or in connection herewith by Collateral Agent except to the extent caused by Collateral Agent's gross negligence or willful misconduct. If Collateral Agent shall request instructions from Lenders, Tranche A Lenders or Tranche B Lenders with respect to any act or action (including any decision not to act) in connection with this Amended Loan Agreement or any of the other Loan Documents, Collateral Agent shall be entitled to refrain from such act or taking such action unless and until Collateral Agent shall have received instructions from Requisite Lenders, Requisite Tranche A Lenders or Requisite Tranche B Lenders, as applicable, in accordance with subsection 11.6B. Without prejudice to the generality of the foregoing, (i) Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Tranche A Lender or Tranche B Lender shall have any right of action whatsoever against Collateral Agent as a result of Collateral Agent acting or (where so instructed) refraining from acting under this Amended Loan Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders, Requisite Tranche A Lenders or Requisite Tranche B Lenders, as applicable, in accordance with subsection 11.6B. Collateral Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Amended Loan Agreement or any of the other Loan Documents unless and until it has obtained the instructions of Requisite Lenders, Requisite Tranche A Lenders or Requisite Tranche B Lenders, as applicable, in accordance with subsection 11.6B. D. Collateral Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, Collateral Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, Collateral Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include Collateral Agent in its individual capacity. Collateral Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company or any of its Subsidiaries for services in connection with this Amended Loan Agreement and otherwise without having to account for the same to Lenders. 10.3 Right to Indemnity. Each Tranche A Lender and Tranche B Lender, in proportion to its Pro Rata Share of the aggregate Commitments, severally agrees to indemnify Collateral Agent, to the extent that Collateral Agent shall not have been reimbursed by Borrowers, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Collateral Agent in performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Collateral Agent in any way relating to or arising out of this Amended Loan Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Collateral Agent's gross negligence or willful misconduct. If any indemnity furnished to Collateral Agent for any purpose shall, in the opinion of Collateral Agent, be insufficient or become impaired, Collateral Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 10.4 Successor Collateral Agent. Collateral Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company, and Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Collateral Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent and the retiring or removed Collateral Agent shall be dis- charged from its duties and obligations under this Amended Loan Agreement. After any retiring or removed Collateral Agent's resignation or removal hereunder as Collateral Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Amended Loan Agreement. 10.5 Collateral Agent; Security Documents. Each Tranche A Lender and Tranche B Lender hereby further authorizes Collateral Agent to enter into the Security Documents on behalf of and for the benefit of Lenders and agrees to be bound by the terms of the Security Documents; provided that Collateral Agent shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Security Documents without the prior consent of the Requisite Lenders in accordance with subsection 11.6B. Each Tranche A Lender and Tranche B Lender agrees that no Lender shall have any right individually to realize upon the Guaranty Agreement or the security granted by the Security Documents, it being understood and agreed that such rights and remedies may be exercised by Collateral Agent for the benefit of the Tranche A Lenders and Tranche B Lenders and the other beneficially interested parties under the Security Documents and the other Loan Documents in accordance with the terms of subsection 11.6B and the terms of such other agreements. Section 11. MISCELLANEOUS 11.1 Assignments and Participations in Loans and Notes. A. General. Each Lender shall have the right, subject to the provisions of subsections 11.1B and 11.1C below, at any time to (i) sell, assign, transfer or negotiate to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of any Loan or Loans made by it or its Commitments or any other interest herein or in its Notes or any other Obligations owed to it; provided that no such assignment or participation shall, without the consent of Company, require either Borrower to file a registration statement with the Securities and Exchange Commission or apply to qualify such assignment or participation of the Loans, the Notes or the other Obligations under the securities laws of any state. Except as otherwise provided in this subsection 11.1, no Lender shall, as between Borrowers and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or any granting of participations in, all or any part of the Loans, the Commitments, the Notes or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Loan, Commitment, Note or other Obligation may (a) be assigned in any amount (of a constant and not a varying percentage) to another Lender, (b) be assigned in an amount (of a constant and not a varying percentage) of not less than $5,000,000 to any other Eligible Assignee, with the giving of notice to Borrowers and Agent. To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Loans, Commitments, Notes or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Agent, for its acceptance, an Assignment and Assumption, together with a processing fee of $5,000. Upon such execution, delivery and acceptance, from and after the effective date specified in such Assignment and Assumption, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Assumption, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Assumption, relinquish its rights and be released from its obligations under this Amended Loan Agreement (and, in the case of an Assignment and Assumption covering all or the remaining portion of an assigning Lender's rights and obligations under this Amended Loan Agreement, such Lender shall cease to be a party hereto). The Commitments hereunder shall be modified to reflect the Commitments of such assignee and any remaining Commitments of such assigning Lender and, if any such assignment occurs after the issuance of the Notes hereunder, new Notes shall, upon surrender of the assigning Lender's Notes, be issued to the assignee and to the assigning Lender pursuant to subsection 2.1D as necessary to reflect the new Commitments of the assignee and the assigning Lender. (ii) Agreements of Assignor and Assignee. By executing and delivering an Assignment and Assumption, the assigning Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than as provided in such Assignment and Assumption, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Amended Loan Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Amended Loan Agreement or any other instrument or document furnished pursuant hereto; (b) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Company or any of its Subsidiaries or the performance or observance by Company or any of its Subsidiaries of any of their respective obligations under this Amended Loan Agreement or any other Loan Document; (c) such assignee confirms that it has received a copy of this Amended Loan Agreement, together with copies of the most recent financial statements referred to in subsections 5.6 and 6.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (d) such assignee will, independently and without reliance upon Agent, Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Amended Loan Agreement; (e) such assignee (if other than a Lender) confirms that it is an Eligible Assignee; (f) such assignee appoints and authorizes Agent and Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Amended Loan Agreement and the other Loan Documents as are delegated to Agent and Collateral Agent, respectively, by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (g) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Amended Loan Agreement are required to be performed by it as a Lender. (iii)Acceptance by Agent. Upon its receipt of an Assignment and Assumption executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing fee referred to in subsection 11.1B(i), Agent shall, if such Assignment and Assumption has been completed and is in substantially the form of Exhibit C annexed hereto, (a) accept such Assignment and Assumption and (b) give prompt notice thereof to Company. Agent shall maintain a copy of each Assignment and Assumption delivered to and accepted by it as provided in this subsection 11.1B(iii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the regularly scheduled maturity of any portion of the principal amount of or interest on any Loan allocated to such participation, (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation or (iii) a release of all or a substantial portion of the Collateral other than releases in the ordinary course of business, and all amounts payable by Borrowers hereunder shall be determined as if such Lender had not sold such participation. Each Borrower hereby acknowledges and agrees that any participation will give rise to a direct obligation of Borrowers to the participant and the participant shall, for purposes of subsections 2.6, 2.8F, 11.5 and 11.6, be considered to be a "Lender"; provided that no participant shall be entitled to receive any greater amount pursuant to subsection 2.6 or 2.8 than the transferor Lender would have been entitled to receive in respect of the amount of the participa- tion effected by such transferor Lender to such participant had no such participation occurred. D. Eligibility as Tranche A Lender or Tranche B Lender; Conversion among Tranches. (i) Eligibility. Any Lender which holds, or has an Affiliate that holds, either directly or indirectly, any Company Common Stock, other equity securities of Company or rights to acquire equity securities of Company, shall not qualify as a Tranche A Lender. Each Tranche A Lender agrees that upon request from Agent such Lender will deliver to Agent such certificates and other evidence as Agent shall request, all duly executed by an officer of such Lender, to establish that such Lender qualifies as a Tranche A Lender. Any Lender which does not qualify as a Tranche A Lender shall, subject to the provisions of subsection 11.1D(ii), be a Tranche B Lender. (ii) Conversions. (a) Tranche A to Tranche B. If at any time a Lender holding Tranche A Loans shall fail to satisfy the eligibility requirements for Tranche A Lenders set forth in subsection 11.1D(i), such Lender's Tranche A Loans shall automatically be converted to Tranche B Loans, such Lender's Tranche A Commitment shall automatically be converted to a Tranche B Commitment and such Lender shall become a Tranche B Lender hereunder. Each Tranche A Lender agrees that it will provide notice to the Agent if at any time it fails to satisfy the requirements of subsection 11.1D(i). Until such notice is received by Agent, Agent shall be entitled to assume that no events have occurred causing a conversion pursuant to this subsection 11.1D(ii). (b) Tranche B to Tranche A. If at any time a Lender holding Tranche B Loans shall satisfy the eligibility requirements for Tranche A Lenders set forth in subsection 11.1D(i), such Lender may, upon ten (10) days advance written notice to Agent, elect to have its Tranche B Loans converted to Tranche A Loans and to have its Tranche B Commitment converted to a Tranche A Commitment and to become a Tranche A Lender hereunder. E. Information. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and partici- pants), subject to subsection 11.19. 11.2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, Borrowers agree, jointly and severally, to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the Loan Documents; (ii) all the costs of furnishing all opinions by counsel for the Credit Parties (including without limitation any opinions requested by Lenders as to any legal matters arising hereunder) and of each Credit Party's perfor- mance of and compliance with all agreements and conditions on its part to be performed or complied with under this Amended Loan Agreement and the other Loan Documents including, without limitation, with respect to confirming compliance with environmental and insurance requirements; (iii) [omitted]; (iv) the reasonable fees, expenses and disbursements of counsel to Agent or Collateral Agent (including allocated costs of internal counsel), one law firm engaged by Tranche A Lenders and one law firm engaged by Tranche B Lenders in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any consents, amendments, waivers or other modifications hereto or thereto and any other documents or matters requested by any Credit Party; (v) all other actual and reasonable costs and expenses incurred by Agent, Collateral Agent or Lenders in connection with the negotia- tion, preparation and execution of the Loan Documents and the transactions con- templated hereby and thereby; and (vi) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by Agent, Lenders and Collateral Agent in enforcing any Obligations of or in collecting any payments due from a Credit Party hereunder or under the Notes or the other Loan Documents or any Letter of Credit by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Amended Loan Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 11.3 Indemnity. In addition to the payment of expenses pursuant to subsection 11.2, whether or not the transactions contemplated hereby shall be consummated, Borrowers agree, jointly and severally, to indemnify, pay and hold Agent, Collateral Agent and Lenders and any holder of any of the Notes, and the officers, directors, employees, agents and affiliates of Agent, Collateral Agent, Lenders and such holders (collectively called the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding com- menced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto), that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Amended Loan Agreement or the other Loan Documents or the transactions contemplated hereby or thereby, Lenders' agreement to make the Loans hereunder or to issue Letters of Credit or the use or intended use of the proceeds of any of the Loans or Letters of Credit (collectively called the "Indemnified Liabilities"); provided that Borrowers shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabili- ties to the extent such Indemnified Liabilities arise solely from the gross negligence or willful misconduct of that Indemnitee as finally determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, each Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 11.4 Set Off. In addition to any rights now or hereafter granted under applicable law or the Security Documents and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender and each subsequent holder of any Note is hereby authorized by each Credit Party at any time or from time to time, without notice to such Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender or that subsequent holder to or for the credit or the account of such Credit Party against and on account of the Obligations of such Credit Party to that Lender or that subsequent holder under this Amended Loan Agreement and the Notes, including, but not limited to, all claims of any nature or description arising out of or connected with this Amended Loan Agreement, the Notes or any other Loan Document, irrespective of whether or not (i) that Lender or that subsequent holder shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or the Notes or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said Obligations, or any of them, may be contingent or unmatured. The exercise of any right of set off against any Credit Party shall not impair any Lien securing the Obligations of any Credit Party to the Lenders and will not affect in any manner the continuing effectiveness and enforceability of such Obligations. 11.5 Sharing of Payments. Lenders and each subsequent holder by acceptance of a Note hereby agree among themselves that if any of them shall, whether by voluntary payment, by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to that Lender or holder hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender or holder) which is greater than the proportion received by any other Lender or holder of the Notes in respect of the Aggregate Amounts Due to such other Lender or holder, then the Lender or holder of the Notes receiving such proportionately greater payment shall (i) notify Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders and holders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders and holders of the Notes in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender or holder is thereafter recovered from such Lender or holder upon the bankruptcy or reorganization of any Credit Party or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender or holder ratably to the extent of such recovery, but without interest. Borrowers expressly consent to the foregoing arrangement and agree that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Borrowers to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 11.6 Amendments and Waivers; Instructions to Agent and Collateral Agent. A. Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Amended Loan Agreement or of the Notes or consent to any departure by the Credit Parties therefrom, shall be effective without the written concurrence of Requisite Lenders; provided that (i) any amendment, modification, termination or waiver of or with respect to: the amount of the Commitments or the principal amount of the Loans; each Lender's Pro Rata Share; any definition set forth in subsection 1.1 hereof; any provision expressly requiring the approval or concurrence of all Lenders; the scheduled final maturity dates of the Loans; the dates and amounts of any scheduled payments (but not prepayments) of principal of the Loans; the dates on which interest or any fees are payable; decreases in the interest rates borne by the Loans or in the amount of any fees payable hereunder; and the provisions contained in subsections 4.1E, 4.1F, 8.1 and 11.6 shall be effective only if evidenced by a writing signed by or on behalf of all Lenders, (ii) any waiver of any of the provisions contained in subsection 4.1 (other than subsections 4.1E and 4.1F) shall be effective and binding upon Lenders if evidenced by a writing signed by or on behalf of Agent and Requisite Lenders, (iii) any waiver of any of the provisions contained in subsection 4.3 by Tranche A Lenders (with respect to funding Tranche A Loans) shall be effective and binding upon Tranche A Lenders if evidenced by a writing signed by Agent and Requisite Tranche A Lenders, (iv) any waiver of any of the provisions contained in subsection 4.3 by Tranche B Lenders (with respect to funding Tranche B Loans) shall be effective and binding upon Tranche B Lenders if evidenced by a writing signed by Agent and Requisite Tranche B Lenders, (v) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement expressly requiring the approval or concurrence of Agent shall be effective without the written concurrence of Agent and (vi) no amendment, modification, termination or waiver of any provision of Section 10 or any other provision of this Agreement expressly requiring the approval or concurrence of Collateral Agent shall be effective without the written concurrence of Collateral Agent. Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle the Credit Parties to any other or further notice or demand in similar or other circumstances. Except as set forth above in clauses (iii) and (iv) with respect to waivers binding only upon Tranche A Lenders or Tranche B Lenders, as the case may be, any amendment, modification, termi- nation, waiver or consent effected in accordance with this subsection 11.6 shall be binding upon each Lender at the time outstanding and each future Lender. Any amendment, modification, termination, waiver or consent effected in accordance with this Subsection 11.6 and signed by the Credit Parties shall be binding on the Credit Parties. Notwithstanding any provision of this Subsection 11.6A to the contrary, each Tranche B Lender other than any Tranche B Lender which has given notice to Company and Agent in accordance with the penultimate sentence of this Subsection 11.6A (each Tranche B Lender which has not sent such written notice, a "Deemed Voting Lender") agrees that such Deemed Voting Lender shall be deemed to cast its vote on any request, of which it has prior written notice, for amendment, modification, termination or waiver of any provision of the Amended Loan Agreement or any other Loan Document, proportionately according to the votes cast on such request by all Tranche B Lenders which are not Deemed Voting Lenders and any amendment, modification, termination, waiver or consent signed by an appropriate percentage of Tranche B Lenders which are not Deemed Voting Lenders shall be binding on Deemed Voting Lenders, provided that if all Tranche B Lenders are Deemed Voting Lenders, such that there remain no Tranche B Lenders exercising voting rights, each Deemed Voting Lender shall be deemed to cast its vote proportionately according to such votes cast by Tranche A Lenders, under the same terms and conditions and with the same binding effect as if such votes had been cast by Tranche B Lenders. Tranche B Lenders which are not Deemed Voting Lenders and Tranche A Lenders shall have no affirmative obligation to Deemed Voting Lenders to vote, and in no event shall Deemed Voting Lenders have any claim or recourse against such Tranche B Lenders which are not Deemed Voting Lenders or Tranche A Lenders with respect to any votes cast or not cast, or the consequences of any action taken or omitted to be taken, by any such Tranche B Lender which is not a Deemed Voting Lender or Tranche A Lender. Each Tranche B Lender may, by written notice to Company and Agent, revoke its election to have its vote deemed cast in the manner described above, provided, that such revocation shall not be effective with respect to any request for amendment, modification, termination or waiver if notice of such revocation is not received by Company and Agent at least three Business Days prior to the effective date of such amendment, waiver, modification or termination. Following written notice in accordance with the preceding sentence such Tranche B lender shall no longer be a Deemed Voting Lender hereunder. B. Instructions to Agent and Collateral Agent. Agent and Collateral Agent shall be entitled to act (or refrain from acting) on instructions from Requisite Tranche A Lenders or Requisite Tranche B Lenders. If Agent or Collateral Agent shall receive conflicting instructions from Requisite Tranche A Lenders and Requisite Tranche B Lenders, Agent or Collateral Agent shall be entitled to refrain from acting until directed by Requisite Lenders; provided that (i) with respect to waiving conditions to funding under subsection 4.3 with respect to Tranche A Loans, Agent may act (or refrain from acting) on the instructions of Requisite Tranche A Lenders and (ii) with respect to waiving conditions to funding under subsection 4.3 with respect to Tranche B Loans, Agent may act (or refrain from acting) on the instructions of Requisite Tranche B Lenders. In addition, if Agent or Collateral Agent shall receive conflicting instructions from Requisite Tranche A Lenders and Requisite Tranche B Lenders with respect to any exercise of remedies hereunder or under any of the other Loan Documents, Agent and Collateral Agent shall be entitled to act (or refrain from acting) on instructions from Requisite Tranche A Lenders with respect to such matters. 11.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 11.8 Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telecopy or telex, or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that notices to Agent or Collateral Agent shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to any Credit Party, Agent or Collateral Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Agent. 11.9 Survival of Representations, Warranties and Agreements. A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Amended Loan Agreement, the making of the Loans hereunder and the execution and delivery of the Notes. B. Notwithstanding anything in this Amended Loan Agreement or implied by law to the contrary, the agreements of Borrowers set forth in subsections 2.6, 2.8F, 6.9, 11.2 and 11.3 and the agreements of Lenders set forth in subsections 2.6D, 9.2C, 9.4, 10.2C, 10.3, 11.4 and 11.5 shall survive the payment of the Loans and the Notes and the termination of this Amended Loan Agreement. 11.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Lender or any holder of any Note or interest in any Letter of Credit in the exercise of any power, right or privilege hereunder or under the Notes or Letters of Credit shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amended Loan Agreement, the Notes, the Letters of Credit and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 11.11 Marshalling; Payments Set Aside. None of Agent, Collateral Agent or any Lender shall be under any obligation to marshal any assets in favor of Borrowers or any other party or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Agent, Collateral Agent or Lenders (or to Agent or Collateral Agent for the benefit of Lenders), or Collateral Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudu- lent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 11.12 Severability. In case any provision in or obligation under this Amended Loan Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.13 Obligations Several; Independent Nature of Lenders' Rights. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Amended Loan Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 11.14 Headings. Section and subsection headings in this Amended Loan Agreement are included herein for convenience of reference only and shall not constitute a part of this Amended Loan Agreement for any other purpose or be given any substantive effect. 11.15 Applicable Law. THIS AMENDED LOAN AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 11.16 Successors and Assigns. This Amended Loan Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. The terms and provisions of this Amended Loan Agreement shall inure to the benefit of any assignee or transferee of any of the Loans or the Notes, and in the event of any such transfer or assignment the rights and privileges herein conferred upon Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. None of the Credit Parties' rights or obligations hereunder nor any interest therein may be assigned or delegated by the Credit Parties without the prior written consent of all Lenders. Lenders' rights of assignment are subject to subsection 11.1. 11.17 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST A CREDIT PARTY ARISING OUT OF OR RELATING TO THIS AMENDED LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURIS- DICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AMENDED LOAN AGREEMENT EACH CREDIT PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURIS- DICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AMENDED LOAN AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION. Each Credit Party designates and appoints CT Corporation System, and such other Persons as may hereafter be selected by such Credit Party irrevocably agreeing in writing to so serve, as its agent to receive on its behalf service of all process in any such proceedings in any such court, such service being hereby acknowledged by such Credit Party to be effective and binding service in every respect. A copy of any such process so served shall be mailed by registered mail to such Credit Party at its address provided in subsection 11.8; provided that, unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of such process. If any agent appointed by any Credit Party refuses to accept service, such Credit Party hereby agrees that service of process sufficient for personal jurisdiction in any action against such Credit Party in the State of New York may be made by registered or certified mail, return receipt requested, to such Credit Party at its address provided in subsection 11.8, and such Credit Party hereby acknowledges that such service shall be effective and binding in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Lender to bring pro- ceedings against any Credit Party in the courts of any other jurisdiction. 11.18 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AMENDED LOAN AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AMENDED LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Amended Loan Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AMENDED LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Amended Loan Agreement may be filed as a written consent to a trial by the court. 11.19 Confidentiality. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Amended Loan Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by each Credit Party that in any event a Lender may make disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participation therein or as required or requested by any govern- mental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or repre- sentative thereof (other than any such request in connection with any examina- tion of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by Company or any of its Subsidiaries. 11.20 Limitations on Transmission of Non-Public Information. The Credit Parties, Agent, Collateral Agent and Lenders agree that any Lender, by written notice to Company and Agent, may elect to receive only Public Information. Any such election shall constitute a waiver of such Lender's rights to receive reports and other information under the provisions of the Loan Documents, including the reporting covenants under this Amended Loan Agreement. The election by any Lender hereunder to receive only Public Information may be revoked at any time by written notice to Company and Agent and shall remain in full force and effect until notice of revocation has been received by Company and Agent. Notwithstanding anything in this Section 11.20 to the contrary, (i) Borrowers shall continue to forward to any Lender electing to receive only Public Information Notices of Borrowing and Notices of Issuance/Amendment at the same time such notices are forwarded to other Lenders, provided that (x) any such Notice of Borrowing forwarded to Lenders electing to receive only Public Information shall not contain the statements set forth in clauses (i) through (vii) of the second paragraph of the form of Notice of Borrowing and instead shall contain a certification indicating whether the conditions to funding set forth in Section 4 of this Amended Loan Agreement have or have not been satisfied and (y) any Notice of Issuance/Amendment forwarded to Lenders electing to receive only Public Information shall not contain the statements set forth in clauses (i) through (vii) of the third paragraph of the form of Notice of Issuance/Amendment and shall instead contain a certification indicating whether the conditions to funding set forth in Section 4 of this Amended Loan Agreement have or have not been satisfied, (ii) Agent shall continue to forward to any Lender electing to receive only Public Information (x) any statements or reconciliations regarding outstanding Loans or Letters of Credit, interest or fee calculations or similar matters which are forward to other Lenders, (y) notices of the existence of any Event of Default or Potential Event of Default of which Agent has actual knowledge which notice shall indicate only that an Event of Default or Potential Event of Default exists (and not the reason therefor) and whether such Event of Default or Potential Event of Default is a payment default under Section 8.1 of this Amended Loan Agreement and (z) copies of (1) any effective waivers, amendments or modifications of Loan Documents or (2) any supplementary Loan Documents entered into after the date hereof, and (iii) Agent, at its option, may from time to time, as deemed necessary or desirable by Agent in its sole discretion, contact any Lender which has elected to receive only Public Information and, with the consent of such Lender, forward information, including non-public information, to such Lender; provided, however, that Agent shall not incur any liability hereunder for failure to forward any of the items described in clause (ii) hereof to the applicable Lenders or to otherwise comply with provisions of this sentence, except to the extent such failure is caused by Agent's gross negligence or wilful misconduct as determined in a final proceeding by a court of competent jurisdiction. 11.21 Joint and Several Liability; Rights of Contribution. The Borrowers shall have joint and several liability in respect of all Obligations. The Borrowers hereby acknowledge that this Amended Loan Agreement is the independent and several obligation of each Borrower and may be enforced against each Borrower separately, whether or not enforcement of any right or remedy hereunder has been sought against the other Borrower. Each Borrower hereby expressly waives, with respect to any extension of credit made to the other Borrower hereunder and any of the amounts owing hereunder by such other Borrower in respect of such extension of credit (collectively, the "Other Borrower Obligations"), diligence presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against such other Borrower under this Amended Loan Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of such Other Borrower Obligations. The Borrowers hereby agree, as between themselves, that if either Borrower (an "Excess Funding Borrower") shall repay Obligations in excess of the portion of the then outstanding Obligations which have arisen in respect of extensions of credit the proceeds of which have been advanced to or for the benefit of the Excess Funding Borrower, the other Borrower shall, on demand (but subject to the next sentence hereof), pay to the Excess Funding Borrower an amount equal to its respective relative shares of such excess (such relative shares to be determined based upon the respective relative portion of the then outstanding Obligations that have arisen in respect of extensions of credit the proceeds of which have been advanced to or for the respective benefit of the other Borrower). The payment obligation of either Borrower to any Excess Funding Borrower under this Section 11.21 shall be subordinate and subject in right of payment to the prior payment in full of the Obligations of the other Borrower under the other provisions of this Amended Loan Agreement and such Excess Funding Borrower shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all such Obligations; in addition, no Borrower shall be obligated to pay to the Excess Funding Borrower an amount under this Section 11.21 greater than the amount which, when taken together with the aggregate of the Obligations paid by it under this Amended Loan Agreement and all other payments under this Section 11.21, would exceed the portion of the then outstanding Obligations which have arisen in respect of extensions of credit the proceeds of which have been advanced to or for the benefit of such Borrower. 11.22 Counterparts; Effectiveness. This Amended Loan Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amended Loan Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Agent of written or telephonic notification of such execution and authorization of delivery thereof and the satisfaction of waiver of the conditions set forth in subsection 4.1. At the time of the effectiveness of this Amended Loan Agreement, this Amended Loan Agreement shall amend and restate the Existing Loan Agreement, all obligations of Borrowers under the Existing Loan Agreement that have not been paid as of the Effective Date shall become Obligations of Borrowers hereunder, and the commitments under the Existing Loan Agreement shall terminate. 11.23 Waiver of Certain Existing Events of Default. At the time of the effectiveness of this Amended Loan Agreement, all Events of Default described in Schedule 11.23 shall be waived. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWERS: CALTON, INC. By: /s/ Robert A. Fourniadis Title: Senior Vice President Notice Address: Calton, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis CALTON FUNDING, INC. By: /s/ Robert A. Fourniadis Title: Senior Vice President Notice Address: Calton Funding, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis GUARANTORS: Calton California Equity Corp. Calton Capital, Inc. Calton Capital II, Inc. Calton General, Inc. Calton Homes, Inc. Calton Homes of California, Inc. Calton Homes of Florida, Inc. Calton Homes of Pennsylvania, Inc. Calton Homes of Pennsylvania at Pennway, Inc. Calton Homes of Tampa, Inc. Calton Lindenwood Corporation Calton Manzanita Corporation Calton Tamarack Corporation Calcap Commercial Management, Inc. Calcap X, Inc. Calcap XV, Inc. Calcap XXXI, Inc. Calcap XXXII, Inc. Calcap XXXIII, Inc. Calcap 36, Inc. Calcap 42, Inc. Calcap 48, Inc. Calton Homes of Chicago, Inc. Each by: /s/ Robert A. Fourniadis Title: President Notice Address: [Name of Guarantor] 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Calton Homes Finance, Inc. Calton Homes Finance II, Inc. Each by: /s/ Robert A. Fourniadis Title: Senior Vice President Notice Address: [Name of Guarantor] 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talcon Title Agency, L.P. By: Calton General, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address: Talcon Title Agency, L.P. c/o Calton General, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talpro 31, L.P. By: Calcap XXXI, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address: Talpro 31, L.P. c/o Calcap XXXI, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talpro 32, L.P. By: Calcap XXXII, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address: Talpro 32, L.P. c/o Calcap XXXII, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talpro 33, L.P. By: Calcap XXXIII, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address; Talpro 33, L.P. c/o Calcap XXXIII, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talpro 48, L.P. By: Calcap 48, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address: Talpro 48, L.P. c/o Calcap 48, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis Talpro 36, L.P. By: Calcap 36, Inc., its General Partner By: /s/ Robert A. Fourniadis Title: President Notice Address: Talpro 36, L.P. c/o Calcap 36, Inc. 500 Craig Road Manalapan, NJ 07726 Attention: Robert A. Fourniadis LENDERS: THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), individually as a Lender and as Agent and Collateral Agent By: /s/ Jane E. Orndahl Title: Vice President Notice Address: The Chase Manhattan Bank 270 Park Avenue 30th Floor, Special Loan Group New York, New York 10017 Attention: Jane E. Orndahl with a copy to: The Chase Manhattan Bank 270 Park Avenue 39th Floor, Legal Department New York, New York 10017 Attention: E. Lee Smith, Esq. KLEINWORT BENSON LIMITED, as a Lender By: /s/ Iain Leigh Title: Senior Vice President Notice Address: Kleinwort Benson Limited c/o Dresdner Kleinwort Benson North America LLC 75 Wall Street New York, New York 10005 Attention: Anne L.C. Weiss FOOTHILL CAPITAL CORPORATION, as a Lender By: /s/ Karen S. Sandler Title: Vice President Notice Address: Foothill Capital Corporation, 11111 Santa Monica Boulevard - 15th Floor Los Angeles, CA 90025 Attention: Karen S. Sandler GOLDMAN SACHS CREDIT PARTNERS (formerly known as Pearl Street, L.P.), as a Lender By: /s/ John E. Urban Title: Authorized Signature Notice Address: Goldman Sachs Credit Partners, L.P. 85 Broad Street - 26th Floor New York, New York 10004 Attention: Ms. Marnie Gordon Mr. Stephen Golden SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT TABLE OF CONTENTS Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . 1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement . . . . . . . . . . . . . . . . 1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . SECTION 2. AMOUNTS AND TERMS OF LOANS AND LETTERS OF CREDIT . . . . . . 2.1 Commitments; Revolving Loans . . . . . . . . . . . . . . . . A. Commitments . . . . . . . . . . . . . . . . . . . . . . . B. Borrowing Mechanics . . . . . . . . . . . . . . . . . . . C. Disbursement of Funds . . . . . . . . . . . . . . . . . . D. Revolving Notes . . . . . . . . . . . . . . . . . . . . . E. Conversion of Existing Tranche A Loans and Existing Tranche B Loans into Tranche A Loans and Tranche B Loans . . . . . . . . . . . . . . . . . . . . . . . . . . F. Extension of Scheduled Expiry Date. . . . . . . . . . . . 2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . . . A. Rate of Interest. . . . . . . . . . . . . . . . . . . . . B. Interest Payments . . . . . . . . . . . . . . . . . . . . C. Post Maturity Interest. . . . . . . . . . . . . . . . . . D. Computation of Interest . . . . . . . . . . . . . . . . . 2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Commitment Fees . . . . . . . . . . . . . . . . . . . . . B. Letter of Credit Fees . . . . . . . . . . . . . . . . . . C. Restructure Fees. . . . . . . . . . . . . . . . . . . . . D. Other Fees. . . . . . . . . . . . . . . . . . . . . . . . 2.4 Prepayments; Reductions in Commitments; General Provisions Regarding Payments. . . . . . . . . . . . . . . . A. Voluntary Prepayments . . . . . . . . . . . . . . . . . . B. Voluntary Reductions of Commitments . . . . . . . . . . . C. Mandatory Reductions of Commitments . . . . . . . . . . . D. Mandatory Prepayments Due to Reductions or Restrictions of Commitments; Restrictions of Borrowing Base; Cash Collateral Restrictions. . . . . . . E. Repayment at Maturity . . . . . . . . . . . . . . . . . . F. Application of Certain Prepayments; Reductions of Commitments . . . . . . . . . . . . . . . . . . . . . . . G. General Provisions Regarding Payments . . . . . . . . . . 2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . A. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . B. Letters of Credit . . . . . . . . . . . . . . . . . . . . C. Margin Regulations. . . . . . . . . . . . . . . . . . . . D. Benefits to Guarantors. . . . . . . . . . . . . . . . . . 2.6 Increased Costs; Taxes; Capital Adequacy . . . . . . . . . . A. Compensation for Increased Costs and Taxes. . . . . . . . B. Withholding of Taxes. . . . . . . . . . . . . . . . . . . C. Capital Adequacy Adjustment . . . . . . . . . . . . . . . D. Lenders' Obligation to Mitigate . . . . . . . . . . . . . E. Issuing Lender. . . . . . . . . . . . . . . . . . . . . . 2.7 [Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . A. Letters of Credit . . . . . . . . . . . . . . . . . . . . B. Notice of Issuance. . . . . . . . . . . . . . . . . . . . C. Payment of Amounts Drawn Under Letter of Credit . . . . . D. Payment by Lenders. . . . . . . . . . . . . . . . . . . . E. Obligations Absolute. . . . . . . . . . . . . . . . . . . F. Indemnification; Nature of Issuing Lender's Duties. . . . G. Existing Letters of Credit. . . . . . . . . . . . . . . . Section 3. GUARANTY; SECURITY INTERESTS. . . . . . . . . . . . . . . 3.1 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Security for Obligations . . . . . . . . . . . . . . . . . . A. Borrower Security . . . . . . . . . . . . . . . . . . . . B. Security for Guaranties . . . . . . . . . . . . . . . . . C. Cash Collateral . . . . . . . . . . . . . . . . . . . . . D. Real Estate . . . . . . . . . . . . . . . . . . . . . . . E. Further Assurances Regarding Security; Additional Security; Addition of New Guarantors. . . . . . . . . . . Section 4. CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . 4.1 Conditions to Effectiveness. . . . . . . . . . . . . . . . . A. Credit Party Documents. . . . . . . . . . . . . . . . . . B. Opinions of Credit Parties' Counsel . . . . . . . . . . . C. [Omitted] . . . . . . . . . . . . . . . . . . . . . . . D. [Omitted] . . . . . . . . . . . . . . . . . . . . . . . . E. [Omitted] . . . . . . . . . . . . . . . . . . . . . . . . F. Reduction in Principal amount of Existing Loans . . . . . G. No Material Adverse Effect. . . . . . . . . . . . . . . . H. Representations and Warranties; Performance of Agreements. . . . . . . . . . . . . . . . . . . . . . . . I. Insurance . . . . . . . . . . . . . . . . . . . . . . . . J. Borrowing Base Certificate. . . . . . . . . . . . . . . . K. Corporate and Capital Structure . . . . . . . . . . . . . M. Payment of Fees and Expenses. . . . . . . . . . . . . . . N. Completion of Other Proceedings . . . . . . . . . . . . . 4.2 Conditions to Letters of Credit. . . . . . . . . . . . . . . 4.3 Conditions to All Loans. . . . . . . . . . . . . . . . . . . Section 5. CREDIT PARTIES' REPRESENTATIONS AND WARRANTIES . . . . . . . 5.1 Corporate Existence and Qualifications; Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Executive Offices. . . . . . . . . . . . . . . . . . . . . . 5.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Conduct of Business. . . . . . . . . . . . . . . . . . . . . 5.5 Authorization of Borrowing, etc. . . . . . . . . . . . . . . A. Authorization of Borrowing. . . . . . . . . . . . . . . . B. No Conflict . . . . . . . . . . . . . . . . . . . . . . . C. Governmental Consents . . . . . . . . . . . . . . . . . . D. Binding Obligation. . . . . . . . . . . . . . . . . . . . 5.6 Financial Condition. . . . . . . . . . . . . . . . . . . . . 5.7 No Material Adverse Change; No Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Title to Properties; Liens . . . . . . . . . . . . . . . . . 5.9 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . 5.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 5.11 Performance of Agreements; Materially Adverse Agreements . . 5.12 Governmental Regulation. . . . . . . . . . . . . . . . . . . 5.13 Securities Activities. . . . . . . . . . . . . . . . . . . . 5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 5.15 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . 5.16 Environmental Protection . . . . . . . . . . . . . . . . . . 5.17 Employee Matters . . . . . . . . . . . . . . . . . . . . . . 5.18 Outstanding Stock. . . . . . . . . . . . . . . . . . . . . . 5.19 Insurance Policies . . . . . . . . . . . . . . . . . . . . . 5.20 Schedule of Deposit Accounts . . . . . . . . . . . . . . . . 5.21 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 5.22 Mortgaged Properties . . . . . . . . . . . . . . . . . . . . 5.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 5.24 Financial Condition of Certain Subsidiaries. . . . . . . . . 5.25 Survival of Rights Created under Existing Loan Agreement . . Section 6. CREDIT PARTIES' AFFIRMATIVE COVENANTS. . . . . . . . . . . . 6.1 Financial Statements and Other Reports . . . . . . . . . . . 6.2 Corporate Existence, etc.. . . . . . . . . . . . . . . . . . 6.3 Payment of Taxes and Claims; Tax Consolidation . . . . . . . 6.4 Maintenance of Properties; Insurance . . . . . . . . . . . . 6.5 Inspection; Lender Meeting . . . . . . . . . . . . . . . . . 6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . 6.7 Environmental Disclosure and Inspection. . . . . . . . . . . 6.8 Credit Parties' Remedial Action Regarding Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 Environmental Indemnity. . . . . . . . . . . . . . . . . . . 6.10 Security for Obligations . . . . . . . . . . . . . . . . . . 6.11 [omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . 6.12 Dissolution of Certain Subsidiaries. . . . . . . . . . . . . 6.13 Other Land and Sale Options. . . . . . . . . . . . . . . . . 6.14 Post-Closing Matters . . . . . . . . . . . . . . . . . . . . Section 7. CREDIT PARTIES' NEGATIVE COVENANTS . . . . . . . . . . . . . 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Liens and Related Matters. . . . . . . . . . . . . . . . . . A. Prohibition on Liens. . . . . . . . . . . . . . . . . . . B. No Further Negative Pledges . . . . . . . . . . . . . . . C. No Restrictions on Subsidiary Distributions to Company or Other Subsidiaries . . . . . . . . . . . . . . 7.3 Investments; Joint Ventures. . . . . . . . . . . . . . . . . 7.4 Contingent Obligations . . . . . . . . . . . . . . . . . . . 7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . 7.6 Financial Covenants. . . . . . . . . . . . . . . . . . . . . A. Minimum Consolidated Adjusted EBITDA. . . . . . . . . . . B. Minimum Consolidated Adjusted Tangible Net Worth. . . . . C. Minimum Consolidated Interest Expense Coverage Ratio. . . 7.7 Restriction on Fundamental Changes; Asset Sales. . . . . . . 7.8 Certain Expenditure Limits . . . . . . . . . . . . . . . . . 7.9 Restriction on Leases. . . . . . . . . . . . . . . . . . . . 7.10 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . . . 7.11 Transactions with Shareholders and Affiliates. . . . . . . . 7.12 Disposal of Subsidiary Stock . . . . . . . . . . . . . . . . 7.13 Conduct of Business. . . . . . . . . . . . . . . . . . . . . 7.14 [intentionally omitted]. . . . . . . . . . . . . . . . . . . 7.15 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . 7.16 Restrictions On Purchase of Environmentally Contaminated Property . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 8.1 Failure to Make Payments When Due. . . . . . . . . . . . . . 8.2 Default in Other Agreements. . . . . . . . . . . . . . . . . 8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . . . 8.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . . . 8.5 Other Defaults Under Loan Documents. . . . . . . . . . . . . 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.. . . . 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.. . . . . 8.8 Judgments and Attachments. . . . . . . . . . . . . . . . . . 8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . 8.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 8.11 Material Adverse Effect. . . . . . . . . . . . . . . . . . . 8.12 Change in Control. . . . . . . . . . . . . . . . . . . . . . 8.13 Invalidity of Guaranty Agreement . . . . . . . . . . . . . . 8.14 Failure of Security. . . . . . . . . . . . . . . . . . . . . Section 9. AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Powers; General Immunity . . . . . . . . . . . . . . . . . . A. Duties Specified. . . . . . . . . . . . . . . . . . . . . B. No Responsibility for Certain Matters . . . . . . . . . . C. Exculpatory Provisions. . . . . . . . . . . . . . . . . . D. Agent Entitled to Act as Lender . . . . . . . . . . . . . 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness. . . . . . . . . . . . . . . . 9.4 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . 9.5 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . Section 10. COLLATERAL AGENT . . . . . . . . . . . . . . . . . . . . . . 10.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . 10.2 Powers; General Immunity . . . . . . . . . . . . . . . . . . A. Duties Specified. . . . . . . . . . . . . . . . . . . . . B. No Responsibility for Certain Matters . . . . . . . . . . C. Exculpatory Provisions. . . . . . . . . . . . . . . . . . D. Collateral Agent Entitled to Act as Lender. . . . . . . . 10.3 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . 10.4 Successor Collateral Agent . . . . . . . . . . . . . . . . . 10.5 Collateral Agent; Security Documents . . . . . . . . . . . . Section 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 11.1 Assignments and Participations in Loans and Notes. . . . . . A. General . . . . . . . . . . . . . . . . . . . . . . . . . B. Assignments . . . . . . . . . . . . . . . . . . . . . . . C. Participations. . . . . . . . . . . . . . . . . . . . . . D. Eligibility as Tranche A Lender or Tranche B Lender; Conversion among Tranches . . . . . . . . . . . . . . . . E. Information . . . . . . . . . . . . . . . . . . . . . . . 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . 11.4 Set Off. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 Sharing of Payments. . . . . . . . . . . . . . . . . . . . . 11.6 Amendments and Waivers; Instructions to Agent and Collateral Agent . . . . . . . . . . . . . . . . . . . . . . A. Amendments and Waivers. . . . . . . . . . . . . . . . . . B. Instructions to Agent and Collateral Agent. . . . . . . . 11.7 Independence of Covenants. . . . . . . . . . . . . . . . . . 11.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Survival of Representations, Warranties and Agreements . . . 11.10 Failure or Indulgence Not Waiver; Remedies Cumulative. . . . 11.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . 11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . 11.13 Obligations Several; Independent Nature of Lenders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 11.15 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 11.16 Successors and Assigns . . . . . . . . . . . . . . . . . . . 11.17 Consent to Jurisdiction and Service of Process . . . . . . . 11.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 11.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 11.20 Limitations on Transmission of Non-Public Information. . . . 11.21 Joint and Several Liability; Rights of Contribution. . . . . 11.22 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . 11.23 Waiver of Certain Existing Events of Default . . . . . . . . EXHIBITS Exhibit A Form of Revolving Note Exhibit B [Omitted] Exhibit C Form of Assignment and Assumption Exhibit D Form of Auditor's Letter Exhibit E [Omitted] Exhibit F [Omitted] Exhibit G Form of Borrowing Base Certificate Exhibit H Form of Compliance Certificate Exhibit I Form of Acknowledgement and Confirmation Exhibit J [Omitted] Exhibit K Form of Intercompany Note Exhibit L [Omitted] Exhibit M Form of Notice of Borrowing Exhibit N Form of General Release Exhibit O Form of Notice of Issuance/Amendment Exhibit P [Omitted] Exhibit Q [Omitted] Exhibit R Form of Opinion of Credit Parties' Counsel Exhibit S [Omitted] Exhibit T [Omitted] Exhibit U Form of Consent to Jurisdiction and Service of Process SCHEDULES Schedule 2.1 Tranche A Lenders; Tranche B Lenders; Commitments; Pro Rata Shares; Existing Loans Schedule 5.1(a) States of Organization Schedule 5.2 Executive Offices Schedule 5.3 Subsidiaries Schedule 5.8 Permitted Encumbrances Schedule 5.9 Litigation Schedule 5.16 Compliance with Environmental Laws Schedule 5.18 Beneficial Owners Schedule 5.19 Insurance Policies Schedule 5.20 Deposit Accounts Schedule 5.22 Location of Mortgage Filings Schedule 6.14 Post Closing Matters Schedule 7.1 Indebtedness Schedule 7.3(iv) Investments Schedule 7.4 Contingent Obligations Schedule 7.13 Conduct of Business Schedule 11.23 Existing Events of Default EX-10.1 3 CALTON, INC. FORM 10-K FOR FISCAL YEAR ENDED NOVEMBER 30, 1996 EXHIBIT 10-1 1996 EQUITY INCENTIVE PLAN 1. Definitions. In this Plan, the following definitions apply: 1.01. "Appreciation Rights Election" means the method of exercising an Option pursuant to which shares of Common Stock subject to the Option are sold to cover the payment to the Company of the Option's aggregate exercise price and the payment of fifty percent (50%) of the Appreciated Value in cash to the Participant, with the Participant receiving the remaining fifty percent (50%) of the amount of the Appreciated Value in shares of Common Stock (as such proportion may be adjusted by the Committee pursuant to Section 10 of the Plan). 1.02. "Appreciated Value" means an amount equal to the difference between the aggregate fair market value of the shares of Common Stock subject to the Option and the aggregate exercise price of the Option on the date of exercise. For purposes of this definition, fair market value of the shares of the Common Stock shall be the price at which such shares are sold on the date of exercise. 1.03. "Board" means the Board of Directors of the Company. 1.04. "Change in Control" means (a) an event or series of events by which any "person" (as such term is defined in Section 2(2) of the Securities Act of 1933, as amended), or any affiliate of such Person (when applied to any Person, an affiliate shall mean any other Person directly or indirectly controlling, controlled by, or under common control with that Person), or Persons and affiliates of such Persons acting in concert, shall, whether in a single transaction or a series of related transactions, acquire directly or indirectly an amount of the Company's voting stock representing thirty-five percent (35%) or more of the total voting power of the outstanding voting securities of the Company having the right under ordinary circumstances to vote in an election of the Board, or (b) the consummation of a merger, reorganization or recapitalization in which the Company is the surviving entity, and in which, after the consummation of the transaction, the shareholders of the Company immediately prior to the consummation of the transaction shall not continue to beneficially own securities representing sixty-five percent (65%) or more of the total voting power of the outstanding voting securities of the Company having the right under ordinary circumstances to vote in an election of the Board. 1.05. "Code" means the Internal Revenue Code of 1986, as amended, and the rule and regulations promulgated thereunder. 1.06. "Committee" means the Compensation Committee of the Board, all of the members of which shall be "disinterested persons" as defined in Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended, or any similar successor rule, and "outside directors" as defined in proposed rule 1.162-27(e)(3) under the Code or any final or similar successor rule. 1.07. "Company" means Calton, Inc. 1.08. "Corporate Transaction" means a transaction such as a merger (other than a merger intended solely to change the Company's jurisdiction of incorporation), consolidation, reorganization, recapitalization, or sale of all or substantially all of the Company's assets (other than a sale of assets to a Subsidiary or other affiliated entity of the Company). 1.09. "Director" shall mean a member of the Company's Board. 1.10. "Exercise Sell" means the method of exercising an Option pursuant to which shares of Common Stock subject to the Option are sold to cover payment of the Option's aggregate exercise price. 1.11. "Fair Market Value" means the arithmetic average of the highest and lowest sales prices of the Common Stock reported by the American Stock Exchange on a particular date, or if there is no sale on such date, then the average of such high and low sales prices on the last previous date on which a sale of the Common Stock is reported. 1.12. "Incentive Stock Option" means an option granted under the Plan that qualifies as an incentive stock option under Section 422 of the Code and that the Committee designates as such when granting the option. 1.13. "Just Cause" shall mean: (i) a Participant's conviction for a felony or for fraud; (ii) a Participant engaging in any conduct, by way of act or omission, which in the opinion of the Board has the potential to cause, or does cause, a material adverse effect on the Company's business; (iii) a Participant failing to return from authorized leave from the Company; (iv) a Participant being found to be under the influence of, or to have distributed, any illegal narcotic substance while on the Company's premises, including any project site of the Company; (v) a Participant acting dishonestly or committing theft of Company property; or (vi) the work performance of a Participant failing to meet Company standards. 1.14. "Nonqualified Stock Option" means an Option granted under the Plan that is not an Incentive Stock Option and that the Committee designates as such when granting the Option, or an Option granted under the Plan that does not qualify as an Incentive Stock Option. 1.15. "Option" means an option to purchase shares of Common Stock granted under the Plan in accordance with the terms of the Plan and related Option Agreement, if any. 1.16. "Option Agreement" means a written agreement which the Committee may authorize the Company to enter into with a Participant in order to implement a grant of an Option by the Committee. 1.17. "Participant" means an employee of the Company or a Director to whom an Option has been granted. 1.18. "Plan" means the Calton, Inc. 1996 Equity Incentive Plan. 1.19. "Subsidiary" means a corporation in which the Company owns a majority of the total combined voting power of all classes of stock, either directly or through one or more other Subsidiaries. 1.20. "Tax Withholding Amount" means the amount, if any, which, upon the exercise of an Option or an election by a Participant under Section 83(b) of the Code, the Company or a Subsidiary may be required to withhold in order to obtain a federal and/or state income tax deduction, such amount which shall be paid to the Company by the Participant. 1.21. "Tender Offer" means a tender offer for fifty percent (50%) or more of the Company's voting stock regardless of whether or not the Company will continue as a separate entity upon the consummation of the Tender Offer. 2. Purpose. The purpose of this Plan is to advance the interests of the shareholders of the Company by enhancing the ability of the Company to (i) induce certain employees, who are in a position to make significant contributions to the Company and its Subsidiaries, to remain in the employ of the Company and its Subsidiaries; (ii) attract and retain new employees who can make significant contributions to the success of the Company and its Subsidiaries; (iii) attract and retain the services of experienced and knowledgeable Directors; and (iv) more closely align the interests of such employees and Directors with the Company's shareholders and to encourage such employees and Directors to take into account the long-term interests of the Company by securing or increasing on reasonable terms their stock ownership in the Company. The Plan will also serve as a vehicle for the issuance of registered shares of Common Stock to any Director who elects to receive the annual retainer fee, Board meeting fees and Board committee fees in the form of shares of Common Stock as provided for in Section 17 of this Plan. 3. Shares Subject to Plan. The aggregate number of shares of Common Stock reserved for issuance under the Plan shall be two million (2,000,000), subject to any adjustment pursuant to Section 11 herein. The shares of Common Stock to be issued under the Plan upon the exercise of an Option shall be made available either from authorized but unissued shares of the Company's Common Stock or from shares of the Company's Common Stock held by the Company as treasury shares, including shares of Common Stock acquired by the Company in open market and private transactions. The shares of Common Stock issued under the Plan shall be subject to the terms and conditions specified in the Plan and related Option Agreements, if any, and to such other terms and conditions as the Committee may provide. If any Option expires or terminates for any reason without having been exercised in full, a new Option may thereafter be granted to acquire the unpurchased shares of Common Stock subject to such expired or terminated Option. 4. Administration. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have complete authority, in its discretion, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of any related Option Agreements, to determine the employees of the Company and its Subsidiaries who will be selected as Participants under the Plan, to determine the terms and prices at which Options shall be granted, the number of shares of Common Stock to be subject to each Option, the periods during which each Option shall be exercisable, whether such Option shall be an Incentive Stock Option or a Nonqualified Stock Option, and to make all other determinations necessary or advisable for the administration of the Plan. In making such determinations, the Committee may take into account the nature of the services rendered by the Participants to the Company and its Subsidiaries, their present and potential contributions to the success of the Company and its Subsidiaries and such other factors as the Committee, in its discretion, shall deem relevant. The Committee's determination of the matters referred to herein shall be final and conclusive. Any dispute or disagreement which may arise under or as a result of or with respect to any Option shall be determined by the Committee, in its sole discretion, and any interpretations by the Committee of the terms of any Option shall be final, binding and conclusive. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan. In addition to such other rights of indemnification as they may have as members of the Board or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorney's fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, in which any Committee member may be a party by reason of any action taken or failure to act in connection with the Plan or any Option granted under the Plan, and against all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, if such Committee member acted in good faith and in a manner which the member believed to be in, and not opposed to, the best interests of the Company and its shareholders. 5. Eligibility. The Committee may grant Options under the Plan to (a) employees of the Company or a Subsidiary, including employees who are members of the Board, and (b) employees of a corporation or noncorporate entity which has been acquired by the Company or a Subsidiary, who hold options with respect to the stock or other equity interests of such corporation or noncorporate entity which the Company or a Subsidiary has agreed to assume. Nonqualified Stock Options shall be granted to non-employee Directors as formula awards pursuant to the terms set forth in Section 18 of this Plan. Further, the Committee can authorize the issuance of shares of Common Stock to any member of the Board who has elected to receive the annual retainer fee for serving on the Board, Board meeting fees or Board committee fees in the form of shares of the Company's Common Stock as provided for in Section 17 of this Plan. 6. Option Price. The exercise price of an Option shall be equal to the Fair Market Value of the Common Stock on the date of grant; provided, however, that (i) with respect to a Participant who owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the option price of an Incentive Stock Option granted to such Participant shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant, and (ii) with respect to any Option repriced by the Committee, the exercise price shall be equal to the Fair Market Value of the Common Stock on the date such Option is repriced. 7. Option Term. Except as otherwise provided in Section 18 hereof, an Option shall be granted for such term as the Committee shall determine, not in excess of ten (10) years from the date of grant thereof; provided, however, that a Participant who owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company may not be granted an Incentive Stock Option with a term greater than five (5) years from the date of grant. 8. Limitation on Amount of Options Granted. The Chief Executive Officer of the Company, may not be granted Options for more than fifty percent (50%) of all shares of Common Stock reserved for issuance under the Plan. Each other Participant under the Plan may not be granted options for more than thirty-five percent (35%) of all shares of Common Stock reserved for issuance under the Plan. 9. Exercise of Options. Except as otherwise provided in Sections 11, 12 and 18 hereof, and except as otherwise provided below with respect to an Incentive Stock Option, upon granting an Option, the Committee shall determine the date or dates on which such Option shall become exercisable. The Options and the shares issuable upon the exercise of such Options may be subject to such conditions and forfeiture provisions as the Committee may determine, including, but not limited to, the achievement of business objectives and individual, division and Company performance. To the extent exercisable, an Option may be exercised either in whole at any time or in part from time to time. With respect to an Incentive Stock Option granted to a Participant, the Fair Market Value of the shares of Common Stock on the date of grant which are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. 10. Methods of Exercise and Payment of Option Price. An Option may be exercised only by a written notice of intent to exercise such Option with respect to a specific number of shares of Common Stock subject to such Option and payment to the Company of the aggregate amount of the exercise price for the number of shares of Common Stock so specified in the notice. Payment of the Option's exercise price can be made in cash, by cashier's check or certified bank check, in kind by the delivery of shares of Common Stock having a Fair Market Value on the date preceding the date of exercise equal to the portion of the option price so paid and which have been owned and held by the Participant for a period not less than six (6) months. Upon receipt of written notice evidencing a Participant's intent to exercise an Option, or an election by a Participant under Section 83(b) of the Code, the Company will inform the Participant of the Amount of the Tax Withholding Amount, if any, which the Participant shall be required to remit to the Company before the shares of Common Stock will be issued to the Participant. With respect to Nonqualified Stock Options granted under the Plan and held by the Participant for six (6) months or longer, a Participant can also pay all or part of any such Option's exercise price pursuant to the Exercise Sell or Appreciation Rights Election methods; provided, however, that if a Participant chooses to pay all or part of the exercise price pursuant to the Appreciation Rights Election method, the Committee shall have the sole discretion to determine the form in which payment of the Appreciated Value will be made to the Participant, including all cash, all shares of Common Stock or any other combination thereof. Fractional shares will not be issued to a Participant who exercises an Option pursuant to the Appreciation Rights Election method. The value of any fractional shares shall be paid in cash to the Participants. The shares of Common Stock to be sold in order to pay (i) the exercise price under the Exercise Sell method, or (ii) the exercise price and amount of the cash payment of the Appreciated Value under the Appreciation Rights Election method shall be sold by or on behalf of the Participant in an open market transaction on the date of exercise and the Participant shall not be liable for any cost of such sale. If a Participant elects to exercise an Option pursuant to the Exercise Sell or Appreciation Rights Election method, then the Tax Withholding Amount, if any, shall, in the Participant's discretion, also be covered by the sale of shares of Common Stock subject to the Option being exercised. The Participant shall be entitled to receive any remaining proceeds from the sale of shares of Common Stock which are not applied against the exercise price and Tax Withholding Amount under the Exercise Sell method, or the exercise price, cash portion of the Appreciated Value and the Tax Withholding Amount under the Appreciation Rights Election method. 11. Adjustment of Shares. 11.01. In the event there is any change in the capital stock of the Company pursuant to a stock split, share combination, stock dividend or Corporate Transaction in which the Company is the surviving entity, except as otherwise provided in Subsection 11.02 below, each outstanding Option shall apply to the securities to which a holder of the number of shares of Common Stock subject to an Option shall be entitled to receive in connection with any such transaction. The Committee shall also have the discretion to make any other changes to an Option, including, without limitation, additional changes in the number or character of the shares of Common Stock subject to an Option, or in the exercise price of an Option, in order to protect such Option from dilution or diminution in value upon the occurrence of any of the above transactions. 11.02. In the event of a Corporate Transaction in which the Company is not the surviving entity, or a Corporate Transaction in which the Company is the surviving entity and in which the outstanding shares of Common Stock shall be, pursuant to the operation of law or terms of the Corporate Transaction, changed into or exchanged for securities of another corporation, interests in a noncorporate entity, other property (including cash), or any combination of the foregoing, a Participant can elect within thirty (30) days of receipt of notice of such Corporate Transaction to accelerate all unvested Options and exercise them or any part thereof. The Participant's exercise of any Options and the issuance of shares of Common Stock to the Participant in connection with any such Corporate Transaction shall be conditioned upon the consummation of the Corporate Transaction; provided, however, that such condition shall not preclude the Participant from receiving, with respect to the shares of Common Stock issuable upon the exercise of such Option, the consideration issuable or payable in respect of the shares of Common Stock pursuant to such Corporate Transaction. If, in exercising a Nonqualified Stock Option as a result of a Corporate Transaction, the Exercise Sell or Appreciation Rights Election method is not available to a Participant for any reason including, without limitation, the absence of a trading market for the Common Stock on the date of consummation of the Corporate Transaction, the Participant shall be entitled to receive, without the payment of consideration, the number of shares of Common Stock issuable upon exercise of the Option less the number of shares having an aggregate Fair Market Value equal to the aggregate exercise price on the date the election to exercise the Option is made by the Participant. Alternatively, within ten (10) days of receiving notice of the Company's decision to enter into any such Corporate Transaction, a Participant may provide the Company with written notice that the Board shall provide that the surviving entity will grant the Participant substitute options to purchase securities of the surviving entity in exchange for the Participant's Options. The underlying securities of such substitute options shall have a fair market value equal to the highest aggregate Fair Market Value of all shares of Common Stock subject to the Participant's Options, whether exercisable or not, for the period commencing with the date of the public announcement of the Corporate Transaction and ending with the effective date of the Corporate Transaction. The substitute options shall be issued with an aggregate exercise price equal to the aggregate exercise price of the shares of Common Stock subject to the Participant's Options and with terms and conditions comparable to the terms and conditions of the Plan and any related Option Agreement. However, if a Participant elects to have the Board provide substitute options, the Board, in its discretion, may elect, within ten (10) days of receiving notice from the Participant, to repurchase all of the Participant's Options, whether exercisable or not, within sixty (60) days of the effective date of the Corporate Transaction. The amount paid the Participant for the repurchase of the Participant's Options shall be equal to the difference between the highest aggregate Fair Market Value of the shares of Common Stock subject to the Participant's Options for the period commencing with the date of public announcement of the Corporate Transaction and ending with the effective date of the Corporate Transaction and the aggregate exercise price of the Participant's Options. This repurchase right can also be exercised by the surviving entity. If the Board notifies a Participant of its decision to exercise this repurchase right, then a Participant shall be entitled to elect to exercise all of the Participant's Options during the remainder of the thirty (30) day period from the receipt of notice of the Corporate Transaction as described in the first paragraph of this Subsection 11.02. 11.03. In the event of a Tender Offer, all of a Participant's Options shall become immediately exercisable, and may be exercised at any time prior to the expiration date of such Options. Alternatively, within ten (10) days of receiving notice of the commencement of a Tender Offer, the Participant can provide the Company with written notice that the Company shall repurchase all of the Participant's Options, whether exercisable or not, for an amount equal to the difference between the highest aggregate Fair Market Value of the shares of Common Stock subject to the Participant's Options for the period commencing with the date of public announcement of the Tender Offer and ending with the effective date of the Tender Offer and the aggregate exercise price of the Participant's Options. The Company's obligation to repurchase the Participant's Options shall be subject to any restriction, limitation, or prohibition contained in any agreement to which the Company is a party. 11.04. In the event of a Change in Control, all of a Participant's Options shall become immediately exercisable and may be exercised at any time prior to the expiration dates of such Options. Alternatively, within ten (10) days of receipt of notice from the Company of a Change in Control, such notice which shall be furnished promptly upon the Company receiving notice thereof, the Participant can provide the Company with written notice that the Company shall repurchase all of the Participant's Options, whether exercisable or not, for an amount equal to the difference between the aggregate Fair Market Value of the shares of Common Stock subject to the Participant's Options on the date of the Change in Control and the aggregate exercise price of the Participant's Options. The Company's obligation to repurchase the Participant's Options shall be subject to any restriction, limitation or prohibition contained in any agreement to which the Company is a party. 11.05. In the event of the dissolution or liquidation of the Company (except a dissolution or liquidation relating to a sale of assets or other reorganization of the Company referred to in Subsection 11.02 of this Section), all outstanding Options under the Plan shall terminate as of a date fixed by the Committee; provided, however, that not less than thirty (30) days written notice of the date so fixed shall be given to each Participant, and each such Participant shall have the right during such period to exercise all of the Participant's outstanding Options, whether exercisable or not. 11.06. Notwithstanding the exercise provisions in Subsections 11.01 - 11.05 of this Section 11, if the Company's legal counsel should determine that an extension of time for the exercise of any Option is necessary in order to allow the Participant to acquire the shares of Common Stock subject to the option in compliance with federal and state securities laws, the Committee shall extend said time of exercise for whatever additional period of time is necessary, in counsel's judgment, to allow such compliance. In the event the treatment of any Incentive Stock Option under Subsections 11.01 - 11.05 of this Section 11 could be determined to be a disqualifying disposition with respect to the favorable tax consequences of Incentive Stock Options under Sections 421 and 422 of the Code, the Company shall promptly notify each Participant as to whether or not the desired treatment of the Participant's Incentive Stock Options could result in a disqualifying disposition and the effect thereof. 12. Death, Disability, Retirement and Termination. 12.01. In the event the employment relationship between the Participant and the Company or any of its Subsidiaries is terminated by reason of the Participant's death or "disability" (as such term is defined in Section 22(e)(3) of the Code), all of the Participant's Options shall become immediately exercisable. The Participant, or the Participant's designated beneficiary or estate, shall have two (2) years from such date of termination to exercise all or any part of a Nonqualified Stock Option, and one (1) year from such date of termination to exercise all or any part of an Incentive Stock Option. 12.02. If a Participant resigns as an employee from the Company or any Subsidiary, the Participant shall have one (1) year for a Nonqualified Stock Option, or three (3) months for an Incentive Stock Option, from such date of termination to exercise all or any part of such Option which is fully vested on or before the date of termination. 12.03. In the event a Participant, who has been employed by the Company or a Subsidiary for one (1) year or more, is terminated by the Company for any reason other than for Just Cause, each Option, or any part thereof, scheduled to vest on the succeeding anniversary date of the grant of the Option following the date of termination shall become immediately exercisable, and the Participant shall have two (2) years from the date of termination to exercise all or any part of a Nonqualified Stock Option, or three (3) months from such date of termination to exercise all of any part of an Incentive Stock Option. For any Participant who has been employed by the Company or a Subsidiary for less than one (1) year, the Participant shall have thirty (30) days, or seven (7) months (except for an Incentive Stock Option) if the Participant is an officer, Director or more than ten percent (10%) beneficial owner of the Company, from the date of such termination in which to exercise all or part of those Options which is fully vested on or before such date of termination. 12.04. If the Participant is terminated by the Company for Just Cause, the Participant shall have thirty (30) days, or seven (7) months (except for an Incentive Stock Option) if such Participant is an officer, Director or ten percent (10%) beneficial owner of the Company, from the date of termination to exercise all or part of those Options which is fully vested on or before the date of termination. 12.05. With respect to Nonqualified Stock Options granted to non-employee Directors as formula awards pursuant to Section 18 of this Plan, upon the death or "disability" (as such term is defined in Section 22(e)(3) of the Code) of the Director, the Director, or the Director's designated beneficiary or Estate, shall have two (2) years from the date of death or disability to exercise all or any part of a Nonqualified Stock Option. If a non-employee Director resigns from the Board or does not stand for reelection to the Board, or, if a non-employee Director is removed from the Board for any reason, including if the Director is not reelected to the Board by the shareholders, the Director shall have ninety (90) days from the date on which the Director ceases to be a member of the Board to exercise any portion of a Nonqualified Stock Option which is fully vested on or before such date the Director ceases to be a member of the Board. 13. Non-Transferability of Option. No Option shall be transferable (including pledged or encumbered) by a Participant otherwise than by will or by the laws of descent and distribution, and each Option shall be exercisable during a Participant's lifetime only by the Participant. 14. Amendments and Discontinuance. Except as provided for in Section 18 of this Plan with respect to the formula award provisions, the Board may amend, suspend, discontinue, or terminate the Plan, subject to shareholder approval if so required by any applicable federal or state securities laws, tax laws or corporate statute. No action of the Board, however, may, without the consent of a Participant alter or impair any Option previously granted to the Participant under the Plan. 15. Successors and Assigns. The provisions of the Plan shall be binding upon all successors and assigns of any Participant acquiring shares of Common Stock under the Plan, including, without limitation, the estate of any such Participant and the executors, administrators or trustees of such estate, and any receiver, trustee in bankruptcy or representative of the creditors of any such Participant. 16. Effective Date and Termination Date of the Plan. The Plan shall be effective as of January 31, 1996, and shall terminate on January 30, 2006. No Options shall be granted under the Plan subsequent to such date. Options granted on or before the termination date shall remain exercisable after the termination of the Plan in accordance with their respective terms. 17. Director's Fees. Subject to the limitation contained in Section 3 of this Plan on the number of shares of Common Stock which may be issued pursuant to this Plan, any member of the Board who provides written notice to the Company shall be entitled to receive all or a portion of the member's annual board retainer fee, Board meeting fees, and Board committee fees in the form of shares of the Company's Common Stock. Any member of the Board who desires to receive all or any part of such Board fees in shares of Common Stock must provide the Chief Financial Officer of the Company with written notice of the member's election (an "Election") to receive payment of Board fees in this form no later than five (5) business days prior to the payment of such fees. Shares of Common Stock with an aggregate Fair Market Value, on the date preceding the date of payment of Board fees, equal to the aggregate amount of such Board fees shall be issued to the Board member no later than fifteen (15) business days following the date of payment of such Board fees by the Company. 18. Formula Awards. Each time an individual, who is not an employee of the Company or any Subsidiary, is elected or reelected as a Director by the shareholders of the Company, the Director shall receive, on such date of election or reelection as the case may be, a grant of Nonqualified Stock Options to acquire ten thousand (10,000) shares of Common Stock, and each such Option shall have a per share exercise price equal to the Fair Market Value of the Common Stock on such date of grant. Each Nonqualified Stock Option granted to a non-employee Director pursuant to this Section 18 shall have a term of five (5) years from the date of grant and shall vest and become fully exercisable on the first anniversary of such date of grant. In order for a non-employee Director to be granted the Nonqualified Stock Options upon reelection to the Board, the Director must have attended seventy-five percent (75%) of all Board meetings and seventy-five percent (75%) of all Board committee meetings, of which the Director is a member, called and held during the previous twelve (12) months while such Director was a member of the Board and committee(s). The provisions of this Section 18 of the Plan shall not be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, or the rules thereunder. 19. Miscellaneous. 19.01. Any and all funds held by the Company under the Plan may be used for any corporate purpose. 19.02. Nothing contained in the Plan, any Option Agreement executed in connection with the Plan, or any Option granted under the Plan, shall confer upon a Participant any right to be continued in the employment of the Company or any Subsidiary, or interfere in any way with the right of the Company or its Subsidiaries to terminate the employment relationship at any time. 19.03. No Options may be granted nor may Common Stock be purchased under this Plan until the Company has taken all actions then required to comply with the Securities Act of 1933, as amended, and any other applicable state securities laws and any exchange on which the Common Stock may be listed. 19.04. The Company shall take any reasonable and appropriate action which is necessary, including, without limitation, the filing of a Form S-8 Registration Statement with the Securities and Exchange Commission, to effect the registration of the shares of Common Stock reserved for issuance under this Plan under the Securities Act of 1933, as amended. As Amended through January 30, 1997 EX-10.4 4 CALTON, INC. FORM 10-K FOR FISCAL YEAR ENDED NOVEMBER 30, 1996 EXHIBIT 10-4 CALTON, INC. INCENTIVE COMPENSATION PLAN 1. PURPOSE Pursuant to Calton's ("Calton" or the "Company") philosophy of providing compensation to its employees which is competitive with the compensation offered by similar companies operating in the same regions and emphasizing incentive compensation as a result of the cyclical nature of the Company's business, the Company has established the Calton, Inc. Incentive Compensation Plan (the "Plan") to promote the interests of Calton and its shareholders by enhancing the Company's ability to attract, retain and motivate highly qualified individuals to serve the Company and its subsidiaries by providing such individuals the opportunity to earn meaningful additional compensation based on the operating results of the Company. 2. EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall be effective as of June 1, 1993, subject to the approval of the Company's Board of Directors (the "Board"), and it shall terminate on November 30, 1998 (the "Term"). The Board, in its sole discretion, may renew, for up to two (2) fiscal years upon each such renewal, the Term of the Plan and the provisions hereunder. 3. PARTICIPATION All officers of the Company and its subsidiaries and all managers that participate in the Company's Management Objective Bonus Program are eligible for participation in the Plan. In addition, up to 10% of the Incentive Pool (as defined below) may be used for bonuses to other full time employees of the Company and its subsidiaries who are not otherwise eligible for commissions or bonuses. The employees that are eligible to participate in the Plan (the "Eligible Employees") shall be determined each fiscal year by the Compensation Committee of the Board (the "Committee") based on the recommendations of the President and Chief Executive Officer of the Company. The determination of Eligible Employees entitled to participate in the Plan shall be made by the Committee no later than the end of the first quarter of any fiscal year; provided, however, that an Eligible Employee hired after the end of the first quarter of any fiscal year may be considered by the Committee for participation in the Plan. Participation in the Plan during any one fiscal year does not imply or guarantee participation in any other fiscal year during the Term of the Plan. 4. INCENTIVE COMPENSATION The available pool of incentive compensation (the "Incentive Pool") under this Plan during any particular fiscal year shall be equal to ten percent (10%) of the Company's pre-tax income as reported in the Company's Form 10-K for a particular fiscal year, subject to certain non-operating adjustments (the "Adjustments") that may be made to the Incentive Pool at the discretion of the Committee to remove the effect of events or transactions not in the ordinary course of the Company's operations. 5. DISTRIBUTION OF INCENTIVE COMPENSATION The President and Chief Executive Officer of the Company shall recommend the dollar amount of an award from the Incentive Pool (the "Incentive Award") to be granted to each Eligible Employee participating in the Plan; provided, however, that an Eligible Employee participating in the Plan may not receive an Incentive Award during any particular fiscal year that exceeds the lesser of twenty (20%) of the Incentive Pool or one hundred percent (100%) of the Eligible Employee's base salary compensation for the same fiscal year; provided, however, that the Committee reserves the right to make special, supplemental grants that exceed one hundred percent (100%) of an Eligible Employee's base salary for a particular fiscal year. The Committee shall then review and approve, with the power to alter, modify or disapprove in whole or in part, the proposed Incentive Award for each Eligible Employee participating in the Plan no later than February 15 of the succeeding fiscal year, or the fifteenth day of the last month of the first quarter of the succeeding fiscal year if the end of such preceding fiscal year is other than November 30. An Eligible Employee selected for participation in the Plan who was hired by the Company or one of its subsidiaries subsequent to the commencement of the relevant fiscal year shall only be entitled to a pro-rata portion of any Incentive Award. An Eligible Employee participating in the Plan shall not be entitled to receive any Incentive Award until the grant of any such Incentive Award has been approved by the Committee. Any Incentive Award shall be distributed and paid to an Eligible Employee in accordance with the Company's ordinary payroll policies and procedures during the last pay period of February of each fiscal year, or during the last pay period of the last month of the first quarter of the fiscal year if the end of such preceding fiscal year is other than November 30. All approved and paid Incentive Awards shall be subject to all tax withholding and reporting requirements. 6. TERMINATION (a) Upon termination of employment without just cause of an Eligible Employee selected to participate in the Plan, the Eligible Employee, in the sole discretion of the Committee, shall be entitled to receive an Incentive Award for the year of such termination in an amount not to exceed fifty percent (50%) of the average Incentive Award made to Eligible Employees for the particular fiscal year in which such termination occurred; provided, however, that if any Incentive Award is granted, such Incentive Award shall be prorated for the actual number of days the Eligible Employee was employed by the Company during the particular fiscal year. For purposes of the Plan, termination of an Eligible Employee "without just cause" shall include, without limitation, retirement with consent of the Company, death, permanent disability, and termination by the Company for any reason other than for just cause as defined in (b) hereinbelow. (b) Upon the termination of employment of an Eligible Employee selected to participate in the plan for a particular fiscal year for just cause by the Company, the Committee shall not grant, and the Eligible Employee shall not be entitled to, an Incentive Award for the fiscal year in which termination occurred. For purposes of the Plan, the term "just cause" includes: (i) an Eligible Employee's conviction for a felony or for fraud; (ii) an Eligible Employee engaging in any conduct, by way of act or omission, which in the opinion of the Company's Board has the potential to cause, or does cause, a material adverse effect on the Company's business; (iii) an Eligible Employee failing to return from authorized leave from the Company; (iv) an Eligible Employee being found to be under the influence of, or to have distributed, any illegal narcotic substance while on the Company's premises, including any project site of the Company; (v) an Eligible Employee acting dishonestly or committing theft of Company property; or (vi) the work performance of an Eligible Employee failing to meet established Company standards; provided, however, that the definition of "just cause" in any employment agreement between an Eligible Employee and the Company, if any, shall supersede and take the place of the preceding definition. 7. AMENDMENT OR DISCONTINUANCE At any time during the Term of the Plan, the Committee may alter, amend, suspend or discontinue the Plan. 8. OTHER AGREEMENTS In the event that any term or condition of this Plan varies from, or is in any way dissimilar to or in contrast with, any term, condition or provision of any other agreement between the Company and an Eligible Employee, such as an employment agreement, the relevant terms, conditions and/or provisions of such other agreement will control. 9. SUCCESSORS The provisions of the Plan shall be binding upon all successors of any Eligible Employee granted an Incentive Award under the Plan, including, without limitation, the estate of any such Eligible Employee and the executors, administrators or trustees of such estate, and any receiver, trustee in bankruptcy or representative of the creditors of any such Eligible Employee. Any obligations with respect to Incentive Awards granted pursuant to the Plan shall be expressly assumed by any successor in interest to the Company. 10. GOVERNING LAW AND JURISDICTION OF NEW JERSEY COURTS This Plan and any agreement entered into in connection therewith shall be construed and its provisions enforced and administered in accordance with the laws of the State of New Jersey. The foregoing reflects amendments made through January 30, 1996. EX-13 5 Financial Highlights (in thousands, except per share amounts) Six Six Months Months Year Ended Ended Ended Selected Years Ended November 30, Nov. 30, May 31, Nov. 30, Operating Data 1996 1995 1994 1993 1993 1992 - ------------------- -------- -------- -------- -------- -------- -------- Revenues $122,435 $180,843 $168,723 $83,351 $76,555 $135,421 Gross profit 16,790 19,560 28,984 15,878 4,867 5,460 Income (loss) from operations 1,837 (1,225) 8,595 5,560 (15,593) (25,630) Income (loss) before income taxes and extra- ordinary gain 1,031 (2,307) 6,560 4,756 (56,494) (38,611) Income (loss) before extra- ordinary gain 453 (3,138) 4,193 2,872 (56,494) (38,611) Net income (loss) 453 (3,138) 4,193 2,872 1,817 (38,611) Income (loss) per share before extraordinary gain .02 (.12) .16 .11 (1.67) (1.14) Net income (loss) per share .02 (.12) .16 .11 .05 (1.14) At At Selected Balance At November 30, May 31, Nov. 30, Sheet Data 1996 1995 1994 1993 1993 1992 - ------------------- -------- -------- -------- -------- -------- -------- Total assets $88,757 $91,416 $122,144 $110,930 $117,462 $187,909 Total debt 43,945 46,227 69,398 62,792 70,242 141,828 Shareholders' equity (deficit) 28,086 27,013 29,045 23,893 21,000 (452) The selected operating data for the years ended November 30, 1996, 1995 and 1994 and the six months ended November 30, 1993 and selected balance sheet data at and subsequent to May 31, 1993 are separated by a black line since, due to the adoption of fresh-start accounting and reporting to reflect the effects of the Reorganization as of May 31, 1993, these amounts are not comparable to the amounts reflected for prior periods. -1- Management's Discussion And Analysis Of Financial Condition And Results Of Operations RESULTS OF OPERATIONS ===================== RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995 - -------------------------------------------------------------------- Revenues for the year ended November 30, 1996 were $122.4 million compared to revenues of $180.8 million for the year ended November 30, 1995. Deliveries of 549 homes resulted in housing revenues of $110.3 million for the year ended November 30, 1996. For the year ended November 30, 1995, the Company delivered 749 homes which generated $171.3 million of housing revenues. Housing revenues decreased for the year ended November 30, 1996 by $61.0 million or thirty-six percent (36%) compared to the year ended November 30, 1995 reflecting a decrease in deliveries and average selling prices realized on the deliveries to $201,000 in 1996 from $229,000 in 1995. Housing revenues decreased primarily due to a fifty percent (50%) decrease in homes delivered by the Company's Northeast division. The Northeast division deliveries were adversely impacted by a significantly lower level of backlog entering 1996 compared to 1995, the close out of seven communities during the year, and the opening and timing of fewer replacement communities as a result of conserving cash, repositioning the Northeast to one division and refocusing on the division's target markets. These results were partially offset by a sixty-five percent (65%) and forty-two percent (42%) increase in 1996 in the Florida division housing revenues and home deliveries, respectively, compared to the prior year. The Florida division benefited in 1996 from higher sales activity due to more communities open for sale including five new communities opened during the first half of 1996 which contributed to the improved delivery levels realized in the fourth quarter of 1996. The decrease in the average sales price is attributable to the greater proportion of the Company's homes delivered in 1996 coming from the Florida division, where average selling prices are typically lower than in the communities served in the Northeast. Revenues include the sales of land, options, and commercial land and buildings of $12.0 million for the period ended November 30, 1996 compared to $8.5 million for 1995. The Company's gross profit margin on homes delivered was approximately thirteen percent (13%) during the year ended November 30, 1996, compared to a gross profit on homes, excluding the $1.6 million provision for net realizable value, of twelve percent (12%) in the year ended November 30, 1995. The gross profit margin on homes delivered in 1996 was favorably impacted by the increased deliveries and related gross profit from the Company's Florida division. The Company's gross profit margin from the Northeast division also improved from the prior year due to deliveries from new communities reflecting the division's current strategy to focus on the second and third time move-up buyer and its marketing strategy to emphasize quality, features and value. However, the overall gross profit margin for the year reflects intensive competition and sales incentives to homebuyers. Housing gross profit declined by $5.8 million for the year ended November 30, 1996, due to the decreased deliveries in the Northeast which was partially offset by the Florida division increases in deliveries and related gross profit. Included in the Company's gross profit is the profit from the sales of land and commercial land and buildings for the years ended 1996 and 1995 of $2.3 million and $500,000, respectively. The Company has continued to sell its commercial land and buildings and certain inventory in markets where its land position is in excess of estimated demand levels over two years. During the year ended November 30, 1996, the Company resolved certain issues relating to sales tax, litigation and construction obligations and, therefore, reversed approximately $440,000 in accrued liabilities. These reductions are reflected in Cost of revenues. During the second quarter of fiscal 1995, as a result of the consolidation of the New Jersey-North and New Jersey-South divisions and economic and market conditions including a decreased sales pace, the Company decided not to incur further preacquisition costs on nine properties controlled under option. These actions resulted in a pre-tax charge of approximately $1.1 million that is reflected in Cost of revenues. Also included in Cost of revenues is a $1.1 million pre-tax credit realized from the reversal of a reserve previously provided on a community completed in 1995. This reserve related to a $1.1 million payable that the Company, in finalizing the accounting for this -5- community in the second quarter of 1995, determined, based upon further review and advice of counsel, had been discharged by reason of the creditor's failure to take certain actions in connection with the Company's bankruptcy reorganization. In the year ended November 30, 1995, the Company recorded non-cash charges to the Provision for estimated net realizable value of $1.6 million to reflect certain inventory, primarily two properties, at their estimated net realizable value. This determination was based upon decreased sales absorption levels in the Northeast which continued into the fourth quarter of 1995 and the reevaluation of the ultimate use of a parcel in Florida. Estimated net realizable value has been determined based upon the amount the Company expects to realize through sale or development based on management's plans for each property. The estimation process involved in the determination of estimated net realizable value is inherently subjective since it requires estimates as to future events and conditions. The estimated net realizable value of a property may exceed the value which could be obtained through the immediate sale of the property if development plans for such property support a higher cost recovery. For 1996, there were no provisions recorded for estimated net realizable value. Selling, general and administrative expenses decreased to $15.0 million (12% of revenues) for the year ended November 30, 1996, compared to $18.9 million (10% of revenues) for the year ended November 30, 1995, reflecting a $3.9 million decrease. The decrease is principally due to a reduction in selling costs resulting from lower levels of home deliveries and fewer communities open for sales and deliveries in 1996, lower advertising and employee costs due to the winddown of the Chicago operations, the consolidation of the Northeast division and the continued efforts of management to reduce fixed costs. The increase in selling, general and administrative expenses as a percentage of revenues is principally due to lower delivery levels and related revenues for 1996. In November 1995, the Company decided to wind down the Chicago division due to unfavorable results and prospects. As a result, a primarily non-cash $1.1 million charge was recorded in the fourth quarter of 1995 and is included in Restructuring charges. Also included in Restructuring charges in 1995 is $840,000 in severance benefits, $200,000 of which resulted from the March 1995 rightsizing, primarily from the consolidation of the New Jersey-North and New Jersey-South divisions, that resulted in the reduction of approximately twenty percent (20%) of the Company's workforce; and $640,000 that resulted from a severance arrangement entered into with the Company's former President in November 1995, which required the Company to make a lump sum payment and pay the remaining premium on a whole life insurance policy in January 1996. During 1996, the Company substantially completed the winddown of the Chicago division by the build out and sale of certain lots and bulk sale of the remaining finished lots. As of November 30, 1996, four homes remain to be sold and delivered which the Company believes will be completed in the first half of 1997. Gross interest cost was approximately $5.5 million for the year ended November 30, 1996, compared to $7.1 million for the year ended November 30, 1995, respectively. The decrease in gross interest cost for the year ended November 30, 1996 resulted from substantially lower average loan balances throughout the year compared to the year ended November 30, 1995. The weighted average debt outstanding under the Company's Revolving Credit Facility was $45.4 million for the year ended November 30, 1996 compared to $58.1 million for the prior year. Interest capitalized in the year ended November 30, 1996 was $4.1 million compared to $5.0 million in the year ended November 30, 1995. The decrease in capitalized interest is primarily a result of lower inventory levels. The capitalized amounts will reduce future gross profit levels assuming no relative increases in selling prices. Included in Other income (expense) for the year ended November 30, 1996 is $460,000 that represents payments received during the year on a note previously reserved. During 1995, the Company received $890,000 that represents payments received primarily in the fourth quarter in connection with the dissolution and liquidation of Talcon, L.P. ("Talcon") in complete satisfaction of Talcon's debt obligations to the Company. The Company had previously established a reserve for all amounts owed to it by Talcon due to the uncertainty of collection that resulted from the fact that Talcon had commenced dissolution proceedings in 1994 and was in default with respect to approximately $8.3 million of borrowings under a loan agreement with its bank lender. The Company, primarily as a result of the adoption of fresh-start accounting and reporting in connection with its reorganization in 1993 (the "Reorganization"), has a tax basis in its assets held as it exited its -6- Reorganization substantially in excess of the carrying value of these assets used for financial reporting purposes. As a result of this difference in basis, the Company will realize a tax benefit over time against future earnings. In accordance with The American Institute of Certified Public Accountants Statement of Position 90-7, the Company is required to provide a provision in lieu of taxes notwithstanding the fact that there are no significant taxes payable. Results for the year ended November 30, 1996 reflect a provision in lieu of taxes for financial reporting purposes of $578,000 which is primarily non-cash and, therefore, does not impact the Company's cash position, tangible net worth or earnings before interest, taxes, depreciation and amortization ("EBITDA"). In 1995, a provision in lieu of taxes was also recorded in the amount of $831,000. The net operating loss carryforwards and other deferred tax assets are subject to utilization limitations as a result of the changes in control of the Company that occurred in 1993 and 1995. The Company's ability to use the annual net operating loss ("NOL") to offset future income is approximately $1.6 million per year or approximately $26.5 million. Net sales contracts of $114.5 million (548 homes) were recorded by the Company during the year ended November 30, 1996, representing increases in the dollar value of contracts of five percent (5%) and contracts of ten percent (10%) compared to $108.7 million (496 homes) in the same period in 1995. At November 30, 1996, the backlog of homes under contract totalled 165 homes having an aggregate dollar value of $40.2 million, compared to 166 homes at November 30, 1995 having an aggregate dollar value of $36.0 million representing an increase of twelve percent (12%) in backlog value. Current year net sales activity benefited from the opening of seven new communities in the Florida division contributing to a fifty-six percent (56%) and sixty-nine percent (69%) increase in net home sales and dollars, respectively, compared to 1995. At November 30, 1996, the Florida division represented approximately fifty percent (50%) and thirty-two percent (32%) of total backlog homes and backlog value, respectively, compared to thirty-one percent (31%) and twenty- two percent (22%) of total backlog homes and backlog value, respectively, at November 30, 1995. Partially offsetting these increases is the reduction in Northeast division net sales during 1996 from 1995 attributable to the winddown of seven communities during the year, the opening of fewer replacement communities and the timing of such openings. As of November 30, 1996, eight active communities were open for sales in the Northeast division compared to eleven at November 30, 1995. The average price per home in backlog at November 30, 1996 increased by twelve percent (12%) to approximately $244,000 from $217,000, which is primarily attributable to higher-priced homes in the Northeast division resulting from net sales associated with the division's four new communities opened in the fourth quarter of 1995 and during 1996 which reflects the division's focus on the second and third time move-up buyer and its marketing strategy to emphasize quality, features and value. The backlog in both years includes contracts containing financing and other contingencies customary in the industry, including contracts that are contingent on the purchaser selling their existing home. Due to changes in product offerings, the uncertainty of future market conditions and the general economic environment, the sales backlog, homes delivered, average selling prices and gross profit achieved in the current and prior periods may not be indicative of those to be realized in succeeding periods. The Company has begun its entry into the active adult housing market in Ocean County, New Jersey, in a community that will be marketed under the name Renaissance. The Company has the contractual right to purchase up to 2,000 finished lots on a rolling option basis, with the land seller funding the construction of the amenities that will be offered in this 600 acre community. The Company expects Renaissance, which will be a major part of the Northeast division's new focus on both the active adult community and move-up buyer markets, to be a significant contributor to the division's future results. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The provisions of this statement are effective for fiscal years beginning after December 15, 1995. If the Company adopted this statement currently, it would not have a material effect on the Company's financial position, results of operations or cash flows. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." The provisions of this statement are effective for fiscal years beginning after December 15, 1995. The Company intends to implement the -7- disclosure-only provision of this statement. Accordingly, if the Company adopted this statement currently, it would not have a material effect on the Company's financial position, results of operations or cash flows. RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994 - -------------------------------------------------------------------- Revenues for the year ended November 30, 1995 were $180.8 million compared to revenues of $168.7 million for the year ended November 30, 1994. Deliveries of 749 homes resulted in housing revenues of $171.3 million for the year ended November 30, 1995. For the year ended November 30, 1994, the Company delivered 899 homes which generated $165.5 million of housing revenues. Housing revenues in 1995 increased four percent (4%) reflecting an increase in average selling prices to $229,000 for the homes delivered during the year compared to $184,000 for the homes delivered in 1994. This increase in average revenue per home is consistent with the Company's plan to position itself in middle and upscale market segments in the Northeast and Orlando, Florida markets with enhanced margin potential and reduce its former concentration in entry level, multi- family products because of unfavorable demographic trends and increasing regulatory costs. Deliveries in the Northeast division comprised seventy percent (70%) of the Company's total deliveries in fiscal 1995 where average selling prices increased to $265,000 from $226,000 in 1994. Deliveries in the Orlando division comprised twenty-four percent (24%) of total deliveries in fiscal 1995, where average selling prices increased to $125,000 in 1995 from $109,000 in 1994. The seventeen percent (17%) decrease in home deliveries in fiscal 1995 is primarily attributable to a thirty-nine percent (39%) decrease of home deliveries in the Orlando, Florida division primarily due to the timing of new community openings. The Company's gross profit margin on homes delivered excluding the provision for net realizable value of $1.6 million was approximately twelve percent (12%) during the year ended November 30, 1995, compared to seventeen percent (17%) in the year ended November 30, 1994. The gross profit margin on homes delivered in 1995 was impacted by increased competition in a difficult market while the homes delivered in 1994 reflected the revaluation of the Company's inventory as a result of the application of fresh-start accounting and reporting in connection with the Company's 1993 Plan of Reorganization. In addition, gross profit margins have been, and will continue to be, unfavorably impacted by increased carrying costs resulting from lower absorption rates. Gross profit margins have also been impacted by the fact that the Company's land pipeline, which was severely depleted when it completed its Reorganization in May 1993, had been refilled in a transitional market environment that reflected upward price pressures on land that could not be entirely passed along to buyers. Pursuant to management's continued focus on its core homebuilding business, the Company sold two of its commercial properties in 1995 for approximately $8.1 million in addition to the sale of one of its commercial properties in the fourth quarter of 1994 for $800,000. The 1995 sales resulted in an aggregate pre-tax gain of approximately $500,000 and provided approximately $850,000 of additional cash for operations after retirement of $6.9 million of mortgage debt. Selling, general and administrative expenses decreased to $18.9 million (10% of revenues) for the year ended November 30, 1995, compared to $20.4 million (12% of revenues) for the year ended November 30, 1994. The decrease is principally due to lower employee costs resulting from reductions in employee levels and consolidation of operations in the Northeast completed early in the second quarter of 1995. Gross interest cost was approximately $7.1 million for the year ended November 30, 1995, compared to $5.5 million for the year ended November 30, 1994, respectively. The increase in gross interest cost for the year ended November 30, 1995 resulted from higher interest rates and, to a lesser extent, higher average loan balances compared to the year ended November 30, 1994. Interest capitalized in the year ended November 30, 1995 was $5.0 million compared to $4.0 million in the year ended November 30, 1994. The increase of capitalized interest is primarily a result of higher interest rates. The capitalized amounts will reduce future gross profit levels assuming no relative increases in selling prices. Included in Other income (expense) in 1995 is $890,000 which represents payments received primarily in the fourth quarter in connection with the dissolution and liquidation of Talcon, in complete satisfaction of Talcon's debt obligations to the Company. The Company had previously established a reserve for all amounts owed to it by Talcon due to the uncertainty of -8- collection that resulted from the fact that Talcon had commenced dissolution proceedings in 1994 and was in default with respect to approximately $8.3 million of borrowings under a loan agreement with its bank lender. The Company recorded a charge against earnings of $800,000 in fiscal 1994 relating to a proposed offering of securities and related working capital facility. The proposed offering was terminated due to unfavorable conditions in the financial markets. Results for the year ended November 30, 1995 reflect a provision in lieu of taxes for financial reporting purposes of $831,000 compared to $2.4 million in 1994, which is primarily non-cash, and, therefore, does not impact the Company's cash position, tangible net worth or EBITDA. Goodwill was fully extinguished during the year ended November 30, 1994 and an increase of $719,000 was recorded to Paid in capital. The effective rate of the 1994 provision in lieu of taxes was reduced by approximately $700,000 as a result of a reduction in tax reserves that was appropriate when the Company obtained clearance on a state tax position with the New Jersey Division of Taxation. The net operating loss carryforwards and other deferred tax assets are subject to utilization limitations as a result of the changes in control of the Company that occurred in 1993 and 1995. Net sales contracts of $108.7 million (496 homes) were recorded by the Company during the year ended November 30, 1995, representing decreases in the dollar value of contracts of 42% compared to $188.9 million (951 homes) in the same period in 1994. Due to market conditions, the number of new communities opened for sales during fiscal 1995 decreased forty-two percent (42%) to seven communities, six of which were in the Florida market. This resulted in fewer communities open for sales during 1995 and a reduction in the amount outstanding under the credit facility by $15.0 million to $45.0 million by November 30, 1995. LIQUIDITY AND CAPITAL RESOURCES =============================== During the past several years, the Company has financed its operations primarily from internally generated funds from home deliveries, land sales and sales of commercial land and buildings. In April 1997, the Company and its lenders amended the Company's revolving credit facility (the "Facility") to extend the term of the Facility through February 28, 1998 and, if certain conditions are satisfied, August 31, 1998. The amended Facility (the "Amended Facility") reduced the loan commitment level to $46.0 million initially and requires amortization of $3.0 million by July 15, 1997, another $3.0 million by August 31, 1997 and a further reduction of $10.0 million by November 30, 1997. In addition, the Amended Facility increased the interest rate charged to the Company to the lender's prime rate (8.25% at November 30, 1996) plus two and one-half percent (2.5%). The Company is required to pay the lenders, in five (5) installments, a commitment fee, which the Company will amortize over the extension period ending February 28, 1998, equal to three percent (3%) of the lenders' initial commitment level under the Amended Facility. The Amended Facility provides the Company an option to extend the term to August 31, 1998 if outstanding borrowings and the commitment level are reduced to $20.0 million or less by February 28, 1998. In such event, the interest rate charged to the Company will be reduced to prime plus two percent (2%). The Amended Facility changed various restrictions and financial covenants with which the Company is required to comply, including covenants relating to cash basis interest coverage, EBITDA and tangible net worth, and continues to impose limits on the amount which can be expended on land acquisition and land development. For the year ended November 30, 1996, the Company's EBITDA was $7.3 million compared to $8.6 million in 1995. Purchase money financing from other sources continues to be limited to $5.0 million under the Amended Facility. Certain subsidiaries of the Company are guarantors of the obligations under the Amended Facility. The lenders have a security interest in substantially all of the assets of the Company and its subsidiaries, subject only to certain permitted liens approved by the lenders. The Amended Facility prohibits the payment of dividends by the Company. Although the Amended Facility will restrict the Company's ability to expand its business, the Company believes, based upon its business plan, that it will be able to comply with the financial covenants and other terms contained in the Amended Facility; however, there can be no assurance that if market or other conditions deteriorate, that the Company will meet the covenant levels. The Company is pursuing and will continue to pursue long-term financing to replace the Amended Facility. Pending such replacement, the Company believes -9- that funds generated by operating activities, income tax payment reductions derived from NOL utilization, the sale of certain assets during fiscal 1997 and borrowing availability under the Amended Facility will provide sufficient capital to support the Company's operations through the term of the Amended Facility. If a more favorable long-term credit facility is not obtained, the rate at which the Company can open new communities may be adversely affected and the Company would be required to effect sales of substantial assets in order to obtain an extension of the Amended Facility beyond February 28, 1998. Interest rate increases will continue to impact the Company's cost of capital and related interest costs. Increases in capitalized interest could reduce future gross profit levels assuming no relative increases in home selling prices. EBITDA, however, would not be adversely impacted. CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ Inventories amounted to $65.5 million at November 30, 1996 compared to $64.2 million at November 30, 1995. The increase of $1.3 million was primarily the result of $23.3 million of land acquisitions, of which approximately $4.7 million was financed by purchase money mortgages and $2.2 million of inventory accruals, partially offset by a $22.0 million reduction due to home deliveries and land sales. Commercial properties were reduced by $1.9 million from the sale of commercial land and buildings in 1996. Inventories decreased $24.6 million in 1995 primarily due to home deliveries offset to a lesser extent by land acquisitions totaling $10.5 million. Commercial properties were also reduced by $7.2 million in 1995 as a result of the sale of two commercial buildings. The increase in inventory from November 30, 1993 to November 30, 1994 of $10.6 million was a result of land acquisitions of $25.8 million during the year which were offset by reductions in inventory levels through deliveries. Of the $25.8 million in land acquisitions, approximately $2.5 million was financed with purchase money mortgage debt. The Company will continue to seek opportunities to obtain control of land for future communities at advantageous prices and terms. Funds generated by the Company's operations will be utilized for the acquisition of such properties. In addition, borrowings from the Facility will be utilized for acquisitions as needed, and to the extent available. Also, options will be utilized to the extent possible to minimize risks, conserve cash and maximize the Company's land pipeline. Receivables increased approximately $310,000 from November 30, 1995 to November 30, 1996 primarily due to an increase in mortgages and notes receivable in connection with the sale of a land parcel in the third quarter, partially offset by the timing of home closings. Receivables increased by approximately $1.1 million during 1995 primarily due to the timing of home closings, offset to a lesser extent by reductions in cash collateral held for performance guarantees for communities that were completed during the year. The $900,000 increase in receivables in 1994 is attributable to the timing of home closings. The decrease in accounts payable, accrued expenses and other liabilities from November 30, 1995 to November 30, 1996 of $1.4 million is primarily attributable to the decreased level of homebuilding in the Northeast division, the payment of severance to the Company's former President and the reduction of the Company's business insurance. The $5.5 million decrease in accounts payable, accrued expenses and other liabilities from November 30, 1994 to November 30, 1995 is primarily attributable to the decreased level of homebuilding operations and communities under development and a $1.1 million credit taken in the second quarter of 1995 from the reversal of a reserve provided during the delivery period of a community that closed out in early 1995. A decrease in accounts payable, accrued expenses and other liabilities of $600,000 from November 30, 1993 to November 30, 1994 was attributable to a $2.4 million increase in accounts payable from the increased level of homebuilding operations and communities under development offset by a decrease in accrued expenses of $3.0 million as a result of payments made in conjunction with litigation settlements, the Talcon dissolution and the California division winddown. In addition, a $700,000 reserve related to a certain tax issue was reversed. -10- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ During 1996, the Company received $725,000 from the liquidation of a joint venture in which it previously participated. In 1995, Talcon, a limited partnership formed by the Company in 1987, paid the Company $890,000 in full satisfaction of its debt obligations to the Company. The Company had previously established a reserve for all amounts owed to it by Talcon and, as a result, the payment received in 1995 was classified in Other (income) expense. CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ The aggregate principal amount of loans outstanding under the Facility was $39.5 million at November 30, 1996, $45.0 million at November 30, 1995 and $60.0 million at November 30, 1994. The $5.5 million decrease since November 30, 1995 occurred during the second half of 1996 in conjunction with the Company's strategy to reduce its debt obligation and improve the Company's financial condition. The Company utilizes mortgages payable, when available and within the covenant restrictions of the Facility, to finance a portion of its acquisitions. Mortgages payable increased to $4.4 million at November 30, 1996, from $1.2 million at November 30, 1995, representing two purchase money mortgages used to acquire new land. The 1995 sales of commercial land and buildings resulted in approximately $850,000 of cash for operations after the reduction of outstanding mortgages payable of $6.9 million. INFLATION ========= The Company, as well as the homebuilding industry in general, may be adversely affected by inflation, which can cause increases in the price of land, raw materials and labor. Unless cost increases are recovered through higher sales prices, gross margins can decrease. Increases in interest rates result in higher construction and financing costs which can also adversely affect gross margins. In addition, increases in home mortgage interest rates make it more difficult for the Company's customers to qualify for mortgage loans, potentially reducing the demand for homes. Historically, the Company, in periods of high inflation, has generally been able to recover increases in land, construction, labor and interest expenses through increases in selling prices; however, the Company believes that its gross margins in 1995 and 1996 were adversely impacted by increased costs which could not be entirely passed through to buyers. See "Results of Operations." FORWARD LOOKING STATEMENTS ========================== All statements, other than statements of historical fact, included in this Annual Report, including without limitation the statements under "To Our Shareholders" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements (including statements relating to the Company's ability to comply with covenants contained in the Amended Facility) involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such potential risks and uncertainties, include without limitation, matters related to national and local economic conditions, the effect of governmental regulation on the Company, the competitive environment in which the Company operates, changes in interest rates, home prices, availability and cost of land for future growth, the timing of land acquisition and product development, availability of working capital and the availability and cost of labor and materials, and other risk factors detailed herein and in the Company's Securities and Exchange Commission filings. -11- Consolidated Balance Sheet November 30, 1996 And 1995 ========================== 1996 1995 Assets ------------ ------------ Cash and cash equivalents $ 4,292,000 $ 5,161,000 Receivables 9,274,000 8,964,000 Inventories 65,525,000 64,246,000 Commercial land and buildings 7,512,000 9,439,000 Investments in joint ventures -- 850,000 Prepaid expenses and other assets 2,154,000 2,756,000 ------------ ------------ Total assets $ 88,757,000 $ 91,416,000 ============ ============ Liabilities and Shareholders' Equity Revolving credit agreement $39,500,000 $45,000,000 Mortgages payable 4,445,000 1,227,000 Accounts payable 4,811,000 3,270,000 Accrued expenses and other liabilities 11,915,000 14,906,000 ------------ ------------ Total liabilities 60,671,000 64,403,000 ------------ ------------ Commitments and contingent liabilities Shareholders' Equity Common stock, $.01 par value, 53,700,000 shares authorized; issued and outstanding 26,527,000 in 1996 and 26,371,000 in 1995 265,000 264,000 Paid in capital 23,441,000 22,822,000 Retained earnings 4,380,000 3,927,000 ------------ ------------ Total shareholders' equity 28,086,000 27,013,000 ------------ ------------ Total liabilities and shareholders' equity $ 88,757,000 $ 91,416,000 ============ ============ See accompanying notes to consolidated financial statements. -12- Consolidated Statement Of Operations ==================================== Years Ended November 30, 1996 1995 1994 ------------ ------------ ------------ Revenues $122,435,000 $180,843,000 $168,723,000 ------------ ------------ ------------ Costs and expenses Cost of revenues 105,645,000 159,690,000 139,339,000 Provision for estimated net realizable value -- 1,593,000 400,000 Selling, general and administrative 14,953,000 18,845,000 20,389,000 Restructuring charges -- 1,940,000 -- ------------ ------------ ------------ 120,598,000 182,068,000 160,128,000 ------------ ------------ ------------ Income (loss) from operations 1,837,000 (1,225,000) 8,595,000 Other charges (credits) Interest expense, net 1,266,000 1,847,000 1,235,000 Other (income) expense (460,000) (765,000) 800,000 ------------ ------------ ------------ Income (loss) before income taxes 1,031,000 (2,307,000) 6,560,000 Provision in lieu of income taxes 578,000 831,000 2,367,000 ------------ ------------ ------------ Net income (loss) $ 453,000 $ (3,138,000) $ 4,193,000 ============ ============ ============ Net income (loss) per share $ .02 $ (.12) $ .16 ============ ============ ============ See accompanying notes to consolidated financial statements. -13- Consolidated Statement Of Cash Flows ==================================== Years Ended November 30, 1996 1995 1994 ------------ ------------ ------------ Cash Flows from Operating Activities - ------------------------------------ Net income (loss) $ 453,000 $ (3,138,000) $ 4,193,000 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Depreciation and amortization 1,418,000 1,741,000 1,877,000 Provision in lieu of income taxes 578,000 831,000 2,928,000 Issuance of stock under 401(k) Plan 42,000 213,000 198,000 Restructuring charges -- 1,940,000 -- Provision for estimated net realizable value -- 1,593,000 400,000 Option abandonments -- 1,050,000 -- Reserve reversal (440,000) (1,113,000) -- Increase in receivables (37,000) (1,141,000) (1,460,000) Decrease (increase) in inventories 4,561,000 19,739,000 (13,499,000) Decrease in commercial land and buildings 1,868,000 7,158,000 2,154,000 Decrease in accounts payable, accrued expenses and other liabilities (2,997,000) (5,508,000) (1,138,000) Decrease (increase) in prepaid expenses and other assets 237,000 (555,000) 721,000 ------------ ------------ ------------ 5,683,000 22,810,000 (3,626,000) ------------ ------------ ------------ Cash Flows from Investing Activities - ------------------------------------ Distribution from joint venture 725,000 -- -- Increase in property and equipment (58,000) (237,000) (88,000) ------------ ------------ ------------ 667,000 (237,000) (88,000) ------------ ------------ ------------ Cash Flows from Financing Activities - ------------------------------------ Repayment under revolving credit agreement (9,500,000) (19,500,000) (9,500,000) Proceeds under revolving credit agreement 4,000,000 4,500,000 14,500,000 Decrease in mortgages payable (1,719,000) (8,171,000) (882,000) ------------ ------------ ------------ (7,219,000) (23,171,000) 4,118,000 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (869,000) (598,000) 404,000 Cash and cash equivalents at beginning of year 5,161,000 5,759,000 5,355,000 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 4,292,000 $ 5,161,000 $ 5,759,000 ============ ============ ============ See accompanying notes to consolidated financial statements. -14- Consolidated Statement Of Shareholders' Equity ============================================== Retained Total Common Preferred Paid In Earnings Shareholders' Stock Stock Capital (Deficit) Equity ---------- --------- ----------- ----------- ------------ Balance, Nov. 30, 1993 $ 234,000 $ 260,000 $20,527,000 $2,872,000 $ 23,893,000 Net income -- -- -- 4,193,000 4,193,000 Conversion of preferred stock 26,000 (260,000) 234,000 -- -- Issuance of stock under 401(k) Plan -- -- 198,000 -- 198,000 Tax adjustment -- -- 719,000 -- 719,000 Amortization of deferred compensation related to stock option plan -- -- 42,000 -- 42,000 ---------- --------- ----------- ----------- ------------ Balance, Nov. 30, 1994 260,000 -- 21,720,000 7,065,000 29,045,000 Net loss -- -- -- (3,138,000) (3,138,000) Issuance of stock under 401(k) Plan 4,000 -- 209,000 -- 213,000 Provision in lieu of income taxes -- -- 831,000 -- 831,000 Amortization of deferred compensation related to stock option plan -- -- 62,000 -- 62,000 ---------- --------- ----------- ----------- ------------ Balance, Nov. 30, 1995 264,000 -- 22,822,000 3,927,000 27,013,000 Net income -- -- -- 453,000 453,000 Issuance of stock under 401(k) Plan 1,000 -- 41,000 -- 42,000 Provision in lieu of income taxes -- -- 578,000 -- 578,000 ---------- --------- ----------- ----------- ------------ Balance, Nov. 30, 1996 $ 265,000 $ -- $23,441,000 $ 4,380,000 $ 28,086,000 ========== ========= =========== =========== ============ See accompanying notes to consolidated financial statements. -15- Notes To Consolidated Financial Statements ========================================== 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ============================================== Principles of consolidation - --------------------------- The consolidated financial statements include the accounts of Calton, Inc. and all of its wholly-owned and majority-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. The Company designs, constructs and sells single family detached homes primarily in central New Jersey and central Florida. Certain reclassifications have been made to prior years' financial statements in order to conform with the 1996 presentation. Liquidity and capital resources - ------------------------------- During the past several years, the Company has financed its operations primarily from internally generated funds from home deliveries, land sales and sales of commercial land and buildings. In April 1997, the Company and its lenders amended the Company's revolving credit facility (the "Facility") to extend the term of the Facility through February 28, 1998 and, if certain conditions are satisfied, August 31, 1998. The amended Facility (the "Amended Facility") reduced the loan commitment level to $30,000,000 at November 30, 1997. The Amended Facility provides the Company an option to extend the term to August 31, 1998 if outstanding borrowings and the commitment level are reduced to $20,000,000 or less by February 28, 1998. The Amended Facility changed various restrictions and financial covenants with which the Company is required to comply (see Note 5). The Company is pursuing and will continue to pursue long-term financing to replace the Amended Facility. Pending such replacement, the Company believes that funds generated by operating activities, income tax payment reductions derived from NOL utilization, the sale of certain assets during fiscal 1997 and borrowing availability under the Amended Facility will provide sufficient capital to support the Company's operations through the term of the Amended Facility. If a more favorable long-term credit facility is not obtained, the rate at which the Company can open new communities may be adversely affected and the Company would be required to effect sales of substantial assets in order to obtain an extension of the Amended Facility beyond February 28, 1998. Income recognition - ------------------ Revenue and cost of revenue on sales of homes are recognized when individual homes are completed, and title and other attributes of ownership have been transferred by means of a closing to the buyer. Revenue and cost of revenue on land sales are recognized when all conditions precedent to closing have been fulfilled, a specified minimum down payment has been received and it is expected that the resulting receivables will be collected. Cash and cash equivalents - ------------------------- Cash equivalents consist of short-term, highly liquid investments, with original maturities of three months or less, that are readily convertible into cash. Inventories - ----------- Inventories are stated at the lower of cost or estimated net realizable value for each property. Estimated net realizable value has been determined based upon the amount the Company expects to realize through sale or development based on management's present plans for each property. In a buildout of a community, certain assumptions are made concerning future sales prices and absorption of sales and closings in the community's life span. There is an inherent risk that those assumptions made may not occur. The estimated net realizable value of a property may exceed the value which could be obtained through the immediate sale of the property if development plans for such property support a higher cost recovery. Cost includes direct and allocated -16- indirect costs. Land and land development costs generally include interest and property taxes incurred. Interest is capitalized using interest rates on specifically related debt and the Company's average borrowing rate. Construction costs are accumulated during the period of construction and charged to Cost of revenues under specific identification methods. Land, land development and common facility costs are amortized based upon the number of homes to be constructed in each community utilizing a relative sales value allocation method. The marketing costs for model homes are capitalized and depreciated over the life of the community's deliveries on a per unit basis. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The provisions of this statement are effective for fiscal years beginning after December 15, 1995. If the Company adopted this statement currently, it would not have a material effect on the Company's financial position, results of operations or cash flows. Commercial land and buildings - ----------------------------- Commercial land and buildings, stated at estimated fair market value, include certain assumptions in their ultimate disposition such as future cash flow, the ability of the Company to obtain certain zoning changes and regulatory or governmental approvals. There is an inherent risk that those assumptions may not be realized. Income taxes - ------------ Deferred income taxes are determined on the liability method in accordance with Statement of Financial Accounting Standards No. 109 (see Note 8). Prepaid expenses and other assets - --------------------------------- Prepaid expenses and other assets consist primarily of property and equipment, prepaid architect fees and prepaid insurance. Prepaid architect fees are amortized on a per unit basis as homes are delivered. Risks and uncertainties - ----------------------- The preparation of 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 dates of the financial statements and the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates. The Company, as well as the homebuilding industry in general, is very sensitive to economic conditions. Inflation, interest rate fluctuations, available capital and consumer confidence impact the ability of the Company to market, sell and build homes. Per share computations - ---------------------- Per share computations are based upon the weighted average number of shares of common stock outstanding during each period presented (26,491,000, 26,281,000 and 26,095,000 for the years ended November 30, 1996, 1995 and 1994, respectively). -17- 2. RECEIVABLES =============== Receivables consist of the following (amounts in thousands): November 30, 1996 1995 ------------ ------------ Closing proceeds due $3,850 $4,946 Due from municipalities 2,446 2,573 Mortgages and notes receivable, net 1,491 557 Other 1,487 888 ------------ ------------ $9,274 $8,964 ============ ============ 3. INVENTORIES =============== The components of inventories are as follows (amounts in thousands): November 30, 1996 1995 ------------ ------------ Land and land development costs $22,969 $20,496 Homes, lots and improvements in production 33,819 39,251 Land purchase options and cost of projects in planning 8,737 4,499 ------------ ------------ $65,525 $64,246 ============ ============ Homes, lots and improvements in production represent all costs of homes under construction including model homes, land and land development costs and the related carrying costs of these lots. Interest capitalized in inventories is charged to interest expense as part of Cost of revenues when the homes are delivered or land sales close. Interest incurred, capitalized and expensed for the years ended November 30, 1996, 1995 and 1994 is as follows (amounts in thousands): Years Ended November 30, 1996 1995 1994 -------- -------- -------- Interest expense incurred $ 5,472 $ 7,114 $ 5,543 Interest capitalized 4,067 5,016 4,005 -------- -------- -------- Interest expense - net 1,405 2,098 1,538 Capitalized interest amortized in cost of revenues 3,616 4,123 2,203 -------- -------- -------- Interest cost reflected in pre-tax income $ 5,021 $ 6,221 $ 3,741 ======== ======== ======== In the years ended November 30, 1995 and 1994, the Company recorded provisions of $1,593,000 and $400,000, respectively, to state inventory to estimated net realizable value. These charges are reflected in the provision for estimated net realizable value. No such charges were recorded in 1996. During 1996, the Company acquired $23,300,000 of land and land options, $4,730,000 of which was financed by purchase money mortgages. During 1995, the Company acquired $10,511,000 of land and land options. 4. COMMERCIAL LAND AND BUILDINGS ================================= During 1996, the Company disposed of commercial land and buildings representing three parcels of land and a commercial building for total revenues of $3,169,000 that provided $1,780,000 in cash for operations and a pre-tax gain of $1,100,000. For the year ended November 30, 1995, the Company completed the sale of two commercial buildings for combined proceeds and pre-tax gains of $8,080,000 and $500,000, respectively. The sales provided approximately $850,000 in cash for operations after the repayment of mortgage debt of $6,900,000 and contributed to the reduction of Commercial land and buildings for the year. -18- In the last month of 1994, the Company sold a commercial building for $800,000 in cash which reduced Commercial land and buildings by $770,000. The net proceeds of approximately $750,000 were used to reduce mortgages payable. The sale of this building did not result in a significant gain or loss. The Company's remaining commercial properties consist primarily of land located in Pennsylvania, New Jersey, Florida and California. These properties are available for sale as a result of management's focus on residential homebuilding. One of such properties has certain acreage currently under contract for sale, subject to certain contingencies. 5. REVOLVING CREDIT AGREEMENT ============================== In April 1997, the Company and its lenders amended the Company's revolving credit facility (the "Facility") to extend the term of the Facility through February 28, 1998 and, if certain conditions are satisfied, August 31, 1998. The amended Facility (the "Amended Facility") reduced the loan commitment level to $46,000,000 initially and requires amortization of $3,000,000 by July 15, 1997, another $3,000,000 by August 31, 1997 and a further reduction of $10,000,000 by November 30, 1997. In addition, the Amended Facility increased the interest rate charged to the Company to the lender's prime rate (8.25% at November 30, 1996) plus two and one-half percent (2.5%). The Company is required to pay the lenders, in five (5) installments, a commitment fee, which the Company will amortize over the extension period ending February 28, 1998, equal to three percent (3%) of the lenders' initial commitment level under the Amended Facility. The Amended Facility provides the Company an option to extend the term to August 31, 1998 if its outstanding borrowings and the commitment level are reduced to $20,000,000 or less by February 28, 1998. In such event, the interest rate charged to the Company will be reduced to prime plus two percent (2%). The Amended Facility changed various restrictions and financial covenants with which the Company is required to comply, including covenants relating to cash basis interest coverage, EBITDA and tangible net worth, and continues to impose limits on the amount which can be expended on land acquisition and land development. For the year ended November 30, 1996, the Company's EBITDA was $7,300,000 compared to $8,600,000 in 1995. Purchase money financing from other sources would continue to be limited to $5,000,000 under the Amended Facility. Certain subsidiaries of the Company are guarantors of the obligations under the Amended Facility. The lenders have a security interest in substantially all of the assets of the Company and its subsidiaries, subject only to certain permitted liens approved by the lenders. The Amended Facility prohibits the payment of dividends by the Company. Management believes that it will be able to comply with the covenant levels and other terms set forth in the Company's agreement with the lenders based upon meeting the levels anticipated in its business plan. However, there can be no assurance that if market or other conditions deteriorate, that the Company will meet the covenant levels. If a more favorable long-term credit facility is not obtained, the rate at which the Company can open new communities may be adversely affected and the Company would be required to effect sales of substantial assets in order to obtain an extension of the Amended Facility beyond February 28, 1998. At November 30, 1996, approximately $40,900,000, including $1,400,000 of letters of credit, was outstanding under the Facility. The Facility includes a borrowing base, based upon a percentage of the Company's eligible inventory, which restricted borrowings to $42,300,000 at November 30, 1996. The unused Facility commitment of $8,300,000 was available as of November 30, 1996 to the Company for investment in inventory that results in the corresponding growth of its borrowing base. As of November 30, 1996, approximately $1,400,000 was available to be borrowed under the borrowing base restriction. Substantially all of the Company's assets are pledged as collateral under the Facility. Amounts borrowed under the Facility during the year ended November 30, 1996 bore interest at the lenders prime rate (8.25% at November 30, 1996) plus two percent (2%). The weighted average interest rates for the years ended November 30, 1996 and 1995 were 11.3% and 11.1%, respectively. The weighted average amounts borrowed for the corresponding years were $45,445,000 and $58,105,000, respectively. The total amount of interest paid, net of amounts capitalized, in the years ended November 30, 1996, 1995 and 1994 was $1,445,000, $2,124,000 and $1,440,000, respectively. -19- 6. MORTGAGES PAYABLE ===================== Mortgages payable at November 30, 1996 and 1995 were $4,445,000 and $1,227,000, respectively. Approximately $6,700,000 of inventories are pledged as collateral for purchase money mortgages to land sellers at November 30, 1996 compared to $1,885,000 at November 30, 1995. During 1996, the balance of the purchase money mortgage from year end 1995 was satisfied by payments in exchange for mortgage releases. During 1996, the Company used purchase money mortgages, in the amount of $4,730,000, to finance the acquisition of two parcels of land. The interest rate on each of the purchase money mortgages is at prime (8.25% at November 30, 1996) and is payable on a monthly or semi-annual basis beginning in 1997. Mortgages payable mature as follows: 1997 - $1,013,000, 1998 - $2,370,000 and in 1999 - $1,062,000. The weighted average interest rate for mortgages payable for the years ended November 30, 1996 and 1995 were 8.7% and 10.4%, respectively. 7. SHAREHOLDERS' EQUITY ======================== The Company's Certificate of Incorporation provides for 53,700,000 authorized shares of Common Stock (par value $.01 per share), 2,600,000 shares of Redeemable Convertible Preferred Stock (par value $.10 per share) and 10,000,000 shares of Class A Preferred Stock (par value $.10 per share). None of the Preferred Stock is issued or outstanding. In May 1993, the Company adopted the Calton, Inc. 1993 Non-Qualified Stock Option Plan (the "Plan") under which a total of 1,493,000 shares of Common Stock were reserved for issuance. As of November 30, 1996, options with respect to 1,383,000 shares have been granted, net of cancellations, 941,000 of which were exercisable and none of which have been exercised. Under the terms of the Plan, options may be granted at an exercise price designated by the Board of Directors. The exercise price of options granted range from $.31 to $.50 per share. Options granted under the Plan have a maximum term of ten years. In April 1996, the Company's shareholders approved the Company's 1996 Equity Incentive Plan under which a total of 2,000,000 shares of Common Stock were reserved for issuance. As of November 30, 1996, options with respect to 1,224,000 have been granted, net of cancellations. Under the terms of the plan, options may be granted at an exercise price equal to the fair market value of the Common Stock on the date of grant (110% of such fair market value in the case of an incentive stock option granted to a 10% shareholder). The exercise prices of outstanding options range from $.34 to $.41 per share with vesting ranging from one to five years. The exercise period is up to ten years. Of the vested shares, none have been exercised. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based Compensation." The provisions of this statement are effective for fiscal years beginning after December 15, 1995. The Company intends to implement the disclosure-only provision of this statement. Accordingly, if the Company adopted this statement currently, it would not have a material affect on the Company's financial position, results of operations or cash flows. 8. INCOME TAXES ================ The components of the provision in lieu of income taxes are as follows (amounts in thousands): Years Ended November 30, 1996 1995 1994 -------- -------- -------- Federal Current $ -- $ -- $ -- Deferred -- -- -- Provision in lieu of income taxes 351 479 2,537 State Current -- 79 24 Deferred -- -- -- Provision/(benefit) in lieu of income taxes 227 273 (194) -------- -------- -------- $ 578 $ 831 $ 2,367 ======== ======== ======== -20- The following schedule reconciles the federal provision in lieu of income taxes computed at the statutory rate to the actual provision in lieu of income taxes (amounts in thousands): Years Ended November 30, 1996 1995 1994 -------- -------- -------- Computed provision/(benefit) in lieu of income taxes at 34% $ 361 $ (784) $ 2,231 Expenses for which deferred tax benefit cannot be currently recognized -- 1,258 409 State and local tax provision 227 352 346 State tax reserves -- -- (695) Other, net (10) 5 76 -------- -------- -------- Total provision in lieu of income taxes $ 578 $ 831 $ 2,367 ======== ======== ======== Fresh-start accounting and reporting requires the Company to report a provision in lieu of income taxes when the Company recognizes a pre-reorganization deferred tax asset. This requirement applies despite the fact that the Company's pre-reorganization net operating loss carryforward and other deferred tax assets would eliminate the related federal income tax payable. The current and future year tax benefit related to the pre-reorganization net deferred tax asset is recorded as a direct increase to paid in capital. The net deferred tax asset of $19,628,000 is primarily attributable to pre-reorganization deductible temporary differences. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities at November 30, 1996 and 1995 are as follows (amounts in thousands): November 30, 1996 November 30, 1995 Deferred Deferred Deferred Deferred Tax Tax Lia- Tax Tax Lia- Assets bilities Assets bilities -------- -------- -------- -------- Fresh-start inventory reserves $ 402 $ -- $ 1,114 $ -- Income from joint ventures 416 452 328 417 Inventory and other reserves 1,344 -- 2,064 -- Preproduction interest -- 536 -- 536 Capitalized inventory costs 150 972 438 782 Federal net operating losses 9,083 -- 7,568 -- State net operating losses 8,991 -- 6,647 -- Depreciation 382 373 285 89 Deferred state taxes 735 -- 1,691 -- Other 495 37 374 38 -------- -------- -------- -------- 21,998 2,370 20,509 1,862 Valuation allowance (19,628) -- (18,647) -- -------- -------- -------- -------- Total deferred taxes $ 2,370 $ 2,370 $ 1,862 $ 1,862 ======== ======== ======== ======== Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. For federal and state tax purposes, a valuation allowance was provided on the deferred tax assets due to uncertainty of realization. Federal tax effects of deferred tax assets were recognized to the extent of existing available deferred tax credits. The federal net operating loss carryforward for tax purposes is approximately $26,500,000 at November 30, 1996 and $22,000,000 at November 30, 1995. The Company's ability to use its deferred tax assets, created prior to the change in the Company's ownership, to offset future income is $1,627,000 per year under Section 382 of the Internal Revenue Code as a result of the change in control of the Company in November of 1995. These federal carryforwards will expire between 2007 and 2011. The Company received an income tax refund of -21- $50,000 in 1995. No such amounts were received in 1996 and 1994. 9. COMMITMENTS AND CONTINGENT LIABILITIES ========================================== (a) In July 1994, an action was filed against Calton Homes, Inc., the Township of Plainsboro, New Jersey and its planning board, certain real estate brokers and certain unnamed officers of Calton Homes, Inc., by approximately 60 purchasers in the Company's Princeton Manor development seeking compensatory and punitive damages arising out of an alleged failure to disclose that a portion of the property adjacent to the community could be developed by Plainsboro Township as a public works site. The Company is vigorously contesting this matter and, although there can be no assurances, does not believe that the case will have any material effect on the financial position, results of operations or cash flows of the Company. In addition, the Company believes that it is contractually entitled to indemnification from Plainsboro Township in the event that any liability should arise. (b) In June 1996, the Federal Deposit Insurance Corporation (the "FDIC"), in its capacity as Liquidating Agent/Receiver of Eliot Savings Bank, instituted an action in the United States District Court, District of Massachusetts, seeking recovery of amounts owed under a $5,700,000 promissory note (the "Note") issued to Eliot Savings Bank by the Residences at the Surf joint venture (the "Joint Venture"), an entity in which a Talcon, L.P. ("Talcon") subsidiary had an interest. This action relates to a loan on property owned by the Joint Venture. The loan was placed on the property before Talcon was formed. Accordingly, in connection with the creation of Talcon, the interest in the Joint Venture was transferred upstream to Calton, Inc. and then transferred downstream into Talcon, and eventually into the Talcon subsidiary. In its suit, the FDIC alleges, among other things, that Calton, by virtue of the assignment of the interest in the Joint Venture to Calton in 1987, has liability as a general partner in the Joint Venture and is seeking to collect approximately $8,700,000 in principal and interest from Calton and other parties. While no discovery has occurred to date, based upon a preliminary analysis of this matter, Calton believes that the FDIC's position is contrary to applicable law and that Calton does not have any obligations under the Note by virtue of the assignment of the interest in the Joint Venture to Calton or otherwise. The Company will vigorously contest this matter but there can be no assurances that the case will not have a material adverse effect on the Company's financial position, results of operations or cash flows. (c) The Company is involved from, time to time, in other litigation in the ordinary course of business. Management presently believes that the resolution of any such matter should not have a material, adverse effect on the financial condition, results of operations or cash flows of the Company. (d) The Company is obligated under two operating leases, in New Jersey and Florida, for office space expiring in November 1997 for the corporate office facility and in December 2000 for the Florida space, with total annual rentals of approximately $298,000 in 1997 and $56,000 through the year 2000, respectively. Rental expense for the years ended November 30, 1996, 1995 and 1994 amounted to $726,000, $781,000 and $715,000, respectively. (e) The Company has a qualified contributory retirement plan (401(k) Plan) which covers all eligible full-time employees with a minimum of one year of service. Employees may contribute up to eighteen percent (18%) of their annual compensation with employer matching at the Company's discretion. The Company's contribution to the plan was $42,000 in 1996, $213,000 in 1995 and $198,000 in 1994. The Company's matching contribution, in the form of registered Common Stock of the Company, for 1996 was 5% of participant contributions. The Company's matching contribution, in the form of registered Common Stock of the Company, for 1997 will be 15% of participant contributions. (f) Commitments include the usual obligations of housing producers for the completion of contracts in the ordinary course of business. 10. INVESTMENTS IN JOINT VENTURES ================================== During 1996, the Company received $725,000 from the liquidation of a joint venture in which it previously participated. In addition, the Company received $460,000 on a fully reserved note receivable from a previous joint venture. The payment on the fully reserved note is classified as non-operating Other (income) expense. -22- The Company previously wrote off its entire equity investment in Talcon. In connection with Talcon's dissolution and liquidation, it paid the Company $890,000 in 1995 in full satisfaction of its debt obligations. This payment was classified as non-operating Other (income) expense. 11. QUARTERLY FINANCIAL RESULTS (UNAUDITED) ============================================ Quarterly financial results for the years ended November 30, 1996 and 1995 are as follows (amounts in thousands, except per share amounts): Three Months Ended ------------------------------------------------------------ February 29, May 31, August 31, November 30, 1996 1996 1996 1996 ------------ ------------ ------------ ------------ Revenues $ 19,456 $ 28,675 $ 33,355 $ 40,949 Gross profit 2,074 3,455(b) 4,746(c) 6,515(c) Net income (loss) (649) (294)(a) 385(a) 1,011(a) Net income (loss) per share (.02) (.01) .01 .04 Three Months Ended ------------------------------------------------------------ February 28, May 31, August 31, November 30, 1995 1995 1995 1995 ------------ ------------ ------------ ------------ Revenues $ 38,215 $ 38,836 $ 60,362 $ 43,430 Gross profit 4,411 4,403(e) 7,418 3,328 Net income (loss) (375)(d) (316) 1,008 (3,455)(f) Net income (loss) per share (.01) (.01) .04 (.13) (a) Includes income in the second, third and fourth quarter of $110,000, $150,000 and $200,000, respectively, from the partial collection of a note previously reserved. (b) Includes a $150,000 reversal of a sales tax estimate accrued in the fourth quarter of 1995 and resolved in the second quarter of 1996. (c) Includes a reversal of accruals in the amount of $105,000 and $185,000 in the third and fourth quarters of 1996 due to the resolution of certain construction obligations and litigation exposures. (d) Includes a $200,000 charge for costs primarily associated with the consolidation of the New Jersey-North and New Jersey-South divisions. (e) Includes a $1.1 million charge resulting from abandoning nine properties under option and a credit of $1.1 million realized from the reversal of a reserve previously provided on a community substantially completed in the second quarter of 1995. (f) Includes $1.6 million writedown of inventories to estimated net realizable value, $1.1 million of restructuring charges related to the wind down of the Chicago division and $640,000 in executive severance, partially offset by the $820,000 collection of a note previously reserved. Of the $1.1 million charge, $727,000 was applied as a reduction to inventory as a result of the anticipated market reaction to the wind down and not proceeding with the scheduled lot takedowns at the division's two communities. The wind down was substantially completed by the end of fiscal 1996. -23- Report Of Independent Accountants Board of Directors and Shareholders of Calton, Inc. =================================================== We have audited the accompanying consolidated balance sheet of Calton, Inc. and Subsidiaries as of November 30, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended November 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Calton, Inc. and Subsidiaries as of November 30, 1996 and 1995 and the consolidated results of their operations and their cash flows for the years ended November 30, 1996, 1995 and 1994 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand, L.L.P. Princeton, New Jersey January 10, 1997, except for Notes 1 and 5 as to which the date is April 11, 1997 Calton, Inc. Common Stock ========================= Calton, Inc. common stock is traded on the American Stock Exchange ("AMEX") under the symbol CN. The following reflects the high and low sales prices of the common stock during fiscal 1996 and 1995. Fiscal 1996 High Low ==== ==== 1st Quarter 7/16 5/16 2nd Quarter 3/4 3/8 3rd Quarter 1/2 5/16 4th Quarter 3/8 1/4 Fiscal 1995 High Low ==== ==== 1st Quarter 1-1/8 5/8 2nd Quarter 11/16 3/8 3rd Quarter 1/2 3/8 4th Quarter 9/16 5/16 At March 14, 1997, there were approximately 650 record holders of the Company's common stock. On that date, the last sale price for the common stock as reported by AMEX was $.375. -24- EX-21 6 EXHIBIT 21 SUBSIDIARIES OF CALTON, INC. Calton Homes, Inc. Calcap XV, Inc. Calcap Commercial Management, Inc. Calcap XXXI, Inc. Calton Homes of Florida, Inc. (1) Calcap XXXII, Inc. Calton Homes of Pennsylvania, Inc. (2) Calcap XXXIII, Inc. Calton Homes of Pennsylvania at Calcap XXXIV, Inc. Pennway, Inc. (2) Calcap 36, Inc. Calton Homes of California, Inc. (3) Calcap 42, Inc. Calton California Equity Corp. (3) Calcap 46, Inc. Calton Manzanita Corp. (3) Calcap 48, Inc. Calton Tamarack Corp. (3) Calton General, Inc. Calton Lindenwood Corp. (3) Calton Funding, Inc. Calton Homes Finance, Inc. Talcon Assignment, Inc. Calton Homes Finance II, Inc. Calton Homes of Chicago, Inc. (4) Calton Capital, Inc. Haddon Group of Virginia, Inc. Calton Capital II, Inc. Wagner Joint Venture Calcap X, Inc. Pennway Joint Venture All subsidiaries are incorporated or organized under the laws of the State of New Jersey, except those marked with a (1), (2), (3) and (4), which are incorporated under the laws of Florida, Pennsylvania, California and Illinois, respectively. EX-27 7
5 12-MOS NOV-30-1997 NOV-30-1997 4,292,000 0 9,274,000 0 73,037,000 88,456,000 301,000 0 88,757,000 4,811,000 43,945,000 0 0 265,000 27,821,000 88,757,000 122,465,000 122,465,000 105,645,000 120,598,000 (460,000) 0 1,266,000 1,031,000 578,000 453,000 0 0 0 453,000 .02 .02
-----END PRIVACY-ENHANCED MESSAGE-----