-----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, SJNQA05C+C3kRkEOry0BkB1KaO53dGcGiZalGSiWd0hk4ub9dXe8NSPOr6Eens39 p2ObqHSzJ/yt+sT7hxYdMQ== 0000950115-00-000240.txt : 20000302 0000950115-00-000240.hdr.sgml : 20000302 ACCESSION NUMBER: 0000950115-00-000240 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000229 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 SEC ACT: SEC FILE NUMBER: 001-08846 FILM NUMBER: 558032 BUSINESS ADDRESS: STREET 1: 125 HALF MILE ROAD CITY: RED BANK STATE: NJ ZIP: 07701-6749 BUSINESS PHONE: 9087801800 MAIL ADDRESS: STREET 1: 500 CRAIG RD CITY: MANALAPAN STATE: NJ ZIP: 07726-8790 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The fiscal year ended November 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 Identification Number) incorporation or organization 125 HALF MILE ROAD 07701-6749 RED BANK, NEW JERSEY (Zip Code) (Addresses of principal executive offices)
Registrant's telephone number, including area code: (732) 212-1280 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of Class on which registered -------------- --------------------- Common Stock American Stock Exchange $.01 par value per share Rights 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 --- 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 February 24, 2000 was $82,226,000. As of February 24, 2000, 21,617,000 shares of Common Stock were outstanding. The Company's Proxy Statement for the annual meeting of shareholders is incorporated by reference into Part III hereof. - -------------------------------------------------------------------------------- Disclosure Concerning Forward-Looking Statements - -------------------------------------------------------------------------------- All statements, other than statements of historical fact, included in this Form 10-K, including 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"). Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar phrases are intended to identify such forward-looking statements. Such forward-looking statements 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, potential adverse affects of acquisitions, the ability of the Company to identify suitable acquisition candidates, changes in interest rates, and other risk factors detailed herein and in other of the Company's Securities and Exchange Commission filings. The forward-looking statements are made 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") sold its principal operating subsidiary, Calton Homes, Inc. ("Calton Homes"), on December 31, 1998. See "Sale of Calton Homes." Since the completion of the sale, the Company has been primarily engaged in providing consulting services to the purchaser of Calton Homes and analyzing potential business and acquisition opportunities. In addition, in July 1999, the Company acquired substantially all of the assets of iAW, Inc., an Internet business solutions provider in its early stages of development. In January 2000, the Company acquired a controlling interest in PrivilegeONE Networks, Inc. ("PrivilegeONE"), a newly formed company engaged in the development of a co-branded loyalty credit card program. 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 Kaufman and Broad of New Jersey, Inc. was changed to Calton Homes. Calton maintains it corporate offices at 125 Half Mile Road, Suite 206, Red Bank, New Jersey 07701 and its telephone number is (732) 212-1280. As used herein, the term "Company" refers to Calton, Inc. and its subsidiaries, unless the context indicates otherwise. SALE OF CALTON HOMES On December 31, 1998 (the "Closing Date"), Calton completed the sale of Calton Homes, its wholly owned homebuilding subsidiary, to Centex Real Estate Corporation ("CREC" or the "purchaser"), the homebuilding subsidiary of Centex Corporation (NYSE:CTX), one of the nation's largest homebuilders (the "Sale Transaction"). The purchase price for the stock of Calton Homes, which was paid in cash at closing, was $48.1 million, subject to a $5.2 million holdback, and certain post closing adjustments. The Company recorded a pre-tax gain of approximately $7.6 million and a net gain of approximately $4.4 million after recording a non-cash provision in lieu of taxes of $3.2 million as a result of the Sale Transaction in the first quarter of fiscal 1999. Calton has entered into an agreement to provide consulting services to CREC which will entitle the Company to payments of $1.3 million per year over the three year period ending December 31, 2001. 2 STRATEGIC PLAN At the time of the Sale Transaction, the Company announced that the Sale Transaction was part of a strategic plan designed to enhance shareholder value. Pursuant to its strategic plan, the Company commenced a stock repurchase program and announced its intention to (i) shift the Company's primary business focus from homebuilding to providing various services to participants both within and outside the homebuilding industry, including consulting services, equity and debt financing and financial advisory services and (ii) seek to invest in, acquire or combine with one or more operating businesses within or outside the homebuilding industry. Pursuant to its stock repurchase program, the Company has, since October 31, 1998, acquired approximately 6,900,000 shares of Common Stock at an average price of $1.26 per share. The timing and number of additional shares purchased pursuant to the stock repurchase program will depend on a variety of factors, including the market price of the Common Stock. Management has currently suspended the acquisition of additional shares of Common Stock pursuant to the stock repurchase program because recent market prices of the Common Stock have exceeded book value. In 1999, the Company acquired the assets of iAW, Inc. and in January 2000, acquired a 50.4% interest in PrivilegeONE pursuant to its strategic plan. The Company continues to analyze potential acquisitions and other business opportunities. Pending further implementation of the Company's strategic plan, the Company's cash will be temporarily invested as management of the Company deems prudent, which may include, but will not be limited to, mutual funds, money market accounts, stocks, bonds or United States government or municipal securities; provided, however, that the Company will attempt to invest the net proceeds and conduct its activities in a manner which will not result in the Company being deemed to be an investment company under the Investment Company Act of 1940, as amended, or a personal holding company for federal income tax purposes. See "Certain Risks." If by June 30, 2000, the Company has not redeployed a substantial portion of the proceeds of the Sale Transaction, or developed a plan to redeploy a substantial portion of such proceeds within in a reasonable time frame, the Company, subject to shareholder approval, will be liquidated and dissolved. Management currently expects to deploy or have a plan to deploy a substantial portion of the proceeds by June 30, 2000. CERTAIN RISKS Risks Associated with Potential Business Combinations. The Company is seeking to enhance shareholder value by investing in, acquiring or combining with one or more operating businesses either within or outside of the homebuilding industry. Management of the Company will endeavor to evaluate the risks inherent in any particular target business; however, there can be no assurance that the Company will properly ascertain all such risks. In many cases, shareholder approval will not be required to effect such a business combination. The fair market value of the target business will be determined by the Board of Directors of the Company. Therefore, the Board of Directors has significant discretion in determining whether a target business is suitable for a proposed business combination. The success of the Company will depend on the Company's ability to attract and retain qualified personnel as well as the abilities of key management of the acquired companies. As a result, no assurance can be given that the Company will be successful in implementing its strategic plan or that the Company will be able to generate profits from such activities. Continued Listing on AMEX. The Company's Common Stock is currently listed for trading on the American Stock Exchange ("AMEX"). Under AMEX's suspension and delisting policies, AMEX will normally consider suspending 3 dealings in, or removing from listing securities of a company, if the company has sold or otherwise disposed of its principal operating assets, has ceased to be an operating company or has discontinued a substantial portion of its operations or business for any reason. AMEX has indicated that the Common Stock may become subject to delisting if the Company is not engaged in active business operations within a reasonable period of time after the closing of the Sale Transaction. Although the Company is engaged in active business as a result of its consulting agreement with CREC and its acquisitions of iAW and PrivilegeONE, no assurance can be given that AMEX will not commence proceedings to delist the Common Stock. If the Common Stock is delisted, it would trade on the OTC Bulletin Board or in the "pink sheets" maintained by the National Quotation Bureau, Inc., which are generally considered to be less efficient markets. Investment Company Act Considerations. The Investment Company Act of 1940, as amended ("1940 Act"), requires the registration of, and imposes various substantive restrictions on, certain companies that engage primarily, or propose to engage primarily in the business of investing, reinvesting, or trading in securities, or that fail certain statistical tests regarding the composition of assets and source of income, and are not primarily engaged in a business other than investing, holding, owning or trading securities. The Company intends to conduct its activities in a manner which will not subject the Company to regulation under the 1940 Act; however, there can be no assurance that the Company will not be deemed to be an investment company under the 1940 Act. If the Company were required to register as an investment company under the 1940 Act, it would become subject to substantial regulation with respect to its capital structure, management, operations, transactions with affiliates, the nature of its investments and other matters. In addition, the 1940 Act imposes certain requirements on companies deemed to be within is regulatory scope, including compliance with burdensome registry, recordkeeping, voting, proxy, disclosure and other rules and regulations. In the event of the characterization of the Company as an investment company, the failure of the Company to satisfy regulatory requirements, whether on a timely basis or at all, could have a material adverse effect on the Company. Certain Tax Matters. Section 541 of the Internal Revenue Code of 1986, as amended (the "IRC"), subjects a corporation which is a "personal holding company," as defined in the IRC, to a 39.6% penalty tax on undistributed personal holding company income in addition to the corporation's normal income tax. The Company could become subject to the penalty tax if (i) 60% or more of its adjusted ordinary gross income is personal holding company income and (ii) 50% or more of its outstanding Common Stock is owned, directly or indirectly, by five or fewer individuals. Personal holding company income is comprised primarily of passive investment income plus, under certain circumstances, personal service income. Indemnity Obligations The stock purchase agreement pursuant to which the Company sold Calton Homes requires the Company to indemnify the purchaser for, among other things, breaches of the agreement and certain liabilities that arise out of events occurring prior to the closing of the sale including the cost of warranty work on homes delivered if such costs exceed $600,000. On the Closing Date of the Sale Transaction, the Company deposited an aggregate of approximately $5.2 million in escrow, $3 million of which provides security for the Company's indemnity obligations (the "General Indemnification Funds") and approximately $2.2 million of which were deposited to fund costs associated with certain specified litigation (the "Specific Indemnification Funds"), involving Calton Homes. During 1999, the Company refunded to the purchaser $700,000, paid out of the General Indemnification Funds as a part of a settlement agreement and related post closing adjustments; also the Company collected $592,000 from the Specific Indemnification Funds as a result of a certain litigation settlements and legal fee reimbursements. In January, 2000 the Company collected approximately $1.0 million from the General Indemnification Funds. As of February 1, 2000 there was approximately $1.5 million in the General Indemnification Funds and $1.5 million in the Specific 4 Indemnification Funds. In January, 2000 the purchaser asserted an indemnification claim against the General Indemnification Funds in the amount of $253,000. However the Company believes it has meritorious defenses against this claim. It is uncertain as to whether this claim will enter into arbitration proceedings. Under certain circumstances, the Company may be required to deposit additional funds into escrow. In addition, the Company's indemnity obligations are not limited to the amount deposited in escrow. No assurance can be given that the purchaser of Calton Homes will not make additional claims for indemnity or that a significant portion of the escrowed funds will not be utilized to resolve litigation. See "Legal Proceedings." (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information required by this item is presented in Note 3 of the 1999 Financial Statements located on page F-9 of this report. (C) DESCRIPTION OF BUSINESS GENERAL With the sale of Calton Homes, the Company discontinued its homebuilding operations. Since the completion of the Sale Transaction, the Company has been primarily engaged in providing consulting services to the purchaser of Calton Homes and analyzing potential acquisitions and other business opportunities. In July 1999, the Company acquired substantially all of the assets of iAW, Inc., an Internet business solutions provider. In January 2000, the Company acquired a 50.4% interest in PrivilegeONE. ECALTON.COM In July 1999, the Company acquired iAW, Inc. an Internet business solutions provider. The Company conducts the acquired business though a wholly owned subsidiary that has changed its name to eCalton.com, Inc. ("eCalton"). The purchase price for the acquisition, which was structured as an asset purchase, was $250,000. eCalton provides Internet strategy consulting and comprehensive Internet-based solutions. By combining extensive business and Internet knowledge with creativity, eCalton provides its customers with the resources and tools to optimize, monitor, and measure the effectiveness of each component of their e-business. eCalton provides Internet-based solutions to small, medium, and large companies. Sales and Marketing. eCalton's national marketing office is headquartered in Vero Beach, Florida. The company markets its products and services through telemarketing, face to face interviews with client executives, and through the eCalton web site. In order to completely understand the needs of its clients, eCalton uses a three-step process that allows eCalton to evaluate the client's Internet practices, and transform the client's Internet business presence into one that provides a competitive business advantage, referred to as an Internet Best Practices Audit: Step one is a visit to the client facility for a series of interviews with senior executives responsible for setting corporate strategy. This interview allows eCalton to gain a basic understanding of the clients overall e-business strategy, competitive situation, immediate and long-term goals. 5 Step two is to conduct a complete assessment of the client's current Internet presence and to formulate an e-business strategic plan to satisfy all of the client's needs. eCalton evaluates the effectiveness of the web site, and compares and contrasts the site to industry best practices, including measuring the "visibility" of the Website with the most effective Internet search tools available. The third step is for eCalton to present the results to its client and direct the implementation of the solution. The Internet Best Practices Audit includes a written report with assessments and recommendations. In most cases, once the solution has been implemented, eCalton continues to partner with its clients to ensure that the solution continues to meet the clients' changing e-business requirements and to allow for potential future revenue opportunities for eCalton. In addition to marketing its services to its client, eCalton's marketing efforts are also dedicated to creating brand name awareness and enhancing its reputation as a complete Internet-based solutions provider. Competition. The market for Internet professional services is relatively new, intensely competitive, rapidly evolving and subject to rapid technological change. While relatively new, the market is already highly competitive and characterized by an increasing number of entrants that have introduced or developed products and services similar to those offered by eCalton. The Company expects competition not only to persist, but to increase. Increased competition may result in price reductions, reduced margins and loss of market share. eCalton's competitors and potential competitors have longer operating histories, larger installed customer bases, greater name recognition, longer relationships with their clients, and significantly greater financial, technical, marketing and public relations resources than eCalton. As a result, eCalton's competitors may be better positioned to react in the ever-changing market place. eCalton expects competition to persist and intensify in the future. PRIVILEGEONE General. In January 2000, the Company acquired a 50.4% collective direct and indirect (through ownership in a parent company) interest in PrivilegeONE Networks, Inc. PrivilegeONE was formed in 1999 to develop customer loyalty programs through the use of a co-branded credit card related to the automotive industry. In order to execute the PrivilegeONE business plan, PrivilegeONE management is currently pursuing arrangements with financial institutions to issue and process credit cards marketed by PrivilegeONE. Until such an arrangement is secured, PrivilegeONE will be unable to execute its business plan. The purchase price for the Company's interest in PrivilegeONE was comprised of $105,000 of cash and a five-year warrant to acquire 1,200,000 shares of the Company's Common Stock at an exercise price of $2.50 per share. The warrant becomes exercisable only if PrivilegeONE surpasses certain specified earnings targets. In addition to its equity interest, the Company has agreed to loan up to $1,500,000 to PrivilegeONE pursuant to a note which bears interest at the rate of 10% per annum and becomes due in January 2004. The Company has the right to designate a majority of the Board of Directors of PrivilegeONE until the later of the time that the note is repaid or January 2004. The Company has entered into shareholder agreements with the other shareholders of PrivilegeONE and its parent company which obliges each of the shareholders to offer his or its shares in PrivilegeONE or its parent to the other shareholders in the event that the shareholder wishes to transfer his or its shares. The shareholder agreements also grant the Company the preemptive right to acquire a proportionate share of any additional 6 securities issued by PrivilegeONE or its parent and provide that certain corporate actions may not be taken without the Company's approval. Sales and Marketing. PrivilegeONE intends to market its program directly through a national sales force. PrivilegeONE is seeking to develop a number of customer acquisition and loyalty strategies centered around the acceptance and use of its cards, including reward and other programs designed to promote card use. PrivilegeONE also intends to develop an Internet site through which it will seek to develop strong relationships with and provide services to customers. Competition. The credit card industry is characterized by intense competition. PrivilegeONE will compete with numerous co-branded credit card programs, including reward based programs. Many of these programs are sponsored by entities with greater resources and name recognition than PrivilegeONE. As a result PrivilegeONE's competitors may be better positioned to react in a changing market place. CONSULTING SERVICES The Consulting Agreement requires the Company to provide certain consulting services to CREC, including information, advice and recommendations with respect to the homebuilding market in New Jersey and Pennsylvania. The Company has agreed that it will not provide similar services to others in New Jersey or Pennsylvania during the term of the Consulting Agreement and for a four year period after the expiration of the three year term of the Consulting Agreement. The Consulting Agreement requires Anthony J. Caldarone, the Company's Chairman, President and Chief Executive Officer to participate in the performance of the consulting services to CREC and for so long as he remains employed by or associated with the Company. In consideration for the services provided by the Company under the Consulting Agreement, CREC is required to pay the Company a consulting fee of $1.3 million per year, payable in equal quarterly installments during the three year term of the agreement. Other than the Consulting Agreement, the Company has not entered into any arrangements to provide consulting, investment or advisory services to any third parties. EMPLOYEES As of February 25, 2000, the Company employed eight full time personnel, and one part time employee; the Company's subsidiary, eCalton.com, Inc., employed 24 full time personnel and two part time employees; PrivilegeONE employed 9 full time personnel. The Company believes that its employee relations are satisfactory. ITEM 2. COMPANY FACILITIES The Company currently leases approximately 2,100 square feet of office space located in Red Bank, New Jersey, for approximately $4,700.00 per month. The term of this lease is on a month-to-month basis. The Company also leases approximately 1,790 square feet of temporary office space on a month-to-month basis in Vero Beach, Florida, for approximate $2,200.00 per month, until its permanent space is available at the end of May 2000. The permanent space at the same location will consist of approximately 3,815 square feet, at a monthly rate of approximately $5,722.00, for a term of 5 years. 7 The Company's subsidiary, eCalton, currently leases approximately 4,000 square feet of office space, for approximately $4,700 per month. The term of this lease is on a month-to-month basis. PrivilegeONE currently leases 2,000 square feet of office space in Rhode Island at a cost of $900.00 per month on a month to month basis. Management believes that these arrangements currently provide adequate space for all of the Company's business operations. ITEM 3. LEGAL PROCEEDINGS The stock purchase agreement pursuant to which the Company sold Calton Homes on December 31, 1998 requires the Company to indemnify the purchaser for, among other things, breaches of the agreement and certain liabilities that arise out of events occurring prior to the closing of the sale. On December 31, 1998, as a condition to the sale of Calton Homes, the Company entered into a holdback escrow agreement with the purchaser pursuant to which approximately $5.2 million of the closing proceeds were deposited into escrow. Of this amount, $3 million (the "General Indemnification Funds") were deposited to provide security for the Company's indemnity obligations and approximately $2.2 million (the "Specific Indemnification Funds") were deposited to fund costs associated with certain specified litigation involving Calton Homes. During 1999, the Company refunded $700,000 to the purchaser, out of the General Indemnification Funds as a part of a settlement agreement and related post closing adjustments. The Company collected $592,000 from the Specific Indemnification Funds in 1999 as a result of a certain litigation settlements and legal fee reimbursements. In January 2000, approximately $1.0 million was released to the Company from the General Indemnification Funds pursuant to the terms of its agreement with the purchaser. As of February 1, 2000 there was approximately $1.5 million in the General Indemnification Funds and $1.5 million in the Specific Indemnification Funds. In January 2000, the purchaser asserted a $253,000 claim for indemnification related to certain alleged misrepresentations and liabilities allegedly arising out of the events occurring prior to the sale of Calton Homes. The Company and the purchaser are attempting to resolve this claim and it is uncertain as to whether this claim will enter into arbitration proceedings. However, the Company believes it has meritorious defenses against this claim. The remaining General Indemnification Funds will be disbursed to the Company, subject to claims for indemnification, on December 31, 2000. The Specific Indemnification Funds will be disbursed, to the extent not otherwise utilized in the resolution of litigation, on a case by case basis as the litigation is resolved. If all of the specified litigation is not resolved by December 31, 2000, a portion of the General Indemnification Funds will not be disbursed to the Company until the resolution of the litigation. The Company may, under certain circumstances, be required to deposit additional funds in the holdback if all of the specified litigation is not resolved by December 31, 2000. In addition, the Company's indemnity obligations are not limited to the amounts deposited in escrow. In the event that the Company elects to liquidate and dissolve prior to December 31, 2003, it will be required to organize a liquidating trust to secure its obligations to the purchaser. The liquidating trust will be funded with the Specific Indemnification Funds plus, $3 million if created between December 31, 1999 and December 31, 2000 and $2 million if created after December 31, 2000. If the liquidation occurs prior to December 31, 2000, the Company may be required to deposit additional amounts in the Liquidating Trust if the specified litigation is not resolved by such date. Any General Indemnification Funds remaining in the holdback escrow fund will be applied as a credit against amounts required to be deposited in the liquidating trust. Although the Company believes it has adequately reserved for the resolution of all of the litigation associated with the indemnity obligations, there is no assurance that the ultimate resolution of the pending litigation will not result in additional charges to discontinued operations or the Company will collect all of the remaining holdback escrow. 8 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 1999, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of February 24, 2000 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 62 Chairman, President and Chief Executive Officer Maria F. Caldarone 36 Vice President of Corporate Development David J. Coppola 40 Vice President and Treasurer Kelly S. McMakin 38 Senior Vice President of Accounting
Mr. Caldarone was reappointed as Chairman, President and Chief Executive Officer of Calton in November 1995, having previously serviced in such capacities from the inception of the Company in 1981 through May 1993. From June 1993 through October 1995, Mr. Caldarone served as a Director of the Company. Maria Caldarone served as the Director of Business Development from January 1999 until she was appointed as a Vice President of the company in February 2000. From 1995 through January 1999 Ms. Caldarone was a non-practicing attorney. Prior to 1995 Ms. Caldarone was employed by Trafalgar Homes, from December 1993 to November 1994 where she served as Director of Land Acquisition. Ms. Caldarone is a licensed attorney in the state of Florida. Ms. Caldarone is the daughter of Mr. Caldarone. Mr. Coppola was appointed Treasurer of the Company in January 1999. He served as the Company's Controller from 1992 until 1999 and was appointed as a Vice President of the Company in 1993. Mr. Coppola is a Certified Public Accountant. Mr. McMakin was appointed Senior Vice President of the company in January 2000. From 1993 through January 2000, Mr. McMakin served as Controller and Treasurer of Florafax International, Inc., a publicly traded floral wire service and credit card processor headquartered in Vero Beach, Florida. Mr. McMakin is a Certified Public Accountant. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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 1999 and 1998. FISCAL 1999 High Low ------- ------- 1st Quarter.............. $ 1-1/2 $ 1 2nd Quarter............... 1-3/8 1 3rd Quarter.............. 1-9/16 1-5/16 4th Quarter.............. 1-7/8 1-3/16 FISCAL 1998 High Low -------- ------- 1st Quarter.............. $ 5/8 $ 7/16 2nd Quarter............... 7/8 5/8 3rd Quarter.............. 3/4 9/16 4th Quarter.............. 1-1/8 3/4 At February 15, 2000, there were approximately 577 record holders of the Company's common stock. On that date, the last sale price for the common stock as reported by AMEX was $4.94. The Company did not pay any dividends on its Common Stock during fiscal 1999. In July 1999, the Company issued options to acquire 600,000 shares of Common Stock at an exercise price of $1.63 per share to Kenneth D. Hill, Matthew Smith and Robert Hill pursuant to employment agreements between such individuals and eCalton that were executed in connection with the acquisition of the assets of iAW, Inc. Each of such options has a 10 year term and is exercisable in three equal annual installments commencing on the anniversary date of the date of grant. The grant of the options was made in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933 as a transaction not involving any public offering. In January 2000, the Company issued a warrant to acquire 1,200,000 shares of the Company's Common Stock at an exercise price of $2.50 per share to Taytrowe Van Fecthmann World Companies, Inc., the parent company of PrivilegeONE, in connection with the acquisition of the Company's interest in PrivilegeONE. The warrant, which has a term of five years, is not exercisable unless PrivilegeONE surpasses certain specified earnings targets. The warrant was issued in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933 as a transaction not involving any public offering. 10 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth historical selected financial information of the Company as of the dates and for the periods indicated. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto include elsewhere in this report.
(in thousands, except per share amounts) Years Ended November 30, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- SELECTED OPERATING DATA Revenues................................................ $ 3,196 $ - $ - $ 1,292 $ 9,090 Net income (loss) from continuing operations............ 661 (1,960) (1,901) (1,736) (1,660) Net income (loss) from discontinued operations(1)....... (240) 6,315 1,646 2,189 (1,478) Net income from sale of operating businesses............ 4,418 - 369 - - Extraordinary gain, net of income taxes................. - - 1,263 - - Net income (loss)....................................... 4,839 4,355 1,377 453 (3,138) Basic earnings (loss) per share: Net income (loss) from continuing operations............ .03 (.07) (.07) (.06) (.06) Net income (loss) from discontinued operations(1)....... (.01) .23 .06 .08 (.06) Net income from sale of operating businesses............ .19 - .01 - - Extraordinary gain, net of income taxes................. - - .05 - - Net income (loss)....................................... .21 .16 .05 .02 (.12) Diluted earnings (loss) per share: Net income (loss) from continuing operations............ .03 (.07) (.07) (.06) (.06) Net income (loss) from discontinued operations(1)....... (.01) .23 .06 .08 (.06) Net income from sale of operating businesses............ .18 - .01 - - Extraordinary gain, net of income taxes................. - - .05 - - Net income (loss)....................................... .20 .16 .05 .02 (.12) At November 30, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- SELECTED BALANCE SHEET DATA Total assets............................................ $ 40,441 $ 40,082 $ 35,142 $ 70,895 $ 77,183 Total debt(2)........................................... - - - 39,500 45,000 Shareholders' equity.................................... 38,654 38,221 32,850 28,086 27,013
(1) As a result of the sale of Calton Homes, Inc. that occurred on December 31, 1998, the financial statements presentation treats the Company's homebuilding business and results as discontinued operations in accordance with APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business." The Company recognized a gain of $4,418,000 which is net of a provision in lieu of taxes of $3,173,000 on the sale. (2) Debt is included as part of discontinued operations subsequent to June 1997 since Calton Homes, Inc. became the primary obligor and borrower of a revolving credit agreement entered into at that time. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF SALE OF CALTON HOMES, INC. OPERATIONS On December 31, 1998, the Company completed the sale of Calton Homes, Inc., its primary operating homebuilding subsidiary to Centex Real Estate Corporation ("Centex" or the "purchaser"). The shareholders of Calton, Inc. approved the sale of the stock of Calton Homes on December 30, 1998. The purchase price for the stock of Calton Homes was $48.1 million, which resulted in a pretax gain of approximately $7.6 million and was subject to a $5.2 million holdback (see Commitments and Contingencies). Cash proceeds from the sale through November 30, 1999 were approximately $43.4 million, net of the remaining holdback of $4.0 million and including other closing adjustments. No tax liability is expected to result from the sale. However, a provision in lieu of taxes was recorded for financial reporting purposes in the amount of $3.2 million related to the sale. Calton has entered into an agreement to provide consulting services to Centex that requires payments to the Company of $1.3 million per year over a three-year period. The sale of Calton Homes was completed as part of the Company's overall strategy to enhance shareholder value. Since the completion of the sale, the Company has been primarily engaged in providing consulting services to the purchaser of Calton Homes and analyzing potential business and acquisition opportunities. In July 1999, the Company acquired substantially all of the assets of iAW, Inc., an Internet business solutions provider in its early stages of development that assists companies in defining an effective Internet business strategy and implementing the components of that strategy. The Company conducts this business through its wholly owned subsidiary, eCalton. In January 2000, the Company acquired a collective direct and indirect (through ownership in a parent company) 50.4% interest in PrivilegeONE, a newly formed company engaged in the development of a co-branded loyalty credit card program. The Company continues to actively analyze other opportunities to deploy the funds generated by the sale of Calton Homes. As part of the Company's strategic plan to enhance shareholder value, the Company implemented a significant stock repurchase program, pursuant to which it announced its intention to repurchase up to 10 million shares of common stock in open market repurchases and privately-negotiated transactions. Approximately 6.9 million shares of Common Stock have been repurchased by the Company since October 31, 1998 at an average price of $1.26 per share. The following discussion included in the Results of Operations are based on the continuing operations of Calton, Inc. The financial statements present the Company's homebuilding business as discontinued operations in accordance with APB Opinion No. 30, "Reporting the Effects of Disposal of a Segment of a Business." RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998 Income from continuing operations before taxes was $1.1 million for the year ended November 30, 1999 compared to a loss of $2.0 million for the year ended November 30, 1998. Revenues of $3.2 million during fiscal 1999 were primarily derived from the consulting agreement with the purchaser of Calton Homes and interest earned on cash derived from the sale. Also included in revenues for 1999 was $157,000 for eCalton. There were no comparable revenues for fiscal 1998. Selling, general and administrative expenses included in continuing operations were $2.0 million during both fiscal 1999 and 1998. General and administrative expenses have decreased approximately $500,000 at the corporate level. The decrease is attributable to a significant reduction in corporate fixed costs related to the sale of Calton Homes, including personnel reductions, leasing costs and other overhead items. However, the reductions were offset with the expenditures of eCalton as part of the strategy to ramp up its operations during 1999 and 2000. 12 As a result of the circumstances described above, the Company recognized Income from continuing operations, net of taxes of $661,000 for fiscal 1999 as compared to a loss of $2.0 for fiscal 1998. Included in the 1999 results is a pretax loss of $427,000 from eCalton, $256,000 net of taxes. Loss from discontinued operations was $613,000, $240,000 net of a $373,000 tax benefit for the year ended November 30, 1999. The loss includes approximately $1.0 million related to legal costs and the resolution of certain litigation matters in excess of amounts previously reserved by management related to the Company's former homebuilding business. As a condition to the sale of Calton Homes, the Company is required to indemnify the purchaser for certain specified litigation pending against Calton Homes. There is no assurance that the ultimate resolution of the pending litigation will not result in additional charges. Partially offsetting the loss is pre-tax income of $429,000 from one month of operations of Calton Homes and a commercial land sale. In addition, included in the tax provision for discontinued operations is a tax benefit related to the reduction of a state tax reserve in the amount of $550,000 due to the resolution of certain state tax issues. Income from discontinued operations for the year ended November 30, 1998 was $6.3 million, net of a tax provision of $2.4 million. The results primarily include the operations of Calton Homes. Taxes for the year ended November 30, 1999 reflect a provision for income taxes of $3.2 million resulting in an effective rate of thirty-nine and one- half percent (39.5%). The increase in the effective tax rate from thirty-four percent (34%) for the year ended November 30, 1998 was primarily due to the future tax benefits recognized in 1998 which were significantly higher than those recognized in 1999, coupled with a significantly larger amount of 1999 expenses for which the Company will not receive any tax benefit. In 1998 a provision for income taxes of $2.2 million was recorded. The net operating loss carryforwards and certain other deferred tax assets are subject to utilization limitations as a result of the changes in the control of the Company that occurred in 1993 and 1995. The Company's ability to use the net operating loss ("NOL") to offset future income is $1.1 million per year for 14 years. This amount has been reduced from 1998 by $500,000 per year as a result of the sale of Calton Homes (see note 5). The effective rate from continuing operations for the years ended November 30, 1999 and 1998 is based upon a provision of $453,000 and a benefit of $125,000, respectively. The effective rate for 1998 is influenced by the tax expense associated with intercompany charges from continuing operations to discontinued operations. As of November 30, 1999 the Company recorded a $518,000 unrealized loss on marketable equity securities in comprehensive income. RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 For the year ended November 30, 1998 the Company reported a net loss of $2.0 million from continuing operations as compared to $1.9 million for the year ended November 30, 1997. As previously stated, the Company's primary business was homebuilding and with the sale of Calton Homes, Inc., those financial results are treated as discontinued operations. Without revenues in both 1998 and 1997, the loss was primarily attributable to general and administrative costs of $2.0 million and $2.4 million for the years ended November 30, 1998 and 1997, respectively. General and administrative costs were substantially comprised of salaries, benefits, insurance , rent, and professional services. Other income for 1997 is comprised of $571,000 of interest income received related to a tax refund which was recorded as an increase to paid in capital since the refund related to events occurring prior to the Company's 1993 restructuring and $525,000 representing the final payments received on a note previously reserved. The effective tax rate for continuing operations for the years ended November 30, 1998 and 1997 is based upon a benefit of $125,000 and a provision of $560,000, respectively. The effective rate for both years is influenced by the tax expense associated with intercompany charges from continuing operations to discontinued operations. The effective rate from continuing operations for 1997 was influenced by the tax expense associated with other income. Taxes for the year ended November 30, 1998 reflect a provision for income taxes of $2.2 million resulting in an effective rate of thirty-four percent (34%). The reduction in the effective tax rate from sixty-five 13 percent (65%) for the year ended November 30, 1997 was primarily due to realization of future tax benefits of approximately $603,000, which increased the total tax benefit to $705,000, of which $649,000 relates to the sale of Calton Homes. In 1997 a provision for income taxes of $209,000 was recorded. Income from discontinued operations was $6.3 million for the year ended November 30, 1998 as compared to $1.6 million for the prior year. The Company's former homebuilding operations benefited from improved economic conditions in New Jersey. Revenues and gross profit for fiscal 1998 were $105.3 million and $19.4 million as compared to $126.6 million and $16.2 million, respectively for fiscal 1997. The Company's objectives during 1998 and 1997 were to reduce debt and related interest costs, and to increase shareholders' equity. The Company's weighted average debt outstanding under its revolving credit facility amounted to $25.0 million for the year ended November 30, 1998 compared to $40.2 million for the year ended November 30, 1997. The decrease is attributable to the improved operating and financial performance of Calton Homes, and the sale of the Florida division's assets of approximately $16.7 million in November 1997, a substantial portion of which was utilized to reduce the amount outstanding under the Company's credit facility. In June 1997, the Company entered into a new, secured revolving credit facility with BankBoston, N.A. Proceeds from the new facility were used to retire the prior revolving credit facility of $42.0 million which was paid off for $39.4 million. Based on the accounting principals in effect at the time of the extinguishment of debt, the Company recorded an extraordinary gain of approximately $1.3 million, after deducting an $842,000 provision in lieu of income taxes. Included in the gain was the write off of deferred costs and out-of-pocket costs of approximately $550,000. LIQUIDITY On December 31, 1998 the sale of Calton Homes liquidated a AND substantial part of the Company and resulted in the payoff, by the CAPITAL purchaser, of the Company's revolving credit facility with RESOURCES BankBoston which had an outstanding balance of $19.5 million. The sale generated approximately $43.4 million of cash including the receipt of an additional $1.8 million related to the post closing adjustments that were finalized in September 1999. In addition, a $5.2 million holdback was established at closing as part of the sale as a condition to indemnify the purchaser against existing litigation and other warranties. As part of a post-closing settlement agreement, $700,000 was refunded to the purchaser in the fourth quarter of 1999, which was paid out of the General Indemnification Funds. The Company collected $592,000 out of the Specific Indemnification Funds during 1999 as a result of certain litigation settlements, and legal fee reimbursements (see Note 6). At November 30, 1999 there was $2.4 million in the General Indemnification Funds and $1.6 million in the Specific Indemnification Funds. During the first quarter of 2000, $1.0 million was collected out of the General Indemnification Funds and indemnity claims totaling approximately $253,000 have been made by the purchaser. The Company and the purchaser are attempting to resolve these claims and it is uncertain as to whether these claims will proceed to arbitration in accordance with the terms of the indemnification agreement. However, the Company believes it has meritorious defenses against this claim. The remaining General Indemnification Funds will be disbursed to the Company, subject to claims for indemnification, on December 31, 2000. The Specific Indemnification Funds will be disbursed, to the extent not otherwise utilized in the resolution of litigation, on a case by case basis as the litigation is resolved. If all of the specified litigation is not resolved by December 31, 2000, a portion of the General Indemnification Funds will not be disbursed to the Company until the resolution of the litigation. The Company may, under certain circumstances, be required to deposit additional funds in the holdback if all of the specified litigation is not resolved by December 31, 2000. Future decreases to the escrows held for indemnifications, if any will be recorded as an adjustment to the Income from sale of Calton Homes. As of November 30, 1999 the Company had $33.8 million of highly liquid money market funds with its underlying investments comprised of investment-grade, short-term corporate issues and commercial paper yielding approximately 5.0%. Also at November 30, 1999 the Company had invested approximately $1.9 million in marketable equity securities with an unrealized loss of $518,000. In July 1999, the Company acquired substantially all of the assets of iAW, Inc., an Internet business solutions provider. The purchase price for the acquisition was $250,000. The Company conducts the acquired business through its wholly owned subsidiary, eCalton. 14 In January 2000, the Company acquired a collective direct and indirect (through ownership in a parent company) 50.4% equity interest in PrivilegeONE Networks, a newly formed company engaged in the development of a co-branded loyalty credit card program. The purchase price for the Company's interest was comprised of $105,000 of cash and a warrant to acquire 1,200,000 shares of Common Stock at an exercise price of $2.50 per share. The warrant becomes exercisable only if PrivilegeONE surpasses certain specified earning targets. In addition to its equity interest, the Company has agreed to loan up to $1,500,000 to PrivilegeONE pursuant to a note which bears interest at the rate of 10% per annum and becomes due in January 2004. The Company believes that current cash on hand, additional funds generated by the sale of Calton Homes as a result of the collection of the holdback receivable, income tax payment reductions derived from NOL utilization, and funds provided under the three-year consulting agreement with the purchaser of Calton Homes which provides for payments of $1.3 million per year, will provide sufficient capital to support the Company's operations. As of November 30, 1999 the Company had repurchased an aggregate of 6.9 million shares for $8.7 million, an average price of $1.26 per share. Management has suspended the acquisition of additional shares subsequent to year end since the market value of the Company's common stock has been trading in excess of book value. Although the Company is currently analyzing potential business opportunities consistent with its strategic plan; it has not determined the specific application for the remaining proceeds of the sale of Calton Homes. If over the period that commenced on December 30, 1998 and continues for 18 months thereafter, the Company has not redeployed a substantial portion of the sale proceeds of Calton Homes, or developed a plan to redeploy a substantial portion of the proceeds within a reasonable timeframe, the Company, subject to shareholder approval, will be liquidated and proceeds distributed to its shareholders. However, the Company continues to actively analyze other opportunities to redeploy the funds. CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from operating activities generated approximately $1.0 million during 1999 that includes $1.7 million of interest earned on highly liquid money market funds, and approximately $1.0 million from the consulting agreement with the purchaser of Calton Homes. Partially offsetting the increases are cash utilized for general and administrative costs and the funding of eCalton's operations as it proceeds in the initial stages of business. Cash flow from discontinued operations during fiscal 1999 primarily consisted of the payment of legal settlements and litigation costs related to the indemnification obligations arising from the sale of Calton Homes in the amount of $1.5 million. Offsetting the uses of cash are the collection of a mortgage payable in the amount of $442,000 and the sale of a commercial land parcel of $240,000, among other items. CASH FLOWS FROM INVESTING ACTIVITIES The Company generated approximately $43.4 million of cash in fiscal 1999 from the sale of Calton Homes including the receipt of an additional $1.8 million as part of the post-closing settlement. As a part of the post-closing agreement, the Company refunded to the purchaser $700,000 in September 1999, paid out of the General Indemnification Funds that were deposited in escrow and classified as Holdback receivable. In addition, the Company collected $592,000 of the holdback established to secure the Company's indemnity obligations to the purchaser. In July 1999, the Company acquired the assets of iAW, Inc., an Internet business solutions provider. The purchase price for the acquisition was $250,000. The Company purchased marketable equity securities for an aggregate amount of $4.0 million in fiscal 1999, of which $1.9 million was outstanding as of November 30, 1999. These securities were subsequently sold during the first quarter of 2000 resulting in the receipt of $1.3 million. 15 The Company loaned $250,000 to an entity in exchange for a convertible note with a warrant attached. The note has been subsequently converted to 142,851 common shares of CorVu Corporation (symbol-"CRVU") under the terms of the loan when the borrower became a publicly held company through a reverse merger. As consideration for making the loan, the Company obtained a warrant that permits the purchase of 253,125 shares at a per share price of $.01 per share. The fair value of the warrant is $16,000 based upon the allocation of the relative fair values of the convertible note and warrant at the time of issuance. The market price for CorVu common stock was $6.25 per share as of February 9, 2000; however, both the stock and the stock under the warrants are unregistered securities and therefore are not freely tradable. In addition, the Company loaned $103,000 to PrivilegeONE pursuant to the acquisition that occurred in January 2000 (see Note 9, Subsequent Events). CASH FLOWS FROM FINANCING ACTIVITIES For the year ended November 30, 1999 the Company repurchased 6.9 million shares of its Common Stock on the open market and in privately negotiated transactions for an aggregate price of $8.6 million, an average of $1.26 per share. These repurchases were consistent with the Company's repurchase program to repurchase up to 10.0 million shares of its Common Stock. The stock repurchase program has been temporarily suspended as a result of increases in the trading price during the first quarter of 2000 as compared to the book value per share. In June 1999, the holder of a warrant (the "Warrant") to purchase 1,000,000 shares of Calton Common Stock exercised its right under the Warrant using the cashless exercise method. As a result, the holder was issued 681,000 shares which the Company repurchased for $750,000 that is included in the aggregate numbers above. As a result, the Warrant was cancelled. YEAR 2000 The Company implemented a plan to address the Company's exposure to the Year 2000 issues and has not experienced any material adverse consequences as a result of the impact of Year 2000 issues on its computer based systems and applications, or the computer based systems of its vendors. The Year 2000 issue is the result of computer programs written using two digits rather than four to define the applicable year. Computer systems that have time sensitive software may recognize the date "00" as the year 1900 rather than 2000. This could result in a major system failure or miscalculations. Pursuant to its plan, the Company has completed the process of upgrading its personal computers and the conversion of its information technology system to a new system that is Year 2000 compliant. The Company does not believe that it faces any significant risk relating to non-information technology systems. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company currently has no outstanding indebtedness other than accounts payable. As a result, the Company's exposure to market rate risk relating to interest rate is not material. The Company's funds are primarily invested in highly liquid money market funds with its underlying investments comprised of investment-grade, short-term corporate issues and commercial paper currently yielding approximately 5.0%. The Company does not believe that it is currently exposed to market risk relating to foreign currency exchange risk or commodity price risk. However, a substantial part of the Company's cash equivalents are not FDIC insured or bank guaranteed. As of November 30, 1999 the Company had approximately $1,857,000 in marketable equity securities. As a result, the Company had exposure to market risks associated with declines in trading prices of these securities. As of November 30, 1999, the Company recorded a $518,000 unrealized loss on the securities in comprehensive income. These securities were subsequently sold at a $508,000 loss in the first quarter of fiscal 2000 that will impact earnings for the quarter ending February 29, 2000. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are set forth herein commencing on page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by item 10 is incorporated herein by reference to the Company's proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the Company's proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the Company's proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the Company's proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
Page ---- (a) 1. and 2. Financial statements and financial statement schedules F-1 Reference is made to the Index of Financial Statements and Financial Statements Schedules hereinafter contained 3. Exhibits E-1 Reference is made to the Index of Exhibits hereinafter contained (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended November 30, 1999.
18 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 underwriter, thereunto duly authorized. CALTON, INC. -------------------------------- (Registrant) Dated: February 29, 2000 By: /s/ David J. Coppola -------------------------------- David J. Coppola, Vice President 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 underwriter, thereunto duly authorized.
Signature Title Date --------- ----- ---- /s/ Anthony J. Caldarone Chairman, Chief Executive February 29, 2000 - --------------------------- Officer and President Anthony J. Caldarone (Principal Executive Officer) /s/ David J. Coppola Vice President February 29, 2000 - --------------------------- (Principal Financial & David J. Coppola Accounting Officer) /s/ Anthony J. Caldarone Director February 29, 2000 - --------------------------- Anthony J. Caldarone /s/ J. Ernest Brophy Director February 29, 2000 - --------------------------- J. Ernest Brophy /s/ Mark N. Fessel Director February 29, 2000 - --------------------------- Mark N. Fessel /s/ Kenneth D. Hill Director February 29, 2000 - --------------------------- Kenneth D. Hill /s/ Robert E. Naughton Director February 29, 2000 - --------------------------- Robert E. Naughton /s/ Frank Cavell Smith, Jr. Director February 29, 2000 - --------------------------- Frank Cavell Smith, Jr.
19 CALTON, INC. AND SUBSIDIARIES INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of November 30, 1999 and 1998 F-3 Consolidated Statements of Operations for the Years Ended November 30, 1999, 1998 and 1997 F-4 Consolidated Statements of Cash Flows for the Years Ended November 30, 1999, 1998 and 1997 F-5 Consolidated Statements of Shareholders' Equity for the Years Ended November 30, 1999, 1998 and F-6 1997 Notes to Consolidated Financial Statements F-7 Consent of Independent Accountants F-18 Schedules II-Valuation and Qualifying Accounts F-19
- ------------------------------- ** Schedules other than the schedule listed above have been omitted because of the absence of the condition under which they are required or because the required information is presented in the financial statements or the note thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders of Calton, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page F-1 present fairly, in all material respects, the financial position of Calton, Inc. and its subsidiaries at November 30, 1999 and November 30, 1998, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page F-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers, LLP Florham Park, New Jersey January 12, 2000, except for the information presenting in Note 9, which is as of February 18, 2000 F-2 CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 1999 AND 1998
1999 1998 ------------ ------------ ASSETS Current Assets Cash and cash equivalents...................................................... $ 33,786,000 $ 85,000 Securities available for sale.................................................. 1,339,000 - Holdback receivable............................................................ 1,205,000 - Receivables.................................................................... 337,000 61,000 Prepaid expenses and other assets ............................................. 202,000 939,000 ------------ ------------ Total current assets....................................................... 36,869,000 1,085,000 Holdback receivable............................................................ 2,842,000 - Notes receivable.............................................................. 338,000 - Goodwill, net.................................................................. 233,000 - Fixed assets, net.............................................................. 143,000 31,000 Warrant........................................................................ 16,000 - Net assets of discontinued operations.......................................... - 38,851,000 ------------ ------------ Total assets .............................................................. $ 40,441,000 $ 39,967,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities.......................... $ 1,350,000 $ 1,746,000 Net liabilities of discontinued operations ....................................... 437,000 - ------------ ------------ Total liabilities ......................................................... 1,787,000 1,746,000 ------------ ------------ Commitments and contingent liabilities SHAREHOLDERS' EQUITY Common stock, $.01 par value, 53,700,000 shares authorized; issued and outstanding 21,473,000 in 1999 and 26,635,000 in 1998 ...................... 283,000 267,000 Paid in capital ................................................................ 32,636,000 27,957,000 Retained earnings............................................................... 14,951,000 10,112,000 Less cost of shares held in treasury............................................ (8,698,000) (115,000) Accumulated other comprehensive loss: Unrealized loss in securities available for sale........................... (518,000) - ------------ ------------ Total shareholders' equity ................................................ 38,654,000 38,221,000 ------------ ------------ Total liabilities and shareholders' equity ................................ $ 40,441,000 $ 39,967,000 ============ ============
See accompanying notes to consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30, ----------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Revenues ............................................................ $ 3,196,000 $ - $ - ------------ ------------ ------------ Costs and expenses Cost of revenues............................................ 116,000 - - Selling, general and administrative......................... 1,966,000 2,029,000 2,396,000 ------------ ------------ ------------ 2,082,000 2,029,000 2,396,000 ------------ ------------ ------------ Income (loss) from operations........................................ 1,114,000 (2,029,000) (2,396,000) Other charges (credits) Interest expense, net........................................ - 56,000 41,000 Other income................................................. - - (1,096,000) ------------ ------------ ------------ Income (loss) from continuing operations before income taxes, discontinued operations and extraordinary gain............. 1,114,000 (2,085,000) (1,341,000) Provision (benefit) for income taxes................................. 453,000 (125,000) 560,000 ------------ ------------ ------------ Income (loss) from continuing operations............................. 661,000 (1,960,000) (1,901,000) Income (loss) from discontinued operations, net of a provision (benefit) for incomes taxes of ($373,000), $2,363,000 and ($597,000) respectively.................................. (240,000) 6,315,000 1,646,000 Income from sale of Calton Homes, Inc. in 1999 and Florida sale transaction in 1997, net of a provision in lieu of income taxes of $3,173,000 and $246,000, respectively........ 4,418,000 - 369,000 Extraordinary gain from extinguishment of debt, net of an $842,000 provision in lieu of income taxes................... - - 1,263,000 ------------ ------------ ------------ Net income........................................................... $ 4,839,000 $ 4,355,000 $ 1,377,000 ============ ============ ============ Earnings per share Basic: Income (loss) from continuing operations..................... $ .03 $ (.07) $ (.07) Income (loss) from discontinued operations, net.............. (.01) .23 .06 Income from sale of operating businesses, net................ .19 - .01 Extraordinary gain, net...................................... - - .05 ------------ ------------ ------------ Net income................................................... $ .21 $ .16 $ .05 ============ ============ ============ Diluted: Income (loss) from continuing operations..................... $ .03 $ (.07) $ (.07) Income (loss) from discontinued operations, net.............. (.01) .23 .06 Income from sale of operating businesses, net................ .18 - .01 Extraordinary gain, net...................................... - - .05 ------------ ------------ ------------ Net income................................................... $ .20 $ .16 $ .05 ============ ============ ============ Weighted average number of shares outstanding Basic........................................................ 22,769,000 26,685,000 26,567,000 ============ ============ ============ Diluted...................................................... 23,992,000 26,685,000 26,567,000 ============ ============ ============
See accompanying notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended November 30, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................................ $ 4,839,000 $ 4,355,000 $ 1,377,000 Adjustments to reconcile net income to net cash used by operating activities Income from the sale of Calton Homes, Inc............ (4,418,000) - - Income (loss) from discontinued operations........... 240,000 (6,315,000) (2,015,000) Extraordinary gain from extinguishment of debt, net.. - - (1,263,000) Provision for income taxes........................... 422,000 - - Depreciation and amortization........................ 17,000 164,000 173,000 Amortization of debt financing fees.................. - - 103,000 Change in net assets/liabilities of discontinued operations...................................... (657,000) 3,232,000 32,694,000 Increase in receivables.............................. (276,000) - - Tax refund........................................... - - 1,871,000 Decrease (increase) in prepaid expenses and other assets................................ 737,000 (895,000) 697,000 Increase (decrease) in accounts payable, accrued expenses and other liabilities.................. 77,000 (431,000) (1,042,000) Issuance of stock under 401(k) Plan and other........ - 91,000 41,000 ------------ ------------ ------------- 981,000 201,000 32,636,000 ------------ ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from sale of Calton Homes, Inc.................... 43,440,000 - - Purchase of securities available for sale...................... (3,984,000) - - Sale of securities available for sale.......................... 2,127,000 - - Increase in notes receivable................................... (338,000) - - Acquisition of business........................................ (250,000) - - Increase in property and equipment............................. (58,000) (18,000) (16,000) Purchase of warrant............................................ (16,000) - - ------------ ------------- -------------- 40,921,000 (18,000) (16,000) ------------ ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES Stock repurchase............................................... (8,583,000) (115,000) - Stock options exercised........................................ 382,000 - - Retirement of revolving credit agreement....................... - - (39,350,000) Proceeds under revolving credit agreement...................... - - 2,500,000 ------------ ------------ ------------- (8,201,000) (115,000) (36,850,000) ------------ ------------ ------------- Net increase (decrease) in cash and cash equivalents.............. 33,701,000 68,000 (4,230,000) Cash and cash equivalents at beginning of year.................... 85,000 17,000 4,247,000 ------------ ------------ ------------- Cash and cash equivalents at end of year.......................... $ 33,786,000 $ 85,000 $ 17,000 ============ ============ ============= Noncash transactions: Holdback receivable............................................ $ 4,047,000 $ - $ - Acquisition of assets.......................................... $ 54,000 $ - $ -
See accompanying notes to consolidated financial statements. F-5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (amounts in thousands) Total Accumulated Shareholders' Other Compre- Equity Common Paid In Retained Treasury Compre- hensive Capital Stock Capital Earnings Stock hensive Loss Earnings -------------- ----------- ----------- ----------- ---------- ------------- ----------- Balance, November 30, 1996............ $ 28,086 $ 265 $ 23,441 $ 4,380 $ - $ - $ - Net income.................... 1,377 - - 1,377 - - - Issuance of stock under 401(k) Plan.............. 31 1 30 - - - - Provision in lieu of income taxes............ 1,265 - 1,265 - - - - Tax refund.................... 1,871 - 1,871 - - - - Issuance of stock warrants................. 210 - 210 - - - - Shares issued under stock option plan and other................ 10 - 10 - - - - -------------- ----------- ----------- ----------- ---------- ------------- ----------- Balance, November 30, 1997............. 32,850 266 26,827 5,757 - - - Net income.................... 4,355 - - 4,355 - - - Issuance of stock under 401(k) Plan ............. 71 1 70 - - - - Provision in lieu of income taxes............. 1,040 - 1,040 - - - - Shares issued under stock options plan and other................ 20 - 20 - - - - -------------- ----------- ----------- ----------- ---------- ------------- ----------- Subtotal................. 38,336 267 27,957 10,112 - - - Less: Purchase of treasury stock........... (115) - - - (115) - - -------------- ----------- ----------- ----------- ---------- ------------- ----------- Balance, November 30, 1998............. 38,221 267 27,957 10,112 (115) - - Net income.................... 4,839 - - 4,839 - - 4,839 Issuance of stock under stock option plans...... 382 9 373 - - - - Issuance of stock under warrant exercise........ - 7 (7) - - - - Modification of stock - - option terms............. 525 - 525 - - - - Provision in lieu of income taxes............. 3,788 - 3,788 - - - - Less: purchase of treasury stock........... (8,583) - - - (8,583) - - Comprehensive Loss: unrealized loss in securities available for sale................. (518) - - - - (518) (518) ----------- Comprehensive earnings................. - - - - - - $ 4,321 -------------- ----------- ----------- ----------- ---------- ------------ =========== Balance, November 30, 1999............. $ 38,654 $ 283 $ 32,636 $ 14,951 $ (8,698) $ (518) ============== =========== =========== =========== ========== ============
See accompanying notes to consolidated financial statements. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF PRINCIPLES OF CONSOLIDATION SIGNIFICANT ACCOUNTING The consolidated financial statements include the accounts POLICIES of Calton, Inc. and all of its wholly-owned and majority owned subsidiaries (the "Company"). On December 31, 1998, the Company completed the sale of Calton Homes to Centex Real Estate Corporation ("Centex" or the "purchaser"), and on November 30, 1997, the Company sold the Orlando, Florida homebuilding assets (see Note 7). As a result of the sale of Calton Homes and the Florida homebuilding assets, the financial statements treat the Company's former homebuilding business and results as discontinued operations in accordance with APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business." Certain reclassifications have been made to prior years' financial statements in order to conform with the 1999 presentation. All significant intercompany accounts and transactions have been eliminated. ACQUISITION AND NEW BUSINESS SEGMENT In July 1999 the Company acquired the assets of iAW, Inc., an Internet business solutions provider. The acquired business is operated through a wholly owned subsidiary named eCalton.com, Inc. ("eCalton"). As a result of this acquisition, the Company has recorded Goodwill in the amount of $237,000 that will be amortized over a ten-year period. REVENUE RECOGNITION Revenues of eCalton are derived from fixed fee arrangements and are recognized under the percentage of completion method of accounting based on the ratio of costs incurred compared to estimated costs. Provision for estimated losses on uncompleted contracts are made in circumstances in which such losses are probable. 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. FIXED ASSETS Fixed assets primarily comprise of computer equipment and office furniture. Computer equipment is being depreciated over a useful life of three to four years and office furniture is being depreciated over five years. Accumulated depreciation as of November 30, 1999 is $12,000. INCOME TAXES Income taxes are determined in accordance with Statement of Financial Accounting Standards No. 109 (see Note 5). PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses consist primarily of prepaid insurance that will be amortized over the contract period. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PER SHARE COMPUTATIONS Statements of Financial Accounting Standards No. 128, "Earnings per Share" requires the presentation of basic and diluted per share amounts, effective for financial statements issued for periods ending after December 15, 1997. The weighted average number of common stock outstanding for 1999, 1998 and 1997 used for the basic calculation is 22,769,000, 26,685,000 and 26,567,000 respectively. The diluted weighted average number of shares of common stock for the same periods is 23,992,000, 26,685,000 and 26,567,000 respectively. As of November 30, 1999, there were 21,473,000 shares outstanding and a total of 3,661,000 stock options granted and outstanding under the Company's incentive stock option plans. There were 1,800,000 stock options that were not included in the calculation of diluted earnings per share in 1999 as these options were antidilutive. In addition, a warrant to purchase 1,000,000 shares of common stock was outstanding until June 1999 (see Note 4). The effect of stock options and the warrant were not included in the calculation of diluted earning per share in 1998 F-7 and 1997 as these options and warrants were antidilutive due to the loss from continuing operations during these periods. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), establishes a fair value based method of accounting for stock-based compensation plans, including stock options. FAS 123 allows the Company to continue accounting for stock options plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but requires it to provide pro forma net income and earnings per share information "as if" the new fair value approach had been adopted. Because the Company continued to account for its stock option plans under APB 25, there was no impact on the Company's consolidated financial statements resulting from implementation of FAS 123 (see Note 4). 2. NOTES RECEIVABLE NOTES RECEIVABLE CONSIST OF THE FOLLOWING:
November 30, ------------------------ 1999 1998 --------- ----------- CorVu note receivable (a)................ $ 234,000 $ - PrivilegeONE note receivable (b)......... 104,000 - --------- ----------- $ 338,000 $ - ========= -----------
(a) In November 1999, the Company made a $250,000 unsecured bridge loan to CorVu Corporation ("CorVu") pursuant to a note which provided that all principal and accrued interest would become due upon the earlier of (i) 120 days or (ii) the closing of a reverse merger transaction with Minnesota American, Inc. Upon the occurrence of the reverse merger in January 2000, the bridge loan was converted to 143,000 common shares in the surviving corporation. As consideration for making the bridge loan, the Company was issued a five year warrant to purchase 253,000 shares of common stock in CorVu at a per share price of $.01 per share. The fair value of the notes and warrant were determined and allocated to each instrument based on their relative fair value. At the time of the reverse merger, Minnesota American changed its name to CorVu and is traded under the symbol ("CRVU".) The trading price for CorVu common stock was $6.25 per share as of February 9, 2000; however, both the common shares and the shares under the warrant are unregistered securities and therefore are not freely tradable (see Note 9). (b) November 1999, the Company loaned an aggregate of $104,000 to PrivilegeONE to fund its initial operations pursuant to a note providing for interest at a rate of ten percent per annum and a maturity date of February 19, 2000. During the first quarter of fiscal 2000, the Company acquired a 50.4% direct and indirect ownership interest in PrivilegeONE. Concurrently, the note was converted to a new note bearing interest at 10% per annum, with a maturity date of January, 2004 (see Note 9). F-8 3. SEGMENT Through the acquisition of substantially all the assets of REPORTING iAW, Inc., an Internet business solutions provider, in July 1999, the Company has entered into a new business and related industry. The acquired business is operated through a wholly owned subsidiary, eCalton. Revenues of eCalton will be recognized under the percentage of completion method of accounting. The Company does not have any foreign operations. The following schedule illustrates eCalton relative to the consolidated Company for the year ended November 30, 1999 (dollars in thousands):
CORPORATE INTERNET AND BUSINESS CONSULTING TOTAL SOLUTIONS SERVICES COMPANY ----------- ----------- ---------- Total revenues (a) ......................... $ 157 $ 3,039 $ 3,196 Total cost of revenue (b) .................. 116 - 116 Total selling, general and administrative expenses ............................. 468 1,498 1,966 Income (loss) from operations .............. (427) 1,541 1,114 Provision (benefit) for income taxes........ (171) 624 453 Income (loss) from continuing operations............................ (256) 917 661 Total assets ............................... $ 464 $ 39,977 $ 40,441
(a) Total revenues for Internet Business Solutions represents five months of revenues since acquisition on July 1, 1999. (b) Total cost of revenues represents production costs (including allocated salaries, computer hardware, computer software and video conferencing costs). 4. SHAREHOLDERS' The Company's Certificate of Incorporation provides for EQUITY 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), one million shares of which have been designated as Class A Series One Preferred Stock. None of the Preferred Stock is issued or outstanding. The Company commenced a significant stock repurchase program pursuant to which it announced its intention to repurchase up to 10,000,000 shares of Common Stock in open market repurchases and privately-negotiated transactions during fiscal 1999 and 1998. As of November 30, 1999, there were 6,900,000 shares held in Treasury in the amount of $8,698,000. The Company has suspended the acquisition of additional shares subsequent to year end since the market value of the Company's Common Stock has been in excess of book value. In May 1993, the Company adopted the Calton, Inc. 1993 Non-Qualified Stock Option Plan (the "1993 Plan") under which a total of 1,493,000 shares of Common Stock were reserved for issuance. Under the terms of the 1993 Plan, options may be granted at an exercise price designated by the Board of Directors. In January 1999, the Company's Board of Directors approved the grant to the Company's Chairman and President of options to acquire an aggregate of 600,000 shares of Common Stock under the 1993 Plan. The options granted under the 1993 Plan vest in equal installments over a three-year period. The exercise price of options granted range from $.31 to $1.22 per share. Options granted under the 1993 Plan have a maximum term of ten years, with a weighted average contractual life of 6.5 years in 1999 and 2.3 years in 1998. In the fourth quarter of 1998, 685,000 options were repurchased from a former employee for $171,000 or $.25 per option. F-9 In April 1996, the Company's shareholders approved the Company's 1996 Equity Incentive Plan (the "1996 Plan") under which a total of 2,000,000 shares of Common Stock were reserved for issuance. Under the terms of the 1996 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). In January 1999, the Board approved the grant to other employees of options to acquire an aggregate of 35,000 shares of Common Stock under the 1996 Plan. The options granted under the 1996 Plan vest in equal installments over a five-year period. The exercise prices of outstanding options range from $.34 to $1.22 per share with vesting ranging from one to five years. The exercise period in up to ten years, with a weighted average contractual life of 4.7 years in 1999 and 4.1 years in 1998. In connection with the sale of Calton Homes, Inc. the Company made certain adjustments to the terms of options to acquire Calton Common Stock previously granted and outstanding as of December 31, 1998 under the 1993 Plan and the 1996 Plan. Effective January 1, 1999, all options that were previously granted and outstanding became exercisable, regardless of whether the right to exercise the option had previously vested; employees of Calton Homes, Inc. have until December 31, 2000 to exercise any options; and options of employees of Calton, Inc. will expire in accordance with their original terms. The effect of the amendments to the stock option plans of approximately $525,000 is considered to be severance costs and was therefore recorded as an expense and included in the gain on the sale transaction in the first quarter of 1999. STOCK OPTION TRANSACTIONS UNDER THE 1996 PLAN AND 1993 PLAN ARE SUMMARIZED AS FOLLOWS (SHARES IN THOUSANDS):
1996 1993 Plan Plan ----- ----- Options outstanding, November 30, 1997................................... 1,095 1,360 Granted.................................................................. 327 - Forfeited or repurchased................................................. (36) (685) Exercised................................................................ (4) - ----- ----- Options outstanding, November 30, 1998................................... 1,382 675 Granted.................................................................. 85 600 Exercised................................................................ (521) (360) ----- ----- Options outstanding, November 30, 1999................................... 946 915 ----- -----
In July 1999, the Company entered into employment agreements with three officers of eCalton pursuant to which each have been granted options to acquire 600,000 shares of Calton Common Stock, or an aggregate of 1.8 million shares. The non-qualified stock options granted have terms similar to the 1996 Equity Incentive Plan, vest in three equal annual installments beginning July 19, 2000, and have a term of ten years. The exercise price is $1.63 per share. The Company accounts for stock option plans under APB 25. Accordingly, no compensation expense has been recognized for its stock-based compensation plans except as discussed above and in Note 7. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methods prescribed under FAS 123, the Company's net income would have been reduced by approximately $551,000 and $141,000 for years ended November 30, 1999 and 1998, respectively. On a pro forma basis, earnings per share would have been reduced by $.02 and $.00 per share for 1999 and 1998, respectively. The estimated weighted average fair value of the options granted in each of the two fiscal years ended November 30, 1999 and 1998 is $1.21 and $.31, using the Black-Scholes option-pricing model, with the following assumptions: dividend yield - none, volatility of .8 and .7, risk-free interest rate of 4.56% and 5.49%, assumed forfeiture rate as they occur and an expected life of 3 years and 4.7 years at November 30, 1999 and 1998, respectively. F-10 In June 1999, the holder of a warrant (the "Warrant") to purchase 1,000,000 shares of Calton Common Stock, exercised the Warrant using the cashless exercise method. As a result, the holder was issued 681,461 shares which the Company repurchased for $750,000 and the Warrant was canceled. The 681,461 shares are held as Treasury stock. In January 2000, the Company's Board of Directors approved a grant to the Company's Chairman and President of options to acquire 200,000 shares of Common Stock under the 1996 Plan. These options have an exercise price of $2.78 per share, a term of five years and vest in five equal annual installments. In addition, in January 2000, the Board approved the grant to other employees of options to acquire an aggregate of 215,000 shares under the 1993 Plan and 136,000 shares under the 1996 Plan. Each of these options has an exercise price of $2.53 per share. Options granted under the 1993 Plan vest in equal annual installments over a three year period. The options granted under the 1996 Plan vest in equal installments over a five year period. In February 1999, the Company's Board of Directors adopted a shareholder rights plan (the "Rights Plan") and declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of Common Stock. Under the Rights Plan, each Right represents the right to purchase from the Company one one-hundredth (1/100th) of a share of Class A Preferred Stock Series One (the "Preferred Stock") at a price of $5.50 per one one-hundredth (1/100th) of a share. Each one one-hundredth (1/100th) of a share of Preferred Stock has economic and voting terms equivalent to those of one share of the Company's Common Stock. The Rights will not become exercisable unless and until, among other things, a person or group acquires or commences a tender offer for 15% or more of the Company's outstanding Common Stock. In the event that a person or group, without Board approval acquires 15% or more of the outstanding Common Stock, each Right would entitle its holder (other than the person or group) to purchase shares of Preferred Stock having a value equal to twice the exercise price. Also, if the Company is involved in a merger or sells more than 50% of its assets or earning power, each Right will entitle its holder (other than the acquiring person or group) to purchase shares of common stock of the acquiring company having a market value equal to twice the exercise price. If any person or group acquires at least 15%, but less than 50%, of the Company's Common Stock, the Board may, at its option, exchange one share of Common Stock for each Right (other than Rights held by such person or group). The Right Plan may cause substantial dilution to a person or group that, without prior Board approval, acquires 15% or more of the Company's Common Stock, unless the Rights are first redeemed by the Board. The Rights expire on February 1, 2009 and may be redeemed by the Company at a price of $.01 per Right. 5. INCOME THE COMPONENTS OF THE PROVISION/(BENEFIT) FOR INCOME TAXES ARE AS FOLLOWS: (AMOUNTS IN THOUSANDS)
Years Ended November 30, ------------------------------- 1999 1998 1997 -------- -------- ------ Federal Current........................................... $ 15 $ 1,785 $ 455 Deferred.......................................... (28) (603) (102) Provision in lieu of income taxes................. 2,928 527 257 State Current........................................... 28 16 57 Provision/(benefit) in lieu of income taxes....... 310 513 (458) -------- -------- ------ 3,253 2,238 209 Less: Discontinued operations (provision)/benefit...... 373 (2,363) 351 Provision in lieu of taxes on the sale of Calton Homes........................... (3,173) - - -------- -------- ------ Continuing operations....................... $ 453 $ (125) $ 560 ======== ======== ======
F-11 THE FOLLOWING SCHEDULE RECONCILES THE FEDERAL PROVISION (BENEFIT) FOR INCOME TAXES COMPUTED AT THE STATUTORY RATE TO THE ACTUAL PROVISION FOR INCOME TAXES (AMOUNTS IN THOUSANDS):
Years Ended November 30, ------------------------------- 1999 1998 1997 -------- -------- ------ Computed provision for income taxes at 34%.......... $ 2,758 $ 2,242 $ 110 Expenses for which deferred tax benefit cannot be currently recognized................. - - 501 Expenses for which deferred tax benefit is currently recognized........................... (37) (399) - State and local tax provision....................... 594 529 222 State tax reserves.................................. (550) - (624) Expenses for which no tax benefit is available...... 488 - - Other............................................... - (134) - -------- -------- ------ Total provision for income taxes.................... 3,253 2,238 209 Less: Discontinued operations (provision)/benefit.................. 373 (2,363) 351 Provision in lieu of taxes on the sale of Calton Homes........................ (3,173) - - -------- -------- ------ Continuing operations..................... $ 453 $ (125) $ 560 ======== ======== ======
In 1999 and 1997, the resolution of certain state tax issues resulted in $550,000 and $624,000 of state tax reserves being reduced as a reduction to the 1999 and 1997 provision for income taxes. In addition, included in the Company's 1997 extraordinary gain is a provision in lieu of income taxes of $842,000. TEMPORARY DIFFERENCES AND CARRYFORWARDS WHICH GIVE RISE TO A SIGNIFICANT PORTION OF DEFERRED TAX ASSETS AND LIABILITIES AT NOVEMBER 30, 1999, AND 1998 ARE AS FOLLOWS: (AMOUNTS IN THOUSANDS)
Deferred Tax Assets/(Liabilities) ----------------------------------------------------- Continuing Operations Combined* -------------------------- ----------------------- 1999 1998 1999 1998 ----------- ---------- --------- ----------- Fresh-start inventory reserves.................. $ - $ 31 $ - $ 322 Income from joint ventures..... - 129 33 129 Inventory and other reserves... - 594 - 1,173 Capitalized inventory costs.... - (263) - (479) Federal net operating losses... 5,594 5,406 5,594 8,126 State net operating losses..... 2,248 2,227 2,662 4,265 Depreciation................... (6) 83 (6) 78 Deferred state taxes........... 5 328 131 615 Litigation reserve............. - - 187 - Stock compensation............. - - 179 - Other.......................... 23 40 109 17 ---------- ---------- --------- ----------- 7,864 8,575 8,889 14,246 Valuation allowances........... 7,864 (8,519) (8,805) (13,541) ---------- ---------- --------- ----------- Total deferred taxes........... $ - $ 56 $ 84 $ 705 ----------- ---------- --------- -----------
*Includes both continuing and discontinued operations F-12 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 a significant portion of the net deferred tax assets due to uncertainty of realization. On December 31, 1998, Calton, Inc. sold the stock of Calton Homes to an unrelated party and incurred a capital tax loss. This loss will have a full valuation allowance due to uncertainty of realization. The sale of Calton Homes resulted in the termination of a significant portion of the net deferred tax asset. The federal net operating loss carryforward for tax purposes is approximately $16,400,000 at November 30, 1999 and $23,900,000 at November 30, 1998. The sale of Calton Homes resulted in a reduction of approximately $8,000,000 in Calton, Inc.'s federal net operating loss carryforward. The Company's ability to use its deferred tax assets including federal net operating loss carryforwards, created prior to November 21, 1995, to offset future income is limited to approximately $1,127,000 per year under Section 382 of the Internal Revenue Code as a result of the change in control of the Company in November 1995. The limitation has been reduced by approximately $500,000 per year as a result of the terms of the sale of Calton Homes. These federal carryforwards will expire between 2007 and 2014. In 1997, the Company received a tax refund related to prior periods of $2,442,000. The Company paid income taxes of approximately $1,640,000, $680,000 and $30,000, respectively, in 1999, 1998 and 1997. 6. COMMITMENTS (a) As part of the sale of Calton Homes on December 31, AND 1998, the Company entered into a consulting agreement with the CONTINGENT purchaser that requires the purchaser to make payments of LIABILITIES $1,300,000 million per year over a three-year period to the Company. (b) If by June 30, 2000, the Company has not redeployed a substantial portion of the proceeds of the Sale Transaction, or developed a plan to redeploy a substantial portion of such proceeds within in a reasonable time frame, the Company, subject to shareholder approval, will be liquidated and dissolved. Management currently expects to deploy or have a plan to deploy a substantial portion of the proceeds by June 30, 2000. (c) The stock purchase agreement pursuant to which the Company sold Calton Homes on December 31, 1998 requires the Company to indemnify the purchaser for, among other things, breaches of the agreement and certain liabilities that arise out of events occurring prior to the closing of the sale, including the cost of warranty work on homes delivered if such costs exceed $600,000. On December 31, 1998, as a condition to the sale of Calton Homes, the Company entered into a holdback escrow agreement with the purchaser pursuant to which $5,159,000 of the closing proceeds were deposited into escrow. Of this amount, $3,000,000 (the "General Indemnification Funds") was deposited to provide security for the Company's indemnity obligations and $2,159,000 (the "Specific Indemnification Funds") was deposited to fund costs associated with certain specified litigation involving Calton Homes. As of November 30, 1999 there was $1,610,000 in the Specific Indemnification Funds, and $2,410,000 in the General Indemnification Funds, of which $962,000 was paid to the Company in January 2000. In January 2000, the purchaser asserted a $253,000 claim for indemnification related to certain alleged misrepresentations and liabilities allegedly arising out of the events occurring prior to the sale of Calton Homes. The Company and the purchaser are attempting to resolve these claims and is uncertain as to whether these claims will proceed to arbitration pursuant to the indemnity agreement. The remaining General Indemnification Funds will be disbursed to the Company, subject to claims for indemnification, on December 31, 2000. The Specific Indemnification Funds will be disbursed, to the extent not otherwise utilized in the resolution of litigation, on a case by case basis as the litigation is resolved. If all of the specified litigation is not resolved by December 31, 2000, a portion on the General Indemnification Funds will not be disbursed to the Company until the resolution of the litigation. The Company may, under certain circumstances, be required to deposit additional funds in the holdback if all of the specified litigation is not resolved by December 31, 2000. In addition, the Company's indemnity obligations are not limited to the amounts deposited in escrow. In the event that the Company elects to liquidate and F-13 dissolve prior to December 31, 2003, it will be required to organize a liquidating trust to secure its obligations to the purchaser. The liquidating trust will be funded with the Specific Indemnification Funds plus $3,000,000 if created between December 31, 1999 and December 31, 2000 and $2,000,000 if created after December 31, 2000. If the liquidation occurs prior to December 31, 2000, the Company may be required to deposit additional amounts in the liquidating trust if the specified litigation is not resolved by such date. Any General Indemnification Funds remaining in the holdback escrow fund will be applied as a credit against amounts required to be deposited in the liquidating trust. (d) The Company assigned its operating lease in New Jersey for office space expiring November 30, 2002 to Calton Homes. Rental expense for the years ended November 30, 1999, 1998 and 1997 amounted to $45,000, $392,000 and $730,000 respectively. The Company currently leases approximately 2,100 square feet of office space located in Red Bank, New Jersey, for approximately $4,700.00 per month. The term of this lease is on a month-to-month basis. The Company also leases approximately 1,790 square feet of temporary office space on a month-to-month basis in Vero Beach, Florida, for approximate $2,200.00 per month, until its permanent space is available at the end of May 2000. The permanent space at the same location will consist of approximately 3,815 square feet, at a monthly rate of approximately $5,722.00, for a term of 5 years. The Company's subsidiary, eCalton, currently leases approximately 4,000 square feet of office space, for approximately $4,700 per month. The term of this lease is on a month-to-month basis. (e) The Company had a qualified contributory retirement plan (401(k) Plan) which covered all eligible full-time employees with a minimum of one year of service. The Company terminated the 401(k) Plan effective December 31, 1998. The Company's contribution to the plan was $71,000 in 1998, and $30,000 in 1997. The Company's matching contribution, in the form of registered Common Stock of the Company, for 1998 was 50% of participant contributions, subject to a maximum of 3% of total compensation and $2,000 per employee. 7. DISCONTINUED On December 31, 1998, the Company completed the sale of OPERATIONS Calton Homes. The shareholders of Calton, Inc. approved the sale of the stock of Calton Homes on December 30, 1998. The purchase price for the stock of Calton Homes was $48,100,000 plus certain post closing adjustments. The Company recorded a pretax gain of $7,591,000 on the sale including the post closing adjustments. Cash proceeds from the sale were approximately $43,440,000, net of the $4,040,000 remaining holdback and $1,800,000 million cash received from closing adjustments. No tax liability is expected to result from the sale since the transaction resulted in a capital loss for tax purposes. However, a provision in lieu of taxes was recorded for financial reporting purposes in fiscal 1999 in the amount of $3,173,000 related to the sale transaction. The gain was subject to the $5,200,000 holdback (see note 6) of which $700,000 was refunded to the purchaser, out of the General Indemnification Funds and included as part of the gain and $592,000 was received by Calton pursuant to the terms of the indemnification agreement. Future decreases to the escrows held for indemnifications, if any, will be recorded as an adjustment to the Income from the sale of Calton Homes. Calton has entered into an agreement to provide consulting services to Centex that requires payments to the Company of $1,300,000 per year over a three-year period. As a result of the sale of Calton Homes and the sale of the Florida homebuilding assets that occurred at the end of fiscal 1997, the financial statements for the current and prior periods have been restated to reflect the Company's homebuilding and real estate development business as discontinued operations including the operations of other subsidiaries located in Orlando, Florida; Chicago, Illinois; Pennsylvania and California, where the Company had similar operations and commercial land held for sale. F-14 RESULTS OF OPERATIONS FROM DISCONTINUED OPERATIONS ARE AS FOLLOWS (AMOUNTS IN THOUSANDS):
Years Ended November 30, -------------------------------- 1999 1998 1997 ------- --------- --------- Revenues................................................. $ 6,763 $ 105,292 $ 126,588 ------- --------- --------- Cost of revenues......................................... 5,858 85,897 110,419 Selling, general and administrative...................... 1,518 10,172 12,532 Impairment of assets..................................... - - 750 ------- --------- --------- 7,376 96,069 123,701 ------- --------- --------- Income (loss) from operations............................ (613) 9,223 2,887 Interest expense, net.................................... - 545 1,223 ------- --------- --------- Income (loss) before income taxes........................ (613) 8,678 1,664 Provision (benefit) for income taxes..................... (373) 2,363 (351) ------- --------- --------- Net income (loss) from discontinued operations........... $ (240) $ 6,315 $ 2,015 ======= ========= =========
Selling, general and administrative costs include approximately $984,000 of litigation costs related to the resolution of indemnification obligations as a part of the sale of Calton Homes. Included in revenues for the year ended November 30, 1997, is the Orlando, Florida division that generated $56,281,000 of revenues, that included $16,660,000 of revenues from the 1997 Florida asset sale and resulted in a pretax gain of $615,000. Interest paid for the years ended November 30, 1999, 1998 and 1997 was $209,000, $3,970,000 and $5,508,000, respectively. NET ASSETS OF DISCONTINUED OPERATIONS ARE AS FOLLOWS (AMOUNTS IN THOUSANDS):
November 30, --------------------- 1999 1998 -------- ---------- Assets Cash.................................................................... $ - $ 11,910 Receivables and other assets............................................ 104 9,385 Inventories............................................................. - 61,449 Commercial land......................................................... 109 252 Liabilities Revolving credit agreement.............................................. - (21,000) Mortgages payable....................................................... - (1,262) Accounts payable and accrued expenses................................... (650) (21,883) -------- ---------- Net assets (liabilities)..................................................... $ (437) $ 38,851 ======== ==========
F-15 8. QUARTERLY QUARTERLY FINANCIAL RESULTS FOR THE YEARS ENDED FINANCIAL NOVEMBER 30, 1999 AND 1998 ARE AS FOLLOWS RESULTS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): (UNAUDITED)
Three Months Ended ------------------------------------------------------- February 28, May 31, August 31, November 30, 1999 1999 1999 1999 ------------- --------- ------------ -------------- Net loss from continuing operations........................ $ 159 $ 285 $ 178 $ 39 Net (loss) income from discontinued operations........... 92 (379) (100) 147 Net income from the sale of Calton Homes...................... 3,886 668 - (136) ============= ========= ============ ============== Net (loss) income...................... $ 4,137 $ 574 $ 78 $ 50 ------------- --------- ------------ -------------- Net income per share Basic(b).......................... $ .16 $ .03 $ - $ - ============= ========= ============ ============== Diluted(b)........................ $ .15 $ .02 $ - $ - ============= ========= ============ ============== Three Months Ended ------------------------------------------------------- February 28, May 31, August 31, November 30, 1998 1998 1998 1998 ------------- --------- ------------ -------------- Net income from continuing operations(a)..................... $ (301) $ (251) $ (352) $ (1,056) Net income (loss) from discontinued operations........... (236) 657 1,052 4,842 ----------- --------- ------------ -------------- Net (loss) income...................... $ (537) $ 406 $ 700 $ 3,786 ----------- --------- ------------ -------------- Net (loss) income per share, basic and diluted................. $ (.02) $ .02 $ .03 $ .13 ----------- --------- ------------ --------------
(a) The increase in the net loss from continuing operations for the three months ended November 30, 1998 is primarily a result of intercompany charges from continuing operations to discontinued operations. (b) Net income per share does not agree to the per share amounts presented on the face of the income statement as a result of the impact of the stock repurchase program. 9. SUBSEQUENT On January 24, 2000 the Company purchased an additional EVENTS 375,000 shares of common stock and a five-year warrant which entitles the Company to purchase an aggregate of 225,000 shares of CorVu Corporation common stock. The Warrant entitles the Company to acquire certain specified quantities of shares at specified exercise prices ranging from $2.00 per share to $8.00 per share. The aggregate exercise price is $900,000. The aggregate acquisition amount for the stock and warrant was $750,000. CorVu Corporation is traded under the symbol "CRVU" on the OTC Bulletin Board. As of February 9, 2000 the common stock was traded at $6.25 per share. Both the warrants and stock are not registered and have current restrictions on trading. In January 2000, the Company acquired a collective direct and indirect (through ownership in a parent company) 50.4% equity interest in PrivilegeONE Networks, Inc., a newly formed company engaged in the development of a co-branded loyalty credit card program. The purchase F-16 price for the Company's interest was comprised of $105,000 of cash and a warrant to acquire 1,200,000 shares of Common Stock at an exercise price of $2.50 per share. The warrant becomes exercisable only if PrivilegeONE surpasses certain specified earnings targets. In addition to its equity interest, the Company has agreed to loan up to $1,500,000 to PrivilegeONE pursuant to a note which bears interest at the rate of 10% per annum and becomes due in January 2004. F-17 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-70628, 33-75184 and 333-28135) of Calton, Inc. of our report dated January 12, 2000, except as to the information described in Note 9, which is as of February 18, 2000 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers, LLP Florham Park, New Jersey February 28, 2000 F-18 SCHEDULE II CALTON, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
Additions ---------------------------- Balance at Charged to Charged to Balance Beginning Costs and Other At End Description of Year Expenses Accounts Deductions of Year ----------- ------------- ------------- ------------- ---------- ------------- Year ended November 30, 1997: Net realizable value reserves for inventory $ 1,113 $ 750 $ - $ 882(A) $ 981 ============= ============= ============= ========== ============= Valuation allowance for net deferred tax asset $ 19,628 $ - $ - $ 3,538(B) $ 16,090 ============= ============= ============= ========== ============= Year ended November 30, 1998: Net realizable value reserves for inventory $ 981 $ - $ - $ 726 $ 726 ============= ============= ============= ============ ============= Valuation allowance for net deferred tax asset $ 16,090 $ - $ - $ 2,549 $ 13,541 ============= ============= ============= ============ ============= Year ended November 30, 1999: Net realizable value reserves for inventory $ 255 $ - $ - $ 100 $ 155 ============= ============= ============= ============ ============= Valuation allowance for net deferred tax asset $ 13,541 $ - $ - $ 4,736(c) $ 8,805 ============= ============= ============= ========== =============
(A) Represents the utilization of reserves recorded when affected homes are delivered and land is sold. (B) Represents the change in the valuation allowance due to the changes in the deferred tax assets and the impact of the IRS Code Section 382 limitation on those assets. (C) The majority of the change in valuation allowance is due to the sale of Calton Homes, Inc., and did not have an income statement impact. F-19 INDEX TO EXHIBITS 2.1 Agreement for Sale and Purchase of Assets dated as of November 26, 1997 between Beazer Homes Corp., Beazer Homes USA, Inc., Calton Homes of Florida, Inc. and Calton Homes, Inc., incorporated by reference to Exhibit 2 to Form 8-K of Registrant dated December 1, 1997. 2.2 Amended and Restated Stock Purchase Agreement effective September 2, 1998 among Calton, Inc., Calton Homes, Inc. and Centex Real Estate Corp., incorporated by reference to Exhibit 2 to Form 8-K of Registrant dated December 31, 1998. 2.3 Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated as of December 28, 1998 among Calton, Inc., Calton Homes, Inc. and Braewood Development Corp. (assignee of Centex Real Estate Corp.), incorporated by reference to Exhibit 2.1 to Form 8-K of Registrant dated December 31, 1998. 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, Certificate of 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, and Certificate of Amendment to Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State, State of New Jersey on May 29, 1997, incorporated by reference to Exhibit 3.1 to Form 10-K of Registrant for the fiscal year ended November 30, 1997, and Certificate of Amendment to Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State, State of New Jersey on February 2, 1999, incorporated by reference to Exhibit 3.1 to Form 10-K of Registrant for the fiscal year ended November 30, 1998. 3.2 By Laws of Registrant, as amended, incorporated by reference to Exhibit 3.2 to Form 10-K of Registrant for the fiscal year ended November 30, 1998. 4.1 Warrant to Purchase Common Stock of Calton, Inc. dated June 12, 1997 issued to BankBoston, N.A., incorporated by reference to Exhibit 10.2 to Form 8-K of Registrant dated June 12, 1997. 4.2 Warrant to Purchase Common Stock of Calton, Inc. dated January 2000 issued to Taytrowe Van Fechtmann World Companies, Inc. 4.3 Rights Agreement dated February 1, 1999 by and between the Registrant and First City Transfer Company as Rights Agent, including forms of Rights Certificate and Election to Purchase included as Exhibit B thereto, incorporated by reference to Exhibit 1 to Form 8-A Registration Statement of Registrant filed with the Securities and Exchange Commission on February 2, 1999. (*) 10.1 1996 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 10-K of Registrant for the fiscal year ended November 30, 1996. (*) 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. E-1 (*) 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 and Amendment to Executive Employment Agreement dated as of April 14, 1999. 10.8 Senior Secured Credit Agreement dated as of June 12, 1997, among Calton Homes, Inc., Calton Homes of Florida, Inc. and BankBoston, N.A., incorporated by reference to Exhibit 10.1 to Form 8-K of Registrant dated June 12, 1997. 10.9 Consulting Agreement between Registrant and Braewood Development Corp. dated December 31, 1998, incorporated by reference to Exhibit 10.9 to Form 10-K of Registrant for the fiscal year ended November 30, 1998. (*) 10.10 2000 Equity Incentive Plan. (*) 10.11 Option Agreement dated July 19, 1999 between the Company and Kenneth D. Hill. Agreements identical in term and content between the Registrant and each of Matthew R. Smith and Robert K. Hill have been executed. These documents have not been reproduced herein. (**) 10.12 Employment Agreement dated as of July 19, 1999 between eCalton.com, Inc. and Kenneth D. Hill. 21. Subsidiaries of the Registrant. 27. Financial Data Schedule. (*) Constitutes a compensatory plan required to be filed by 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. EX-4.2 2 WARRANT TO PURCHASE EXHIBIT 4.2 WARRANT TO PURCHASE COMMON STOCK OF CALTON, INC. NEITHER THIS WARRANT NOR ANY SECURITIES PURCHASABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND NEITHER THIS WARRANT NOR ANY SECURITIES PURCHASABLE UPON EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS, OR EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND LAWS. ------------------------- This is to certify that, FOR VALUE RECEIVED, Taytrowe Van Fechtmann World Companies, Inc. ("TVF"), or its designee (the "Holder") or registered assigns is entitled to purchase, subject to the provisions of this Warrant, from CALTON, INC., a New Jersey corporation (the "Company"), 1,200,000 shares of the Company's Common Stock, $.01 par value (the "Common Stock"), at a price per share equal to TWO AND 50/100 DOLLARS ($2.50) at any time during the period from January 27, 2000 (the "Closing Date") to 5:00 P.M., New York City Time, on the Expiration Date (as hereinafter defined), at which time this Warrant shall expire and become void. Exercise of this Warrant is conditioned upon the satisfaction by PrivilegeOne Networks, Inc. ("PNI"), a subsidiary of TVF, of certain financial performance criteria, as hereinafter set forth. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock shall be adjusted from time to time as hereinafter set forth. The shares of Common Stock or other securities or property deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Warrant Price". Unless the context otherwise requires, the term "Warrant" or "Warrants" as used herein includes this Warrant and any other Warrant or Warrants which may be issued pursuant to the provisions of this Warrant, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any transferee or transferees or assignee or assignees of the Holder named above, all of whom shall be subject to the provisions of this Warrant, and, when used with reference to Warrant Shares, means the holder or holders of such Warrant Shares. The term "Expiration Date" means that date which is five (5) years from the Closing Date. Section 1. Exercise of Warrant. 1.1 If (a) PNI achieves fifty percent (50%) of the EBITDA Projection (as hereinafter defined) for the first four (4) full fiscal quarters on a cumulative basis following the Closing Date or (b) PNI's cumulative EBITDA (as hereinafter defined) during any four (4) consecutive fiscal quarters during the two year period commencing with the beginning of the first fiscal quarter following the Closing Date exceeds $5,000,000, then, upon the presentation of financial statements reasonably satisfactory to the Company demonstrating PNI's achievement of the financial performance criteria set forth in clauses (a) or (b) above, this Warrant shall become exercisable and may be exercised in whole or in part at any time or from time to time before 5:00 P.M., New York City Time, on the Expiration Date, or if either such day is a day on which Federal or State chartered banking institutions located in the State of New Jersey are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company at its principal office or, subject to Section 9, at the office or its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment, in cash or certified or official bank check payable to the order of the Company, of the aggregate Warrant Price for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon presentation of this Warrant upon such exercise, execute and deliver a new Warrant, dated the date hereof, evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder under the same terms and conditions as herein set forth. Upon and as of receipt by the Company of this Warrant at its office or, subject to Section 9, by the stock transfer agent, at its office, in proper form for exercise and accompanied by payment as herein provided, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 1.2 The term "EBITDA" as used herein means Earnings Before Interest, Tax, Depreciation and Amortization, as determined in accordance with generally accepted accounting principles. The term "EBITDA Projection" as used herein means forecasted EBITDA for PNI, as set forth on Exhibit A hereto, subject to reasonable adjustment to reflect any agreement between PNI and a card issuer. 1.3 The term "fiscal quarter" as used herein means any of the three month periods commencing December 1, March 1, June 1 or September 1 of each year. Section 2. Reservation of Shares. The Company hereby agrees that at all times until expiration of this Warrant there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance or delivery upon exercise of this Warrant. Section 3. Exchange or Loss of Warrant. 3.1 This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company at its principal office or, subject to Section 9, at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares purchasable hereunder on the same terms and conditions as herein set forth. 3.2 Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, or destroyed Warrant shall thereupon become void. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. Section 4. Warrant Price. The exercise price at which Warrant Shares shall be purchasable upon exercise of this Warrant shall be TWO AND 50/100 DOLLARS ($2.50) per share, subject to adjustment pursuant to Section 5 of this Agreement. Section 5. Adjustment of Warrant Price and Number of Warrant Shares. The Warrant Price and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events or as otherwise provided in this Section 5; provided that in no event shall the Warrant Price be reduced below the par value of the Warrant Shares at the time of such adjustment. The Warrant Price in effect at any time and the number and kind of securities purchasable upon exercise of this Warrant shall be subject to adjustment as follows: 5.1 Stock Dividends, Reclassification and Recapitalization. In case the Company shall (i) pay a dividend or make a distribution on all of its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide, reclassify or recapitalize its outstanding Common Stock into a greater number of shares, or (iii) combine, reclassify or recapitalize its outstanding Common Stock into a smaller number of shares, the Warrant Price in effect at the time of the record date for such dividend or distribution or on the effective date of such subdivision, combination, reclassification or recapitalization shall be proportionately adjusted (but in no event shall the aggregate Warrant Price for all of the shares of Common Stock subject to this Warrant be in excess of $3,000,000) and the Holder of any Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares which, if such Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination, reclassification or recapitalization. Such adjustment shall be made successively whenever any event listed in this Section 5.1 shall occur. 5.2 Notice of Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of this Warrant or the Warrant Price of such Warrant Shares is adjusted, as herein provided, the Company shall file in the custody of its Secretary or an Assistant Secretary at its principal office and subject to Section 9, with its stock transfer agent, if any, an officer's certificate setting forth the number of Warrant Shares purchasable upon the exercise of this Warrant and the Warrant Price of the Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder of this Warrant and the Company shall, forthwith after each such adjustment, mail a copy of such certificate to such Holder by first-class mail, postage prepaid. 5.3 No Adjustment for Dividends. Except as provided in Section 5.1 of this Warrant, no adjustment in respect of any cash dividends shall be made during the term of this Warrant or upon exercise of this Warrant. 5.4 Purchase Rights Upon Merger, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the surviving corporation, if other than the Company, resulting therefrom or the acquiring corporation, as the case may be, shall assume by written agreement the obligation to deliver, upon exercise of this Warrant and payment of the Warrant Price in effect immediately prior to such corporate event, the kind and amount of shares or other securities and property which the Holder would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior thereto. Section 6. Fractional Interests. The Company shall not be required to issue fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section 6, be issuable on the exercise of this Warrant (or specified portion hereof), then the Company shall elect, at its option to either (i) round such fractional Warrant Share upwards to the nearest whole Warrant Share or (ii) pay to the holder an amount in cash equal to such fraction multiplied by the then current fair value of a Warrant Share, determined as follows: 6.1 If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange, the current fair value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange; or 6.2 If the Common Stock is not so listed or admitted to unlisted trading privileges, the current fair value shall be the mean of the last reported bid and asked prices reported by the Nasdaq Stock Market (or, if not so quoted on the Nasdaq Stock Market, by the NASD Electronic Bulletin Board) on the last business day prior to the day of the exercise of this Warrant; or 6.3 If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount determined in such reasonable manners may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. Section 7. No Rights as Shareholders; Notices to Holders. Nothing contained in this Warrant shall be construed as conferring upon the Holder or any transferee the right to vote or to receive dividends or to consent or to receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company, prior to the valid exercise of this Warrant and receipt of the Warrant Shares hereunder. Section 8. Notice of Certain Proposed Actions. In case at any time the Company shall propose: (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any rights, warrants or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock, or any consolidation, merger, sale, lease or conveyance of property described in Section 5; or (d) to effect any liquidation, dissolution or winding-up of the Company; then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder, at the Holder's address as it shall appear in the warrant register, mailed at least 15 days prior to the earlier to occur of (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants or other securities are to be determined, or (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding up is expected to become effective, and the date as of which it is expected that holders of record of shares of Common Stock, as the case may be, shall be entitled to exchange their shares or warrants for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding up. Section 9. Transfer to Comply with the Securities Act of 1933. 9.1 This Warrant or the Warrant Shares may not be sold or otherwise disposed of except to a person who, in the opinion of counsel in form and substance satisfactory to the Company, is a person to whom this Warrant or the Warrant Shares may be legally transferred within the terms of this Warrant and without registration and without the delivery of a current prospectus with respect thereto under the Securities At of 1933, as amended, and then only against receipt of an agreement of such person to comply with the provisions of this Section 8 with respect to any resale or other disposition of such Warrant or Warrant Shares unless, in the opinion of counsel, such agreement is not required; or 9.2 Each certificate for Warrant Shares or for any other security issued or issuable upon exercise of this Warrant shall contain a legend on the face thereof, in the form and substance satisfactory to counsel of the Company, setting forth the restrictions on transfer thereof contained in Section 8.1 hereof. Section 10. Piggyback Registration Rights. 10.1 Grant of Rights. If, after the time this Warrant becomes exercisable), the Company at any time proposes to file a registration statement (other than upon Form S-4, Form S-8, or any successor form) with the Securities and Exchange Commission (the "Commission") relating to the Company's Common Stock, the Company shall give the Holders of Warrants and the holders of Common Stock acquired upon exercise of the Warrants prompt written notice thereof. If requested by any such holder in writing within 15 days receipt of any such notice, the Company shall, at the Company's sole expense (other than the fees and disbursements of counsel for such holder and the underwriting discounts, if any, payable in respect of the shares of Common Stock to be sold by such holder), include in such registration the Common Stock acquired or acquirable upon exercise of this Warrant (collectively, the "Registrable Shares") of any such holder who shall have made such request concurrently with the registration covering such other securities of the Company. 10.2 Underwriter Cutbacks. If the good faith judgment of the managing underwriter the inclusion of all of the Registrable Shares requested to be registered under this Section 10 would adversely affect the marketing of the shares for which the registration statement was to be filed, the number of Registrable Shares otherwise to be included in the underwritten public offering) may be reduced pro rata (by number of shares requested to be registered) among the holders thereof requesting registration. All holders proposing to distribute their Registrable Shares through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected. 10.3 Expenses. With respect to any registration under this Section 10, the Company shall bear the following fees, costs and expenses: all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel for the underwriter of such securities (if the Company or the selling security holders are required to bear such fees and disbursements), all internal Company expenses, all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, and any premiums or other costs of policies of insurance, if any, arising out of such public offering, except that Company shall not be required to expend more than twenty thousand dollars ($20,000.00) in blue sky fees. Fees and disbursements of counsel for the selling security holders, underwriting discounts and commissions and transfer taxes relating to the shares included in the offering, and any other expenses not expressly included above, shall be borne by the selling security holders. 10.4 Other Obligations of the Company. (a) The Company shall use its best efforts to cause the Registrable Shares registered under this Section 10 to be registered or qualified for sale under the securities or "blue sky" laws of such jurisdictions as such holders may reasonably request; provided, however, that the Company shall not be required to qualify to do business in any state by reason of this paragraph in which it is not otherwise required to qualify to do business. (b) The Company shall keep effective the registration or qualification contemplated by this Section 10 and shall from time to time amend or supplement each applicable registration statement, preliminary prospectus, final prospectus, application, document and communication for such period of time as shall be required to permit the holders to complete the offer and sale of the Registrable Shares covered thereby. The Company shall in no event be required to keep any such registration or qualification in effect for a period in excess of six months from the date on which the holders are first free to sell such Registrable Shares. (c) In connection with a registration pursuant to the provisions of this Section 10, the Company shall furnish to each holder of any Registrable Shares included therein such number of copies of the registration statement and of each amendment and supplement thereto (in each case, including all exhibits), such reasonable number of copies of each prospectus contained in such registration statement and each supplement or amendment thereto (including each preliminary prospectus), all of which shall conform to the requirements of the Securities Act, and the roles and regulations thereunder, and such other documents, as the holders may reasonably request in order to facilitate the disposition of the Registrable Shares included in such registration. (d) The Company agrees that it shall keep current in filing all reports, statements and other materials required to be filed with the Commission to permit holders of the Registrable Shares to sell such securities under Rule 144. (e) Notwithstanding anything to the contrary herein, the Company shall not be required to register the Registrable Shares if counsel for the Company delivers an opinion to the holders that the proposed sale of Registrable Shares may be effected in its entirety within any 90 day period without registration and without any further holding period pursuant to Rule 144 under the Securities Act of 1933, as amended. 10.5 Indemnification. (a) The Company will indemnify each holder for whom shares are registered pursuant to this Section 10 (a "Selling Shareholder"), and each underwriter, if any, and each Person who controls any underwriter, against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, or based on any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or the Exchange Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse the Selling Shareholder for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by the Selling Shareholder or underwriter and stated to be specifically for use therein. Notwithstanding the foregoing, the obligation of the Company to provide indemnity pursuant to this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage or liability if such settlement is effected without the consent of the indemnifying party (which consent shall not be unreasonably withheld). (b) Each Selling Shareholder will, if Registrable Securities held by it are included in the securities as to which such registration is being effected, indemnify the Company, each of its directors, officers and employees and each underwriter, if any, of the Company's securities covered by such a registration statement, and each Person who controls the Company or such underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation by the Selling Shareholder of the Securities Act or the Exchange Act or any rule or regulation thereunder applicable to the Selling Shareholder and relating to action or inaction required of the Selling Shareholder in connection with any such registration, qualification or compliance, and will reimburse the Company, each of its officers, directors and employees, and each Person who controls the Company, each such underwriter and each Person who controls any such underwriter for any legal or any other expenses reasonably incurred in connection with investigating and defending or settling such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by the Selling Shareholder and stated to be specifically for use therein; provided, however, that the obligations of the Selling Shareholder hereunder shall be limited to an amount equal to the proceeds to the Selling Shareholder of securities sold as contemplated herein, unless such claim, loss, damage or liability resulted from the Selling Shareholder's fraudulent misconduct. Notwithstanding the foregoing, the obligation of a Selling Shareholder to provide indemnity pursuant to this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage or liability if such settlement is effected without the consent of the indemnifying party (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 10 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any such claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 10 provided that such failure does not prejudice the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may require in connection with defense of such claim and litigation resulting therefrom. (d) Contribution. If recovery is not available under the foregoing indemnification provisions of Section 10, for any reason other than as specified therein, the parties entitled to indemnification by the terms thereof shall be entitled to contribution to liabilities and expenses. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative benefits received by each party from the offering of the securities (taking into account the portion of the proceeds of the offering realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and any other equitable considerations appropriate under the circumstances. Notwithstanding the provisions of this Section 10, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. Section 11. Stock Transfer Agent. Any reference in this Warrant to the stock transfer agent shall apply if, and only if, the Company shall have advised the Holder that such an agent has been designated as an agency for the transfer or exercise of this Warrant. Section 12. Governing Law. This Warrant is being delivered in the State of New Jersey, and this Warrant shall be construed in accordance with the laws of such state applicable to contracts executed and to be performed wholly within such state. Section 13. Notice. Notices and other communications to be given to the Holder of the Warrants evidenced by this certificate shall be deemed to have been sufficiently given, if delivered or mailed, addressed in the name and at the address of such owner appearing on the records of the Company, and if mailed, sent registered or certified mail, postage prepaid. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or mailed postage prepaid, to the Company 500 Craig Road, Manalapan, New Jersey 07726-87890. IN WITNESS WHEREOF, the Company has executed this Warrant as of the ____ day of January, 2000. CALTON, INC. By: ------------------------------ ANTHONY J. CALDARONE, Chairman of the Board, President and Chief Executive Officer TAYTROWE VAN FECHTMANN WORLD COMPANIES, INC. By: ------------------------------ Schedule A EBITDA PROJECTION Fiscal Quarter ended
May 31, 2000 August 31, 2000 November 30, 2000 February 28, 2001 ------------ --------------- ----------------- ----------------- ($656,260) $4,571,473 $21,941,599 $25,554,552
PURCHASE FORM (To be executed by the holder of the Warrant if he (it) desires to exercise the Warrant in whole or in part) TO: CALTON, INC. The undersigned, whose Social Security or other identifying number is _______, hereby irrevocably elects the right of purchase represented by the within Warrant for, and to purchase thereunder, _________ shares of Common Stock provided for therein and tenders payment therewith to the order of CALTON, INC., in the amount of $_________. The undersigned requests that certificates for such shares of Common Stock be issued as follows: Name: --------------------------------------------------------- Address: --------------------------------------------------------- Deliver to: --------------------------------------------------------- Address: --------------------------------------------------------- and, if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable hereunder, that a new Warrant for the balance remaining of the shares of Common Stock purchasable under the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below: Address: --------------------------------------------------------- Dated: Signature --------------------------- (Signature must conform in all respects to the name of the Holder of the Warrant, without alteration, enlargement or any change whatsoever, and the signature must be guaranteed in the usual manner). Signature Guaranteed: EX-10.4 3 INCENTIVE COMPENSATION PLAN 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, 2000 (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 percent (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 the same 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 and 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 Upon the termination of employment of an Eligible Employee selected to participate in the plan for a particular fiscal year for any reason 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, unless otherwise determined by the Board of Directors. 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 July 14, 1999.] EX-10.7 4 EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.7 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Amendment to Executive Employment Agreement is entered into as of this 14th day of April, 1999 by and between Calton, Inc. (the "Employer" or the "Company"), a New Jersey corporation with offices located at 500 Craig Road, Manalapan, New Jersey 07726, and Anthony J. Caldarone (the "Executive"), an individual residing at 162 Anchor Drive, Vero Beach, Florida 32963. WHEREAS, the Employer and Executive have entered into an Executive Employment Agreement dated as of November 21, 1995 (the "Employment Agreement"); WHEREAS, the Board of Directors of the Employer have approved an extension of the term of the Employment Agreement to November 30, 2001; NOW, THEREFORE, in consideration of the representations, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Extension of Term. Section 1.1 of the Employment Agreement is hereby amended to read in its entirety as follows: 1.1 Term. The term of this Agreement shall commence on November 21, 1995 and end on November 30, 2001 (the "Term"). IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first written above. WITNESS: - ------------------------------------ ----------------------------- Anthony J. Caldarone ATTEST: CALTON, INC. By: - ------------------------------------ -------------------------- Mary Magee, Secretary David J. Coppola, Vice President EX-10.10 5 2000 EQUITY INCENTIVE PLAN EXHIBIT 10.10 CALTON, INC. 2000 EQUITY INCENTIVE PLAN 1. PURPOSE. The purpose of this Calton, Inc. 2000 Equity Incentive Plan (the "Plan") is to advance the interests of Calton, Inc. (the "Company") and its subsidiaries by enhancing the ability of the Company to (i) attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries; (ii) reward such persons for such contributions; and (iii) encourage such persons or entities to take into account the long-term interest of the Company through ownership of shares of the Company's common stock, $.01 par value per share (the "Common Stock"). The Plan is intended to accomplish these objectives by enabling the Company to grant awards ("Awards") in the form of incentive stock options ("ISOs"), nonqualified stock options ("Nonqualified Options") (ISOs and Nonqualified Options shall be collectively referred to herein as "Options"), stock appreciation rights ("SARs"), restricted stock ("Restricted Stock"), deferred stock ("Deferred Stock"), or other stock based awards ("Other Stock Based Awards"), all as more fully described below. 2. ADMINISTRATION. The Plan will be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). The Committee may be constituted to permit the Plan to comply with the "outside director" requirement of Section 162(m)(4)(c)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder, or any successor rules. The Committee will determine the recipients of Awards, the times at which Awards will be made, the size and type or types of Awards to be made to each recipient, and will set forth in each such Award the terms, conditions and limitations applicable to the Award granted. Awards may be made singly, in combination or in tandem. The Committee will have full and exclusive power to interpret the Plan, to adopt rules, regulations and guidelines relating to the Plan, to grant waivers of Plan restrictions and to make all of the determinations necessary for its administration. Such determinations and actions of the Committee, and all other determinations and actions of the Committee made or taken under authority granted by any provision of the Plan, will be conclusive and binding on all parties. 3. EFFECTIVE DATE AND TERM OF PLAN. The Plan will become effective on January 27, 2000, but shall be subject to approval by the requisite vote of the Company's shareholders. Any Awards granted under the Plan prior to such shareholder approval shall be conditioned upon such shareholder approval and shall be null and void if such approval is not obtained. The Plan will terminate on January 27, 2010, subject to earlier termination of the Plan by the Board pursuant to Section 18 herein. No Award may be granted under the Plan after the termination date of the Plan, but Awards previously granted may extend beyond that date pursuant to the terms of such Awards. 4. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 16 herein, the aggregate number of shares of Common Stock reserved for issuance pursuant to Awards granted under the Plan shall be four million (4,000,000) shares. The maximum number of shares of Common Stock which may be issued to the Chief Executive Officer ("CEO") of the Company pursuant to all Awards granted the CEO under the Plan shall not exceed thirty-five percent (35%) of the number of shares of the Company's Common Stock reserved for issuance hereunder. The maximum number of shares of the Company's Common Stock awarded to any other "Participant" (as defined in Section 5 below) pursuant to all Awards granted to such Participant under the Plan shall not exceed twenty percent (20%) of the number of shares of the Company's Common Stock reserved for issuance hereunder. The shares of Common Stock delivered under the Plan may be either authorized but unissued shares of Common Stock or 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. No fractional shares of Common Stock will be delivered pursuant to Awards granted under the Plan and the Committee shall determine the manner in which fractional share value will be treated. If any Award requiring exercise by a Participant for delivery of shares of Common Stock is cancelled or terminates without having been exercised in full, or if any Award payable in shares of Common Stock or cash is satisfied in cash rather than Common Stock, the number of shares of Common Stock as to which such Award was not exercised or for which cash was substituted will be available for future Awards of Common Stock; provided, however, that Common Stock subject to an Option cancelled upon the exercise of an SAR shall not again be available for Awards under the Plan unless, and to the extent that, the SAR is settled in cash. Shares of Restricted Stock and Deferred Stock forfeited to the Company in accordance with the Plan and the terms of the particular Award shall be available again for Awards under the Plan unless the Committee determines otherwise. 5. ELIGIBILITY AND PARTICIPATION. Those eligible to receive Awards under the Plan (each, a "Participant" and collectively, the "Participants") will be persons in the employ of the Company or any of its subsidiaries designated by the Committee ("Employees") and other persons or entities who, in the opinion of the Committee, are in a position to make a significant contribution to the success of the Company or its subsidiaries, including, without limitation, consultants and agents of the Company or any subsidiary; provided, that such consultants and agents have been actively engaged in the conduct of the business of the Company or any subsidiary. A "subsidiary" for purposes of the Plan will be a present or future corporation of which the Company owns or controls, or will own or control, more than 50% of the total combined voting power of all classes of stock or other equity interests. 6. OPTIONS. (a) Nature of Options. An Option is an Award entitling the Participant to purchase a specified number of shares of Common Stock at a specified exercise price. Both ISOs, as defined in Section 422 of the Code, and Nonqualified Options may be granted under the Plan; provided however, that ISOs may be awarded only to Employees. (b) Exercise Price. The exercise price of each Option shall be equal to the "Fair Market Value" (as defined below) of the Common Stock on the date the Award is granted to the Participant; provided, however, that (i) in the Committee's discretion, the exercise price of a Nonqualified Option may be less than the Fair Market Value of the Common Stock on the date of grant; (ii) 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 ISO 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 the Award is granted; and (iii) 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 unless otherwise determined by the Committee. For purposes of this Plan, Fair Market Value shall mean the average of the high and low sales prices of the Common Stock as reported on the American Stock Exchange, or if not reported on the American Stock Exchange, on the principal securities exchange on which the Common Stock is listed, or if not so listed, the high and low sales prices (or the average of the high asked and low bid prices of the Common Stock if sales price information is not reported) of the Common Stock as reported by the Nasdaq Stock Market or, if not reported on the Nasdaq Stock Market, by the NASD OTC Bulletin Board or similar quotation service. If the Common Stock is not publicly traded, Fair Market Value shall be determined in good faith by the Board of Directors. (c) Duration of Options. The term of each Option granted to a Participant pursuant to an Award shall be determined by the Committee; provided, however, that in no case shall an Option be exercisable more than ten (10) years (five (5) years in the case of an ISO granted to a ten-percent stockholder as defined in (b) above) from the date of the Award. (d) Exercise of Options and Conditions. Except as otherwise provided in Sections 16 and 17 herein, and except as otherwise provided below with respect to ISOs, Options granted pursuant to an Award will become exercisable at such time or times, and on and subject to such conditions, as the Committee may specify at the time of the Award. The Options may be subject to such restrictions, conditions and forfeiture provisions as the Committee may determine, including, but not limited to, restrictions on transfer, continuous service with the Company or any of its subsidiaries, 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 ISO 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. (e) Payment for and Delivery of Stock. Full payment for shares of Common Stock purchased will be made at the time of the exercise of the Option, in whole or in part. Payment of the purchase price will be made in cash or in such other form as the Committee may permit, including, without limitation, delivery of shares of Common Stock. 7. STOCK APPRECIATION RIGHTS. (a) Nature of Stock Appreciation Rights. A SAR is an Award entitling the recipient to receive payment, in cash and/or shares of Common Stock, determined in whole or in part by reference to appreciation in the value of a share of Common Stock. A SAR entitles the recipient to receive in cash and/or shares of Common Stock, with respect to each SAR exercised, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date the SAR was granted. (b) Grant of SARs. SARs may be subject to Awards in tandem with, or independently of, Options granted under the Plan. A SAR granted in tandem with an Option which is not an ISO may be granted either at or after the time the Option is granted. A SAR granted in tandem with an ISO may be granted only at the time the ISO is granted and may expire no later than the expiration of the underlying ISO. (c) Exercise of SARs. A SAR not granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Committee may specify. A SAR granted in tandem with an Option will be exercisable only at such times, and to the extent, that the related option is exercisable. A SAR granted in tandem with an ISO may be exercised only when the market price of the shares of Common Stock subject to the ISO exceeds the exercise price of the ISO, and the SAR may be for no more than one hundred percent (100%) of the difference between the exercise price of the underlying ISO and the Fair Market Value of the Common Stock subject to the underlying ISO at the time the SAR is exercised. At the option of the Committee, upon exercise, an SAR may be settled in cash, Common Stock or a combination of both. 8. RESTRICTED STOCK. A Restricted Stock Award entitles the recipient to acquire shares of Common Stock, subject to certain restrictions or conditions, for no cash consideration, if permitted by applicable law, or for such other consideration as may be determined by the Committee. The Award may be subject to such restrictions, conditions and forfeiture provisions as the Committee may determine, including, but not limited to, restrictions on transfer, continuous service with the Company or any of its subsidiaries, achievement of business objectives, and individual, division and Company performance. Subject to such restrictions, conditions and forfeiture provisions as may be established by the Committee, any Participant receiving an Award of Restricted Stock will have all the rights of a stockholder of the Company with respect to the shares of Restricted Stock, including the right to vote the shares and the right to receive any dividends thereon. 9. DEFERRED STOCK. A Deferred Stock Award entitles the recipient to receive shares of Common Stock to be delivered in the future. Delivery of the shares of Common Stock will take place at such time or times, and on such conditions, as the Committee may specify. At the time any Deferred Stock Award is granted, the Committee may provide that the Participant will receive an instrument evidencing the Participant's right to future delivery of Deferred Stock. 10. DIRECTOR'S FEES. Subject to the limitation contained in Section 4 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 date of 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. 11. FORMULA AWARDS. On each date that (i) 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 and (ii) that an annual meeting of shareholders of the Company is held during the term of office of such director (but excluding any annual meeting at which such director's term of office expires and such director is not reelected) such director shall receive, on such date, 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 11 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 such Nonqualified Stock options, the Director must have attended seventy-five (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 committees). Notwithstanding anything to the contrary set forth above, no awards of Nonqualified Stock Options shall be made pursuant to this Section 11 to a Director who is receiving a comparable award under the Company's 1996 Equity Incentive Plan. The provisions of this Section 11 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. 12. OTHER STOCK BASED AWARDS. The Committee shall have the right to grant Other Stock Based Awards under the Plan to Employees which may include, without limitation, the grant of shares of Common Stock as bonus compensation and the issuance of shares of Common Stock in lieu of an Employee's cash compensation. 13. AWARD AGREEMENTS. The grant of any Award under the Plan may be evidenced by an agreement which shall describe the specific Award granted and the terms and conditions of the Award. Any Award shall be subject to the terms and conditions of any such agreement required by the Committee. 14. TRANSFERS. No Award (other than an outright Award in the form of Common Stock without any restrictions) may be assigned, pledged or transferred other than by will or by the laws of descent and distribution and, during a Participant's lifetime, will be exercisable only by the Participant or, in the event of a Participant's incapacity, by the Participant's guardian or legal representative. 15. RIGHTS OF A STOCKHOLDER. Except as specifically provided by the Plan, the receipt of an Award will not give a Participant rights as a stockholder of the Company. The Participant will obtain such rights, subject to any limitations imposed by the Plan, or the instrument evidencing the Award, upon actual receipt of shares of Common Stock. 16. CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove any restrictions or legends from shares of Common Stock previously delivered under the Plan until, (a) in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (b) until the shares of Common Stock to be delivered have been listed or authorized to be listed on the American Stock Exchange (or such other exchange or quotation system on which shares of Common Stock may be listed or quoted), and (c) until all other legal matters in connection with the issuance and delivery of such shares of Common Stock have been approved by the Company's counsel. If the sale of shares of Common Stock has not been registered under the Securities Act of 1933, as amended (the "Act"), and qualified under the appropriate "blue sky" laws, the Company may require, as a condition to exercise of the Award, such representations and agreements as counsel for the Company may consider appropriate to avoid violation of such Act and laws and may require that the certificates evidencing such shares of Common Stock bear an appropriate legend restricting transfer. If an Award is exercised by a Participant's legal representative, the Company will be under no obligation to deliver shares of Common Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 17. TAX WITHHOLDING. The Company will have the right to deduct from any cash payment under the Plan taxes that are required to be withheld and to condition the obligation to deliver or vest shares of Common Stock under this Plan upon the Participant's paying the Company such amount as the Company may request to satisfy any liability for applicable withholding taxes. The Committee may in its discretion permit Participants to satisfy all or part of their withholding liability either by delivery of shares of Common Stock held by the Participant or by withholding shares of Common Stock to be delivered to a Participant upon the grant or exercise of an Award. 18. ADJUSTMENT OF AWARD. (a) In the event that a dividend shall be declared upon the Common Stock payable in shares of Common Stock, the number of shares of the Common Stock then subject to any Award and the number of shares of the Common Stock which may be issued under the Plan but not yet covered by an Award shall be adjusted by adding to each share the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of the Common Stock shall be changed into or exchanged for a different number or kind of shares of Common Stock or other securities of the Company or of another corporation or for cash, whether through reorganization, recapitalization, stock split, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation, then, there shall be substituted for each share of the Common Stock then subject to any Award, the number and kind of shares of stock or other securities or the amount of cash into which each outstanding share of the Common Stock shall be so changed or for which each such share shall be exchanged. (b) In the event of a proposal, which is approved by the Board, of any merger or consolidation involving the Company where the Company is not the surviving entity, any sale of substantially all of the Company's assets or any other transaction or series of related transactions as a result of which a single person or several persons acting in concert own a majority of the Company's then outstanding Common Stock (such merger, consolidation, sale of assets, or other transaction being hereinafter referred to as a "Transaction"), all outstanding options and SARs shall become exercisable immediately before or contemporaneously with the consummation of such Transaction and each outstanding share of Restricted Stock and each outstanding Deferred Stock Award shall immediately become free of all restrictions and conditions upon consummation of such Transaction. Immediately following the consummation of the Transaction, all outstanding Options and SARs shall terminate and cease to be exercisable. In lieu of the foregoing, if the Company will not be the surviving corporation or entity, the Committee may arrange to have such acquiring or surviving corporation or entity, or an "Affiliate,, (as defined below) thereof, grant replacement Awards which shall be immediately exercisable to Participants holding outstanding Awards. The term "Affiliate," with respect to any Person, shall mean any other Person who is, or would be deemed to be an "affiliate" or an "associate" of such Person within the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. The term "Person" shall mean a corporation, association, partnership, joint venture, trust, organization, business, individual or government or any governmental agency or political subdivision thereof. (c) 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 the preceding sections), the outstanding options and SARs 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 who shall have the right during such period to exercise the Participant's Options or SARs as to all or any part of the shares of Common Stock covered thereby. Further, in the event of the dissolution or liquidation of the Company, each outstanding share of Restricted Stock and each outstanding Deferred Stock Award shall immediately become free of all restrictions and conditions. 19. TERMINATION OF SERVICE. Upon a Participant's termination of service with the Company or a subsidiary (if an employee only of a subsidiary), any outstanding Award shall be subject to the terms and conditions set forth below, unless otherwise determined by the Committee: (a) In the event a Participant leaves the employ or service of the Company or a subsidiary of the Company, prior to the Participant's 65th birthday, whether voluntarily or otherwise but other than by reason of the Participant's death or "disability" (as such term is defined in Section 22(e)(3) of the Code), each Option and SAR granted to the Participant shall terminate upon the earlier to occur of (i) the expiration of the period three (3) months after the date of such termination and (ii) the date specified in the Option or SAR; provided, that, prior to the termination of such Option or SAR, the Participant shall be able to exercise any part of the Option or SAR which is exercisable as of the date of termination. Further, each outstanding share of Restricted Stock and each outstanding Deferred Stock Award which remains subject to any restrictions or conditions of the Award shall be forfeited to the Company upon such date of termination. (b) In the event a Participant's employment with or service to the Company or its subsidiaries terminates by reason of the Participant's death or "disability" (as such term is defined in Section 22(e)(3) of the Code), each Option and SAR granted to the Participant shall become immediately exercisable in full and shall terminate upon the earlier to occur of (i) the expiration of the period six (6) months after the date of such termination and (ii) the date specified in the option or SAR. Further, each outstanding share of Restricted Stock and each outstanding Deferred Stock Award shall immediately become free of all restrictions and conditions upon the date of such termination. (c) In the event a Participant voluntarily or involuntarily leaves the employ or service of the Company or a subsidiary of the Company, after the Participant's 65th birthday, each Option and SAR granted to the Participant shall become immediately exercisable in full and shall terminate upon the earlier to occur of (i) the expiration of three (3) months after the date of such termination and (ii) the date specified in the Option or SAR. Further, each outstanding share of Restricted Stock and each outstanding Deferred Stock Award shall immediately become free of all restrictions and conditions upon the date of such termination. 20. AMENDMENTS AND TERMINATION. The Committee will have the authority to make such amendments to any terms and conditions applicable to outstanding Awards as are consistent with this Plan; provided, that, except for adjustments under Section 16 hereof, no such action will modify such Award in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Award. The Board may amend, suspend or terminate the Plan, subject to shareholder approval if so required by any applicable federal or state securities laws, tax laws or corporate statute, except that no action may, without the consent of a Participant, adversely affect any Award previously granted to the Participant under the Plan. 21. SUCCESSORS AND ASSIGNS. The provisions of this Plan shall be binding upon all successors and assigns of any such Participant 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. 22. MISCELLANEOUS. (a) This Plan shall be governed by and construed in accordance with the laws of the State of New Jersey. (b) Any and all funds received by the Company under the Plan may be used for any corporate purpose. (c) Nothing contained in the Plan or any Award 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. EX-10.11 6 OPTION GRANT AGREEMENT EXHIBIT 10.11 OPTION GRANT AGREEMENT July 19, 1999 Mr. Kenneth D. Hill 167 Anchor Drive Vero Beach, FL 32963 Dear Mr. Hill: In recognition of your duties, obligations and responsibilities in connection with your employment as Chief Executive Officer of iAW, Inc., a wholly owned subsidiary of Calton, Inc. ("Calton" or the "Company"), and as an inducement for you to acquire a significant financial interest in Calton, the Company hereby grants to you non-qualified option (the "Option") to purchase all or any part of an aggregate of 600,000 shares of its common stock, $.01 par value, on the terms and conditions set forth in this Agreement (the "Option Agreement"). As used in this Option Agreement, the following terms shall have the following respective meanings: (a) "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 6 below). (b) "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. (c) "Board" means the Board of Directors of the Company. (d) "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. (e) "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. (f) "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. (g) "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). (h) "Director" shall mean a member of the Company's Board. (i) "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. (j) "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. (k) "Just Cause" shall mean: (i) your conviction for a felony or for fraud; (ii) your engagement 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) your failure to return from authorized leave from the Company; (iv) you 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) you acting dishonestly or committing theft of Company property; or (vi) your work performance failing to meet Company standards. (l) "Plan" means the Calton, Inc. 1996 Equity Incentive Plan. (m) "Tax Withholding Amount" means the amount, if any, which, upon the exercise of an Option or an election by you 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 you. (n) "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 Purchase Price. The purchase price for the Shares covered by this Option Agreement is $1.63 per share. Provisions of Plan. Although this Option is not being granted pursuant to the Company's 1996 Equity Incentive Plan ("the Plan"), it is intended to have terms consistent with Nonqualified Stock Options (as defined in the Plan) granted under the Plan. Except as provided in Section 4 below, to the extent that this Option Agreement contains any provisions inconsistent with the provisions of the Plan, such provisions shall be deemed modified and amended to be consistent with the terms of the Plan. Term and Vesting of Option. The effective date of the Option is July 19, 1999 and the Option shall expire on, and may not be exercised after July 19, 2009, subject to Section 4 below. The Option shall vest and become exercisable, cumulatively, in three (3) equal, annual installments so that, of the Shares subject to the Option, one-third of the Option, representing 200,000 Shares may be exercised in whole or in part at any time after July 19, 2000; one-third of the Option representing 200,000 Shares, may be exercised in whole or in part at any time on or after July 19, 2001; and one-third of the option, representing 200,000 Shares may be exercised in whole or in part at any time on or after July 19, 2002. To the extent that any installment of the Option becomes exercisable, it may thereafter be exercised in whole or in part at any time prior to the expiration or termination of the Option. Shareholder Approval of Options Being Granted. If the rules of the American Stock Exchange, which require shareholder approval of the grant of options with respect to more than five percent (5%) of Calton's outstanding Common Stock in connection with certain transactions (the "AMEX Rule"), would require shareholder approval of the grant of any portion of the Options granted to you pursuant to this Option Agreement and/or the options granted to Matthew Smith and Robert Hill pursuant to agreements (the "Aggregate Options") with Employer as of even date herewith, then (i) the grant of a number of options equal to one-third (1/3) of the Aggregate Options which require shareholder approval under the AMEX Rule shall be subject to Calton shareholder approval; Calton agrees to submit a proposal to obtain the required shareholder approval at its next meeting of shareholders; and in the event that the required shareholder approval is not obtained, Calton and you agree to negotiate in good faith to develop an equitable substitute for the Options forfeited by reason of the failure to obtain shareholder approval. Limitations on Exercise of Option. Pursuant to the Plan, the Employee shall be prohibited from selling more than fifty percent (50%) of the aggregate number of shares of Common Stock underlying the Options without the written consent of Calton until July 19, 2001. Exercise of Option. 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 you for a period not less than six (6) months. Upon receipt of written notice evidencing your intent to 3 exercise an Option, or an election by you under Section 83(b) of the Code, the Company will inform you of the amount of the Tax Withholding Amount, if any, which you shall be required to remit to the Company before the shares of Common Stock will be issued to you. With respect to Options granted under the Plan and held by you for six (6) months or longer, you can also pay all or part of such Option's exercise price pursuant to the Exercise Sell or Appreciation Rights Election methods; provided, however, that if you choose 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 you, including all cash, all shares of Common Stock or any other combination thereof. Fractional shares will not be issued to you when exercising an Option pursuant to the Appreciation Rights Election method. The value of any fractional shares shall be paid in cash to you. 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 Appreciated Rights Election method shall be sold by or on behalf of you in an open market transaction on the date of exercise and you shall not be liable for any cost of such sale. If you elect to exercise an Option pursuant to the Exercise Sell or Appreciation Rights Election method, then the Tax Withholding Amount, if any, shall, in your discretion, also be covered by the sale of shares of Common Stock subject to the Option being exercised. You 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. Capital Stock Changes or Corporate Events. 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 the paragraph 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. In the event of a Corporation 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 Corporation 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, you 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. Your exercise of any Options and the issuance of shares of Common Stock to you in connection with any such Corporation Transaction shall be conditioned upon the consummation of the Corporate Transaction; provided, however, that such condition shall not preclude you 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 Corporation Transaction. If, in exercising an Option as a result of a Corporate Transaction, the 4 Exercise Sell or Appreciation Rights Election method is not available to you for any reason including, without limitation, the absence of a trading market for the Common Stock on the date of consummation of the Corporation Transaction, you 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 you. In the event of a Tender Offer, all of the 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, you can provide the Company with written notice that the Company shall repurchase all of the 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 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 Options. The Company's obligation to repurchase the Options shall be subject to any restriction, limitation, or prohibition contained in any agreement to which the Company is a party. In the event of a Change in Control, all of the 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, you can provide the Company with written notice that the Company shall repurchase all of the 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 Options on the date of the Change in Control and the aggregate exercise price of the Options. The Company's obligation to repurchase the Options shall be subject to any restriction, limitation or prohibition contained in any agreement to which the Company is a party. 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 the first paragraph of this Section), all of the outstanding Options 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 you, and you shall have the right during such period to exercise all of your outstanding Options, whether exercisable or not. Notwithstanding the exercise provisions in the preceding paragraphs of this Section, 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 you 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. Termination. Death and Disability. In the event the employment relationship between you and the Company or any of its Subsidiaries is terminated by reason of your death or "disability" (as such term is defined in Section 22 (e) (3) of the Code), all of the Options shall become immediately exercisable. You, or your 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. 5 Resignation. If you resign as an employee from the Company or any Subsidiary, you shall have one (1) year for a Nonqualified 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. Without Cause by Company. In the event that you have been employed by the Company or a Subsidiary for one (1) year or more, and your employment 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 you shall have two (2) years from the date of termination to exercise all or any part of a Nonqualified Stock Option. If you have been employed by the Company or a Subsidiary for less than one (1) year, you shall have thirty (30) days, or seven (7) months if you are 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 are fully vested on or before such date of termination. Just Cause by Company. If you are terminated by the Company for Just Cause, you shall have thirty (30) days, or seven (7) months if you are 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 are fully vested on or before the date of termination. Non-Transferability of Option. No Option shall be transferable (including pledged or encumbered) by you otherwise than by will or by the laws of descent and distribution, and each Option shall be exercisable during your lifetime only by you. Governing Law and Jurisdiction. This Option Agreement shall be construed and the respective provisions enforced and administered in accordance with the laws of the State of New Jersey. All disputes which may arise under this Option Agreement or the Plan which involve judicial adjudication shall be resolved in a court of competent jurisdiction of the State of New Jersey or the United States District Court for the District of New Jersey. You consent and agree to submit to the personal jurisdiction of the aforesaid courts and to notify Calton of any change of your address within sixty (60) days of the date of such change. Furthermore, you consent to service of any papers, notices or process necessary or proper for any legal action in any manner permitted by the New Jersey Court Rules as they exist on the date that the Option is granted or are thereafter amended, including, without limitation, service by registered mail or certified mail, return receipt requested, or, in the event you refuse to accept or claim registered or certified mail, ordinary mail to your last known address. In the event that you fail to notify Calton of a change of address and service by registered or certified mail as aforesaid is not accepted or claimed, such failure shall be deemed a refusal to accept or claim service of process by registered or certified mail. You hereby acknowledge the sufficiency of service as aforesaid and waive any right that you may have to challenge the sufficiency of such service or to challenge in any manner the convenience of the location or the venue of any legal action brought involving this Option Agreement. Benefit and Severability. The agreements contained herein shall bind and benefit the successors and assigns of Calton and your executors, administrators, receiver, trustee in bankruptcy or representative of your creditors and assigns as herein provided. Except as otherwise provided herein or in the Plan, if any term, covenant, condition or provision of this Option Agreement or of the Plan or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, the remainder of 6 this Option Agreement or of the Plan or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition and provision of this Option Agreement or of the Plan shall be valid and be enforced to the fullest extent permitted by law. Construction. The Option and this Option Grant Agreement shall not be construed as a contract of employment, nor constitute an assurance of continued employment for any period, between you and the Company. Registration Statement. 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. Very truly yours, CALTON, INC. By: ------------------------------- ANTHONY J. CALDARONE, PRESIDENT By the execution hereof, I hereby agree to comply with and be bound by the terms and provisions hereinabove set forth. - ------------------------------------- KENNETH D. HILL 7 EX-10.12 7 EMPLOYMENT AND NON-COMPETITION AGREEMENT EXHIBIT 10.12 EMPLOYMENT AND NON-COMPETITION AGREEMENT Employment and Non-Competition Agreement dated as of July 19, 1999, between Calton Homes of Florida, Inc., a Florida corporation (the "Employer"), Calton, Inc., a New Jersey corporation ("Calton"), and Kenneth D. Hill, an individual residing at 167 Anchor Drive, Vero Beach, Florida 32963 (the "Employee"). W I T N E S S E T H: WHEREAS, pursuant to the Asset Purchase Agreement among Employer, Calton, iAW, Inc. ("iAW"), Employee, Matthew Smith and Robert Hill dated as of July 19, 1999 (the "Asset Purchase Agreement"), Employer is acquiring substantially all of the assets of iAW (the "Acquisition"); WHEREAS, the employment of the Employee by the Employer from and after the Acquisition is a material inducement to Calton's willingness to acquire iAW through the Acquisition; WHEREAS, the Employee possesses valuable knowledge and skills that will contribute to the successful operation of the Employer's business; WHEREAS, the Employer and the Employee have agreed to execute and deliver this Agreement in consideration of, among other things, (i) the access of the Employee to confidential or proprietary information of the Employer and other corporations, associations, partnerships, unincorporated organizations or other similar entities that are presently or will be in the future directly or indirectly owned or controlled by Calton (collectively, the "Calton Group"), (ii) the access of the Employee to confidential or proprietary information to be acquired hereafter by the Calton Group and (iii) the Employee's receipt of compensation from time to time by the Employer; and WHEREAS, the Employer desires that the Employee be employed by the Employer in an executive capacity and the Employee desires to be so employed, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties hereto agree as follows: 1. Employment. The Employer hereby employs the Employee, and the Employee hereby accepts employment with the Employer, for the term set forth in Section 2, in the position and with the duties and responsibilities set forth in Section 3, and upon the other terms and subject to the conditions hereinafter stated. 2. Employment Period. This Agreement shall become effective and commence on the date hereof and shall continue until June 30, 2002 (the "Employment Period") or such earlier date as of which this Agreement shall be terminated in accordance with the provisions of Section 6. 3. Position, Duties, Responsibilities. At all times during the Employment Period, the Employee shall serve as Chief Executive Officer of the Employer with responsibility for managing the affairs of the corporation or in such other executive capacity as shall from time to time be assigned to him by the Board of Directors of the Employer (the "Board"), provided that any such reassignment is to a senior executive position. The Employee shall report to such person as the Board may determine from time to time. The Employee agrees, during the Employment Period, to endeavor to the best of his ability to promote the interests of the Employer, and in particular, without limitation, to devote his full time and best efforts and attention to the business of the Employer, and to carry out such other duties and perform such other responsibilities as may from time to time be assigned to him. 4. Remuneration. In consideration of all the services to be rendered by the Employee, the Employee shall be paid an annual fixed salary (the "Base Salary") as follows: (a) During the period commencing on the date of this Agreement and ending on the six month anniversary of the date of this Agreement, the Employee's Base Salary shall be $75,000 per annum ($6,250 per month); (b) During the period commencing on the day following the six month anniversary of the date of this Agreement and ending on the 18 month anniversary of the date of this Agreement, the Employee's Base Salary shall be $120,000 per annum ($10,000 per month); and (c) Prior to the 18 month anniversary of the date of this Agreement, Employer and Employee shall negotiate, in good faith, based upon market rates, the Employee's Base Salary for the remaining term of this Agreement, taking into account, the performance of and prospects for the Company. (d) Employee shall have the opportunity to earn a performance bonus as determined in the discretion of the Board of Directors of Employer and consistent with Calton's policies. The Employer shall pay the Employee the Base Salary on such dates as employees of the Employer are ordinarily paid, and shall deduct from the Base Salary applicable withholding taxes. 5. Benefits. (a) Calton agrees that during the Employment Period, the Employee shall be eligible to participate in each benefit plan available, or hereafter made available, to employees of Employer and shall be entitled to participate in an incentive compensation program attributable to Employer's results that is similar to Calton's Incentive Compensation Plan (a copy of which has been delivered to Employee), subject, in the discretion of the Calton Board of Directors, to adjustments to reflect the start-up nature of the Employer's business. The Employer and/or Calton may amend or terminate any such plan in its sole and absolute discretion. (b) During the Employment Period, the Employee shall be entitled to fifteen (15) days paid vacation per annum. Any unused vacation shall not carry over to the succeeding year unless vacation is deferred at the request of the Employer. Such vacation must be taken at times approved by Calton and the Employer. 2 (c) All expenses reasonably incurred by the Employee in the performance of services to the Employer during the Employment Period shall be reimbursed upon production of receipts for such expenses in accordance with Calton's policies and procedures, as the same may be amended from time to time, and the approval of the Employer, such approval not to be unreasonably withheld. (d) Upon the execution and delivery of this Agreement, Employee shall be granted options (the "Options") to acquire 600,000 shares of Calton Common Stock. The Options shall have the following terms: (i) the exercise price shall be $1.63 per share; (ii) the Options shall vest in equal one-third (1/3) annual installments on July 19, 2000, 2001 and 2002; (iii) until July 19, 2001, Employee shall be prohibited from selling more than 50% of the aggregate number of shares of Common Stock underlying the Options without the written consent of Calton; (iv) Calton shall register the shares of Common Stock underlying the Options under the Securities Act of 1933, as amended, on Form S-8 or a similar form; (v) the terms of the Options shall be consistent with the terms of Calton's 1996 Equity Incentive Plan; provided, however, that if the rules of the American Stock Exchange, which require shareholder approval of the grant of options with respect to more than five percent (5%) of Calton's outstanding Common Stock in connection with certain transactions (the "AMEX Rule"), would require shareholder approval of the grant of any portion of the options granted to Employee pursuant to this Agreement and/or the options granted Matthew Smith and Robert Hill pursuant to employment agreements (the "Aggregate Options") with Employer as of even date herewith, then (i) the grant of a number of options equal to one-third (1/3) of the Aggregate Options which require shareholder approval under the AMEX Rule shall be subject to Calton shareholder approval; (ii) Calton agrees to submit a proposal to obtain the required shareholder approval at its next meeting of shareholders; and (iii) in the event that the required shareholder approval is not obtained, Calton and Employee agree to negotiate in good faith to develop an equitable substitute for the Options forfeited by reason of the failure to obtain shareholder approval. 6. Termination, Death and Disability. (a) Termination for Cause. Notwithstanding anything herein to the contrary, Calton and/or the Employer shall have the right to immediately terminate the employment of the Employee at any time during the Employment Period if (i) the Employee shall have materially violated any of the provisions of this Agreement (including, without limitation, any action by the Employee which results or is reasonably expected to result in a violation of Sections 3, 7, 8, 9, 3 10, 11 or 12) (ii) the Employee shall have been guilty of any action during his employment hereunder involving willful malfeasance or gross negligence; or (iii) the Employee shall have been convicted of or entered a plea of nolo contendere to any felony. In the event of the termination of the Employee's employment pursuant to this Section 6(a) the Employee shall not be entitled to any severance payments or benefits hereunder. (b) Termination Without Cause. If the Employee's employment with the Employer is terminated by Calton and/or the Employer prior to the expiration of the Employment Period other than for (i) death, (ii) Disability, (iii) retirement or (iv) termination pursuant to Section 6(a), the Employer shall pay the Employee the severance amount as set forth in Section 6(d)(i) or 6(d)(ii), as the case may be. (c) Termination for Failure to Achieve Plan. Calton and/or the Employer shall have the right to terminate the employment of Employee if during any fiscal year, Employer's net operating profit (as determined in accordance with generally accepted accounting principles) is less than 65% of the amount forecast in the Business Plan which was delivered by Employer to Calton prior to the execution and delivery of the Merger Agreement. (d) Severance Amount. (i) The severance amount payable in the event of a termination of the Employee's employment by the Employer pursuant to Section 6(b) shall be an amount equal to the Employee's Base Salary (as in effect immediately preceding the Employee's termination) for the then remaining term of the Employment Period. In addition, Employee shall be entitled to receive any (a) incentive or bonus compensation that has been awarded but not paid and (b) any stock options that have been awarded but not issued. (ii) The severance amount payable in the event of a termination of the Employee's employment by Calton and/or the Employer pursuant to Section 6(c) shall be three month's Base Salary (as in effect at the time of termination). (iii) In the event that Employee's employment with Employer is extended beyond the Employment Agreement and such employment is subsequently terminated by Calton and/or the Employer for any reason other than for (a) death, (b) Disability, (c) retirement, or (d) a reason set forth in Section 6(a) or 6(c), the severance amount shall be an amount equal to six month's Base Salary (as in effect at the time of termination). (iv) The severance amount shall be paid in approximately equal installments on such dates as employees of the Employer are normally paid, except that, (x) such installment payments shall cease if the Employee fails to comply with any of the covenants contained in Sections 7, 8, 9, 10, 11 or 12 of this Agreement and (y) the Employer may elect, at any time and in its discretion, to pay the Employee the remaining severance amount payable hereunder in a single lump sum amount. (e) Death. In the event of the death of the Employee during the Employment Period, the Employee's estate shall be entitled to receive the payment of salary pursuant to Section 4 with respect to periods prior to such death and all monies then due under any insurance, retirement or other benefit plan of the Employer in which the Employee participated. (f) Disability. The Employee's employment hereunder may, in the discretion of Calton and/or the Employer, be terminated in the event of his Disability, for a period of (i) three 4 consecutive months or (ii) more than six months in any twelve-month period. For purposes of this section, "Disability" shall mean any illness or injury or physical or mental condition which shall prevent the Employee from performing his usual duties and services for the Employer on substantially the same basis under which he was performing or was obligated to perform them prior to the occurrence or onset of such illness, injury or condition. In the event of the termination of Employee's employment pursuant to this Section 6(f), the Employee shall not be entitled to any severance payments or benefits hereunder. (g) Continuation of Benefits. In the event of a termination of Employee's employment by the Employer pursuant to Section 6(b) or 6(c), then, to the extent the Employee is insurable, the Employer shall reimburse the Employer the cost of COBRA benefits, other than long term disability coverage (if any), for the Employee for a period equal to (i) the remaining term of the Employment Period in the event of a termination pursuant to Section 6(b) or (ii) three months in the event of a termination pursuant to Section 6(c), subject to any limitation on the provision of such benefits established by then existing law. (h) Full Discharge of Employer Obligations. The amounts payable and benefits provided to Employee pursuant to this Section 6 following termination of the Employee's employment (including (i) Base Salary payable pursuant to Section 4 for services rendered by the Employee prior to the date of termination of his employment, (ii) vested benefits and expense reimbursements payable to the Employee in accordance with the terms of any benefit plan or policy in which the Employee participated during the Employment Period pursuant to Section 5 and (iii) incentive or bonus compensation that has been awarded but not paid and any stock options that have been awarded but not issued as per Section 6(d)) shall be in full and complete satisfaction of the Employee's rights under this Agreement and any other claims with respect to compensation and benefits the Employee may have in respect of the Employee's employment by the Employer, including any claim for incentive compensation. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Employee's receipt of such amounts, the Employer shall be forever released and discharged from any and all liability to the Employee in connection with this Agreement or otherwise in connection with the Employee's employment with the Employer. (i) Survival. The obligations of the Employee to the Employer under Sections 7, 8, 9, 10, 11 or 12 and 16 shall in any event survive any termination of the Employee under this Section 6 or any termination of this Agreement. The delivery of a notice of termination under this Section 6 shall cause all obligations of the Employer to the Employee hereunder to cease, except for the following obligations which shall survive termination: (i) the payment of any accrued but unpaid Base Salary as at the date of termination and (ii) the payment of the severance compensation, if any, pursuant to Section 6(d). 7. Employee's Acknowledgements. (a) The Employee acknowledges and agrees that: (i) in the course of the Employee's employment by iAW he has acquired and developed confidential information related to iAW and during the course of Employee's employment with Employer, he will continue to acquire and develop confidential information relating to the Employer, and will acquire and develop confidential information relating to the Calton Group or individual members thereof and the businesses of Employer, the Calton Group or individual members thereof, including but not limited to information concerning the Employer's and other Calton Group member's sales, sales volume, sales methods, sales proposals, trade secrets, customers and prospective customers, 5 identity of customers and prospective customers, identity of key purchasing personnel or other decision-makers in the employ of customers and prospective customers, amount or kind of customers' purchases from the Employer and such members, knowledge of customers' specifications and requirements, confidential information of customers, pricing information, the Employer's and other Calton Group members' sources of supply and material specifications, the Employer's and other Calton Group members' computer programs, system documentation, special hardware, product hardware, related software development, manuals, formulations, processes, methods, equipment, compositions, ideas, improvements, inventions or other confidential or proprietary information belonging to the Employer, the Calton Group or any member thereof, or relating to the Employer's, the Calton Group's or any member's affairs (collectively referred to herein as the "Confidential Information"); (ii) the Confidential Information (including Confidential Information pertaining to iAW) is the property of the Employer, the Calton Group or a member thereof; (iii) the use, misappropriation or disclosure of the Confidential Information would constitute a breach of trust and could cause irreparable injury to the Employer, the Calton Group or a member thereof; (iv) it is essential to the protection of the Employer's and the other Calton Group members' good will and to the maintenance of the Employer's and the other Calton Group members' competitive position that the Confidential Information be kept secret and that the Employee not disclose the Confidential Information to others outside the Calton Group or use the Confidential Information to the Employee's own advantage or the advantage of others outside the Calton Group; and (v) the covenants in Sections 7, 8, 9, 10, 11, 12 and 16 are necessary to protect the legitimate interests of the Employer and the Calton Group. (b) The Employee further recognizes and agrees that the Employee's duties for the Employer may include the preparation of materials, including written or graphic materials for the Employer or another Calton Group member, and that any such materials conceived or written by the Employee shall be done within the scope of his employment as a "work made for hire", as defined and used in the Copyright Act of 1976, as amended (17 U.S.C. ss.ss. 101 et seq.). The Employee agrees that because any such work is a "work made for hire", the Employer or such other Calton Group member will solely retain and own all rights in said materials, including rights of copyright. (c) The Employee represents and warrants to the Employer that the Employee has no prior obligation or commitment, whether written or oral, to any third party that (i) relates to the protection of confidential information, the solicitation of customers, suppliers, employees or sales representatives, the ownership of inventions or improvements made or conceived by the Employee acting individually or jointly, or the restriction of the employee's future activities or employment or (ii) restricts the Employee's ability to perform the duties of his employment for the Employer or any other member of the Calton Group, including but not limited to the performance of or compliance with any of the covenants of the Employee contained in any of Sections 7, 8, 9, 10, 11 and 15 of this Agreement. The Employee certifies that he has not, and covenants that he will not, disclose or use during his employment with the Employer or any other member of the Calton Group any confidential information which the Employee acquired as a result of any previous employment. 8. Intellectual Property Rights. The Employee agrees to disclose and assign to the Employer his entire right, title and interest in and to all inventions and improvements related to the Employer's business (including but not limited to all financial and sales information), whether patentable or not, whether made or conceived by him individually or jointly with others at any time during his employment with the Employer or any other member of the Calton Group 6 hereunder or with iAW prior to the term hereof. Such inventions and improvements are to become and remain the property of the Employer or such other Calton Group member whether or not patent applications are filed thereon, and the Employee agrees, upon request and at the expense of the Employer, to make and execute applications for letters patent, in the United States and any other countries, through attorneys designated by the Employer, and to assign all applications and patents which may issue thereon to the Employer or such other Calton Group member or their respective nominees and to make all such other applications and execute all such documents as the Employer may reasonably request to effectuate the purpose of this Section 8. The Employer shall determine, in its reasonable judgment after consulting with the Employee, whether any invention or improvement is related to the business of the Employer. 9. Non-Disclosure of Confidential Information. The Employee agrees to hold and safeguard the Confidential Information in trust for the Employer or any Calton Group Members and the Calton Group, their successors and assigns and agrees that the Employee shall not, without the prior written consent of the Employer, use for personal gain or private purposes or misappropriate or disclose or make available to anyone for use outside the Employer's or any Calton Group members' organization at any time, either during the Employee's employment with the Employer or any other member of the Calton Group or subsequent to the termination of such employment with the Employer for any reason, including without limitation termination by the Employer for cause or without cause, any of the Confidential Information, whether or not developed by the Employee, except as required in the performance of the Employee's duties to the Employer or any other member of the Calton Group. 10. Covenant Not To Compete. The Employee covenants and agrees that during the Employee's employment with the Employer or any other member of the Calton Group and until the later of the fourth anniversary (second anniversary in the case of a termination pursuant to Section 6(c)) of the termination of the Employee's employment with the Employer or the Calton Group by reason of resignation or pursuant to Section 6(a) or 6(c) of this Agreement, Employee shall not, directly or indirectly, have any ownership interest (as a shareholder, partner or otherwise) in any Competing Business. For purposes of this Agreement, the term "Competing Business" shall mean: (a) the business of providing (i) Internet services that include the providing of Internet business and E-commerce solutions, (ii) video conference services and the maintenance of sites for the provisions of such services, (b) furnishing technical aid or assistance to anyone who engages in a business described in clause (a) above or (c) the sale or attempted sale of products or services, similar to products or services sold by Employer; provided, however, that this Section 10 shall not be deemed to prevent the Employee's ownership of 1% or less of the capital stock of any publicly held entity. 11. Non-Solicitation of Customers. The Employee agrees that, during the Employee's employment with the Employer or any other member of the Calton Group and until the fourth anniversary (second anniversary in the event of a Section 6(c) Termination) of the termination of Employee's employment with the Company, the Employee shall not, directly or indirectly (i) interfere with Employer's business relationship with or solicit the trade of, or trade with, any customer of the Employer or iAW for whom the Employer, iAW or any member of the Calton Group in the same or similar business has provided products or services within the prior two year period for any business purpose other than for the benefit of the Employer or (ii) solicit the trade of, or trade with, any prospective customer that was solicited by Employer or iAW or any member of the Calton Group in the same or similar business within the prior two year period for any business purpose other than for the benefit of Employer. 7 12. Non-Solicitation of Employees and Former Employees. The Employee agrees that, during the Employee's employment with the Employer or any other member of the Calton Group and until the fourth anniversary of the termination of such employment for any reason whatsoever, including without limitation termination for cause or without cause, the Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Employer or any other member of the Calton Group to leave the Employer or such other member of the Calton Group for any reason whatsoever or hire any employee of the Employer or any other member of the Calton Group or person who was employed by the Employer or any other member of the Calton Group at any time during the two year period preceding the date of the Employee's termination. 13. Effect of Employer or Calton Breach. In the event that Employer and/or Calton breaches a material provision of this Agreement, then in such event Employee shall cease to be bound by the provisions of Sections 10, 11 and 12 of this Agreement. 14. Severability. The covenants contained herein shall be construed as a series of separate and severable covenants which are identical in terms except for subject matter and temporal duration. The Employee and the Employer agree that if any court of competent jurisdiction determines that any such separate covenant is not fully enforceable, such covenant shall be deemed modified or severed and that the remainder of such covenant and of this Agreement shall be enforced to the fullest extent permitted by applicable law. 15. Injunctive Relief. The Employee acknowledges and agrees that the services to be rendered by the Employee to the Employer or any other member of the Calton Group are of a special and unique character and that any breach of the covenants herein would cause irreparable harm. The Employer shall have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. If the Employer is awarded an injunction or other remedy in connection with the enforcement of such provisions, the Employee further agrees to pay all costs and expenses (including attorneys' fees) reasonably incurred by the Employer in such enforcement effort. 16. Obligation to Inform Succeeding Employers. Until the fourth anniversary of the termination of the Employee's employment with the Employer and the other members of the Calton Group for any reason whatsoever, including, without limitation, termination for cause or without cause, the Employee agrees (a) to inform each of his subsequent employers, prior to accepting his employment, of the existence of this Agreement and to provide such employer with a copy of this Agreement and (b) to inform the Employer, upon the acceptance of employment, of the identify of his new employer, the nature of such employer's business and the Employee's new position, duties and responsibilities. 17. Assignment. The rights and duties of the parties to this Agreement shall not be assignable by either party, except that this Agreement and all the rights hereunder may be assigned by the Employer to any corporation or other business entity that succeeds to all or substantially all of the Employer's business through merger, consolidation, or corporate reorganization, or by acquisition of all or substantially all of the assets of the Employer, and assumes the Employer's obligations under this Agreement. 18. Notices. All notices, consents, requests, instructions, approvals and other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, 8 registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, overnight courier or telecopy, addressed as follows: If to the Employer, to: iAW, Inc. 333 17th Street, Suite D Vero Beach, Florida 32969 Telecopy: (561) 569-6360 Attention: Kenneth D. Hill with a copy to: Calton, Inc. 125 Half Mile Road, Suite 206 Red Bank, New Jersey 07701 Telecopy: (732) 212-1290 Attention: Anthony J. Caldarone If to the Employee, to: Kenneth D. Hill 167 Anchor Drive Vero Beach, Florida 32963 or, in each case, at such other address as may be specified in writing to the other parties hereto. Any notice so addressed shall be deemed to be given (x) three business days after being mailed by first-class, registered or certified mail, return receipt requested, postage prepaid and (y) upon delivery, if transmitted by hand delivery, overnight courier or telecopy. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 20. Entire Agreement. This Agreement supersedes all prior agreements whether written or oral and constitutes the entire agreement between the parties with respect to the subject matter hereof. There shall be no modification, amendment, waiver or alteration of this Agreement, except in writing and signed by a duly authorized officer of the Employer and the Employee. Any waiver of any terms or conditions hereof by the Employer shall not be construed as a continuing waiver but shall only apply to the particular transaction involved. 21. Withholding. Any payments provided for herein shall be reduced by any amounts required to be withheld by the Employer from time to time under applicable Federal, State or local income or employment tax laws or similar statutes or other provisions of law then in effect. 22. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Florida. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. 9 Calton Homes of Florida, Inc. By: ------------------------------- Anthony J. Caldarone, President Calton, Inc. By: ------------------------------- Anthony J. Caldarone, President ------------------------------- Kenneth D. Hill 10 EX-21 8 CALTON, INC. SUBSIDIARIES EXHIBIT 21 CALTON, INC. SUBSIDIARIES State of Company Incorporation ------- ------------- eCalton.com, Inc. (f/k/a Calton Homes of Florida, Inc.) Florida Calton Homes of Chicago, Inc. Illinois Calton Homes of Pennsylvania, Inc. Pennsylvania Calton Homes of Pennsylvania at Pennway, Inc. Pennsylvania Calton Homes of California, Inc. California Calton Lindenwood Corporation California Calton Manzanita Corporation California Calton Tamarack Corporation California Calton California Equity Corporation California Calton Capital, Inc. New Jersey Calton General, Inc. New Jersey Calton Homes Finance, Inc. New Jersey Calton Homes Finance II, Inc. New Jersey Haddon Group of Virginia, Inc. New Jersey EX-27 9 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 12-MOS NOV-30-1999 DEC-01-1998 NOV-30-1999 33,786,000 1,339,000 4,722,000 0 0 451,000 155,000 (12,000) 40,441,00O 1,787,000 0 0 0 283,000 38,371,000 40,441,000 3,196,000 3,196,000 116,000 116,000 1,966,000 0 0 1,114,000 453,000 661,000 4,178,000 0 0 4,839,000 .21 .20
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