10-Q

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 August 31, 2002
o	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 incorporation or organization)	(IRS Employer Identification Number)

2013 Indian River Blvd. Vero Beach, Florida	32960
(Addresses of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (772) 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   o

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   o

As of October 8, 2002, 4,424,764 shares of Common Stock were outstanding.

TABLE OF CONTENTS

	Item 1: FINANCIAL STATEMENTS
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended August 31, 2002 and 2001 (Unaudited)
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended August 31, 2002 and 2001 (Unaudited)
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended August 31, 2002 and 2001 (Unaudited)
CALTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATION
AMENDED BYLAWS
CEO CERTIFICATION
CFO CERTIFICATION

CALTON, INC. AND SUBSIDIARIES
INDEX

			Page No.
PART I. Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets at August 31, 2002 (Unaudited) and November 30, 2001		3
		Consolidated Statements of Operations (Unaudited) for the Three Months Ended August 31, 2002 and August 31, 2001		4
		Consolidated Statements of Operations (Unaudited) for the Nine Months Ended August 31, 2002 and August 31, 2001		5
		Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended August 31, 2002 and August 31, 2001		6
		Notes to Consolidated Financial Statements		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
	Item 4. Controls and Procedures			16
PART II. Other Information
	Item 5. Other information			17
	Item 6. Exhibits and Reports on Form 8-K			17
SIGNATURES				18
CERTIFICATIONS				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 August 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, 2001.

2

Item 1: FINANCIAL STATEMENTS

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

				August 31,			November 30,
				2002			2001
				(Unaudited)			(Restated)
Assets
	Current Assets
		Cash and cash equivalents		$	3,382,000		$	4,715,000
		Holdback receivable			87,000			86,000
		Accounts receivable, net of allowance for doubtful accounts of $404,000 at August 31, 2002 and November 30, 2001			236,000			479,000
		Prepaid expenses and other current assets			176,000			173,000
			Total current assets		3,881,000			5,453,000
		Investments			—			750,000
		Property and equipment, net			255,000			355,000
		Assets of discontinued component			—			3,255,000
			Total assets	$	4,136,000		$	9,813,000
Liabilities and Shareholders’ Equity
	Current Liabilities
		Accounts payable, accrued expenses and other liabilities		$	1,130,000		$	1,423,000
		Deferred taxes			487,000			487,000
			Total current liabilities		1,617,000			1,910,000
	Commitments and contingencies				—			—
	Liabilities of discontinued component				—			686,000
			Total liabilities		1,617,000			2,596,000
	Shareholders’ Equity
		Common stock, $.05 par value, 10,740,000 shares authorized; 4,625,000 and 4,417,000 shares outstanding at August 31, 2002
			and November 30, 2001, respectively		223,000			221,000
		Additional paid-in capital			13,148,000			13,134,000
		Accumulated (Deficit) Earnings			(748,000	)		4,016,000
		Less cost of shares held in treasury, 1,607,000 and 1,782,000 shares as of August 31, 2002 and November 30, 2001, respectively			(10,104,000	)		(10,154,000	)
			Total shareholders’ equity		2,519,000			7,217,000
			Total liabilities and shareholders’ equity	$	4,136,000		$	9,813,000

See notes to consolidated financial statements.

3

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended August 31, 2002 and 2001
(Unaudited)

			2002			2001
						(Restated)
Revenue
	Technical staffing services		$	273,000		$	734,000
	Homebuilding consulting fees			—			265,000
	Website design and implementation			159,000			208,000
	Credit card loyalty program revenue			9,000			—
	Other			—			61,000
				441,000			1,268,000
Costs and expenses
	Project personnel and expenses			281,000			614,000
	Credit card loyalty program direct expenses			1,000			—
	Selling, general and administrative			958,000			2,075,000
				1,240,000			2,689,000
Loss from operations				(799,000	)		(1,421,000	)
Other (expense) income
	Interest income			28,000			229,000
	Other income			12,000			—
		Loss from continuing operations		(759,000	)		(1,192,000	)
Loss from operations of discontinued component				—			(271,000	)
Loss from disposal of discontinued component				—			—
Net loss				(759,000	)		(1,463,000	)
Basic and diluted loss per common share:
	Loss from continuing operations		$	(0.17	)	$	(0.27	)
	Loss from discontinued component			—			(0.06	)
		Net loss per common share	$	(0.17	)	$	(0.33	)
Weighted average number of shares outstanding
		Basic and diluted		4,507,000			4,396,000

See notes to consolidated financial statements.

4

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended August 31, 2002 and 2001
(Unaudited)

			2002			2001
						(Restated)
Revenue
	Technical staffing services		$	989,000		$	2,281,000
	Homebuilding consulting fees			108,000			881,000
	Website design and implementation			455,000			932,000
	Credit card loyalty program revenue			17,000			—
	Other			—			94,000
				1,569,000			4,188,000
Costs and expenses
	Project personnel and expenses			988,000			1,955,000
	Credit card loyalty program direct expenses			4,000			—
	Selling, general and administrative			3,500,000			5,990,000
				4,492,000			7,945,000
Loss from operations				(2,923,000	)		(3,757,000	)
Other (expense) income
	Interest income			108,000			1,003,000
	Impairment of note receivable			(750,000	)		—
	Other income			340,000			—
		Loss from continuing operations before minority interest		(3,225,000	)		(2,754,000	)
	Minority Interest			—			88,000
		Loss from continuing operations		(3,225,000	)		(2,666,000	)
Loss from operations of discontinued component				(998,000	)		(1,002,000	)
Loss from disposal of discontinued component				(541,000	)		—
Net loss			$	(4,764,000	)	$	(3,668,000	)
Basic and diluted loss per common share:
	Loss from continuing operations		$	(0.72	)	$	(0.65	)
	Loss from discontinued component			(0.34	)		(0.24	)
		Net loss per common share	$	(1.06	)	$	(0.89	)
Weighted average number of shares outstanding
		Basic and diluted		4,474,000			4,245,000

See notes to consolidated financial statements.

5

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended August 31, 2002 and 2001
(Unaudited)

			2002			2001
						(Restated)
Cash flows from operating activities
Net loss			$	(4,764,000	)	$	(3,668,000	)
	Adjustments to reconcile net loss to net cash used in operating activities
	Impairment of investment in note receivable			750,000			—
	Loss from discontinued component			541,000			—
	Minority interest			—			(88,000	)
	Stock options issued for consulting services			—			367,000
	Provision for uncollectible receivables			—			335,000
	Depreciation and amortization			106,000			142,000
	Non-cash directors fees			16,000			—
	Changes in operating assets and liabilities:
		Accounts receivable		243,000			(260,000	)
		Prepaid expenses and other assets		(3,000	)		(22,000	)
		Accounts payable, accrued expenses and other liabilities		(293,000	)		(597,000	)
	Assets and liabilities of discontinued component			2,028,000			427,000
Net cash from operating activities				(1,376,000	)		(3,364,000	)
Cash flows from investing activities
	Receipts (payments) on holdback claims			(1,000	)		1,402,000
	Payments for Centex warranty claims			—			(627,000	)
	Net changes in property and equipment			(6,000	)		(279,000	)
Net cash from investing activities				(7,000	)		496,000
Cash flows from financing activities
	Repurchase of common stock to Treasury			(12,000	)		(372,000	)
	Payment of cash dividend			—			(22,375,000	)
	Treasury Stock issued			62,000			—
	Stock options exercised			—			1,481,000
Net cash from financing activities				50,000			(21,266,000	)
Net (decrease) in cash and cash equivalents				(1,333,000	)		(24,134,000	)
Cash and cash equivalents at beginning of period				4,715,000			30,542,000
Cash and cash equivalents at end of period			$	3,382,000		$	6,408,000

See notes to consolidated financial statements.

6

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 August 31, 2002, and the results of operations and cash flows for the three and nine months ended August 31, 2002 and August 31, 2001 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 28, 2002. Operating results for the three and nine months ended August 31, 2002 are not necessarily indicative of the results that may be expected for the year ended November 30, 2002.
2.	Liquidity
	The Company has incurred a net loss of $759,000 and $4,764,000 for the quarterly and year-to-date periods ended August 31, 2002, respectively. These amounts include non-recurring losses of $0 and $1,539,000, respectively, from the operations of a discontinued component (See Note 9). With the disposal of the unprofitable component and the remaining principal operating companies in a more developed state at the end of the current fiscal quarter compared with earlier periods, management believes that cash on hand as of August 31, 2002, will be sufficient to support consolidated operations of the Company for fiscal 2002. However, it is anticipated that the Company’s cash flow from operations during fiscal 2002, combined with the operations of its operating subsidiaries, eCalton.com, Inc. (“eCalton”) and PrivilegeONE Networks, LLC (“PrivilegeONE”) will continue to utilize cash during 2002 as those operations execute the strategies identified in their business plans. If the subsidiaries do not achieve success in executing their business plans in fiscal 2002, management may be required to curtail certain operating activities, discontinue or dispose of other subsidiaries, sell assets, or seek additional capital in fiscal 2003 to fund operations. No assurances can be given that additional capital will be available, if required, to sustain operations.

7

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.	Investments
	Investments consist of the following as of August 31, 2002 and November 30, 2001:

	August 31,		Nov. 30,
	2002		2001
	(Unaudited)		(Restated)
AIM Convertible Promissory Note		—		750,000
	$	0	$	750,000

In September 2001, the Company advanced $750,000 to Automated Information Management, Inc. (“AIM”) in exchange for a convertible promissory note (the “AIM Note”) and a warrant to acquire 1,059,660 shares of AIM Common Stock at an exercise price of $2.12 per share. The AIM Note provided that the note was mandatorily convertible into 1,000,000 shares of AIM Common Stock no later than five days after the Company was given notice that the Securities and Exchange Commission had declared a proposed registration of these shares effective. AIM defaulted on its agreement to register the shares. Management performed an assessment of the AIM Note during the first fiscal quarter and, based upon a review of AIM’s operating results, which were materially different than projections provided to management by AIM, management believed that the note was not fully recoverable. As a result, the investment was impaired during the first fiscal quarter of 2002. Subsequent to the impairment, AIM repaid $150,000 of the principal amount due under the note. In July 2002, the Company entered into a Forbearance Agreement (“the Agreement”) with Bodark T. Corporation (“Bodark”), the successor of AIM. Pursuant to the Agreement, Bodark issued to the Company, in exchange for the AIM note, a new non-convertible note (the “New Note”) in the principal amount of $600,000, which it is required to repay in equal installments on August 31, 2002, October 31, 2002 and November 30, 2002. In addition, the Company was issued 1,000,000 shares of Bodark common stock and warrants to acquire 1,059,660 shares of Bodark common stock at an exercise price of $2.12 per share. The warrant originally issued by AIM was cancelled. In September 2002, Bodark remitted the August 31, 2002 payment of $200,000. This payment was recorded as other income in the month ended September of 2002 and the Company will record any subsequent payments upon the date of receipt. Management continues to believe the note is not fully recoverable due to economic conditions affecting Bodark’s ability to make good on its obligation on the New Note.

8

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.	Property and Equipment
	Property and equipment consists of the following as of August 31, 2002 and November 30, 2001:

		August 31,			November 30,
		2002			2001
		(Unaudited)			(Restated)
Computer equipment and furniture		$	431,000		$	577,000
Leasehold improvements			162,000			155,000
Other			35,000			—
			628,000			732,000
	Less: Accumulated Depreciation		(373,000	)		(377,000	)
		$	255,000		$	355,000

5.	Accounts Payable, Accrued Expenses and Other Liabilities
	Accounts payable, accrued expenses and other liabilities consist of the following as of August 31, 2002 and November 30, 2001:

	August 31,		November 30,
	2002		2001
	(Unaudited)		(Restated)
Accounts payable, trade	$	186,000	$	152,000
Accrued expenses		254,000		477,000
Payable to a director		—		108,000
		440,000		737,000
Other liabilities including warranty claims		690,000		686,000
	$	1,130,000	$	1,423,000

6.

Shareholders’ Equity Activity

Employee Stock Purchase Plan (“ESPP”) — The first and second offering periods for the Company’s ESPP ended on December 31, 2001 and July 31, 2002, respectively. An aggregate of 55,000 common shares and 139,000 common shares, respectively, were issued from the Company’s Treasury Stock account to participants in the plan upon the expiration of the respective offering periods. The proceeds received by the Company for the stock purchases were $62,000.

9

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7.	Segment Reporting
	During the nine months ended August 31, 2002, the Company operated three identifiable business segments as specified below. The first business segment is comprised of eCalton Internet Business Development (an end-to-end solutions provider for Internet Business Development) and eCalton Technology Professionals (technology-based consulting and staffing services specializing in network design and management). The second business segment is that of PrivilegeONE, which developed the patent pending PrivilegeONE Loyalty Program, which aggregates disparate entities under the PrivilegeONE umbrella to create customer loyalty and retention to the individual entity through the issuance of co-branded credit cards by a financial institution and membership cards. The third business segment was that of Corporate and consulting which included Innovation Growth Partners (“IGP”), prior to its disposal in April 2002 (See Note 9)
	Operating results, by industry segment, for the nine months ended August 31, 2002 and 2001 are as follows (in thousands):

	Nine months ended August 31, 2002- Unaudited
	Internet			Credit Card			Corporate and
	Development			Loyalty			Consulting			Total
	and Staffing			Business			Services			Company
Total revenues	$	1,444		$	17		$	108		$	1,569
Total cost of revenues		988			4			—			992
Depreciation and amortization		67			—			39			106
Loss from operations		(709	)		(1,069	)		(1,145	)		(2,923	)
Interest income		—			—			108			108
Loss from continuing operations		(497	)		(1,069	)		(1,659	)		(3,225	)
Total assets	$	415		$	56		$	3,665		$	4,136

	Nine months ended August 31, 2001 - Restated
	Internet			Credit Card			Corporate and
	Development			Loyalty			Consulting			Total
	and Staffing			Business			Services			Company
Total revenues	$	3,213		$	—		$	975		$	4,188
Total cost of revenues		1,955			—			—			1,955
Depreciation and amortization		88			5			49			142
Loss from operations		(1,083	)		(1,793	)		(881	)		(3,757	)
Interest income		—			1			1,002			1,003
Loss from continuing operations		(1,083	)		(1,793	)		210			(2,666	)
Total assets	$	803		$	347		$	9,083		$	10,233

10

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.	Commitments and Contingent Liabilities
	Contingent Liability Arising from Discontinued Operation
	The agreement pursuant to which the Company sold Calton Homes in December 1998 required the Company to indemnify the purchaser for, among other things, certain liabilities that arise out of events occurring prior to the closing, including certain warranty claims on homes built. In connection with the sale, the Company entered into a holdback escrow agreement with the purchaser pursuant to which approximately $5,200,000 of the closing proceeds were deposited into escrow. Of this amount, approximately $3,000,000 (the “General Indemnification Funds”) was deposited to provide security for the Company’s indemnity obligations and approximately $2,200,000 (the “Specific Indemnification Funds”) was deposited to fund costs associated with certain specified litigation involving Calton Homes. During October 2001, the Company entered into a settlement agreement with the purchaser that released certain remaining funds in the escrow account. As of August 31, 2002, approximately $86,000 of the Specific Indemnification Funds remained in escrow. In July 2002, the purchaser served a Demand for Arbitration on the Company in connection with a claim for approximately $500,000 in damages related to alleged construction defects in homes delivered by Calton Homes prior to its sale. The Company believes that it has recorded adequate reserves to meet its future obligations related to the remaining warranty claims.
	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 Company’s agreement with the purchaser of Calton Homes requires that the liquidating trust be funded with any Specific Indemnification Funds remaining in escrow plus $2,000,000.
	Agreement with Fleet
	The Company and PrivilegeONE have entered into a credit card processing agreement with Fleet Credit Card Services, L.P. (“Fleet”) pursuant to which Fleet has agreed to issue the PrivilegeONE credit cards. Under the agreement, Fleet is required to pay PrivilegeONE a fee for each account established through the PrivilegeONE program and a percentage of the revenue realized from finance charges. PrivilegeONE is required to pay Fleet a fee for the development of the credit card for each participating automotive dealer. The agreement requires the Company to capitalize PrivilegeONE with not less than $500,000 during the original five-year term of the agreement and maintain a contingency reserve fund equal to three and one-half (3.5%) percent of all net revenues received by PrivilegeONE, up to a maximum of $1,500,000. PrivilegeONE has not yet collected any significant revenues and thus the Company has not yet established the contingency reserve. Under the terms of the agreement, the Company is required to reimburse Fleet for the cost of Fleet’s software and other costs incurred by Fleet to develop the PrivilegeONE program, up to a maximum of $350,000. As of May 31, 2002, the Company had reimbursed Fleet $350,000 for its software and development costs.

11

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.	Commitments and Contingent Liabilities (continued)
	Legal Proceeding
	On April 12, 2002, S. Raymond Tetreault and Thomas E. Van Fechtmann, each of whom is a former officer and member of PrivilegeONE, filed an action in the United States District Court for the State of Rhode Island against the Company, PrivilegeONE and certain officers of the Company, alleging, among other things, (i) breach of their employment agreements with PrivilegeONE in connection with the termination of their employment; (ii) breach of fiduciary duty, (iii) breach of contract as a result of the Company’s unwillingness to permit the early exercise of certain options to acquire the Company’s Common Stock prior to the record date for the dividend declared by the Company’s Board of Directors in May 2001; and (iv) common law fraud, misrepresentation and violations of the Securities Act of 1933 in connection with the acquisition by the Company of their interest in PrivilegeONE in May 2001, due to an alleged failure to disclose the proposed dividend to the plaintiffs. The plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified amount, injunctive relief and the imposition of a constructive trust on 190,000 shares of the Company’s Common Stock and its ownership interest in PrivilegeONE. The Company had made an offer of settlement of $75,000, which has been declined by the plaintiffs. Such offer of settlement has since been rescinded and the Company intends to vigorously defend the claims which it believes are without merit. No amounts have been accrued related to this matter.
9.	Disposal of Innovation Growth Partners (IGP)
	On April 23, 2002, the Company disposed of its 51% interest in IGP by delivering its ownership interests to the IGP management in exchange for $1,030,000 of IGP’s cash reserves and warrants to acquire 25,000 shares of Miresco Investment Services, Inc., a privately held company which designs, imports and sells high quality area rugs throughout the United States. The transaction resulted in a loss of $541,000, which was recorded in the quarter ended May 31, 2002. IGP was originally established to develop businesses and provide management and consulting services to entrepreneurial and development stage companies, as well as developing and acquiring controlling interests in the businesses with which they consult. However, since its inception, IGP has not generated significant revenues or profits and has required significant cash infusion.
	The consolidated financial statements and related notes for all periods prior to the disposal have been restated, where applicable, to reflect the disposal of IGP as a discontinued operation. Revenues and net loss included in discontinued operations for the nine months ended August 31, 2002 amounted to $4,500 and $998,000, respectively. Revenues and net loss included in discontinued operations for the nine months ended August 31, 2001 amounted to $94,000 and $1,002,000, respectively.

12

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10.	Recent Accounting Pronouncements
	In August 2001, the Financial Accounting Standards Board Issued Financial Accounting Standard No. 144 Accounting for the Impairment or Disposal of Long-lived Assets (“FAS144”). The recent accounting pronouncement replaces FAS121 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of (“FAS121”), but generally retains its requirements with respect to long-lived assets to be held and used. In addition, the new pronouncement modifies the basic provisions of Accounting Principles Board Opinion No. 30 Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, to allow discontinued operations for a component of an entity, as opposed to a segment. A component of an entity is generally defined as having discrete assets, liabilities and operations. The Company had adopted FAS144 in the quarter ended February 28, 2002; the pronouncement would have otherwise been effective for the Company’s fiscal year ended November 30, 2003. See Note 9 for effects of this new pronouncement.
	In April 2002, the FASB issued SFAS No. 145 covering, among other things, the rescission of SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.” Under SFAS No. 4, all gains and losses from the extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item in the statement of operations. By rescinding SFAS 4, SFAS No. 145 eliminates the requirement for treatment of extinguishments as extraordinary items. The new standard is effective for companies with fiscal years beginning after May 15, 2002, however, early application of the provision is encouraged. At this time, the Company does not believe that this new standard will have a material effect on its financial statements.
	In July 2002, the FASB issued SFAS No. 146, “Accounting Costs Associated with Exit or Disposal Activities”. SFAS No. 146 covers a wide range of exit and disposal activities, including restructurings planned and controlled by management that materially change the scope of the business undertaken by an enterprise and disposal activities such as costs of terminating certain contracts, costs of consolidating facilities and some types of termination benefits provided to employees. SFAS 146 will be effective for exit and disposal activities initiated after December 31, 2002. At this time, the Company does not believe that this new standard will have a material effect on its financial statements.

13

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the Three and Nine Months ended August 31, 2002 and 2001

Revenues for the three months ended August 31, 2002 and 2001 were $441,000 and $1,268,000, respectively. Revenues for the nine months ended August 31, 2002 and August 31, 2001 were $1,569,000 and $4,188,000, respectively. The primary reasons for the decline in revenues in 2002, for both the quarter and nine months, were (i) the expiration of the consulting agreement with the purchaser of Calton Homes in December 2001, (ii) the declining demand for technical staffing in the Houston market as a result of recent mergers and subsequent layoffs of talented professionals and (iii) a significant one-time project in the website development division which was completed in 2001.

     Project personnel and expenses decreased to $281,000 for the quarter ended August 31, 2002, compared to $614,000 for the quarter ended August 31, 2001. Project personnel and expenses for the nine months ended August 31, 2002 and August 31, 2001 were $988,000 and $1,955,000, respectively. The decrease in both the quarter and nine months is attributed to the lower levels of revenues generated in the technical staffing and website development divisions.

Selling, general and administrative costs for the quarter ended August 31, 2002 were $958,000, compared to $2,075,000 for the quarter ended August 31, 2001. Selling, general and administrative costs for the nine months ended August 31, 2002 and August 31, 2001 were $3,496,000 and $5,990,000, respectively. The decrease in both the quarter and nine months is primarily attributable to significant downsizing of operations at both the PrivilegeONE and the website development subsidiaries. Specifically, both divisions have dramatically reduced occupancy costs and have experienced a reduction in staff compared to the three and nine-month periods ended August 31, 2001.

Interest income declined significantly in 2002 compared to 2001 due to the significant reduction in cash balances.

During the quarter ended May 31, 2002, the Company received a $150,000 payment from Automated Information Management (“AIM”) on its $750,000 note (the “AIM Note”), which was due in full in June 2002. This amount was recorded in other income. The Company impaired the entire amount of the note in the quarter ended February 28, 2002. In July 2002, the Company entered into a Forbearance Agreement with Bodark T. Corporation (“Bodark”), the successor of AIM, to restructure the existing obligation. Pursuant to the Agreement, Bodark issued to the Company, in exchange for the AIM note, a new note (the “New Note”) in the principal amount of $600,000, which it is required to repay in equal installments on August 31, 2002, October 31, 2002 and November 30, 2002. In September of 2002, Bodark remitted the August 31, 2002 payment of $200,000. Management continues to believe the note is not fully recoverable due to economic conditions affecting Bodark’s ability to make good on its obligation on the New Note.

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On April 23, 2002, the Company disposed of its 51% interest in Innovation Growth Partners, Inc. (IGP) by delivering its ownership interests to the IGP management in exchange for $1,030,000 of IGP’s cash reserves and warrants to acquire 25,000 shares of Miresco Investment Services, Inc., a privately held company which designs, imports and sells high quality area rugs throughout the United States. The transaction resulted in a loss of $541,000, which was recorded in the quarter ended May 31, 2002. IGP was originally established to develop businesses and provide management and consulting services to entrepreneurial and development stage companies, as well as developing and acquiring controlling interests in the businesses with which they consult. However, from its inception, IGP had not generated significant revenues or profits and, therefore, required significant cash infusion.

The consolidated financial statements and related notes for all periods prior to the disposal have been restated, where applicable, to reflect the disposal of IGP as a discontinued operation. Revenues and net loss included in discontinued operations for the nine months ended August 31, 2002 amounted to $4,500 and $998,000, respectively. Revenues and net loss included in discontinued operations for the nine months ended August 31, 2001 amounted to $94,000 and $1,002,000, respectively.

Liquidity and Capital Resources

As of August 31, 2002, the Company had $3,382,000 of cash and cash equivalents. The Company believes that the current cash on hand will be sufficient to support the operations of the Company and its subsidiaries for fiscal 2002. It is anticipated that the Company’s cash flow from operations, combined with the operations of eCalton and PrivilegeONE will continue to utilize cash until, if ever, those operations execute their strategies identified in their business plans. If the Company’s subsidiaries do not achieve success in executing their business plans in the near future, the Company may be required to curtail certain operating activities, dispose of assets or seek additional capital to fund operations. No assurance can be given that additional capital will be available, if required, to sustain operations.

During the nine months ending August 31, 2002, the Company repurchased an aggregate of 19,000 shares of treasury stock for a total of $12,000 at an average price of $0.63 per share.

During the nine months ended August 31, 2002, the Company reserved the carrying value of the AIM note receivable in the amount of $750,000 as a result of management’s determination that the note was not collectible. Subsequent to the impairment, the Company received a payment of $150,000 on the AIM note receivable. In July 2002, the Company entered into a Forbearance Agreement (“the Agreement”) with Bodark, the successor of AIM. Pursuant to the Agreement, Bodark issued to the Company, in exchange for the AIM note, the New Note, in the principal amount of $600,000, which it is required to repay in equal installments on August 31, 2002, October 31, 2002 and November 30, 2002. In addition, the Company was issued 1,000,000 shares of Bodark common stock and warrants to acquire 1,059,660 shares of Bodark common stock. A warrant for a similar number of shares of AIM common stock was cancelled. In September 2002, Bodark remitted the August 31, 2002 payment of $200,000. Management continues to believe the note is not fully recoverable due to economic conditions affecting Bodark’s ability to make good on its obligation on the New Note.

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During the nine months ended August 31, 2002, the Company compensated its directors with stock compensation. As a result, a charge of $16,000 was recorded reflecting the quoted market value of the shares of stock on the dates distributed.

Sensitive Accounting Estimates

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 notes. Significant estimates include management’s estimate of the carrying value of accounts receivable and investments. Actual results could differ from those estimates.

Item 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer along with the Company’s Chief Financial Officer, who concluded that the Company’s disclosure controls and procedures are effective. There have been no significant changes in the Company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

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PART II. OTHER INFORMATION

Item 5. OTHER INFORMATION

On September 10, 2002, the Company announced that it was notified on September 9, 2002 that the American Stock Exchange had accepted a plan submitted by the Company to bring the Company into compliance with the Exchange’s continued listing standards.

On July 26, 2002, the Company received notice from the American Stock Exchange indicating that the Company is below certain of the Exchange’s continued listing standards due to the operating losses it has sustained in three out of four of its most recent fiscal years and a decline in shareholders’ equity below $4,000,000, as set forth in Section 1003(a)(ii) of the AMEX Company Guide. The Company was afforded the opportunity to submit a plan of compliance to the Exchange and submitted the plan on August 22, 2002. On September 9, 2002, the Exchange notified the Company that it accepted the Company’s plan of compliance and granted the Company an extension of time to regain compliance with the continued listing standards. The Company will be subject to periodic review by the Exchange staff during the 18-month extension period, which ends in January 2004. Failure to make progress consistent with the plan or to regain compliance with the continued listing standards by the end of the extension period could result in the Company being de-listed from the Exchange.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     A) Exhibits

3.2	- -	Amended By-Laws
99.1	- -	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
99.2	- -	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

     B) Reports on Form 8-K

The Company filed a Report on Form 8-K as of August 23, 2002 in connection with the appointment of officers of the Company.

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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/ Thomas C. Corley
	Thomas C. Corley Senior V.P. and Chief Financial Officer (Principal Financial and Accounting Officer)
Date: October 15, 2002

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CERTIFICATION

	I, Anthony J. Caldarone, certify that:
1.	I have reviewed this quarterly report on Form 10-Q for the quarterly period ended August 31, 2002 of Calton, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

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6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: October 15, 2002
	/s/ Anthony J. Caldarone
	Anthony J. Caldarone Chairman and Chief Executive Officer

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CERTIFICATION

	I, Thomas C. Corley, certify that:
7.	I have reviewed this quarterly report on Form 10-Q for the quarterly period ended August 31, 2002 of Calton, Inc.;
8.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
9.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
10.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

11. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

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12. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: October 15, 2002
	/s/ Thomas C. Corley
	Thomas C. Corley Senior V.P. and Chief Financial Officer

22 EX-3.2 3 g78734exv3w2.txt AMENDED BYLAWS EXHIBIT 3.2 CALTON, INC. BY-LAWS ARTICLE I OFFICES Section 1. The registered office shall be at 43 W. Front Street, Suite 15, Red Bank, County of Monmouth, State of New Jersey. The registered agent of the Corporation at such office is Mary H. Magee. Section 2. The Corporation may also have offices at such other places, both within and without the State of New Jersey, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. All meetings of the shareholders for the election of directors and for any other purpose may be held at such time and place, within or without the State of New Jersey, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of shareholders shall be held on a regular business day of the month of March or April at the offices of the Corporation or at such other date, time and place of which shall be established by the Board of Directors, at which they shall elect by a plurality vote a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Notice of the annual meeting shall be given by mailing, no more than sixty (60) days nor less than ten (10) days prior thereto, a written notice stating the time and place thereof, directed to each shareholder of record entitled to vote at the meeting at his address as the same appears upon the records of the Corporation. Section 4. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make and certify a complete list of the shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. Such list shall be arranged alphabetically within each class, series, or group of shareholders maintained by the Corporation, showing the address of, and the number of shares held by, each shareholder. Such list shall be produced at the time and place of the meeting; be subject to the inspection of any shareholder during the whole time of the meeting; and be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any such meetings. Section 5. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or the president, and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written or telegraphic notice of a special meeting of shareholders, stating the time, place and object thereof, shall be given to each shareholder entitled to vote thereat, not more than sixty (60) nor less than ten (10) days before the date fixed for the meeting. Section 7. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjourned meeting is for more than thirty (30) days, or, if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present, in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Each shareholder shall, at every meeting of the shareholders, be entitled to that number of votes in person or by proxy as provided in the certificate of incorporation for each share of capital stock having voting power held by such shareholder. Every shareholder entitled to vote at a meeting of shareholders or to express consent without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his agent, except that a proxy may be given by a shareholder or his agent by telegram or cable or by any means of electronic communication which results in a writing. No proxy shall be valid for more than 11 months, unless a longer time is expressly provided therein. Unless it is irrevocable as provided below in this Article II, Section 10, a proxy shall be revocable at will. The grant of a later proxy revokes any earlier proxy unless the earlier proxy is irrevocable. A proxy shall not be revoked by the death or incapacity of a shareholder but such 2 proxy shall continue in force until revoked by the personal representative or guardian of the shareholder. The presence at any meeting of any shareholder who has given a proxy does not revoke the proxy unless the shareholder files written notice of the revocation with the secretary of the meeting prior to the voting of the proxy or votes the shares subsequent to the proxy by written ballot. A proxy which states that it is irrevocable is irrevocable if coupled with an interest either in the stock itself or in the Corporation and, in particular and without limitation, if it is held by any of the following or a nominee of any of the following: (a) a pledgee; (b) a person who has purchased or agreed to purchase the shares; (c) a creditor of the Corporation who has extended credit or has agreed to continue to extend credit to the Corporation if the proxy is given in consideration of the extension or continuation; (d) a person who has agreed to perform services as an employee of the Corporation if the proxy is given in consideration of the agreement; or (e) a person designated pursuant to the terms of an agreement as to voting between two or more shareholders. An irrevocable proxy becomes revocable when the interest which supports the proxy has terminated. Unless noted conspicuously on the share certificate, an otherwise irrevocable proxy may be revoked by a person who becomes the holder of the shares without actual knowledge of the restriction. A person named in a proxy as the attorney or agent of a shareholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the secretary of the Corporation. Section 11. Whenever the vote of shareholder at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provision of the statutes or of the Certificate of Incorporation, the meeting and the vote of shareholders may be dispensed with if all the shareholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken, and in the case of any action to be taken pursuant to Chapter 10 of Title 14A of the Revised Statutes of the State of New Jersey, the Corporation provides to all other shareholders the advanced notification required by N.J.S.A. 14A:5-6(2)(b). Subject to the provisions of N.J.S.A. 14A:5-6(2), whenever the vote of shareholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provision of the statutes or of the Certificate of Incorporation, other than the election of directors, the meeting and vote of shareholders may be dispensed with and the action may be taken without a meeting upon the written consent of shareholders who would have been entitled to cast the minimum number of votes which would be necessary to authorize such action at a meeting at which all shareholders entitled to vote thereon were present and voting. Section 12. At each meeting of shareholders, the Chairman of the Company's Board of Directors or in his or her absence the President of the Company or in his or her absence any Vice President of the Company or in his or her absence a chairman chosen by the vote of a majority in interest of the shareholders present in person or represented by proxy and entitled to vote thereat, shall act as chairman. The Secretary or in his or her absence an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board 3 of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations, the chairman shall have the authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry at the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The chairman shall have absolute authority over matters of procedure and there shall be no appeal from the ruling of the chairman. The chairman may rule that a resolution, nomination or motion not be submitted to the shareholders for a vote unless seconded by a shareholder or a proxy for a shareholder. The chairman may require that any person who is neither a bona fide shareholder nor a proxy for a bona fide shareholder leave the meeting, and upon the refusal of a shareholder to comply with a procedural ruling of the chairman which the chairman deems necessary for the proper conduct of the meeting, may require that such shareholder leave the meeting. The chairman may, on his own motion, summarily adjourn any meeting for any period he deems necessary if he rules that orderly procedures cannot be maintained at the meeting. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. Section 13. To be properly brought before an annual meeting of shareholders, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board or (c) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than 90 days prior to the meeting anniversary date of the immediately preceding annual meeting. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 13 of Article II and any other applicable requirements, PROVIDED, HOWEVER, that nothing in this Section 13 of Article II shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 13 of 4 Article II and any other applicable requirements and if he should so determine, which determination shall be conclusive, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole Board shall be the number, not less than three nor more than fifteen, fixed from time to time by a majority vote of the whole Board of Directors; provided, no decrease in the number of directors shall shorten the term of any incumbent director. Each director shall serve for the term of the class for which elected or until such time as a successor shall have been duly elected and shall have qualified. Directors need not be shareholders. Section 2. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder entitled to vote in the election of directors generally. However, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such shareholder's intent to make such nomination or nominations has been given either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days prior to the anniversary date of the immediately preceding annual meeting; and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the signed consent of each nominee to serve as a director of the Corporation if so elected. The Corporation may require any proposed nominee or shareholder proposing a nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation or to properly complete any proxy or information statements used for the solicitation of proxies in connection with the meeting at which directors are to be elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 3. Whenever any vacancy shall occur in the Board of Directors by death, resignation or otherwise, it shall be filled by a majority vote of the directors then in office, though less than a quorum, but any such director so elected shall hold office only until the next succeeding annual meeting of 5 shareholders. At such annual meeting, such director or a successor to such director shall be elected and qualified in the class to which such director is assigned to hold office for the term or remainder of the term of such class. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Section 4. The business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the shareholders. Section 5. The removal of one or more directors for cause or without cause shall be governed by N.J.S.A. 14A:6-6 or any successor provisions thereto. MEETINGS OF THE BOARD OF DIRECTORS Section 6. The Board of Directors of the Corporation may hold meetings, both regular or special, either within or without the State of New Jersey. Section 7. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the shareholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the shareholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors, or upon the conclusion of the shareholders' meeting at which time they were elected, without further notice. At such meeting the Board of Directors shall elect from their own number a chairman of the Board and president for the ensuing year and until their successors are elected and qualify in their stead, elect other officers of the Corporation, and shall transact such other business as may come before the meeting. Section 8. Regular meetings of the Board of Directors may be held without notice at such time and to such place as shall from time to time be determined by the Board. Section 9. Special meetings of the Board may be called by the chairman of the Board or president or secretary on three (3) days notice to each director, either personally or by mail, including electronic mail, or by telegram. Special meetings shall be called by the president or secretary in like manner and on like notice on the written request of any two directors. Section 10. At all meetings of the Board, a majority of the directors in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a 6 quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. COMPENSATION OF DIRECTORS Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and directors who are not full-time employees of the Corporation may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. COMMITTEES OF DIRECTORS Section 13. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; PROVIDED, HOWEVER, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 14. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. ARTICLE IV NOTICES Section 1. Notices to shareholders shall be in writing and delivered personally or mailed to the shareholders at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given if given by telegram. Notices to directors shall be in writing and delivered personally or mailed, including electronic mail, at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given if by telegram. 7 Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a president, one or more vice-presidents, a secretary, a treasurer and such assistant secretaries and assistant treasurers as the Board of Directors shall from time to time determine. The Board of Directors may also designate one or more vice-presidents to be executive vice-presidents and/or senior vice-presidents. Two or more offices may be held by the same person except that where the offices of president and secretary are held by the same person, such person shall not hold any other office. Section 2. The Board of Directors may appoint each other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 3. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors, except that the Board of Directors may delegate such duty to an officer or officers of the Corporation. Section 4. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors, without the necessity of specifying any cause therefor and without any prior notice of such action to the officer so removed. THE CHAIRMAN OF THE BOARD Section 5. The Chairman of the Board shall preside at all meetings of the shareholders and the Board of Directors and shall be the chief executive officer of the Corporation. The Chairman of the Board shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to such person's office which may be required by law and all such other duties as are properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the stockholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. THE PRESIDENT Section 6. The President shall be the chief operating officer of the Corporation, and shall act in a general executive capacity and shall assist the Chairman of the Board in the administration and operation of the Corporation's business and general supervision of its policies and affairs. The President, if he or she is also a Director, shall, in the absence of or because of the 8 inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of stockholders and of the Board of Directors. Section 7. The President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to the officers of the Corporation or to some other officer or agent of the Corporation. THE VICE-PRESIDENT Section 8. The vice-president, or if there shall be more than one, the vice-presidents, shall, in the absence or disability of the president and the Chairman of the Board and the executive vice-president and/or senior vice-president, if any, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the Board of Directors or the president may from time to time prescribe. The Board of Directors may determine the order in which the vice-presidents shall so act in place of the president, and may designate a vice-president to perform all of the duties of the president in the case of the absence or disability of the president. The exercise of any power or the performance of any duty of the president by the vice-president so designated shall be conclusive evidence of the disability of the president and the Chairman of the Board and the executive vice-president and/or senior vice-president. THE SECRETARY AND ASSISTANT SECRETARY Section 9. The Secretary or an assistant secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and be, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries, in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 9 THE TREASURER AND ASSISTANT TREASURER Section 11. The treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 12. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. Section 13. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in the case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belong to the Corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers, in the order determined by the Board of Directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer as the Board of Directors may from time to time prescribe. ARTICLE VI INDEMNIFICATION Section 1. The Corporation shall indemnify a corporate agent against his expenses and liabilities actually and reasonably incurred in connection with the defense of any proceeding involving the corporate agent by reason of his being or having been such a corporate agent, other than a proceeding by or in the right of the Corporation, if (a) such corporate agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and (b) with respect to any criminal proceeding, such corporate agent had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that such corporate agent did not meet the applicable standards of conduct set forth in paragraphs (a) and (b) herein. Section 2. The Corporation shall indemnify a corporate agent against his liabilities and expenses, actually or reasonably incurred by him in connection with the defense, in any proceeding, by or in the right of the Corporation to procure a judgment in its favor which involves the corporate agent by reason of his being or having been such corporate agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation. However, in such proceeding no indemnification shall be provided in respect of any claim, issue or matter as to which such corporate agent shall have been adjudged liable to the Corporation unless and only to the extent that the New Jersey Superior Court or the court in 10 which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all circumstances of the case, such corporate agent is fairly and reasonably entitled to indemnity for such expenses or liabilities as the New Jersey Superior Court or such other court shall deem proper. Section 3. The Corporation shall indemnify a corporate agent against expenses (including attorneys fees) to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in Sections 1 and 2 of this Article or in defense of any claim, issue or matter therein. Section 4. Any indemnification under Section 1 of this Article and, unless ordered by a court, under Section 2 of this Article, may be made by the Corporation only as authorized in a specific case upon a determination that indemnification is proper in the circumstances because the corporate agent met the applicable standard of conduct set forth in Sections 1 or 2 of this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding or (b) if such a quorum is not obtainable, or, event if obtainable and such quorum of the Board of Directors by a majority vote of the disinterested directors so directs, by independent legal counsel in a written opinion, such counsel to be designated by the Board of Directors or (c) by the shareholders. Section 5. Expenses incurred by a corporate agent in connection with a proceeding may be paid by the Corporation in advance of the final disposition of the proceeding, as authorized by the Board of Directors, upon receipt of an undertaking by or on behalf of the corporate agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified as provided in this Article. Section 6. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article shall not exclude any other rights to which a corporate agent may be entitled under the certificate of incorporation, a bylaw, agreement, vote of shareholders, or otherwise; provided that no indemnification shall be made to or on behalf of a corporate agent if a judgment or other final adjudication adverse to the corporate agent establishes that his acts or omissions (a) were in breach of his duty of loyalty to the Corporation or its Shareholders, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the corporate agent of an improper personal benefit. Section 7. The Corporation shall have the power to purchase and maintain insurance on behalf of any corporate agent against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been a corporate agent, whether or not the Corporation would have the power to indemnify him against such expenses and liabilities under the provisions of this section. The Corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned by or otherwise affiliated with the Corporation, whether or not such insurer does business with other insureds. 11 ARTICLE VII CERTIFICATE OF STOCK Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman of the Board or president or executive vice-president, a senior vice-president or a vice-president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Where a certificate is countersigned (a) by a transfer agent other than the Corporation or its employee or (b) by a registrar other than the Corporation or its employee, any other signature on the certificate, including the signatures of the officers of the Corporation, may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. Any person claiming a certificate or certificates of stock of the Corporation to be lost, stolen or destroyed shall provide notice of that fact to the secretary or an assistant secretary of the Corporation. Any two (2) officers of the Corporation, other than an assistant secretary or an assistant treasurer, may direct a new certificate or certificates to be issued in place of and of the same tenor and for the same number of shares as the certificate or certificates theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate or certificates of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, such officers may, in their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond or indemnity in form and amount and with one or more sureties satisfactory to such officers as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed. The Board of Directors may at any time authorize the issuance of a new certificate or certificates to replace a certificate or certificates alleged to be lost, stolen or destroyed upon such other lawful terms and conditions as the Board of Directors shall prescribe. TRANSFER OF STOCK Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence or succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any 12 other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, and not more than sixty (60) days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments, a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of New Jersey. ARTICLE VIII LOANS AND GUARANTEES Section 1. The Corporation may make loans to, may guarantee the indebtedness of, and may otherwise provide financial assistance to any director, officer or employee of the Corporation, provided that the Board determines, in its judgment, that the action may reasonably be expected to benefit the Corporation. Loans, guarantees, and other financial assistance made pursuant to this Section shall contain all terms and conditions that the Board of Directors deems appropriate at the time the loans, guarantees, or assistance are made. ARTICLE IX GENERAL PROVISIONS Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends, such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meeting contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 13 ANNUAL STATEMENT Section 3. The Board of Directors shall present at each annual meeting, and at any special meeting of the shareholders when called for by vote of the shareholders, a full and clear statement of the business and condition of the Corporation. CHECKS Section 4. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 5. The officers of the Corporation and such other persons as may be designated by the Board of Directors, shall severally have full power and authority to receive and give receipt for all monies due and payable to this Corporation from any source whatever, and to endorse for deposit warrants and checks in its name, and on its behalf, and to give full discharge for the same. FISCAL YEAR Section 6. The fiscal year of the Corporation shall begin on the first day of December of each year. SEAL Section 7. The corporate seal shall have inscribed thereon the following: "CALTON, INC., 1981, Corporate Seal, New Jersey". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE X DEFINITIONS All terms used in these By-laws shall have the meaning defined in the New Jersey Business Corporation Act, which are incorporated herein by reference, unless otherwise defined in these By-laws. ARTICLE XI AMENDMENTS Section 1. These By-Laws may be altered, amended or repealed, or new by-laws may be adopted by the Board of Directors, at any regular meeting of the Board of Directors or at any special meeting of the Board of Directors. These By-Laws may also be altered, amended or repealed, or new by-laws may be adopted, by the shareholders, at any regular meeting or at any special meeting if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. AS AMENDED THROUGH SEPTEMBER 1, 2002 EX-99.1 4 g78734exv99w1.txt CEO CERTIFICATION EXHIBIT 99.1 CALTON, INC. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), the undersigned hereby certifies as follows: 1. Anthony J. Caldarone is the Chief Executive Officer of Calton, Inc. (the "Company"). 2. To the best of my knowledge: (A) The Company's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2002 accompanying this Certification, in the form filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (B) The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 15, 2002 /s/ Anthony J. Caldarone ------------------------- Anthony J. Caldarone Chief Executive Officer EX-99.2 5 g78734exv99w2.txt CFO CERTIFICATION EXHIBIT 99.2 CALTON, INC. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), the undersigned hereby certifies as follows: 3. Thomas C. Corley is the Chief Financial Officer of Calton, Inc. (the "Company"). 4. To the best of my knowledge: (A) The Company's Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2002 accompanying this Certification, in the form filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (B) The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 15, 2002 /s/ Thomas C. Corley ----------------------------------------- Thomas C. Corley Senior V. P. and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2

                                  CALTON, INC.

                                     BY-LAWS



                                   ARTICLE I

                                    OFFICES

         Section 1. The registered office shall be at 43 W. Front Street, Suite
15, Red Bank, County of Monmouth, State of New Jersey. The registered agent of
the Corporation at such office is Mary H. Magee.

         Section 2. The Corporation may also have offices at such other places,
both within and without the State of New Jersey, as the Board of Directors may
from time to time determine or the business of the Corporation may require.

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

         Section 1. All meetings of the shareholders for the election of
directors and for any other purpose may be held at such time and place, within
or without the State of New Jersey, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

         Section 2. Annual meetings of shareholders shall be held on a regular
business day of the month of March or April at the offices of the Corporation or
at such other date, time and place of which shall be established by the Board of
Directors, at which they shall elect by a plurality vote a Board of Directors
and transact such other business as may properly be brought before the meeting.

         Section 3. Notice of the annual meeting shall be given by mailing, no
more than sixty (60) days nor less than ten (10) days prior thereto, a written
notice stating the time and place thereof, directed to each shareholder of
record entitled to vote at the meeting at his address as the same appears upon
the records of the Corporation.

         Section 4. The officer or agent having charge of the stock transfer
books for shares of the Corporation shall make and certify a complete list of
the shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof. Such list shall be arranged alphabetically within each class, series,
or group of shareholders maintained by the Corporation, showing the address of,
and the number of shares held by, each shareholder. Such list shall be produced
at the time and place of the meeting; be subject to the inspection of any
shareholder during the whole time of the meeting; and be prima facie evidence as
to who are the shareholders entitled to examine such list or to vote at any such
meetings.





         Section 5. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board or the president, and
shall be called by the president or secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of shareholders
owning a majority in amount of the entire capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.

         Section 6. Written or telegraphic notice of a special meeting of
shareholders, stating the time, place and object thereof, shall be given to each
shareholder entitled to vote thereat, not more than sixty (60) nor less than ten
(10) days before the date fixed for the meeting.

         Section 7. Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.

         Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjourned meeting is for more than thirty (30) days,
or, if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote at the meeting.

         Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present, in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.

         Section 10. Each shareholder shall, at every meeting of the
shareholders, be entitled to that number of votes in person or by proxy as
provided in the certificate of incorporation for each share of capital stock
having voting power held by such shareholder.

         Every shareholder entitled to vote at a meeting of shareholders or to
express consent without a meeting may authorize another person or persons to act
for him by proxy. Every proxy shall be executed in writing by the shareholder or
his agent, except that a proxy may be given by a shareholder or his agent by
telegram or cable or by any means of electronic communication which results in a
writing. No proxy shall be valid for more than 11 months, unless a longer time
is expressly provided therein. Unless it is irrevocable as provided below in
this Article II, Section 10, a proxy shall be revocable at will. The grant of a
later proxy revokes any earlier proxy unless the earlier proxy is irrevocable. A
proxy shall not be revoked by the death or incapacity of a shareholder but such



                                       2


proxy shall continue in force until revoked by the personal representative or
guardian of the shareholder. The presence at any meeting of any shareholder who
has given a proxy does not revoke the proxy unless the shareholder files written
notice of the revocation with the secretary of the meeting prior to the voting
of the proxy or votes the shares subsequent to the proxy by written ballot.

         A proxy which states that it is irrevocable is irrevocable if coupled
with an interest either in the stock itself or in the Corporation and, in
particular and without limitation, if it is held by any of the following or a
nominee of any of the following: (a) a pledgee; (b) a person who has purchased
or agreed to purchase the shares; (c) a creditor of the Corporation who has
extended credit or has agreed to continue to extend credit to the Corporation if
the proxy is given in consideration of the extension or continuation; (d) a
person who has agreed to perform services as an employee of the Corporation if
the proxy is given in consideration of the agreement; or (e) a person designated
pursuant to the terms of an agreement as to voting between two or more
shareholders. An irrevocable proxy becomes revocable when the interest which
supports the proxy has terminated. Unless noted conspicuously on the share
certificate, an otherwise irrevocable proxy may be revoked by a person who
becomes the holder of the shares without actual knowledge of the restriction.

         A person named in a proxy as the attorney or agent of a shareholder
may, if the proxy so provides, substitute another person to act in his place,
including any other person named as an attorney or agent in the same proxy. The
substitution shall not be effective until an instrument effecting it is filed
with the secretary of the Corporation.

         Section 11. Whenever the vote of shareholder at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provision of the statutes or of the Certificate of Incorporation, the meeting
and the vote of shareholders may be dispensed with if all the shareholders who
would have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken, and in the case of any
action to be taken pursuant to Chapter 10 of Title 14A of the Revised Statutes
of the State of New Jersey, the Corporation provides to all other shareholders
the advanced notification required by N.J.S.A. 14A:5-6(2)(b).

         Subject to the provisions of N.J.S.A. 14A:5-6(2), whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the statutes or of the
Certificate of Incorporation, other than the election of directors, the meeting
and vote of shareholders may be dispensed with and the action may be taken
without a meeting upon the written consent of shareholders who would have been
entitled to cast the minimum number of votes which would be necessary to
authorize such action at a meeting at which all shareholders entitled to vote
thereon were present and voting.

         Section 12. At each meeting of shareholders, the Chairman of the
Company's Board of Directors or in his or her absence the President of the
Company or in his or her absence any Vice President of the Company or in his or
her absence a chairman chosen by the vote of a majority in interest of the
shareholders present in person or represented by proxy and entitled to vote
thereat, shall act as chairman. The Secretary or in his or her absence an
Assistant Secretary or in the absence of the Secretary and all Assistant
Secretaries a person whom the chairman of the meeting shall appoint shall act as
secretary of the meeting and keep a record of the proceedings thereof. The Board



                                       3


of Directors of the Corporation shall be entitled to make such rules or
regulations for the conduct of meetings of shareholders as it shall deem
necessary, appropriate or convenient. Subject to such rules and regulations, the
chairman shall have the authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
shareholders of record of the Corporation and their duly authorized and
constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry at the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. The chairman shall have
absolute authority over matters of procedure and there shall be no appeal from
the ruling of the chairman. The chairman may rule that a resolution, nomination
or motion not be submitted to the shareholders for a vote unless seconded by a
shareholder or a proxy for a shareholder. The chairman may require that any
person who is neither a bona fide shareholder nor a proxy for a bona fide
shareholder leave the meeting, and upon the refusal of a shareholder to comply
with a procedural ruling of the chairman which the chairman deems necessary for
the proper conduct of the meeting, may require that such shareholder leave the
meeting. The chairman may, on his own motion, summarily adjourn any meeting for
any period he deems necessary if he rules that orderly procedures cannot be
maintained at the meeting. Unless, and to the extent, determined by the Board of
Directors or the chairman of the meeting, meetings of shareholders shall not be
required to be held in accordance with rules of parliamentary procedure.

         Section 13. To be properly brought before an annual meeting of
shareholders, business must be either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of the
Board or (c) otherwise properly brought before the meeting by a shareholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not later than
90 days prior to the meeting anniversary date of the immediately preceding
annual meeting. A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting, (ii) the name and record address of the shareholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the shareholder and (iv) any material interest of the
shareholder in such business.

         Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 13 of Article II and any other applicable
requirements, PROVIDED, HOWEVER, that nothing in this Section 13 of Article II
shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting.

         The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 13 of



                                       4


Article II and any other applicable requirements and if he should so determine,
which determination shall be conclusive, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.

                                  ARTICLE III

                                    DIRECTORS

         Section 1. The number of directors which shall constitute the whole
Board shall be the number, not less than three nor more than fifteen, fixed from
time to time by a majority vote of the whole Board of Directors; provided, no
decrease in the number of directors shall shorten the term of any incumbent
director. Each director shall serve for the term of the class for which elected
or until such time as a successor shall have been duly elected and shall have
qualified. Directors need not be shareholders.

         Section 2. Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of directors generally. However,
any shareholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors generally may nominate
one or more persons for election as directors at a meeting only if written
notice of such shareholder's intent to make such nomination or nominations has
been given either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not later than (i) with respect to
an election to be held at an annual meeting of shareholders, 90 days prior to
the anniversary date of the immediately preceding annual meeting; and (ii) with
respect to an election to be held at a special meeting of shareholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to shareholders. Each such notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (e)
the signed consent of each nominee to serve as a director of the Corporation if
so elected. The Corporation may require any proposed nominee or shareholder
proposing a nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation or to properly complete any
proxy or information statements used for the solicitation of proxies in
connection with the meeting at which directors are to be elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.

         Section 3. Whenever any vacancy shall occur in the Board of Directors
by death, resignation or otherwise, it shall be filled by a majority vote of the
directors then in office, though less than a quorum, but any such director so
elected shall hold office only until the next succeeding annual meeting of



                                       5


shareholders. At such annual meeting, such director or a successor to such
director shall be elected and qualified in the class to which such director is
assigned to hold office for the term or remainder of the term of such class. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute.

         Section 4. The business of the Corporation shall be managed by its
Board of Directors, which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the shareholders.

         Section 5. The removal of one or more directors for cause or without
cause shall be governed by N.J.S.A. 14A:6-6 or any successor provisions thereto.

                       MEETINGS OF THE BOARD OF DIRECTORS

         Section 6. The Board of Directors of the Corporation may hold meetings,
both regular or special, either within or without the State of New Jersey.

         Section 7. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
shareholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the shareholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors, or upon the conclusion of the
shareholders' meeting at which time they were elected, without further notice.
At such meeting the Board of Directors shall elect from their own number a
chairman of the Board and president for the ensuing year and until their
successors are elected and qualify in their stead, elect other officers of the
Corporation, and shall transact such other business as may come before the
meeting.

         Section 8. Regular meetings of the Board of Directors may be held
without notice at such time and to such place as shall from time to time be
determined by the Board.

         Section 9. Special meetings of the Board may be called by the chairman
of the Board or president or secretary on three (3) days notice to each
director, either personally or by mail, including electronic mail, or by
telegram. Special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of any two directors.

         Section 10. At all meetings of the Board, a majority of the directors
in office shall constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a



                                       6


quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.

         Section 11. Unless otherwise restricted by the Certificate of
Incorporation or by these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members of
the Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.

                            COMPENSATION OF DIRECTORS

         Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, and directors who are not
full-time employees of the Corporation may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as a director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.

                             COMMITTEES OF DIRECTORS

         Section 13. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of two or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution, shall have and may exercise
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; PROVIDED, HOWEVER, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors.

         Section 14. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.

                                   ARTICLE IV

                                     NOTICES

         Section 1. Notices to shareholders shall be in writing and delivered
personally or mailed to the shareholders at their addresses appearing on the
books of the Corporation. Notice by mail shall be deemed to be given if given by
telegram. Notices to directors shall be in writing and delivered personally or
mailed, including electronic mail, at their addresses appearing on the books of
the Corporation. Notice by mail shall be deemed to be given if by telegram.



                                       7


         Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.

                                   ARTICLE V

                                    OFFICERS

         Section 1. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a president, one or more
vice-presidents, a secretary, a treasurer and such assistant secretaries and
assistant treasurers as the Board of Directors shall from time to time
determine. The Board of Directors may also designate one or more vice-presidents
to be executive vice-presidents and/or senior vice-presidents. Two or more
offices may be held by the same person except that where the offices of
president and secretary are held by the same person, such person shall not hold
any other office.

         Section 2. The Board of Directors may appoint each other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.

         Section 3. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors, except that the Board of Directors may
delegate such duty to an officer or officers of the Corporation.

         Section 4. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors, without the necessity of specifying any
cause therefor and without any prior notice of such action to the officer so
removed.

                            THE CHAIRMAN OF THE BOARD

         Section 5. The Chairman of the Board shall preside at all meetings of
the shareholders and the Board of Directors and shall be the chief executive
officer of the Corporation. The Chairman of the Board shall be responsible for
the general management of the affairs of the Corporation and shall perform all
duties incidental to such person's office which may be required by law and all
such other duties as are properly required of him by the Board of Directors. He
shall make reports to the Board of Directors and the stockholders, and shall see
that all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect.

                                  THE PRESIDENT

         Section 6. The President shall be the chief operating officer of the
Corporation, and shall act in a general executive capacity and shall assist the
Chairman of the Board in the administration and operation of the Corporation's
business and general supervision of its policies and affairs. The President, if
he or she is also a Director, shall, in the absence of or because of the



                                       8


inability to act of the Chairman of the Board, perform all duties of the
Chairman of the Board and preside at all meetings of stockholders and of the
Board of Directors.

         Section 7. The President shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to the officers of the Corporation or to some other officer
or agent of the Corporation.

                               THE VICE-PRESIDENT

         Section 8. The vice-president, or if there shall be more than one, the
vice-presidents, shall, in the absence or disability of the president and the
Chairman of the Board and the executive vice-president and/or senior
vice-president, if any, perform the duties and exercise the powers of the
president and shall perform such other duties and have such other powers as the
Board of Directors or the president may from time to time prescribe. The Board
of Directors may determine the order in which the vice-presidents shall so act
in place of the president, and may designate a vice-president to perform all of
the duties of the president in the case of the absence or disability of the
president. The exercise of any power or the performance of any duty of the
president by the vice-president so designated shall be conclusive evidence of
the disability of the president and the Chairman of the Board and the executive
vice-president and/or senior vice-president.

                      THE SECRETARY AND ASSISTANT SECRETARY

         Section 9. The Secretary or an assistant secretary shall attend all
meetings of the Board of Directors and all meetings of the shareholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose. He shall give, or cause to
be given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or president, under whose supervision he shall be. He
shall have custody of the corporate seal of the Corporation and be, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and, when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.

         Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries, in the order determined by the Board of Directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary, and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.



                                       9


                  THE TREASURER AND ASSISTANT TREASURER

         Section 11. The treasurer shall have the custody of the corporate funds
and securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
monies and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.

         Section 12. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.

         Section 13. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in the case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belong to the Corporation.

         Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers, in the order determined by the Board of
Directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer as the Board of Directors may
from time to time prescribe.

                                   ARTICLE VI

                                 INDEMNIFICATION

         Section 1. The Corporation shall indemnify a corporate agent against
his expenses and liabilities actually and reasonably incurred in connection with
the defense of any proceeding involving the corporate agent by reason of his
being or having been such a corporate agent, other than a proceeding by or in
the right of the Corporation, if (a) such corporate agent acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and (b) with respect to any criminal proceeding,
such corporate agent had no reasonable cause to believe his conduct was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that such corporate agent did not meet the
applicable standards of conduct set forth in paragraphs (a) and (b) herein.

         Section 2. The Corporation shall indemnify a corporate agent against
his liabilities and expenses, actually or reasonably incurred by him in
connection with the defense, in any proceeding, by or in the right of the
Corporation to procure a judgment in its favor which involves the corporate
agent by reason of his being or having been such corporate agent, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation. However, in such proceeding no
indemnification shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged liable to the Corporation
unless and only to the extent that the New Jersey Superior Court or the court in



                                       10


which such proceeding was brought shall determine upon application that despite
the adjudication of liability, but in view of all circumstances of the case,
such corporate agent is fairly and reasonably entitled to indemnity for such
expenses or liabilities as the New Jersey Superior Court or such other court
shall deem proper.

         Section 3. The Corporation shall indemnify a corporate agent against
expenses (including attorneys fees) to the extent that such corporate agent has
been successful on the merits or otherwise in any proceeding referred to in
Sections 1 and 2 of this Article or in defense of any claim, issue or matter
therein.

         Section 4. Any indemnification under Section 1 of this Article and,
unless ordered by a court, under Section 2 of this Article, may be made by the
Corporation only as authorized in a specific case upon a determination that
indemnification is proper in the circumstances because the corporate agent met
the applicable standard of conduct set forth in Sections 1 or 2 of this Article.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to or otherwise
involved in the proceeding or (b) if such a quorum is not obtainable, or, event
if obtainable and such quorum of the Board of Directors by a majority vote of
the disinterested directors so directs, by independent legal counsel in a
written opinion, such counsel to be designated by the Board of Directors or (c)
by the shareholders.

         Section 5. Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the Corporation in advance of the final disposition of
the proceeding, as authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified as
provided in this Article.

         Section 6. The indemnification and advancement of expenses provided by
or granted pursuant to the other sections of this Article shall not exclude any
other rights to which a corporate agent may be entitled under the certificate of
incorporation, a bylaw, agreement, vote of shareholders, or otherwise; provided
that no indemnification shall be made to or on behalf of a corporate agent if a
judgment or other final adjudication adverse to the corporate agent establishes
that his acts or omissions (a) were in breach of his duty of loyalty to the
Corporation or its Shareholders, (b) were not in good faith or involved a
knowing violation of law or (c) resulted in receipt by the corporate agent of an
improper personal benefit.

         Section 7. The Corporation shall have the power to purchase and
maintain insurance on behalf of any corporate agent against any expenses
incurred in any proceeding and any liabilities asserted against him by reason of
his being or having been a corporate agent, whether or not the Corporation would
have the power to indemnify him against such expenses and liabilities under the
provisions of this section. The Corporation may purchase such insurance from, or
such insurance may be reinsured in whole or in part by, an insurer owned by or
otherwise affiliated with the Corporation, whether or not such insurer does
business with other insureds.



                                       11


                                  ARTICLE VII

                              CERTIFICATE OF STOCK

         Section 1. Every holder of stock in the Corporation shall be entitled
to have a certificate signed by, or in the name of, the Corporation by the
Chairman of the Board or president or executive vice-president, a senior
vice-president or a vice-president and by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.

         Section 2. Where a certificate is countersigned (a) by a transfer agent
other than the Corporation or its employee or (b) by a registrar other than the
Corporation or its employee, any other signature on the certificate, including
the signatures of the officers of the Corporation, may be facsimiles. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

                                LOST CERTIFICATES

         Section 3. Any person claiming a certificate or certificates of stock
of the Corporation to be lost, stolen or destroyed shall provide notice of that
fact to the secretary or an assistant secretary of the Corporation. Any two (2)
officers of the Corporation, other than an assistant secretary or an assistant
treasurer, may direct a new certificate or certificates to be issued in place of
and of the same tenor and for the same number of shares as the certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
such officers may, in their discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond or indemnity in form and amount and with one or more sureties
satisfactory to such officers as indemnity against any claim that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost, stolen or destroyed. The Board of Directors may at any time
authorize the issuance of a new certificate or certificates to replace a
certificate or certificates alleged to be lost, stolen or destroyed upon such
other lawful terms and conditions as the Board of Directors shall prescribe.

                                TRANSFER OF STOCK

         Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence or succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

         Section 5. In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any



                                       12


other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of such meeting, and not more than sixty (60) days prior to any other
action. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.

                             REGISTERED STOCKHOLDERS

         Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments, a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of New
Jersey.

                                  ARTICLE VIII

                              LOANS AND GUARANTEES

         Section 1. The Corporation may make loans to, may guarantee the
indebtedness of, and may otherwise provide financial assistance to any director,
officer or employee of the Corporation, provided that the Board determines, in
its judgment, that the action may reasonably be expected to benefit the
Corporation. Loans, guarantees, and other financial assistance made pursuant to
this Section shall contain all terms and conditions that the Board of Directors
deems appropriate at the time the loans, guarantees, or assistance are made.

                                   ARTICLE IX

                               GENERAL PROVISIONS

         Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.

         Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends, such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meeting contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.



                                       13


                                ANNUAL STATEMENT

         Section 3. The Board of Directors shall present at each annual meeting,
and at any special meeting of the shareholders when called for by vote of the
shareholders, a full and clear statement of the business and condition of the
Corporation.

                                     CHECKS

         Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.

         Section 5. The officers of the Corporation and such other persons as
may be designated by the Board of Directors, shall severally have full power and
authority to receive and give receipt for all monies due and payable to this
Corporation from any source whatever, and to endorse for deposit warrants and
checks in its name, and on its behalf, and to give full discharge for the same.

                                   FISCAL YEAR

         Section 6. The fiscal year of the Corporation shall begin on the first
day of December of each year.

                                      SEAL

         Section 7. The corporate seal shall have inscribed thereon the
following: "CALTON, INC., 1981, Corporate Seal, New Jersey". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

                                   ARTICLE X

                                   DEFINITIONS

         All terms used in these By-laws shall have the meaning defined in the
New Jersey Business Corporation Act, which are incorporated herein by reference,
unless otherwise defined in these By-laws.

                                   ARTICLE XI

                                   AMENDMENTS

         Section 1. These By-Laws may be altered, amended or repealed, or new
by-laws may be adopted by the Board of Directors, at any regular meeting of the
Board of Directors or at any special meeting of the Board of Directors. These
By-Laws may also be altered, amended or repealed, or new by-laws may be adopted,
by the shareholders, at any regular meeting or at any special meeting if notice
of such alteration, amendment, repeal or adoption of new by-laws be contained in
the notice of such special meeting.

AS AMENDED THROUGH SEPTEMBER 1, 2002

EX-99.1

                                                                    EXHIBIT 99.1


                                  CALTON, INC.
     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                            (18 U.S.C. Section 1350)


         Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Sections 1350(a) and (b)), the undersigned hereby certifies
as follows:

1.       Anthony J. Caldarone is the Chief Executive Officer of Calton, Inc.
         (the "Company").

2.       To the best of my knowledge:

         (A)      The Company's Quarterly Report on Form 10-Q for the quarterly
                  period ended August 31, 2002 accompanying this Certification,
                  in the form filed with the Securities and Exchange Commission
                  (the "Report") fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934, as
                  amended (the "Exchange Act"); and

         (B)      The information in the Report fairly presents, in all material
                  respects, the financial condition and results of operations of
                  the Company.

Dated:  October 15, 2002

                                                     /s/ Anthony J. Caldarone
                                                     -------------------------
                                                     Anthony J. Caldarone
                                                     Chief Executive Officer

EX-99.2

                                                                    EXHIBIT 99.2

                                  CALTON, INC.
     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                            (18 U.S.C. Section 1350)


         Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Sections 1350(a) and (b)), the undersigned hereby certifies
as follows:

3.       Thomas C. Corley is the Chief Financial Officer of Calton, Inc. (the
         "Company").

4.       To the best of my knowledge:

         (A)      The Company's Quarterly Report on Form 10-Q for the quarterly
                  period ended August 31, 2002 accompanying this Certification,
                  in the form filed with the Securities and Exchange Commission
                  (the "Report") fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934, as
                  amended (the "Exchange Act"); and

         (B)      The information in the Report fairly presents, in all material
                  respects, the financial condition and results of operations of
                  the Company.

Dated:  October 15, 2002

                                     /s/ Thomas C. Corley
                                     -----------------------------------------
                                     Thomas C. Corley
                                     Senior V. P. and Chief Financial Officer