SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant _X_
Filed by a Party other than the Registrant ___
Check the appropriate box
_X_ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
___ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Calton, Inc.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
___ No fee required
_X_ Fee computed on table below per Exchange Act Rules 14a(6)(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$48,100,000 - sale price
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4) Proposed maximum aggregate value of transaction:
$48,100,000
5) Total Fee Paid:
$9,620
_X_ Fee paid previously with preliminary materials
___ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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CALTON, INC.
500 Craig Road
Manalapan, New Jersey 07726
(732) 780-1800
November __, 1998
Dear Shareholder:
You are invited to attend a Special Meeting of the Shareholders (the
"Special Meeting") of Calton, Inc. (the "Company") to be held at the Company's
offices at 500 Craig Road, Manalapan, New Jersey at 10:00 a.m., local time, on
December 3, 1998.
At the Special Meeting, you will be asked to consider and vote upon the
sale (the "Sale Transaction") of the Company's principal operating subsidiary,
Calton Homes, Inc. ("Calton Homes"), to Centex Real Estate Corporation ("CREC"),
a wholly-owned subsidiary of Centex Corporation, pursuant to a Stock Purchase
Agreement. Substantially all of the Company's business is conducted through
Calton Homes. As a result, the Sale Transaction, if consummated, will represent
a sale of substantially all of the Company's business. After careful
consideration, the Board of Directors of the Company has approved the Sale
Transaction and unanimously recommends that you vote FOR the proposal relating
thereto.
The Sale Transaction is part of an overall strategy designed to enhance
shareholder value. In addition to the Sale Transaction, this strategy involves:
o the initiation of a significant stock repurchase program pursuant to
which the Company will seek to repurchase up to 10,000,000 shares of
Common Stock in privately negotiated transactions and open market
repurchases during the next 12 months;
o shifting the Company's business focus to providing various services to
participants in the homebuilding industry, including equity and debt
financing, financial advisory services and consulting services; and
o investing in, acquiring or combining with one or more operating
businesses within or outside of the homebuilding industry.
The Sale Transaction is an integral part of the Company's strategic plan,
which will be implemented only if the Sale Transaction is consummated. The
Company's activities after the consummation of the Sale Transaction will include
consulting services to be provided to CREC pursuant to a three year agreement
which will provide for a $1.3 million per year consulting fee payable to the
Company.
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If within 18 months from the date of the closing of the Sale Transaction,
the Company has not redeployed a substantial portion of the sale proceeds, or
developed a plan to redeploy a substantial portion of the proceeds within a
reasonable time frame, the Company will be liquidated and dissolved.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement and a proxy card. The Proxy Statement
describes in detail the proposed Sale Transaction and the plans for the Company
following the Sale Transaction.
Your vote is important and I urge you to read the enclosed Proxy Statement
carefully. Please complete, sign, date and mail the enclosed proxy card in the
enclosed postage paid envelope, whether or not you intend to be present in
person at the Special Meeting. You may revoke your proxy either in writing or by
voting in person at the Special Meeting, at any time before it is exercised, in
the manner described in the accompanying Proxy Statement. A prompt response will
be appreciated.
Very truly yours,
ANTHONY J. CALDARONE
Chairman of the Board
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CALTON, INC.
500 Craig Road
Manalapan, New Jersey 07726-8790
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
December 3, 1998
TO THE SHAREHOLDERS OF CALTON, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Calton, Inc. (the "Company") will be held on December 3, at 10:00
a.m., local time, at the Company's offices at 500 Craig Road, Manalapan, New
Jersey, for the following purposes:
1. To approve the sale by the Company of its principal operating
subsidiary, Calton Homes, Inc. ("Calton Homes"), a New Jersey
corporation, to Centex Real Estate Corporation, a Nevada corporation
("CREC") and a wholly owned subsidiary of Centex Corporation, pursuant
to a Stock Purchase Agreement dated as of September 2, 1998, as
amended, among the Company, Calton Homes and CREC.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on November 2, 1998
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. Only holders of record of common stock on the Record Date are entitled
to notice of and to vote at the Special Meeting.
By Order of the Board of Directors,
ROBERT A. FOURNIADIS
Secretary
Manalapan, New Jersey
November __, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE MARK, SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT AT ONCE IN
THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE
APPRECIATED.
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TABLE OF CONTENTS
SUMMARY........................................................................3
The Special Meeting........................................................3
The Sale Transaction.......................................................4
CERTAIN RISK FACTORS...........................................................6
No Participation in Future Growth of Calton Homes..........................6
Lack of Operating History in New Business..................................6
Risks Associated with Potential Business Combinations......................6
Continued Listing on AMEX..................................................7
Investment Company Act Considerations......................................7
Certain Tax Matters........................................................7
Potential Adjustment of Purchase Price.....................................8
THE SPECIAL MEETING............................................................9
Date, Time and Place.......................................................9
Matters to be Considered at the Special Meeting............................9
Voting and Record Date.....................................................9
Proxies and Revocation of Proxies.........................................10
Costs of Solicitation.....................................................10
No Dissenters'Rights......................................................10
THE SALE TRANSACTION..........................................................11
General...................................................................11
Background of the Sale Transaction.......................................11
Reasons for the Sale Transaction -
Recommendation of the Board of Directors................................14
Fairness Opinion..........................................................16
Analysis of Operating Results and Financial Condition.....................18
Effect of the Sale Transaction on the Company's Shareholders..............19
Effect of the Sale Transaction on Outstanding Options.....................19
Accounting Treatment of the Sale Transaction..............................20
Federal Income Tax Consequences of the Sale Transaction...................20
Regulatory Considerations.................................................20
Transaction Charges.......................................................20
THE STOCK PURCHASE AGREEMENT..................................................20
General...................................................................21
Purchase Price; Holdback..................................................21
Representations and Warranties............................................22
Conduct of Business Pending the Sale Transaction..........................22
No Solicitation; Fiduciary Out............................................24
Certain Other Covenants...................................................25
Conditions to the Closing.................................................26
Indemnification; Survival of Representations..............................28
Termination...............................................................28
Expenses..................................................................30
Amendment or Waiver.......................................................30
RELATED AGREEMENTS............................................................31
Consulting Agreement......................................................31
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Voting Agreement..........................................................31
Non-Competition Agreements................................................31
PLANS FOR THE COMPANY FOLLOWING THE SALE TRANSACTION..........................32
General...................................................................32
Stock Repurchase Program..................................................33
Consulting, Investment and Advisory Services..............................33
Acquisitions and Business Combinations....................................34
Management of Company after Sale Transaction..............................34
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION........................36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION..............37
MARKET PRICE AND DIVIDEND INFORMATION.........................................44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL......................................44
OWNERS AND MANAGEMENT.........................................................44
Principal Shareholders....................................................44
Security Ownership of Certain Beneficial Owners and Management............45
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................47
EXPERTS.......................................................................48
SHAREHOLDER PROPOSALS.........................................................48
OTHER BUSINESS................................................................48
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ON BEHALF OF CALTON WITH RESPECT TO THE MATTERS DESCRIBED IN
THIS PROXY STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CALTON. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CALTON SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY OR AN OFFER TO PURCHASE SHARES IN ANY JURISDICTION WHERE
IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR OFFER.
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in the
following Proxy Statement, including without limitation the statements
incorporated by reference to the documents set forth under caption
"Incorporation of Certain Documents by Reference" 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 statements pertaining to the Company's
activities after the proposed Sale Transaction, 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
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any future results, performance or achievements expressed or implied by such
forward-looking statements contained herein. 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, 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 the date of the Proxy Statement 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.
iii
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CALTON, INC.
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PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
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This Proxy Statement (the "Proxy Statement") is being furnished by the
Board of Directors (the "Board of Directors") of Calton, Inc. (the "Company" or
"Calton") to the holders of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), for use at the Special Meeting of Shareholders (the
"Special Meeting") scheduled to be held on December 3, 1998 at 10:00 a.m., local
time, at the Company's offices at 500 Craig Road, Manalapan, New Jersey and at
any adjournments or postponements thereof. The Board has fixed the close of
business on November 2, 1998 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of and to vote at the Special
Meeting.
At the Special Meeting, shareholders will be asked to approve the sale (the
"Sale Transaction") by the Company of its principal operating subsidiary, Calton
Homes, Inc., a New Jersey corporation ("Calton Homes"), to Centex Real Estate
Corporation, a Nevada corporation ("CREC") and a wholly-owned subsidiary of
Centex Corporation ("Centex"), pursuant to a Stock Purchase Agreement between
the Company, Calton Homes and CREC dated as of September 2, 1998, as amended
(the "Stock Purchase Agreement"), a copy of which is attached as Annex I hereto.
See "The Sale Transaction."
The Sale Transaction is part of an overall strategy designed to enhance
shareholder value. In addition to the Sale Transaction, this strategy involves:
o the initiation of a significant stock repurchase program pursuant to
which the Company will seek to repurchase up to 10,000,000 shares of
Common Stock in privately negotiated transactions and open market
repurchases during the next 12 months;
o shifting the Company's business focus to providing various services to
participants in the homebuilding industry, including equity and debt
financing, financial advisory services and consulting services; and
o investing in, acquiring or combining with one or more operating
businesses within or outside of the homebuilding industry.
The Sale Transaction is an integral part of the Company's strategic plan,
which will be implemented only if the Sale Transaction is consummated. If the
Sale Transaction is consummated, the Company's activities will include
consulting services to be provided to CREC
<PAGE>
pursuant to a three year agreement which will provide for a $1.3 million per
year consulting fee payable to the Company.
The Company plans to implement its proposed stock repurchase program in a
manner that will not adversely affect the liquidity of the Common Stock. The
Company anticipates that there will still be a sufficient number of shares
outstanding and publicly traded following the completion of the stock repurchase
program to ensure a continued trading market in its Common Stock.
If within 18 months from the date of the closing of the Sale Transaction,
the Company has not redeployed a substantial portion of the sale proceeds, or
developed a plan to redeploy a substantial portion of the proceeds within a
reasonable time frame, the Company will be liquidated and dissolved.
This Proxy Statement and the accompanying Notice of Special Meeting and
proxy card are first being mailed on or about November __, 1998 to shareholders
entitled to vote at the Special Meeting.
IN DETERMINING HOW TO VOTE ON THE SALE TRANSACTION,
SHAREHOLDERS SHOULD CONSIDER THE RISKS DESCRIBED IN THIS PROXY
STATEMENT UNDER "CERTAIN RISK FACTORS."
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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
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THE TRANSACTIONS DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is November __, 1998.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary is not a complete statement of all facts
material to a shareholder's decision with respect to matters to be voted upon at
the Special Meeting. This summary should only be read in conjunction with, and
is qualified in its entirety by reference to, the more detailed information
contained in the remainder of this Proxy Statement and Annexes hereto.
Shareholders are urged to review carefully this Proxy Statement and the Annexes
hereto in their entirety.
The Special Meeting
Time, Date and Place The Special Meeting of Shareholders (the "Special
Meeting") of Calton, Inc. (the "Company") will be
held at the Company's offices at 500 Craig Road,
Manalapan, New Jersey, on December 3 1998 at 10:00
a.m.
Purpose To consider and vote upon the proposed sale (the
"Sale Transaction") of Calton Homes, Inc. ("Calton
Homes") to Centex Real Estate Corporation (the
"CREC") pursuant to a Stock Purchase Agreement
dated as of September 2, 1998 among the Company,
Calton Homes and CREC, as amended (the "Stock
Purchase Agreement"). See "The Special Meeting -
Matters to be Considered at the Special Meeting."
Record Date November 2, 1998.
Vote Required The approval of this Sale Transaction will require
the affirmative vote of a majority of the votes
cast by the holders of outstanding shares of
Common Stock entitled to vote thereon. See "The
Special Meeting - Voting and Record Date."
Parties to the Sale The Company, through its wholly owned subsidiary,
Transaction Calton Homes, Inc. ("Calton Homes"), designs,
constructs and sells single family detached homes
in central New Jersey. Calton Homes markets
primarily to second and third time move-up
homebuyers with its conventional housing product
line and active adult homebuyers. In addition,
Calton Homes sells land and options to acquire
land to other builders from time to time after
adding value by obtaining entitlements.
The Company and Calton Homes are New Jersey
corporations and their executive offices are
located at 500 Craig Road, Manalapan, New Jersey
07726-8790. The Company's telephone number is
(732) 780-1800.
CREC is a 100% indirectly owned subsidiary of
Centex Corporation ("Centex"), a multi-industry
company whose common stock is traded on the New
York Stock Exchange. CREC is engaged primarily in
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homebuilding operations, which involve the
construction and sale of residential housing,
including the development of land in residential
communities and the purchase of developed lots.
CREC is one of the nation's largest home builders,
having built and delivered 12,418 homes in its
fiscal year ended March 31, 1998. CREC is
currently engaged in the construction and sale of
residential housing in 270 neighborhoods in 52
markets. CREC and its predecessors have been
engaged in the home building business since 1950.
CREC is a Nevada corporation and its principal
executive offices are located at 2728 North
Harwood, Dallas, Texas 75201. Its telephone number
is (214) 981-5000.
The Sale Transaction
Purchase Price The Stock Purchase Agreement provides that the
purchase price for the outstanding common stock of
Calton Homes will be $48.1 million, subject to
adjustment as provided in the Stock Purchase
Agreement. The Company does not anticipate that
there will be any significant adjustment to the
purchase price; however, there is no limit on the
amount by which the purchase price may be
adjusted. At the time of the closing of the Sale
Transaction, CREC will be required to repay
certain indebtedness of Calton Homes (currently
estimated to be approximately $22.5 million). See
"The Stock Purchase Agreement - General" and
"--Purchase Price; Holdback."
Consulting Agreement The Stock Purchase Agreement provides that at the
time of the closing of the Sale Transaction, the
Company and CREC will enter into a consulting
agreement (the "Consulting Agreement") which will
provide that the Company will render certain
consulting services to CREC and, in consideration
for such services, will be entitled to payments of
$1,300,000 per year for a period of three years.
See "Related Agreements-Consulting Agreement."
Recommendation of The Board of Directors has approved the Sale
Board of Directors Transaction and unanimously recommends to the
Company's shareholders that they vote FOR its
approval. For a discussion of the material facts
considered by the Board of Directors in reaching
its decision, see "The Sale Transaction Reasons
for the Sale Transaction; Recommendation of the
Board of Directors."
Fairness Opinion Janney Montgomery Scott Inc. ("Janney Montgomery")
has delivered a written opinion to the Board of
Directors of the Company that the consideration to
be received by the Company pursuant to the Sale
Transaction, as reflected in the Stock Purchase
Agreement, is fair to the Company from a financial
point of view. A copy of the written opinion of
Janney Montgomery, which sets forth the
assumptions
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<PAGE>
made, matters considered and limits of its review,
is attached to this Proxy Statement as Annex II
and should be read in its entirety. See "The Sale
Transaction - Fairness Opinion."
Effect of the Proposed If the Sale Transaction is approved and
Transaction on consummated, shareholders will continue to retain
Company's Shareholders their the ownership in the Company; however, the
Company intends to initiate a significant stock
repurchase program. As a result, the percentage
equity interest in the Company represented by
shares not acquired pursuant to the stock
repurchase program will be increased
proportionally based on the number of shares
acquired by the Company pursuant to the stock
repurchase program.
Plans for the Company If the Sale Transaction is approved and
Following the consummated, the Company plans to (i) initiate a
Transaction significant stock repurchase program pursuant to
which the Company will seek to repurchase up to
10,000,000 shares of Common Stock over a 12 month
period, (ii) shift its business focus to providing
various services to participants in the
homebuilding industry, including equity and debt
financing, financial advisory services and
consulting services, and (iii) seek to enhance
shareholder value by investing in, acquiring or
combining with one or more operating businesses
within or outside of the homebuilding industry. If
within 18 months from the date of the closing of
the Sale Transaction, the Company has not
redeployed a substantial portion of the sale
proceeds, or developed a plan to redeploy a
substantial portion of the proceeds within a
reasonable time frame, the Company will be
liquidated and dissolved. See "Plans for the
Company Following the Sale Transaction."
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<PAGE>
CERTAIN RISK FACTORS
There are certain risks associated with the Sale Transaction and the
strategic plan which the Company intends to implement if the Sale Transaction is
consummated. The Company believes that the significant risks are the following:
No Participation in Future Growth of Calton Homes
If the Sale Transaction is consummated, the Company's shareholders will no
longer have the opportunity to share in the future growth or earnings of Calton
Homes. No assurance can be given that if the Sale Transaction is completed,
shareholders will ultimately realize greater value through their ownership of
Calton Common Stock than would be realized if the Sale Transaction was not
completed and Calton Homes remained as a subsidiary of the Company. Further, no
assurance can be given that the Company would not be able to obtain a greater
sale price for the business of Calton Homes at some time in the future.
Lack of Operating History in New Business
If the Sale Transaction is consummated, the Company intends to provide
various services to participants in the homebuilding industry, including
investment, advisory and consulting services. In addition, at the closing of the
Sale Transaction, the Company will enter into a three year consulting agreement
with CREC; however, the Company has not previously engaged in providing such
services to third parties. In addition, the Company has not entered into any
agreement to provide such services to any other third party. Further, upon the
closing of the Sale Transaction, the Company will be subject to a
non-competition agreement with CREC which will limit the scope of the activities
which can be conducted by the Company in New Jersey and Pennsylvania. As a
result, no assurance can be given that the Company will be successful in
implementing its plans following the Sale Transaction or that the Company will
be able to generate profits from any such activities
Risks Associated with Potential Business Combinations
In addition to engaging in the activities described above under the caption
"-Lack of Operating History in New Business," the Company will seek to enhance
shareholder value by investing in, acquiring or combining with one or more
operating businesses either within or outside of the homebuilding industry. As
the Company has not yet identified a prospective business (a "Target Business")
with which it is likely to effectuate a merger, exchange of capital stock, stock
or asset acquisition or other similar type of transaction (a "Business
Combination"), shareholders have no basis on which to evaluate the possible
merits or risks of a Target Business. Management of the Company will endeavor to
evaluate the risks inherent in any particular Target Business; however, there
can be no assurance that the Company will properly ascertain all such risks. In
many cases, shareholder approval will not be required to effect such a Business
Combination. The fair market value of the Target Business will be determined by
the Board of Directors of the Company. Therefore, the Board of Directors has
significant discretion in determining whether a Target Business is suitable for
a proposed Business Combination. Furthermore, the structure of a Business
Combination with a Target Business, which may take the form of a merger,
exchange of capital stock or stock or asset acquisition, cannot be
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<PAGE>
determined because, at the present time, no agreements, arrangements or
understandings exist with respect to any such proposed Business Combination.
Continued Listing on AMEX
The Company's Common Stock is currently listed for trading on the American
Stock Exchange ("AMEX"). Based upon preliminary discussions with AMEX, the
Company does not believe that the Sale Transaction will result in the delisting
of the Common Stock; however, under AMEX's suspension and delisting policies,
AMEX will normally consider suspending dealings in, or removing from listing
securities of a company, if the company has sold or otherwise disposed of its
principal operating assets, has ceased to be an operating company or has
discontinued a substantial portion of its operations or business for any reason.
AMEX has indicated that the Common Stock may become subject to delisting if the
Company is not engaged in active business operations within a reasonable period
of time after the closing of the Sale Transaction. If the Common Stock is
delisted, it would trade on the OTC Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc., which are generally
considered to be less efficient markets.
Investment Company Act Considerations
The Investment Company Act of 1940, as amended ("1940 Act"), requires the
registration of, and imposes various substantive restrictions on, certain
companies that engage primarily, or propose to engage primarily, in the business
of investing, reinvesting, or trading in securities, or that fail certain
statistical tests regarding the composition of assets and source of income, and
are not primarily engaged in a business other than investing, holding, owning or
trading securities. The Company intends to conduct its activities following the
Sale Transaction in a manner which will not subject the Company to regulation
under the 1940 Act; however, there can be no assurance that the Company will not
be deemed to be an investment company under the 1940 Act. If the Company were
required to register as an investment company under the 1940 Act, it would
become subject to substantial regulation with respect to its capital structure,
management, operations, transactions with affiliates, the nature of its
investments and other matters. In addition, the 1940 Act imposes certain
requirements on companies deemed to be within its regulatory scope, including
compliance with burdensome registry, recordkeeping, voting, proxy, disclosure
and other rules and regulations. In the event of the characterization of the
Company as an investment company, the failure of the Company to satisfy
regulatory requirements, whether on a timely basis or at all, could have a
material adverse effect on the Company.
Certain Tax Matters
Section 541 of the Internal Revenue Code of 1986, as amended (the "IRC"),
subjects a corporation which is a "personal holding company," as defined in the
IRC, to a 39.6% penalty tax on undistributed personal holding company income in
addition to the corporation's normal income tax. The Company could become
subject to the penalty tax if (i) 60% or more of its adjusted ordinary gross
income is personal holding company income and (ii) 50% or more of its
outstanding Common Stock is owned, directly or indirectly, by five or fewer
individuals.
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<PAGE>
Personal holding company income is comprised primarily of passive investment
income plus, under certain circumstances, personal service income.
Potential Adjustment of Purchase Price
The Stock Purchase Agreement provides that the $48.1 million purchase price
payable to the Company by CREC is subject to adjustment (i) in the event that
the Book Tax Difference (as calculated in accordance with a formula set forth in
the Stock Purchase Agreement) of Calton Homes is greater or less than $9.3
million, (ii) if Calton Homes owns, as of November 30, 1998, certain assets
which have an adjusted tax basis which exceeds their fair market value or (iii)
based on the pretax earnings of Calton Homes during the period between May 31,
1998 and November 30, 1998. There is no limit on the amount by which the
purchase price may be adjusted. In the event of a reduction in the purchase
price, the Company's Board of Directors will make a determination as to whether
the Company will resolicit proxies with respect to the Sale Transaction. The
Company does not expect that there will be any significant reduction in the
purchase price; however, no assurance can be given that a reduction will not
occur.
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THE SPECIAL MEETING
Date, Time and Place
This Proxy Statement is being furnished to holders of Common Stock in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Special Meeting to be held at the Company's offices at
500 Craig Road, Manalapan, New Jersey on December 3, 1998 at 10:00 a.m. local
time, or any adjournment thereof.
Matters to be Considered at the Special Meeting
The Special Meeting has been called by the Board of Directors of the
Company for the purpose of (a) voting upon a proposal to approve the sale by the
Company of its principal operating subsidiary, Calton Homes, to CREC pursuant to
the Stock Purchase Agreement and (b) transacting such other business as may
properly come before the Special Meeting or any adjournment or postponement
thereof.
It is not expected that any matter not referred to herein will be presented
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, including a motion to adjourn the meeting for the
purpose of soliciting additional proxies, the persons named in the proxies or
authorized substitutes will have discretion to vote on such matters and on
matters incident to the conduct of the Special Meeting in accordance with their
best judgment, except that shares represented by proxies which have been voted
"Against" approval of the Stock Purchase Agreement will not be used to vote
"For" adjournment of the Special Meeting for the purpose of soliciting
additional votes "For" approval of the Stock Purchase Agreement.
Voting and Record Date
The Board of Directors has fixed November 2, 1998 as the Record Date for
determining shareholders of record entitled to receive notice of and to vote at
the Special Meeting. Accordingly, only holders of record of Common Stock as of
the Record Date will be entitled to notice of and to vote at the Special
Meeting. As of the Record Date, there were [26,743,804] shares of Common Stock
outstanding and entitled to vote, which shares were held by approximately [628]
holders of record.
Each holder of record of Common Stock on the Record Date is entitled to
cast one vote per share, exercisable in person or by properly executed proxy,
with respect to the approval of the Sale Transaction and any other matter
properly submitted for the vote of the Company's shareholders at the Special
Meeting. The presence, in person or by proxy, of a majority of the Company's
outstanding shares of Common Stock are necessary to constitute a quorum at the
Special Meeting. The affirmative vote of a majority of the votes cast in person
or by proxy is required for the approval of the Sale Transaction. The directors
and officers of the Company have indicated their intent to vote their shares of
Common Stock in favor of the Sale Transaction. In addition, Anthony J.
Caldarone, the Chairman, President and Chief Executive Officer of the Company,
and his wife, Joyce P. Caldarone, have entered into an agreement with CREC which
requires them, subject to certain exceptions, to vote all of their shares of
Common Stock in favor of the Sale Transaction. As of November 2, 1998, Mr. and
Mrs. Caldarone collectively owned
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4,281,805 shares of Common Stock, representing approximately 16% of the
outstanding Common Stock as of such date. See "Related Agreements-Voting
Agreement."
Proxies and Revocation of Proxies
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting and not
duly and timely revoked will be voted at the Special Meeting in accordance with
the choices marked therein by the shareholders. Unless a contrary choice is
marked, the shares will be voted FOR approval of the Sale Transaction.
Execution and delivery of a proxy card will not affect a shareholder's
right to attend the Special Meeting and vote in person. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
it is voted. Proxies may be revoked by (i) filing with the Secretary of the
Company at or before the taking of the vote at the Special Meeting, a written
notice of revocation bearing a later date than the proxy, (ii) duly executing a
later dated proxy relating to the same shares and delivering it to the Secretary
of the Company before the taking of any vote at the Special Meeting or (iii)
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent so as to be
delivered to Calton, Inc., 500 Craig Road, Manalapan, New Jersey 07726-8790,
Attention: Shareholder Relations, or hand-delivered to the Company at or before
the taking of the vote at the Special Meeting.
Costs of Solicitation
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
beneficial owners of shares of Common Stock held of record by such brokers,
custodians, nominees and fiduciaries, and the Company may reimburse such
brokers, custodians, nominees and fiduciaries for their out-of-pocket and other
reasonable clerical expenses in connection therewith. Also, solicitation of
proxies may, in certain instances, be made personally or by telephone by
directors, officers and other employees of the Company. It is expected that the
expense of such special solicitation will be nominal.
No Dissenters' Rights
Shareholders of the Company will not be entitled to any dissenters' or
appraisal rights under Section 14A:11-1 et seq. of the New Jersey Business
Corporation Act (the "NJBCA").
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THE SALE TRANSACTION
General
The Company is the owner of all of the issued and outstanding shares of the
common stock of Calton Homes, its principal operating subsidiary. CREC has
entered into a Stock Purchase Agreement with the Company and Calton Homes, dated
September 2, 1998, as amended, which provides for the sale of all of the issued
and outstanding shares of Calton Homes to CREC.
Substantially all of the Company's business is conducted through Calton
Homes. As a result, the sale of Calton Homes will represent a sale of
substantially all of the assets of the Company.
The Stock Purchase Agreement provides that the purchase price (the
"Purchase Price") of all of the issued and outstanding shares of common stock of
Calton Homes will be $48,100,000, subject to adjustment as more particularly
described below under the caption "The Stock Purchase Agreement - Purchase
Price." The Company does not anticipate that there will be any significant
adjustment of the Purchase Price; however, there is no limit on the amount by
which the Purchase Price may be adjusted. The Purchase Price is payable in cash
at the closing (the "Closing") of the Sale Transaction; however, $5,227,000 of
the purchase price (the "Holdback") will be placed in escrow to secure the
obligations of the Company to indemnify CREC for potential claims under the
Stock Purchase Agreement.
At the time of the Closing, CREC will be required to repay all indebtedness
outstanding under Calton Homes' revolving credit agreement (the "Credit
Agreement") and a purchase money mortgage loan that is currently outstanding.
The Company estimates that there will be approximately $22.5 million of
indebtedness outstanding under these arrangements at the Closing. The Credit
Agreement will be terminated upon the Closing.
The Company and CREC have agreed that at the time of the Closing, the
Company and CREC will enter into a consulting agreement having a term of three
years which will provide that the Company will render certain consulting
services to CREC and, in consideration for such services, will be entitled to
payment of $1,300,000 per year. See "Related Agreements - The Consulting
Agreement."
The Company estimates that immediately after the Closing, it will have net
assets, excluding the Holdback, of approximately $40,000,000 (before giving
effect to any repurchases of Common Stock pursuant to its proposed stock
repurchase program) consisting almost exclusively of cash and cash equivalents.
Assuming that the Company's proposed stock repurchase program results in the
acquisition of 10,000,000 shares at a price of $.75 per share (the closing price
of the Common Stock on the American Stock Exchange on October 30, 1998), the
estimated net assets of the Company would be reduced to approximately
$32,500,000. See "Plans for the Company Following the Sale Transaction."
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Background of the Sale Transaction
The terms of the Stock Purchase Agreement and the related agreements are
the result of arm's length negotiations between representatives of and legal
advisors to the Company and CREC. The following is a brief discussion of the
background of these negotiations.
In 1997, the Company's Board of Directors commenced internal discussions
with respect to strategic alternatives that could enhance shareholder value,
including the possible acquisition by the Company of other entities engaged in
residential homebuilding and the sale or merger of the Company. In January 1998,
the Board authorized management to engage Michael P. Kahn & Associates, LLC
("MPKA") to assist the Company in examining the strategic options available to
it. Pursuant to its engagement, MPKA identified certain potential acquisition
candidates to the Company. Discussions and negotiations with respect to
potential acquisition transactions subsequently ensued with three candidates;
however, such discussions and negotiations did not lead to any agreements with
respect to a transaction with any of such acquisition candidates. The Company
also engaged in discussions with two privately held homebuilders with respect to
"reverse merger" transactions pursuant to which such homebuilders would be
merged into the Company. Such discussions did not lead to any specific proposal
with respect to a reverse merger transaction.
In February 1998, MPKA contacted certain large, publicly traded
homebuilders in an effort to determine whether any of such homebuilders had an
interest in pursuing a business combination with the Company. Six of such
homebuilders, including CREC, indicated a preliminary interest in pursuing
discussions with the Company. In four instances, the Company entered into
confidentiality agreements with such other parties, including CREC which
executed a confidentiality agreement on March 23, 1998. None of the other
parties with whom the Company conducted preliminary discussions made any
proposal, formal or informal, with respect to acquiring or effecting a business
combination with the Company or Calton Homes, except for one company which made
a preliminary proposal at a price unacceptable to the Company and which advised
the Company that under no circumstances would it pay a price that would require
it to record goodwill on its balance sheet. Based on these discussions, the
Company's management concluded that further negotiations with this party were
unlikely to yield an offer that would be of interest to the Company's Board of
Directors.
On April 2, 1998, Anthony J. Caldarone, Chairman and President of the
Company, and Timothy R. Eller, Chairman and Chief Executive Officer of CREC, met
at an investment conference and discussed the possibility of CREC acquiring or
entering into a business combination with the Company or Calton Homes. Between
April 2, 1998 and April 26, 1998, Mr. Caldarone and Mr. Eller continued to
discuss the possibility of a sale transaction by telephone. On April 27, 1998,
representatives of the Company and CREC met in Dallas, Texas to discuss a
proposed transaction. Subsequent to such meeting, the Company and CREC exchanged
certain business and financial information, including forecasted financial
information through November 30, 2002, information pertaining to Calton Homes'
land pipeline and litigation, sales and other operating data by community and
certain feasibility studies undertaken by the Company with respect to proposed
projects. On June 3, 1998, CREC submitted a draft of an agreement in principle
which provided for the acquisition by CREC of substantially all of the assets of
Calton Homes for a base purchase price of $42 million with the possibility of
additional sale consideration that would be based upon the post-closing earnings
of the acquired business. At this juncture, the Company requested its legal and
tax advisors to review various transaction
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structures with a view toward identifying significant tax and legal issues
associated with each such structure. During this time, Mr. Caldarone and Mr.
Eller continued to discuss the terms of a potential transaction involving the
acquisition of Calton Homes by CREC. In addition, Bradley A. Little, Senior Vice
President and Chief Financial Officer of the Company, and William D. Albers,
CREC's Executive Vice President and Chief Financial Officer, had several
telephone discussions with respect to certain financial and tax issues
associated with a potential transaction.
On May 20, 1998, representatives of the Company and CREC met in Dallas,
Texas to continue discussions. On June 9 and June 10, 1998, representatives of
CREC visited the Company's offices and toured Calton Homes' communities under
development and under option.
On June 29, 1998, at a meeting of the Company's Board of Directors, Mr.
Caldarone described the status of the discussions with CREC and discussed CREC's
proposal to acquire Calton Homes. At this meeting, it was the consensus of the
Board that although the terms of the transaction proposed by CREC, including the
price, were not acceptable, management should continue negotiations and
discussions with CREC with respect to a potential transaction.
Between June 29, 1998 and August 11, 1998, numerous telephone conversations
were held by management of CREC and the Company in which certain material terms
of a proposed transaction, including the purchase price and the structure of the
transaction were discussed. Management of the Company advised representatives of
CREC that CREC's proposal to acquire Calton Homes for a base purchase price of
$42 million, with the possibility of additional sale consideration based upon
the post-closing earnings of Calton Homes, was not acceptable. On July 27 and
28, 1998, representatives of CREC performed a preliminary due diligence
investigation of Calton Homes. On July 31, 1998, CREC delivered a draft of a
stock purchase agreement to Calton. The draft agreement did not set forth a
proposed purchase price. On or about August 7, 1998, the parties reached a
general agreement as to the potential price and structure of the proposed
transaction. On August 12, 1998, representatives of CREC met with management of
the Company and its legal advisors to further negotiate the terms of the Sale
Transaction. On the same date, the Company engaged Janney Montgomery as its
financial advisor to render a fairness opinion if the Company was able to reach
a definitive agreement with CREC. Janney Montgomery did not participate in the
negotiations between the Company and CREC. During the next three weeks,
negotiations between representatives of CREC and the Company continued and
ultimately led to the negotiation of a Stock Purchase Agreement among Calton,
Calton Homes and CREC dated as of September 2, 1998 (the "Initial Stock Purchase
Agreement"). The Initial Stock Purchase Agreement provided for a base purchase
price of $49.6 million and contemplated that the Consulting Agreement would have
a term of four years and provide for an annual consulting fee to Calton of $1.5
million. During this period, CREC continued with its due diligence
investigation.
At a meeting held on August 27, 1998, in which all directors except Frank
Cavell Smith, Jr. participated, Janney Montgomery rendered its preliminary
opinion to the Board of Directors that the Sale Transaction was fair to the
Company's shareholders from a financial point of view. At this meeting, the
Company's Board of Directors determined that the Sale Transaction was in the
best interest of the Company and its shareholders and, therefore, approved and
adopted the Initial
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Stock Purchase Agreement, authorized management to execute and deliver the
Initial Stock Purchase Agreement and recommended its approval and adoption by
the Company's shareholders. On September 15, 1998, at a meeting in which all
directors participated, Janney Montgomery confirmed its preliminary opinion and
delivered its written opinion to the Board. Mr. Smith advised the Company that
he supported the determination made by the Board in his absence to recommend the
approval and adoption of the Sale Transaction by the Company's shareholders,
thus making the Board's recommendation unanimous.
Between September 2, 1998 and October 16, 1998 CREC continued its due
diligence investigation. On October 16, 1998, CREC requested an extension of the
due diligence period contemplated by the Initial Stock Purchase Agreement which
was to expire on October 17, 1998. Calton agreed to extend the due diligence
period to October 21, 1998. On October 21, 1998, representatives of the Company
and CREC met in Dallas, Texas to discuss CREC's due diligence investigation. At
this meeting, CREC advised the Company that it disagreed with certain items
reflected in the financial forecast for Calton Homes. After extensive discussion
of the matter, the due diligence period was further extended until October 27,
1998. On October 27, 1998, the parties agreed to reduce the base purchase price
set forth in the Initial Stock Purchase Agreement to $48.1 million and revise
the terms of the proposed Consulting Agreement to provide for a three year term
and an annual consulting fee of $1.3 million to the Company. At the same time,
the parties extended the due diligence period until October 30, 1998 and agreed
in principle to amend certain other provisions of the Initial Stock Purchase
Agreement, including an increase in the Holdback from $3,000,000 to $5,227,000.
These amendments were ultimately confirmed in writing and are reflected in the
Stock Purchase Agreement which was unanimously approved by the Board of
Directors. In a letter dated November __, 1998, Janney Montgomery confirmed in
writing that the amendments to the Initial Stock Purchase Agreement did not
change its opinion. A copy of the November __, 1998 letter from Janney
Montgomery forms a part of Annex II to this Proxy Statement.
Reasons for the Sale Transaction; Recommendation of the Board of Directors
The Board of Directors believes that the Sale Transaction is fair to, and
in the best interests of, the Company and its shareholders. The material factors
considered by the Board in reaching this conclusion are summarized below:
(i) Calton Homes' Business, Condition and Prospects. In evaluating the
Sale Transaction, the Board considered, among other things,
information concerning the financial condition, results of operations,
capital requirements, assets and liabilities of Calton Homes on both a
historical and prospective basis, together with current industry,
economic and market conditions. The Board considered the fact that if
the Sale Transaction is consummated, shareholders will no longer have
the opportunity to participate in the future growth and earnings of
Calton Homes. In addition, the Board took into account the possibility
that it might be possible to negotiate a more favorable purchase price
for the business of Calton Homes in the future. In evaluating Calton
Homes' prospects, the Board considered information concerning recent
trends toward consolidation in the residential homebuilding industry
and increasing competition from large, geographically diversified and
better capitalized
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competitors. The Board considered that historically the homebuilding
industry has been cyclical in nature. The Board believes that the
industry, both in New Jersey and on a nationwide basis, has recently
experienced a prolonged period of favorable market conditions which
may not be sustainable over the long term. Further, the Company's lack
of geographic diversity could have an adverse impact in the event of a
deterioration of market conditions in New Jersey. In view of these
factors, the Board concluded that it was a favorable time to sell the
Company's homebuilding operations.
(ii) Opinion of Janney Montgomery. In making its determination that the
Sale Transaction is fair to, and in the best interests of, the
Company's shareholders, the Board considered the opinion of Janney
Montgomery, an investment banking firm, that the Sale Transaction is
fair, from a financial point of view, to the Company's shareholders.
See "--Opinion of Financial Advisor."
(iii) Historical and Recent Market Prices. The Board reviewed the
historical market prices and recent trading activity of the Common
Stock. The Board considered as favorable to its determination the fact
that the Purchase Price is higher than the highest aggregate market
value of the Company's Common Stock since September 23, 1994. The high
and low sales prices of the Common Stock on September 1, 1998, the
last full trading day prior to the first public announcement of the
Sale Transaction, were $5/8 and $9/16 per share, respectively,
reflecting an aggregate market value of $16.7 million and $15.0
million, respectively, of the Company's Common Stock on such date.
(iv) No Financing Contingency; Strong Acquiror. The Board regarded as
favorable to its determination the facts that the Stock Purchase
Agreement does not contain a financing contingency, that CREC is a
financially sound enterprise with a very strong balance sheet and
that, accordingly, the Sale Transaction has a low risk of
noncompletion due to any financial inability of CREC.
(v) Fiduciary Out; Reasonable Break-up Fee. The Board considered
provisions in the Stock Purchase Agreement that (a) require the
Company to pay CREC a $2,000,000 termination fee if the Stock Purchase
Agreement is terminated under certain circumstances, including a
termination resulting from a decision by the Company to enter into an
agreement with respect to an alternative transaction and (b) do not
permit the Company to terminate the Stock Purchase Agreement and
accept an alternative proposal unless it complies with certain
procedures that allow CREC to submit a superior bid and the
alternative proposal provides for consideration having a fair market
value which exceeds the Purchase Price by at least $4.9 million. The
Board found reasonable the views of its management and advisors that
after taking into account the total consideration payable to the
Company pursuant to the transactions contemplated by the Stock
Purchase Agreement, and the potential costs associated with pursuing
an alternative proposal, the provisions of the Stock Purchase
Agreement were reasonable and necessary to obtain CREC's agreement
under the circumstances, and were not preclusive of an alternative
proposal.
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<PAGE>
(vi) Enhancement of Shareholder Value. The Board believes that shareholder
value can be substantially enhanced by (i) selling the homebuilding
operations conducted by Calton Homes, (ii) providing to shareholders
the opportunity to participate directly in a portion of the proceeds
of the Sale Transaction through a significant stock repurchase
program, (iii) maintaining the Company as a publicly traded going
concern after the Sale Transaction, (iv) shifting the Company's
business focus to investing in and providing services to participants
in the homebuilding industry operating in markets other than New
Jersey and Pennsylvania, and (v) acquiring or combining with an
operating business within or outside of the homebuilding industry. In
making its determination to enter into the Stock Purchase Agreement
and pursue a new strategic plan, the Board believed that the Sale
Transaction and the other strategies described above would ultimately
result in a greater increase in shareholder value than could be
achieved in the foreseeable future through continuing the homebuilding
operations of Calton Homes or liquidating and dissolving the Company
following the Sale Transaction.
In view of the wide variety of factors considered in connection with its
evaluation of the Sale Transaction, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
The Board of Directors believes that the Sale Transaction at this time
would be fair to and in the best interests of the Company and its shareholders.
The Board of Directors of the Company unanimously recommends that shareholders
vote FOR approval of the Sale Transaction.
Fairness Opinion
The Board of Directors retained Janney Montgomery, an investment banking
firm, as its financial advisor to render an opinion as to the fairness, from a
financial point of view, of the Sale Transaction to the shareholders of the
Company. Janney Montgomery, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with the preparation of fairness opinions, mergers and acquisitions,
rights offerings, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. Janney Montgomery was selected to act as financial advisor
to the Company's Board of Directors because of its expertise and its reputation
in investment banking and merger and acquisitions. Prior to its engagement,
Janney Montgomery had no prior relationship with the Company. Pursuant to the
terms of its engagement letter with the Company dated August 6, 1998, Janney
Montgomery was paid a fee of $185,000 in connection with the rendering of its
fairness opinion. In addition, the Company has agreed to reimburse Janney
Montgomery for certain out-of-pocket expenses.
At the August 27, 1998 meeting of the Board of Directors, Janney Montgomery
rendered its oral opinion and subsequently confirmed to the Board of Directors
on September 15, 1998 and October 30, 1998 in writing that, as of such dates,
the consideration to be received by the Company in connection with the Sale
Transaction was fair to the Company's shareholders from a
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financial point of view. The full text of Janney Montgomery's written opinion to
the Board, dated as of September 15, 1998, and its confirmation thereof dated
November __, 1998, are attached hereto as Annex II and are incorporated herein
by reference. Janney Montgomery was not requested to and did not make any
recommendations to the Board of Directors as to the form or amount of
consideration to be received by the Company, which was determined by negotiation
between the Company and CREC. No limitations were imposed on Janney Montgomery
by the Board of Directors with respect to the investigations made or the
procedures followed by it in rendering its opinion.
In rendering its opinion, Janney Montgomery reviewed, among other things:
(a) the Stock Purchase Agreement and related agreements; (b) publicly available
business and historical financial information relating to the Company and Calton
Homes, including the Company's 1997 Annual Report, the Company's Report on Form
10-K for the fiscal year ended November 30, 1997, the Company's Reports on Form
10-Q for the fiscal quarters ended February 28, 1998 and May 31, 1998,
respectively; (c) certain financial and other data provided to Janney Montgomery
by the Company that is not publicly available relating to the business and
prospects of Calton Homes, including financial projections prepared by the
management of the Company; (d) the reported historical market prices and trading
volume of the Company's Common Stock; (e) selected financial and stock market
data for certain other publicly traded companies in lines of business comparable
to the Company; (f) interest rate trends; (g) publicly reported trends in land
prices; and (h) the financial terms of certain other recent mergers and
acquisitions of residential homebuilding companies. In addition, Janney
Montgomery held discussions with the management of the Company regarding Calton
Homes' business, operating results, financial condition, and prospects, and
undertook other analyses, studies and investigations as it considered
appropriate.
The other public companies used by Janney Montgomery for comparative
purposes were D.R. Horton, Inc., U.S. Home Corp., Toll Brothers, Inc., Ryland
Group, Inc. and Centex (the "Comparable Companies"). Janney Montgomery selected
these companies because each engages in residential homebuilding in the
mid-Atlantic region of the United States.
In connection with its review, Janney Montgomery relied, without
independent verification, upon the accuracy and completeness of the financial
and other information used by it in arriving at its opinion. Janney Montgomery
also relied upon the assessment by the management of the Company regarding the
business and prospects of Calton Homes and also assumed that the financial
projections of the Company were reasonably prepared by management on bases
reflecting the best currently available estimates and good faith judgments of
the future financial performance of Calton Homes. Janney Montgomery did not
undertake any independent valuations or appraisals of the real properties or
other assets of Calton Homes, nor was it furnished with any such valuations or
appraisals. Janney Montgomery also did not undertake any analyses of the
liquidation valuation of the Company's Common Stock since the Company does not
intend to liquidate. Janney Montgomery's opinion was necessarily based upon
economic, market and other conditions as they existed, and could have been
evaluated, on the date of its opinion.
The following summary is a general description of Janney Montgomery's
presentation to the Board on August 27, 1998 and does not purport to be a
complete description of the analyses
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performed or matters considered by Janney Montgomery in rendering its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Furthermore,
Janney Montgomery believes that its analyses must be considered as a whole and
that selecting portions of such analyses and the matters considered, without
considering all matters and analyses, could lead to inappropriate conclusions.
In its analyses, Janney Montgomery made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. Any estimates of
value derived from Janney Montgomery's analyses are not necessarily indicative
of future results or actual values, which may be more or less favorable than
such estimates. In addition, estimates relating to the value of businesses do
not purport to be appraisals nor necessarily reflect the prices at which such
businesses may actually be sold. Consequently, such estimates are inherently
subject to uncertainty.
Analysis of Operating Results and Financial Condition
Janney Montgomery reviewed with the Board of Directors the historical and
projected operating performance and financial condition of Calton Homes. The
financial information and stock market data reviewed by Janney Montgomery
included (a) stock price multiples to historical and estimated earnings; (b)
enterprise value (total equity values plus liabilities) to latest twelve months
revenues, operating cash flow (earnings before interest, taxes, depreciation and
amortization) and pre-tax profits; (c) profit margins and returns on assets and
equity; (d) historical and estimated growth rates; and (e) the capitalization of
the Comparable Companies and Calton Homes. Janney Montgomery noted that stock
price multiples of the Comparable Companies ranged from 8x to 13.8x earnings for
the most recent twelve month period, 6.9x to 12.5x most recent estimated
earnings for 1998 and .67x to 2.24x most recent reported book value. Market
equity value multiples ranged from .13x to .94x latest twelve months revenues,
1.41x to 9.14x latest twelve months operating cash flow and 3.31x to 12.62x
latest twelve months pre-tax profits. Applying the range of multiples of the
Comparable Companies to the appropriate financial information for Calton Homes
results in a range of estimated values. Janney Montgomery noted that the range
of estimated values is quite broad and concluded that the appropriate range of
values was between $35 million and $45 million based on the Company's historical
operating results and projected growth.
Discounted Cash Flow. The Company provided forecasts from which Janney
Montgomery developed a discounted cash flow model to estimate the values of
Calton Homes based upon (i) the present value of the after-tax free cash flow
over a three-year three month period from August 31, 1998 through November 30,
2001, (ii) the terminal value of Calton Homes at the end of such period assuming
multiples of 8, 9 and 10 times adjusted projected fiscal year 2001 after-tax net
income, and (iii) elimination of excess cash. The enterprise value calculated
for Calton Homes under the foregoing analyses ranged from $65.2 million to $75.8
million compared to Calton Homes' estimated enterprise value at Closing of $83.5
million and a range of equity values from $41.1 million to $51.8 million
compared to $49.6 million for the Company. The discount rate employed in (i) and
(ii) above was 17.5%. The Company's forecasts assumed compound annual growth
rate of revenues of 15% and maintenance of historical margins.
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Analysis of Mergers and Acquisitions in the Homebuilding Industry. Janney
Montgomery identified 87 pending and completed mergers and acquisitions of
residential homebuilding companies since August 24, 1997 in order to compare
multiples of earnings paid in other acquisition transactions to the proposed
purchase price of Calton Homes. Janney Montgomery advised the Board of Directors
that there was insufficient information to estimate the value of the Company
based on these transactions. Most of the acquired companies were private and,
consequently, the business and operating performance of the acquired companies
or the financial terms of the transactions were not publicly available for 84 of
the 87 transactions. The enterprise value to sales multiple was the valuation
information most often available but it ranged from .66x to 2.21x net sales.
Janney Montgomery indicated that the above analysis should be accorded less
weight in light of the absence of comprehensive publicly available information
regarding comparable transactions.
Comparison of Purchase Price to Historical Stock Price. Janney Montgomery
reviewed the reported historical market prices and trading volume of the
Company's Common Stock for the five-year period ended August 31, 1998. Janney
Montgomery indicated that based on average shares outstanding, the total Common
Stock value of the Company has not been greater than $49.6 million (the base
purchase price in the Initial Stock Purchase Agreement) since September 23,
1994.
Effect of the Sale Transaction on the Company's Shareholders
Because the Sale Transaction involves the sale of the outstanding shares of
Calton Homes, and not a sale of an equity interest in the Company, the
shareholders of the Company will retain their equity interests in the Company
following the consummation of the Sale Transaction.
Effect of the Sale Transaction on Outstanding Options
As of November 2, 1998, there were options to purchase an aggregate of
2,111,373 shares of Common Stock outstanding under the Company's Amended and
Restated 1993 Non-Qualified Stock Option Plan and 1996 Equity Incentive Plan
(collectively, the "Stock Option Plans"). Of these options, options to purchase
1,421,241 shares of Common Stock were immediately exercisable as of such date.
As a result of the proposed Sale Transaction, all outstanding options will
become immediately exercisable and may be exercised during the 30 day period
following the delivery by the Company of a notice contemplated by each of the
Stock Option Plans. The exercise of any options which would not otherwise be
exercisable will be conditioned upon the consummation of the Sale Transaction.
Alternatively, holders of options will be given the opportunity to receive
substitute options to purchase the Company's Common Stock. Substitute options
will be immediately exercisable and will otherwise have terms and conditions,
including exercise prices and expiration dates, that are substantially identical
to the options they replace.
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Accounting Treatment of the Sale Transaction
The Sale Transaction is to be reflected in the Company's financial
statements as a disposal of a segment of business within the meaning of
Accounting Principles Board Opinion No. 30.
Federal Income Tax Consequences of the Sale Transaction
The Company's tax basis in the common stock of Calton Homes exceeds the
Purchase Price. As a result, the Company will realize a loss for federal tax
purposes and will incur no federal taxes as a result of the transaction;
however, the Company's ability to utilize the loss incurred as a result of the
Sale Transaction to offset future taxable earnings may be significantly limited.
Shareholders of the Company will experience no direct federal income tax
consequences as a result of the Sale Transaction.
Regulatory Considerations
Under the Stock Purchase Agreement, the parties' respective obligations to
consummate the transactions contemplated by the Stock Purchase Agreement are
subject to the expiration or termination of any waiting periods applicable to
such transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"). Pursuant to the HSR Act and the rules promulgated thereunder,
on or about September 26, 1998, Centex and the Company filed notification and
report forms. Early termination was granted with respect to the applicable
waiting periods as of October 9, 1998.
Transaction Charges
The Company expects to incur charges of approximately $2,000,000 to reflect
non-recurring costs resulting from the Sale Transaction. Such costs include
broker and investment banking, legal, accounting and printing fees and expenses,
incentive compensation attributable to the Sale Transaction and other related
charges. This amount is a preliminary estimate and subject to change. The
Company estimates that the amount of incentive compensation attributable to the
Sale Transaction (which will be distributed under the Company's Incentive
Compensation Plan) will be approximately $500,000. The Board of Directors has
not yet determined how the amount distributed under the Incentive Compensation
Plan will be apportioned.
THE STOCK PURCHASE AGREEMENT
The following is a summary of certain provisions of the Stock Purchase
Agreement, a copy of which is attached hereto as Annex I and is incorporated by
reference herein. All references to and summaries of the Stock Purchase
Agreement contained in this Proxy Statement are qualified in their entirety by
reference to the Stock Purchase Agreement. Shareholders are urged to review the
Stock Purchase Agreement in its entirety prior to voting with respect to the
approval of the Sale Transaction at the Special Meeting.
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General
The Company and Calton Homes have entered into the Stock Purchase
Agreement, which provides for the sale by the Company of all of the outstanding
shares of common stock of Calton Homes to CREC on the terms and conditions set
forth therein.
Purchase Price; Holdback
The Purchase Price to be paid by CREC for all of the outstanding shares of
Calton Homes common stock is $48.1 million, subject to adjustment as described
below. CREC deposited $2 million (the "Earnest Money Deposit") with First Union
National Bank (the "Escrow Agent") on September 12, 1998 which will be applied
to the Purchase Price upon the Closing of the Sale Transaction or returned to
CREC if the Stock Purchase Agreement is terminated other than by the Company by
reason of a default by CREC (in which case such amount will be delivered to the
Company as liquidated damages).
At the Closing, the remainder of the Purchase Price will be paid in cash,
less the Holdback of $5,227,000 million which will be deposited into escrow with
the Escrow Agent. Subject to claims for indemnification as described below under
"-Indemnification; Survival of Representations," one-half of the funds deposited
in the Holdback (other than $2,227,000 of the Holdback which will be disbursed
on a case by case basis as certain specified litigation involving Calton Homes
is resolved) will be disbursed to the Company, together with interest thereon,
on the first anniversary of the Closing. The remaining funds in the Holdback
(other than the funds which are to be disbursed in connection with the
resolution of litigation) will be disbursed to the Company, subject to claims
for indemnification, on the second anniversary of the Closing. If all of the
specified litigation is not resolved by the second anniversary of the Closing, a
portion of the funds in the Holdback will not be disbursed to the Company until
the resolution of the litigation. The Company may, under certain circumstances,
be required to deposit additional funds in the Holdback if all of the specified
litigation is not resolved by the second anniversary of the Closing. In the
event that the Company elects to liquidate and dissolve within five years from
the Closing, it will be required to organize a liquidating trust to secure its
indemnity obligations to CREC. The liquidating trust will be funded in the
amount of $4 million if created before the first anniversary of the Closing, $3
million if created between the first and second anniversary of the Closing and
$2 million if created after the second anniversary of the Closing. Any amounts
remaining in the Holdback escrow fund will be applied as a credit against
amounts required to be deposited in the liquidating trust.
The Purchase Price will be reduced or increased by $.20 for each dollar
($1.00) by which the "Book/Tax Difference" (as calculated pursuant to a formula
set forth in the Stock Purchase Agreement) of Calton Homes as of November 30,
1998 is greater or less than $9.3 million. An increase in the Book/Tax
Difference will result in a decrease in the Purchase Price. A decrease in the
Book/Tax Difference will result in an increase in the Purchase Price. As of the
date of this Proxy Statement, the Company estimates that the Book/Tax Difference
will be approximately $8.3 million as of November 30, 1998. A Book/Tax
Difference of $8.3 million on November 30, 1998 would result in a $200,000
increase in the Purchase Price; however, the Book/Tax Difference will be
affected by the operating results and changes in the balance sheet of Calton
Homes through November 30, 1998 and, as a result, no assurance can be given that
the Book/Tax Difference will not ultimately result in a reduction of the
Purchase Price.
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The Purchase Price will also be adjusted if, prior to Closing, it is
determined that Calton Homes owns, as of November 30, 1998, certain assets which
have an adjusted tax basis which exceeds their fair market value. In such event,
the Purchase Price will be adjusted in accordance with a formula set forth in
the Stock Purchase Agreement.
The Purchase Price will be increased by one-half of the amount by which the
pretax earnings of Calton Homes during the six month period ending November 30,
1998 exceed $5,682,000. If the pretax earnings of Calton Homes during such
period are less than $5,682,000, the Purchase Price will be reduced by one-half
of such difference.
Representations and Warranties
The Stock Purchase Agreement contains various customary representations and
warranties on the part of the Company and Calton Homes relating to (i) the
organization of the Company and Calton Homes and other corporate matters, (ii)
the authorization, execution, delivery and performance of the Stock Purchase
Agreement by the Company and Calton Homes, (iii) consents and approvals to be
obtained in connection with the Sale Transaction, (iv) the capitalization of the
Company and Calton Homes, (v) the absence of defaults arising from the execution
and performance of the Stock Purchase Agreement, (vi) the subsidiaries of Calton
Homes, (vii) the financial statements of Calton Homes, (viii) the absence of
undisclosed liabilities, (ix) title to assets and properties, (x) the absence of
certain changes and events, (xi) real and personal property, (xii) contracts and
agreements, (xiii) litigation, (xiv) compliance with laws, (xv) environmental
matters, (xvi) tax matters, (xvii) employee benefit matters, (xviii) labor
matters, (xix) directors, officers, employees and bank accounts, (xx)
intellectual property rights, (xxi) permits and licenses, (xxii) insurance
matters, (xxiii) transactions with affiliates, (xxiv) the absence of certain
business practices, (xxv) brokers' and finders' fees and (xxvi) the absence of
continuing liabilities related to the use of fire retardant plywood.
The Stock Purchase Agreement also contains various customary
representations and warranties on the part of CREC relating to (i) the
organization of CREC and other corporate matters, (ii) the authorization,
execution, delivery and performance of the Stock Purchase Agreement by CREC,
(iii) brokers' and finders' fees and (iv) investment intent.
Conduct of Business Pending the Sale Transaction
The Stock Purchase Agreement provides that, until the date of the
consummation of the Sale Transaction (the "Closing Date"), the Company and
Calton Homes will conduct their businesses in the ordinary course of business
and in a manner that is consistent in all material respects with past practice
and will use their best efforts to preserve intact their business organizations,
and keep available officers and employees of Calton Homes and (subject to
specified exceptions) maintain their present relationships with property
developers, suppliers, insurers, lessors and licensees and with all governmental
authorities and other persons having material business relationships with Calton
Homes. Furthermore, until the Closing Date, neither the Company nor Calton Homes
will, without the prior written consent of CREC (which will not be unreasonably
withheld), take any of the following actions, except in accordance with or as
otherwise permitted under the terms of the Stock Purchase Agreement: (i) amend
its charter or by-laws except as contemplated by the Stock Purchase Agreement;
(ii) issue, sell, pledge,
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dispose of or encumber, or authorize the issuance, sale, pledge, disposition or
encumbrance of, any shares of capital stock or other equity securities of, or
other ownership interests in, Calton Homes or any of its subsidiaries, or any
options, warrants, calls or other rights to acquire any shares of capital stock
or other equity securities of, or ownership interests in, Calton Homes or any of
its subsidiaries; (iii) sell, lease, transfer or otherwise dispose of any real
property or any other material properties or assets of Calton Homes or any of
its subsidiaries, other than in the ordinary course of business; (iv)
consolidate with, or merge with or into, any corporation or other entity; (v)
declare, set aside or pay any dividend or other distribution with respect to the
capital stock or other equity interests of, or ownership interests in, Calton
Homes; (vi) reclassify, combine, split or subdivide any shares of the capital
stock of the Company or Calton Homes; (vii) incur or assume any indebtedness for
borrowed money or issue any debentures, notes or other debt securities or,
except in the ordinary course of business consistent with past practice, assume,
guarantee, endorse or otherwise become liable for the obligations of any other
person; (viii) make any loans, advances or capital contributions to, or
investments in, any other person (other than any direct or indirect wholly owned
subsidiary), except in the ordinary course of business and consistent with past
practice; (ix) acquire, by merger, consolidation or acquisition of stock or
assets, any corporation, partnership or other business organization or division
thereof; (x) create or incur any liens upon any material properties or assets of
Calton Homes or (other than for permitted encumbrances specified in the Stock
Purchase Agreement, except in the ordinary course of business consistent with
past practice); (xi) enter into any contracts or commitments or engage in any
transactions not in the ordinary course of business and consistent with past
practice; (xii) engage in any transactions with any affiliate (other than
transactions between Calton Homes and any of its direct or indirect wholly owned
subsidiaries), except on terms and conditions at least as favorable to Calton
Homes as those that would apply in the case of a similar arm's-length
transaction; (xiii) enter into any agreement, arrangement or understanding with
any director, officer or key employee of Calton Homes providing for the
employment of any such director, officer or employee or any increase in the
compensation, severance or termination benefits payable or to become payable by
the any such director, officer or key employee or make any loan to or enter into
any other material transaction or arrangement with any such director, officer or
key employee; (xiv) increase the benefits payable by Calton Homes or any of its
subsidiaries under any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, program or arrangement; (xv) fail to keep all of the
material properties and assets of insurable character of Calton Homes or any of
its subsidiaries insured at least to the extent described in or pursuant to the
Stock Purchase Agreement, except where such failure could not reasonably be
expected to have a material adverse effect; (xvi) cancel or compromise any
material claim, waive or release any material rights or change in any material
respect or terminate any material contract, except in the ordinary course of
business consistent with past practice; (xvii) fail to maintain in full force
and effect all material permits that are required in connection with the conduct
of the businesses of Calton Homes or any of its subsidiaries (except where the
failure to maintain such permits could not reasonably be expected to have a
material adverse effect) or sell, transfer, license or otherwise dispose of any
material rights or interests under any such permits except in the ordinary
course of business consistent with past practice; (xviii) change any significant
accounting principles, methods or practices of Calton Homes or any of its
subsidiaries, except as required as a result of any mandatory change in
accounting standards; (xix) fail to maintain the books and records of Calton
Homes or any of its subsidiaries in all
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material respects in the usual, regular and ordinary manner; (xx) make any tax
elections or settle or compromise any income tax liability, except in the
ordinary course of business and consistent with past practice; and (xxi) take
any action which would cause any representation or warranty of the Company or
Calton Homes contained in the Stock Purchase Agreement to be untrue or incorrect
in any material respect as of the date when made or (except in the case of
representations and warrants made as of a specific date) as of any future date.
No Solicitation; Fiduciary Out
The Stock Purchase Agreement provides that, until the Closing Date, the
Company and Calton Homes will not, and will not permit any of their respective
affiliates, directors, officers, agents or other representatives to, initiate
any contact with, solicit, encourage or enter into or continue any discussions,
negotiations, understandings or agreements with any third party with respect to,
or furnish or disclose any non-public information regarding the Company or
Calton Homes or their respective businesses to any third party in connection
with, any Acquisition Proposal (as defined below). Notwithstanding the
foregoing, to the extent required by the fiduciary obligations of the Board
based on the advice of counsel, the Company may (i) in response to an
unsolicited request therefor, furnish non-public information with respect to the
Company or its subsidiaries or their respective businesses to a third party (a
"Qualified Third Party") whom the Board has reasonably determined is financially
able to consummate an Overbid Transaction (as defined below) pursuant to a
customary confidentiality agreement and discuss such information (but not any
Acquisition Proposal or any non-public information relating to the structure of
the Sale Transaction or the other transactions contemplated by the Stock
Purchase Agreement, other than any such information which the Company
demonstrates was independently developed by the Company or its advisors) and,
(ii) upon receipt an Acquisition Proposal from a Qualified Third Party,
participate in discussions and negotiations with such Qualified Third Party
regarding such Acquisition Proposal if (A) the Company has complied fully and in
a timely manner with its obligations to notify CREC of the receipt of the
Acquisition Proposal (and the identity of the offeror and the material terms of
such proposal), and (B) the Company has delivered to CREC a written notice (an
"Overbid Notice") advising it that its Board of Directors has reasonably
determined that such Acquisition Proposal, if consummated, would constitute an
Overbid Transaction.
The Company or Calton Homes may enter into an agreement with a Qualified
Third Party with respect to an Overbid Transaction if (i) the Company has
delivered an Overbid Notice to CREC (after compliance in full with each of the
conditions precedent to the delivery of such a notice), (ii) CREC shall not have
delivered to the Company within ten (10) calendar days after receipt of such
Overbid Notice a written offer (a "Topping Offer") to amend the terms of the
Stock Purchase Agreement in order to provide for consideration attributable to
the common stock of Calton Homes having a value at least $1,000,000 greater than
the value of the consideration provided for under the Acquisition Proposal to
which such Overbid Notice relates (which offer shall state that it may not be
withdrawn or revoked by CREC unless the Company and CREC do not enter into an
amendment to the Stock Purchase Agreement to reflect the acceptance of the
Topping Offer within ten (10) calendar days after receipt thereof by the
Company), (iii) the terms of the Acquisition Proposal shall not have been
modified in a manner adverse to the Company or its shareholders after the date
of the Overbid Notice, (iv) the Company and Calton Homes shall have taken all
action on their part required in order to cause
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the $2,000,000 termination fee (the "Termination Fee") previously deposited with
the Escrow Agent to be delivered to CREC and (v) the Company and Calton Homes
shall have taken all action on their part required to cause the Escrow Agent to
deliver the Earnest Money Deposit to CREC (the conditions set forth in clauses
(i), (ii), (iii), (iv) and (v) above being hereinafter collectively referred to
as the "Overbid Termination Conditions"). If any affiliates, directors,
officers, agents or other representatives (including, but not limited to, any
investment banker, financial advisor, attorney or accountant) of the Company or
Calton Homes, whether or not such persons are purporting to act on behalf of the
Company, engage in any conduct involving the furnishing of information to, the
solicitation of, or participation in discussions or negotiations with, a third
party which, if performed by the Company or Calton Homes, would constitute a
breach of the provisions of the Stock Purchase Agreement, then, such third party
shall not be deemed a Qualified Third Party for purposes of the Stock Purchase
Agreement.
In the event either of the Company or Calton Homes directly or indirectly
receives any offer, proposal or inquiry regarding an Acquisition Proposal, the
Company is required to notify CREC within two (2) business days after the
receipt of such offer, proposal or inquiry and is required in any such notice to
CREC to indicate the identity of the offeror and all of the material terms of
such offer, proposal or inquiry.
As used herein, the terms set forth below have the following meanings:
"Acquisition Proposal" means a proposal by a third party relating to an
acquisition of all or any substantial part of the Company or Calton Homes or
their respective businesses or any other transaction of a similar nature;
provided, however, that the term "Acquisition Proposal" does not include any
transaction that would be considered in the ordinary course of business.
"Overbid Transaction" means an Acquisition Proposal made in writing by a
Qualified Third Party (i) which would provide for consideration attributable to
stock or assets subject to the Acquisition Proposal having a fair market value,
as determined by an investment banking firm of national standing selected by the
Company and reasonably acceptable to CREC, which exceeds the sum of the Purchase
Price, the outstanding principal, interest and fees and charges (if any)
attributable to the indebtedness of Calton Homes which is to be repaid by CREC
at the Closing and $3,900,000 (or, if CREC has delivered a Topping Offer to the
Company, the amount of the Topping Offer) by at least $1,000,000 and (ii) the
terms and conditions of which (including the amount and value of the
consideration attributable to the stock or assets subject to the Acquisition
Proposal), are reasonably determined by the Board of Directors or the Company to
be, when taken in their entirety, no less favorable to the Company's
shareholders than the terms and conditions set forth in the Stock Purchase
Agreement.
Certain Other Covenants
The Stock Purchase Agreement includes various other covenants, including,
but not limited to, covenants that (i) give CREC and its representatives the
rights to perform a due diligence investigation of the business, prospects,
financial condition and results of operations of Calton Homes and to be afforded
access to its books, records and other documents; (ii) require the parties to
use their reasonable best efforts to take all actions necessary to consummate
the transactions contemplated by the Stock Purchase Agreement; (iii) require the
Company to notify
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CREC promptly of certain pending or threatened legal actions or other matters
which relate to the transactions contemplated by the Stock Purchase Agreement or
which are likely to have a material adverse effect on the business, prospects,
properties, financial condition or results of operations of the Company; (iv)
require the Company to supplement the disclosure made to CREC pursuant to the
Stock Purchase Agreement; (v) require the Company to deliver certain legal
opinions and officers' certificates one day prior to Closing; (vi) require CREC
to repay in full certain indebtedness of Calton Homes (estimated to be
approximately $22.5 million at the Closing); (vii) require Calton Homes to
provide CREC at Closing evidence that all liability and other insurance policies
maintained by it will remain in full force and effect following the Closing and,
if requested, to deliver certain title policies to CREC; (viii) require Calton
Homes to enter into employment agreements with up to six persons presently
employed by it in a form and content acceptable to CREC; (ix) require the
Company to transfer to CREC the right to use the name "Calton Homes" and all
names similar thereto (except Calton, Inc. and Calton Homes of Florida, Inc.);
(x) require the Company to obtain resignations of directors and officers of
Calton Homes specified by CREC; (xi) require Calton Homes to divest itself of
any subsidiaries prior to the Closing; (xii) require CREC to take all reasonable
steps to procure the release of the Company and its affiliates from all
liabilities and obligations which relate to subdivision improvement bonds or
other financial security (or to indemnify the Company and such affiliates if any
of such releases cannot be obtained); and (xiii) require the Company, Calton
Homes and CREC to cooperate, after the Closing, with respect to certain tax
matters, including the preparation and filing of tax returns and an election to
apportion $500,000 of the Company's net loss carryforwards to Calton Homes. In
addition, during the two year period following the Closing, the Company will be
entitled to direct the defense or prosecution, as the case may be, of certain
litigation involving Calton Homes with the assistance of such employees of
Calton Homes as are reasonable necessary. The Company will be charged a fee by
Calton Homes equal to two times the salary of such employees for each one-half
day increment of time dedicated by the employees to the litigation matters. The
Company and CREC have agreed that to the extent that the cost of performing
warranty work on homes delivered by Calton Homes prior to the closing exceeds
the amount reserved for such work on the Calton Homes balance sheet as of
November 30, 1998, the Company will pay to CREC the amount of such excess.
Pursuant to the Stock Purchase Agreement, the Company has sublet its
interest as a tenant in its corporate offices to Calton Homes. CREC has agreed
that subsequent to the Closing, Calton Homes will resublet a small portion of
such office space to the Company on a month to month basis.
Conditions to the Closing
The Stock Purchase Agreement provides that the respective obligations of
the parties to the Stock Purchase Agreement to consummate the transactions
contemplated thereby are subject to the fulfillment of, among others, the
following conditions: (i) the Stock Purchase Agreement will have been approved
by the requisite vote of the holders of the Common Stock and (ii) any waiting
period applicable to such transactions under the HSR Act will have terminated or
expired.
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The obligations of CREC to consummate the transactions contemplated by the
Stock Purchase Agreement will be subject to the fulfillment of the following
conditions (any one or more of which may be waived by CREC): (i) each of the
representations and warranties of the Company and Calton Homes contained in the
Stock Purchase Agreement and related documents will be true and correct as of
the Closing Date as if made on such date, except to the extent that such
representations and warranties relate to an earlier date; (ii) the Company and
Calton Homes will have performed and complied with all agreements and conditions
contained in the Stock Purchase Agreement which are required to be performed or
complied with by them prior to or at the Closing; (iii) the Company and Calton
Homes will have delivered to CREC certain certificates and other closing
documents including legal opinions, title policies (if requested) (iv) Calton
Homes shall have entered into certain employment agreements with individuals
designated by CREC; (v) the Company, Anthony J. Caldarone and his wife, Joyce P.
Caldarone, shall have entered into non-competition agreements with; (vi) the
Company and Calton Homes shall have delivered the resignations of the directors
and officers of Calton Homes identified by CREC, (vii) all consents,
registration, filings and notices required in connection with the transactions
contemplated by the Stock Purchase Agreement shall have been obtained, (viii)
the absence of any action, suit or proceeding before any federal or state court
or other government entity, (ix) the absence of any action, suit or proceeding
before any federal or state court or other government authority shall be
instituted or threatened which, in CREC's reasonable judgment, shall have the
effect or be expected to have the effect of (a) making illegal, impeding or
otherwise restraining the transactions contemplated by the Stock Purchase
Agreement, (b) resulting in the payment of damages in excess of $1 million by
Calton Homes, any of its subsidiaries or CREC as a result of or in connection
with the Sale Transaction, (c) imposing any material limitations on the
ownership or operation by Calton Homes of any substantial portion of its
business or assets or compelling Calton Homes or CREC to dispose of or hold
separate any substantial part of its business or assets, or (d) imposing any
material limitations on the ability of CREC to exercise full rights of ownership
with respect to the common stock of Calton Homes or compelling CREC to dispose
of such stock, (x) the properties and assets of Calton Homes shall not have been
adversely affected in a material manner as the result of any casualty, disaster,
accident, government event, act of God or public enemy, (xi) the absence of any
material adverse change in the condition of the assets or properties of Calton
Homes or the financial condition of Calton Homes and (xii) all employees of
Calton Homes identified by CREC shall, unless otherwise agreed, remain as
employees of Calton Homes following the Closing.
The obligations of the Company and Calton Homes to consummate the
transactions contemplated by the Stock Purchase Agreement will be subject to the
fulfillment of the following conditions (any one or more of which may be waived
by the Company): (i) each of the representations and warranties of CREC
contained in the Stock Purchase Agreement and related documents will be true and
correct in all material respects as of the Closing Date as if made on such date;
(ii) CREC will have performed and complied in all material respects with all
agreements and conditions contained in the Stock Purchase Agreement which are
required to be performed or complied with by it prior to or at the Closing;
(iii) CREC will have delivered the certificates and other closing items,
including a legal opinion, the Purchase Price and an executed Consulting
Agreement; (iv) any waiting period applicable to the consummation of the Sale
Transaction under the HSR Act shall have expired or terminated; and (v) the
absence of any
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pending or threatened suit or proceeding before any federal or state court or
other governmental authority which shall have the effect of making illegal,
impeding or otherwise restraining or prohibiting any of the transactions
contemplated by the Stock Purchase Agreement or which in the reasonable judgment
of the Company, shall have the effect or be expected to have the effect of
resulting in the payment of damages in excess of $1 million by the Company as a
result of or in connection with the Sale Transaction.
Indemnification; Survival of Representations
The Stock Purchase Agreement provides that the Company will indemnify and
hold harmless CREC and its affiliates (including Calton Homes after the
Closing), and their directors, officers, agents and other representatives for,
from and against all demands, claims, actions, causes of action, proceedings,
assessments, losses, damages, liabilities, settlements, judgments, fines,
penalties, interest, costs and expenses (including all court costs and
reasonable attorneys' fees) suffered or imposed or incurred by any of the
foregoing persons as a result of or relating to (i) the breach or alleged breach
by the Company or Calton Homes of their representations, warranties, covenants
or agreements contained in the Stock Purchase Agreement (the "CREC Stock
Purchase Agreement Claims"), (ii) any transaction, activity, liability or
obligation or the Company or Calton Homes that occurs or arises out of actions
or events occurring prior to the Closing Date, (iii) any and all taxes arising
out of the transactions contemplated by the Stock Purchase Agreement or (iv)
earnest money deposits paid by Calton Homes to the seller of real property that
is not returned to the Company because the seller wrongfully withholds the
deposit; provided, however, that except for claims based on fraud or intentional
misrepresentation and certain specified representations, the Company will only
be obligated to indemnify the foregoing persons if the aggregate of all CREC
Stock Purchase Agreement Claims exceeds $50,000.
The Stock Purchase Agreement also provides that CREC will indemnify and
hold harmless the Company and its respective affiliates, directors, officers,
agents and other representatives for, from and against all demands, claims,
actions, causes of action, proceedings, assessments, losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses (including all court costs and reasonable attorneys' fees) which any of
the foregoing persons may suffer or incur as a result of or relating to (i) the
breach or inaccuracy by CREC of its representations, warranties, covenants or
agreements contained in the Stock Purchase Agreement or (ii) any transaction,
activity, liability or obligation of CREC of Calton Homes after the Closing
Date, excluding any liability, cost or expense incurred by the Company as a
result of actions taken by CREC or Calton Homes to enforce their rights under
the Stock Purchase Agreement (the "Company Stock Purchase Agreement Claims").
The representations and warranties made by the Company and Calton Homes in
the Stock Purchase Agreement will survive the Sale Transaction and continue in
effect after the Closing Date.
Termination
The Stock Purchase Agreement may be terminated at any time prior to the
Closing (except when a shorter period is indicated), as follows:
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(a) by the mutual written consent of CREC, the Company and Calton Homes.
(b) by either CREC or the Company if: (i) any federal or state court or
other governmental authority issues an order, writ, injunction,
judgment or decree which has the effect of making illegal, impeding or
otherwise restraining or prohibiting the transactions contemplated by
the Stock Purchase Agreement and such order, writ, injunction,
judgment or decree becomes final and non-appealable; or (ii) the
Closing shall not have occurred by March 31, 1999; provided that in
each case the party terminating has diligently and in good faith
performed or complied in all material respects with the agreements and
covenants required to be performed by it under the Stock Purchase
Agreement.
(c) by CREC if: (i) CREC has determined, in its reasonable discretion,
that approval of the Sale Transaction by the Company's Shareholders is
unlikely to be fulfilled within a reasonable period of time; provided,
however, that CREC may only terminate the Stock Purchase Agreement
under such circumstances if it delivers a written notice of
termination to the Company prior to the Closing but subsequent to the
later of that date which is 40 days following the date of this Proxy
Statement or 30 days following the date of the resolicitation by the
Company of the approval of its shareholders of the Sale Transaction;
(ii) the Company has failed to deliver to CREC the officers'
certificate or opinion of counsel required by the Stock Purchase
Agreement; (iii) ten (10) calendar days shall have elapsed after the
delivery by the Company of an Overbid Notice to CREC and CREC has not
made a Topping Offer, unless the Company shall have notified CREC in
writing prior to such time that it has irrevocably determined not to
participate in any further discussions or negotiations with any Third
Party with respect to the Acquisition Proposal that was the subject of
such notice; (v) the Company shall have become a proponent or
co-proponent of any plan of reorganization under the Bankruptcy Code;
(vi) there shall have been any violation or breach on the part of the
Company or Calton Homes of any covenant or agreement contained in the
Stock Purchase Agreement and such violation or breach has not been
waived by CREC (subject to materiality and the right to cure in
certain instances); and (vii) there shall have been any violation or
breach by the Company or Calton Homes of any representation or
warranty contained in the Stock Purchase Agreement, which, in the
reasonable judgment of CREC, has resulted or is reasonably expected to
result in any Claims by CREC in an aggregate amount exceeding
$1,500,000. CREC may exercise its rights to terminate the Stock
Purchase Agreement under certain circumstances only if it has
diligently and in good faith performed or complied in all material
respects with the agreements and covenants required to be
performed by it hereunder.
(d) by the Company and Calton Homes jointly if: (i) all of the Overbid
Termination Conditions shall have been satisfied; (ii) there shall
have been any violation or breach by CREC of any covenant or agreement
contained in the Stock Purchase Agreement which shall have not been
cured within twenty (20) days after receipt by CREC of notice of such
violation or breach from the Company; (iii) there shall have
-29-
<PAGE>
been any violation or breach by CREC of any representation or warranty
contained in the Stock Purchase Agreement which has resulted or its
reasonably expected to cause the Company to result in claims by the
Company in an aggregate amount exceeding $1,500,000; (iv)
notwithstanding good faith efforts on the part of the Company,
approval by the Company's Shareholders of the Sale Transaction has not
been obtained as of the Closing Date; or (v) the Sale Transaction has
not been consummated prior to or on March 31, 1999; provided the
Company and Calton Homes may exercise their right to terminate the
Agreement under certain circumstances only if they have diligently and
in good faith performed or complied in all material respects with the
agreements and covenants required to be performed by them pursuant to
the Stock Purchase Agreement.
In the event that the Stock Purchase Agreement is terminated as provided
above, such agreement will become void and of no further force or effect, and
there will be no liability thereunder on the part of any party or its
affiliates, directors, officers, shareholders, agents or other representatives;
provided, however, that certain provisions of the Stock Purchase Agreement,
including, but not limited to the obligation of the Company to pay the
Termination Fee as described below and the obligations described under
"--Expenses" below, will survive any termination of the Stock Purchase
Agreement. Nothing contained in the Stock Purchase Agreement will relieve any
party from liability for a breach of the Stock Purchase Agreement.
The Company has deposited into escrow with the Escrow Agent a $2,000,000
Termination Fee. If the Stock Purchase Agreement is terminated, the Termination
Fee will be payable to CREC except for a termination (i) by mutual written
consent of CREC, the Company and Calton Homes; (ii) by any party as a result of
the issuance by a court or governmental authority of any order, court judgment
or decree which has the effect of making illegal, impeding or otherwise
restraining or prohibiting the transactions contemplated by the Stock Purchase
Agreement and which shall have become final and nonappealable; or (iii) by the
Company as a result of a violation or breach of the Stock Purchase Agreement by
CREC.
Payment of the Termination Fee to CREC will constitute the payment of
liquidated damages to CREC as CREC's sole and exclusively remedy under the Stock
Purchase Agreement, except in the case of certain covenant breaches by the
Company or Calton Homes (in which case CREC will be entitled to all remedies
available at law and in equity).
Expenses
The Stock Purchase Agreement provides that, except as expressly provided
therein, all fees and expenses incurred in connection with the Stock Purchase
Agreement or the other transactions contemplated thereby will be paid by the
party incurring such fees and expenses.
Amendment or Waiver
The Stock Purchase Agreement provides that the terms and provisions thereof
may be modified or amended only by a written instrument executed by each of the
parties, and compliance with any term or provision thereof may be waived only by
a written instrument executed by each of the parties entitled to the benefits of
such term or provision.
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<PAGE>
RELATED AGREEMENTS
Consulting Agreement
The Company and CREC have agreed that at the Closing they will enter into a
Consulting Agreement pursuant to which CREC will engage the Company, for a term
of three years, to provide certain consulting services to it including
information, advice and recommendations with respect to the homebuilding market
in New Jersey and Pennsylvania. In addition, the Company has agreed to use its
best efforts to identify corporate acquisition candidates and other business
opportunities for CREC and Calton Homes in New Jersey and Pennsylvania, and upon
CREC's request, to assist CREC and Calton Homes in (i) obtaining development
entitlements for land, (ii) marketing and promotional activities, (iii)
procuring goods and services from third parties and (iv) locating, screening,
interviewing and recommending compensation levels for prospective employees. The
Company has agreed that it will not provide similar services to others in New
Jersey or Pennsylvania during the term of the Consulting Agreement and for a
four year period after the expiration of the term of the Consulting Agreement.
The Consulting Agreement requires Anthony J. Caldarone, the Company's
Chairman, President and Chief Executive Officer to participate in the
performance of the consulting services to CREC for so long as he remains
employed by or associated with the Company.
In consideration for the services to be provided by the Company under the
Consulting Agreement, CREC will be required to pay the Company a consulting fee
of $1.3 million per year, payable in equal quarterly installments during the
three year term of the agreement.
Voting Agreement
Anthony J. Caldarone and his wife, Joyce P. Caldarone, have entered into a
voting agreement with CREC pursuant to which they have agreed to vote all shares
of Common Stock owned by them in favor of the Sale Transaction and against any
other Acquisition Proposal or any other action or agreement that directly or
indirectly is inconsistent with the Stock Purchase Agreement or the Sale
Transaction or that is reasonably likely to impede, interfere with or delay the
Sale Transaction or the other transactions contemplated by the Stock Purchase
Agreement; provided however, that the obligations of Mr. and Mrs. Caldarone set
forth in the Voting Agreement become null and void if (i) all of the Overbid
Termination Conditions shall have been satisfied, (ii) the Company shall have
terminated the Stock Purchase Agreement and (iii) CREC shall have received the
Termination Fee and Earnest Money Escrow Deposit. As of November 2, 1998, Mr. &
Mrs. Caldarone owned an aggregate of 4,281,805 shares of Common Stock,
representing approximately 16% of the Company's outstanding Common Stock.
Non-Competition Agreements
The obligation of CREC to consummate the Stock Purchase Agreement is
conditioned upon the execution and delivery by the Company at the closing of a
Non-Competition Agreement ("Non-Competition Agreement") pursuant to which the
Company will agree that until the fourth anniversary of the date on which the
Consulting Agreement expires, it will not participate in the provision of
homebuilding services, directly or indirectly, in Pennsylvania or
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<PAGE>
New Jersey, either through any form of ownership (except the ownership of up to
5% of a publicly held corporation) or as a principal, agent, employee, employer,
advisor, consultant, lender, partner or any other capacity whatsoever. The
Company will, however, be permitted to provide second or wraparound mortgage
financing to certain small homebuilding companies on a project by project basis.
Any such financing may include participating mortgages; provided however, that
the Company shall be prohibited from obtaining as a result of such financings or
any foreclosures, deeds in lieu of foreclosure or other enforcement proceeding
an interest in the equity, capital or profits of any homebuilding company in
excess of ten percent (10%), and from directly or indirectly participating in
the management of control of any such company. The Company may, in order to
preserve its investment if a borrower defaults, acquire a project or projects
owned by such defaulting borrower, but following its acquisition, the Company
(i) may not expand any such project beyond the investment therein at acquisition
(except as necessary to prevent further loss or to fulfill contracts to build
and deliver homes), (ii) must provide CREC a right of first refusal if the
Company is presented with an offer to buy and (iii) must fully dispose of any
such project within 12 months.
CREC's obligation to consummate the Stock Purchase Agreement is also
conditioned upon the execution and delivery by Anthony J. Caldarone at the
closing of a Non-Competition Agreement having terms which are substantially the
same as the terms of the Non-Competition Agreement described above.
PLANS FOR THE COMPANY FOLLOWING THE SALE TRANSACTION
General
The Sale Transaction is part of a strategic plan designed to enhance
shareholder value. If the Sale Transaction is consummated, the Company intends
to (i) initiate a significant stock repurchase program, (ii) shift the Company's
business focus to providing various services to participants in the homebuilding
industry and (iii) seek to invest in, acquire or combine with one or more
operating businesses within or outside of the homebuilding industry. Additional
details regarding the Company's proposed activities are provided below. If the
Company is not successful in implementing its strategic plan, its Board of
Directors may elect to liquidate and dissolve the Company.
The Company estimates that immediately after the Closing of the Sale
Transaction (and before giving effect to its proposed stock repurchase program),
it will have net assets, excluding the amount of the Holdback, of approximately
$40 million consisting primarily of cash and cash equivalents. In addition, the
Company will enter into the Consulting Agreement with CREC which will provide
for payments of $1.3 million per year for three years. The Company anticipates
ongoing general and administrative expenses of approximately $100,000 per month
following the Closing. Pending the implementation of the strategic plan that the
Company intends to pursue following the Sale Transaction, the Company's cash
will be invested as management of the Company deems prudent, which may include,
but will not be limited to, mutual funds, money market accounts, stocks, bonds
or United States government or municipal securities; provided, however, that the
Company will attempt to invest the net proceeds and conduct its activities in a
manner which will not result in the Company being deemed to be an investment
company under the 1940 Act or a personal holding company for federal income tax
-32-
<PAGE>
purposes. In this regard, while the foregoing investments are intended to be
temporary (i.e., for the period during which the Company is implementing its
strategic plan), any such investments deemed by the Securities and Exchange
Commission not to be temporary, may result in the Company being required to
register as an investment company. See "Certain Risk Factors."
If within 18 months from the date of the Closing, the Company has not
redeployed a substantial portion of the sale proceeds, or developed a plan to
redeploy a substantial portion of the proceeds within a reasonable time frame,
the Company will be liquidated and dissolved.
Stock Repurchase Program
The Company plans to use a portion of the proceeds of the Sale Transaction
to fund a stock repurchase program (the "Stock Repurchase Program") pursuant to
which it will seek to acquire up to 10,000,000 shares of its Common Stock over a
12 month period. The Company expects to purchase shares from time to time in
privately negotiated transactions or in open market purchases. The timing and
number of shares purchased will depend on a variety of factors, including market
price. The Stock Repurchase Program will reduce the Company's cash and
shareholders equity while increasing book value per share to the extent that the
average price paid per share is less than the book value per share. The Company
plans to implement the Stock Repurchase Program in a manner that will not
adversely affect the liquidity of the Common Stock. The Company anticipates that
there will still be a sufficient number of shares outstanding and publicly
traded following the completion of the Stock Repurchase Program to ensure a
continued trading market in its Common Stock.
Consulting, Investment and Advisory Services
If the Sale Transaction is consummated, the Board of Directors intends to
shift the Company's primary business focus to providing various services to
participants in the homebuilding industry, consulting services (including the
consulting services to be provided to CREC pursuant to the Consulting
Agreement), equity and debt financing and financial advisory services. The
Company's management believes that emerging growth of small to middle market
companies will provide an opportunity which may enable the Company to realize
returns on its equity which exceed those which can currently be achieved through
direct participation in the homebuilding industry in New Jersey and
Pennsylvania. Management believes that these objectives can be achieved by:
o Providing consulting services to CREC and other participants in the
homebuilding industry as permitted by the Consulting Agreement and its
non-competition agreement with CREC;
o Investing in both equity and debt securities, generally of homebuilders and
real estate companies operating in diverse geographic areas;
o Underwriting project financing for emerging growth homebuilders with
participation from institutional investors to provide for additional
leverage;
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<PAGE>
o Providing advisory services and investment capital in connection with
workouts, restructurings, recapitalizations and mergers and acquisitions;
o Acquiring and selling companies; and
o Administering Calton's existing real estate subsidiaries and utilizing, to
the extent possible, the Company's net loss carryforwards.
The Non-Competition Agreement will limit the scope of the activities that
can be conducted by the Company in New Jersey and Pennsylvania. See "Related
Agreements--Non-Competition Agreements."
Acquisitions and Business Combinations
The Company will seek to enhance shareholder value, if the Sale Transaction
is consummated, by investing in, acquiring or combining with one or more
operating businesses within or outside of the homebuilding industry. Such
activities could include the acquisition of an entire company or companies, or
divisions thereof, either through a merger or a purchase of assets, as well as
an investment in the securities of a company or companies, or alternatively, a
combination with another business in which the Company would not be the
surviving corporation. The Company has not entered into any substantive
negotiations concerning such acquisitions or investments. There can be no
assurance that the Company will be successful in such efforts, and the
redeployment of the Company's assets into new investment and businesses entails
risk to its shareholders. In addition, the scope of the Company's activities
will be limited by the Non-Competition Agreement. See "Certain Risk Factors."
Management of Company after Sale Transaction
No changes are expected to be made to the Company's Board of Directors
following the Sale Transaction. The Directors will remain as follows:
Director Continuing in Office until 2002 Annual Meeting
J. ERNEST BROPHY. Mr. Brophy, age 73, 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 May 1993 when the Company and certain of its
subsidiaries consummated a joint plan of reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Plan of Reorganization"). From 1992 through
March 1996, Mr. Brophy served as Chief Financial Officer and a director of
Hurdy-Gurdy International, Inc., a company that marketed sorbet products.
Director Continuing in Office until 1999 Annual Meeting.
MARK N. FESSEL. Mr. Fessel, age 41, was initially 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
Plan of Reorganization in May 1993. Since 1985, Mr. Fessel has owned and
operated a real estate company and has acted as
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<PAGE>
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.
Director Continuing in Office until 2000 Annual Meeting.
FRANK CAVELL SMITH, JR. Mr. Smith, age 52, was initially designed as a
Director of Calton by the holders of a majority in outstanding principal amount
of Subordinated Notes pursuant to the Plan of 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 is an adjunct faculty
member at Boston University and a member of the Board of Trustees of Shelter,
Inc.
Director Continuing in Office until 2001 Annual Meeting.
ANTHONY J. CALDARONE. Mr. Caldarone, age 61, was reappointed as Chairman,
President, Chief Executive Officer and a Director 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 Plan of Reorganization.
From June 1993 through October 1995, Mr. Caldarone served as a Director of the
Company.
If the Sale Transaction is consummated, substantially all of the employees
of the Company, and Calton Homes, will continue their employment with Calton
Homes. Anthony J. Caldarone will resign as an officer, director and employee of
Calton Homes at or prior to the Closing and remain as the Company's Chairman,
President and Chief Executive Officer. Mary H. Magee, who currently serves as
Assistant Secretary of the Company, will become Secretary of the Company if the
Sale Transaction is consummated. Following the Closing, the Company expects to
have approximately five employees. In addition, the Company expects to engage
consultants from time to time on an as needed basis.
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands, except per share data and ratios)
The following tables set forth selected historical consolidated financial
information of the Company. The selected statement of operations data and
balance sheet data for each of the years in the period ended November 30, 1997
and the six month periods ended May 31 and November 30, 1993 have been derived
from the audited consolidated financial statements for the respective periods.
The selected historical consolidated financial data for the nine months ended
August 31, 1998 is derived from unaudited consolidated financial statements,
which in the opinion of management, include all material adjustments considered
necessary for fair presentation of the results of the interim periods. The
results for the nine months ended August 31, 1998 are not necessarily indicative
of the results for the full year. The selected historical consolidated financial
data should be read in conjunction with, and is qualified in its entirety by,
the Consolidated Financial Statements and related notes and management's
discussion and analysis of financial condition and results of operations
included in the documents which have been delivered with, and incorporated by
reference in this Proxy Statement. In light of the effects of fresh-start
accounting under SOP 90-7 and the Company's reorganization in May 1993, the
Company's results for periods ending on or prior to May 31, 1993 are not
comparable with results experienced by the Company in subsequent periods and are
separated by a black line.
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<PAGE>
<TABLE>
<CAPTION>
Nine Months Six Months | Six Months
Ended Years Ended November 30, Ended | Ended May
August 31, ---------------------------------------------- November | 31,
1998 1997 1996 1995 1994 30, 1993 | 1993
--------- --------- --------- --------- --------- --------- | ---------
<S> <C> <C> <C> <C> <C> <C> | <C>
Selected Operating Data |
Revenues .................................. $ 51,764 $ 126,588 $ 122,435 $ 180,843 $ 168,723 $ 83,351 | $ 76,555
Gross profit .............................. 8,212 16,169 16,790 19,560 28,984 15,878 | 4,867
Income (loss) from operations ............. 1,655 491 1,837 (1,225) 8,595 5,560 | (15,593)
Income (loss) before income taxes |
and extraordinary gain ................. 980 323 1,031 (2,307) 6,560 4,756 | (56,494)
Income (loss) before extraordinary |
gain ................................... 569 114 453 (3,138) 4,193 2,872 | (56,494)
Net income (loss) ......................... 569 1,377 453 (3,138) 4,193 2,872 | 1,817
Basic and diluted income (loss) per |
share before extraordinary gain ........ .02 .00 .02 (.12) .16 .11 | (1.67)
Basic and diluted net income (loss) |
per share .............................. .02 .05 .02 (.12) .16 .11 | .05
</TABLE>
<TABLE>
<CAPTION>
At November 30,
At August ---------------------------------------------------------
31, 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data
Total assets .............................. $ 83,879 $ 67,587 $ 88,757 $ 91,416 $122,144 $110,930
Total debt ................................ 27,527 20,559 43,945 46,227 69,398 62,792
Shareholders' equity ...................... 33,911 32,850 28,086 27,013 29,045 23,893
</TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information gives effect to (i) the Sale Transaction; (ii) the sale of the
Company's homebuilding assets in Florida and (iii) the winddown of the Company's
homebuilding assets in California, Chicago and Pennsylvania which was effected
as of November 30, 1997 as if such transactions had occurred on August 31, 1998
for balance sheet data and December 1, 1994 for statement of operations data.
These pro forma financial statements are presented for illustrative purposes
only, and are not necessarily indicative of the operating results and financial
position that might have been achieved had the transactions described above
occurred on the dates indicated, nor are they necessarily indicative of
operating results and financial position which may occur in the future.
The condensed consolidated historical statements of operations data for the
periods presented are derived from the historical financial statements of the
Company. These pro forma statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997
and quarterly report on Form 10-Q for the nine month period ended August 31,
1998 incorporated by reference in this Proxy Statement. The historical financial
statements as of and for the nine months ended August 31, 1998 have been
prepared in accordance with generally accepted accounting principles applicable
to interim financial information and, in the opinion of the Company's
management, include all adjustments necessary for a fair presentation of
information for such periods.
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<PAGE>
CALTON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF AUGUST 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Impact of Sale
(unaudited) Transaction (1) Pro Forma
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............. $ 2,496 $ 40,873(2) $ 40,956
(2,413)
Receivables ............................ 5,485 (4,589) 6,123
5,227(3)
Inventories ............................ 71,899 (71,899) --
Commercial land ........................ 252 -- 252
Deferred financing fees ................ 2,293 (2,293) --
Prepaids and other assets .............. 1,454 (932) 522
-------------- -------------- --------------
TOTAL ASSETS ........................... $ 83,879 $(36,026) $ 47,853
============== ============== ==============
LIABILITIES & EQUITY
LIABILITIES
Purchase money mortgages ............... $ 2,649 $ (2,649) $ --
Revolving credit agreement ............. 25,000 (25,000) --
Warrants ............................... (122) -- (122)
-------------- -------------- --------------
Total debt ............................. 27,527 (27,649) (122)
Accounts payable and accrued liabilities 22,441 (20,579) 1,862
-------------- -------------- --------------
Total liabilities ...................... 49,968 (48,228) 1,740
-------------- -------------- --------------
EQUITY
Common stock ........................... 267 -- 267
Paid in capital ........................ 27,318 5,125(4) 32,443
Retained earnings ...................... 6,326 7,077(4) 13,403
-------------- -------------- --------------
Total equity .................... 33,911 12,202 46,113
-------------- -------------- --------------
TOTAL LIABILITIES & EQUITY ............. $ 83,879 $(36,026) $ 47,853
============== ============== ==============
Fully Diluted Book Value Per Share ..... $ 1.18(5) $ 1.59(5)
============== ==============
</TABLE>
NOTES:
(1) Bracketed amounts reflect the historical balances of Calton Homes, Inc.
included in the sale.
(2) Net cash received at closing resulting from $48.1 million in gross proceeds
less $2.0 million of estimated closing costs and a $5,227,000 holdback.
(3) Holdback amount.
(4) The pro forma net gain as if the closing of the transaction occurred on
August 31, 1998 is approximately $7.1 million after a $5.1 million book tax
provision. The expected net gain upon closing the transaction is
approximately $5.0 million after a $3.6 million book tax provision that is
charged to Paid-in-Capital due to the recognition of the net operating loss
carryforward.
(5) Based upon 26,755,000 shares outstanding as of September 30, 1998 and the
assumed exercise of a total of approximately 3,100,000 options and warrants
and assumed proceeds upon exercise of all options and warrants of
$1,326,000.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
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<PAGE>
CALTON, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Impact of Sale Pro Forma
(unaudited) Transaction Results(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues ............................... $ 51,764 $(45,932) $ 5,832(2)
-------------- -------------- --------------
Costs and Expenses
Cost of revenues ..................... 43,552 (38,064) 5,488(2)
Selling, general & administrative .... 6,557 (5,832) 725(3)
-------------- -------------- --------------
50,109 (43,896) 6,213
-------------- -------------- --------------
Income (loss) from operations .......... 1,655 (2,036) (381)
Other charges (credits)
Interest expense, net ................ 675 (627) 48
Other income ......................... -- -- --
-------------- -------------- --------------
Income (loss) before income taxes ...... 980 (1,409) (429)
Provision (benefit) in lieu of income
taxes ................................ 411 (645) (234)
-------------- -------------- --------------
Net income (loss) ...................... $ 569 $ (764) $ (195)
============== ============== ==============
Basic and diluted net income (loss)
per share ............................ $ .02 $ (.01)
============== ==============
Basic weighted average shares
outstanding .......................... 26,689 26,689
============== ==============
Diluted weighted average shares
outstanding .......................... 27,780
==============
</TABLE>
NOTES:
(1) Excludes impact of $1.3 million per annum consulting agreement and impact
of the return on investment of the remaining capital for the ongoing
business.
(2) Reflects the sale of four parcels of commercial land included in the
historical financial statements.
(3) The Company estimates that the selling, general and administrative expense
level for the ongoing business will be approximately $1.2 million per
annum.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
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<PAGE>
CALTON, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Impact of
Historical Impact of Sale Impact of Florida Chicago Pro forma
(unaudited) Transaction Sale Transaction Winddown Results (1)
----------- -------------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 75,241 $(47,129) $(27,267) $ (820) $ 25
------------ ------------ ------------ ------------ ------------
Costs and Expenses
Cost of revenues ............................. 65,684 (41,596) (23,319) (921) (152)
Selling, general & administrative ............ 10,580 (6,251) (4,451) (75) (197)(2)
Impairment of assets ......................... 350 (350) -- -- --
------------ ------------ ------------ ------------ ------------
76,614 (48,197) (27,770) (996) (349)
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ................... (1,373) 1,068 503 176 374
Other charges (credits)
Interest expense, net ........................ 1,086 (598) (247) (218) 23
Other income ................................. (871) -- -- -- (871)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes ............... (1,588) 1,666 750 394 1,222
Provision (benefit) in lieu of
income taxes ................................. (794) 503 488 256 453
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................... $ (794) $ 1,163 $ 262 $ 138 $ 769
============ ============ ============ ============ ============
Basic and diluted net income (loss)
per share .................................... $ (.03) $ .03
============ ============
Basis weighted average shares
outstanding .................................. 26,554 26,554
============ ============
Diluted weighted average shares
outstanding .................................. 26,661
============
</TABLE>
NOTES:
(1) Excludes impact of $1.3 million per annum consulting agreement and impact
of the return on investment of the remaining capital for the ongoing
business.
(2) The Company estimates that the selling, general and administrative expense
level for the ongoing business will be approximately $1.2 million per
annum.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
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<PAGE>
CALTON, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Impact of
Historical Impact of Sale Impact of Florida Chicago Pro forma
(unaudited) Transaction Sale Transaction Winddown Results (1)
----------- ------------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 126,588 $ (69,455) $ (56,283) $ (820) $ 30
--------- --------- --------- --------- ---------
Costs and Expenses
Cost of revenues ............................. 110,419 (59,759) (49,958) (921) (219)
Selling, general & administrative ............ 14,928 (8,974) (6,176) (75) (297)(2)
Impairment of assets ......................... 750 (350) (100) -- 300
--------- --------- --------- --------- ---------
126,097 (69,083) (56,234) (996) (216)
--------- --------- --------- --------- ---------
Income from operations .......................... 491 (372) (49) 176 246
Other charges (credits)
Interest expense, net ........................ 1,264 (697) (308) (218) 41
Other income ................................. (1,096) -- -- -- (1,096)(3)
--------- --------- --------- --------- ---------
Income before income taxes ...................... 323 325 259 394 1,301
Provision for income taxes ...................... 209 (99) 166 244 520
--------- --------- --------- --------- ---------
Net income ...................................... $ 114 $ 424 $ 93 $ 150 $ 781
========= ========= ========= ========= =========
Basic and diluted net income per share .......... $ .00 $ .03
========= =========
Basis weighted average shares
outstanding .................................. 26,567 26,567
========= =========
Diluted weighted average shares
outstanding .................................. 26,811
=========
</TABLE>
NOTES:
(1) Excludes impact of $1.3 million per annum consulting agreement and impact
of the return on investment of the remaining capital for the ongoing
business.
(2) The Company estimates that the selling, general and administrative expense
level for the ongoing business will be approximately $1.2 million per
annum.
(3) Includes $571,000 of pretax interest income on a tax refund related to
prior years and $525,000 of pre-tax income from the collection of a note
previously reserved.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
-41-
<PAGE>
CALTON, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Impact of
Historical Impact of Sale Impact of Florida Chicago Pro forma
(unaudited) Transaction Sale Transaction Winddown Results (1)
----------- ------------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 122,435 $ (75,023) $ (37,829) $ (8,291) $ 1,292
--------- --------- --------- --------- ---------
Costs and Expenses
Cost of revenues ............................. 105,645 (64,919) (32,472) (7,545) 709
Selling, general & administrative ............ 14,953 (8,879) (5,582) (564) (72)(2)
Impairment of assets ......................... -- -- -- -- --
--------- --------- --------- --------- ---------
120,598 (73,798) (38,054) (8,109) 637
--------- --------- --------- --------- ---------
Income from operations ......................... 1,837 (1,225) 225 (182) 655
Other charges (credits)
Interest expense, net ........................ 1,266 (116) (193) (549) 408
Other income ................................. (460) -- -- -- (460)(3)
--------- --------- --------- --------- ---------
Income before income taxes ...................... 1,031 (1,109) 418 367 707
Provision for income taxes ...................... 578 (675) 234 146 283
--------- --------- --------- --------- ---------
Net income ...................................... $ 453 $ (434) $ 184 $ 221 $ 424
========= ========= ========= ========= =========
Basic and diluted net income per share ......... $ .02 $ .02
========= =========
Basis and diluted weighted average
shares outstanding ........................... 26,501 26,501
========= =========
</TABLE>
NOTES:
(1) Excludes impact of $1.3 million per annum consulting agreement and impact
of the return on investment of the remaining capital for the ongoing
business.
(2) The Company estimates that the selling, general and administrative expense
level for the ongoing business will be approximately $1.2 million per
annum.
(3) The collection of a note previously reserved.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
-42-
<PAGE>
CALTON, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Impact of
Chicago,
California and
Historical Impact of Sale Impact of Florida Pennsylvania Pro forma
(unaudited) Transaction Sale Transaction Winddown Results (1)
---------- -------------- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 180,843 $(136,370) $ (22,632) $ (12,680) $ 9,161
--------- --------- --------- --------- ---------
Costs and Expenses
Cost of revenues ............................. 159,690 (121,643) (19,300) (11,451) 7,296
Selling, general & administrative ............ 18,845 (14,416) (4,197) (1,603) (1,371)(2)
Impairment of assets ......................... 1,593 (548) (889) -- 156
Restructuring charges ........................ 1,940 -- -- (1,100) 840
--------- --------- --------- --------- ---------
182,068 (136,607) (24,386) (14,154) 6,921
--------- --------- --------- --------- ---------
Income (loss) from operations ................... (1,225) 237 1,754 1,474 2,240
Other charges (credits)
Interest expense, net ........................ 1,847 (318) (227) (558) 744
Other income ................................. (765) -- -- -- (765)(3)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............... (2,307) 555 1,981 2,032 2,261
Provision for income taxes ...................... 831 (461) 852 (237) 985
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ (3,138) $ 1,016 $ 1,129 $ 2,269 $ 1,276
========= ========= ========= ========= =========
Basic and diluted net income (loss)
per share .................................... $ (.12) $ .05
========= =========
Basis and diluted weighted average
Shares outstanding ........................... 26,210 26,210
========= =========
</TABLE>
NOTES:
(1) Excludes impact of $1.3 million per annum consulting agreement and impact
of the return on investment of the remaining capital for the ongoing
business.
(2) The Company estimates that the selling, general and administrative expense
level for the ongoing business will be approximately $1.2 million per
annum.
(3) The collection of a note previously reserved.
THE PRO FORMA FINANCIAL INFORMATION SET FORTH ABOVE WAS PREPARED IN
ACCORDANCE WITH THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION AND IS NOT INTENDED TO REFLECT A PROJECTION OF FUTURE
RESULTS SUBSEQUENT TO THE CLOSING OF THE SALE TRANSACTION.
-43-
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Calton Common Stock is traded on AMEX under the symbol CN. The following
table shows the high and low sales prices for the Common Stock as reported by
AMEX for the periods indicated.
Fiscal 1998 High Low
---- ---
First Quarter ......................................... $5/8 $7/16
Second Quarter ........................................ 7/8 1/2
Third Quarter ......................................... 3/4 9/16
Fourth Quarter (through October 29, 1998) ............. 1-1/8 9/16
Fiscal 1997 High Low
---- ---
First Quarter ......................................... 7/16 1/4
Second Quarter ........................................ 7/16 1/4
Third Quarter ......................................... 11/16 3/8
Fourth Quarter ........................................ 5/8 7/16
Fiscal 1996 High Low
---- ---
First Quarter ......................................... 7/16 5/16
Second Quarter ........................................ 3/4 3/8
Third Quarter ......................................... 1/2 5/16
Fourth Quarter ........................................ 3/8 1/4
On October 29, 1998, there were approximately 628 record holders of the
Company's Common Stock. On that date, the last sale price for the Common Stock
as reported by AMEX was $3/4. The Company did not pay any dividends on its
Common Stock during fiscal 1997 or 1996 or the nine month period ended August
31, 1998. The Company's credit facility prohibits the payment of dividends.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Principal Shareholders
The following table sets forth information with respect to each person who,
as of November 2, 1998, is 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, as
amended) of more than five percent (5%) of the Company's Common Stock. Except as
set forth in the footnotes to the table, the shareholders have sole voting and
investment power over such shares:
-44-
<PAGE>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Anthony J. Caldarone........................ 7,439,805(1) 27.3%
Joyce P. Caldarone.......................... 4,781,805(2) 17.6%
Apollo Homes Partners, L.P.(3).............. 2,658,000(4) 10.0%
Frederick J. Jaindl(5)...................... 1,640,150 6.2%
- ---------------
(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"), 15,024
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 which expires in November 1998. 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 Common Stock owned by Apollo Homes. The agreement also grants
Apollo Homes 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
Homes, under certain circumstances, the opportunity to purchase a pro rata
portion of additional securities acquired by Mr. and/or Mrs. Caldarone from
the Company. Each of the rights described above terminates in November
1998.
(2) Includes an aggregate of 3,386,596 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 12, 1998.
Security Ownership of Certain Beneficial Owners and Management
-45-
<PAGE>
The following table sets forth certain information, as of November 2, 1998,
with respect to the beneficial ownership (as defined in Rule 13d-3) of the
Company's Common Stock by each director, each of the Company's executive
officers who earned over $100,000 in fiscal 1997 (the "Named Officers") and by
all directors and executive officers as a group. 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 of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Anthony J. Caldarone........................ 7,439,805(1) 27.3%
J. Ernest Brophy............................ 53,834(2)(3) (4)
Mark N. Fessel.............................. 44,309(3) (4)
Frank Cavell Smith, Jr...................... 20,000(3) (4)
Bradley A. Little........................... 211,208(5) (4)
Robert A. Fourniadis........................ 206,475(6) (4)
All Directors and Executive Officers as a
Group (6 persons)(1)(2)(3)(5) and (6)...... 7,975,631 28.8%
(1) Includes an aggregate of 1,395,209 shares held by Joyce P. Caldarone, Mr.
Caldarone's wife, as to which he disclaims any beneficial interest, 500,000
shares subject to currently exercisable options granted under the 1996
Option Plan, 15,024 shares held through the Company's 401(k) Plan and
2,658,000 shares held by 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. See note 1 to the table presented under the caption
"Principal Shareholders."
(2) Includes 12,000 shares owned by a general partnership of which Mr. Brophy
and members of his family are the sole partners.
(3) Includes 20,000 shares subject to currently exercisable options granted
under the 1996 Option Plan.
(4) Shares beneficially owned do not exceed 1% of the Company's outstanding
Common Stock.
(5) Includes 186,667 shares subject to current exercisable options granted
under the 1996 Option Plan and the Company's Amended and Restated 1993
Non-Qualified Stock Plan (the "1993 Option Plan" and collectively with the
1996 Option Plan, the "Option Plans") and 24,984 shares held through the
Company's 401(k) Plan.
(6) Includes 180,667 shares subject to currently exercisable options granted
under the Options Plans and 26,898 shares held through the Company's 401(k)
Plan.
-46-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by the Company
(File Number 001-08846) pursuant to the Exchange Act are incorporated by this
reference in this Proxy Statement:
(1) The portions of the Company's Annual Report to Shareholders for the
fiscal year ended November 30, 1997 (the "Annual Report") that was
submitted to the Commission on March 26, 1998 captioned (i) "Financial
Highlights," (ii) "Management's Discussion and Analysis of Financial
Condition and Results of Operations," (iii) "Financial Statements and
Accompanying Notes," (iv) "Report of Independent Public Accountants"
and (v) "Calton, Inc. Common Stock." Except for portions which are
expressly incorporated by reference herein, the Annual Report is not
deemed filed as a part of this Proxy Statement. A copy of the Annual
Report has been delivered with this Proxy Statement;
(2) The Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997, filed with the Commission on February 26, 1998;
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 28, 1998, filed with the Commission on April 14, 1998;
(4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1998, filed with the Commission on June 13, 1998.
(5) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1998, filed with the Commission on October 13, 1998,
a copy of which has been delivered with this Proxy Statement.
(6) The Company's Report on Form 8-K dated December 1, 1997, filed with
the Commission on December 15, 1997.
(7) The Company's Report on Form 8-K dated September 2, 1998, filed with
the Commission on September 23, 1998.
All documents filed by the Company pursuant to Sections 13(a) or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference herein and to be
a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Proxy Statement with regard to
the Company, its business and its operations is qualified in its entirety by the
information and financial statements
-47-
<PAGE>
(including notes thereto) appearing in the documents incorporated herein by
reference, except to the extent set forth in the immediately preceding
statement.
EXPERTS
The consolidated financial statements of the Company as of November 30,
1997 and 1996 and for each of the three years in the periods ended November 30,
1997 incorporated by reference in this Proxy Statement from the Company's Annual
Report, have been audited by PricewaterhouseCoopers LLP, independent public
auditors, and have been incorporated by reference herein in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. A representative of PricewaterhouseCoopers LLP will be present at the
Special Meeting to answer questions by shareholders and will have the
opportunity to make a statement, if so desired.
SHAREHOLDER PROPOSALS
Shareholder proposals for presentation at the Company's next annual meeting
of shareholders must be received by the Company at its principal executive
offices for inclusion in its proxy statement and form of proxy relating to that
meeting no later than November 25, 1998. The Company's by-laws contain
procedures which must be followed in connection with shareholder proposals.
OTHER BUSINESS
It is not expected that any matter not referred to herein will be present
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, the persons named in the proxies or authorized
substitutes will have discretion to vote on such matters and on matters incident
to the conduct of the Special Meeting in accordance with their best judgment.
ALL SHAREHOLDERS ARE URGED TO FILL, SIGN, DATE AND SEND IN THEIR PROXIES
WITHOUT DELAY TO FIRST CITY TRANSFER Company, P.O. BOX 170, ISELIN, NEW JERSEY
08830. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
Robert A. Fourniadis
Secretary
November __, 1998
-48-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF CALTON HOMES, INC.
Balance Sheet as of August 31, 1998 and November 30, 1997 and 1996........ F-2
Statement of Operations for nine months Ended August 31, 1998 and 1997 and
fiscal years ended November 30, 1997, 1996 and 1995.................... F-3
Statement of Cash Flows for nine months ended August 31, 1998 and
1997 and fiscal years ended November 30, 1997, 1996 and 1995........... F-4
Statement of Shareholder's Equity (Deficit) for nine months ended
August 31, 1998 and fiscal years ended November 30, 1997, 1996
and 1995 ............................................................. F-5
Notes to Financial Statements............................................. F-6
F-1
<PAGE>
CALTON HOMES, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
November 30,
August 31, ----------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ................................... $ 2,413,000 $ 7,125,000 $ --
Receivables ................................................. 4,589,000 4,132,000 8,296,000
Inventories ................................................. 71,899,000 43,975,000 48,765,000
Commercial land ............................................. -- 1,660,000 1,656,000
Prepaid expenses and other assets ........................... 3,225,000 3,766,000 718,000
------------ ------------ ------------
Total assets $ 82,126,000 $ 60,658,000 $ 59,435,000
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Revolving credit agreement .................................. $ 25,000,000 $ 17,500,000 $ --
Mortgages payable ........................................... 2,649,000 3,234,000 4,445,000
Accounts payable ............................................ 4,904,000 2,202,000 3,648,000
Cash overdraft .............................................. -- 2,981,000 --
Due to affiliates ........................................... 33,631,000 35,072,000 51,068,000
Accrued expenses and other liabilities ...................... 15,675,000 811,000 1,091,000
------------ ------------ ------------
Total liabilities ...................................... 81,859,000 61,800,000 60,252,000
------------ ------------ ------------
Commitments and contingent liabilities
SHAREHOLDER'S EQUITY (DEFICIT)
Capital stock, $100 stated value, 1,000 shares
authorized; 100 issued and outstanding ................. -- -- --
Paid in capital ............................................. 13,066,000 12,421,000 12,322,000
Retained earnings (deficit) ................................. (12,799,000) (13,563,000) (13,139,000)
------------ ------------ ------------
Total shareholder's equity (deficit) .................. 267,000 (1,142,000) (817,000)
------------ ------------ ------------
Total liabilities and shareholder's equity (deficit).... $ 82,126,000 $ 60,658,000 $ 59,435,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CALTON HOMES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Years Ended November 30,
---------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $ 45,932,000 $ 47,129,000 $ 69,455,000 $ 75,023,000 $136,370,000
------------ ------------ ------------ ------------ ------------
Costs and expenses
Cost of revenues ........................... 38,064,000 41,596,000 59,759,000 64,919,000 121,643,000
Selling, general and administrative ........ 5,832,000 6,251,000 8,974,000 8,879,000 14,416,000
Impairment of assets ....................... -- 350,000 350,000 -- 548,000
------------ ------------ ------------ ------------ ------------
43,896,000 48,197,000 69,083,000 73,798,000 136,607,000
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ................... 2,036,000 (1,068,000) 372,000 1,225,000 (237,000)
Interest expense, net ........................... 627,000 598,000 697,000 116,000 318,000
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes ............... 1,409,000 (1,666,000) (325,000) 1,109,000 (555,000)
Provision (benefit) in lieu of income taxes ..... 645,000 (503,000) 99,000 675,000 461,000
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................... $ 764,000 $ (1,163,000) $ (424,000) $ 434,000 $ (1,016,000)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CALTON HOMES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Years Ended November 30,
---------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................. $ 764,000 $ (1,163,000) $ (424,000) $ 434,000 $ (1,016,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization ........ 483,000 429,000 711,000 526,000 320,000
Provision (benefit) for income taxes . 645,000 (503,000) 99,000 675,000 461,000
Provision for estimated net
realizable value ................ -- 350,000 350,000 -- 548,000
Amortization of debt financing fees .. 803,000 294,000 589,000 -- --
Option abandonments .................. -- -- -- -- 1,050,000
Reserve reversal ..................... -- -- (137,000) -- (1,113,000)
(Increase) decrease in receivables ... (457,000) 5,187,000 5,264,000 78,000 (1,685,000)
(Increase) decrease in inventories ... (22,924,000) (1,254,000) 1,030,000 484,000 25,815,000
(Increase) decrease in
commercial land ................. -- (4,000) (4,000) 1,003,000 (10,000)
(Increase) decrease in prepaid
expenses and other assets ....... (137,000) (99,000) (102,000) (211,000) 111,000
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities ............... 13,743,000 (988,000) 62,000 (2,397,000) (4,010,000)
------------ ------------ ------------ ------------ ------------
(7,080,000) 2,249,000 7,438,000 592,000 20,471,000
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in Due to affiliates ...... (1,441,000) (32,570,000) (15,996,000) 1,127,000 (19,625,000)
Proceeds under credit facility ................ 21,700,000 43,904,000 50,403,000 -- --
Repayments under credit facility .............. (14,200,000) (6,904,000) (32,903,000) -- --
Cash overdraft ................................ (2,981,000) -- 2,981,000 -- --
Payment of debt financing fees ................ (125,000) (3,535,000) (3,535,000) -- --
Repayments of mortgages payable ............... (585,000) (385,000) (1,263,000) (1,719,000) (860,000)
------------ ------------ ------------ ------------ ------------
2,368,000 510,000 (313,000) (592,000) (20,485,000)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents .............................. (4,712,000) 2,759,000 7,125,000 -- (14,000)
Cash and cash equivalents at beginning
of period ..................................... 7,125,000 -- -- -- 14,000
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period ......... $ 2,413,000 $ 2,759,000 $ 7,125,000 $ -- $ --
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CALTON HOMES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Retained Total
Capital Paid In Earnings Shareholder's
Stock Capital (Deficit) Equity(Deficit)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, November 30, 1994 .......................... $ -- $ 5,186,000 $(12,557,000) $ (7,371,000)
Net income (loss) ................................... -- -- (1,016,000) (1,016,000)
Provision in lieu of income taxes ................... -- 461,000 -- 461,000
------------ ------------ ------------ ------------
Balance, November 30, 1995 .......................... -- 5,647,000 (13,573,000) (7,926,000)
Net income .......................................... -- -- 434,000 434,000
Contribution of capital ............................. -- 6,000,000 -- 6,000,000
Provision in lieu of income taxes ................... -- 675,000 -- 675,000
------------ ------------ ------------ ------------
Balance, November 30, 1996 .......................... -- 12,322,000 (13,139,000) (817,000)
Net income (loss) ................................... -- -- (424,000) (424,000)
Provision in lieu of income taxes ................... -- 99,000 -- 99,000
------------ ------------ ------------ ------------
Balance, November 30, 1997 .......................... -- 12,421,000 (13,563,000) (1,142,000)
Net income .......................................... -- -- 764,000 764,000
Provision in lieu of income taxes ................... -- 645,000 -- 645,000
------------ ------------ ------------ ------------
Balance, August 31, 1998 ............................ $ -- $ 13,066,000 $(12,799,000) $ 267,000
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The financial statements include the accounts of Calton Homes, Inc. (the
"Company"), a wholly-owned subsidiary of Calton, Inc.(the "Parent"). The
financial statements exclude all wholly-owned and majority-owned subsidiaries of
the Company that are not being sold as part of the sales transaction.
The Company designs, constructs and sells single family detached homes in
central New Jersey.
Income recognition
Revenue and cost of revenues on sales of homes are recognized when
individual homes are completed, and title and other attributes of ownership have
been transferred to the buyer by means of a closing. Revenue and cost of revenue
on land sales are recognized when all conditions precedent to closing have been
fulfilled, a specified minimum down payment has been received and it is expected
that the resulting receivable will be collected.
Cash and cash equivalents
Cash equivalents consist of short-term, highly liquid investments, with
original maturities of three months or less, that are readily convertible into
cash. The amount classified as Cash overdraft represents a book overdraft on
checks written that were not presented to the Company's Lender for payment as of
November 30, 1997, not withstanding the fact that no bank overdraft occurred.
Inventories
Inventories are stated at the lower of cost or the amount computed in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of"
("FAS 121"). In performing the analysis of recoverability, the future cash flows
expected to result from the use of each asset and its ultimate disposition are
estimated. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. In a buildout of a community, certain assumptions
are made concerning future sales prices and absorption levels for sales and
closings in the community's life span. There is an inherent risk that those
assumptions made may not occur.
Cost includes direct and allocated indirect costs. Land and land
development costs generally include interest and property taxes incurred.
Interest is capitalized using interest rates on specifically related debt and
the Company's average borrowing rate. Construction costs are accumulated during
the period of construction and charged to Cost of revenues under specific
identification methods. Land, land development and common facility costs are
amortized based upon the number of homes to be constructed in each community
utilizing a relative sales value allocation method. The marketing costs for
model homes are capitalized and depreciated over the life of the community's
deliveries on a per unit basis.
Commercial land
Commercial land is stated at estimated fair value less cost to sell since
the properties are held for sale. The amount includes certain assumptions in its
ultimate disposition such as future cash flow, the ability of the Company to
obtain certain zoning changes and regulatory or governmental approvals. There is
an inherent risk that those assumptions may not be realized.
Income taxes
Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards No. 109 (see Note 9).
Prepaid expenses and other assets
Prepaid expenses and other assets consist primarily of deferred financing
fees and prepaid architect fees. Deferred financing fees represent debt issuance
costs incurred in conjunction with the revolving credit facility and will be
amortized over its three-year term (see Note 5). Prepaid architect fees are
amortized on a per unit basis as homes are delivered.
F-6
<PAGE>
Risks and uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company, as well as the homebuilding industry in general, is very
sensitive to economic conditions. Inflation, interest rate fluctuations,
available capital and consumer confidence impact the ability of the Company to
market, sell and build homes.
2. RECEIVABLES
Receivables consist of the following (amounts in thousands):
November 30,
August 31, ------------------
1998 1997 1996
------ ------ ------
Mortgages and notes receivable, net ........ $ 177 $1,385 $1,491
Due from municipalities .................... 1,982 1,330 2,311
Closing proceeds due ....................... 1,610 844 3,662
Other ...................................... 820 573 832
------ ------ ------
$4,589 $4,132 $8,296
====== ====== ======
3. INVENTORIES
The components of inventories are as follows (amounts in thousands):
November 30,
August 31, -------------------
1998 1997 1996
------- ------- --------
Land and land development costs ............. $27,595 $21,939 $16,694
Homes, lots and improvements in production .. 39,761 17,468 24,313
Land purchase options and cost of projects
in planning ............................... 4,543 4,568 7,758
------- ------- --------
$71,899 $43,975 $48,765
======= ======= ========
Homes, lots and improvements in production represent all costs of homes
under construction including model homes, land and land development costs and
the related carrying costs of these lots.
Interest capitalized in inventories is charged to interest expense as part
of Cost of revenues when the homes are delivered or land sales close. Interest
incurred, capitalized and expensed for the nine months ended August 31, 1998 and
1997 and the years ended November 30, 1997, 1996 and 1995 is as follows (amounts
in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Years Ended November 30,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest expense incurred .................................... $2,752 $2,737 $3,605 $3,083 $4,104
Interest capitalized ......................................... 1,951 2,087 2,787 2,841 3,743
------ ------ ------ ------ ------
Interest expense - net ................................ 801 650 818 242 361
Capitalized interest amortized in
cost of revenues ...................................... 1,532 1,877 2,439 2,670 3,585
------ ------ ------ ------ ------
Interest cost reflected in pretax income ..................... $2,333 $2,527 $3,527 $2,912 $3,946
====== ====== ====== ====== ======
</TABLE>
The Company adopted FAS 121 on December 1, 1996, which requires impairment
losses to be recorded on communities under development when events and
circumstances indicate that they may be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than their related carrying
amounts. The impact of adopting FAS 121 was immaterial. In the third quarter of
1997, inventory with a carrying amount of approximately $2,000,000 was written
down by $350,000. The writedown is based primarily upon management's decision to
withdraw from a community in the Northeast division due to local environmental
conditions and their effect on land values and resale activity that adversely
impacted the expected return on investment from this community. For the years
ended November 30, 1996 and 1995, adjustments for impairment of value were zero
in 1996 and $549,000 during 1995. No impairment has been recorded during the
first nine months of 1998.
The Company acquired land and land options of $11,100,000 for the first
nine months of 1998. During 1997, the Company acquired $9,523,000 of land and
land options. During 1996, the Company acquired $18,000,000 of
F-7
<PAGE>
land and land options, $4,730,000 of which was financed by purchase money
mortgages. During 1995, the Company acquired $5,261,000 of land and land
options.
4. COMMERCIAL LAND
In the second quarter of 1998, the Company received approval for the
rezoning of 60 acres of land located in New Jersey from commercial to
residential development. The Company intends to develop 128 active adult homes
at this site and, therefore, reclassified approximately $1,700,000 from
Commercial land to Inventories.
During 1996, the Company sold a parcel of land located in southern New
Jersey for $1,400,000. The sale resulted in net cash proceeds of $350,000 and a
secured, interest bearing note of $1,050,000 that was paid in 1997.
5. REVOLVING CREDIT AGREEMENT
The Company entered into a secured revolving credit facility (the
"Facility") in June 1997. The Facility, as amended in August 1998, provides
borrowing availability of $45,000,000 (subject to "borrowing base" limitations)
during its three year term expiring on July 1, 2001. The lenders' commitment
includes an agreement to issue up to $5,000,000 of letters of credit which will
be applied against borrowing availability. At the request of the Company, the
Facility provides the lenders with an option at the end of each year to extend
the facility for an additional year, thereby resulting in an ongoing three-year
term. Prior to June 1997, the Company borrowed funds from its Parent and the
Parent's subsidiaries.
The Facility's terms include an interest rate charged to the Company of
prime plus one percent (1%) or a Eurodollar rate option (based upon LIBOR) plus
three and one half percent (3.5%) and no commitment reductions. The Facility
permits up to $10,000,000 of non-recourse purchase money financing from other
sources.
The Facility contains certain financial and operating covenants including,
among others, covenants that require the Company to maintain a specified level
of tangible net worth and certain debt service and interest coverage ratios. In
addition, the Facility prohibits the payment of dividends and limits the amount
of land inventory which may be held by the Company and the Company's ability to
incur certain additional indebtedness, make certain investments, acquire certain
assets, dispose of assets and enter into merger and acquisition transactions
without lender approval.
The Company's parent, Calton, Inc., has guaranteed the obligations under
the Facility. Borrowings under the Facility are secured by a lien upon
substantially all of the assets of the borrower and a pledge of the borrower's
and Parent's outstanding stock.
The average interest rate for the years ended November 30, 1997 and 1996
was 12.5% and 11.3%, respectively, and 14.3% and 12.5% for the nine month
periods ended August 31, 1998 and 1997, respectively. The average amounts
borrowed for the corresponding years were $40,237,000 and $45,445,000,
respectively, and $23,500,000 and $40,800,000 for the nine month periods ended
August 31, 1998 and 1997, respectively. The total amount of interest paid, net
of amounts capitalized, in the years ended November 30, 1997, 1996 and 1995 was
$248,000, $242,000 and $361,000, respectively, and $966,000 and $331,000 for the
nine month periods ended August 31, 1998 and 1997, respectively. Approximately
$9,400,000 and $13,300,000 was available to be borrowed under the Facility based
upon a prescribed borrowing base calculation as of November 30, 1997 and August
31, 1998, respectively. As of November 30, 1997 and August 31, 1998, $17,500,000
and $25,000,000, respectively, was outstanding under the Facility in addition to
$1,000,000 of letters of credit.
6. MORTGAGES PAYABLE
Approximately $7,000,000 of inventories are pledged as collateral for
purchase money mortgages to land sellers at November 30, 1997 compared to
$6,700,000 at November 30, 1996 and $5,852,000 at August 31, 1998. The interest
rate on each of the purchase money mortgages is prime (8.50% at November 30,
1997 and August 31, 1998) and interest is payable on a monthly or semi-annual
basis. Mortgages payable mature as follows: 1998 - $2,172,000 and in 1999 -
$1,062,000. The weighted average interest rate for mortgages payable for the
years ended November 30, 1997 and 1996 was 8.3% and 8.7%, respectively and 8.3%
and 8.3% for the nine month periods ended August 31, 1998 and 1997,
respectively.
7. RELATED PARTY TRANSACTIONS
Due to affiliates
The balance primarily represents net advances to the Company from its
Parent. For periods subsequent to June 9, 1997, the Company was the primary
obligor of the revolving credit agreement and, as such, funded the operating
activities of its Parent and its subsidiaries. Interest expense was allocated at
the consolidated entities' effective rate based upon the Company's net asset
position for periods prior to June 9, 1997, when funding was provided by the
Parent and Calton Funding, Inc., a subsidiary of the Parent.
Allocation of costs
Certain general and administrative expenses incurred by the Parent on
behalf of the Company have been allocated to these financial statements based
upon efforts expended, the prorata allocation of rent costs and associated costs
of operating the office and a profit factor. The amounts are $750,000 and
$1,242,000 for the nine months ended
F-8
<PAGE>
August 31, 1998 and 1997, respectively, and $1,650,000, $1,648,000 and
$4,091,000 for the years ended November 30, 1997, 1996 and 1995, respectively.
8. SHAREHOLDER'S EQUITY
The Company's Certificate of Incorporation provides for 1,000 shares of
capital stock with no par value. As of August 31, 1998, the Company had 100
shares issued and outstanding with a combined stated value of $100.
9. INCOME TAXES
The components of the provision for income taxes are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
August 31, Years Ended November 30,
-------------------- --------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Federal
Current .................................................. $ 215 $-- $-- $ 182 $--
Deferred ................................................. -- -- -- -- --
(Benefit)/provision in lieu of income taxes .............. 325 (421) 83 383 386
State
Current .................................................. -- -- -- -- --
Deferred ................................................. -- -- -- -- --
(Benefit)/provision in lieu of income taxes .............. 105 (82) 16 110 75
------ ------ ------ ------ ------
$ 645 $(503) $ 99 $ 675 $ 461
====== ====== ====== ====== ======
</TABLE>
The following schedule reconciles the federal provision for income taxes
computed at the statutory rate to the actual provision for income taxes (amounts
in thousands):
<TABLE>
<CAPTION>
August 31, Years Ended November 30,
-------------------- -----------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Computed provision/(benefit) for
income taxes at 34% ...................................... $ 466 $(566) $(111) $ 379 $ 24
Expenses for which deferred tax benefit
cannot be currently recognized ........................... 74 145 194 186 362
State and local tax provision .............................. 105 (82) 16 110 75
State tax reserves ......................................... -- -- -- -- --
------ ------ ------ ------ ------
Total (benefit)/provision for income taxes ................. $ 645 $(503) $ 99 $ 675 $ 461
====== ====== ====== ====== ======
</TABLE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities at August 31, 1998 and November 30, 1997
and 1996 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
August 31, 1998 November 30, 1997 November 30, 1996
--------------------- --------------------- ---------------------
Deferred Deferred Deferred Deferred Deferred Deferred
Tax Tax Tax Tax Tax Tax
Assets Liabilities Assets Liabilities Assets Liabilities
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Fresh-start inventory reserves .............. $ -- $ -- $ 18 $ -- $ 30 $ --
Inventory and other reserves ................ 732 -- 201 -- 314 --
Capitalized inventory costs ................. 354 289 189 419 121 248
Federal net operating losses ................ 4,230 -- 4,556 -- 5,200 --
State net operating losses .................. 2,887 -- 3,593 -- 3,861 --
Depreciation ................................ 251 212 260 304 268 186
Other ....................................... -- -- 19 13 39 37
------- ------ ------- ------ ------- ------
8,454 501 8,836 736 9,833 471
Valuation allowance ......................... $(7,953) -- (8,100) -- (9,362) --
------- ------ ------- ------ ------- ------
Total deferred taxes ........................ $ 501 $ 501 $ 736 $ 736 $ 471 $ 471
======= ====== ======= ====== ======= ======
</TABLE>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. For federal and state tax purposes, a valuation allowance was
provided on substantially all of the net deferred tax assets due to uncertainty
of realization.
The federal net operating loss carryforward for tax purposes is
approximately $13,400,000 at November 30, 1997 and $15,300,000 at November 30,
1996. The Company's ability to use its deferred tax assets, created prior to the
change in the Company's ownership, to offset future income is approximately
$957,000 per year under Section 382 of the Internal Revenue Code as a result of
the change in control of the Company in November of 1995. These federal
carryforwards will expire between 2008 and 2011.
F-9
<PAGE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
(a) On June 14, 1994, an action was filed in the New Jersey Superior Court,
Middlesex County, New Jersey, 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. A report submitted to the court by the plaintiffs' expert
indicates that the values of only 18 of the plaintiffs' homes were affected by
the development of the public works site and that the damages for these 18 homes
equal $431,000 in the aggregate. Plaintiffs have also asserted, without any
support, that the balance of the plaintiffs have suffered damages equaling
approximately $307,500 in the aggregate. Notwithstanding the submission of the
expert's report, the Company does not believe that the values of any of the
plaintiffs' homes have been impaired. In fact, a report prepared by the
Company's appraiser indicates that none of the Plaintiff's homes have suffered
any diminution in value. 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.
(b) The Company is involved, from time to time, in other litigation in the
ordinary course of business. Management presently believes that the resolution
of any such matter should not have a material, adverse effect on the financial
condition, results of operations or cash flows of the Company.
(c) The Company is obligated under an operating lease in New Jersey for
office space expiring November 30, 2002 for its office facility with total
annual rentals of approximately $228,000. Rental expense for the years ended
November 30, 1997, 1996 and 1995 amounted to $246,000.
(d) Commitments include the usual obligations of housing producers for the
completion of contracts in the ordinary course of business.
11. SUBSEQUENT EVENTS
The Company's Parent signed a definitive agreement on September 2, 1998, as
amended, to sell the Company's stock to Centex Real Estate Corporation, the
homebuilding subsidiary of Centex Corporation. The purchase price, which is
subject to adjustment, is estimated to be $48.1 million and will be paid in
cash. The transaction, expected to be completed by calendar year end, is subject
to the approval of the Parent's shareholders. See the definitive proxy of the
Parent for further information.
F-10
<PAGE>
ANNEX I
STOCK PURCHASE AGREEMENT
BY AND AMONG
CALTON, INC. AND CALTON HOMES, INC.
AS SELLER
AND
CENTEX REAL ESTATE CORPORATION
AS PURCHASER
SEPTEMBER 2, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I - DEFINITIONS...................................................................1
ARTICLE II - TERMS OF THE TRANSACTION.....................................................9
2.01 Purchase and Sale; Purchase Price.......................................9
2.02 The Closing; Effective Date of Transaction.............................11
2.03 Delivery of Disclosure Schedule........................................11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE CALTON PARTIES.......................11
3.01 Corporate Organization of the Company and Related Matters..............11
3.02 Power and Authority of the Company.....................................12
3.03 Capital Stock of the Company...........................................12
3.04 Corporate Organization of Calton.......................................13
3.05 Power and Authority of Calton..........................................13
3.06 Capital Stock of Calton................................................13
3.07 No Default Resulting from Agreement....................................14
3.08 Financial Statements...................................................14
3.09 Absence of Undisclosed Liabilities.....................................14
3.10 Title to Assets and Properties.........................................15
3.11 Status of Subsidiaries.................................................15
3.12 Real Property..........................................................15
3.13 Leases.................................................................20
3.14 Notes and Accounts Receivable..........................................20
3.15 Condition of Inventory and Equipment...................................20
3.16 Litigation and Proceedings.............................................21
3.17 Tax Matters............................................................21
3.18 Governmental Regulation................................................23
3.19 Required Consents and Approvals........................................24
3.20 Contracts..............................................................24
3.21 List of Directors, Officers, Employees and Bank Accounts...............26
3.22 Brokers or Finders.....................................................26
3.23 Insurance..............................................................26
3.24 Environmental Matters..................................................27
3.25 Intellectual Property Rights...........................................28
3.26 Employee Benefit Plans.................................................29
3.27 Transactions with Affiliates...........................................31
3.28 Labor Matters..........................................................31
3.29 Accuracy of Disclosure Schedule........................................32
3.30 Material Changes.......................................................32
3.31 Representations and Warranties.........................................34
ARTICLE IV - CERTAIN COVENANTS...........................................................34
4.01 Conduct of Business....................................................34
4.02 Other Proposals........................................................37
4.03 Access to Information..................................................39
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.04 Best Efforts...........................................................39
4.05 HSR Act................................................................39
4.06 Title Policies and Surveys.............................................40
4.07 Notification of Certain Other Matters..................................40
4.08 Supplemental Disclosure................................................41
4.09 Delivery of Opinion and Certificates to Purchaser......................41
4.10 Solicitation of Shareholder Approval by Calton.........................41
4.11 Payoff of Existing Indebtedness........................................41
4.12 [Intentionally omitted]................................................41
4.13 Insurance Coverage.....................................................42
4.14 Employment Agreements..................................................42
4.15 Delivery of Opinion and Certificates to Calton.........................43
4.16 Company Name...........................................................43
4.17 Warranty Work..........................................................43
4.18 Resignations...........................................................44
4.19 Office Space...........................................................45
4.20 Divestiture of Subsidiaries............................................45
4.21 Tax Matters............................................................45
4.22 Non-Competition Agreements.............................................49
4.23 1998 Balance Sheets....................................................49
4.24 Consulting Agreement...................................................50
4.25 Release of Calton under Bonds and Letters of Credit....................50
4.26 Cooperation on Accounting and Records Matters..........................50
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................51
5.01 Organization...........................................................51
5.02 No Default Resulting from Agreement....................................52
5.03 Corporate Authority....................................................52
5.04 Brokers or Finders.....................................................52
5.05 Investment Intent......................................................52
ARTICLE VI - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER........................52
6.01 Accuracy of Representations and Warranties.............................52
6.02 Compliance with Conditions.............................................53
6.03 Closing Documents......................................................53
6.04 Consents and Approvals.................................................54
6.05 Casualty...............................................................54
6.06 Litigation.............................................................54
6.07 Material Change in Properties..........................................54
6.08 Approval of Calton Shareholders........................................54
6.09 Financial Condition....................................................54
6.10 Due Diligence..........................................................54
6.11 Employees..............................................................55
6.12 Resignations...........................................................55
6.13 Office Lease...........................................................55
6.14 HSR Act................................................................55
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY AND CALTON..............................................55
7.01 Accuracy of Representations and Warranties.............................55
7.02 Compliance with Conditions.............................................56
7.03 Closing Documents......................................................56
7.04 HSR Act................................................................56
7.05 Calton Shareholder Approval............................................56
7.06 Litigation.............................................................56
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS...............................................56
ARTICLE IX - TERMINATION.................................................................57
ARTICLE X - EFFECT OF TERMINATION........................................................59
ARTICLE XI - TERMINATION PAYMENTS........................................................60
ARTICLE XII - INDEMNIFICATION............................................................61
12.01 Indemnification by Calton..............................................61
12.02 Indemnification by Purchaser...........................................62
12.03 Third-Party Claims.....................................................63
12.04 Notice.................................................................63
12.05 Right of Set Off.......................................................64
ARTICLE XIII - MISCELLANEOUS PROVISIONS..................................................67
13.01 Predecessors Included..................................................67
13.02 Notices................................................................68
13.03 Entire Agreement.......................................................68
13.04 Counterpart Originals..................................................69
13.05 Binding Effect; Assignment.............................................69
13.06 Further Assurances.....................................................69
13.07 Partial Invalidity of this Agreement...................................69
13.08 Governing Law..........................................................69
13.09 Public Announcements...................................................69
13.10 Amendment; Waivers.....................................................69
13.11 Severability...........................................................70
13.12 Specific Performance...................................................70
13.13 Interpretation.........................................................70
13.14 Arbitration of Purchase Price Adjustment Disputes and Tax Matters......70
</TABLE>
-iii-
<PAGE>
SCHEDULE OF EXHIBITS
A Earnest Money Escrow Agreement
B Holdback Escrow Agreement
C Termination Fee Escrow Agreement
D Legal Opinion for Calton
E Legal Opinion of Raymond G. Smerge for Purchaser
F Warranty Program
G Non-competition Agreements
H Intentionally Omitted
I Consulting Agreement
J Form of Income Tax Election
-iv-
<PAGE>
DISCLOSURE SCHEDULES
3.01 Corporate Organization and Related Matters
3.02 Power and Authority of the Company
3.06 Capital Stock
3.08 Financial Statements
3.09 Absence of Undisclosed Liabilities
3.12 (a) Real Property
3.12 (b) Developed property
3.12 (d) Exceptions regarding drainage easements and flood plain
3.12 (e) Exceptions regarding access
3.12 (g) Exceptions regarding Improvements
3.12 (i) Exceptions regarding procuring building permits
3.12 (j) Exception regarding commitments to any Governmental Authority or
other Person
3.12 (k) Exceptions regarding leases
3.12 (l) Contracts regarding Real Property
3.12 (m) Exceptions regarding possession
3.12 (n) Approvals regarding subdivisions, development or construction on the
Real Property
3.12 (o) Guarantees and warranties
3.12 (s) Changes in laws
3.12 (t) Exceptions as to endangered species
3.13 Leases
3.14 Notes and Accounts Receivable
3.16 Litigation & Proceedings
-v-
<PAGE>
3.17 (a) Tax Returns Exceptions
3.17 (c) Tax Returns
3.17 (d) Statute Waivers
3.17 (e) Calton Group Exceptions
3.17 (h) Filing Exceptions
3.17 (j) Partnership Exceptions
3.18 Governmental Regulation
3.19 Required Consents and Approvals
3.20 Contracts
3.21 Directors, Officers, Employees and Bank Accounts
3.23 Insurance
3.24 Environmental Matters
3.24 (d) Material licenses, etc.
3.24 (g) Storage Tanks
3.24 (j) Reports on Environmental Matters
3.25 (a) Intellectual Property
3.25 (c) Year 2000 Exceptions
3.26 (a) Employee benefit plans
3.26 (f) Exception to no pending actions or suits regarding employee benefit
plans
3.26 (g) Exceptions regarding maintenance of employee benefit plans
3.27 Transactions with Affiliates
3.28 Labor Matters
3.30 Material Changes
-vi-
<PAGE>
4.01 (e) Exceptions as to Dividends and Redemption
4.01 (f) Exceptions as to Reverse Stock Split
4.11 Existing Indebtedness
-vii-
<PAGE>
090198
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into
this 2nd day of September 1998 between Calton, Inc., a New Jersey corporation
("Calton"), Calton Homes, Inc., a New Jersey corporation (the "Company") and
Centex Real Estate Corporation, a Nevada corporation (the "Purchaser").
RECITALS:
Calton was incorporated in the State of New Jersey in 1981 and is a
publicly-held corporation whose shares are traded on the American Stock
Exchange. Calton, through the Company, which is its wholly-owned subsidiary,
designs, constructs and sells single-family detached homes in Central New
Jersey. The Company primarily targets two groups of home buyers: the second and
third time move-up homebuyer of conventional housing and the active adult
homebuyer.
Purchaser is engaged in the homebuilding business in a number of
markets throughout the United States and desires to expand its current
homebuilding operations to include a broader scope of product line and
geographic areas.
Purchaser, with the cooperation of Calton, has commenced a review and
examination of the businesses, properties, financial condition and results of
operations of the Company.
The Board of Directors of Calton and the Board of Directors of the
Company deem it advisable and in the best interests of Calton and the Company
that the acquisition by Purchaser of the common stock of the Company be
consummated upon the terms and subject to the conditions set forth herein, and
such Boards of Directors have approved this Agreement and the transactions
contemplated hereby and have resolved to recommend the acceptance of this
Agreement to the holders of the issued and outstanding capital stock of Calton.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements set forth herein, Calton,
the Company and the Purchaser do hereby agree as follows.
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms set forth below shall have the following
meanings:
"Acquisition Proposal" means any bona fide proposal relating to an
acquisition of all or any substantial part of Calton or the Company or
their respective business (whether by merger, consolidation, purchase
of assets or purchase of stock) or any other transaction of a similar
nature; provided, however, that no proposal relating to a transaction
that
1
<PAGE>
would be in the ordinary course of business, as provided in Section
4.01(c) hereof, shall constitute an "Acquisition Proposal."
"Adjusted Pro Forma May 31, 1998 Balance Sheet" has the meaning
described in Section 4.23 hereof.
"Adjusted November 30, 1998 Balance Sheet" has the meaning described
in Section 4.23 hereof.
"Affiliate" means, with respect to any Person, any other Person who,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. As used in this definition,
the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of a Person, whether by contract or otherwise.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended from time to time.
"Audited November 30, 1998 Balance Sheet" has the meaning described in
Section 4.23 hereof.
"Business Day" means any day except a Saturday, Sunday or federal
holiday.
"Bylaws" means, with respect to any corporation, the bylaws of such
corporation, as in effect from time to time on or after the date
hereof.
"Calton Group" has the meaning described in Section 3.17(e) hereof.
"Calton Parties" means Calton and the Company.
"Centex Balance Sheet Adjustments" has the meaning described in
Section 4.23 hereof.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System.
"Charter" means, with respect to any corporation, the certificate or
articles of incorporation (or similar governing document) of such
corporation, as in effect from time to time on or after the date
hereof.
"Closing" has the meaning set forth in Section 2.02 hereof.
"Closing Date" means the date on which the Closing occurs, as
determined pursuant to Section 2.02 hereof.
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<PAGE>
"Closing Date Cash Balance Statement" means a statement prepared by the
Company setting forth the aggregate amount of cash and cash equivalents
held by the Company as of the Closing Date, which statement shall be
certified by the chief financial officer of the Company.
"Code" means the Internal Revenue Code of 1986, as amended (including
any successor statute).
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the
Exchange Act.
"Common Stock" has the meaning set forth in Section 2.01 hereof.
"Confidentiality Agreement" means the letter agreement, dated as of
March 23, 1998, between Calton and the Purchaser.
"Consent" means any consent, approval, permit, notice, action or
authorization of any Person not a party to this Agreement.
"Consulting Agreement" has the meaning set forth in Section 4.24
hereof.
"Contract" means any contract, subcontract, letter contract, agreement,
lease, purchase order, delivery order, arrangement, understanding or
other instrument, obligation or commitment of any kind or character
(whether oral or written, pending or executory).
"Developed Property" means any Real Property which is presently being
improved or developed or upon which physical improvements, including
but not limited to houses, are being constructed.
"Disclosure Schedule" has the meaning set forth in Section 2.03 hereof.
"Due Diligence Period" has the meaning set forth in Section 6.10
hereof.
"Earnest Money Deposit" means the funds held and invested by the Escrow
Agent in the Earnest Money Escrow Agreement.
"Earnest Money Escrow Agreement" means the escrow agreement referred to
in Section 2.01(a)(i) hereof.
"Effective Date" means the date on which the Transaction is deemed
closed and effective, even if Closing occurs thereafter.
"Employee Benefit Plan" has the meaning set forth in Section 3.26
hereof.
"Employment and Labor Agreements" has the meaning set forth in Section
3.28 hereof.
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<PAGE>
"Encumbrance" means (i) with respect to any capital stock or other
equity securities of, or ownership interest in, any corporation,
partnership or other Person, any Lien, charge, claim, encumbrance,
limitation or restriction applicable to or affecting such capital
stock, equity securities or ownership interest (including any
restriction on the right to vote, sell or otherwise dispose of such
capital stock, equity securities or other ownership interest), other
than any restriction on transfer arising under any applicable federal
or state securities laws and (ii) with respect to any Real Property,
any Lien, defect in title, easement, covenant, restriction, claim,
charge, levy or assessment against or relating to any portion of the
Real Property.
"Environmental Claim" means any claim (including, but not limited to,
any claim under CERCLA), action, cause of action, investigation or
notice by any Person alleging potential liability (including, but not
limited to, potential liability for investigatory costs, assessment
costs, cleanup costs, response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the release by the Company into the
environment of any Hazardous Materials at any location, whether or not
owned by the Company, (b) the presence of any Hazardous Materials at
any location owned or leased by the Company or (c) circumstances
forming the basis of any liability under or any violation of any
Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws
(including common law), statutes, codes, ordinances, rules and
regulations relating to pollution or protection of human health or the
environment (including, but not limited to, ambient air, surface
water, groundwater, land surface or subsurface strata), including,
without limitation, laws, statutes, codes, ordinances, rules and
regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, management or handling of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (including any successor statutes), and "ERISA Affiliate"
means with respect to the Company, any corporation or other trade or
business under common control with the Company (within the meaning of
Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) or
4002(b) of ERISA).
"Escrow Agent" means First Union National Bank, 765 Broad Street,
Newark, New Jersey 07102, Attention: Jim Waters, Vice President -
Corporate Trust Administration, Phone (973) 430-4616, Fax (973)
430-2117.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(including any successor statute).
"Existing Indebtedness" has the meaning set forth in Section 4.11
hereof.
4
<PAGE>
"GAAP" means United States generally accepted accounting principles as
in effect at the time of the application thereof as described in or
contemplated by this Agreement.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof, any federal or state court and any other
agency or authority exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" means (i) any substance, material or waste
defined or characterized as hazardous, extremely hazardous, toxic or
dangerous within the meaning of any Environmental Law, (ii) any
substance, material or waste classified as a contaminant or pollutant
under any Environmental Law or (iii) any other substance (including,
but not limited to, petroleum), material or waste, the manufacture,
processing, distribution, use, treatment, storage, placement, disposal,
removal or transportation of which is subject to regulation under any
Environmental Law.
"Holdback" has the meaning set forth in Section 2.01(a)(ii) hereof.
"Holdback Escrow Agreement" means the escrow agreement referred to in
Section 2.01(a)(ii) hereof.
"HSR Act", means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended
(including any successor statute).
"Improvements" has the meaning set forth in Section 3.12(g) hereof.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks,
service marks, trade dress, trade names, logos and corporate names and
registrations and applications for registration thereof, (iii)
copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) computer
software, data, data bases and documentation thereof, (v) trade secrets
and other confidential information (including, but not limited to,
ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial and marketing
plans and customer and supplier lists and information), (vi) other
intellectual property rights and (vii) all goodwill associated with any
of the foregoing intellectual property rights.
"Lien" means (i) any mortgage, pledge, hypothecation, assignment,
security interest, option, lien or any preference, priority or other
right or interest granted pursuant to a security agreement or
preferential arrangement of any kind or character whatsoever
(including, but not limited to, any conditional sale or other title
retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or
agreement to give, any financing statement under the Uniform
5
<PAGE>
Commercial Code or comparable law of any jurisdiction), and (ii) any
other lien, charge, levy or encumbrance, whether arising by operation
of law or otherwise.
"Liquidating Trust" has the meaning set forth in Section 2.01 hereof.
"Material" means a cost, expense or liability of $50,000 or more.
"Material Adverse Change" means a material adverse change in the
business, prospects, properties, financial condition or results of
operations of the Company, taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, prospects, properties, financial condition or results of
operations of the Company, taken as a whole.
"Multiemployer Plans" has the meaning set forth in Section 3.26 hereof.
"NOL" has the meaning described in Section 4.21(i) hereof
"NLRB" has the meaning set forth in Section 3.28 hereof.
"Overbid Notice" has the meaning set forth in Section 4.02 hereof.
"Overbid Termination Conditions" has the meaning set forth in Section
4.02 hereof.
"Overbid Transaction" means an Acquisition Proposal made in writing by
a Qualified Third Party (i) which would provide for consideration
attributable to the stock or assets subject to the Acquisition Proposal
having a fair market value, as determined by an investment banking firm
of national standing selected by Calton and reasonably acceptable to
the Purchaser, which exceeds the sum of the Purchase Price, the
outstanding principal, interest and fees and charges (if any)
attributable to the Existing Indebtedness and $6 million (or, if the
Purchaser has delivered a Topping Offer to Calton, the Topping Offer
Amount) by at least $1,000,000 and (ii) the terms and conditions of
which (including the amount and value of the consideration attributable
to the stock or the assets subject to the Acquisition Proposal) are
reasonably determined by the Board of Directors of Calton to be, when
taken in their entirety, no less favorable to Calton than the terms and
conditions set forth in this Agreement.
"Permit" means any license, franchise, permit, approval, authorization,
exemption, classification, certificate, registration and similar
document or instrument.
"Permitted Encumbrances" means all covenants, conditions, restrictions
and easements of record relating to the Real Property except those
which materially interfere with the development of such property and
the construction of homes or other improvements thereon, consistent
with the existing zoning therefor and except restrictions which
materially detract from the market value of such property.
6
<PAGE>
"Person" means any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization of
any kind or character, including a Governmental Authority.
"Pro forma November 30, 1998 Balance Sheet" has the meaning set forth
in Section 4.23 hereof.
"Property Agreements" has the meaning set forth in Section 3.12(l)
hereof.
"Purchase Price" means the amount designated in Section 2.01 hereof.
"Purchaser Claims" means all claims, demands, actions, causes of
action, proceedings, assessments, losses, damages, liabilities,
settlements, judgments, fines, penalties, interest, costs and expenses
(including fees and disbursements of counsel) asserted against, imposed
on or incurred by the Company or the Purchaser which directly or
indirectly arise from or relate to (i) the breach or alleged breach by
the Calton Parties of any of their representations, warranties,
covenants or agreements contained in this Agreement, (ii) any
Environmental Claim, including, but not limited to, any claim arising
under any Environmental Law based upon any injury, sickness, disease or
death of any Person, damage to any properties or assets or remediation
of any soil, surface water or groundwater resulting from any
conditions, events, facts, circumstances or other matters occurring or
existing prior to the Closing Date or in connection with the ownership,
use or operation of the Real Property prior to the Closing Date
(excluding, however, any real estate in which the Company neither has
nor ever had any ownership interest and which otherwise does not give
rise to liability under any Environmental Law to the Company) or (iii)
any untrue statement of a material fact contained in the Disclosure
Schedule or any failure to state any material fact necessary in order
to make the statements therein, in light of circumstances under which
they were made, not misleading, except to the extent that any such
untrue statement of a material fact or failure to state a material fact
is based upon and in conformity with information furnished by the
Purchaser to the Company in writing expressly for use in the Disclosure
Schedule.
"Qualified Plans" has the meaning set forth in Section 3.26(b) hereof.
"Qualified Third Party" means (subject to the last sentence of Section
4.02(a)) a Third Party who the Board of Directors of Calton has
reasonably determined is financially able to consummate an Overbid
Transaction.
"Real Property" means every lot, parcel and tract of land in which the
Company has any ownership interest whatsoever, including, but not
limited to, any right to purchase any land or improvement situated on
land.
"Real Property Permit" has the meaning set forth in Section 3.12(n)
hereof.
7
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended
(including any successor statute).
"Subsidiary" means with respect to the Company (i) any corporation or
other Person of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are owned directly or
indirectly by the Company or (ii) any partnership of which the Company
or any Subsidiary is a general partner or of which the Company directly
or indirectly owns partnership interests which entitle it to receive
more than fifty-percent (50%) of the distributions made by such
partnership.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code ss.59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, service, service use,
transfer, recording, registration, value added, alternative or add-on
minimum, estimated or other tax, charge, fee, levy or assessment of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not, whether computed on a separate, consolidated,
unitary or combined basis or in any other manner.
"Tax Returns" means any returns, declarations, reports, claims for
refund and informational returns or statements relating to Taxes,
including any schedules or attachments thereto, and including
consolidated, unitary or combined tax returns of Calton.
"Termination Fee" has the meaning set forth in Section 11.01 hereof.
"Termination Fee Deposit" means the funds held and invested by the
Termination Fee Escrow Agent under the Termination Fee Escrow
Agreement.
"Termination Fee Escrow Agent" means the Escrow Agent
"Termination Fee Escrow Agreement" means the Termination Fee Escrow
Agreement, in the form attached as Exhibit C hereto (with such changes
therein as the Termination Fee Escrow Agent shall reasonably request),
to be entered into among the Calton Parties, the Purchaser and the
Termination Fee Escrow Agent concurrent with the execution of this
Agreement.
"Termination Threshold" means $1,500,000.
"Third Party" means any Person other than the Calton Parties or the
Purchaser or any of their respective Affiliates.
"Title Policies" has the meaning set forth in Section 4.06 hereof.
8
<PAGE>
"Topping Offer" has the meaning set forth in Section 4.02(a) hereof.
"Topping Offer Amount" means the amount of the consideration
attributable to the Common Stock specified in the most recent Topping
Offer delivered by the Purchaser to the Company pursuant to Section
4.02(a) hereof. For purposes of this definition, if the most recent
Topping Offer delivered by the Purchaser to the Company states that
the Purchaser is willing to amend the terms of this Agreement to
increase the Purchase Price, the value of the "consideration
attributable to the Common Stock" shall be the Purchase Price proposed
in such offer.
"Transaction" means the sale and purchase transactions described
herein.
"Warranty Work" has the meaning set forth in Section 4.17 hereof.
ARTICLE II
TERMS OF THE TRANSACTION
2.01 Purchase and Sale; Purchase Price. Upon the terms and conditions set forth
herein, the Purchaser hereby agrees to purchase and Calton hereby agrees to
sell to Purchaser all of the issued and outstanding capital stock of the
Company which comprises one hundred (100) shares, all of which are validly
issued and outstanding and have no par value (hereinafter called the
"Common Stock"). The purchase price to be paid for the Common Stock
("Purchase Price") is Forty Nine Million Six Hundred Thousand Dollars
($49,600,000), subject to adjustment as provided below and in Sections
12.01(b),(c) and (d) hereof.
(a) The Purchase Price will be payable in cash at Closing, subject to the
Holdback described below. The Purchase Price will be paid as follows:
(i) Within three (3) business days from the date of this Agreement
Purchaser will deposit the sum of Two Million Dollars
($2,000,000) into escrow with the Escrow Agent which will be
applied to the purchase price at Closing or returned to the
Purchaser if this Agreement is terminated (other than pursuant to
Section 9.04(b) or (c) hereof), or delivered to Calton as
liquidated damages if Calton terminates this Agreement pursuant
to Section 9.04(b) or (c) hereof, all in accord with the Earnest
Money Escrow Agreement attached hereto as Exhibit A; and
(ii) At Closing the Purchase Price will be paid in cash, less a
holdback of Three Million Dollars ($3,000,000) (the "Holdback")
which will be deposited into escrow with the Escrow Agent, will
be invested and earn interest as may be directed from time to
time by Calton, subject to Purchaser's reasonable review and
approval, and will be disbursed to Calton, together with the
interest earned thereon, in equal halves on the
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<PAGE>
first and second anniversary of the date of the Closing, subject
to set-off or claims under the indemnification provisions of
Article XII hereof, all in accord with the Holdback Escrow
Agreement attached hereto as Exhibit B.
(iii) The Purchase Price will be reduced or increased, as the case may
be, by twenty cents ($0.20) for each dollar ($1.00) by which the
Book/Tax Difference set forth below is increased or reduced, as
the case may be (i.e., increases in "Book/Tax Difference" result
in Purchase Price reductions and vice versa) from $9.3 million,
when the amounts set forth below are adjusted as follows: As soon
as practicable following Closing, the estimated amounts set forth
below shall be adjusted to final amounts (as of November 30,
1998), resulting in a final actual "Book/Tax Difference" as
calculated below. Such Purchase Price reduction or increase shall
be paid by the paying party within five (5) business days of its
receipt of written notice from the receiving party that the
amount is final and due.
CALCULATION OF PURCHASE PRICE ADJUSTMENT BASED ON BOOK/TAX
DIFFERENCE PER SECTION 2.01(a) (iii)
The following is the calculation of the estimated Book/Tax
Difference as of November 30, 1998. All amounts other than
Purchase Price refer to the aggregate amounts of such items as
owned by or on the books of the Company for federal income tax
purposes as of November 30, 1998. The numbers set forth below are
estimates. They will be adjusted to actual as soon as practical
following the Closing:
<TABLE>
<CAPTION>
<S> <C>
$ 48,000,000
Plus: Debt (PMMS and Bank) $ 22,500,000
Plus: A/P and Accrued Liabilities (excluding waranty
work and legal reserves) $ 12,900,000
Less: Aggregate Tax Basis in Assets $(74,100,000)
------------
Equals: Book/Tax Difference $ 9,300,000
</TABLE>
The Purchase Price, less the Holdback, will be paid to Calton at the
Closing in accordance with written instructions received by the Purchaser
at least twenty-four (24) hours prior to the Closing, which Purchase Price
(subject to adjustment as provided in this Agreement) will be acknowledged
by Calton in writing as full and complete payment for the Common Stock.
In the event that prior to five (5) years from the Closing Date Calton
elects to liquidate and dissolve, then prior to doing so it will organize a
liquidating trust (the "Liquidating Trust") in the amount(s) indicated
below. The form and content of such Liquidating
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<PAGE>
Trust will be subject to the review and approval of Purchaser prior to such
liquidation and dissolution taking effect; such approval will not be
unreasonably withheld, conditioned or delayed. The term of the Liquidating
Trust will expire five years from the Closing Date. Such Liquidating Trust
will secure the indemnification provided in Section 12.01 hereof from
Calton to Purchaser. The Liquidating Trust will be funded by Calton in the
amount of $4 million if created before the first anniversary of the Closing
Date, $3 million if created between the first and second anniversaries of
the Closing Date, and $2 million if created after the second anniversary of
the Closing Date. Further, to the extent that at the time of the creation
of the Liquidating Trust there remains in the Holdback Escrow any sum of
money, then the same will be applied as a credit against the amount of the
Liquidating Trust, and the Holdback Escrow will be merged with and into the
Liquidating Trust. Thereafter, Purchaser acknowledges and agrees that
absent fraud or intentional misrepresentation on the part of Calton, the
funds in the Liquidating Trust will be the sole recourse for Purchaser on
account of any breach of this Agreement by Calton.
(b) In addition to payment of the Purchase Price, the Purchaser will pay
off the Existing Indebtedness, as more particularly described in
Section 4.11 hereof. The total amount of the Existing Indebtedness at
Closing is estimated to be $22.5 million.
2.02 The Closing; Effective Date of Transaction. The transaction contemplated by
this Agreement will be consummated at a closing (the "Closing") at the
offices of Calton at 500 Craig Road, Manalapan, New Jersey 07726-8790 at
(i) the close of business on November 30, 1998, or (ii) such other date
prior to or following November 30, 1998 as may be mutually agreed upon by
the parties hereto. The date on which the Closing will occur is herein
called the "Closing Date". Whether or not Closing occurs on November 30,
1998, the Effective Date will be November 30, 1998.
2.03 Delivery of Disclosure Schedule. Simultaneously with the execution of this
Agreement, the Company and Calton will deliver to the Purchaser a true and
complete disclosure schedule (the "Disclosure Schedule") setting forth the
information required by this Agreement, including without limitation, all
of the disclosures referenced in Article III below.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CALTON PARTIES
As an inducement to execute this Agreement and to consummate the transactions
contemplated hereby, the Calton Parties jointly and severally represent and
warrant to Purchaser as set forth in this Article III.
3.01 Corporate Organization of the Company and Related Matters. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the
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<PAGE>
State of New Jersey and does not, directly or indirectly, through the
ownership of stock or otherwise, have any Subsidiaries other than the ten
(10) corporations described on Schedule 3.01 attached to this Agreement.
Throughout the balance of Article III of this Agreement any reference to
the Company will include the Subsidiaries unless the context clearly
indicates to the contrary. Further, other than the Subsidiaries, the
Company does not have the power to control the management and operations of
any other Person. Except as described in Schedule 3.01, the Company does
not serve as general partner or managing partner of, nor does it have any
interest in, any limited partnership, limited liability company, general
partnership or joint venture.
3.02 Power and Authority of the Company. The Company has full corporate power
and authority to own or lease its assets and properties and to conduct its
business as and in the places where such assets and properties are now
owned, leased or operated, and such business is now conducted, and the
Company has complied in all material respects with all federal, state,
local and foreign laws with respect to its operations and the conduct of
its business. The Company has full corporate power and authority to make,
execute and perform this Agreement and the transactions contemplated hereby
and the execution, delivery and performance of this Agreement have been
duly and validly authorized by all necessary corporate action of the
Company. This Agreement has been duly and validly executed and delivered by
the Company and is a valid and binding obligation of the Company,
enforceable in accordance with its terms. Except as set forth in Schedule
3.02, the Company is not qualified, nor is it required to be qualified, as
a foreign corporation in any jurisdiction, except where failure to be so
qualified would not have a Material Adverse Effect.
Copies of the Charter and Bylaws of the Company and all amendments thereto,
which documents will be delivered to the Purchaser within five (5) Business
Days herefrom, will be true, complete and correct at the date hereof.
Except as set forth in Schedule 3.02, no person has any claim for
indemnification by the Company under its Charter, Bylaws or otherwise.
Copies of the stock records and corporate minutes of the Company, which
documents will be delivered to the Purchaser within five (5) Business Days
from the date of this Agreement will be true, complete and correct. The
corporate minutes of the Company contain all records of all meetings of its
shareholders and directors, all of which meetings were duly called and
held, and all of which records are complete and correct.
3.03 Capital Stock of the Company.
(a) Common Stock. The Common Stock is all the capital stock of the Company
which is issued and outstanding. All of the Common Stock has been duly
authorized and is validly issued, fully paid and non-assessable, was
offered, issued and sold in accordance with applicable federal and
state securities laws, and there were and are no pre-emptive rights in
respect thereof. There are no outstanding options, warrants, rights,
calls, commitments, conversion rights,
12
<PAGE>
plans or other agreements of any character providing for the purchase
or issuance of any Common Stock or other securities of the Company.
(b) Ownership of the Common Stock. Calton is the record and beneficial
owner of all of the Common Stock. Calton has good and marketable title
to the Common Stock and, subject to termination of or a release from
one or more of the pledge agreements securing the Existing
Indebtedness, has full power and authority to sell, assign and
transfer the Common Stock to the Purchaser free and clear of all
security interests, liens, encumbrances, options, calls, pledges,
trusts, voting trusts and other shareholder agreements, assessments,
covenants, restrictions, reservations, commitments, obligations,
liabilities and other burdens.
3.04 Corporate Organization of Calton. Calton is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Jersey.
3.05 Power and Authority of Calton. Subject to obtaining the requisite approval
of its shareholders, Calton has full corporate power and authority to make,
execute and perform this Agreement and the transactions contemplated hereby
and the execution, delivery and performance of this Agreement have been
duly and validly authorized by all necessary corporate action of Calton.
This Agreement has been duly and validly executed and delivered by Calton
and is a valid and binding obligation of Calton enforceable in accordance
with its terms.
Copies of the Charter and Bylaws of Calton and all amendments thereto,
which documents will be delivered to the Purchaser within five (5) Business
Days herefrom, will be true, complete and correct at the date hereof. No
person has any claim for indemnification by Calton under its Charter,
Bylaws or otherwise. Copies of the corporate minutes of Calton for the
period from May 28, 1993 to the date of this Agreement, which documents
will delivered to the Purchaser within five (5) Business Days from the date
of this Agreement, will be true, complete and correct. Calton may redact
from such minutes any material which it determines, with the advice of
counsel, is proprietary, confidential, not related to the Transaction and
the production of which to Purchaser might have a Material Adverse Effect
upon Calton. The delivery by Calton to Purchaser of any redacted minutes
will constitute a representation and warranty from Calton to Purchaser that
the material redacted is proprietary to Calton, is confidential, is not
related to the Transaction and were Calton to produce it to Purchaser it
might have an adverse effect upon Calton. Further, the delivery of any
redacted minutes will also serve as a representation and warranty by Calton
to Purchaser that the unredacted minutes do not contain information which
would give rise to a breach of any other representations and warranties
contained in this Agreement. The corporate minutes of Calton contain all
records of all meetings of its shareholders and directors relating to the
Transaction, all of which meetings were duly called and held, and all of
which records are complete and correct.
3.06 Capital Stock of Calton.
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<PAGE>
Calton has, as its sole classes of authorized capital stock, (x) 53,700,000
shares of common stock with $.01 par value, (y) 2,600, 000 shares of
redeemable convertible preferred stock, $.10 par value and (z) 10,000,000
shares of Class A preferred stock, $.10 par value. As of August 31, 1998,
26,743,804 shares of the common stock are issued and outstanding; none of
the preferred stock is issued or outstanding. All of the issued and
outstanding shares of Calton common stock have been duly authorized and are
validly issued, fully paid and non-assessable, were offered, issued and
sold in accordance with applicable federal and state securities laws, and
there were and are no pre-emptive rights in respect thereof. There are no
outstanding options, warrants, rights, calls, commitments, conversion
rights, plans or other agreements of any character providing for the
purchase or issuance of any of such shares or other securities of Calton
from Calton or from any officer or director of Calton or, to the knowledge
of Calton (without inquiry) from any Affiliates of Calton, except as
otherwise described in Schedule 3.06 hereof.
3.07 No Default Resulting from Agreement. Subject to obtaining the Consents to
which reference is made in Section 3.19 hereof, neither the execution and
delivery of this Agreement nor the performance of its terms will result in
any breach of the terms and conditions of, or constitute a default under,
the Charter or Bylaws of Calton or the Company or any agreement, lease,
mortgage, note, instrument, undertaking, judgment, decree, governmental
order or other restriction or obligation to which the Company or Calton is
a party or by which Calton, the Company or any of their respective
properties or assets may be bound or affected.
3.08 Financial Statements. Schedule 3.08 comprises true, correct and complete
copies of (i) an unaudited consolidated balance sheet of the Company as of
November 30, 1997 and an unaudited consolidated balance sheet of the
Company as of May 31, 1998 and (ii) statements of earnings, shareholder's
equity and cash flows for the twelve (12) month period ended November 30,
1997 and the six (6) month period ending May 31, 1998. Said balance sheets
and earnings statements are herein collectively called the "Financial
Statements". The Financial Statements have been prepared in accordance with
GAAP and present fairly the financial condition of the Company as of the
dates indicated, the results of the Company's operations and changes in its
financial position for the periods then ended, and the assets, liabilities
and shareholder's equity of the Company as of the dates indicated (subject,
in the case of the May 31, 1998 Financial Statements, to customary year-end
audit adjustments). Among other things, the balance sheets reflect
reasonable reserves for claims and litigation.
The Existing Indebtedness, which is described on Schedule 4.11, can be
prepaid by Purchaser in full at the Closing, without any prepayment penalty
or any other condition or requirement which would impose any cost on the
Purchaser other than all principal and interest then due.
3.09 Absence of Undisclosed Liabilities. Except as set forth on Schedule 3.09,
the Company does not have, individually or in the aggregate, any Material
debt, liability or obligation of any kind, whether accrued, absolute,
contingent or otherwise, including, without
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limitation, any liability or obligation on account of taxes or any
governmental charges or penalty, interest or fines, required to be
reflected in the Financial Statements in accordance with GAAP which are not
contained therein.
3.10 Title to Assets and Properties. The Company has good and marketable title
to all property, both real property and personal property, and all other
tangible and intangible assets included in the Financial Statements, free
and clear of all Encumbrances, except:
(a) those Liens and Encumbrances to which reference is made in the
Financial Statements;
(b) liens for current taxes not yet due and inchoate statutory liens for
labor, services and materials rendered and/or furnished in the
ordinary course of business to the Company, none of which are past
due; and
(c) defects or irregularities of title or Encumbrances which are not
substantial in character, amount or extent and none of which will
interfere in any material respect with the economic operation, value
or use of the asset or property affected thereby, or the
transferability thereof.
3.11 Status of Subsidiaries. None of the Subsidiaries of the Company owns or
controls any assets which are material to the ongoing operations of the
Company. As more particularly described below in Section 4.20, prior to
Closing or the Effective Date, whichever occurs first, the Company will
divest any and all interest in the Subsidiaries to Calton.
3.12 Real Property.
(a) Schedule 3.12(a) hereto identifies, as of August 7, 1998 or later (but
no later than August 31, 1998), the Real Property by each lot, parcel
and tract of land constituting the same, and contains a full, complete
and accurate legal description of each such lot, parcel and tract of
land.
(b) Schedule 3.12(b) hereto identifies, as of August 7, 1998 or later (but
no later than August 31, 1998), every lot, parcel and tract of land
constituting the Developed Property and contains (i) a description of
the status of completion of the development of each such lot, parcel
and tract, including the status of construction of the Improvements,
if any, being constructed thereon, (ii) the budgeted current estimate
of costs of the Company for the completion of the development of each
such lot, parcel and tract and the construction of the Improvements,
if any, being constructed thereon, and (iii) every material obligation
or commitment of the Company or any Subsidiary to construct, maintain,
repair, or pay for the construction, maintenance or repair of
Improvements located on or associated with properties sold, conveyed,
dedicated or otherwise transferred by the Company or any Subsidiary
prior to the date hereof, whether arising by contract, assessment,
governmental action or
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otherwise. The material comprising clause (ii) of Schedule 3.12(b)
will be delivered to Purchaser on or before September 22, 1998. If
not, the Due Diligence Period will be extended for each day between
September 22 and the date such material is delivered to Purchaser.
(c) The Company has good and valid fee simple title to the Real Property
which satisfies the conventional standards for marketability or
indefeasibility customarily recognized in the states in which each
lot, parcel or tract constituting the Real Property is situated, free
and clear of any Encumbrances, other than the Permitted Encumbrances.
(d) Except for the Permitted Encumbrances and except as set forth in
Schedule 3.12(d) hereto, no lot, parcel or tract of land constituting
the Real Property (i) serves any adjoining property to any extent
(except for normal utility or drainage easements which could not
reasonably be expected to affect in any material respect the use,
occupancy, value or marketability of any such lot, parcel or tract of
land) or (ii) is located in any area determined by the Department of
Housing and Urban Development to be flood prone under the Federal
Flood Protection Act of 1973 or otherwise constituting a flood plain.
(e) Except as set forth in Schedule 3.12(e), each lot, parcel or tract
constituting the Real Property adjoins and has full, free and adequate
access to and from public highways and roads, and the Calton Parties
have no knowledge of any fact, event or development which could result
in the termination of such access.
(f) There is (i) to the knowledge of the Calton Parties, no proposed
public improvement which may involve the creation or imposition of any
Encumbrance on any lot, parcel or tract of land constituting the Real
Property, (ii) no existing or, to the knowledge of the Calton Parties,
proposed plan to modify or realign any street or highway or existing,
proposed or overtly threatened eminent domain, condemnation or similar
proceeding which could result in the taking of all or any part of a
lot, parcel or tract of land constituting the Real Property or which
(in the case of any lot, parcel or tract included in the Developed
Property) could affect the current or planned use of the Real
Property, (iii) no proposed termination or impairment of any parking
at any such Real Property, (iv) no contemplated sale of any Real
Property in lieu of condemnation, (v) no pending or overtly threatened
federal forfeiture proceeding with respect to any lot, parcel or tract
of land constituting the Real Property and (vi) no other action, suit
or proceeding pending or overtly threatened before any federal or
state court or other Governmental Authority relating to or affecting
any lot, parcel or tract of land constituting the Real Property or
affecting the use, occupancy, value or marketability thereof.
(g) Except as set forth in Schedule 3.12(g) hereto, the buildings,
improvements and other facilities located within the boundary lines of
any lot, parcel or tract constituting the Real Property (collectively,
the "Improvements"), other than
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those owned and used exclusively by any public utility or other third
party, (i) are not in violation of any applicable setback requirements
or zoning laws or ordinances where the same would have a Material
Adverse Effect, (ii) are not subject to any "permitted non-conforming
use" or "permitted non-conforming structure" classifications or any
similar classifications under any applicable setback requirements or
zoning laws or ordinances, (iii) do not violate any agreements,
restrictions or easements affecting any applicable portion of the Real
Property where the same would have a Material Adverse Effect and (iv)
do not encroach on any easements affecting such lots, parcels or
tracts of land constituting the Real Property where the same would
have a Material Adverse Effect.
(h) All Improvements, other than those owned and used exclusively by any
public utility or other third party, (i) have received all material
licenses, permits, approvals and other authorizations required in
connection with the ownership or use thereof, all of which licenses,
permits, approvals and other authorizations are in full force and
effect, (ii) are being occupied, operated and maintained in all
material respects in accordance with all applicable laws, ordinances,
statutes, rules and regulations (including but not limited to,
Environmental Laws) of any Governmental Authority, (iii) are supplied
with all utilities and other services necessary for the use thereof at
full capacity for purposes of the operations currently conducted
therein or contemplated therefor (including, but not limited to, gas,
electricity, water, telephone, sanitary sewer and storm sewer) and the
Calton Parties have no knowledge of any fact or condition that could
reasonably be expected to result in the termination or material
impairment thereof, and (iv) are in good condition and repair and are
suitable for the purposes for which they are being used, ordinary wear
and tear excepted. All components of the Improvements, including
without limitation the roofs and structural elements thereof and the
heating, ventilation, air conditioning, plumbing, electrical, sewer
and storm water systems and facilities included therein are in good
working order and repair. No Improvement or portion thereof is
dependent for its access on any land not included on the lot upon
which it is situated. No Improvement has suffered any damage by fire
or other casualty loss which has not heretofore been completely
repaired and restored to its original condition.
(i) Except as set forth in Schedule 3.12(i) hereto, the Calton Parties
have no knowledge of any fact, condition or impediment which would or
could reasonably be expected to prevent the owner of a lot, parcel or
tract of land constituting the Real Property from obtaining, without
incurring any unusual cost or expense, all necessary building permits
for the construction of the Improvements upon such Real Property,
other than normal and customary conditions imposed by Governmental
Authorities or recorded restrictive covenants in favor of property
owner associations.
(j) Except as set forth in Schedule 3.12(j) hereto, no commitments have
been made to any Governmental Authority or to any other Person or
group which would
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impose an obligation upon any owner of a lot, parcel or tract of land
constituting the Real Property to make any contribution or dedication
of money or land (including but not limited to any rights of access or
reciprocal easement agreements) or to construct, install or maintain
any improvements upon or in the vicinity of such lot, parcel or tract
of land, and no Governmental Authority has imposed any requirement
that any developer or owner of such lot, parcel or tract of land pay
directly or indirectly any special fees or contributions or incur any
expenses or obligations whatsoever in connection with any development
or ownership thereof.
(k) Except as set forth in Schedule 3.12(k) there are no leases,
subleases, licenses, concessions or other agreements, whether written
or oral, granting to any Person any right to use or occupy any portion
of a lot, parcel or tract of land constituting the Real Property.
(l) Schedule 3.12(l) hereto is a complete listing of any and all contracts
o agreements entered into by the Company or, to the knowledge of the
Calton Parties, by the Company's predecessors-in-interest currently
affecting all or any portion of the Real Property, including, without
limitation, construction contracts, contracts of sale and/or purchase,
brokerage agreements, service contracts, landscape contracts, utility
contracts and all other agreements that affect or relate to the use,
ownership, construction, service, management, development or sale of
all or any portion of the Real Property (collectively, the "Property
Agreements"), other than Property Agreements which provide for
aggregate payments of less than $25,000 in any year, are terminable by
the Company without penalty on not more than 90 days' notice and could
not reasonably be expected to impair in any material respect the use,
occupancy, value or marketability thereof. Copies of all of the
Property Agreements required to be listed in Schedule 3.12(l) hereto
have been provided or made available to the Purchaser. The Company has
complied in all material respects with each and every undertaking,
covenant and obligation under the Property Agreements and no state of
facts exist that constitute or, with the passage of time or the giving
of notice or both, would constitute a breach or default by the Company
or, to the knowledge of the Calton Parties, the other party thereto
under the Property Agreements. Except as set forth in Schedule
3.12(l), there are no contracts of sale or outstanding options, rights
of first refusal or similar rights to purchase any lot, parcel or
tract included in the Real Property, or any portion thereof or
interest therein.
(m) Except as set forth on Schedule 3.12(m) hereto, there are no Persons
(other than the Company) in possession of any portion of any lot,
parcel or tract of land included in the Real Property, whether as
lessees, tenants at will or at sufferance, trespassers or otherwise.
(n) Schedule 3.12(n) is a complete, true and correct listing of all
approvals in effect or applied for by the Company or any Subsidiary
relating to the subdivision or
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development of, or construction on, the Real Property. The Company
agrees to either deliver to Purchaser or make available to the
Purchaser all licenses, permits, authorizations and approvals
(including, without limitation, all legislative, and
quasi-adjudicatory and ministerial approvals relating to the
development and use of the Real Property, such as general plan
amendments, specific plans, rezoning approvals, site plan approvals
and subdivision maps) or similar documents in effect or applied for
which are or would be issued by any governmental or quasi-governmental
authorities having jurisdiction over the Real Property and copies of
all certificates issued by the local board of fire underwriters (or
other body exercising similar functions) relating to the current or
contemplated use of the Real Property (the "Real Property Permits").
The Company has paid for all Real Property Permits. To the knowledge
of the Calton Parties, no additional discretionary permits or
amendments to the Real Property Permits are required for the current
or contemplated use of the Real Property and all improvements thereon,
or off-site improvements required to be constructed in connection
therewith, comply in all material respects with the terms and
conditions of the Permits.
(o) Schedule 3.12(o) hereto is a true, correct and complete listing of all
guarantees and warranties issued or made or assignable to the Company
in connection with the construction, improvement, alteration or repair
of the Real Property.
(p) At all times from the date hereof to the Closing Date, the Company
shall maintain in full force, fire and extended coverage insurance
upon the Improvements with respect to damage to property occurring on
the Real Property in such amounts and with such deductibles as
maintained by the Company on the date hereof.
(q) Except for bills and charges that are outstanding in the ordinary
course, there has been no material or labor furnished to or on the
Real Property for which payment has not been made, there are no
mechanic's or materialman's liens or claims filed against the Real
Property and the Company has received no notices of any claims of
non-payment or claims of liens by any contractors, subcontractors,
suppliers, mechanics, materialmen or artisans with respect to any work
performed on or materials furnished to the Real Property.
(r) To the knowledge of the Calton Parties, there are no taxes,
assessments or levies of any type whatsoever that will be or are
contemplated to be imposed upon and collected from the Real Property
arising out of or in connection with the present ownership and
operation or development of the Real Property, or any public
improvements in the general vicinity of the Real Property, other than
as may be reflected in the Permitted Encumbrances or ad valorem taxes,
standby fees, front foot benefit charges, unitary assessments or other
fees or assessments imposed by Governmental Authorities,
quasi-governmental agencies or property owners' associations for
provision of utility services applicable to the Real Property for
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the fiscal year in which the Closing occurs payable to the state,
county, school district and city in which the Real Property is
situated.
(s) Except as set forth in Schedule 3.12(s) hereto, the Calton Parties
have no knowledge of any proposed or contemplated change in any
applicable laws, ordinances or restrictions, or any judicial or
administrative action, or any action by adjacent landowners, or
natural or artificial conditions or any other fact, event or
development affecting any lot, parcel or tract of land constituting
the Real Property which is not specifically addressed in paragraphs
(a) through (r) above and which will or could reasonably be expected
to impair in any material respect the use, occupancy, value or
marketability thereof or prevent or impede the development thereof.
There is no material adverse fact or condition known by the Calton
Parties relating to the condition, repair, value, expense of
uncompleted construction or development which has not been
specifically set forth in Schedule 3.12(s) hereto to Purchaser.
(t) Except as set forth in Schedule 3.12(t) hereto, to the knowledge of
the Calton Parties, no lot, parcel or tract of land constituting the
Real Property is currently classified or regulated (or is under
investigation by any Governmental Authority) as wetlands or an
endangered habitat or is currently affected by endangered species
under federal, state, local or foreign laws (including common law),
statutes, codes, ordinances, rules or regulations, including, without
limitation, Environmental Laws.
3.13 Leases. A list of all leases of property and assets, whether real, personal
or mixed, leased by the Company (and under which the aggregate
consideration exceeds $25,000) is set forth on Schedule 3.13, and except as
described therein, the Company enjoys peaceful and undisturbed possession
of all such properties and assets, and all leases of the Company are valid,
subsisting and in full force and effect, with no default on the part of the
Company or, to the knowledge of the Calton Parties, any other party
thereunder, except for defaults the cost of which to remedy will not, in
the aggregate, exceed $25,000.
3.14 Notes and Accounts Receivable. Except as set forth on Schedule 3.14, to the
knowledge of Calton, all notes receivable and accounts receivable reflected
on the Unaudited Balance Sheets (net of reserves stated therein) were not
at May 31, 1998, and all such receivables held by the Company on the date
hereof, are not, subject to any valid offset or counterclaim, and, to the
knowledge of Calton, are collectible in the ordinary course of business.
3.15 Condition of Inventory and Equipment. All tangible assets reflected on the
Unaudited Balance Sheets are in good and usable condition, ordinary wear
and tear excepted, and suitable in the ordinary course of the Company's
business for the purpose for which such assets were intended.
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3.16 Litigation and Proceedings. Except as set forth on Schedule 3.16, there are
no actions, lawsuits, claims or proceedings pending or, to the knowledge of
the Calton Parties, threatened against or affecting the Company in any
court or before any arbitrator or governmental agency, domestic or foreign.
No such action, lawsuit, claim or proceeding would, if adversely
determined, have a material adverse effect on the Company. The Company has
not been charged with, nor is it under investigation with respect to, any
charge concerning or any violation of any provision of any federal, state
or other applicable law or administrative regulation with respect to its
business. There are no judgments unsatisfied against the Company and no
court orders, settlements or consent decrees to which the Company or any of
its Property is subject.
3.17 Tax Matters.
(a) Except as disclosed on Schedule 3.17(a) hereof, the Company has filed
all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all Material respects. All Taxes owed by
the Company and due (whether or not shown on any Tax Return) have been
paid. Except as set forth in Schedule 3.17(a) the Company currently is
not the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no liens,
security interests or other encumbrances on any of the assets of the
Company that arose in connection with any failure (or alleged failure)
to pay any Tax.
(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other
third party.
(c) Neither Calton nor any director or officer (or employee responsible
for Tax matters) of the Company expects any authority to assess any
additional Taxes as to the Company for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any
Tax liability of the Company either (A) claimed or raised by any
authority in writing or (B) as to which any of Calton and the
directors and officers (and employees responsible for Tax matters) of
the Company has knowledge based upon personal contact with any agent
of such authority. Schedule 3.17(c) lists all federal, state, local,
and foreign income Tax Returns filed with respect to the Company for
all taxable periods for which the applicable statutes of limitations
have not expired, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of
audit. Calton will deliver to the Purchaser no later than September
22, 1998 true and complete copies of all such Tax Returns, and
examination reports, and statements of deficiencies assessed against
or agreed to by the Company since November 30, 1988. If delivery is
delayed, the Due Diligence Period will be extended a number of days
equal to the number of days between September 22 and the day of
delivery.
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(d) Except as set forth in Schedule 3.17(d) hereto, the Company has not
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(e) The Company has not filed a consent under Code ss.341(f) concerning
collapsible corporations. The Company has not made any payments, is
not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Code [ss.]280G. The
Company has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Codess.6662. The Company is
not a party to any Tax allocation or sharing agreement. Except as set
forth in Schedule 3.17(e) the Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return other
than a group the common parent of which is Calton (the "Calton
Group"). The Company has no liability for the Taxes of any Person
(other than the Company) under Treas. Reg. ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise, except with respect to the
Calton Group.
(f) Under separate cover, Calton has delivered to Purchaser a schedule
which sets forth the following information with respect to the Company
as of the most recent practicable date (as well as on an estimated pro
forma basis as of the Closing giving effect to the consummation of the
transactions contemplated hereby): the tax basis of the Company in its
assets and the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Company.
(g) The Company's accruals for unpaid Taxes have been made by the Company
on the Company's books on a basis which is reasonable.
(h) Except as set forth in Schedule 3.17(h) hereto, the Calton Group has
filed all income Tax Returns that it was required to file for each
taxable period during which the Company was a member of the Calton
Group. All such Tax Returns were correct and complete in all
"Material" respects. All income Taxes owed by the Calton Group
(whether or not shown on any Tax Return) have been paid for each
taxable period (or portion thereof) during which the Company was a
member of the group.
(i) Neither Calton nor any director or officer (or employee responsible
for Tax matters) of the Company expects any authority to assess any
additional material income Taxes against the Calton Group for any
taxable period during which the Company was a member of the group.
There is no dispute or claim concerning any income Tax Liability of
the Calton Group for any taxable period during which the Company was a
member of the group either (i) claimed or raised by any authority in
writing or (ii) as to which any of Calton and the directors and
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officers (and employees responsible for Tax matters) of the Company
has knowledge based upon personal contact with any agent of such
authority. Except as described in Schedule 3.17(a), the Calton Group
has not waived any statute of limitations in respect of any Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency for any taxable period during which the Company was a
member of the group.
(j) Except as set forth in Schedule 3.17(j) hereto, the Company does not
have any relationship with any other person which constitutes a
partnership for federal income tax purposes.
(k) On the Effective Date, except for a built in loss associated with
Steeplechase of approximately $120,000, the Company will not own any
asset (i) which was owned by the Company or any member of the Calton
Group on November 21, 1995 (the date of an "ownership change" as
defined in Code Section 382 applicable to the Calton Group, hereafter
the "change date"), (ii) which, on the change date, had an adjusted
tax basis which exceeded its fair market value (the "change date
built-in loss"), and (iii) which, on the Effective Date, has an
adjusted tax basis which exceeds its fair market value (the "Effective
Date built-in loss").
(l) There has not been an "ownership change" within the meaning of Section
382 of the Code of the Company since May 28, 1993, other than the
ownership change which occurred on November 21, 1995. The parties
agree that if such an "ownership change" occurs after the date of this
Agreement and prior to the Closing Date, and the Calton Parties did
not participate therein or consent thereto, then Purchaser may reduce
the Purchase Price if the Company is not able to fully utilize the
Code Section 382 limitation allocated under Section 4.21(i) hereof, to
the extent of the value of such reduced utilization.
3.18 Governmental Regulation. Schedule 3.18 sets forth a list of all federal,
state and local franchises, permits, licenses, approvals, consents, waivers
and other authorizations (including but not limited to those relating to
environmental matters) held by, or applicable to, the Company other than
building permits and waivers obtained in the ordinary course of business. A
true copy of each authorization set forth on Schedule 3.18, or an
acceptable representative sampling, has been furnished to the Purchaser for
examination. The Company is not in violation of or in default with respect
to any applicable law or any applicable rule, regulation, order, writ or
decree of any court or any governmental commission, board, bureau, agency
or instrumentality (including but not limited to those relating to
environmental matters) or delinquent with respect to any report required to
be filed with any governmental commission, board, bureau, agency or
instrumentality except where such violation, default or failure to timely
file would not have a Material Adverse Effect. Except as set forth on
Schedule 3.18, the Company has all licenses, permits or other
authorizations of governmental authorities used or required by the Company
in the operation of its business or for the ownership of its properties and
assets. The consummation of the
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transaction contemplated hereby will not extinguish or adversely affect any
such license, permit or authorization which the Company has on the date of
this Agreement.
3.19 Required Consents and Approvals. Except as set forth on Schedule 3.19, and
except as previously obtained, no Consent, application, registration,
qualification, authorization or other action is required to be filed,
given, obtained or taken by virtue of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby in order to avoid (x) the loss of any Permit or other
governmental authorization or (y) the violation or breach of, or the
default under, any regulation, order, decree or award of any court or
Governmental Authority or any Contract, mortgage, note or any other
instrument to which the Company or Calton is a party or to which it or any
of its property is subject.
3.20 Contracts.
(a) Schedule 3.20 hereto contains a correct and complete list of each of
the following Contracts to which the Company is a party or by which
the Company or any of its properties or assets are or may be bound:
(i) all employment, agency, consultation or representation Contracts
or other Contracts of any type with any present officer,
director, employee, agent, consultant or other similar
representative of the Company (or former officer, director,
employee, agent, consultant or similar representative of the
Company, if there exists any present or future liability with
respect to such Contract, whether now existing or contingent),
other than (a) "at will" employment Contracts and (b) any
Contract with a consultant or similar representative which
provides for aggregate payments by the Company of less than
$25,000 per annum and is terminable by the Company without
penalty on not more than ninety (90) days' notice;
(ii) all Contracts containing any provision or covenant limiting the
ability of the Company to engage in any line of business or to
compete with or to obtain products or services from any Person;
(iii) all partnership, joint venture or similar Contracts;
(iv) all Contracts relating to the borrowing of money by the Company
or providing for any direct or indirect guarantee by the Company
of any indebtedness of any other Person;
(v) all Contracts which by their terms provide for the creation,
existence or maintenance of a Lien or other Encumbrances on any
properties or assets of the Company;
(vi) all leases or subleases of Real Property and all other leases,
subleases or rental or use Contracts, other than any such leases,
subleases or Contracts
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which provide for aggregate payments by the Company of less than
$25,000 in any year and are terminable by the Company without
penalty on not more than ninety (90) days' notice;
(vii) all Contracts that involve the disposition or acquisition by the
Company after the date hereof of any material properties or
assets not in the ordinary and regular course of business and in
a manner consistent with past practice;
(viii) all Contracts (including, but not limited to, those relating to
allocations of expenses, personnel, services or facilities)
between or among the Company on the one hand and any of its
Affiliates on the other hand;
(ix) all outstanding proxies, powers of attorney or similar
delegations of authority of the Company;
(x) all Contracts containing any "change of control" provision or
agreement;
(xi) all Contracts that involve the payment or potential payment by or
to the Company of aggregate amounts exceeding $25,000 in any
year, other than Contracts which are terminable by the Company
without penalty on not more than ninety (90) days' notice; and
(xii) all other Contracts that are material to the Company or that
could prevent, impede or otherwise affect in any material respect
the consummation of the transactions contemplated by this
Agreement.
(b) Within three (3) Business Days from the date of this Agreement, the
Company will have provided or made available to the Purchaser correct
and complete copies of all of the Contracts identified or required to
be identified in Schedule 3.20 heretofore or in the case of oral
Contracts written descriptions of all of the material terms thereof
(c) Each Contract identified or required to be identified on Schedule 3.20
hereto is in full force and effect and constitutes a legal, valid and
binding obligation of the Company and is enforceable against the
Company in accordance with its terms subject to bankruptcy,
insolvency, reorganization and other laws of general application
relating to creditors' rights and to general principles of equity. To
the knowledge of the Calton Parties, each such Contract is a legal,
valid and binding obligation of each other party thereto and is
enforceable against such party in accordance with its terms, subject
to bankruptcy, insolvency, reorganization and other laws of general
application relating to creditors' rights and to general principles of
equity. Neither the Company nor (to the knowledge of the Calton
Parties) any other party to any such Contract is in violation or
breach of or default under any such Contract, except any violation,
breach or default which could not reasonably be expected to have a
Material Adverse
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Effect. Except as set forth in Schedule 3.20 hereto and except for any
such provision which could not be reasonably expected to have a
Material Adverse Effect, no such Contract contains any provision which
prohibits or restricts, or provides that the other party thereto may
terminate such Contract in the event or by reason of, the transactions
contemplated by this Agreement, or contains any other provision that
would be altered or otherwise become applicable by reason of such
transactions.
3.21 List of Directors, Officers, Employees and Bank Accounts. Schedule 3.21
contains:
(a) a true and complete list of all directors and officers of the Company;
(b) a true and complete list showing the names of all employees of the
Company as at August 1, 1998 (current annual compensation of such
employees will be delivered to Purchaser at the date of this Agreement
in confidence); and
(c) the name and address of each bank or other financial institution in
which the Company has an account or a safe deposit box, the account
numbers and the names of all persons authorized to draw thereon or to
have access thereto.
3.22 Brokers or Finders. No broker or finder has acted on the Company's or
Calton's behalf in connection with this Agreement or the transactions
contemplated hereby, except that Calton has agreed to pay a commission to
the firm of Michael Kahn and Associates and Calton acknowledges that the
Company and the Purchaser will have no liability or obligation with regard
to such agreement or commission.
3.23 Insurance. Schedule 3.23 sets forth true and correct summaries of all
liability and other insurance policies maintained by the Company, and
accurately states the coverages, deductible amounts and carriers of each
such insurance policy. All such insurance policies are in full force and
effect and no notice of cancellation or termination has been received with
respect to any such policy. All such insurance policies are maintained with
reputable and, to the knowledge of the Calton Parties, financially sound
insurance companies and associations and such policies provide coverage in
amounts which in the judgment of Calton are adequate and insure against
risks with respect to which insurance is normally maintained by Persons
conducting a business similar to that of the Company. There are no
circumstances known to the Calton Parties that would enable any insurance
company or association to avoid liability under any of the insurance
policies maintained by the Company, other than pursuant to express
exclusions and limitations of such policies. Except as set forth in
Schedule 3.23, the coverage provided by such insurance policies with
respect to events occurring prior to the Closing Date will not be affected
in any manner by, and will not terminate or lapse by reason of, any of the
transactions contemplated by this Agreement. At no time since May 31, 1998
has any insurance company or association canceled or reduced any coverage
maintained by the Company, or given any notice or other indication of its
intention to cancel or reduce any such coverage. The loss, damage or
destruction of any properties and assets of the
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Company which are not fully covered by insurance would not have a Material
Adverse Effect.
3.24 Environmental Matters. Except as set forth in Schedule 3.24:
(a) The facilities and property presently owned or leased by the Company
have been (to the knowledge of the Company) prior to the date hereof,
and continue to be, operated by the Company in compliance in all
material respects with all applicable Environmental Laws.
(b) The Company has not received notice from any Person of any
Environmental Claim that is currently pending or threatened against
the Company.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents (including, but not limited to, the
release, emission, discharge, presence, or disposal of any Hazardous
Material) that are reasonably likely to form the basis of any
Environmental Claim against the Company or, to the knowledge of the
Company, any Person whose liability for such an Environmental Claim
the Company has or may have retained or assumed either contractually
or by operation of law.
(d) Schedule 3.24(d) describes all material permits, licenses,
certifications, consents, exemptions, approvals and other
authorizations currently held by the Company pursuant to applicable
Environmental Laws and the Company is in compliance in all material
respects with the terms thereof.
(e) The Company has not received notice and has no knowledge that property
presently owned or leased, or previously owned or leased, by the
Company is listed or proposed for listing on the National Priorities
List created pursuant to CERCLA, or on the CERCLIS or any similar
state, local or other list of sites potentially requiring
investigation, monitoring, cleanup, remediation or any other response
or corrective action.
(f) The Company has not transported or arranged for the transportation of
any Hazardous Materials to any location which is listed on the
National Priorities List, the CERCLIS or any similar state list, nor
has the Company received notice or otherwise have knowledge of pending
or threatened claims as a result of transporting, disposing or
arranging to transport or dispose Hazardous Materials to any location.
(g) All underground and aboveground storage tanks, and the capacity and
contents of such tanks, located on property that is owned or, to the
knowledge of the Company, on property that is leased by the Company
are shown on Schedule 3.24(g).
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(h) There is no asbestos containing material located in any building,
building component, structure or office space that is owned or, to the
knowledge of the Company, that is leased by the Company, nor is there
any asbestos containing material stored, disposed of or otherwise
present at any property that is owned or, to the knowledge of the
Company, that is leased by the Company, nor is any asbestos containing
material contained in any of the homes built by the Company or its
predecessors, in each case with such exceptions as are not reasonably
likely to give rise to any liability under an Environmental Law.
(i) No polychlorinated biphenyls (PCBs) are used, disposed of, stored or
otherwise present at any property that is owned or, to the knowledge
of the Company, that is leased by the Company, and no formaldehyde
containing material is contained in any of the homes constructed by
the Company, in each case with such exceptions as are not reasonably
likely to give rise to any liability under an Environmental Law.
(j) All written reports and studies (including, but not limited to, any
site assessments or environmental, health or safety audit report)
obtained by or in the possession of the Company with respect to any of
the matters referred to in paragraphs (a) through (i) above are
identified in Schedule 3.24(j). The Company has heretofore provided
the Purchaser correct and complete copies of all such reports and
studies in the possession of or otherwise available to the Company.
(k) The Company has not owned, operated, or used any underground storage
tanks at any facility and has not engaged in or permitted any
activities or incidents at any facility that have caused or
contributed to the release of any Hazardous Material into the
groundwater underlying those properties.
3.25 Intellectual Property Rights.
(a) Schedule 3.25(a) contains a true, correct and complete list of all (i)
registered Intellectual Property Rights owned or used by the Company,
(ii) applications for registrations of Intellectual Property Rights
filed by the Company, (iii) unregistered trade names and corporate
names owned or used by the Company and (iv) unregistered trademarks
and service marks owned or used by the Company. It also contains a
true, correct and complete list of all licenses granted by the Company
to any third party with respect to any Intellectual Property Rights
and all licenses granted by any third party to the Company with
respect to any Intellectual Property Rights (other than standard form
licenses with respect to commercial software that is generally
available from third parties), in each case, identifying the
Intellectual Property Rights covered thereby. The Company owns all
right, title and interest to, or has the right to use pursuant to a
valid license, all Intellectual Property Rights identified on such
schedule. The Company has taken all actions which are reasonably
necessary to maintain and protect its Intellectual Property Rights,
except to the extent the
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failure to take such actions would not have a Material Adverse Effect
on the Company.
(b) (i) there have been no claims made against the Company asserting the
invalidity, misuse or unenforceability of such Intellectual Property
Rights, (ii) the Company has not received any notices of any
infringement or misappropriation by, or conflict with, any third party
with respect to such Intellectual Property Rights (including, but not
limited to, any demand or request that the Company license any rights
from a third party), (iii) to the knowledge of the Company, the
conduct of the businesses conducted by the Company does not infringe
or misappropriate in any material respect, and is not in conflict in
any material respect with, any Intellectual Property Rights of other
Persons, and (iv) to the knowledge of the Company, the intellectual
Property Rights owned by or licensed to the Company are not being
infringed or misappropriated in any material respect by any other
Persons.
(c) Except as set forth in Schedule 3.25(c), none of the Company's
business, operations, computer systems, operating systems or other
systems, products, services or financial condition are or will be
materially affected by the Year 2000 Problem. For purposes of this
Agreement, the "Year 2000 Problem" shall mean the failure of certain
computer programs to recognize the year 2000 due to their use of only
the last two digits of a year in their date field.
3.26 Employee Benefit Plans.
(a) Schedule 3.26(a) sets forth a true, complete and correct list of all
"Employee Benefit Plans" (as defined in Section 3(3) of ERISA) and any
other employee benefit arrangements or payroll practices (including,
but not limited to, stock options, severance pay, vacation pay,
company awards, salary continuation for disability, sick leave,
deferred compensation, bonus or other incentive compensation and stock
purchase arrangements or policies) maintained by the Company or any
ERISA Affiliate or to which the Company or any ERISA Affiliate
contributes or is obligated to contribute (collectively, the "Employee
Benefit Plans"). All of these Employee Benefit Plans will no longer
apply to employees of the Company following the Closing Date, except
to the extent required by law.
Schedule 3.26(a) also sets forth the name and title of the five (5)
most highly compensated present employees of the Company or any ERISA
Affiliate. No Employee Benefit Plans cover persons employed outside of
the United States. No Employee Benefit Plan is subject to Section 4063
or 4064 of ERISA. No Employee Benefit Plans are "multi employer plans"
as defined in Section 3(37) of ERISA. No Employee Benefit Plans that
are welfare plans as defined in Section 3(1) of ERISA provide benefits
after termination of employment (other than as required by Section
4980B of the Internal Revenue Code and at the former employee's own
expense). Except as described in Schedule 3.26(a)
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neither the Company nor any ERISA Affiliate maintains or contributes
to, or ever maintained or contributed to, a "defined benefit plan" in
Section 3(35) of ERISA.
(b) Each of the Employee Benefit Plans intended to qualify under Section
401 of the Internal Revenue Code (collectively, the "Qualified Plans")
so qualifies, and nothing has occurred with respect to the operation
of any such plan which could cause the loss of such qualification or
the imposition of any material liability, penalty or tax under ERISA
or the Internal Revenue Code. The Company has delivered to the
Purchaser a copy of the most recent favorable determination letter
received from the Internal Revenue Service with respect to each
Qualified Plan. Any entity maintained or contributed to by the Company
and which is intended to be an association described in Section
501(c)(9) of the Internal Revenue Code is exempt from federal income
tax under Section 501(a) of the Internal Revenue Code and a copy of
the determination letter received from the Internal Revenue Service
with respect to the exemption of such association has been furnished
to the Purchaser.
(c) All contributions and premiums required by law or by the terms of each
Employee Benefit Plan or any agreement relating thereto have been
timely made (without regard to any waivers granted with respect
thereto).
(d) There has been no violation of ERISA that could result in a material
liability with respect to the filing of applicable returns, reports,
documents or notices regarding any of the Employee Benefit Plans with
the Secretary of Labor or the Secretary of the Treasury or the
furnishing of such notices or documents to the participants or
beneficiaries of the Employee Benefit Plans.
(e) Correct and complete copies of the following documents with respect to
each of the Employee Benefit Plans (as applicable) have been delivered
by the Company to the Purchaser: (i) any plans and related trust
documents, and all amendments thereto, (ii) the most recent Forms 5500
and schedules thereto (including any actuarial reports), (iii) the
most recent summary plan description, and (iv) written descriptions of
all non-written agreements relating to the Employee Benefit Plans.
(f) Except as set forth in Schedule 3.26(f) there are no pending actions
suits or proceedings which have been asserted, instituted or, to the
knowledge of Calton, threatened against any Employee Benefit Plan, the
assets of any such plan or the Company, or the plan administrator or
fiduciary of any Employee Benefit Plan with respect to the operation
of any such plan (other than routine, uncontested benefit claims),
and, to the knowledge of Calton, there are no facts or circumstances
which are reasonably likely to form the basis for any such action,
suit or proceeding. Neither the Company nor any fiduciary of any
Employee Benefit Plan has engaged in a nonexempt prohibited
transaction described in Section 406 of ERISA or 4975 of the Code.
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(g) Each of the Employee Benefit Plans has been maintained and
administered in all material respects in accordance with its terms and
all provisions of applicable laws, statutes, rules or regulations of
any Governmental Authorities. All amendments and actions required to
bring each of the Employee Benefit Plans into conformity with all of
the applicable provisions of ERISA and other applicable law, statutes
rules or regulations of any Governmental Authorities have been made or
taken except to the extent that such amendments or actions are not
required by law to be made or taken until a date after the Closing
Date or are disclosed on Schedule 3.26(g).
(h) As to each Employee Benefit Plan, the Company complies in all material
respects with all applicable requirements of (i) the Age
Discrimination in Employment Act of 1967, as amended, and the
regulations thereunder; (ii) Title VII of the Civil Rights Act of
1964, as amended, and the regulations thereunder; (iii) the health
care continuation provisions of ERISA and the Code; and (iv) the
Medicare Secondary Payor Provisions of Section 1862 of the Social
Security Act.
(i) The Company will not have, by reason of the transactions contemplated
by this Agreement, any obligation to make any payment to any employee
pursuant to any Employee Benefit Plan, contract or employment
agreement.
3.27 Transactions with Affiliates. Except as set forth in Schedule 3.27, the
Company has not purchased, acquired or leased any property or services
from, or sold, transferred or leased any property or services to, or loaned
or advanced any money to, or borrowed any money from, or guaranteed or
otherwise become liable for any indebtedness or other obligations of, or
acquired any capital stock, obligations or securities of, or made any
management, consulting or similar fee arrangement with, or entered into or
consummated any other material transaction, agreement or arrangement with
or for the benefit of, any officer, director or employee of the Company or
any of its Affiliates, other than compensation and benefits provided to any
such officer, director or employee in the ordinary course of business and
consistent with past practice.
3.28 Labor Matters.
(a) Except as set forth in Schedule 3.28: (i) neither the Company nor its
Subsidiaries is a party to any outstanding employment, consulting or
management agreements or contracts with officers or employees that are
not terminable at will, or that provide for the payment of any bonus
or commission following termination of such agreement or contract;
(ii) neither the Company not its Subsidiaries is a party to any
agreement, policy or practice that requires it to pay termination or
severance pay to salaried, non-exempt or hourly employees (other than
as required by law); (iii) neither the Company nor its Subsidiaries is
a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company or the
Subsidiaries, nor does
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Calton know of any activities or proceedings of any labor union to
organize any such employees. Calton has furnished to the Purchaser
complete and correct copies of all such agreements ("Employment and
Labor Agreements"). Neither the Company nor its Subsidiaries has
breached or otherwise failed to comply with any provisions of any
Employment and Labor Agreement, and is in full compliance with all
terms of any collective bargaining agreement and there are no
grievances outstanding thereunder.
(b) Except as set forth in Schedule 3.28: (i) there is no unfair labor
practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (ii) there is no labor strike, material
slowdown or material work stoppage or lockout actually pending or to
Calton's knowledge threatened against or affecting the Company or any
Subsidiary, and neither the Company nor any Subsidiary has at any time
experienced any strike, material slow down or material work stoppage,
lockout or other collective labor action by or with respect to
employees of the Company or any Subsidiary; (iii) there is no
representation claim or petition pending before the NLRB or any
similar foreign agency and no question concerning representation
exists relating to the employees of the Company or any Subsidiary;
(iv) there are no charges with respect to or relating to the Company
or any Subsidiary pending before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices; and (v) neither the
Company nor any Subsidiary has formal notice from any federal, state,
local or foreign agency responsible for the enforcement of labor or
employment laws of an intention to conduct an investigation of the
Company or any Subsidiary and no such investigation is in progress.
3.29 Accuracy of Disclosure Schedule. The information set forth in the
Disclosure Schedule is true, complete and correct in all material respects
and is represented and warranted by Calton as though set forth in this
Agreement.
3.30 Material Changes. Except as set forth in Schedule 3.30, since May 31, 1998:
(a) there has not been any material adverse change in the business,
assets, liabilities, results of operations or financial condition of
the Company or in its relationship with lenders, suppliers, customers,
employees, or others, whether such changes have occurred in the
ordinary course of business or otherwise;
(b) there has not been any declaration, setting aside, or payment of any
dividend or other distribution on or in respect of the Common Stock,
nor has there been any direct or indirect redemption, retirement,
purchase or other acquisition of any of the Common Stock, or any
issuance of any shares of the Common Stock;
(c) there has not been any increase in the compensation or in the rate of
compensation or commissions payable or to become payable by the
Company to any director, officer or salaried employee, or any payment
of or commitment to
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pay any bonus, severance or termination pay, profit-sharing or other
extraordinary compensation to any employee;
(d) there has not been any damage, destruction or loss materially and
adversely affecting the properties or business of the Company;
(e) there has not been any disposition of or Encumbrance or agreement to
dispose of or to encumber, or any pledge or grant of a security
interest in or agreement to pledge an interest in, any of the
properties or assets of the Company, or any increase or any agreement
to increase any indebtedness of the Company;
(f) there has not been any merger, consolidation or other business
combination involving the Company, or any agreement to merge,
consolidate or combine with any other Person; nor has there been any
acquisition of or agreement to acquire any stock, business, property
or assets of any other Person.
(g) there has not been any labor dispute which affects the business or
business prospects or properties of the Company;
(h) there has not been any settlement in respect of any actions, lawsuits
or proceedings at law or in equity involving any payment by the
Company;
(i) there has not been any loan or advance to any officer, director,
employee or shareholder or Affiliate of the Company except a normal
travel advance, a reasonable expense advance or advances to employees
not exceeding their accrued and unpaid wages;
(j) there has not been any cancellation by the Company, without payment in
full, of any promissory notes, loans, or other obligations receivable
from any officer, director, employee, shareholder or other Affiliate
of the Company, or any member of their families, or from any Person in
which any officer, director, employee or shareholder of the Company
has any direct or indirect interest;
(k) there has not been any sale or grant to any party or parties of any
license, franchise, option or other right of any nature whatsoever to
sell, purchase, distribute, or otherwise deal in or with the property
of the Company, other than in the ordinary course of business, or any
sale or grant to any party or parties of any license, franchise,
option or other right of any nature to acquire or use any Intellectual
Property Rights or other proprietary rights of the Company;
(l) there has not been any change in the accounting methods or practices
of the Company;
(m) there has not been any contract entered into by the Company for
services or otherwise with any of the officers, directors, employees
or shareholders of the Company, or members of their families;
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(n) there has not been any contract or agreement entered into, or any
business transaction engaged in, by the Company with any Affiliate of
the Company;
(o) there has not been any action taken by the Company other than in the
ordinary course of business; and
(p) except as contemplated in the conditions to Closing set forth in this
Agreement, there has not been any agreement or commitment by the
Company, to do or take any of the actions referred to in subsections
(a) through (o) of this Section 3.29.
3.31 Representations and Warranties. No representation, warranty or covenant
contained in this Agreement, the exhibits hereto, the Disclosure Schedule
or any documents to be delivered at the Closing contains or shall contain
any untrue material statement or omits to state a material fact necessary
in order to make the statements therein not misleading. Copies of all
documents furnished to the Purchaser in connection with this Agreement are
true and complete.
Neither the Company nor Calton knows of any facts specifically relating to
the Company's business (other than general economic and industry
conditions) which the Company and Calton have not disclosed in writing to
the Purchaser which materially and adversely affect or, so far as the
Company and Calton can now foresee, will materially and adversely affect
the business, operations or principal properties of the Company, or the
ability of the Company and Calton to perform this Agreement.
ARTICLE IV
CERTAIN COVENANTS
4.01 Conduct of Business. From the date hereof until the Closing Date, the
Calton Parties shall conduct their businesses in the ordinary and regular
course of business and consistent with past practice and shall use their
reasonable best efforts to preserve intact the business organization of the
Company, to keep available the services of its present officers and
employees, and maintain their present relationships with property
developers, suppliers, insurers, lessors and licensees and with the
Governmental Authorities and other Persons having business relationships
with the Company, except to the extent that the Company may change present
relationships with any of such parties and substitute therefor a
relationship or relationships with new parties which will provide to the
Company no less than the benefits presently being derived from the existing
relationship(s). Without limiting the generality of the foregoing, from the
date hereof until the Closing Date, except as provided in this Agreement,
neither of the Calton Parties shall, directly or indirectly, do, or propose
or commit to do, any of the following without the prior written consent of
the Purchaser, which will not be unreasonably withheld:
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(a) amend or make any other change in its Charter or Bylaws except as
specifically contemplated by this Agreement;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock or other equity securities of, or ownership interests
in, the Company or any Subsidiary or any options, warrants, calls or
other rights to acquire any shares of capital stock or other equity
securities of, or ownership interests in, the Company or any
Subsidiary;
(c) sell, lease, transfer or otherwise dispose of any Real Property or any
other material properties or assets of the Company or any Subsidiary
(whether or not reflected on the books of the Company or any
Subsidiary and whether real, personal or mixed, tangible or
intangible), except as permitted in the ordinary and regular course of
business;
(d) consolidate with, or merge with or into, any Person;
(e) except as set forth on Schedule 4.01(e), declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property)
with respect to the capital stock of the Company or redeem, purchase
or otherwise acquire any capital stock or other equity interests of,
or ownership interests in, the Company;
(f) Except as set forth on Schedule 4.01(f), reclassify, combine, split or
subdivide any shares of the capital stock of Calton or the Company;
(g) incur or assume any indebtedness for borrowed money or issue any
debentures, notes or other debt securities or (except in the ordinary
and regular course of business and consistent with past practice)
assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other
Person;
(h) make any loans, advances or capital contributions to, or investments
in, any other Person (other than to any direct or indirect wholly
owned Subsidiary), except in the ordinary and regular course of
business and consistent with past practice;
(i) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other Person or division thereof;
(j) create or incur any Liens upon the properties or assets of the Company
or suffer to exist any such Liens (other than Permitted Encumbrances),
except in the ordinary and regular course of business and consistent
with past practice;
(k) enter into any Contracts or commitments or engage in any transactions
not in the ordinary and regular course of business and consistent with
past practice (By
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way of example, and not limitation, the Calton Parties will not close
the sales of houses unless and until the same are ready for closing in
accordance with the pertinent sales contracts with their customers);
(l) engage in any transactions with any Affiliate (other than transactions
between the Company and any of its direct or indirect wholly owned
Subsidiaries), except on terms and conditions at least as favorable to
the Company as those that would apply in the case of a similar arms
length transaction;
(m) enter into any agreement, arrangement or understanding with any
director, officer or key employee of the Company providing for the
employment of any such director, officer or key employee or any
increase in the compensation, severance or termination benefits
payable or to become payable by the Company to any such director,
officer or key employee or make any loan to or enter into any other
material transaction or arrangement with any such director, officer or
key employee;
(n) increase the benefits payable by the Company or any Subsidiary under
any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, program or arrangement made to, for or with any
of the directors, officers or employees of the Company or any
Subsidiary;
(o) fail to keep all of the properties and assets of insurable character
of the Company or any Subsidiary insured to the extent set forth on
Schedule 3.23 hereto, except where such failure could not reasonably
be expected to have a Material Adverse Effect;
(p) cancel or compromise any material claim, waive or release any material
rights or change or terminate any material Contract of the Company or
any Subsidiary, except in the ordinary and regular course of business
and consistent with past practice;
(q) fail to maintain in full force and effect all Permits that are
required in connection with the conduct of the businesses of the
Company or any Subsidiary, except in cases where the failure to
maintain such Permits could not reasonably be expected to have a
Material Adverse Effect; or sell, transfer, license or otherwise
dispose of any material rights or interests under any such Permits,
except in the ordinary and regular course of business and consistent
with past practice;
(r) change the accounting principles or methods of the Company or any
Subsidiary, except as required by law or as a result of any mandatory
change in accounting standards;
(s) fail to maintain the books and records of the Company or any
Subsidiary in the usual, regular and ordinary manner;
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(t) make any Tax elections or settle or compromise any income tax
liability, except in the ordinary and regular course of business and
consistent with past practice; and
(u) take any action which would cause any representation or warranty of
the Calton Parties contained in this Agreement to be untrue or
incorrect as of the date when made or (except in the case of
representations and warranties made as of a specific date) as of any
future date.
4.02 Other Proposals.
(a) From the date hereof until the Closing Date, the Calton Parties shall
not, and shall use their best efforts not to permit their respective
Affiliates, directors, officers, agents or other representatives
(including, but not limited to, any investment banker, financial
advisor, attorney or accountant) to, initiate any contact with,
solicit, encourage or enter into or continue any negotiations,
understandings or agreements with any Third Party with respect to, or
furnish or disclose any non-public information regarding the Calton
Parties or their respective businesses to any Third Party in
connection with, any Acquisition Proposal. Notwithstanding the
foregoing, to the extent required by the fiduciary obligations of the
Board of Directors of Calton based on the advice of counsel, (i)
Calton may, in response to an unsolicited request therefor, furnish
non-public information with respect to the Calton Parties or their
respective businesses to any Qualified Third Party pursuant to a
customary confidentiality agreement and discuss such information (but
not any Acquisition Proposal and not any non- public information
relating to the structure of the transactions contemplated hereby,
other than any information which Calton can demonstrate was
independently developed by it or its advisors) with such Qualified
Third Party and (ii) upon receipt by Calton of an Acquisition Proposal
from a Qualified Third Party, if (A) Calton has complied fully and in
a timely manner with its obligations to notify the Purchaser of the
receipt of such Acquisition Proposal (and the identity of the offeror
and the material terms of such proposal) in accordance with Section
4.02(b) hereof, (B) the Board of Directors of Calton has reasonably
determined that such Acquisition Proposal, if consummated, would
constitute an Overbid Transaction and (C) Calton has delivered a
written notice to the Purchaser (an "Overbid Notice") advising it of
the foregoing determination by its Board of Directors (which notice
shall be accompanied by copies of the form of definitive agreement or
other documentation proposed to be entered into in connection with the
Acquisition Proposal), Calton may participate in discussions and
negotiations with such Qualified Third Party regarding such
Acquisition Proposal.
Furthermore, if (v) Calton has delivered an Overbid Notice to the
Purchaser (after compliance in full with each of the conditions
precedent to the delivery of such a notice set forth in clauses (i)
and (ii) of the immediately preceding sentence), (w) the Purchaser
shall not have delivered to Calton within ten (10)
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calendar days after receipt of such Overbid Notice a written offer (a
"Topping Offer") to amend the terms of this Agreement in order to
provide for consideration attributable to the Common Stock having a
value at least $1,000,000 greater than the value of the consideration
provided for under the Acquisition Proposal to which such Overbid
Notice relates, which offer shall state that it may not be withdrawn
or revoked by the Purchaser unless Calton and the Purchaser do not
enter into an amendment to this Agreement to reflect the acceptance of
the Topping Offer within ten (10) calendar days after receipt thereof
by Calton (it being understood and agreed that, if the Purchaser does
deliver a Topping Offer to Calton, Calton then shall immediately cease
to participate in discussions or negotiations with such Qualified
Third Party regarding such Acquisition Proposal), (x) the terms of the
Acquisition Proposal shall not have been modified in a manner adverse
to Calton or its existing stockholders after the date of the Overbid
Notice (it being understood and agreed that Calton shall promptly
advise the Purchaser in writing of the nature of any change in the
terms thereof), (y) either Calton shall have paid the Termination Fee
to the Purchaser (if Calton shall not have theretofore delivered the
Termination Fee Deposit to the Termination Fee Escrow Agent) or the
Calton Parties shall have taken all action on their part required in
order to cause the Termination Fee Escrow Agent to deliver the
Termination Fee Deposit to Purchaser (if Calton shall have theretofore
delivered the Termination Fee Deposit to the Termination Fee Escrow
Agent) and (z) the Calton Parties shall have taken all action on their
part required to cause the Escrow Agent to deliver the Earnest Money
Deposit to the Purchaser (the conditions set forth in clauses (v),
(w), (x), (y) and (z) above being hereinafter collectively referred to
as the "Overbid Termination Conditions"), the Company may enter into
an agreement with a Qualified Third Party with respect to an Overbid
Transaction. It is expressly understood and agreed that, if any
Affiliates, directors, officers, agents or other representatives
(including, but not limited to, any investment banker, financial
advisor, attorney or accountant) of any of the Calton Parties, whether
or not such persons are purporting to act on behalf of Calton, engage
in any conduct involving the furnishing of information to, the
solicitation of, or participation in discussions or negotiations with,
a Third Party which, if performed by any of the Calton Parties, would
constitute a breach of the provisions of this Section 4.02(a), then,
notwithstanding anything to the contrary contained herein, such Third
Party shall not be deemed a Qualified Third Party for purposes of this
Agreement.
(b) In the event either of the Calton Parties shall directly or indirectly
receive any offer, proposal or inquiry regarding an Acquisition
Proposal, Calton shall notify the Purchaser within two (2) Business
Days after the receipt of such offer, proposal or inquiry and shall,
in any such notice to the Purchaser, indicate the identity of the
offeror and all of the material terms of such offer, proposal or
inquiry.
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(c) Neither Calton nor the Company shall modify, or release any Third
Party from, any confidentiality or standstill agreement to which it is
a party (exclusive of those in which it is solely the recipient rather
than the provider of confidential information).
4.03 Access to Information. From the date hereof until the Closing Date, the
Calton Parties shall permit the Purchaser, and its Affiliates, directors,
officers, agents or other representatives (including, but not limited to,
any attorneys, accountants or environmental consulting firm) to make a full
investigation of the business, prospects, properties, financial condition
and results of operations of the Company and will afford the Purchaser and
such representatives full access to the offices, buildings, real
properties, records, files, books of account, tax returns, agreements and
commitments, record books and stock books of the Company and to their
directors, officers, independent accountants, agents and other
representatives, at such reasonable times and as often as the Purchaser may
reasonably request. Upon request by the Purchaser, the Company shall
request their present independent accountants (including the predecessors
to the same before PriceWaterhouseCoopers LLP was organized) and Persons
who assist in the preparation of Tax Returns to afford the Purchaser and
its representatives access to all accountants' working papers for all
audits and reviews of the financial statements of the Company. The Company
shall afford to the Purchaser and its representatives access to all such
further information relating to the business, prospects, properties,
financial condition and results of operations as the Purchaser or such
representatives may reasonably request. No investigation pursuant to this
Section 4.03 shall affect any representations or warranties made by the
Calton Parties in this Agreement or the conditions to the obligations of
any party hereto to consummate the transactions contemplated hereby. The
provisions of the Confidentiality Agreement shall apply to any information
provided to the Purchaser, or its Affiliates, directors, officers, agents
or other representatives, pursuant to this Section 4.03; provided, however,
that as of the Closing Date, the Confidentiality Agreement shall terminate
and be of no further force and effect.
4.04 Best Efforts. Subject to the terms and conditions hereof, each of the
parties hereto shall use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things which are
necessary, proper or advisable under applicable laws and regulations or
otherwise in order to consummate and make effective the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, each of the parties hereto shall execute and deliver, or cause
to be executed and delivered, all agreements, certificates and other
instruments and shall use its reasonable best efforts promptly to obtain
all Consents from, and to effect all registrations, filings and notices
with or to, any Governmental Authorities or other Persons which are
necessary or appropriate in connection with said transactions or in order
to fulfill all conditions to obligations of the parties under this
Agreement.
4.05 HSR Act. Each of Calton and the Purchaser will promptly file or cause to be
filed with the Antitrust Division of the Department of Justice and the
Federal Trade Commission notification and report forms pursuant to the HSR
Act relating to the transactions
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contemplated by this Agreement. The Company and Calton shall promptly
respond to any request for additional information or documentary material
by the Antitrust Division of the Department of Justice or the Federal Trade
Commission and will cooperate with each other in order to ensure that any
waiting period (and any extension thereof) applicable to the consummation
of the transactions contemplated by this Agreement under the HSR Act
expires or is terminated as soon as practicable. Any waiting period (and
any extension thereof) applicable to the consummation of the transaction
under the HSR Act shall have expired or been terminated.
4.06 Title Policies and Surveys. Within 15 days from the date of this Agreement,
Calton will deliver to Purchaser all surveys it owns or controls relative
to the Real Property as well as copies of all existing title insurance
policies relative to the Real Property. If the Purchaser so requests, the
Company shall obtain, at Purchaser's expense, from one or more title
companies reasonably acceptable to the Purchaser and shall deliver to the
Purchaser at Closing, with respect to each lot, parcel and tract of land
constituting the Real Property, a current owner's policy of title insurance
in the form of an ALTA Form B Extended Coverage Owners Policy to the extent
available in the applicable state based on the most recent surveys of such
lot, parcel or tract delivered to the Purchaser and otherwise in a form
which is standard for the applicable state and provides substantially the
same coverage as the above mentioned ALTA policy (each a "Title Policy") in
an amount acceptable to the Purchaser. The Title Policies shall insure in
the Company fee simple title to the Real Property in marketable or
indefeasible condition customary to the state in which the property is
located, subject only to the Permitted Encumbrances. To the extent that
Calton or the Company has title insurance policies which are less than
twelve (12) months old and are substantially equivalent to that described
above, the Purchaser will accept the same in lieu of obtaining a new title
insurance policy, but may require Calton to obtain endorsements thereto
bringing coverage current to the Closing Date at the expense of the
Purchaser.
4.07 Notification of Certain Other Matters. The Company shall promptly notify
the Purchaser of:
(a) any actions, suits, inquiries, investigations or proceedings commenced
or threatened against or affecting the Company which, if pending on
the date hereof, would have been required to have been set forth or
described in any Schedule required hereby or which relate to the
transactions contemplated by this Agreement;
(b) any notice or other communication from any Person alleging that the
Consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(c) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement; and
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(d) any fact, development or occurrence that constitutes a Material
Adverse Change or, so far as reasonably can be foreseen at the time of
its occurrence, could have a Material Adverse Effect.
4.08 Supplemental Disclosure. The Calton Parties shall have the continuing
obligation promptly to supplement the Disclosure Schedule or any writing
previously delivered to the Purchaser with respect to any matter hereafter
arising or discovered which, if existing or known at the date hereof, would
have been required to be set forth or described in a Schedule required
hereby or in any writing delivered to the Purchaser, provided, however,
that for the purpose of the rights and obligations of the parties
hereunder, any such supplemental disclosure shall not be deemed to have
been disclosed as of the date hereof unless so agreed to in writing by the
Purchaser.
4.09 Delivery of Opinion and Certificates to Purchaser.
At least one (1) full Business Day prior to Closing, the Calton Parties
shall deliver or cause to be delivered to the Purchaser each of the
following:
(a) legal opinions of Giordano, Halleran and Ciesla, counsel for Calton,
and Robert A. Fourniadis dated as of the date of delivery thereof, in
the form attached as Exhibit D hereto; and
(b) a certificate (or certificates) of the chief executive officer and
chief financial officer of Calton and of the Company, dated as of the
date of delivery thereof, certifying that, except as specifically
stated therein, (i) each of the representations and warranties of the
Calton Parties contained in this Agreement is true and correct as of
such date as if made on such date (except for representations and
warranties made as of a specific date, which shall be true and correct
as of such date) and (ii) the Calton Parties have performed and
complied with all provisions, covenants and conditions contained in
this Agreement which are required to be performed or complied with by
it prior to or on such date.
4.10 Solicitation of Shareholder Approval by Calton. The consummation of the
Transaction is conditioned upon Calton procuring approval of the same by
the requisite vote of its shareholders, pursuant to and in accordance with
all state and federal securities laws governing proxy solicitations. Calton
will exercise its best efforts to procure such approval before the
Effective Date.
4.11 Payoff of Existing Indebtedness. The Purchaser undertakes and agrees that
it will prepay in full, at the Closing, all of the indebtedness which (x)
encumbers any of the assets which are owned by the Company and (y) which is
scheduled and described in detail in Schedule 4.11 hereto (the "Existing
Indebtedness").
4.12 [Intentionally Omitted].
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4.13 Insurance Coverage. Calton and the Company hereby covenant and agree that
they will provide to Purchaser at Closing evidence that the insurance
described in Section 3.23 will remain in full force and effect following
Closing and that such insurance will include claims under any comprehensive
general liability coverage which relates to homes or other products which
were constructed by or sold by Calton or the Company or any of its
Subsidiaries prior to Closing.
4.14 Employment Agreements. On or before the expiration of the Due Diligence
Period the Company will enter into employment agreements with no more than
six persons presently employed by one or more of the Calton Parties in form
and content acceptable to Purchaser.
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4.15 Delivery of Opinion and Certificates to Calton.
At least one (1) full Business Day prior to Closing, the Purchaser shall deliver
or cause to be delivered to Calton each of the following:
(a) an opinion of Raymond G. Smerge, counsel for Purchaser, dated as of
the date of delivery thereof, in the form attached as Exhibit E
hereto; and
(b) a certificate (or certificates) of the Chief Executive Officer and
Chief Financial Officer of Purchaser, dated as of the date of delivery
thereof, certifying that, except as specifically stated therein, (i)
each of the representations of the warranties of the Purchaser
contained in this Agreement is true and correct as of such date as if
made on such date (except for representations and warranties made as
of a specific date, which shall be true and correct as of such date)
and (ii) the Purchaser has performed and complied with all provisions,
covenants and conditions contained in this Agreement which are
required to be performed or complied with by it prior to or on such
date.
4.16 Company Name. At the Closing, Calton will transfer to Purchaser the right
to the use of the name "Calton Homes", and all names similar thereto
(except Calton, Inc. and Calton Homes of Florida, Inc.) and Calton shall
furnish such written consents as Purchaser shall reasonably request to the
use by Purchaser or the Company of such name. Further, if following the
third anniversary of the Closing Date, Purchaser is not using the name
"Calton Homes" in connection with its operations of the Company or with
respect to any other homebuilding operations, and has not for at least
twelve (12) consecutive months then it will, upon request by Calton,
reconvey to Calton, at no charge, the right and privilege to use such name
as well as all ownership interest therein. However, such reconveyed
interest will not be extended to the states of New Jersey or Pennsylvania,
Calton acknowledging that it will never use the name "Calton Homes" in
connection with any operations in either of those states.
4.17 Warranty Work. Following the Closing all Warranty Work (defined below) with
respect to houses constructed by the Company or any Subsidiaries or any of
the predecessors of them, will be performed as follows:
(a) The Company will undertake and complete all Warranty Work, subject to
the provisions below, within a reasonable period of time after receipt
of written requests for such work from the customer.
(b) The Company has established, as set forth in the May 31, 1998
Unaudited Balance Sheet, a Warranty Work reserve of $383,910. The
Warranty Work reserve contained in the Audited November 30, 1998
Balance Sheet may be substituted for the reserve contained in the May
31, 1998 Unaudited Balance Sheet. Purchaser will cause the Company to
perform all Warranty Work at its own expense (at a cost customary and
reasonable in the industry) until such time as it has incurred, in
performing such work, an amount equal to such reserve. In
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calculating the expense of performing such work, Purchaser will not
include indirect overhead costs or salaried employees costs.
(c) Neither Purchaser nor the Company will perform Warranty Work without
the prior written consent of Calton if the estimated cost of
completing such work, in the reasonable opinion of Purchaser or the
Company, will exceed $1,000.00. Purchaser will notify Calton in
writing of each request from a homeowner for Warranty Work if the
estimated cost exceeds such amount. If Calton fails to notify
Purchaser within three (3) Business Days following its receipt of such
notice that it rejects such work, then Purchaser will be deemed
authorized to perform such work at the expense of Calton. If Calton
does reject such Warranty Work on a timely basis, and Purchaser
nonetheless determines that its or the Company's failure to complete
such Warranty Work may have an adverse effect on the business
reputation of the Purchaser or the Company, then Purchaser may perform
or cause the Company to perform such Warranty Work and, subject to
arbitration as described below, the cost of such work will be borne by
Calton. Any decision made by Purchaser to perform Warranty Work which
Calton rejects will be done in good faith. Notwithstanding the
foregoing, should Purchaser and Calton disagree as to the necessity of
performing such Warranty Work, then Purchaser may perform such work
without waiving its right to collect the cost thereof from Calton,
and, if Calton refuses to pay, either Calton or Purchaser may initiate
an arbitration of such dispute with the American Arbitration
Association under its commercial rules, and the parties acknowledge
and agree that the decision of such arbitrator in such matter will be
final and binding upon them, and will be enforceable as though it were
a judgment in a court of law.
(d) Subject to Section 4.17(c) above, Calton will pay to Purchaser all
costs incurred by Purchaser in performance of all the Warranty Work in
excess of the reserve (exclusive of indirect overhead costs). Calton
will reimburse Purchaser such costs within fifteen (15) days following
Calton's receipt of a written statement therefor, and to the extent
that this payment is not made within such fifteen days, then (a)
Purchaser shall be relieved of the obligation to perform any more
Warranty Work and (b) all sums due will bear interest at nine percent
(9%) per annum from the date of such statement until paid. The
Purchaser may render a billing to Calton no more frequently than every
other week.
(e) The term "Warranty Work" shall mean the replacement or repair of
deficient workmanship, materials or equipment in all houses delivered
by the Company or any of the Subsidiaries or any of their predecessors
prior to Closing, all strictly in accordance with the warranty program
of the Company as described in Exhibit F attached hereto.
4.18 Resignations. Calton will obtain, on or before the Closing Date, the
resignations of those directors and officers of the Company identified to
Calton during the Due Diligence Period by Purchaser, such resignations to
be effective as of the Closing Date.
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4.19 Office Space. With reference to the office space lease to which Calton is a
party as tenant of the 500 Craig Road building in Manalapan, New Jersey,
Calton will, immediately following the date hereof, sublease in its
entirety its interest as tenant to the Company, upon the same terms and
conditions as the existing office space lease. Purchaser agrees that,
following Closing, on a month to month basis, the Company will sublet a
small portion of such space to Calton upon market terms and conditions,
subject to the approval of the landlord.
4.20 Divestiture of Subsidiaries. The Calton Parties hereby undertake and agree
that prior to Closing, in form and content reasonably satisfactory to the
Purchaser, they will cause the Company to divest itself of any interest
whatsoever in any and all of the ten Subsidiaries of the Company, and that
accordingly upon Closing the Purchaser will acquire no ownership interest
or liability (including, without limitation, any Tax liability) associated
with or related to any of said Subsidiaries.
4.21 Tax Matters. The following provisions shall govern the allocation of
responsibility as between Purchaser and Calton for, and sets forth
additional agreements regarding, certain Tax matters:
(a) Tax Periods Through or Ending on or Before the Closing Date.
(i) Purchaser shall prepare or cause to be prepared and file or cause
to be filed Tax Returns for the Company for all periods ending on
or prior to the Closing Date which returns are filed after the
Closing Date, other than Tax Returns with respect to periods for
which a consolidated, unitary or combined income Tax Return of
Calton will include the operations of the Company for such
periods. All such Tax Returns shall be prepared by Purchaser on a
basis consistent with all of the Company's historical custom,
practice and positions which are in compliance with all laws
applicable thereto. Purchaser shall permit Calton to review and
comment on each such Tax Return described in the preceding
sentence prior to filing. To the extent that Calton shall take
exception to any provision contained in said Tax Returns, as they
affect the Company or Calton, then Purchaser and Calton will
negotiate in good faith to resolve any such dispute which may
arise in connection with such review. Such review may be
conducted only by a third party independent accounting firm, for
and on behalf of Calton. Copies of all such filed Tax Returns
will be provided to Calton. However, Purchaser covenants that it
will not make any material changes between the actual Tax Returns
and any pro forma Tax Returns furnished to Calton which changes
might adversely affect Calton. Calton shall reimburse Purchaser
for Taxes of the Company shown as due on such Tax Returns within
fifteen (15) days after payment by Purchaser or the Company of
such Taxes to the extent such Taxes are not accrued on the
November 30, 1998 Balance Sheet (except to the extent that any
such Taxes are attributable to the period between the Effective
Date and the Closing Date). If such Taxes are
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over accrued, Purchaser will pay Calton the amount by which such
accrual exceeds the Taxes actually paid (including any estimated
Taxes paid).
(ii) Calton will include the income of the Company and its
Subsidiaries (including any deferred income triggered into income
by Treas. Reg.ss.1.1502-13 and Treas. Reg.ss.1.1502-14 and any
excess loss accounts taken into income under Treas.
Reg.ss.1.1502-19 provided, however, that Calton shall be afforded
a reasonable opportunity to cure if an excess loss account
exists) on the Calton consolidated federal income Tax Returns for
all periods through the Closing Date (and on any state
consolidated, unitary, or combined income Tax Returns) and pay
any federal income Taxes (and any state Taxes) attributable to
such income. The Company will furnish Tax information to Calton
for inclusion in Calton's federal consolidated income Tax Return
for the period which includes the Closing Date in accordance with
the Company's past custom and practice. Calton will allow the
Purchaser an opportunity to review and comment upon such Tax
Returns (including any amended returns) to the extent that they
relate to the Company. Calton will take no position on such
returns that relate to the Company that would adversely affect
the Company after the Closing Date except to the extent
consistent with the Company's past practices, customs and
positions which are in compliance with all laws applicable
thereto. The income of the Company will be apportioned to the
Period up to and including the Closing Date and the period after
the Closing Date by closing the books of the Company as of the
end of the Closing Date provided however that Purchaser shall
reimburse Calton for any Taxes attributable to income during the
period between the Effective Date and the Closing Date and paid
by Calton. Calton will furnish a copy of all such returns to the
Purchaser as soon as they are filed. Purchaser will maintain
confidentiality of the same, except as may otherwise be required
by law or in connection with Purchaser's preparation of its Tax
Returns.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
Purchaser shall prepare or cause to be prepared, on a basis consistent
with the Company's past practices, customs and positions which are in
compliance with all laws applicable thereto, and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin
before the Closing Date and end after the Closing Date, other than Tax
Returns with respect to periods for which a consolidated, unitary or
combined income Tax Return of Calton will include the operations of
the Company and its Subsidiaries for a portion of such periods. Calton
shall pay to Purchaser within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to
the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not
accrued on the Pro forma November 30, 1998 Balance Sheet, excluding
such Taxes attributable to the period between the Effective
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Date and the Closing Date. If such Taxes are over accrued, Purchaser
will pay Calton the amount by which such accrual exceeds the Taxes
actually paid (including any estimated Taxes paid). For purposes of
this Section, in the case of any Taxes that are imposed on a periodic
basis and are payable for a taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the
portion of such Taxable period ending on the Closing Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income
or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Effective Date and
the denominator of which is the number of days in the entire Taxable
Period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if
the relevant Taxable period ended on the Effective Date. Any credits
relating to a Taxable period that begins before and ends after the
Effective Date shall be taken into account as though the relevant
Taxable period ended on the Effective Date. All determinations
necessary to give effect to the foregoing allocations shall be made in
a manner consistent with prior practice of the Company and its
Subsidiaries.
(c) Cooperation on Tax Matters.
(i) Purchaser, the Company and Calton shall cooperate fully, as and
to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees and others
with knowledge of such returns available on a mutually convenient
basis to provide additional information and explanation of any
material provided hereunder. The Company and Calton agree (i) to
retain all books and records with respect to Tax matters
pertinent to the Company and its Subsidiaries relating to any
taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent
notified by Purchaser or Calton, any extensions thereof) of the
respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records
and, if the other party so requests, the Company and Calton, as
the case may be, shall allow the other party to take possession
of such books and records.
(ii) Purchaser and Calton further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to
mitigate, reduce or
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eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated
hereby).
(iii) Purchaser and Calton further agree, upon request, to provide the
other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all
Treasury Department Regulations promulgated thereunder.
(d) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement, shall be
paid by Calton when due, and Calton will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Purchaser will, and will
cause its affiliates to, join in the execution of any such Tax Returns
and other documentation.
(e) Tax Sharing Agreements. Any tax sharing agreement between Calton and
any of the Company is terminated as of the Effective Date and will
have no further effect for any taxable year (whether the current year,
a future year, or a past year).
(f) Taxes of Other Persons. Calton agrees to indemnify the Purchaser from
and against the entirety of any Losses (as defined in Section 12.01
hereof) the Purchaser or the Company may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any
liability of the Company for Taxes with respect to periods prior to
and including the Closing Date of any Person (other than the Company)
(i) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local or foreign law), (ii) as a transferee or successor, (iii) by
contract, or (iv) otherwise.
(g) Audits. Calton will allow the Purchaser and the Company and their
counsel and accountants to participate at their own expense in any
audits of Calton's Tax Returns to the extent that such returns relate
to the Company. Calton will not settle any such audit in a manner
which would adversely affect the Company in a Material manner after
the Effective Date without the prior written consent of the Purchaser,
which consent shall not unreasonably be withheld.
(h) Retention of Carryovers. Calton may elect to retain any net operating
loss carryovers or capital loss carryovers of the Company under Reg.
ss.1.1502-20(g) only to the extent that such retention will not
adversely affect the Company's utilization of the Code Section 382
limitations allocated pursuant to clause (i) immediately below.
(i) Prior Ownership Changes. Calton will file a timely election under
Prop. Reg. ss.1.1502-95T(c), in the form to be attached hereto no
later than
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September 22, 1998 as Exhibit J, to apportion to the Company the first
$500,000 of the Calton Group's annual consolidated Code Section 382
limitation resulting from the ownership change of the Company that
occurred November 21, 1995. At Calton's request, the Purchaser will
cause the Company to join with Calton in making any election required
under Prop. Reg. ss.1.1 502-95T(c) consistent with this Agreement.
(j) Section 338. The Purchaser and the Company each agrees not to make an
election under Code Section 338 respecting the transactions
contemplated by this Agreement.
4.22 Non-Competition Agreements. At the time of Closing Purchaser will have
entered into non-compete agreements with Calton and Anthony J. Caldarone in
the forms attached as Exhibit G hereto. Among other things, such
non-compete agreements will extend to any geographic area in which Calton
or the Company is building homes at the time of Closing plus the state of
Pennsylvania. No portion of the Purchase Price will be allocated to these
agreements.
4.23 1998 Balance Sheets. Purchaser requires that Calton make certain balance
sheet adjustments (the "Centex Balance Sheet Adjustments"), so that the
Company's Balance Sheets will comport with the manner in which Purchaser
historically treats prepaid expenses and capitalized costs: (x) a write-off
of the $2 million financing cost which is presently being deferred and
charged over the life of the Existing Indebtedness, (y) a write-off of all
capitalized interest and (z) the treatment of all inter-company accounts
owing from the Company to Calton or any Subsidiaries as a contribution to
the capital of the Company by Calton or its Subsidiaries, prior to Closing,
and accordingly eliminate such inter-company accounts as indebtedness of
the Company.
No later than November 30, 1998 or ten (10) Business Days prior to the
Closing Date, whichever occurs later, Calton will deliver to Purchaser for
its review and approval a pro forma balance sheet of the Company as of
November 30, 1998, prepared in the accordance with GAAP ("Pro forma
November 30, 1998 Balance Sheet"). Prior to Closing Calton will make the
Centex Balance Sheet Adjustments to said Pro forma November 30, 1998
Balance Sheet and deliver the same to Purchaser for its review and
approval, which will not be unreasonably withheld, conditioned or delayed.
The Pro forma November 30, 1998 Balance Sheet, as adjusted by Centex
Balance Sheet Adjustments, will be called the "Adjusted November 30, 1998
Balance Sheet". The obligation of Purchaser to close the Transaction will
be conditioned upon its review and approval of the Adjusted November 30,
1998 Balance Sheet, which will not be unreasonably withheld, conditioned or
delayed.
Further, Calton shall cause an accounting firm acceptable to the Purchaser
to conduct an audit of the actual November 30, 1998 Balance Sheet.
Purchaser agrees that the accounting firm of PriceWaterhouseCoopers LLP is
acceptable for the purpose of conducting such audit, subject to review and
approval by Arthur Andersen LLP. The
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cost of such work by Arthur Andersen LLP will be borne by Purchaser. Within
sixty (60) days following November 30, 1998 Calton will cause the audit of
the actual November 30, 1998 Balance Sheet (the "Audited November 30, 1998
Balance Sheet) to be delivered to Purchaser.
Calton represents and warrants to, and covenants and agrees with Purchaser
that, the Audited November 30, 1998 Balance Sheet will be substantially the
same as the Proforma November 30, 1998 Balance Sheet. If Purchaser does not
approve a Balance Sheet, and Calton refuses to change the same to satisfy
Purchaser's objections, then either party may submit such dispute to an
independent accounting firm reasonably acceptable to Purchaser and Calton
for arbitration. The arbitration will be conducted in Central New Jersey
and the finding of the arbitrator will be binding on all parties for all
purposes. The cost of such arbitration proceeding will be borne equally by
Calton and Purchaser.
4.24 Consulting Agreement. At the Closing Calton and the Purchaser (or the
Company) will enter into a four (4) year consulting agreement in the form
attached as Exhibit I hereto.
4.25 Release of Calton under Bonds and Letters of Credit. Purchaser will take
all reasonable steps to procure the release of Calton and its Affiliates,
and any officers or directors of Calton or any such Affiliates who are
personally obligated, from all liability and obligations which relate to
any subdivision improvement bonds or other financial security reflected on
the unaudited November 30, 1998 Balance Sheet with respect to any of the
Real Property, including the return to Calton of two letters of credit
($500,000 each) which collateralize Calton's obligations to its surety bond
underwriters. If Purchaser is not able to procure such release prior to
Closing, then Purchaser will indemnify, defend and hold Calton and its
Affiliates, and officers and directors who are personally liable, of and
from any claim which may arise from such bonds, letters of credit and other
financial security from and after the date of Closing. Further, following
Closing Purchaser will continue to use its good faith efforts to procure
such release.
4.26 Cooperation on Accounting and Records Matters. Subsequent to Closing
Purchaser, the Company and Calton shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the
preparation of financial statements and the preparation of the filing of
Calton's reports with the Securities and Exchange Commission relative to
the operations of Calton prior to Closing. Further, should Calton liquidate
and dissolve, it may elect to deliver all its books and records relative to
the Company to the Purchaser so the latter will have access thereto, but
for no other reason.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
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As an inducement to Calton and the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, the Purchaser represents and
warrants as follows:
5.01 Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada.
5.02 No Default Resulting from Agreement. Neither the execution and delivery of
this Agreement nor the performance hereof by Purchaser in compliance with
its terms will result in any breach of the terms and conditions of, or
constitute a default under, the Charter or Bylaws of Purchaser or any
agreement, lease, mortgage, note, instrument, undertaking, judgment, decree
or governmental order or other restriction or obligation to which Purchaser
is a party or by which Purchaser or any of its properties or assets may be
bound or affected.
5.03 Corporate Authority. Purchaser has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and the execution, delivery and performance of this
Agreement by Purchaser have been duly authorized by all necessary corporate
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable in accordance with its terms.
5.04 Brokers or Finders. No broker or finder has acted on behalf of Purchaser in
connection with this Agreement or the transactions contemplated hereby.
5.05 Investment Intent. Purchaser or an assignee of Purchaser permitted
hereunder is acquiring the Common Stock for its own account for investment
and not with a view to the distribution thereof, nor with any present
intention of selling or otherwise disposing thereof.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
All of the obligations of Purchaser under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived in writing by Purchaser:
6.01 Accuracy of Representations and Warranties. The representations and
warranties of the Calton Parties contained herein or in any certificate,
schedule or other document delivered pursuant to the provisions hereof or
in connection herewith shall be true and correct as of the Closing Date
with the same effect as though such representations and warranties had been
made as of the Closing Date, except to the extent such representations and
warranties expressly relate only to an earlier date, and except for changes
contemplated by this Agreement or approved in writing by Purchaser.
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6.02 Compliance with Conditions. The Company and Calton shall have performed and
complied with all agreements and conditions required by this Agreement to
be performed or complied with by them prior to or at the Closing.
6.03 Closing Documents. The Company and Calton shall have delivered to
Purchaser:
(a) The certificate(s) described in Section 4.09(b) hereof.
(b) Resolutions of the Boards of Directors of Calton and of the Company
authorizing the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby,
certified by an officer of Calton and the Company respectively;
(c) Certificates from the Secretary of State of New Jersey, dated not more
than five (5) days prior to the Closing Date, as to the legal
existence and good standing of Calton and the Company under the laws
of such state;
(d) A stock certificate from Calton evidencing all the Common Stock with
such certificates to be either endorsed in blank or accompanied by
duly executed stock powers and with signatures guaranteed by a
national banking association if so requested by Purchaser;
(e) A single stock certificate evidencing the ownership of all the Common
Stock by Purchaser with such certificate to be (i) issued in
cancellation of the stock certificates described in Section 6.03(d)
and (ii) duly executed on behalf of the Company by its then-current
officers prior to their resignation pursuant to Section 6.12 hereof;
(f) All corporate records of the Company, including without limitation all
minute books and stock transfer records;
(g) The legal opinions referred to in Section 4.09 above.
(h) The Title Policies.
(i) The estoppel letters and Consents identified by Purchaser to Calton
during the Due Diligence Period.
(j) The fully executed employment agreements described in Section 4.14
hereof.
(k) The fully executed non-competition agreements described in Section
4.22 hereof.
(l) The Balance Sheets described in Section 4.23 hereof.
(m) The Closing Date Cash Balance Statement.
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(n) The Consulting Agreement described in Section 4.24 hereof.
6.04 Consents and Approvals. All the Consents from, and registrations, filings
and notices with or to, any Governmental Authority or other Persons
required in connection with the transaction contemplated by this Agreement
shall be obtained or effected, as the case may be.
6.05 Casualty. The properties and assets of the Company, including the work in
process, shall not have been adversely affected in a Material manner as of
Closing Date in any way as the result of any casualty, disaster, accident,
exercise of power of eminent domain other governmental event, or Act of God
or public enemy.
6.06 Litigation. No action, suit or proceeding before any federal or state court
or other Government Authority shall be instituted or threatened which, in
the reasonable judgment of the Purchaser, shall have the effect or be
expected to have the effect of (i) making illegal, impeding or otherwise
restraining or prohibiting any of the transactions contemplated by this
Agreement, (ii) resulting in the payment of damages in excess of $1 million
by the Company, any Subsidiary or the Purchaser as a result of or in
connection with the Transaction, (iii) imposing any material limitations on
the ownership or operation by the Company or its Subsidiaries or the
Purchaser of any substantial portion of its business or assets, or
compelling the Company, any Subsidiary or the Purchaser to dispose of or
hold separate any substantial portion of its business or assets, as a
result of or in connection within any such transactions or (iv) imposing
any material limitations on the ability of the Purchaser to exercise full
rights of ownership with respect to any of the Common Stock or compelling
the Purchaser to dispose of any of the Common Stock.
6.07 Material Change in Properties. Subsequent to August 1, 1998 and prior to
the Closing Date, there shall not have been any Material Adverse Change in
the condition of the assets or properties of the Company except
depreciation of such assets and properties through ordinary wear and tear
and transactions or occurrences permitted by this Agreement or with respect
to which Purchaser has consented in writing.
6.08 Approval of Calton Shareholders. Calton shall deliver to Purchaser, in form
and content acceptable to Purchaser, evidence that (x) the holders of the
required amount of the issued and outstanding common stock of Calton have
approved the Transaction and (y) accordingly Calton is empowered to
consummate the Transaction in accordance with the terms and conditions of
this Agreement.
6.09 Financial Condition. There will be no Material Adverse Change in the
financial condition of the Company as at the Closing Date from that
reflected in the unaudited November 30, 1997 Balance Sheet or the unaudited
May 31, 1998 Balance Sheet.
6.10 Due Diligence. Purchaser shall have concluded its due diligence
investigation and the results thereof shall be satisfactory to it, in its
reasonable discretion, and shall comport with its internal projections
relative to profits, return on assets and return on investment.
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Purchaser will have a period of forty-five (45) days from the date of this
Agreement -- provided all of the schedules which comprise the Disclosure
Schedule have been delivered to Purchaser upon the execution of this
Agreement -- in which to conduct its investigation of the Company, its Real
Property and other assets, and all liabilities and obligations of the
Company, as well as its ongoing housing operations and related operations
(the "Due Diligence Period").
6.11 Employees. All employees of the Company identified by Purchaser, in the
reasonable exercise of its discretion, during the Due Diligence Period as
integral to the future success of the Company shall, unless otherwise
agreed by Purchaser, remain as employees of the Company following the
Closing Date, provided that the proposed terms of employment following the
Closing are no less favorable than the current terms of employment.
Purchaser will use good faith efforts to retain such employees, and will
knowingly take no action contrary to doing so. All employees of the Company
who remain as employees of the Company following the Closing Date will be
credited for time in service with Calton or the Company for the purposes of
employee benefit plans and similar matters, including the Profit Sharing
and Retirement Plan of Centex Corporation (subject to its consent), and the
severance and vacation plans of the Purchaser.
6.12 Resignations. The Purchaser will have received the resignations, effective
as of the Closing Date, of all directors and officers of the Company
identified by Purchaser during the Due Diligence Period.
6.13 Office Lease. Calton will have complied with Section 4.19 hereof.
6.14 HSR Act. Any waiting period (and any extension thereof) applicable to the
consummation of the Transaction under the HSR Act shall have expired or
been terminated.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY AND CALTON
All of the obligations of the Company and Calton under this Agreement are
subject to the fulfillment prior to or at the Closing of each of the following
conditions, any one or more of which may be waived in writing by the Company and
Calton:
7.01 Accuracy of Representations and Warranties. The representations and
warranties of Purchaser contained herein or in any certificate, schedule or
other document delivered pursuant to the provisions hereof, or in
connection herewith, shall be true and correct as of the Closing Date with
the same effect as though such representations and warranties were made as
of Closing Date, except for changes contemplated by this Agreement or
approved in writing by the Company and Calton.
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7.02 Compliance with Conditions. Purchaser shall have performed and complied
with all agreements and condition required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7.03 Closing Documents. Purchaser shall have delivered to Calton:
(a) The certificate described in Section 4.15(b) hereof;
(b) The Consulting Agreement;
(c) Duly adopted resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement
and the consummation of transactions contemplated hereby, certified by
an officer of Purchaser;
(d) Payment of the purchase price for the Common Stock less the Holdback.
(e) The opinion of Raymond G. Smerge referred to in Section 4.15 hereof.
7.04 HSR Act. Any waiting period (and any extension thereof) applicable to the
consummation of the Transaction under the HSR Act shall have expired or
been terminated.
7.05 Calton Shareholder Approval. Calton shall have obtained approval of the
Transaction from its shareholders, all in accordance with applicable state
and federal law.
7.06 Litigation. No action, suit or proceeding before any federal or state court
or other Governmental Authority shall have been instituted or threatened
which shall have the effect of making illegal, impeding or otherwise
restraining or prohibiting any of the transactions contemplated by this
agreement or which, in the reasonable judgment of Calton, shall have the
effect or be expected to have the effect of resulting in the payment of
damages in excess of $1 million by Calton as a result of or in connection
with the Transaction.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS
The representations, warranties, covenants and agreements of the parties to this
Agreement shall survive the making of this Agreement and the Closing, and remain
fully binding and enforceable thereafter, without the necessity of any other
document being delivered at the Closing. Notwithstanding the foregoing,
Purchaser acknowledges and agrees that the time periods during which Purchaser
may assert claims of breaches of representations and warranties will be limited
as follows:
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No time limitation (other than statute of limitations) with regard to the
representations and warranties contained in Sections 3.01, 3.02, 3.03,
3.04, 3.05, 3.06, 3.10 and 3.17.
Four (4) years as to the representations and warranties contained in
Section 3.24 and two (2) years as to all other representations and
warranties contained in Article III.
ARTICLE IX
TERMINATION
At any time prior to Closing (except where a shorter time period is indicated
below), this Agreement may be terminated:
9.01 by mutual written consent of the parties hereto;
9.02 by either the Purchaser or Calton, provided that the party terminating has
diligently and in good faith performed or complied in all material respects
with the agreements and covenants required to be performed by it hereunder,
if any federal or state court or other Governmental Authority shall have
issued an order, writ, injunction, judgment or decree which shall have the
effect of making illegal, impeding or otherwise restraining or prohibiting
any of the transactions contemplated by this Agreement and such order,
writ, injunction, judgment or decree shall have become final and
nonappealable;
9.03 by the Purchaser if:
(a) The Purchaser shall have determined, in its reasonable discretion,
that the condition set forth in Section 6.08 hereof is unlikely to be
fulfilled within a reasonable period of time; provided, however, that
the Purchaser shall only be entitled to terminate this Agreement
pursuant to this Section 9.03(a) if it delivers a written notice of
termination to Calton prior to the Closing Date but subsequent to the
later of that date which is (x) forty (40) days following the
commencement of the solicitation of approval of the Transaction by
Calton from its shareholders, all in accordance with SEC rules and
regulations or (y) thirty (30) days following the date of the
commencement of resolicitation of such shareholders by Calton, again
in accordance with the rules and regulation of the SEC, and Calton has
not satisfied Section 6.08 prior to delivery of such notice;
(b) the Calton Parties shall have failed to deliver to the Purchaser the
officers' certificate or opinions of counsel in accordance with
Section 4.09 hereof;
(c) the Closing shall not have occurred on or before March 31, 1999 for
any reason;
(d) ten (10) calendar days shall have elapsed after the delivery by Calton
of an Overbid Notice to the Purchaser, unless Calton shall have
notified the Purchaser in writing prior to such time that it has
irrevocably determined not to participate
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in any further discussions or negotiations with any Third Party with
respect to the Acquisition Proposal that was the subject of such
notice;
(e) Calton shall have become a proponent or co-proponent of any plan of
reorganization under the Bankruptcy Code;
(f) there shall have been any violation or breach on the part of the
Calton Parties of any covenant or agreement contained in Section 4.02
hereof, and such violation or breach has not been waived by the
Purchaser;
(g) there shall have been any violation or breach on the part of the
Calton Parties of any covenant or agreement contained in Article III
hereof or Section 4.03, 4.04 or 4.05 hereof which shall not have been
cured within five days after receipt of notice of such violation or
breach from the Purchaser;
(h) there shall have been any Material violation or breach by any of the
Calton Parties of any covenant or agreement (other than the covenants
and agreements referred to in Sections 9.03(f) and (g) above)
contained in this Agreement which shall not have been cured within
twenty (20) days after receipt of notice of such violation or breach
from the Purchaser;
(i) there shall have been any violation or breach by any of the Calton
Parties of any representation or warranty contained in this Agreement,
which in the reasonable judgment of the Purchaser, has resulted or is
reasonably expected to result in any Purchaser Claims in an aggregate
amount exceeding the Termination Threshold (it being understood and
agreed that for purposes of this clause all such representations and
warranties shall be construed as if they were not qualified in any
manner as to materiality); and
(j) at or prior to the expiration of the Due Diligence Period Purchaser
determines not to close the Transaction because it is not reasonably
satisfied with the results of its due diligence investigation and
instead to cancel this Agreement, provided that Purchaser delivers a
written notice of such termination to Calton within five (5) Business
Days following the end of the Due Diligence Period.
provided, however, that, in the case of any termination pursuant to Section
9.03(c), (f), (g), (h) or (i) above, the Purchaser has diligently and in
good faith performed or complied in all material respects with the
agreements and covenants required to be performed by it hereunder.
9.04 by Calton if
(a) all of the Overbid Termination Conditions shall have been satisfied;
(b) there shall have been any material violation or breach by the
Purchaser of any covenant or agreement contained in this Agreement
which shall not have been
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cured within twenty (20) days after receipt of notice of such
violation or breach from Calton;
(c) there shall have been any violation or breach by the Purchaser of any
representation or warranty contained in this Agreement which, in the
reasonable judgment of Calton, has resulted or is reasonably expected
to cause Calton to incur or be subject to claims or liabilities in an
aggregate amount exceeding the Termination Threshold (it being
understood and agreed that for purposes of this clause (c) all such
representations and warranties shall be construed as if they were not
qualified in any manner as to materiality);
(d) Calton shall not have received on or before September 21, 1998 written
confirmation of the opinion of the investment banking firm of Janney
Montgomery Scott, delivered recently to the Board of Directors of
Calton that the Transaction, taken as a whole, is fair to Calton
stockholders from a financial point of view. Calton shall only be
entitled to terminate this Agreement pursuant to this Section 9.04(d)
if it delivers a written notice of termination to the Purchaser no
later than September 22, 1998 that said investment banking firm has
withdrawn its opinion. If Calton does not deliver such notice of
termination to Purchaser on or before such date, then notwithstanding
the fact that Calton has not obtained confirmation of such fairness
opinion, Calton shall thereafter be foreclosed from terminating this
Agreement due to its failure to obtain such fairness opinion;
(e) notwithstanding good faith efforts on the part of Calton, Section 6.08
of this Agreement is not satisfied as of the Closing Date;
(f) the Closing shall not have occurred on or before March 31, 1999 for
any reason;
provided, however, that, in the case of any termination pursuant to
Sections 9.04(b), (c), (d), (e) or (f) above, the Calton Parties have
diligently and in good faith performed or complied in all material respects
with the agreements and covenants required to be performed by them
hereunder.
ARTICLE X
EFFECT OF TERMINATION
In the event of the termination of this Agreement in accordance with Article IX
hereof, this Agreement shall forthwith become void and of no further force or
effect, and there shall be no liability hereunder on the part of any party or
its Affiliates, directors, officers, shareholders, agents or other
representatives; provided, however, that (i) this Article X, Article XI and
Section 13.09 hereof shall survive any termination of this Agreement and (ii)
nothing contained herein shall relieve any party from liability for any breach
of this Agreement unless the parties elect to mutually terminate this Agreement
and except that the payment to the Purchaser of the
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Termination Fee pursuant to Article XI shall be the sole remedy of Purchaser
under circumstances in which such fee is required to be paid, except for
breaches by any of the Calton Parties of any of the provisions of Article IV, in
which case Purchaser will be entitled to all remedies available at law and in
equity.
ARTICLE XI
TERMINATION PAYMENTS
11.01 If this Agreement is terminated (whether automatically or by the Purchaser
or Calton) for any reason (other than by mutual written consent under
Section 9.01 hereof or by either party under Section 9.02 or by Calton
pursuant to Sections 9.04(b), (c) or (d) hereof) prior to the time Calton
shall have delivered the Termination Fee Deposit (as hereinafter defined)
to the Termination Fee Escrow Agent, Calton shall pay to the Purchaser a
fee of Two Million Dollars ($2,000,000) (the "Termination Fee"), which fee
shall be paid no later than one (1) Business Day after the date of
termination of this Agreement by wire transfer of immediately available
funds to such account as the Purchaser shall designate in a written notice
delivered to Calton.
11.02 Concurrent with the execution of this Agreement (i) Calton shall deliver
the Termination Fee Deposit to the Termination Fee Escrow Agent and (ii)
Calton, the Purchaser and the Termination Fee Escrow Agent shall enter
into the Termination Fee Escrow Agreement. If this Agreement is terminated
(whether automatically or by the Purchaser or Calton) for any reason after
the time Calton shall have delivered the Termination Fee Deposit to the
Termination Fee Escrow Agent, the parties shall take all action necessary
in order to cause the Termination Fee Escrow Agent promptly to deliver the
Termination Fee Deposit as follows:
(a) to the Purchaser, if this Agreement is terminated (whether
automatically or by the Purchaser or the Calton) for any reason
other than as specified in clause (b) below; or
(b) to Calton, if this Agreement is terminated by mutual written consent
under Section 9.01 hereof or by either party under Section 9.02 or
by Calton pursuant to Section 9.04(b), (c) or (d) hereof.
Payment to the Purchaser of the Termination Fee pursuant to Section
11.02(a) will constitute the payment of liquidated damages as Purchaser's
sole and exclusive remedy under such circumstances.
11.03 If this Agreement is terminated for any reason, the parties shall take all
action necessary in order to cause the Escrow Agent promptly to deliver
the Earnest Money Deposit as follows:
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(a) to the Purchaser, if this Agreement is terminated (whether
automatically or by the Purchaser or Calton) for any reason other
than as specified in clause (b) below; or
(b) to Calton, if this Agreement is terminated by Calton pursuant to
Section 9.04(b) or (c) hereof, and payment of the Earnest Money
Deposit to Calton will constitute the payment of liquidated damages
as Calton's sole and exclusive remedy under such circumstances.
11.04 If the Purchaser or Calton is required for any reason to seek judicial
enforcement of any of the obligations of the other party hereto under this
Article XI, such other party shall pay to, or reimburse such party for,
all costs and expenses (including fees and disbursements of counsel) that
are incurred by such party in enforcing the provisions of this Article XI.
Any amounts paid pursuant to this Article XI shall be paid without set-off
or deduction.
ARTICLE XII
INDEMNIFICATION
12.01 Indemnification by Calton.
(a) Calton shall defend at its cost, indemnify and hold harmless
Purchaser, its Affiliates (including the Company after the Closing
Date), and their respective shareholders, directors, officers,
employees, agents and representatives from any and all liabilities,
obligations, claims (including third party claims), contingencies,
damages, losses, fines, penalties, interest, costs and expenses
(including all court costs and reasonable attorneys' fees)
(collectively, "Losses") that Purchaser or any such Person may
suffer or incur as a result of or relating to:
(i) the breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by any of the Calton
Parties herein; or
(ii) any transaction, activity, liability or obligation of any of
the Calton Parties (other than the Existing Indebtedness) that
occurs or arises out of actions or events occurring prior to
the Closing Date; or
(iii) any and all taxes arising out of the transactions contemplated
by this Agreement (Section 12.01(a) (i), (ii) and (iii)
individually and collectively, a "Covered Event").
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If Closing shall have occurred, Calton shall not be entitled
to any contribution, indemnification or reimbursement from the
Company with respect to payments made by Calton under this
Article XII.
(b) The parties agree that in the event of any breach or
inaccuracy of the representation contained in Section 3.17(k)
which arises following Closing, then the Loss that Purchaser
will incur that is indemnified hereunder shall be $0.20 for
each $1.00 of "change date built-in loss" (as defined in
Section 3.17(k)) attributable to assets described in Section
3.17(k), provided, however, that the amount of such change
date built-in loss taken into account with respect to an asset
for purposes of this paragraph shall not exceed the "Effective
Date built-in loss" [as defined in Section 3.17(k)] with
respect to such asset. The indemnity basket described in
Section 12.05(e) below will not apply to this Section
12.01(b). Further, the parties will adjust the Purchase Price
to account for the Steeplechase built in loss described in
Section 3.17(k) once the loss is determined. No loss will give
rise to a Purchase Price adjustment if already addressed in
Section 12.01(c).
(c) If prior to Closing the Adjusted November 30, 1998 Balance
Sheet (or the Audited November 30, 1998 Balance Sheet if
completed before Closing), or documents prepared in connection
therewith, reveals that there is a discrepancy between it and
what is represented in Section 3.17(k), then prior to Closing,
the Purchase Price will be reduced in accord with the formula
set out in Section 12.01(b) hereof. In such case, the
discrepancy will not be deemed a Loss but instead will result
in an adjustment to the Purchase Price prior to Closing.
(d) Notwithstanding anything above to the contrary, in the event
that the income statement prepared in conjunction with the
Audited November 30, 1998 Balance Sheet reveals that the
pre-tax earnings of the Company for the six (6) months between
June 1, 1998 and November 30, 1998 are greater or less than
$5,682,000, then (x) the indemnity basket will not apply and
(y) the parties will adjust the Purchase Price by reducing the
same or increasing the same in accordance with the following
formula: if the actual six months earnings are higher or
lower than $5,682,000, then one-half of the difference will be
added to or subtracted from the Purchase Price, as
appropriate.
If such Purchase Price adjustment occurs following Closing,
then one party will remit to the other the amount then
determined due, together with interest at eight percent (8%)
per annum from Closing until payment.
(e) With reference to Sections 12.01(b) and (c) the Purchase Price
will be reduced only if the Company incurs damages.
12.02 Indemnification by Purchaser. Purchaser shall defend at its cost,
indemnify and hold harmless Calton, its Affiliates, and their respective
shareholders, directors, officers,
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employees, agents and representatives from any and all Losses that Calton
or any such Person may suffer or incur as a result of or relating to:
(a) the breach or inaccuracy of any of the representations, warranties,
covenants or agreements made by Purchaser herein; and
(b) any transaction, activity, liability or obligation of Purchaser or
the Company after the Closing Date, excluding however any liability,
cost or expense incurred by Calton as a result of actions taken by
Purchaser or the Company to enforce their rights under this
Agreement.
12.03 Third-Party Claims. If any claim for indemnification by the party(ies)
seeking indemnification ("Indemnitee") arises out of a third-party claim
(i.e., out of a claim made by or an action of a person or entity other
than Indemnitee), the party(ies) from whom Indemnitee seeks
indemnification ("Indemnitor") may, by written notice to Indemnitee,
undertake to conduct the defense thereof and to take all other steps or
proceedings to defeat or compromise any such action or claim, including
the employment of counsel reasonably satisfactory to Indemnitee; provided
that Indemnitor shall reasonably consider the advice of Indemnitee as to
the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate in such proceedings (at the sole cost and
expense of Indemnitee), but control of such proceedings shall remain
exclusively with Indemnitor. Indemnitee shall provide all reasonable
cooperation to Indemnitor in connection with such proceedings. Counsel and
auditor costs and expenses and court costs and fees of all proceedings
with respect to any such action or claim shall be borne by Indemnitor. If
any such claim is made hereunder and Indemnitor does not elect to
undertake the defense thereof by written notice to Indemnitee, then
Indemnitee shall be entitled to control such proceedings and shall be
entitled to indemnity with respect thereto pursuant to the terms of
Article XII of this Agreement. If the Indemnitor shall assume the defense
of such claim, it shall not settle such claim unless such settlement
includes as an unconditional term thereof the giving by the claimant or
the plaintiff of a release of the Indemnitee, satisfactory to the
Indemnitee, from all liability with respect to such claim.
12.04 Notice. Within thirty (30) days after notice of any action, receipt of any
claim in writing or similar form of actual notice of any claim as to which
it asserts a right to indemnification, Indemnitee shall notify the
Indemnitor. The failure of Indemnitee to give the notification to
Indemnitor contemplated above in this Section shall not relieve Indemnitor
from any liability or obligation that it may have pursuant to this
Agreement unless the failure to give such notice within such time shall
have been materially damaging or prejudicial to Indemnitor, and in no
event shall the failure to give such notification relieve Indemnitor from
any liability it may have other than pursuant to this Agreement.
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12.05 Right of Set Off.
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(a) Liquidated Losses; Set Off. Subject to Calton's right to object to
any set off or recoupment of any Loss as provided below, Purchaser
shall be entitled to set off or recoup any Loss (a "Liquidated
Loss") that has been actually incurred by or imposed upon Purchaser
or any other entity or person entitled to indemnification pursuant
to Section 12.01 herein (a "Purchaser Indemnitee") against the
Holdback Amount (a "Set Off"). Prior to or concurrently with each
exercise by Purchaser of its right of Set Off, Purchaser shall
deliver a written notice to Calton (the "Set Off Notice"), which
notice shall set forth the amount of the Liquidated Loss, together
with a reasonably detailed statement of the circumstances under
which such Liquidated Loss was incurred by or imposed upon the
applicable Purchaser Indemnitee and the total of all Liquidated
Losses that have been Set Off by Purchaser through the date of the
Set Off Notice.
(b) Unliquidated Losses; Set Off Reserves.
(i) Establishment of Set Off Reserves. Subject to Calton's right
to object to any set off or recoupment of any Loss as provided
below, at any time prior to the second anniversary of the
Closing Date, if and to the extent that Purchaser reasonably
determines that it is reasonably likely that any Loss that has
not yet become a Liquidated Loss (an "Unliquidated Loss") will
be incurred by or imposed upon a Purchaser Indemnitee at any
time in the future with respect to any claim that has arisen,
Purchaser shall be entitled to establish a reasonable reserve
(a "Set Off Reserve") against the Holdback Amount in respect
of such Unliquidated Loss, provided that Calton receives from
Purchaser the Set Off Reserve Notice prior to the expiration
of the survival period of Calton's representations and
warranties, if any. Purchaser shall take into consideration
the availability of insurance coverage for any Unliquidated
Loss in establishing any Set Off Reserve.
(ii) Set Off Reserve Notice. Prior to or concurrently with the
establishment of a Set Off Reserve, Purchaser shall deliver a
written notice to Calton (the "Set Off Reserve Notice"), which
notice shall set forth the amount of the Unliquidated Loss,
together with a reasonably detailed statement of the basis for
Purchaser's determination that such Unliquidated Loss is
reasonably likely to be incurred by or imposed upon the
applicable Purchaser Indemnitee and the total of all
Unliquidated Losses that have been reserved by Purchaser
through the date of the Set Off Reserve Notice.
(iii) Suspension of Obligations. The obligation of Purchaser to pay
the Holdback Amount to Calton, as provided in Section 2.01
herein, shall be suspended (but not the accrual of interest)
to the extent of the aggregate amount of Set Off Reserves not
settled pursuant to Section 12.05(b)(iv) hereof at the time of
such payment.
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(iv) Settlement of Set Off Reserves. If at any time it is
determined (either pursuant to the dispute resolution
procedures set forth in Section 12.05(d) hereof, or as a
result of a judicial determination of the Final Loss Amount)
that any Set Off Reserve exceeds the aggregate amount of the
Losses ultimately incurred by or imposed upon the Purchaser
Indemnitees as a result of or based upon the events or
conditions to which the Set Off Reserve relates (the "Final
Loss Amount"), the amount of such Set Off Reserve in excess of
such Final Loss Amount shall be retained in the Holdback
Escrow, or if the Holdback period shall have terminated, shall
be returned to Calton.
(c) Objection Procedure. If Calton disputes any exercise by Purchaser of
its right to make a Set Off or a Set Off Reserve, then Calton shall
deliver a written notice to Purchaser ("Objection Notice") on or
before ten (10) days following receipt of a Set Off Notice or a Set
Off Reserve Notice. The Objection Notice shall state the portion of
the applicable Loss to which Calton objects and a reasonably
detailed description of the basis of such objection. Calton and
Purchaser shall negotiate in good faith to resolve any dispute with
respect to the matters set forth in the Objection Notice for a
period of twenty (20) days following receipt of such Objection
Notice by Purchaser.
(d) Arbitration. If Calton and Purchaser are not able to resolve any
dispute set forth in an Objection Notice on a mutually acceptable
basis during the dispute resolution period provided above, either
Purchaser or Calton may submit the dispute described in such
Objection Notice to the American Arbitration Association for
arbitration under the commercial arbitration rules of that
institution within twenty (20) days following the expiration of the
dispute resolution period provided above. The arbitration will be
conducted in Dallas, Texas and the finding of the arbitrators will
be binding on all parties for all purposes. If such arbitration
results in a finding that awards to either Calton or Purchaser
(i) in excess of fifty-percent (50%) of the amounts in dispute, in
the case of a monetary dispute, or
(ii) the substance of the relief sought, in the case of a
non-monetary dispute,
then the other party will pay the cost of such arbitration.
Otherwise the cost of arbitration will be borne fifty-percent (50%)
by Calton and fifty-percent (50%) by Purchaser. At any time after
ten (10) days following the issuance of the final arbitration
ruling, the party entitled to an award in said proceeding may, at
its election and at the expense of the non-prevailing party, provide
for the entry of the award for enforcement purposes in any court of
competent jurisdiction.
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It is the intent of the parties that the arbitration procedure set
forth herein shall be the sole and exclusive remedy available to
resolve any disputes arising under Section 12.05(c) hereof that
cannot be resolved pursuant to Section 12.05(c) hereof, and neither
Purchaser nor Calton shall have any right to file a lawsuit in
connection with any dispute arising under Section 12.05(c) hereof
except for claims based on fraud or intentional misrepresentation or
to enforce the arbitration decision.
(e) Indemnity Basket and Maximum Recovery. Except for claims based on
fraud or intentional misrepresentation, and except as set forth in
Section 12.01(b) and (d), Purchaser shall not have any rights of
indemnification, set off, or recoupment under this Agreement until
the aggregate amount of claims against Calton subject to
indemnification, set off, or recoupment herein shall exceed Fifty
Thousand Dollars ($50,000). Notwithstanding anything in this
Agreement to the contrary, except for claims based on fraud or
intentional misrepresentation, the maximum amount of indemnification
which may be recovered by Purchaser from Calton will not exceed the
Purchase Price.
(f) Good Faith Exercise; No Breach. Purchaser shall act in good faith in
the exercise of its rights under Section 12.05(b) hereof. It is
expressly agreed that the exercise in good faith by Purchaser of the
right to Set Off and to make Set Off Reserves and the other rights
and remedies granted to it pursuant to Section 12.05(b) hereof shall
in no event be deemed to constitute or give rise to a violation or
breach of, or a default under, this Agreement.
(g) Additional Rights. The rights of indemnification, set off, and
recoupment provided Purchaser hereunder shall be all the rights and
remedies Purchaser has for Losses.
(h) The indemnification provided for in this Article XII shall be
subject to the limitations that Indemnitor shall not be obligated to
pay any amount for indemnification hereunder relating to a claim to
the extent of (i) any net tax benefit to the Indemnitee which is
realized by such Indemnitee or (ii) any indemnity, insurance,
contribution or similar payment paid to the Indemnitee from any
third party with respect thereto (excluding the cost of such
insurance coverage to the Indemnitee).
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.01 Predecessors Included. Each representation, warranty, covenant and
indemnification made by the Calton Parties, or either of them, that
relates or could relate to the conduct of any predecessor of them, or
relates or could relate to a time during which they did not
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exist but predecessors did, is made by them not just on their own behalf
but also on behalf of each such predecessor and as if they were in
existence at such time.
13.02 Notices. Any notice or other communication required, permitted or
contemplated by this Agreement ("Notice") must be in writing and delivered
to the other party by certified mail, return receipt requested or
delivered by facsimile mail with the original counterpart thereof being
sent on the same business day or on the business day immediately following
the date of facsimile transmission. Such Notice shall be deemed received
three business days after a certified letter containing such Notice,
properly addressed with the postage prepaid is deposited in the United
States mail or on the same day if transmitted by facsimile mail. Notice
shall go to the parties at the following addresses:
If to Calton or Company: Calton, Inc.
500 Craig Road
Manalapan, New Jersey 07726-8790
Attn: Anthony Caldarone
Chairman and Chief Executive Officer
Phone: 732-780-1800
Fax: 732-780-7257
With copy to: Giordano, Halleran & Ciesla, PC
125 Half Mile Road
P. O. Box 190
Middleton, New Jersey 07748
Attn: John A. Aiello
Phone: (732) 741-3900
Fax: (732) 224-6599
If to Purchaser: Centex Real Estate Corporation
2728 North Harwood, Suite 800
Dallas, Texas 75201
Attn: Timothy R. Eller
Chairman and Chief Executive Officer
Phone: 214-981-6100
Fax: 214-981-6000
With copy to: Raymond G. Smerge
2728 North Harwood, Suite 900
Dallas, Texas 75201
Phone: 214-981-6530
Fax: 214-981-6855
13.03 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto and the certificates, opinions and documents delivered in
accordance with the provisions hereof) constitutes the entire agreement
among the parties with respect to the subject
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matter hereof and supersedes all prior written or oral agreements and
understandings and all contemporaneous oral agreements and understandings
among the parties or any of them with respect to the subject matter
hereof. All Appendices, Exhibits and Schedules hereto and certificates,
opinions and other documents delivered in accordance with the provisions
hereof are expressly made a part of this Agreement.
13.04 Counterpart Originals. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
13.05 Binding Effect; Assignment. This Agreement shall be binding upon and shall
inure to the benefit of Purchaser, Calton, and the Company and their
respective successors and assigns, provided, however, this Agreement may
not be assigned by any party without the consent of the other parties
hereto except that Purchaser may, without such consent, assign this
Agreement to any directly or indirectly wholly owned subsidiary of Centex
Corporation, a Nevada corporation, but no such release shall relieve
Purchaser of any liability or obligation it may have under this Agreement.
13.06 Further Assurances. After the Closing, each party, at the request of any
other party, shall take such further actions and execute, deliver and
acknowledge where necessary from time to time such other and further
things as may be reasonably necessary more fully and effectively to
consummate the transactions contemplated by this Agreement, including
furnishing assistance in the prosecution or defense of any lawsuit, action
or claim and acting as witnesses therein.
13.07 Partial Invalidity of this Agreement. In the event that any provision of
this Agreement is invalid or unenforceable as written but may be rendered
valid and enforceable by limitation thereof, then such provision shall be
construed as valid and enforceable to the maximum extent permitted by
applicable law.
13.08 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New Jersey, without
regard to the conflict of law rules thereof.
13.09 Public Announcements. Calton and the Purchaser will consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement, or the other transactions
contemplated by this Agreement, and shall not issue any such press release
or make any such public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement
with any national securities exchange or automated quotation system upon
which the securities of such issuer are traded.
13.10 Amendment; Waivers. The terms and provisions of this Agreement may be
modified or amended only by a written instrument executed by each of the
parties hereto, and compliance with any term or provision hereof may be
waived only by a written instrument executed by each party entitled to the
benefits of the same. Except as
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expressly provided herein to the contrary, no failure to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
granted hereunder.
13.11 Severability. In the event any provision contained herein shall be held to
be invalid, illegal or unenforceable for any reason, the invalidity,
illegality or unenforceability thereof shall not affect any other
provision hereof.
13.12 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with the terms hereof. Accordingly, the
parties agree that each of them shall be entitled to seek injunctive
relief to prevent breaches of the terms of this Agreement and to seek
specific performance of the terms hereof, in addition to any other remedy
now or hereafter available at law or in equity, or otherwise. Without
limiting the generality of the foregoing, it is expressly understood that,
in the event of a breach by the Calton Parties of their obligations under
Section 4.02 hereof not to enter into an agreement with a Third Party with
respect to any Overbid Transactions unless the condition set forth in
clause (y) of such provision shall have been fulfilled, the Purchaser
shall be entitled to specific performance of such obligations without the
necessity of demonstrating irreparable damage or of complying with any
requirement as to the posting of a bond or other security (it being
understood that any such requirement is hereby expressly waived by the
Calton Parties).
13.13 Interpretation.
(a) The headings herein are for convenience of reference only, do not
constitute a part of the Agreement and shall not be deemed to limit,
extend or otherwise affect the meaning of any of the provisions
hereof.
(b) In interpreting the provisions of this Agreement, time is of the
essence in the performance of the obligations of the parties.
(c) The obligations of the Calton Parties set forth in this Agreement
shall in no event be limited by or subject to their obligations
under any other agreement or document to which any of them is a
party or is bound as of the dated hereof.
13.14 Arbitration of Purchase Price Adjustment Disputes and Tax Matters. If
Calton and Purchaser do not reach agreement as to an adjustment to the
Purchase Price as contemplated under this Agreement or as to Tax Matters
as contemplated in Section 4.21 hereof, either party may submit such
dispute to the American Arbitration Association for its resolution. The
decision of the arbitrator will be binding upon and enforceable against
the parties, and the cost of the arbitration will be borne equally by the
parties.
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IN WITNESS WHEREOF, Purchaser, Calton and the Company have executed this
Agreement as of the date first above written.
CALTON, INC.
By:______________________________________________
Anthony J. Caldarone
Chairman and Chief Executive Officer
CALTON HOMES, INC.
By:______________________________________________
Anthony J. Caldarone
Chairman and Chief Executive Officer
CENTEX REAL ESTATE CORPORATION
By:______________________________________________
Timothy R. Eller
Chairman and Chief Executive Officer
The Schedules and Exhibits to the Stock Purchase Agreement are not
presented herein or delivered herewith. Copies of the Schedules and Exhibits
will be provided by first class mail without charge to each person to whom this
Proxy Statement is delivered, upon written request to Calton, Inc., Attention:
Shareholder Relations, 500 Craig Road, Manalapan, New Jersey 07726.
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<PAGE>
Janney Montgomery Scott Inc.
26 Broadway
New York, N.Y. 10004-1776
-----------
(212) 510-0600
(800) 444-1155
Annex II
September 15, 1998
The Board of Directors
Calton, Inc.
500 Craig Road
Manalapan, NJ 07726-8790
Attention: Anthony J. Caldarone - Chairman
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Calton, Inc. ("Calton" or the "Company") of the
sale of the stock of Calton's wholly owned, principal operating subsidiary
Calton Homes, Inc. ("Homes") to Centex Real Estate Corporation ("Centex")
pursuant to the stock purchase agreement dated September 2, 1998 ("the proposed
Transaction"). The scope of our opinion is limited to the proposed Transaction
between Calton and Centex and does not address the use of proceeds from the sale
of Homes.
Janney Montgomery Scott Inc. ("JMS"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with the preparation of fairness opinions, mergers and
acquisitions, rights offerings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate, and other purposes.
In connection with our opinion, we have reviewed the Stock Purchase Agreement
and all related agreements dated September 2, 1998, certain financial and other
information of Calton and Homes including certain analyses, reports, forecasts
and other information. We have held discussions with senior management of Calton
concerning the current operations, financial condition and prospects of Calton
and Homes. In addition, we have (i) reviewed the historic
<PAGE>
CALTON, INC.
Page 2
financial statements of Calton and Homes; (ii) compared the financial position
and operating results of Calton and Homes with those of publicly traded
companies we deemed relevant; (iii) compared certain financial terms of the
proposed Transaction to certain financial terms of selected other business
combinations we deemed relevant; (iv) performed customary investment banking
valuation procedures; and (v) conducted such other financial studies, analyses
and investigations, and reviewed such other factors, as we deemed relevant.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for purposes of this opinion.
With respect to financial projections, we assumed that they have been reasonably
prepared on a basis reflecting the best currently available information and
judgments of the future financial performance of Homes, and have considered all
financial statement pro forma adjustments necessary. We have not made any
independent valuation or appraisal of the assets or liabilities of Calton or
Homes, nor have we been furnished with such valuations or appraisals.
Our opinion is necessarily based on financial, economic, market and other
conditions as they exist on, and information made available to us as of the date
hereof. It should be understood that, although subsequent developments may
effect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion except for an update in connection with the proxy to be mailed to
the Company's shareholders. Payment of JMS' fairness opinion fee is not
contingent upon the conclusion reported.
It should be understood that this letter is for the information of the Board of
Directors in connection with its consideration of the proposed Transaction and
does not constitute a recommendation to any Public Shareholder on the proposed
Transaction. While this opinion may be included in a Registration Statement or
Proxy Statement filed in conjunction with the proposed Transaction, it may not
be used for any other purpose without our prior written consent for which no
additional compensation or expenses shall be paid or reimbursed and which
consent shall not be unreasonably withheld.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, the proposed Transaction is fair, from a financial point of view, to the
shareholders of Calton.
Sincerely yours,
JANNEY MONTGOMERY SCOTT, INC.
By:_________________________________
William J. Barrett
Senior Vice President
<PAGE>
Janney Montgomery Scott Inc.
26 Broadway
New York, N.Y. 10004-1776
-----------
(212) 510-0600
(800) 444-1155
November __, 1998
The Board of Directors
Calton, Inc.
500 Craig Road
Manalapan, NJ 07726-8790
Attention: Anthony J. Caldarone - Chairman
Gentlemen:
This will update Janney Montgomery Scott Inc.'s opinion letter dated
September 15, 1998 (herein, the "Letter"). The terms used herein have the
meanings defined in the Letter. We understand that, subsequent to the delivery
of our opinion, the Company, Calton Homes and Centex entered into an Amended and
Restated Stock Purchase Agreement dated as of November __, 1998 (the "Amended
and Restated Stock Purchase Agreement").
In connection with this updating of our opinion, we have reviewed the
Amended and Restated Stock Purchase Agreement and held discussions with Calton's
counsel and certain board members and employees of Calton.
Based upon and subject to the foregoing, it is our opinion, at the date
hereof, that the modifications made to the Stock Purchase Agreement that are set
forth in the Amended and Restated Stock Purchase Agreement will not change our
September 15, 1998 opinion.
Sincerely yours,
JANNEY MONTGOMERY SCOTT, INC.
By:_____________________________________________
William J. Barrett, Senior Vice President
<PAGE>
CALTON, INC.
Proxy for Special Meeting of Shareholders to be held on December 3, 1998
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CALTON, INC.
P KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Anthony J. Caldarone and Robert A. Fourniadis and each of them,
R the true and lawful attorneys, agents and proxies of the undersigned, with
full power of substitution, to vote with respect to all the shares of
O Common Stock of CALTON, INC., standing in the name of the undersigned at
the close of business on November 2, 1998, at the special meeting of
X shareholders to be held at the Company's offices at 500 Craig Road,
Manalapan, New Jersey and at any and all adjournments thereof, with all
Y powers that the undersigned would possess if personally present and
especially (but without limiting the general authorization and power hereby
given) to vote as indicated on the reverse side hereof.
The shares represented by this Proxy will be voted in the manner directed,
and if no instructions to the contrary are indicated, will be voted FOR the
proposal described in Item 1 on the reverse side hereof.
COMMON STOCK
<PAGE>
(This proxy is continued from reverse side)
|X| Please mark your votes as
in this example.
- --------------------------------------------------------------------------------
1. Approval of the proposal to sell Calton, Inc.'s principal operating
subsidiary, Calton Homes, as Inc., pursuant to a Stock Purchase
Agreement among Calton, Inc., Calton Homes, Inc. and Centex Real
Estate Corporation.
- --------------------------------------------------------------------------------
For Against
| | | |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. In their discretion upon such other matters may properly come before
the meeting or any adjournment or adjournments thereof.
- --------------------------------------------------------------------------------
For Against
| | | |
- --------------------------------------------------------------------------------
Dated:__________________________________, 1998
----------------------------------------------
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IMPORTANT: Please sign exactly as name appears
at the left. Each joint owner should sign.
Executors, administrators, trustees, etc.
should give full title.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
