SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended November 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file no. 1-8846 CALTON, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2433361 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 Craig Road Manalapan, New Jersey 07726-8790 (Addresses of principal Zip Code executive offices) Registrant's telephone number, including area code: (908) 780-1800 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of each exchange Title of each class on which registered Common Stock, $.01 par value per share American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No The aggregate market value (based upon the last sales price reported by the American Stock Exchange) of voting shares held by non-affiliates of the registrant as of March 31, 1997 was $8,489,000. As of March 31, 1997, 26,538,000 shares of Common Stock were outstanding. Certain items in Parts I and II incorporate information by reference from the 1996 Annual Report to Shareholders. Except for portions which are expressly incorporated by reference herein, the Annual Report is not deemed filed a part hereof. Disclosure Concerning Forward-Looking Statements All statements, other than statements of historical fact, included in this Form 10-K, including without limitation the statements incorporated by reference in Part II, Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the statements under "Business," are, or may be deemed to be, "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements, including the statements pertaining to the Company's ability to comply with the covenants contained in its revolving credit facility which are incorporated by reference in Part II - Items 7 and 8, involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements contained in this Form 10-K. Such potential risks and uncertainties, include without limitation, matters related to national and local economic conditions, the effect of governmental regulation on the Company, the competitive environment in which the Company operates, changes in interest rates, home prices, availability and cost of land for future growth, the timing of land acquisition and product development, availability of working capital and the availability and cost of labor and materials, and other risk factors detailed herein and in other of the Company's Securities and Exchange Commission filings. The forward-looking statements are made as of the date of this Form 10-K and the Company assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements. PART I Item 1. BUSINESS (a) General Development of Business General Calton, Inc. (the "Company" or "Calton") and its subsidiaries design, construct and sell single family detached homes primarily in central New Jersey and central Florida. The Company markets primarily to first and second time move-up buyers with the 549 homes delivered in fiscal 1996 having an average sales price of approximately $201,000. The Company's current homebuilding activities are conducted primarily through two divisions: the Northeast and the Florida division. Calton was incorporated in 1981 for the purpose of acquiring all of the issued and outstanding capital stock of Kaufman and Broad of New Jersey, Inc., a New Jersey corporation, from Kaufman and Broad, Inc., a Maryland corporation. After the acquisition, the name of Kaufman and Broad of New Jersey, Inc. was changed to Calton Homes, Inc. ("Calton Homes") which continues as a wholly owned subsidiary of Calton. Calton maintains its executive offices at 500 Craig Road, Manalapan, New Jersey 07726 and its telephone number is (908) 780-1800. On March 9, 1993, Calton and certain of its subsidiaries filed petitions under Chapter 11 of the United States Bankruptcy Code. The United States Bankruptcy Court confirmed the Plan of Reorganization (the "Reorganization") on May 6, 1993 and the Reorganization was consummated on May 28, 1993. The Reorganization resulted in the discharge of approximately $61.5 million of indebtedness and $22.8 million of interest payments owed to certain creditors. In exchange for the discharge of these obligations, these creditors were issued a combination of cash, equity securities and short-term debt instruments which were retired in September 1993. The equity securities issued to the creditors represented approximately 93.5% of the voting power of the Company's capital stock. On November 21, 1995, the Company had a significant shift in stock ownership and voting rights. In addition, changes occurred on the Board of Directors and in the Company's management. Since 1969, the Company and its predecessor have constructed and sold approximately 17,200 units in 143 residential developments in New Jersey, Florida, Pennsylvania, California and Illinois. At November 30, 1996, the Company had 20 communities open for sales. The Company builds single-family -1- detached homes ranging in base price from $96,000 to $199,000 in the Florida division and $180,000 to $515,000 in the Northeast division. The average base selling price of homes to be built on unsold lots, as of November 30, 1996, was approximately $148,000 and $285,000 for the Florida and Northeast divisions, respectively. Because of the timing of home deliveries, the average base selling price of homes under development may not be indicative of the average revenue per home sold in any fiscal year. See Item 1(c), "Residential Development." In 1996, the Company began its entry into the active adult housing market in Ocean County, New Jersey. Through this community, marketed under the name Renaissance, the Company will offer nine different single-family detached home types. The Company has the contractual right to purchase up to 2,000 finished lots on a rolling-option basis with the land seller funding the construction of the amenities. This community is anticipated to be a major part of the Northeast division's future deliveries and results. The Renaissance community will offer a wide array of amenities, including a 24-hour attended gatehouse, a 25,000 square foot clubhouse and an eighteen-hole golf course. (b) Financial Information About Industry Segments Substantially all revenues and equity in earnings, operating profits and assets of the Company and its subsidiaries are attributable to one line of business, the development and sale of residential housing and the acquisition and sale of real property. (c) Description of Business General The Company designs, constructs and sells single family detached homes, primarily in central New Jersey and central Florida. The Company markets primarily to first and second time move-up buyers with the 549 homes delivered in fiscal 1996 having an average sales price of approximately $201,000. Corporate Operations The Company operates through separate divisions, which are located within or near the markets in which they operate. Each division is managed by an executive with substantial experience in the markets served. In addition, each division is staffed with personnel equipped with the skills to complete the functions of land acquisition, entitlement processing, land development, construction, marketing, sales and product service. The Company's corporate staff is responsible for: (i) evaluating the suitability of and selecting geographic markets; (ii) allocating capital resources among divisions; (iii) maintaining the Company's relations with its lenders to regulate the flow of financial resources; and (iv) monitoring the divisional operations. Capital commitments are determined through consultation among senior management and division managers. Centralized financial controls are also maintained through the standardization of accounting and financial policies and procedures, which are applied uniformly throughout the Company. The Company's operating strategy generally consists of: (i) targeting primarily the second and third time move-up buyer and, beginning in 1997, the active adult community buyer in New Jersey; (ii) conducting homebuilding activities in markets that, based on economic and demographic trends, demonstrate strong -2- growth potential; (iii) designing each residential community to meet the needs of the particular market based on local conditions and demographic factors; (iv) minimizing land risks by purchasing entitled tracts of well-located property through options or contingent purchase contracts and limiting land holdings to those which can be developed within two years from the date of purchase or where available purchasing finished lots on a rolling option basis; (v) developing residential communities in phases which enables the Company to reduce financial exposure, control construction and operating expenses and adapt quickly to changes in customer demands and other market conditions; (vi) utilizing subcontractors to perform land development and home construction on a fixed price basis; and (vii) emphasizing the quality, features and value of its homes. Geographic Markets The Company's current business operations are principally located in central New Jersey and the greater Orlando, Florida area. Generally, the Company has organized divisions that are located in markets that demonstrate a strong growth profile. The Company selects locations within these markets for its residential housing communities that have ready access to metropolitan areas by public transportation and major arterial highways and which have experienced increased housing demand. In March 1995, the Company consolidated its New Jersey-North and New Jersey- South divisions into the Northeast division. The Northeast division conducts homebuilding activities in Burlington, Hunterdon, Monmouth, Middlesex, Ocean and Mercer counties in New Jersey. The Company's Florida division conducts homebuilding activities in the Orange and Seminole County areas, concentrating in the suburban Orlando area. The Company does not anticipate that it will expand into any new geographic areas in fiscal 1997 and, therefore, plans to focus its operating locations and available capital in the Northeast and Florida divisions. Products The Company offers a variety of homestyles tailored to meet the specific needs of the particular geographic and demographic markets served, including the second and third time move-up buyer and, to a lesser extent, the first time and first time move-up buyer. Homestyles, prices and sizes are tailored to each community based upon the Company's assessment of specific market conditions and the restrictions imposed by local jurisdictions. In certain projects, recreational amenities such as tennis courts and playground areas are constructed by the Company. The Company believes that its current product strategy which primarily focuses on the second and third time move up and active adult buyer enables it to mitigate some of the risks inherent in the homebuilding industry by providing it with a product mix that supplies particular markets that are not as susceptible to changing market conditions including interest rate changes. The Company generally standardizes its product line within geographic markets it serves. This standardization improves the quality of construction and permits efficient production techniques and bulk purchasing of materials and components, thus reducing construction costs and the time required to build a home. See "Sales and Marketing." -3- Land Acquisition, Planning and Development Substantially all of the land acquired by the Company is purchased only after necessary entitlements have been obtained so that the Company has certain rights to begin development or construction as market conditions dictate. The term "entitlements" refers to developmental approvals, tentative maps or recorded plats, depending on the jurisdiction within which the land is located. Entitlements generally give a developer the right to obtain building permits upon compliance with certain conditions that are usually within the developer's control. Although entitlements are ordinarily obtained prior to the Company's purchase of the land, the Company is still required to obtain a variety of other governmental approvals and permits during the development process. The Company primarily buys finished lots that are ready for construction in the Florida market. Although finished lots are generally not available in the Northeast markets, the Company has entered into a contract to purchase up to 2,000 finished lots on a rolling option basis in Ocean County, New Jersey, in its active adult community marketed under the name Renaissance. The Company's general policy has been to control land for future development or sale through the use of purchase options or contingent purchase contracts whenever practicable and where market conditions permit. The Company endeavors to acquire property for development either (i) on an installment method, with closings on a portion of a project on a periodic basis or (ii) through the use of purchase money mortgages. In certain cases, when available, the Company acquires finished lots on a rolling option basis. These policies enable the Company to limit its financial commitments, including cash expenditures and interest and other carrying costs, and avoid large land inventories which exceed the Company's near term development needs. At the same time, the Company retains any appreciation in the value of the parcel prior to exercising the option or closing the contingent purchase contract. During the option or contingency period, the Company performs feasibility studies, technical, engineering and environmental surveys and obtains the entitlements. In making land acquisitions, the Company considers such factors as: (i) current market conditions; (ii) internal and external demographic and marketing studies; (iii) environmental conditions; (iv) proximity to developed and recreational areas; (v) availability of mass transportation and major arterial highways and ready access to metropolitan areas and other employment centers; (vi) industrial and commercial growth patterns; (vii) financial review as to the feasibility of the proposed community, including projected profit margins, returns on capital employed and payback periods; (viii) the ability to secure governmental approvals and entitlements; (ix) customer preferences; (x) access to materials and subcontractors; and (xi) management's judgement as to the real estate market, economic trends and the Company's experience in a particular market. The Company's development activities include land planning and securing entitlements. These activities are performed by the Company's employees, together with independent engineers, architects and other consultants. The Company's employees also develop long-term planning of future communities. Construction The Company employs production managers who are responsible for coordinating all functions pertaining to the construction process. All construction work for the Company is performed by subcontractors on a fixed price basis, with the Company acting as general contractor. In order to maintain control over costs, -4- quality and work schedules, the Company employs an on-site superintendent who is responsible for supervising subcontractor work at each project. The Company's housing is constructed according to standardized design plans that are then customized to each individual contract preference. Generally, the Company seeks to develop communities having a number of lots to absorb deliveries over a minimum one year period in order to reduce the per unit cost of the housing products which it sells. Advantages achieved by volume building include lower unit prices paid to subcontractors and reduced material costs per unit. Generally, the Company's policy is to commence construction of a detached housing unit beyond the foundation after a sales contract for that unit has been signed. The Company does, however, ordinarily attempt to maintain a predetermined inventory of homes in-process in order to match the construction times of homes with the mortgage application process and to accommodate customers who require immediate occupancy, such as relocation buyers. In addition, in order to permit construction and delivery of housing units on a year round basis, the Company, in anticipation of winter in the Northeast, will start construction of foundations prior to having signed sales contracts. Materials and Subcontractors The Company attempts to maintain efficient operations by utilizing standardized material available from a variety of sources. Prices for materials may fluctuate due to various factors, including demand levels or supply shortages. During 1996, major building material prices for lumber, asphalt and appliances remained relatively flat while prices for concrete increased modestly. The price of gypsum remained flat overall, increasing during the first half of the year with a corresponding decrease during the second half. The Company enters into contracts with numerous subcontractors representing all building trades in connection with the construction of its homes, and has established long-term relationships with a number of subcontractors. These subcontractors bid competitively for each phase of the work at each project and are selected based on quality, price and reliability. Subcontractor bids are solicited after an internal job cost budget estimate has been prepared based on estimated material quantities. These internal estimates serve as the formal baseline budget against which the cost of each trade is measured. Each division is responsible for contracting all trades in each of its communities. Production costs are monitored monthly to assess actual versus contracted amounts. The Company closely monitors subcontractor performance and expenditures on each community to assess project profitability. Additionally, the Company is generally able to obtain reduced prices from many of its subcontractors due to the volume of work it provides to its subcontractors. Agreements with subcontractors generally are for three to twelve months, and provide a fixed price for labor and materials. The Company has, from time to time, experienced minor temporary construction delays due to shortages of materials or availability of subcontractors. Such construction delays may extend the period of time between the signing of a purchase contract and the receipt of revenues by the Company at the time of delivery of the home to the buyer. To date, the Company has experienced no material adverse financial effects as a result of construction delays. Currently, sufficient materials and subcontractors are available to meet the -5- Company's demands; however, the Company cannot predict the extent to which shortages in necessary materials or labor may occur in the future. Sales and Marketing Each division establishes marketing objectives, determines retail pricing, formulates sales strategies and develops advertising programs, which in each case, are subject to periodic market analyses conducted by the division. The Company typically constructs, furnishes and landscapes model homes for each community and maintains an on-site sales office staffed with its own sales personnel. The Company makes use of newspaper, billboard and direct mail advertising, special promotional events and illustrated brochures in a comprehensive marketing program. The Company has established a web site on the Internet (http://www.caltonhomes.com) to provide its customers with additional information on the Company's communities and homes. In marketing its products, the Company emphasizes quality, features and value and provides a 15 year limited warranty on its homes. In addition, the Company offers a customization program in order to make the products the Company builds more attractive to homebuyers by tailoring them to individual customer needs. The Company's sales personnel participate in an intensive sales training program to develop their skills and knowledge. The Company consults with these personnel in the product development process to obtain and consider feedback from customers and information with respect to the Company's competitors. Sales of the Company's homes are made pursuant to standard sales contracts that are customary in the markets served by the Company. Such contracts require a customer deposit (generally up to 5% of the base selling price unless limited by local law) at time of contract signing and provide the customer with a mortgage contingency, if necessary. The contingency period typically is sixty (60) days following execution of the contract. In certain instances, contracts are contingent on the sale of a purchaser's existing home. In such cases, the Company retains the right to sell the home to a different buyer during the period in which the "house-to-sell" condition is not satisfied. The cancellation rate for new contracts signed was approximately 22% for fiscal 1996. Cancellation rates may vary from year to year. The Company attempts to limit cancellations by training its sales force to determine at the sales office the qualifications of potential homebuyers and by obtaining financial information about the prospective purchaser. At March 31, 1997, the Company employed 50 full-time and part-time sales personnel who are paid on a salary and/or sales commission basis. The Company also utilizes the services of independent real estate brokers through a cooperative broker referral plan. Customer Financing The Company sells its homes to customers who generally finance their purchase through conventional and government insured mortgages. The Company provides its customers with information on a wide selection of conventional mortgage products and various mortgage lenders to assist the homebuyer through the mortgage process. Mortgages arranged by mortgage providers in recent years have been mortgage loans underwritten and made directly by a lending institution to the customer. The Company is not liable for repayment of any mortgage loans. -6- Backlog At November 30, 1996, the Company had a backlog of signed contracts for 165 homes with an aggregate sales price of $40.2 million as compared to a backlog of signed contracts for 166 homes with an aggregate sales price of $36.0 million at November 30, 1995. All of the November 30, 1996 backlog is expected to be completed and delivered by November 30, 1997. Backlog includes contracts containing financing and certain other contingencies, including, in certain instances, contracts which are contingent on the buyer selling their homes. Due to changes in product offerings, the uncertainty of future market conditions and the general economic environment, the sales backlog achieved in the current period may not be indicative of those to be realized in succeeding periods. Residential Development The Company markets and sells varying types of residential homes ranging in base selling prices from $96,000 to $199,000 in the Florida division and $180,000 to $515,000 in the Northeast division. Current average base selling prices for the Company's homes are approximately $262,000 in New Jersey and $154,000 in Florida. Average base selling prices of homes sold in any period or unsold at any point in time will vary depending on the specific projects and style of homes under development. The Company continually monitors prevailing market conditions, including interest rates and the level of resale activity in the markets in which it operates. The Company may, from time to time, sell all or a portion of a residential project prior to its development by the Company. -7- As of November 30, 1996, the Company had 20 residential communities open for sales which include an aggregate of 1,150 single family detached homes to be delivered. The following sets forth certain information as of November 30, 1996 with respect to communities being developed by each of the Company's operating divisions: Homes Deliv- Homes Homes ered Un- Year Deliv- Yr. der of Lots ered Ended Con- First Ap- Incep-Nov. tract Un- Deliv- proved tion 30, (Back- sold ery (a) To Date1996 log) Lots Price Range Northeast ------ ----- ----- ---- ---- ---- ----------------- Belmont at Steeplechase (Burlington) 1995 291 55 31 8 228 $179,990-$231,990 Bey Brook Estates (Dover) 1997 31 0 0 4 27 $396,990-$424,990 Crown Pointe (West Windsor) 1996 94 3 3 13 78 $384,990-$475,990 Jockey Club at Steeplechase (Burlington) 1995 177 88 41 15 74 $137,990-$171,990 Manalapan Chase (Manalapan) 1996 52 19 19 22 11 $328,990-$406,990 Monmouth Ridings (Howell) 1994 144 125 38 9 10 $184,990-$223,990 Regency Oaks (Marlboro) 1995 39 26 9 8 5 $338,990-$429,990 Stanton Ridge (Readington) 1997 14 0 0 2 12 $415,990-$514,990 Other (commun- ities with fewer than 5 homes unsold) 754 752 119 1 1 ----- ----- ---- ---- ---- Total 1,596 1,068 260 82 446 Orlando, Florida Beechwoods (Altamonte Springs) 1995 57 38 27 3 16 $133,900-$174,990 Brookhaven Oaks (Ocoee) 1996 42 5 5 23 14 $145,990-$179,990 Cambridge Com- mons (Apopka) 1995 87 52 29 9 26 $ 99,990-$121,990 Cheshire Woods (Ocoee) 1996 100 20 20 7 73 $108,990-$127,990 Conway Harbor (Orlando) 1997 63 0 0 1 62 $119,990-$139,990 Crescent Park (Orlando) 1995 108 33 21 5 70 $156,990-$185,990 Cypress Lakes (Orlando) 1996 79 24 24 6 49 $ 95,990-$114,990 Heather Glen at Eastwood (Orlando) 1997 28 0 0 1 27 $139,990-$171,990 Longwood Club (Longwood) 1997 52 0 0 2 50 $159,990-$198,990 The Meadows (Oviedo) 1995 49 22 13 8 19 $140,990-$176,990 Saddlebrook (Gotha) 1995 52 45 27 1 6 $130,990-$173,990 Sand Lake Cove (Dr. Phillips) 1996 97 26 26 9 62 $164,990-$198,990 Other (com- munities with fewer than 5 homes unsold) 295 282 66 8 5 ----- ----- ---- ---- ---- Total 1,109 547 258 83 479 Chicago, Illinois 1995 78 74 31 0 4 ----- ----- ---- ---- ---- TOTAL 2,783 1,689 549 165 929 ===== ===== ==== ==== ==== (a) Includes dwelling units completed and delivered, units under construction and units designated on subdivision or site plans where preliminary and final subdivision or site plan approvals, which in certain instances may be subject to the fulfillment of certain conditions imposed thereby, have been received. Also includes approximately 252 planned homes under rolling options in 6 communities in New Jersey and Florida currently being developed and marketed by the Company, which will require cash payments of $4.8 million in 1997, $3.6 million in 1998 and $390,000 in 1999. -8- Land Inventory The Company acquires options or contingent purchase contracts on land where practicable and where market conditions and lending availability permit. In other instances, the Company has endeavored to acquire property either subject to purchase money mortgages, or on an installment method, with closings on a portion of a project on a periodic basis. In order to ensure the availability of land for future development, the Company believes it is necessary to control land in New Jersey at an earlier point in time than in other markets. As of November 30, 1996, if all of the options held by the Company were exercised and all of the contingent purchase contracts to which the Company is a party were closed, the Company would have sufficient land to maintain its anticipated level of deliveries for the next five years in the Northeast market. The Company believes that additional acquisitions of new communities will be required for anticipated deliveries in 1999 and beyond in the Florida market. The Company's revolving credit facility (the "Facility") contains provisions limiting the amount of land which the Company may acquire in any one year (other than land acquisitions utilizing proceeds of purchase money mortgages) to $22.0 million in 1997. The following table sets forth certain information, as of November 30, 1996, with respect to options held by the Company and contingent purchase contracts to which the Company is a party: Number of Proposed Residential Planned Communities Homes (1) ----------- --------- Northeast 10 3,459 Orlando, Florida 2 152 ----------- --------- Total 12 3,611 =========== ========= (1) Final development approvals have not been obtained with respect to certain properties included in the above table. Accordingly, the number of units approved for development, if any, may differ from the number of planned units reflected in the table. In addition, prior to exercising an option or closing a contingent purchase contract, the Company conducts feasibility studies and other analyses with respect to a proposed community. In certain instances, a determination may be made by the Company not to proceed with certain communities. Accordingly, no assurance can be given that the Company will ultimately pursue the development of every community reflected in the table above. As of November 30, 1996, the Company held options or was a party to contingent contracts to purchase 12 parcels of land in New Jersey and Florida for which it has paid options fees and earnest money aggregating $2.1 million (which includes $900,000 applied to the purchase price of a property acquired in December, 1996). A total of 3,611 homes, of which 3,297 homes are single family and 314 are townhomes, are planned for these parcels. Through November 30, 1996, the Company has spent an additional $3.7 million in predevelopment costs on such land, $2.6 million of which costs would not be recoverable in the event these options were not exercised or the contracts were not closed, as the case may be. Assuming that in each year the Company makes payments with respect to either options or contingent contracts, exercises options, or closes such contracts with respect to the minimum amount of land necessary to retain its rights to acquire the remainder of the subject properties, the aggregate amount required to retain or exercise such options or close or extend such contingent contracts in periods subsequent to November 30, 1996 is approximately -9- $11.7 million in 1997, $13.3 million in 1998, $9.7 million in 1999, $11.9 million in 2000, $8.3 million in 2001 and $59.8 million thereafter. Assuming the Company exercises such options and contingent contracts, the Company will be in a position to acquire title to approximately 313, 469, 425, 618, and 293 lots during fiscal years 1997 through 2001, respectively, and 1,493 lots thereafter. The Renaissance community represents the majority of the capital requirements and lots which are currently planned for development subsequent to the year 2001. Commercial Land and Buildings Pursuant to management's continued focus on its core homebuilding business, the Company sold four of its commercial properties in 1996 for approximately $3.2 million. The sales resulted in an aggregate pre-tax gain of approximately $1.1 million and provided approximately $1.8 million of additional cash for operations. The Company owns certain undeveloped properties in New Jersey, Florida, California and Pennsylvania. These properties include 60 acres of commercial property in Manalapan, New Jersey; 14 acres consisting of two parcels in Orange County, Florida; and three other properties, two in Pennsylvania and one in California. Each of these properties are currently available for sale except for one of the Pennsylvania properties, which has certain acreage under contract for sale. Joint Ventures The Company has participated in joint ventures in the past that were engaged in land and residential housing development. During 1996, the Company received $460,000 of a fully reserved note receivable from a previous joint venture and received $725,000 from the liquidation of a joint venture in which it previously participated. However, as of November 30, 1996, the Company had no involvement in any active joint ventures. Competition The Company's business is highly competitive. Homebuilders compete for desirable properties, financing, raw materials and skilled labor among other things. The Company competes in each of the geographic areas in which it operates with numerous real estate developers, ranging from small local to larger regional and national builders and developers, some of which have greater sales and financial resources than the Company. Resales of housing provide additional competition. The Company competes primarily on the basis of quality, features, value, reputation, price, location, design and amenities. Regulation and Environmental Matters The Company is subject to various local state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulation which imposes restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular locality. In addition, the Company is subject to registration and filing requirements in connection with the construction, advertisement and sale of its communities in certain states and localities in which it operates even if any or all necessary government approvals have been obtained. Generally, the Company must obtain numerous government approvals, licenses, permits, and agreements before it can commence development and construction. Certain governmental authorities impose -10- fees as a means of defraying the cost of providing certain governmental services to developing areas, or have required developers to donate land to the municipality or make certain off-site land improvements. The Company may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums that could be implemented in the future in the states in which it operates. Generally, such moratoriums relate to insufficient water or sewage facilities. The Company is also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of health and the environment ("environmental laws"). The particular environmental laws which apply to any given community vary greatly according to the community site, the site's environmental conditions and the present and former uses of the site. These environmental laws may result in delays, may cause the Company to incur substantial compliance and other costs, and can prohibit or severely restrict development in certain environmentally sensitive regions or areas. For example, in July 1987, New Jersey adopted the Fresh Water Wetlands Protection Act which restricts building in or near certain protected geographic areas designated as fresh water wetlands. The preservation of wetlands located within a project may lessen the number of units that may be built in a particular project. The Company has planned all of its projects containing wetlands to comply with the regulations adopted under the Fresh Water Wetlands Protection Act and does not believe that this legislation will adversely affect its present development activities in New Jersey. The State of Florida has adopted a wide variety of other environmental protection laws. The laws regulate developments of substantial size and developments in or near certain specified geographic areas within the State of Florida, including the Big Cypress, Green Swamp and Florida Keys areas, imposing requirements for development approvals which are more stringent than those which the Company would have to meet in Florida for development outside of these geographic areas. Further, the State of Florida regulates certain types of developments located in or near certain types of geographic areas, plant life or animal life. The Company does not believe that any land owned by it that is planned for development is the site of any protected plant or animal life. Although the Company owns land in or near certain protected types of geographic areas, the Company designs its various communities to avoid disturbing such areas so that certain regulations with respect to these areas are not applicable. When the Company undertakes development activity in or near or which may have an impact on any protected areas, it is required to satisfy more stringent requirements for developmental approval than would otherwise be applicable. In addition, the laws of the State of Florida require the use of construction materials which reduce the energy consumption required for heating and cooling. The Florida Growth Management Act of 1985 requires that an infrastructure, including roads, sewer and water lines, must be in existence or funded concurrently with the construction of the development. If such infrastructure will not be concurrently available or funded, then the project cannot be developed. This will have an effect on limiting the amount of land available for development and may delay construction and completion of some developments. In July 1985, New Jersey adopted the Fair Housing Act which established an administrative agency to adopt criteria by which municipalities will determine and provide for their fair share of low and moderate income housing ("Mt. Laurel" housing). This agency promulgated regulations with respect to such criteria effective August 1986. -11- The Company may be required to set aside Mt. Laurel housing in certain municipalities in which it owns or has the right to acquire land. In order to comply with such requirements, the Company may be required to (i) sell some homes at prices which would result in no gain or loss and an operating margin less than would have resulted otherwise, or (ii) contribute to public funding of affordable housing, which contribution will increase the costs of homes to be developed in a community. The Company attempts to recover some of these potential losses or reduced margins through increased density, certain cost saving construction and land development measures and reduced land prices for the sellers of property. Despite the Company's past ability to obtain necessary permits and development approvals for its communities, it can be anticipated that increasingly stringent requirements will be imposed on developers and homebuilders in the future. Although the Company cannot predict the effect of these requirements, they could result in time consuming and expensive compliance programs and substantial expenditures for pollution and water quality control, which could materially adversely affect the Company. In addition, the continued effectiveness of permits already granted or development approvals already obtained is dependent upon many factors, some of which are beyond the Company's control, such as changes in policies, rules and regulations and their interpretation and application. The foregoing does not purport to be a full description of all of the legislation and regulations impacting the business of the Company. The Company may be subject to numerous other governmental rules and regulations regarding building standards, labor practices, environmental matters and other aspects of real estate development in each jurisdiction in which it does business. Employees As of March 31, 1997, the Company employed approximately 116 full-time personnel, including 15 corporate employees, 63 employees in the Northeast division and 38 employees in the Florida division. The Company also employs approximately 20 part-time employees in various locations. The Company believes its employee relations are satisfactory. Item 2. COMPANY FACILITIES The Company leases approximately 19,413 square feet of office space (of which 3,629 square feet are sublet to tenants) and 6,200 square feet of storage space in a two-story office building in Manalapan, New Jersey, which houses the Company's corporate headquarters and its Northeast division. In addition, the Company leases 5,280 square feet of office space in Florida. Management believes that these arrangements provide adequate space for the Company to conduct its operations. The Company also has remote sales offices when not utilizing a model home and construction offices on each of its project sites, some of which include mobile units which are leased for terms varying from one month to one year. From time to time the Company also leases model homes in some of its communities which the Company has previously sold to third parties under a lease-back arrangement. The current leases on model homes have terms up to two years. -12- Item 3. LEGAL PROCEEDINGS In July 1994, an action was filed against Calton Homes, Inc., the Township of Plainsboro, New Jersey and its planning board, certain real estate brokers and certain unnamed officers of Calton Homes, Inc., by approximately 60 purchasers in the Company's Princeton Manor development seeking compensatory and punitive damages arising out of an alleged failure to disclose that a portion of the property adjacent to the community could be developed by Plainsboro Township as a public works site. The Company is vigorously contesting this matter and, although there can be no assurances, does not believe that the case will have any material effect on the financial position, results of operations or cash flows of the Company. In addition, the Company believes that it is contractually entitled to indemnification from Plainsboro Township in the event that any liability should arise. In June 1996, the Federal Deposit Insurance Corporation (the "FDIC"), in its capacity as Liquidating Agent/Receiver of Eliot Savings Bank, instituted an action in the United States District Court, District of Massachusetts, seeking recovery of amounts owed under a $5.7 million promissory note (the "Note") issued to Eliot Savings Bank by the Residences at the Surf joint venture (the "Joint Venture"), an entity in which a Talcon, L.P. ("Talcon") subsidiary had an interest. This action relates to a loan on property owned by the Joint Venture. The loan was placed on the property before Talcon was formed. Accordingly, in connection with the creation of Talcon, the interest in the Joint Venture was transferred upstream to Calton, Inc. and then transferred downstream into Talcon, and eventually into the Talcon subsidiary. In its suit, the FDIC alleges, among other things, that Calton, by virtue of the assignment of the interest in the Joint Venture to Calton in 1987, has liability as a general partner in the Joint Venture and is seeking to collect approximately $8.7 million in principal and interest from Calton and other parties. While no discovery has occurred to date, based upon a preliminary analysis of this matter, Calton believes that the FDIC's position is contrary to applicable law and that Calton does not have any obligations under the Note by virtue of the assignment of the interest in the Joint Venture to Calton or otherwise. The Company will vigorously contest this matter but there can be no assurances that the case will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Calton and its subsidiaries are involved from time to time in routine litigation. Management does not believes that any of this litigation is material to the financial position, results of operations or cash flows of the Company. Calton's by-laws contain provisions which provide indemnification rights to officers, directors and employees under certain circumstances with respect to liabilities and damages incurred in connection with any proceedings brought against such persons by reason of their being officers, directors or employees of Calton. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1996, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. -13- PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information pertaining to the market for the Registrant's Common Stock, high and low sales prices of the Common Stock in 1996 and 1995 and the number of holders of Common Stock is presented on page 24 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. The Company has not paid dividends on its capital stock in the past. In addition, the terms of the Facility prohibit the payment of dividends. Item 6. SELECTED FINANCIAL DATA The financial highlights data is presented on page one of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is presented on pages 5 through 11 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, including the Report of Independent Accountants thereon and the unaudited Quarterly Financial Results, are presented on pages 12 through 24 of the 1996 Annual Report to Shareholders, which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -14- PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company as of March 31, 1997 are listed below and brief summaries of their business experience and certain other information with respect to them is set forth in the following table and in the information which follows the table. Name Age Position Anthony J. Caldarone 59 Chairman, President and Chief Executive Officer Robert A. Fourniadis 39 Senior Vice President- Legal and Secretary Bradley A. Little 46 Senior Vice President- Finance, Treasurer and Chief Financial Officer J. Ernest Brophy 72 Director Mark N. Fessel 40 Director Frank Cavell Smith, Jr. 51 Director Mr. Caldarone was reappointed as Chairman, President and Chief Executive Officer of Calton in November 1995, having previously served in such capacities from the inception of the Company in 1981 through May 1993 when the Company consummated the Reorganization. From June 1993 through October 1995, Mr. Caldarone served as a Director of the Company. Mr. Fourniadis was named Senior Vice President, Secretary and Corporate Counsel of Calton in June 1993 following the consummation of the Reorganization. Prior thereto, Mr. Fourniadis served as Vice President and Corporate Counsel of Calton Homes from 1988 to 1993. Mr. Little was named Senior Vice President, Treasurer and Chief Financial Officer of Calton in June 1993 following the consummation of the Reorganization. Prior thereto, Mr. Little had served as Vice President of Accounting of Calton from 1989 to June 1993. Mr. Brophy, a self-employed attorney and certified public accountant specializing in tax consultation to clients engaged in the construction business, was reappointed as a Director of Calton in November 1995, having served in such capacity from March 1983 through November 1985 and from April 1986 until through May 1993 when the Company consummated the Reorganization. -15- Since 1992, Mr. Brophy has served as Chief Financial Officer and a director of Hurdy-Gurdy International, Inc., a company that markets sorbet products. Mr. Fessel was designated as a Director of Calton by the holders of a majority in outstanding principal amount of the Company's 12-5/8% Subordinated Notes (the "Subordinated Notes") pursuant to the Reorganization in May 1993. Since 1985, Mr. Fessel has owned and operated a real estate company and has acted as principal in numerous commercial and residential real estate developments throughout the northeast. In 1984, Mr. Fessel served as the Vice President of Acquisitions of the Meredith Organization, a nationally recognized real estate developer. Mr. Smith was designated as a Director of Calton by the holders of a majority in outstanding principal amount of Subordinated Notes pursuant to the Reorganization in May 1993. Since 1990, Mr. Smith has been associated with the MEG Companies as a Senior Consultant responsible for corporate real estate consulting activities. From 1977 to 1990, Mr. Smith served as a Real Estate Consultant and Real Estate Development Manager for The Spaulding Co., Inc. Mr. Smith also is an adjunct faculty member at Boston University and a member of the Board of Trustees of Shelter, Inc. Item 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company and its subsidiaries for the fiscal years ended November 30, 1996, 1995 and 1994, of the Chief Executive Officer of the Company in fiscal 1996 and the other executive officers of the Company who earned salary and bonuses in fiscal 1996 in excess of $100,000 (collectively, the "Named Officers"): SUMMARY COMPENSATION TABLE Long Term Compen- sation Awards Securities All Other Under- Compen- Name and Salary Bonus lying sation Principal Position (1) Year ($)(2) ($)(2) Options (#) ($)(4)(5) - ---------------------- ---- -------- --------- ----------- ---------- Anthony J. Caldarone 1996 $250,000 $ 20,000 -- $13,007(6) Chairman, Chief 1995 7,692 -- 500,000(7) 240 Executive Officer & 1994 -- -- -- -- President(8) Bradley A. Little 1996 140,000 15,000 25,000 7,586 Sen. Vice President- 1995 137,917 -- 185,000(9) 14,004 Finance & Treasurer 1994 126,250 100,000 60,000 11,922 Robert A. Fourniadis 1996 122,500 10,000 10,000 7,014 Sen. Vice President- 1995 120,417 -- 185,000(9) 13,812 Legal & Secretary 1994 108,333 90,000 60,000 11,470 ___________________ (1) Each of the individuals named in the above table served as an officer of the Company's wholly owned subsidiary, Calton Homes, Inc. ("Calton Homes"), during all or a portion of the three years ended November 30, 1996. All cash compensation included in the above table was paid or accrued by Calton Homes. -16- (2) Represents amounts accrued in fiscal 1994 and fiscal 1996 and payable in the subsequent fiscal year to the Named Officers pursuant to the Company's Incentive Compensation Plan (the "Incentive Plan"). No Incentive Plan Awards were made with respect to fiscal 1995. The Incentive Plan provides for an incentive compensation pool equal to ten percent (10%) of the Company's annual pre-tax income, subject to certain adjustments to pre-tax income that may be made by the Compensation Committee to remove the effect of events or transactions not in the ordinary course of the Company's operations. No such adjustments were made for the fiscal years 1994 or 1996, and the incentive compensation pools for such years were $656,000 in fiscal 1994 (of which $620,000 was awarded) and $120,000 in fiscal 1996 (of which $119,000 was awarded). Officers and key operations and senior corporate management employees (the "Eligible Employees") of the Company and its subsidiaries are eligible for participation in the Incentive Plan. In addition, up to 10% of the incentive compensation pool established under the Incentive Plan may be used for bonuses to full time employees who do not otherwise have an opportunity for commissions or bonuses. The Eligible Employees are determined each fiscal year by the Compensation Committee based on the recommendations of the President and Chief Executive Officer of the Company. An Eligible Employee may not receive a distribution from the incentive compensation pool for any fiscal year that exceeds the lesser of twenty percent (20%) of the available incentive compensation pool or one hundred percent (100%) of the Eligible Employee's base salary for such fiscal year, unless otherwise provided in the Eligible Employee's employment agreement with the Company. The Compensation Committee ultimately determines the percentage, if any, of the incentive compensation pool for a fiscal year to be awarded to an Eligible Employee. (3) Includes amounts contributed by the Company under its 401(k) Plan (the "401(k) Plan"). All full-time employees who have completed more than one year of service with the Company are eligible to participate in the 401(k) Plan which allows eligible employees to save up to 18% of their pre-tax compensation (subject to a maximum amount per year established annually pursuant to the Internal Revenue Code of 1986, as amended) through a pay- roll deduction. Subject to the discretion of its Board of Directors, the Company may make matching contributions to the 401(k) Plan in the form of cash or Common Stock. The Company's matching contribution for fiscal 1996 was made primarily in Common Stock and the Company anticipates that its matching contribution for the next fiscal year will be made in the form of Common Stock. Amounts contributed by the Company to the accounts of the Named Officers for fiscal 1996 (including the dollar value of contri- butions made in the form of Common Stock) were as follows: Mr. Caldarone - $475; Mr. Little - $475; and Mr. Fourniadis - $273. (4) Includes the reimbursement by the Company of automobile expenses in fiscal 1996 as follows: Mr. Caldarone - $8,040; Mr. Little - $6,000; and Mr. Fourniadis - $6,000. (5) Includes cost of premiums paid by the Company under a program which provides officers of the Company with additional life insurance (supplementing the coverage available under the Company's group life insurance plan) as follows: Mr. Caldarone - $3,450; Mr. Little - $1,111; and Mr. Fourniadis - $741. (6) Includes $1,042 paid to Mr. Caldarone in connection with his election not to participate in the Company's group health insurance plan. (7) Represents options to purchase Common Stock which were granted to Mr. Caldarone effective January 31, 1996 pursuant to his employment agreement with the Company. (8) Mr. Caldarone was reappointed Chairman, President and Chief Executive Officer of the Company on November 21, 1995 having previously served in such capacities from the Company's inception until June 1993. -17- (9) Represents 25,000 shares underlying options granted in January 1996 for services rendered in fiscal 1995 and 160,000 shares underlying options granted in respect of prior fiscal years which were repriced in 1995. Directors' Compensation Members of the Board of Directors who are not full time employees of Calton were each entitled in fiscal 1996 to annual compensation of $20,000 for service as a director. Calton paid or accrued a total of $69,000 in director fees to members of the Board of Directors during fiscal year 1996. Directors are reimbursed for travel expenses incurred in connection with attendance at Board and committee meetings. Directors who are not full time employees are paid a participation fee of $1,000 for each committee meeting attended. In addition, under the terms of the Company's 1996 Equity Incentive Plan (the "1996 Option Plan") each non-employee director who has attended 75% or more of the Board meetings and meetings of the committees on which he serves is awarded options to purchase 10,000 shares of the Company's Common Stock each time such director is re-elected to the Board of Directors. Options to purchase an aggregate of 30,000 shares of Common Stock at an exercise price of $.53125 per share (the fair market value of the Common Stock on the date of grant) were granted to non-employee directors pursuant to the 1996 Option Plan in fiscal 1996. The exercise price of these options was adjusted to $.41 per share (the fair market value of the Common Stock on the date of the adjustment) in January 1997. Employment Agreement with Chief Executive Officer Effective November 21, 1995, the Company entered into an Employment Agreement (the "Employment Agreement") with Anthony J. Caldarone, Chairman, President and Chief Executive Officer of the Company. The term of the Employment Agreement will end on November 30, 1998; provided, that such term will be automatically extended annually for periods of one (1) year unless a notice of non-extension is issued by the Company or Mr. Caldarone. Pursuant to the Employment Agreement, Mr. Caldarone will receive a minimum annual salary of $250,000 ("Base Compensation") which may be increased by the Board or a committee thereof. Mr. Caldarone is entitled to participate in any bonus compensation or benefit plan or arrangement provided by the Company to its employees or senior level executives, including the Company's Incentive Plan. Under the Employment Agreement, Mr. Caldarone may be awarded up to thirty percent (30%) of the Incentive Plan's designated incentive compensation for any fiscal year and, subject to such limitation, is entitled to not less than one-half of the average percentage that all awards to other Eligible Participants are of the respective Eligible Participants' base salary for the relevant fiscal year. Mr. Caldarone is entitled to be reimbursed by the Company for certain automobile expenses and was granted options to purchase 500,000 shares of Common Stock under the 1996 Option Plan pursuant to the Employment Agreement. If the Employment Agreement is terminated by reason of Mr. Caldarone's death, the Company is obliged to reimburse Mr. Caldarone's designated beneficiaries the cost of COBRA benefits, other than long-term disability coverage, for a period of 18 months following the date of death. If the Employment Agreement is -18- terminated by reason of Mr. Caldarone's disability, Mr. Caldarone will be entitled to receive a lump sum cash payment equal to one years' Base Compensation (the "Severance Compensation") from the Company as well as the cost of COBRA benefits, other than long-term disability, for him and his family for a period of 18 months following the date of termination, and continue to participate in any group life insurance or supplemental life insurance program of the Company then in effect for a period of 18 months following the date of termination (collectively, the "Severance Benefits"). The Company may terminate the Employment Agreement for just cause in the event Mr. Caldarone is convicted of a felony in connection with his duties as an officer of the Company, if the commission of such felony resulted in a personal financial benefit to Mr. Caldarone. Upon termination for just cause by the Company, Mr. Caldarone is not entitled to receive any Severance Compensation or Severance Benefits. If the Company terminates the Employment Agreement without just cause, Mr. Caldarone is entitled to the Severance Compensation and Severance Benefits. If the Company terminates the Employment Agreement by issuing a notice of non-extension, Mr. Caldarone is entitled to receive a lump sum cash payment equal to one years' Base Compensation as well as the Severance Benefits. Mr. Caldarone may terminate the Employment Agreement for just cause and receive Severance Compensation and Severance Benefits, if (i) the Board fails to re-elect him as each of Chairman, President and Chief Executive Officer of the Company, (ii) the Board significantly reduces the nature and scope of his authorities, powers, duties and functions, (iii) the Company breaches any material covenant of the Employment Agreement, or (iv) the Company consents to Mr. Caldarone's retirement. If Mr. Caldarone terminates the Employment Agreement without just cause or by issuing a notice of non-extension, he is not entitled to the Severance Compensation or Severance Benefits. After the date of termination of Mr. Caldarone' employment for any of the reasons specified herein and in the Employment Agreement, Mr. Caldarone will not receive any further salary payments under the Employment Agreement. For the term of the Employment Agreement and for a period of twelve (12) months following termination of Mr. Caldarone' employment, other than for just cause by the Company or without just cause by Mr. Caldarone, Mr. Caldarone is restricted from competing with the Company in certain regions in which the Company is actively engaged in business. Severance Policy Arrangements For Senior Executives The Company has established a severance compensation policy for senior level executives who have been employed by the Company for more than one year (the "Severance Policy"). To become eligible to participate in the Severance Policy, a senior level executive must be selected by the Company's Compensation Committee and approved by the Board of Directors ("Eligible Participants"). Under the Severance Policy, an Eligible Participant whose employment is terminated is entitled to receive one month's base salary for each year employed by the Company, pro rated for any partial year, but in no event less than six month's base salary; provided, however, that the Eligible Participants who were designated to participate in the Severance Policy in August 1993 (Mr. Little and Mr. Fourniadis) are entitled to receive twelve month's base salary. In addition, the Company will pay all amounts required to be paid by the -19- Eligible Participants to continue insurance coverage under COBRA for a period of time equal to the number of months on which the severance compensation is based. The severance compensation for Eligible Participants who are parties to employment agreements will be governed by the terms of such agreements. Eligible Participants who resign voluntarily or who are terminated for cause (as defined in the Severance Policy) will not be eligible for severance compensation. Option Grants Shown below is further information with respect to grants during fiscal 1996 of stock options to the Named Officers by the Company which are reflected in the Summary Compensation Table set forth under the caption "Executive Compensation." Individual Grants ------------------ % of Total Potential Options Realizable Granted Value at Assumed to Exer- Annual Rates No. of Employ- cise of Stock Price Securities ees or Appreciation for Underlying in Base Option Term Options Fiscal Price Expiration ----------------- Name Granted (#) Year ($/Sh) Date (1) 5% ($) 10% ($) - -------------------- ---------- ----- ------- ---------- -------- -------- Bradley A. Little 25,000(1) 3.2% $.53125(2) 4/24/2006 $8,353 $21,166 Robert A. Fourniadis 10,000(2) 1.3% .53125(2) 4/24/2006 3,341 8,467 (1) Represents shares of Common Stock underlying options granted in April 1996. The options are exercisable cumulatively in five equal annual installments commencing on the first anniversary of the date of grant. (2) The exercise price of these options was adjusted to $.41 per share in January 1997. The potential realizable value of the adjusted options held by the individuals identified in the above table is as follows: Mr. Little - $5,849 (assuming a 5% annual appreciation rate) and $14,523 (assuming a 10% annual appreciation rate); and Mr. Fourniadis - $2,340 (assuming a 5% annual appreciation rate) and $5,809 (assuming a 10% appreciation rate). Option Exercises and Fiscal Year-End Values Shown below is information with respect to unexercised options to purchase the Company's Common Stock held by the Named Officers at November 30, 1996. On such date, the exercise price of each of such options equaled or exceeded the closing price of the Company's Common Stock on the American Stock Exchange ($.3125 per share) on November 29, 1996 (the last day of fiscal 1996 on which the Common Stock was traded on the American Stock Exchange). No options were exercised in fiscal 1996. Number of Securities Underlying Unexercised Options Held at FY-End (#)(1) ----------------------------- Exercisable Unexercisable ----------- ------------- Anthony J. Caldarone 500,000 --- Bradley A. Little 120,000 90,000 Robert A. Fourniadis 120,000 75,000 -20- Compensation Committee Interlocks and Insider Participation The Compensation Committee currently consists of Mark N. Fessel and Frank Cavell Smith, Jr. No such person was an officer or employee of the Company during fiscal 1996 or was formerly an officer of the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning beneficial ownership of the Company's Common Stock as of March 31, 1997 by (i) each person known by the Company to be the beneficial owner (as defined in Rule 13d-3 ("Rule 13d-3") of the Securities Exchange Act of 1934) of more than five percent (5%) of the Company's Common Stock and (ii) each of the Named Officers who was employed by the Company at March 31, 1997. Except as set forth in the footnotes to the table, the shareholders have sole voting and investment power over such shares: Amount and Nature of Percent Name of Beneficial Owner Beneficial Ownership of Class - ------------------------ -------------------- -------- Anthony J. Caldarone 7,433,618(1) 27.5% Joyce P. Caldarone 4,775,618(2) 17.7% Apollo Homes Partners, L.P.(3) 2,658,000(4) 10.0% Frederick J. Jaindl(5) 2,195,350 8.3% Goldman Sachs & Co.(6) 1,344,600 5.1% Robert A. Fourniadis 168,919(7) (8) Bradley A. Little 166,276(9) (8) J. Ernest Brophy 23,770(10) (8) Mark N. Fessel 14,390(10) (8) Frank Cavell Smith, Jr. 10,000(10) (8) All Directors and Executive Officers as a Group (6 persons)(1)(7)(9)(10) 7,816,973 28.7% ____________________ (1) Includes an aggregate of 1,395,209 shares held by Joyce P. Caldarone, Mr. Caldarone's wife, as to which shares he disclaims any beneficial interest, 500,000 shares subject to currently exercisable options granted under the Company's 1996 Equity Incentive Plan (the "1996 Option Plan"), 8,837 shares held through the Company's 401(k) Plan and 2,658,000 shares held by Apollo Homes Partners, L.P. ("Apollo Homes"), which Mr. Caldarone has the right to vote in the election of directors pursuant to a proxy granted to him by Apollo Homes. In addition, under the terms of a stock purchase agreement between Mr. Caldarone and Apollo Homes, Mr. Caldarone was granted certain rights of first offer with respect to the shares of Calton Common Stock owned by Apollo. The agreement also grants Apollo certain "tag-along rights" to sell shares of Calton Common Stock in the event of, and along with, certain transfers of Common Stock made by Mr. and/or Mrs. Caldarone, and contains provisions requiring (a) Apollo, under certain circumstances, to sell the Common Stock owned by it in the event that Mr. and Mrs. Caldarone sell all of the securities of the Company that they own and (b) Mr. and Mrs. Caldarone to offer to Apollo, under certain circumstances, the opportunity to purchase a pro rata portion of additional securities acquired by Mr. and/or Mrs. Caldarone from the Company. -21- (2) Includes an aggregate of 3,380,409 shares beneficially owned by Anthony J. Caldarone, Mrs. Caldarone's husband, as to which shares she disclaims any beneficial interest. (3) The sole general partner of Apollo Homes is AIF II, L.P., a Delaware limited partnership. The managing general partner of AIF II, L.P. is Apollo Advisors, whose principal offices are located at Two Manhattanville Road, Purchase, New York 10577. Apollo Capital Management, Inc. ("ACM") is the general partner of Apollo Advisors. Shareholdings information is based upon Apollo Homes' Schedule 13D, as amended to November 21, 1995. (4) See note 1 above for a description of certain rights granted by Apollo Homes to Anthony J. Caldarone with respect to these shares. (5) Such holder maintains an address at c/o Jaindl Farms, 3150 Coffeetown Road, Orefield, Pennsylvania 12609. Shareholdings information is based upon the Schedule 13D of such holder, as amended to January 14, 1997. (6) The principal offices of such shareholder are located at 85 Broad Street, New York, New York 10004. Shareholdings information is based upon the Schedule 13D, as amended to May 5, 1995, of Goldman Sachs & Co., the direct owner, and The Goldman Sachs Group, L.P., which indicates that each of such entities is a beneficial owner of such shares. (7) Includes 148,333 shares subject to currently exercisable options granted under the Company's Amended and Restated 1993 Non-Qualified Stock Option Plan (the "1993 Option Plan" and 20,586 shares held through the Company's 401(k) Plan. (8) Shares beneficially owned do not exceed 1% of the Company's outstanding Common Stock. (9) Includes 148,333 shares subject to currently exercisable options granted under the 1993 Option Plan and 17,943 shares held through the Company's 401(k) Plan. (10) Includes 10,000 shares subject to currently exercisable options granted under the 1996 Option Plan. Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Goldman, Sachs & Co. is the beneficial owner of more than 5% of the Company's Common Stock and is affiliated with one of the lenders under the Facility. This affiliate held a 22.5% interest in amounts outstanding under the Facility, which totaled $39.5 million, at November 30, 1996. -22- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page (a) 1. and 2. Financial statements and financial statement schedules Reference is made to the Index of Financial Statements and Financial Statement Schedules hereinafter contained F-1 3. Exhibits Reference is made to the Index of Exhibits hereinafter contained F-5 and F-6 (b) Reports on Form 8-K None -23- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALTON, INC. (Registrant) By: /s/ Bradley A. Little BRADLEY A. LITTLE, Senior Vice President-Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date /s/ Anthony J. Caldarone Chairman, Chief Executive April 11, 1997 (Anthony J. Caldarone) Officer and President (Principal Executive Officer) /s/ Bradley A. Little Senior Vice President-Finance April 11, 1997 (Bradley A. Little) & Treasurer (Principal Financial & Accounting Officer) /s/ J. Ernest Brophy Director April 11, 1997 (J. Ernest Brophy) /s/ Mark N. Fessel Director April 11, 1997 (Mark N. Fessel) /s/ Frank Cavell Smith, Jr. Director April 11, 1997 (Frank Cavell Smith, Jr.) -24- CALTON, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page Number Consolidated Balance Sheet at November 30, 1996 and 1995. . . . . . . .* Consolidated Statement of Operations for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . .* Consolidated Statement of Cash Flows for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . . . . . . .* Consolidated Statement of Shareholders' Equity for the years ended November 30, 1996, 1995 and 1994. . . . . . . . . . .* Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .* Report of Independent Accountants . . . . . . . . . . . . . . . . . *,F-2 Consent of Independent Accountants. . . . . . . . . . . . . . . . . . .F-3 Schedules** II-Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . .F-4 * The financial statements and notes thereto together with the Report of Independent Accountants on pages 12 through 24 of the 1996 Annual Report to Shareholders are incorporated herein by reference. ** Schedules other than the schedule listed above have been omitted because of the absence of the conditions under which they are required or because the required information is presented in the financial statements or the notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Calton, Inc. and Subsidiaries, dated January 10, 1997, except for Notes 1 and 5, as to which the date is April 11, 1997, has been incorporated by reference in this Form 10-K from page 24 of the 1996 Annual Report to Shareholders of Calton, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Princeton, New Jersey January 10, 1997 F-2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Calton, Inc. and Subsidiaries on Form S-8 (Nos. 33-35176 and 33-75184) of our report, dated January 10, 1997, except for Notes 1 and 5, as to which the date is April 11, 1997, on our audits of the consolidated financial statements and financial statement schedule of Calton, Inc. and Subsidiaries as of November 30, 1996, and 1995 and for the years ended November 30, 1996, 1995 and 1994, which report has been incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Princeton, New Jersey April 11, 1997 F-3 SCHEDULE II CALTON, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Amounts in Thousands) Additions ---------------------- Balance Charged Balance at Begin- to Costs Charged to at ning of and to Other End of Description Year Expenses Accounts Deductions Year - -------------------- -------- -------- ----------- ---------- ------ Year ended November 30, 1994: Net realizable value reserves for inventory $ -- $ 400 $ -- $ -- $ 400 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 39,365 $ -- $ -- $ 2,473 $36,892 ======== ======== =========== ========== ======= Year ended November 30, 1995: Net realizable value reserves for inventory $ 400 $ 1,593 $ -- $ -- $ 1,993 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 36,892 $ -- $ -- $ 18,245(A) $18,647 ======== ======== =========== ========== ======= Year ended November 30, 1996: Net realizable value reserves for inventory $ 1,993 $ -- $ -- $ 880 $ 1,113 ======== ======== =========== ========== ======= Valuation allowance for net deferred tax asset $ 18,647 $ -- $ 981 $ -- $19,628 ======== ======== =========== ========== ======= (A) Represents the impact of the recalculation of the Section 382 limitation and the utilization against taxable income attributable to Talcon, L.P. F-4 INDEX TO EXHIBITS 2. Plan of Reorganization of the Registrant and Subsidiaries incorporated by reference to Exhibit 2 to Amendment No. 1 to Form S-1 Registration Statement under the Securities act of 1933, Registration No. 33-60022. 3.1 Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State, State of New Jersey on May 28, 1993, incorporated by reference to Exhibit 3.2 to Amendment No. 1 to Form S-1 Registration Statement under the Securities Act of 1933, Registration No. 33-60022 and Certificate Amendment to Amended and Restated Certificate of Incorporation of Registrant filed with the Secretary of State, State of New Jersey on April 27, 1994, incorporated by reference to Exhibit 3(b) to Form S-1 Registration Statement under the Securities Act of 1933, Registration No. 33-76312. 3.2 By Laws of Registrant, as amended, incorporated by reference to Exhibit 3.1 of Form 10-K of Registrant for the fiscal year ended November 30, 1990. 4. Second Amended and Restated Loan and Security Agreement dated as of April 10, 1997, among the Registrant, Calton Funding, Inc. and a group of financial institutions. Upon request of the Securities and Exchange Commission, the Registrant agrees to furnish a copy of the exhibits and schedules identified in such agreement. (*)10.1 1996 Equity Incentive Plan. (*)10.3 Registrant's Amended and Restated 1993 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 10.3 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (*)10.4 Incentive Compensation Plan of Registrant. (*)10.6 Severance Policy for Senior Executives of Registrant incorporated by reference to Exhibit 10.6 of Form 10-K of Registrant for the fiscal year ended November 30, 1994. (**)10.7 Executive Employment Agreement dated as of November 21, 1995 between Registrant and Anthony J. Caldarone, incorporated by reference to Exhibit 10.7 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (**)10.8 Supplemental Executive Compensation Agreement dated as of May 12, 1995 between the Registrant and Douglas T. Noakes, incorporated by reference to Exhibit 10.8 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. (**)10.9 Supplemental Executive Compensation Agreement dated as of May 12, 1995 between the Registrant and Bradley A. Little, incorporated by reference to Exhibit 10.9 to Form 10-K of Registrant for the fiscal year ended November 30, 1995. An agreement substantially identical in term and content and executed by the Registrant and Robert A. Fourniadis has not been reproduced herein. 13. Certain pages of Registrant's 1996 Annual Report to Shareholders which, except for those portions expressly incorporated herein by reference, are not deemed filed a part hereof. 21. Subsidiaries of the Registrant. 27. Financial Data Schedule. (*) Constitutes a compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (**) Constitutes a management contract required to be filed pursuant to Item 14(c) of Form 10-K. F-5 EXHIBIT 4 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Dated As Of April 10, 1997 Amending the Amended and Restated Loan and Security Agreement Dated as of May 28, 1993, as Amended Among Calton, Inc., as Borrower, Calton Funding, Inc. as Borrower, The Subsidiaries of Calton, Inc. Listed Herein, as Guarantors, The Lenders Listed Herein, as Lenders, The Chase Manhattan Bank, as Agent, and The Chase Manhattan Bank, as Collateral Agent NOTE: Please refer to the end of Exhibit 4 for an index to this Agreement, Exhibits and Schedules CALTON, INC. This Second Amended and Restated Loan and Security Agreement (this "Amended Loan Agreement") dated as of April 10, 1997, amending and restating the Original Loan Agreement (as defined below), as amended prior to the date hereof, is entered into among (Company) Calton, Inc., a New Jersey corporation ("Company"), Calton Funding, Inc., a New Jersey corporation ("Calton Funding;" Company and Calton Funding are sometimes each referred to herein individually as a "Borrower" and collectively as "Borrowers"), each subsidiary of Company identified herein as a Guarantor (each a "Guarantor" and collectively "Guarantors"), the financial institutions listed on the signature pages hereof (each a "Lender" and collectively "Lenders"), The Chase Manhattan Bank, a New York banking corporation formerly known as Chemical Bank ("Chase"), in its capacity as agent for the Lenders (the "Agent") and Chase, in its capacity as collateral agent for the Lenders (the "Collateral Agent"). BACKGROUND 1. The Amended and Restated Loan and Security Agreement (the "Original Loan Agreement") was entered into as of May 28, 1993 among Company, Calton Funding, the financial institutions listed on the signature pages thereof as lenders, Chemical Bank, in its capacity as agent for the lenders, and Chemical Bank in its capacity as collateral agent for the lenders. 2. The Original Loan Agreement has been amended by nine previous amendments thereto: the First Amendment to Amended and Restated Loan and Security Agreement dated as of September 27, 1993; the Second Amendment to Amended and Restated Loan and Security Agreement dated as of October 14, 1993; the Third Amendment to Amended and Restated Loan and Security Agreement dated as of January 19, 1994; the Fourth Amendment to Amended and Restated Loan and Security Agreement dated as of February 28, 1994; the Fifth Amendment to Amended and Restated Loan and Security Agreement dated as of February 23, 1995; the Sixth Amendment to Amended and Restated Loan and Security Agreement dated as of May 31, 1995; the Seventh Amendment to Amended and Restated Loan and Security Agreement dated as of February 23, 1996; the Eighth Amendment to Amended and Restated Loan and Security Agreement dated as of January 31, 1997; the Ninth Amendment to Amended and Restated Loan and Security Agreement dated as of February 28, 1997; and the Tenth Amendment to Amended and Restated Loan and Security Agreement dated as of March 31, 1997. (The Original Loan Agreement, as amended to the date hereof, is referred to herein as the "Existing Loan Agreement"). 3. Borrowers, Guarantors, Lenders, Agent, and Collateral Agent desire to amend and restate the Existing Loan Agreement in its entirety in order to provide, among other things, that (i) the aggregate amount of the Tranche A Commitments and Tranche B Commitments shall be reduced on the Effective Date to $46,000,000; (ii) on the Effective Date, all outstanding Tranche A Loans and Tranche B Loans under the Existing Loan Agreement shall be continued as Tranche A Loans and Tranche B Loans hereunder; (iii) the interest rates payable on the Loans shall be revised as set forth herein; (iv) the scheduled reductions in Commitments shall be revised as set forth herein; (v) the financial covenants shall be revised as set forth herein; and (vi) the terms and provisions of the Existing Loan Agreement shall otherwise be modified as set forth herein. 4. On the Effective Date, Borrowers will confirm and agree that their existing pledge and grant of a security interest in substantially all of their present and future real and personal property will continue as security for the payment and performance of the Obligations of Borrowers. 5. On the Effective Date, Guarantors will confirm and agree that (i) the existing guaranty by such Guarantor of the obligations of Borrowers under the Existing Loan Agreement will continue as a guaranty of the Obligations hereunder and (ii) the existing grant of a security interest by Guarantors in substantially all of their respective assets to secure such guaranty will continue as security for the payment and performance of such guaranty. 6. The parties hereto wish to amend and restate the Existing Loan Agreement in its entirety as set forth herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Guarantors, Lenders, Agent and Collateral Agent agree that, upon the satisfaction of the conditions to effectiveness set forth in Section 4.1 hereof, the Existing Loan Agreement, as heretofore amended, shall be amended and restated to read in its entirety as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Account Collateral" means (a) all rights with respect to the Concentration Accounts and all amounts from time to time on deposit therein; (b) all investments related thereto made by Collateral Agent pursuant to the terms of Section 5 of the Account Collateral Security Agreement, including all certificates, instruments and securities from time to time representing or evidencing such investments and any account or accounts in which such investments may be held by, or in the name of, Collateral Agent for or on behalf of any Credit Party; (c) all notes, certificates of deposit, checks and other instruments and all deposits and uncertified securities from time to time hereafter transferred to or otherwise possessed by, or held in the name of, Collateral Agent for or on behalf of any Credit Party in substitution for or in addition to any or all of the Account Collateral; (d) all interest, dividends, cash, instruments, securities and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of the Account Collateral; and (e) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Account Collateral. "Account Collateral Security Agreement" means the Account Collateral Security Agreement dated as of May 28, 1993, executed and delivered by the Credit Parties pursuant to the Existing Loan Agreement, pursuant to which Company and its Subsidiaries established the Concentration Accounts and granted to Collateral Agent on behalf of Lenders a first priority security interest in such accounts, as such Account Collateral Security Agreement has been amended and as it may hereafter be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. "Acknowledgement and Confirmation" means an Acknowledgement and Confirmation Agreement dated as of the Effective Date, substantially in the form of Exhibit I hereto, pursuant to which each Credit Party shall acknowledge and confirm that its obligations under the Guaranty Agreement and the Security Documents to which it is a party shall continue to guaranty or secure, as the case may be, the Obligations of Borrowers hereunder, as such Acknowledgement and Confirmation Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "Additional Mortgaged Property" has the meaning assigned to that term in subsection 3.2D(i)(b). "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" means The Chase Manhattan Bank, as agent for the Lenders, and also means and includes any successor Agent appointed pursuant to subsection 9.5. "Amended Loan Agreement" means this Second Amended and Restated Loan and Security Agreement dated as of April 10, 1997 amending and restating the Existing Loan Agreement, as the same may be further amended, supplemented or otherwise modified from time to time. "Asset Sale" means the sale by Company or any of its Subsidiaries to any Person other than a Credit Party of (i) any of the stock of any of its Subsidiaries, (ii) any assets of Company or any of its Subsidiaries with an aggregate Book Value in excess of $500,000, except for sales of single houses with Book Values in excess of $500,000 in the ordinary course of business, (iii) any assets of Company or any of its Subsidiaries at a price which is less than seventy percent (70%) of the Book Value of such assets, or (iv) any other assets of Company or any of its Subsidiaries outside of the ordinary course of business. "Assignment and Assumption" means an Assignment and Assumption entered into by a Lender and an Eligible Assignee, and accepted by Agent, in substantially the form of Exhibit C annexed hereto. "Auditor's Letter" means a letter substantially in the form of Exhibit D annexed hereto delivered to Lenders by Coopers & Lybrand pursuant to subsection 4.1C. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Rate" means, at any time, the Prime Rate plus 2.50% per annum. "Bi-Weekly Inventory Release Reports" means the inventory release reports to be delivered to Agent, Collateral Agent and, upon request, the Lenders on a bi-weekly basis pursuant to subsection 6.1(i)(b). "Book Value" means, for any property, the value for such property calculated by Company for financial accounting purposes according to GAAP and consistent with past practices. "Borrower Pledge Agreement" means that certain Borrower Pledge Agreement dated as of May 28, 1993, executed and delivered by Borrowers and Collateral Agent pursuant to the Existing Loan Agreement, as the same has been amended to the date hereof and as it may hereafter be amended, supplemented, or otherwise modified from time to time. "Borrower Security Agreement" means that certain Borrower Security Agreement dated as of May 28, 1993, executed and delivered by Borrowers and Collateral Agent pursuant to the Existing Loan Agreement, as the same has been amended to the date hereof and as it may hereafter be amended, supplemented, or otherwise modified from time to time. "Borrowers" means Company and Calton Funding, Inc., a New Jersey corporation, as joint and several obligors. "Borrowing Base" means, as of any date, an amount equal to the sum of (i) 80% of the Eligible Inventory Cost of each Eligible Property shown on the most recent Borrowing Base Certificate plus (ii) 30% of the remaining principal amount owed to the Credit Parties under the Mays Landing Mortgage. "Borrowing Base Certificate" means a certificate of the chief financial officer of Company in substantially the form of Exhibit G annexed hereto. "Borrowing Base Deficiency" means as of any day the amount, if any, by which (i) the Total Utilization on such day exceeds (ii) the Borrowing Base on such day. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Cash" means money, currency or a credit balance in a Deposit Account. "Cash Equivalents" means (i) marketable direct obligations issued by the United States Government and backed by the full faith and credit of the United States, in each case maturing within 30 days from the date of acquisition thereof; (ii) commercial paper maturing no more than 30 days from the date of creation thereof and (x) issued by Chase (to the extent available for issuance to Borrowers) or (y) at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation and at least P-1 from Moody's Investors Service, Inc.; and (iii) certificates of deposit or bankers' acceptances maturing within 30 days from the date of acquisition thereof issued by any Lender. "Cash Proceeds" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale. "Change of Control" means an event or series of events by which any Person or Persons and any Affiliates of such Person or Persons otherwise acting in concert shall, whether in a single transaction or a series of related transactions, acquire, directly or indirectly, an amount of capital stock of Company necessary to enable such Person or Persons to cast more than 50% of the votes necessary for the election of directors of Company or possessing in excess of 50% of the total voting power of the voting capital stock of Company (in each case, on a fully diluted basis); provided that a Change of Control shall not be deemed to occur if the acquisition of capital stock otherwise causing a Person, Persons or their Affiliates to meet or exceed the levels of voting power specified above is caused solely by the purchase by any Person of capital stock of Company from Company. "Chase" has the meaning assigned to that term in the introduction to this Amended Loan Agreement. "Collateral" means, collectively, all real, personal and mixed property collateral securing the Obligations pursuant to the Security Documents in accordance with Section 3. "Collateral Agent" means Chase, as collateral agent for the benefit of the Lenders, and also means and includes any successor Collateral Agent appointed pursuant to subsection 10.4. "Commitment Reduction Date" means the first date on which (i) the Commitments have been permanently reduced to an amount not exceeding $20,000,000, (ii) the Total Utilization has been reduced to an amount not exceeding $20,000,000, and (iii) no Event of Default shall have occurred that has not been either waived by Lenders in accordance with subsection 11.6 or (with respect to Events of Default that can be cured) cured by Borrowers. "Commitment Termination Date" means the earlier of (i) the Scheduled Expiry Date and (ii) the date on which all Obligations are paid in full, including the repayment, expiration, termination or cash collateralization of all Letters of Credit, and the Commitments are reduced to zero. "Commitments" means, collectively, the Tranche A Commitments and the Tranche B Commitments. "Company" means Calton, Inc., a New Jersey corporation. "Company Common Stock" means the common stock of Company, par value $0.01 per share. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit H delivered to Lenders by Borrowers pursuant to subsection 6.1(vi). "Concentration Account A" means account no. 808-010689 established by the Company with the Collateral Agent and maintained pursuant to the terms of the Account Collateral Security Agreement for the deposit of certain cash receipts of the Credit Parties pursuant to the terms of the Account Collateral Security Agreement. "Concentration Account B" means account no. 808-010697 established by the Company with the Collateral Agent and maintained pursuant to the terms of the Account Collateral Security Agreement for the deposit of certain cash receipts of the Credit Parties pursuant to the terms of the Account Collateral Security Agreement. "Concentration Accounts" means Concentration Account A and Concentration Account B. "Consolidated Adjusted EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii) Consolidated Interest Expense net of capitalized interest, (iv) capitalized interest amortized, (v) total depreciation expense, (vi) total amortization expense, excluding capitalized interest amortized, and (vii) other non-cash items reducing Consolidated Net Income less the sum of non-cash items increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "Consolidated Adjusted Tangible Net Worth" means, as at any date of determination, the excess of (i) all amounts which, in conformity with GAAP, would be included in shareholder's equity on such date over (ii) the sum of (a) the aggregate amount of all Investments in Joint Ventures on such date, plus (b) the aggregate amount of all Deferred Charges of Company and its Subsidiaries as of such date, plus (c) the aggregate stated balance sheet amount of any goodwill of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries plus (ii) to the extent not covered by clause (i) hereof, the aggregate of all expenditures by Company and its Subsidiaries during that period to acquire (by purchase or otherwise) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person. "Consolidated Cash Interest Expense" means, for any period, Consolidated Interest Expense but excluding, however, amortization of discount, deferred financing costs and interest expense not payable in cash. "Consolidated Interest Expense" means, for any period, total interest expense (including that portion attributable to Capital Leases in accor- dance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements. "Consolidated Land Acquisition Costs" means, for any period, the aggregate of all Land Acquisition Costs for Company and its Subsidiaries during that period. "Consolidated Land Development Costs" means for any period, the aggregate of all Land Development Costs for Company and its Subsidiaries during that period. "Consolidated Net Income" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net non-cash extraordinary losses. "Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid under all Capital Leases and Operating Leases of Company and its Subsidiaries as lessee. "Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Interest Rate Agreements and Currency Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non- performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (x) to purchase, repurchase or other- wise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (x) or (y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Credit Parties" means, collectively, the Borrowers and the Guarantors, each a "Credit Party." "Deemed Voting Lender" has the meaning set forth in Subsection 11.6A. "Deferred Charges" means, for any period, the sum of the amounts for such period of prepaid amounts with respect to directors and officers insurance, prepaid architectural fees and prepaid property taxes. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Effective Date" means the date on or before April 15, 1997, when each of the conditions to effectiveness set forth in Section 4.1 has been satisfied or waived by Requisite Lenders (or, in the case of the conditions set out in clauses 4.1E or 4.1F, satisfaction thereof shall have been waived by all Lenders). "Eligible Assignee" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country, or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds and lease financing companies, in each case (under clauses (i) through (iv) above) that has a net worth or net asset value of at least $100,000,000 and (B) any Lender. "Eligible Inventory Cost" means, at any time, with respect to any Eligible Property, the sum of the Land Acquisition Costs and Land Development Costs incurred with respect to such Eligible Property through such time less (i) all fresh start reserve adjustments incurred with respect to such Eligible Property, (ii) all adjustments required to determine the net realizable value of such Eligible Property in accordance with GAAP and all other reserves required by FASB 121 for such Eligible Property, and (iii) all new Soft Costs incurred with respect to such Eligible Property in respect of the period, commencing immediately following the date as of which the fresh start adjustments were made, through such date of determination. "Eligible Property" means any Real Estate Project owned in fee by a Credit Party which is subject to no Liens other than (i) a first priority Lien granted to the Collateral Agent for the benefit of the Lenders and (ii) Liens of the types set forth in clauses (i) and (iv) of the definition of Permitted Encumbrances, and with respect to which Collateral Agent has received from a title insurer reasonably satisfactory to Collateral Agent a binding commitment to issue a Mortgage Policy complying with subsection 3.2D(i)(d). "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is, or was at any time, maintained or contributed to by any Credit Party or any of their ERISA Affiliates. "Environmental Claim" means any accusation, allegation, notice of violation, claim, demand, abatement order or other order or direction (conditional or otherwise) by any governmental authority or any Person for any damage, including, without limitation, personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment or to natural resources, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions, in each case relating to, resulting from or in connection with Hazardous Materials and relating to Company, any of its Subsidiaries, any of their respective Affiliates or any Facility. "Environmental Laws" means all statutes, ordinances, orders, rules, regulations, plans, policies or decrees and the like relating to (i) environmental matters, including, without limitation, those relating to the evaluation of the environmental impacts of Real Estate Projects, development of natural habitat such as wetlands, development within the coastal zone, preservation of aquifers, conformance to regional or community plans, clean up of industrial sites upon a transfer, fines, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the Release or threatened Release of Hazardous Materials, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any or their respective properties, including, without limitation, the Industrial Site Recovery Act (N.J.S.A. Sec. 13:1K-6 et seq.), the National Environmental Policy Act (42 U.S.C. Sec. 4324 et seq.), the Coastal Zone Management Act (16 U.S.C. Sec. 1451 et seq.), the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Sec. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.), the Clean Air Act (42 U.S.C. Sec. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Sec.136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Sec. 651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Sec. 11001 et seq.), each as amended or supplemented, and any analogous future or present local, state and federal statutes and regulations promulgated pursuant thereto, each as in effect as of the date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA Affiliate", as applied to any Person, means (i) any corporation which is, or was at any time, a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is, or was at any time, a member; (ii) any trade or business (whether or not incorporated) which is, or was at any time, a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is, or was at any time, a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is, or was at any time, a member. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by Company or any of its ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Company or any of its ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Company or any of its ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company or any of its ERISA Affiliates in connection with any such Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 401(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Event of Default" means each of the events set forth in Section 8. "Excess Funding Borrower" has the meaning assigned to that term in subsection 11.21. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Existing Letter of Credit" means each Letter of Credit (as defined in the Existing Loan Agreement) outstanding on the Effective Date that has not expired or been cancelled as of the Effective Date. "Existing Loan Agreement" means the Original Loan Agreement as amended and in effect immediately prior to the Effective Date. "Existing Loan Documents" means the Account Collateral Security Agreement, the Borrower Pledge Agreement, the Borrower Security Agreement, the Existing Mortgages, the Guarantor Pledge Agreement, the Guarantor Security Agreement, the Guaranty Agreement and that certain Subordination Agreement dated as of May 28, 1993 made by the Company and each of its subsidiaries identified as a Credit Party therein, in favor of the Lenders. "Existing Loans" means the Existing Tranche A Loans and Existing Tranche B Loans. "Existing Mortgages" means the Mortgages listed on Schedule 5.22 annexed hereto, each issued by a Borrower or Guarantor to the Collateral Agent with respect to certain real property owned by such Borrower or Guarantor, and filed in the locations indicated on Schedule 5.22 annexed hereto. "Existing Mortgaged Properties" means the parcels of real property listed on Schedule 5.22 annexed hereto, each encumbered by an Existing Mortgage pursuant to the Existing Loan Agreement by a Borrower or Guarantor to the Collateral Agent. "Existing Notes" has the meaning assigned to that term in subsection 2.1. "Existing Tranche A Loan" has the meaning specified in subsection 2.1E. "Existing Tranche B Loan" has the meaning specified in subsection 2.1E. "Facilities" means any and all real property (including, without limitation, all buildings, fixtures and other improvements located thereon) now, hereafter or heretofore, owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent. "Florida Division" means all tangible assets of the Company and its Subsidiaries located in Florida, including the assets of Calton Homes of Florida, Inc., and the capital stock of Calton Homes of Florida, Inc. "Funding Date" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination. "General Release" means a Gen