-----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, Sb9haP0bqXmAt4porHnUc3t4vKtgYOTSZVcAV/NI2Q8castCfULXNEzFfUDohKpX C1DJo/HOTpIKQOo4eqz1gQ== 0000950144-01-504416.txt : 20010713 0000950144-01-504416.hdr.sgml : 20010713 ACCESSION NUMBER: 0000950144-01-504416 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010712 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-Q SEC ACT: SEC FILE NUMBER: 001-08846 FILM NUMBER: 1680207 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-Q 1 g70457e10-q.txt CALTON,INC. - FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended May 31, 2001 [ ] 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 (IRS Employer incorporation or organization) Identification Number) 2013 Indian River Blvd. Vero Beach, Florida 32960 (Addresses of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (561) 794-1414 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 whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] As of July 10 2001, 4,474,370 shares of Common Stock were outstanding. 2 CALTON, INC. AND SUBSIDIARIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at May 31, 2001 and November 30, 2000 ......................... 3 Consolidated Statements of Operations for the Three Months Ended May 31, 2001 and 2000.................... 4 Consolidated Statements of Operations for the Six Months Ended May 31, 2001 and 2000...................... 5 Consolidated Statements of Cash Flows for the Six Months Ended May 31, 2001 and 2000...................... 6 Consolidated Statement of Changes in Shareholders' Equity for the Six Months Ended May 31, 2001................ 7 Notes to Consolidated Financial Statements................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 17 Item 4. Submission of Matters to a Vote of Securityholders........... 17 Item 5. Other Information............................................ 17 Item 6. Exhibits and Reports on Form 8-K............................. 18 SIGNATURES.................................................................... 19
- -------------------------------------------------------------------------------- Certain information included in this report and other Company filings (collectively, "SEC filings") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC filings) contains or may contain forward looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are matters related to the indemnification provisions in connection with the Company's sale of Calton Homes, Inc., national and local economic conditions, the lack of an established operating history for the Company's current business activities, conditions and trends in the Internet and technology industries in general, the effect of governmental regulation on the Company and the risks described under the caption "certain risks" in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2000 and under the caption "Factors Affecting Calton, Inc.'s Operating Results, Business Prospects and Market Price of Stock" in this report. - -------------------------------------------------------------------------------- 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CALTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
May 31, November 30, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 29,929,000 $ 32,190,000 Holdback receivable 866,000 1,289,000 Accounts receivable, net of allowance for doubtful accounts of $414,000 and $122,000 at May 31, 2001 and November 30, 2000, respectively 741,000 760,000 Prepaid expenses and other assets 291,000 218,000 ------------ ------------ Total current assets 31,827,000 34,457,000 Property and equipment, net 596,000 638,000 Goodwill, net 125,000 -- Other assets -- 5,000 ------------ ------------ Total assets $ 32,548,000 $ 35,100,000 ============ ============ LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 953,000 $ 1,384,000 Dividend payable 20,800,000 -- Deferred taxes 741,000 741,000 ------------ ------------ Total current liabilities 22,494,000 2,125,000 ------------ ------------ Minority interest -- 88,000 ------------ ------------ Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred Stock -- -- Common stock, $.05 par value, 10,740,000 shares authorized; 4,160,000 and 4,132,000 shares outstanding at May 31, 2001 and November 30, 2000, respectively 213,000 207,000 Additional paid in capital 13,102,000 33,364,000 Retained earnings 6,850,000 9,055,000 Less cost of shares held in treasury, 1,719,000 and 1,615,000 shares as of May 31, 2001 and November 30, 2000, respectively (10,111,000) (9,739,000) ------------ ------------ Total shareholders' equity 10,054,000 32,887,000 ------------ ------------ Total liabilities, minority interest and shareholders' equity $ 32,548,000 $ 35,100,000 ============ ============
The accompanying notes are an integral part of these financial statements. 3 4 CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 (UNAUDITED)
2001 2000 ----------- ----------- Revenue Homebuilding consulting fees $ 325,000 $ 325,000 Web design and implementation 217,000 330,000 Technical staffing 893,000 -- Other 3,000 ----------- ----------- 1,438,000 655,000 ----------- ----------- Costs and expenses Project personnel and expenses 735,000 253,000 Selling, general and administrative 2,406,000 1,618,000 ----------- ----------- 3,141,000 1,871,000 ----------- ----------- Loss from operations (1,703,000) (1,216,000) Other (income) Interest income (368,000) (538,000) ----------- ----------- Net loss $(1,335,000) $ (678,000) =========== =========== Basic and diluted loss per share $ (0.32) $ (0.16) =========== =========== Weighted average number of shares outstanding Basic and diluted 4,157,000 4,328,000 ----------- -----------
The accompanying notes are an integral part of these financial statements. 4 5 CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 (UNAUDITED)
2001 2000 ----------- ----------- Revenue Homebuilding consulting fees $ 650,000 $ 650,000 Web design and implementation 724,000 555,000 Technical staffing 1,547,000 -- Other 33,000 4,000 ----------- ----------- 2,954,000 1,209,000 ----------- ----------- Costs and expenses Project personnel and expenses 1,341,000 389,000 Selling, general and administrative 4,752,000 3,111,000 ----------- ----------- 6,093,000 3,500,000 ----------- ----------- Loss from operations (3,139,000) (2,291,000) Other expense (income) Interest income (846,000) (1,058,000) Loss on securities -- 508,000 ----------- ----------- Loss before minority interest (2,293,000) (1,741,000) Minority interest (88,000) -- ----------- ----------- Net loss $(2,205,000) $(1,741,000) =========== =========== Basic and diluted loss per share $ (0.53) $ (0.40) =========== =========== Weighted average number of shares outstanding Basic and diluted 4,147,000 4,317,000 ----------- -----------
The accompanying notes are an integral part of these financial statements. 5 6 CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 (UNAUDITED)
2001 2000 ------------ ------------ OPERATING ACTIVITIES Net loss $ (2,205,000) $ (1,741,000) Adjustments to reconcile net loss to net cash used in operating activities, net of effects of business acquisitions Minority interest (88,000) -- Stock options issued for consulting services 174,000 -- Loss on securities -- 508,000 Provision for uncollectible receivables 335,000 -- Depreciation and amortization 110,000 59,000 Increase in accounts receivable (316,000) (170,000) Increase in prepaid expenses and other assets (68,000) (107,000) Increase (decrease) in accounts payable, accrued expenses and other liabilities (431,000) 76,000 ------------ ------------ Net cash used in operating activities (2,489,000) (1,375,000) INVESTING ACTIVITIES Sale of available for sale securities -- 1,349,000 Receipts from holdback receivable 1,034,000 1,000,000 Payments for Centex warranty claims (611,000) -- Purchase of available for sale securities -- (825,000) Acquisition of business, net of cash acquired -- (20,000) Purchase of property and equipment (66,000) (241,000) ------------ ------------ Net cash provided by investing activities 357,000 1,263,000 FINANCING ACTIVITIES Stock repurchase (372,000) (58,000) Stock options exercised 243,000 149,000 ------------ ------------ Net cash (used in) provided by financing activities (129,000) 91,000 Net decrease in cash and cash equivalents (2,261,000) (21,000) Cash and cash equivalents at beginning of period 32,190,000 33,786,000 ------------ ------------ Cash and cash equivalents at end of period $ 29,929,000 $ 33,765,000 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES Dividend payable $ 20,800,000 $ -- Goodwill resulting from the issuance of stock options $ 127,000 $ -- Conversion of CorVu and PrivilegeONE notes receivable into investments $ -- $ 338,000 Stock repurchase payable $ -- $ 367,000
The accompanying notes are an integral part of these financial statements. 6 7 CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY SIX MONTHS ENDED MAY 31, 2001 (UNAUDITED) (AMOUNTS IN THOUSANDS)
Accumulated Common Stock Additional Other Total ----------------- Paid In Retained Treasury Compre- Shareholders' Compre- Shares Amount Capital Earnings Stock hensive Loss Equity hensive Loss ------ ------ ---------- -------- -------- ------------ ------------ ------------ Balance, November 30, 2000 4,132 $207 $ 33,364 $ 9,055 $ (9,739) $ -- $ 32,887 $ (5,378) Net Loss -- -- -- (2,205) -- -- (2,205) (2,205) Dividend declared -- -- (20,800) -- -- -- (20,800) -- Issuance of Stock upon exercise of stock options 132 6 237 -- -- -- 243 -- Stock options issued pursuant to acquisition of minority interest -- -- 127 -- -- -- 127 -- Stock options issued for services -- -- 174 -- -- -- 174 -- Less: Purchase of treasury stock (104) -- -- -- (372) -- (372) -- -------- Comprehensive Loss -- -- -- -- -- -- -- $ (7,583) ----- ---- -------- -------- -------- ---- -------- ======== Balance, May 31, 2001 4,160 $213 $ 13,102 $ 6,850 $(10,111) $ -- $ 10,054 ===== ==== ======== ======== ======== ==== ========
The accompanying notes are an integral part of these financial statements. 7 8 CALTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position as of May 31, 2001, and the results of operations and cash flows for the three and six months ended May 31, 2001 and May 31, 2000 have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 26, 2001. Operating results for the three and six months ended May 31, 2001 are not necessarily indicative of the results that may be expected for the year ended November 30, 2001. Certain reclassifications have been made to prior years' financial statements in order to conform with the fiscal 2001 presentation. 2. ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments, Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. As the Company does not hold material derivative instruments or engage in hedging activities, the adoption of this Statement does not impact the accompanying consolidated financial statements. 3. ADDITIONAL EQUITY INVESTMENT In February 2001, the Company made an additional equity investment in PrivilegeONE Networks, LLC ("PrivilegeONE") which increased the Company's direct and indirect ownership to 75.4%. In May 2001, the Company acquired the remaining minority interest in PrivilegeONE, making it a wholly-owned subsidiary. Prior to these investments, the Company already held a controlling ownership percentage and, accordingly, fully consolidates PrivilegeONE's balance sheet, results of operations and cash flows with the consolidated financial statements of the Company. As consideration for the remaining minority interest in PrivilegeONE, the Company granted options to purchase 200,000 shares of the Company's Common Stock at a price of $4.02 to the former minority owners of PrivilegeONE. The options were fully vested, and become exercisable six months after the grant date, and have a term of five years. The Company applied the purchase method of accounting to record this acquisition of minority interest. In addition to the grant of the options, the terms of the purchase required the Company to make certain guarantees and commitments to the bank that has agreed to issue the PrivilegeONE Visa card. The Company also agreed to fund up to an additional $2,000,000 towards the project, and the former minority owners of PrivilegeONE agreed to the cancellation of the previously issued warrant to acquire 240,000 shares of the Company's Common Stock. 8 9 4. NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Dilutive net loss per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock equivalents. Common stock equivalent shares consist of stock options and warrants. For the six months ended May 31, 2001, options and warrants to purchase 875,500 shares of common stock were excluded from the calculation of loss per share since their inclusion would be antidilutive. 5. SEGMENT REPORTING The Company accounts for reportable segments using the "management approach". The management approach focuses on disclosing financial information that the Company's management uses to make decisions about the Company's operating matters. As of May 31, 2001, the Company operates in three business segments, as follows: In July 1999, the Company acquired substantially all of the assets of iAW, Inc., an Internet business solutions provider. The acquired business is operated through a wholly owned subsidiary, eCalton.com, Inc. ("eCalton"). Revenues of eCalton are derived from designing Web pages and providing Internet strategy consulting services. In addition, eCalton earns revenues by providing technical staffing to clients in the Houston, Texas area. A few large customers have accounted for a significant portion of eCalton's revenues. During the six months ended May 31, 2001, revenues from four customers accounted for approximately 57% of total revenues from Web design and implementation, and technical staffing. As of May 31, 2001, two customers accounted for 48% of the trade receivables of eCalton. In January 2000, the Company acquired a 50.4% equity interest in PrivilegeONE. 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 February 2001, the Company made an additional $50,000 equity investment in PrivilegeONE which increased its direct and indirect ownership interest to 75.4%. In May 2001, the Company acquired the remaining minority interest in PrivilegeONE (See Note 3). At this time, PrivilegeONE operations consist solely of start up activities, and its entire loss has been included in the Company's consolidated results of operations. The Company also provides corporate consulting services to the purchaser of Calton Homes, Inc., which was sold by the Company in December 1998. In addition, in June 2000, the Company acquired a 51% interest in Innovation Growth Partners, LLC ("IGP"), a newly formed entity established to provide management and consulting services to entrepreneurial and development stage companies, as well as acquiring controlling interests in certain entities that IGP consults with. Because IGP's operations are similar to those of the Company's corporate activities, the results of operations for IGP are included in the results of operations for the corporate and consulting services segment. The Company has no foreign operations. 9 10 Operating results, by segment, for the six months ended May 31, 2001 and May 31, 2000 are as follows (in thousands):
Six months ended May 31, 2001 ------------------------------------------------------------------- Internet Business Credit Card Corporate and Solutions Loyalty Consulting Total and Staffing Business Services Company ------------ ----------- ------------- -------- Total revenues $ 2,271 $ -- $ 683 $ 2,954 Total cost of revenues 1,341 -- -- 1,341 Depreciation and amortization 68 5 37 110 Loss from operations (772) (846) (1,521) (3,139) Interest income -- -- 846 846 Net loss (772) (846) (587) (2,205) Total assets $ 1,039 $ 175 $ 31,334 $ 32,548
Six months ended May 31, 2000 ------------------------------------------------------------------- Internet Business Credit Card Corporate and Solutions Loyalty Consulting Total and Staffing Business Services Company ------------ ----------- ------------- -------- Total revenues $ 555 $ -- $ 654 $ 1,209 Total cost of revenues 389 -- -- 389 Depreciation and amortization 43 1 15 59 Loss from operations (994) (734) (563) (2,291) Interest income -- -- 1,058 1,058 Loss on sale of securities -- -- (508) (508) Net loss (994) (734) (13) (1,741) Total assets $ 818 $ 60 $ 39,184 $ 40,062
6. LIQUIDATING DIVIDEND On May 31, 2001, the Company's Board of Directors declared a liquidating dividend ("dividend") of $5.00 per share to all shareholders of record on June 20, 2001, payable on July 5, 2001. The total amount distributed pursuant to the dividend was approximately $22.4 million, which is comprised of the $20,800,000 dividend payable reported on the balance sheet as of May 31, 2001, and an additional $1,557,000, which was distributed as a result of options exercised subsequent to May 31, 2001, but prior to the record date of June 20, 2001. The dividend has been characterized as a liquidating dividend, as it is considered a return of capital rather than a distribution of retained earnings. Consequently, the consolidated balance sheet and statement of shareholders' equity reflect a reduction of additional paid in capital, rather than a reduction of retained earnings. This dividend will reduce the Company's capacity for acquisitions, in terms of both the number of acquisitions the Company will be able to make, and the size of those acquisitions. 10 11 7. SHAREHOLDERS EQUITY In conjunction with the dividend, the Company's Board of Directors has allowed for the modification of certain existing options grants to provide that the options are immediately exercisable. However, the shares received upon the option exercise will be subject to forfeiture restrictions until the remaining vesting period is satisfied. Furthermore, until these shares vest, if the employee is terminated or leaves the Company, the Company shall have the right to purchase from the employee the unvested shares at the average of the high and low sales prices of the Company's Common Stock on the American Stock Exchange on July 6, 2001. 8. COMMITMENTS AND CONTINGENT LIABILITIES As a result of the sale of the homebuilding business in December 1998, the Company is required to indemnify the purchaser for, among other things, certain liabilities that arise out of events occurring prior to the closing of the sale, including certain warranty claims. Arbitration was scheduled for March 2001, but has since been postponed to continue settlement negotiations. During May 2001, the Company and the purchaser resolved certain disputes, and the purchaser released to the Company approximately $1,034,000 from the Specific Indemnity Fund. Additionally, during the six months ended May 31, 2001, the Company paid warranty claims of approximately $611,000 that had been previously reserved for against the holdback receivable. In connection with the acquisition of the remaining minority interest in PrivilegeONE (see Note 3), the Company agreed to make certain commitments and guarantees, including committing to fund up to an additional $2,000,000 towards the project. In addition, in conjunction with the execution of a credit card processing agreement with Fleet Credit Card Services, L.P. ("Fleet"), the Company committed to Fleet that PrivilegeONE would be capitalized with no less than $500,000 for the original five year term of the agreement. The Company also agreed to maintain a contingency reserve fund equal to three and one-half percent of all net revenues received by PrivilegeONE, in an amount not to exceed $1,500,000. Furthermore, the agreement requires the Company to reimburse Fleet for Fleet's start-up costs of developing the program, in an amount not to exceed $350,000. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 Revenues for the three months ended May 31, 2001 and May 31, 2000 were $1,438,000 and $655,000, respectively. Revenues for the six months ended May 31, 2001 and May 31, 2000 were $2,954,000 and $1,209,000, respectively. The primary reason for the increase in 2001 compared to 2000, for both the quarter and six months, was the revenue associated with the eCalton technical staffing division. For the quarter and six months ended May 31, 2001, the eCalton technical staffing division generated revenues of $893,000 and $1,547,000, respectively, with no similar revenues in 2000, as the Company entered this business in July 2000. Project personnel and expenses for the three months ended May 31, 2001 and May 31, 2000 were $735,000 and $253,000, respectively. Project personnel and expenses for the six months ended May 31, 2001 and May 31, 2000 were $1,341,000 and $389,000, respectively. The increase in 2001 for both the quarter and six months is primarily attributable to operations of the eCalton technical staffing division, which the Company did not operate until July 2000. Selling, general and administrative costs for the three months ended May 31, 2001 and May 31, 2000 were $2,406,000 and $1,618,000, respectively. Selling, general and administrative costs for the six months ended May 31, 2001 and May 31, 2000 were $4,752,000 and $3,111,000, respectively. The increase in 2001 for both the quarter and six months is primarily from increased personnel and business activities at PrivilegeONE, the operations of IGP that did not exist until June of 2000, increased professional fees, and a provision for uncollectible receivables in 2001. In addition, during the quarter ended May 31, 2001, the Company recorded a non-cash charge for options issued as consideration for consulting services, which is included in selling, general and administrative expenses. Interest income for both the quarter and six months ended May 31, 2001 has experienced a decline compared to fiscal 2000 due to smaller cash balances during 2001, and a decline in short term interest rates. Interest income is expected to decline significantly during the remainder of 2001, and thereafter, due to the payment of the dividend discussed in Note 6. The Company recorded a $508,000 loss on the sale of available-for-sale securities during the six months ended May 31, 2000. There were no such losses in the corresponding 2001 period. The Company is reporting a credit to income for minority interest related to the operating loss of IGP for the six months ended May 31, 2001. As of May 31, 2001, there is no remaining minority interest related to IGP which will be reflected on the Company's consolidated financial statements, and all future losses of IGP will be absorbed in their entirety by the Company. LIQUIDITY AND CAPITAL RESOURCES As of May 31, 2001, the Company had $29,929,000 of highly liquid money market funds yielding approximately 3.65%. However, subsequent to payment of the liquidating dividend of approximately $22 million on July 5, 2001, the Company's available cash is expected to be less than $10 million. 12 13 This substantial reduction in the Company's investable funds will limit the size of the acquisitions that the Company may embark upon, and may make the Company less attractive for certain types of business ventures. The Company believes that the current cash on hand, interest income, and funds provided under the consulting agreement with the purchaser of Calton Homes, which provides for additional payments of $975,000 through December 31, 2001, will provide sufficient capital to support the Company's operations. Under the Company's share repurchase program, the Company has repurchased an aggregate of 1,719,000 shares for $10,111,000 as of May 31, 2001, at an average price of $5.88 per share. It is anticipated that the Company's cash flow from its operations, combined with the operations of eCalton, PrivilegeONE, and IGP, will continue to utilize cash until, if ever, those operations execute the strategies identified in their business plans. CASH FLOWS FROM INVESTING ACTIVITIES During the six months ended May 31, 2001, the Company received $1,034,000 from the specific holdback fund established in connection with the sale of Calton Homes, Inc. However, approximately $611,000 of the proceeds were disbursed to settle matters with certain homeowners. During the six months ended May 31, 2000, the Company received approximately $1,000,000 from the general holdback fund. During June 2001, IGP borrowed $500,000 from the Revolving Promissory Note with the Company and used the funds to acquire a 5% interest in Miresco Investment Services, Inc. ("Miresco"). Miresco specializes in promoting high quality rug sales throughout the United States at large furniture stores that are holding going out of business sales. Miresco's long range business plan calls for developing "virtual" rug stores through the use of kiosks at furniture stores around the country. The kiosks will allow the furniture stores to have access to millions of dollars of rug inventory without expending the capital to carry this inventory. The $500,000 investment will be used to help expand into their wholesale line with furniture stores directly, which is where the kiosks are expected to be deployed under the terms of the business plan. Subsequent to the draw on the revolving promissory note for the investment in Miresco, the Company has up to $2,425,000 remaining to be funded under the terms of the promissory note. The Company's expenditures for property and equipment were $66,000 for the six months ended May 31, 2001, compared to $241,000 for the six months ended May 31, 2000. Capital expenditures for the remainder of the current year are expected to be lower than last year for eCalton and the corporate office, excluding amounts for business acquisitions. However, expenditures for PrivilegeONE and IGP may become significant if they are successful in executing their business plans. The Company disposed of available-for-sale securities during the six months ended May 31, 2000, and received proceeds of $1,349,000 from the sale. In January 2000, the Company purchased an additional 375,000 shares of CorVu Corporation common stock and a five-year warrant, which 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. 13 14 The aggregate acquisition amount of the stock and the warrant was $750,000, which is the primary component of the $825,000 disclosed in the consolidated statement of cash flows as purchase of available for sale securities. In January 2000, the Company acquired a collective direct and indirect (through ownership in a parent company) 50.4% equity interest in PrivilegeONE, a newly formed company engaged in the development of a co-branded loyalty credit card program. The purchase price for the Company's interest included cash and a warrant to acquire 240,000 shares of the Company's Common Stock at an exercise price of $12.50 per share. In February 2001, the Company made an additional $50,000 equity investment in PrivilegeONE, which increased its direct and indirect ownership interest to 75.4%. In May 2001, the Company acquired the remaining minority interests in PrivilegeONE and made certain guarantees and commitments to the bank that has agreed to issue the PrivilegeONE Visa card, including agreeing to increase the funding commitment for the project up to an additional $2,000,000. CASH FLOWS FROM FINANCING ACTIVITIES On May 31, 2001, the Company's Board of Directors declared a liquidating dividend ("dividend") of $5.00 per share to all shareholders of record on June 20, 2001, payable on July 5, 2001. The total amount distributed pursuant to the dividend was approximately $22.4 million, which is comprised of the $20,800,000 dividend payable reported on the balance sheet as of May 31, 2001 and an additional $1,557,000, which was distributed as a result of options exercised subsequent to May 31, 2001, but prior to the record date of June 20, 2001. This dividend will reduce the Company's capacity for acquisitions, in terms of both the number of acquisitions the Company will be able to make, and the size of those acquisitions. Prior to the record date of the dividend (See note 6.) nearly all in-the-money stock options were exercised, including the options that were permitted early exercise (see Note 7). Proceeds from the exercise of these options totaled approximately $1,225,000. However, dividends associated with the shares of the Company's Common Stock issued pursuant to the exercise of these options totaled approximately $1,557,000. During the six months ended May 31, 2001, certain optionholders exercised their options to purchase Common Stock from the Company, generating proceeds of $243,000, compared to $149,000 for the six months ended May 31, 2000. During the six months ended May 31, 2001, the Company repurchased 104,000 shares of its Common Stock for $372,000, compared to repurchases in the amount of $58,000 for the six months ended May 31, 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments, Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. As the Company does not hold derivative instruments or engage in hedging activities, the adoption of this Statement does not impact the accompanying consolidated financial statements. 14 15 FACTORS AFFECTING CALTON, INC.'S OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET PRICE OF STOCK In December, 1998, the Company sold its primary operating subsidiary, Calton Homes, Inc., which was engaged in residential homebuilding. Since that date, the Company has a limited operating history upon which it may be evaluated. The Company and its subsidiaries are in the early stages of developing their respective businesses, and some of the subsidiaries are among the many companies that have entered into the market that relies on conducting some portion of its business over the Internet. The Company's business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving markets. If the Company is unable to effectively allocate its resources and develop the business of those subsidiaries, the Company's stock price may be adversely affected and it may be unable to execute its strategy of developing and operating its subsidiaries. The Company's stock price has been volatile in the past and may continue to be volatile in the future. Stock prices of companies engaged in start-up and technology related businesses have generally been volatile as well. This volatility may continue in the future. The following factors, among others, may add to the volatility of the Company's stock price: o the payment of the dividend discussed in Note 6 to these consolidated financial statements; o tender offer for all or a portion of the Company's common stock; o actual or anticipated variations in the quarterly results of the Company and its subsidiaries; o changes in the market valuations of the Company's subsidiaries, and valuations of competitors or similar businesses; o conditions or trends in the Internet or technology industries in general; o the public's perception of the prospects of early stage ventures; o changes in the size, form or rate of the Company's acquisitions; o new products or services offered by the Company, its subsidiaries and their competitors; o the Company's capital commitments; o additions to, or departures of, the key personnel of the Company or its subsidiaries; and o general economic conditions such as a recession, or interest rate fluctuations. Many of these factors are beyond the Company's control. These factors may decrease the market price of the Company's Common Stock, regardless of the Company's operating performance. The Company's business depends upon the performance of its subsidiaries, which is uncertain. The Company's Internet business solutions subsidiary, eCalton, has incurred operating losses from inception, and no assurance can be given that it will become profitable in the future. If PrivilegeONE is not successful in marketing its co-branded credit card program to automobile dealers and consumers, it will not be able to execute its business plan. If IGP is unable to develop, launch, and secure third party financing for its ventures, it will be unable to execute its business plan. If MindSearch, Inc., in which the Company owns an interest through IGP, is unable to successfully market the data gathered through its market research technology, it will not be able to generate profits from its activities. Economic, governmental, industry and internal factors outside the Company's control may affect each of its subsidiaries. If the business plans of the Company's subsidiaries do not succeed, the value of the Company's assets and the price of its Common Stock would decline. Other material risks relating to the Company's subsidiaries include: o demand for the products and services of some of the subsidiaries depends on widespread use of the Internet; 15 16 o intensifying competition affecting the products and services the subsidiaries offer, which could lead to the failure of the subsidiaries; o inability to adapt to the rapidly changing marketplace; o the subsidiaries are in the early stages of their development with limited operating history, minimal revenue, substantial losses and limited capital resources; o unless the Company funds its subsidiaries, the subsidiaries may not have alternative funding sources; o interrupted operation of the computer and communications hardware systems of the subsidiaries; o the inability to attract and maintain qualified personnel; and o inability to manage growth. ITEM 3. 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 rates is not material. The Company's funds are invested primarily in highly liquid money market funds with its underlying investments comprised of investment-grade, short-term corporate issues currently yielding approximately 3.65%. 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. 16 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As a result of the sale of the homebuilding business in December 1998, the Company is required to indemnify the Purchaser for, among other things, certain liabilities that arise out of events occurring prior to the closing of the sale, including certain warranty claims. Arbitration was scheduled for March 2001, but has since been postponed to continue settlement negotiations. During May 2001, the Company and the Purchaser resolved certain disputes, and the purchaser released to the Company approximately $1,034,000 from the Specific Indemnity Fund. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS The Company held its 2001 Annual Meeting of Shareholders (the "Meeting") on April 19, 2001. At the Meeting, shareholders were asked to reelect Gerald W. Stanley as director until the 2003 annual meeting and to reelect Anthony J. Caldarone and Robert E. Naughton until the 2005 annual meeting. In addition, the shareholders were asked to approve the Employee Stock Purchase Plan and to approve the grant of options to purchase 62,250 shares of the Company's Common Stock to certain officers of the Company's wholly owned subsidiary, eCalton.com, Inc. The results of the voting were as follows:
Broker For Against Withheld Abstain Non-votes --------- ------- -------- ------- --------- Gerald W. Stanley 3,791,040 244,750 Anthony J. Caldarone 3,629,298 406,492 Robert E. Naughton 3,629,610 406,180 Adoption of the Employee Stock Purchase Plan 1,919,566 449,675 12,156 1,654,393 Approval of the grant of Options 1,916,849 453,231 11,317 1,654,393
ITEM 5. OTHER INFORMATION On May 31, 2001, the Company's Board of Directors declared a special dividend of $5.00 per share to all shareholders of record on June 20, 2001, payable on July 5, 2001. In the opinion of the Company's tax advisors, the dividend is expected to be a tax-free return of capital to the extent of the shareholders adjusted basis in the Company's Common Stock, subject to final determination by the Internal Revenue Service. The total amount distributed pursuant to the dividend was approximately $22.4 million. 17 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) Exhibits 4.1 Option to purchase Common Stock of Calton, Inc. dated May 10, 2001 issued to Steven R. Tetreault 4.2 Option to purchase Common Stock of Calton, Inc. dated May 10, 2001 issued to Thomas Van Fechtmann 4.3 Option to purchase Common Stock of Calton, Inc. dated May 10, 2001 issued to Thomas Corley B) Reports on Form 8-K The Company filed the following Report of Form 8-K subsequent to the quarter ended May 31, 2001, but prior to the filing of this Form 10-Q. Date of Filing Disclosure -------------- ---------- June 6, 2001 Announcement of the declaration of the liquidating dividend payable on July 5, 2001. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALTON, INC. ----------------------------------------- (Registrant) By: /s/ Kelly S. McMakin ------------------------------------- Kelly S. McMakin Senior Vice President and Chief Financial Officer Date: July 12, 2001 19 EX-1 2 g70457ex1.txt STOCK OPTION FOR STEVEN R. TETREAULT 1 EXHIBIT A-1 THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. STOCK OPTION AGREEMENT Calton, Inc., a New Jersey corporation (the "Company") hereby grants to Steven R. Tetreault (the "Optionee") the option (the "Option") to purchase one hundred thousand (100,000) shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at the price determined as provided herein. The Option may be exercised in whole or in part. 1. NATURE OF THE OPTION. This Option is not intended to qualify for any special tax benefits to the Optionee and is not intended to qualify as an incentive stock option under Section 422 of the Internal revenue Code of 1986. 2. EXERCISE PRICE. The exercise price is Four and 02/100 Dollars ($4.02) per share (the "Exercise Price"). 3. METHOD OF EXERCISE. The Option shall not become exercisable until the six month anniversary of the Date of Grant (as set forth below). The Option shall thereafter be exercisable by written notice (a "Notice of Exercise of Stock Option") in the form attached hereto as Exhibit A. The Notice of Exercise of Stock Option shall be signed by Optionee and shall be delivered in person or by certified mail to the President, Secretary or Chief Financial Officer of the Company, or to such other agent as the Company shall designate in writing to the Optionee, and shall be accompanied by payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of the executed Notice of Exercise of Stock Option accompanied by payment of the Exercise Price. Payment of the Exercise Price may be made by cash or check. The Shares will not be transferred pursuant to the exercise of the Option unless such transfer and such exercise shall comply with all relevant provisions of law, including federal and state securities laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised. 4. REPRESENTATIONS; RESTRICTIONS ON TRANSFER. (a) By receipt of the Option, by its execution and by its exercise, the Optionee represents to the Company the following: 2 (i) The Optionee understands that the Option and the Shares purchased upon its exercise are securities, the issuance of which requires compliance with federal and state securities laws. (ii) The Optionee is aware of the Company's business affairs and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Company's securities. The Optionee is acquiring the Company's securities for investment for the Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (iii) The Optionee acknowledges and understands that the Company's securities constitute "restricted securities" under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Optionee further acknowledges and understands that the Company is under no obligation to register securities. The Optionee further acknowledges and understands that any certificate evidencing the issuance of the Company's securities to the Optionee will be imprinted with a legend which prohibits the transfer of such securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and they are transferred in accordance with the provisions set forth below, and with any other legend required under applicable state securities laws. (b) The Company has the requisite power and authority to execute and deliver this Option Agreement (this "Agreement") and to perform its obligations hereunder and to sell, assign, transfer and convey the Shares to the Optionee upon the due exercise of the Option. 5. NON-TRANSFERABILITY OF OPTION. The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised (i) during the lifetime of the Optionee by the Optionee only and (ii) after the death of the Optionee, by those who take under Optionee's will or by the laws of descent or distribution. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and permitted assigns of the Optionee. 6. TERM OF OPTION. The Option shall not terminate until the five (5) year anniversary of the Date of Grant (as provided below), and may be exercised during such term only in accordance with the terms of this Agreement. 7. TAX CONSEQUENCES. The Optionee has reviewed with the Optionee's own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Optionee understands that the 2 3 Optionee (and not the Company) shall be responsible for any tax liability of the Optionee that may arise as a result of the transactions contemplated by this Agreement. 8. 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 Exercise 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 Exercise Price for all of the shares of Common Stock subject to this Option be in excess of $402,000) and the Optionee, upon the exercise of this option after such date, shall be entitled to receive the aggregate number and kind of shares which, if this Option 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 8 shall occur. 9. 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 Option and payment of the Exercise Price in effect immediately prior to such corporate event, the kind and amount of shares or other securities and property which the Optionee would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Option been exercised immediately prior thereto. 10. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Shares on the exercise of this Option. If any fraction of a Share would, except for the provisions of this Section 10, be issuable on the exercise of this Option (or specified portion hereof), then the Company shall elect, at its option to either (i) round such fractional Share upwards to the nearest whole Share or (ii) pay to the holder an amount in cash equal to such fraction multiplied by the then current fair value of a Share, determined as follows: (a) 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 Option 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 (b) 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 3 4 Market, by the NASD Electronic Bulletin Board) on the last business day prior to the day of the exercise of this Warrant; or (c) 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 manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. 11. REGISTRATION. The Company agrees to register the Shares on Form S-8 under the Securities Act of 1933 within six (6) months from the Date of Grant. 12. NOTICES. Any notice to be given to the Company shall be in writing and addressed to the Company at its principal office at 2013 Indian River Boulevard, Vero Beach, Florida 32960, and any notice to be given to the Optionee shall be in writing and addressed to the Optionee at the address set forth below the Optionee's signature hereto. Any party may change its address for notice purposes by providing the other party with written notice of such change pursuant to the provisions of this Section 12. Any notice hereunder shall be deemed duly given to the party to whom such notice is addressed when delivered personally, when delivery is refused, when delivered by overnight courier service of national reputation providing receipted delivery, or two (2) days after being mailed by certified mail, return receipt requested. 13. RULES OF CONSTRUCTION; JURISDICTION. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey other than any choice of law rules calling for the application of laws of another jurisdiction. All disputes which may arise under this Option Agreement which involve judicial adjudication shall be resolved in a court of competent jurisdiction of the State of New Jersey or the United State District Court of the State of New Jersey. Optionee agrees to submit to the personal jurisdiction of the aforesaid courts and 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. DATE OF GRANT: May __, 2001 Calton, Inc. By: -------------------------- Name: Title: 4 5 THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE OPTION AND THE TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OF THE COMPANY, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE UNDER THE TERMS OF THE EMPLOYMENT AGREEMENT BETWEEN OPTIONEE AND THE COMPANY EXISTING AS OF THE DATE OF THIS STOCK OPTION AGREEMENT. The Optionee represents that the Optionee is familiar with the terms and provisions of this Agreement, and hereby accepts the Option subject to all of the terms and provisions hereof. The Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: May __, 2001 ---------------------------------- Steven R. Tetreault Optionee Residence Address: ---------------------------------- ---------------------------------- ---------------------------------- Optionee Social Security No. ------ 5 6 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO: FROM: DATE: RE: Exercise of Option I hereby exercise my option to purchase ___ shares of Common Stock for $______, effective as of the date of this notice. This notice is given in accordance with the terms of my stock option agreement with the Company dated May __, 2001 (the "Option Agreement"). Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Option Agreement. The undersigned is exercising the Option by means of a cash payment, and tenders herewith payment in full for the Shares being purchased, together with all applicable transfer taxes, if any. The undersigned confirms the representations and agreements made in subsection (a) of Section 4 of the Option Agreement. Sincerely, -------------------------- (Signature) -------------------------- (Print or Type Name) Notice of cash payment received on , 20 . ---------- -- Calton, Inc. By: ------------------------------------- Name: Title: 6 EX-2 3 g70457ex2.txt STOCK OPTION FOR THOMAS VAN FECHTMAN 1 EXHIBIT A-2 THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. STOCK OPTION AGREEMENT Calton, Inc., a New Jersey corporation (the "Company") hereby grants to Thomas E. Van Fechtmann (the "Optionee") the option (the "Option") to purchase ninety thousand (90,000) shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at the price determined as provided herein. The Option may be exercised in whole or in part. 1. NATURE OF THE OPTION. This Option is not intended to qualify for any special tax benefits to the Optionee and is not intended to qualify as an incentive stock option under Section 422 of the Internal revenue Code of 1986. 2. EXERCISE PRICE. The exercise price is Four and 02/100 Dollars ($4.02) per share (the "Exercise Price"). 3. METHOD OF EXERCISE. The Option shall not become exercisable until the six month anniversary of the Date of Grant (as set forth below). The Option shall thereafter be exercisable by written notice (a "Notice of Exercise of Stock Option") in the form attached hereto as Exhibit A. The Notice of Exercise of Stock Option shall be signed by Optionee and shall be delivered in person or by certified mail to the President, Secretary or Chief Financial Officer of the Company, or to such other agent as the Company shall designate in writing to the Optionee, and shall be accompanied by payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of the executed Notice of Exercise of Stock Option accompanied by payment of the Exercise Price. Payment of the Exercise Price may be made by cash or check. The Shares will not be transferred pursuant to the exercise of the Option unless such transfer and such exercise shall comply with all relevant provisions of law, including federal and state securities laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised. 4. REPRESENTATIONS; RESTRICTIONS ON TRANSFER. (a) By receipt of the Option, by its execution and by its exercise, the Optionee represents to the Company the following: 2 (i) The Optionee understands that the Option and the Shares purchased upon its exercise are securities, the issuance of which requires compliance with federal and state securities laws. (ii) The Optionee is aware of the Company's business affairs and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Company's securities. The Optionee is acquiring the Company's securities for investment for the Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (iii) The Optionee acknowledges and understands that the Company's securities constitute "restricted securities" under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Optionee further acknowledges and understands that the Company is under no obligation to register securities. The Optionee further acknowledges and understands that any certificate evidencing the issuance of the Company's securities to the Optionee will be imprinted with a legend which prohibits the transfer of such securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and they are transferred in accordance with the provisions set forth below, and with any other legend required under applicable state securities laws. (b) The Company has the requisite power and authority to execute and deliver this Option Agreement (this "Agreement") and to perform its obligations hereunder and to sell, assign, transfer and convey the Shares to the Optionee upon the due exercise of the Option. 5. NON-TRANSFERABILITY OF OPTION. The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised (i) during the lifetime of the Optionee by the Optionee only and (ii) after the death of the Optionee, by those who take under Optionee's will or by the laws of descent or distribution. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and permitted assigns of the Optionee. 6. TERM OF OPTION. The Option shall not terminate until the five (5) year anniversary of the Date of Grant (as provided below), and may be exercised during such term only in accordance with the terms of this Agreement. 7. TAX CONSEQUENCES. The Optionee has reviewed with the Optionee's own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Optionee understands that the 2 3 Optionee (and not the Company) shall be responsible for any tax liability of the Optionee that may arise as a result of the transactions contemplated by this Agreement. 8. 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 Exercise 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 Exercise Price for all of the shares of Common Stock subject to this Option be in excess of $361,800) and the Optionee, upon the exercise of this option after such date, shall be entitled to receive the aggregate number and kind of shares which, if this Option 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 8 shall occur. 9. 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 Option and payment of the Exercise Price in effect immediately prior to such corporate event, the kind and amount of shares or other securities and property which the Optionee would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Option been exercised immediately prior thereto. 10. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Shares on the exercise of this Option. If any fraction of a Share would, except for the provisions of this Section 10, be issuable on the exercise of this Option (or specified portion hereof), then the Company shall elect, at its option to either (i) round such fractional Share upwards to the nearest whole Share or (ii) pay to the holder an amount in cash equal to such fraction multiplied by the then current fair value of a Share, determined as follows: (a) 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 Option 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 (b) 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 3 4 Market, by the NASD Electronic Bulletin Board) on the last business day prior to the day of the exercise of this Warrant; or (c) 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 manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. 11. REGISTRATION. The Company agrees to register the Shares on Form S-8 under the Securities Act of 1933 within six (6) months from the Date of Grant. 12. NOTICES. Any notice to be given to the Company shall be in writing and addressed to the Company at its principal office at 2013 Indian River Boulevard, Vero Beach, Florida 32960, and any notice to be given to the Optionee shall be in writing and addressed to the Optionee at the address set forth below the Optionee's signature hereto. Any party may change its address for notice purposes by providing the other party with written notice of such change pursuant to the provisions of this Section 12. Any notice hereunder shall be deemed duly given to the party to whom such notice is addressed when delivered personally, when delivery is refused, when delivered by overnight courier service of national reputation providing receipted delivery, or two (2) days after being mailed by certified mail, return receipt requested. 13. RULES OF CONSTRUCTION; JURISDICTION. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey other than any choice of law rules calling for the application of laws of another jurisdiction. All disputes which may arise under this Option Agreement which involve judicial adjudication shall be resolved in a court of competent jurisdiction of the State of New Jersey or the United State District Court of the State of New Jersey. Optionee agrees to submit to the personal jurisdiction of the aforesaid courts and 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. DATE OF GRANT: May 10, 2001 Calton, Inc. By: -------------------------- Name: Title: 4 5 THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE OPTION AND THE TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OF THE COMPANY, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE UNDER THE TERMS OF THE EMPLOYMENT AGREEMENT BETWEEN OPTIONEE AND THE COMPANY EXISTING AS OF THE DATE OF THIS STOCK OPTION AGREEMENT. The Optionee represents that the Optionee is familiar with the terms and provisions of this Agreement, and hereby accepts the Option subject to all of the terms and provisions hereof. The Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: May 10, 2001 ------------------------------------------ Thomas E. Van Fechtmann Optionee Residence Address: ------------------------------------------ ------------------------------------------ ------------------------------------------ Optionee Social Security No. -------------- 5 6 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO: FROM: DATE: RE: Exercise of Option I hereby exercise my option to purchase ___ shares of Common Stock for $______, effective as of the date of this notice. This notice is given in accordance with the terms of my stock option agreement with the Company dated May __, 2001 (the "Option Agreement"). Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Option Agreement. The undersigned is exercising the Option by means of a cash payment, and tenders herewith payment in full for the Shares being purchased, together with all applicable transfer taxes, if any. The undersigned confirms the representations and agreements made in subsection (a) of Section 4 of the Option Agreement. Sincerely, -------------------------- (Signature) -------------------------- (Print or Type Name) Notice of cash payment received on , 20 . ---------- -- Calton, Inc. By: ----------------------------------- Name: Title: 6 EX-3 4 g70457ex3.txt STOCK OPTION FOR THOMAS CORLEY 1 EXHIBIT A-3 THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. STOCK OPTION AGREEMENT Calton, Inc., a New Jersey corporation (the "Company") hereby grants to Thomas Corley (the "Optionee") the option (the "Option") to purchase ten thousand (10,000) shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock") at the price determined as provided herein. The Option may be exercised in whole or in part. 1. NATURE OF THE OPTION. This Option is not intended to qualify for any special tax benefits to the Optionee and is not intended to qualify as an incentive stock option under Section 422 of the Internal revenue Code of 1986. 2. EXERCISE PRICE. The exercise price is Four and 02/100 Dollars ($4.02) per share (the "Exercise Price"). 3. METHOD OF EXERCISE. The Option shall not become exercisable until the six month anniversary of the Date of Grant (as set forth below). The Option shall thereafter be exercisable by written notice (a "Notice of Exercise of Stock Option") in the form attached hereto as Exhibit A. The Notice of Exercise of Stock Option shall be signed by Optionee and shall be delivered in person or by certified mail to the President, Secretary or Chief Financial Officer of the Company, or to such other agent as the Company shall designate in writing to the Optionee, and shall be accompanied by payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of the executed Notice of Exercise of Stock Option accompanied by payment of the Exercise Price. Payment of the Exercise Price may be made by cash or check. The Shares will not be transferred pursuant to the exercise of the Option unless such transfer and such exercise shall comply with all relevant provisions of law, including federal and state securities laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised. 4. REPRESENTATIONS; RESTRICTIONS ON TRANSFER. (a) By receipt of the Option, by its execution and by its exercise, the Optionee represents to the Company the following: 2 (i) The Optionee understands that the Option and the Shares purchased upon its exercise are securities, the issuance of which requires compliance with federal and state securities laws. (ii) The Optionee is aware of the Company's business affairs and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Company's securities. The Optionee is acquiring the Company's securities for investment for the Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (iii) The Optionee acknowledges and understands that the Company's securities constitute "restricted securities" under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Optionee further acknowledges and understands that the Company is under no obligation to register securities. The Optionee further acknowledges and understands that any certificate evidencing the issuance of the Company's securities to the Optionee will be imprinted with a legend which prohibits the transfer of such securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and they are transferred in accordance with the provisions set forth below, and with any other legend required under applicable state securities laws. (b) The Company has the requisite power and authority to execute and deliver this Option Agreement (this "Agreement") and to perform its obligations hereunder and to sell, assign, transfer and convey the Shares to the Optionee upon the due exercise of the Option. 5. NON-TRANSFERABILITY OF OPTION. The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised (i) during the lifetime of the Optionee by the Optionee only and (ii) after the death of the Optionee, by those who take under Optionee's will or by the laws of descent or distribution. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and permitted assigns of the Optionee. 6. TERM OF OPTION. The Option shall not terminate until the five (5) year anniversary of the Date of Grant (as provided below), and may be exercised during such term only in accordance with the terms of this Agreement. 7. TAX CONSEQUENCES. The Optionee has reviewed with the Optionee's own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Optionee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Optionee understands that the 2 3 Optionee (and not the Company) shall be responsible for any tax liability of the Optionee that may arise as a result of the transactions contemplated by this Agreement. 8. 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 Exercise 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 Exercise Price for all of the shares of Common Stock subject to this Option be in excess of $40,200) and the Optionee, upon the exercise of this option after such date, shall be entitled to receive the aggregate number and kind of shares which, if this Option 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 8 shall occur. 9. 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 Option and payment of the Exercise Price in effect immediately prior to such corporate event, the kind and amount of shares or other securities and property which the Optionee would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Option been exercised immediately prior thereto. 10. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Shares on the exercise of this Option. If any fraction of a Share would, except for the provisions of this Section 10, be issuable on the exercise of this Option (or specified portion hereof), then the Company shall elect, at its option to either (i) round such fractional Share upwards to the nearest whole Share or (ii) pay to the holder an amount in cash equal to such fraction multiplied by the then current fair value of a Share, determined as follows: (a) 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 Option 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 (b) 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 3 4 Market, by the NASD Electronic Bulletin Board) on the last business day prior to the day of the exercise of this Warrant; or (c) 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 manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. 11. REGISTRATION. The Company agrees to register the Shares on Form S-8 under the Securities Act of 1933 within six (6) months from the Date of Grant. 12. NOTICES. Any notice to be given to the Company shall be in writing and addressed to the Company at its principal office at 2013 Indian River Boulevard, Vero Beach, Florida 32960, and any notice to be given to the Optionee shall be in writing and addressed to the Optionee at the address set forth below the Optionee's signature hereto. Any party may change its address for notice purposes by providing the other party with written notice of such change pursuant to the provisions of this Section 12. Any notice hereunder shall be deemed duly given to the party to whom such notice is addressed when delivered personally, when delivery is refused, when delivered by overnight courier service of national reputation providing receipted delivery, or two (2) days after being mailed by certified mail, return receipt requested. 13. RULES OF CONSTRUCTION; JURISDICTION. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey other than any choice of law rules calling for the application of laws of another jurisdiction. All disputes which may arise under this Option Agreement which involve judicial adjudication shall be resolved in a court of competent jurisdiction of the State of New Jersey or the United State District Court of the State of New Jersey. Optionee agrees to submit to the personal jurisdiction of the aforesaid courts and 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. DATE OF GRANT: May 10, 2001 Calton, Inc. By: -------------------------- Name: Title: 4 5 THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE OPTION AND THE TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OF THE COMPANY, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE UNDER THE TERMS OF THE EMPLOYMENT AGREEMENT BETWEEN OPTIONEE AND THE COMPANY EXISTING AS OF THE DATE OF THIS STOCK OPTION AGREEMENT. The Optionee represents that the Optionee is familiar with the terms and provisions of this Agreement, and hereby accepts the Option subject to all of the terms and provisions hereof. The Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: May 10, 2001 ---------------------------------------- Thomas Corley Optionee Residence Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- Optionee Social Security No. ------------ 5 6 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO: FROM: DATE: RE: Exercise of Option I hereby exercise my option to purchase ___ shares of Common Stock for $______, effective as of the date of this notice. This notice is given in accordance with the terms of my stock option agreement with the Company dated May __, 2001 (the "Option Agreement"). Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Option Agreement. The undersigned is exercising the Option by means of a cash payment, and tenders herewith payment in full for the Shares being purchased, together with all applicable transfer taxes, if any. The undersigned confirms the representations and agreements made in subsection (a) of Section 4 of the Option Agreement. Sincerely, -------------------------- (Signature) -------------------------- (Print or Type Name) Notice of cash payment received on , 20 . ---------- -- Calton, Inc. By: --------------------------------- Name: Title: 6 -----END PRIVACY-ENHANCED MESSAGE-----