UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported) February 12, 1997
(February 12, 1997)
Commission File Number 0-18550
NTS Mortgage Income Fund
(Exact name of registrant as specified in its charter)
Delaware 61-1146077
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
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Forward-Looking Statements
In addition to historical information, this Current Report on Form 8-K
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company's
Quarterly Reports on Form 10-Q and 10-K. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. NTS Mortgage Income Fund (the "Fund")
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the factors described in other documents that the Fund files
from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by the Fund in 1997 and 1998 and any
Current Reports on Form 8-K filed by the Fund.
Item 5. Other Events
On February 12, 1997, NTS Mortgage Income Fund (the "Fund") signed a letter
of intent (the "Letter of Intent") with NTS Corporation, the sponsor of the Fund
("NTS"), and its affiliates, NTS Development Company ("NTS Development"),
NTS/Lake Forest II Residential Corporation ("NTS/Lake Forest") and NTS/Virginia
Development Company ("NTS/Virginia") regarding the Fund's loans to NTS/Lake
Forest and NTS/Virginia. The Letter of Intent provides for a restructuring of
the Fund's loans to NTS/Lake Forest, which is secured by the project known as
Lake Forest North, and to NTS/Virginia, which is secured by the project known as
Fawn Lake. The Letter of Intent contemplates that the ownership of the
properties will be transferred to the Fund, which plans to continue the
development to completion of such projects and, ultimately, their orderly sale.
The parties to the Letter of Intent agreed to consider a general restructuring
of the relationships among the Fund, NTS and its various affiliates.
The Fund has not yet determined the method by which it will acquire control
of the projects. The Fund anticipates that each project will be held in a
separate entity controlled by the Fund for limitation of liability purposes. The
assumption of the projects should be treated for federal income tax purposes as
a sale or exchange and should not result in any immediate taxable gain to the
Fund.
Lake Forest North and Fawn Lake will have continued cash needs for
development and marketing which will significantly reduce the cash flows
associated with the projects, and, therefore, the Board of Directors has
determined to terminate the Fund's quarterly distribution for the foreseeable
future effective as of the first quarter of 1997. It is likely that the Fund
will report losses in the near term.
It is likely that the Fund will terminate its REIT status in connection
with the ongoing development and sale of the Fawn Lake and Lake Forest North
projects. As a result of the termination of the REIT status of the Fund, the
Fund may incur income taxes on future operating income.
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The Lake Forest North and Fawn Lake projects will be acquired subject to
the following mortgage indebtedness to third parties and to existing payables:
Lake Forest North existing mortgage debt:
(1) Approximately $4,000,000 to National City Bank (Lake Forest Country
Club)
(2) Approximately $258,000 to Pinetree Aviation (Section Loans)
Fawn Lake existing mortgage debt:
(1) Approximately $2,000,000 to PNC Bank (Fawn Lake Country Club*)
(2) Approximately $272,000 to Pinetree Aviation (Section Loans)
The Fund is further indebted to NTS Financial Partnership and
affiliates in an approximate amount of $5,600,000, which is due and payable from
funds remitted to the Fund upon sale of lots, country club memberships and
ancillary services from the Lake Forest North, Fawn Lake and Orlando Lake Forest
projects, or is otherwise due on demand. The Fund will remain responsible for
repayment of such funds on present terms and on such other terms as shall be
mutually agreeable.
The Fund, as owner of the Lake Forest North and Fawn Lake projects,
expects to continue development of the projects and the orderly sale of lots,
golf course memberships and ancillary services through sell-out, as well as the
sale of the Fawn Lake Country Club, when appropriate. As owner, the Fund will be
responsible for continuing development, operations and marketing costs through
the remaining lives of the projects and it would be necessary for the Fund to
borrow additional funds to complete the development. While the Fund believes
that such funds will be more readily available if it owns the projects, it is
not certain that the Fund will be able to borrow the funds necessary to complete
the projects.
NTS Development, or another subsidiary or affiliate of NTS Corporation
("Manager"), will enter into a management agreement (the "Management Agreement")
with the Fund pursuant to which the Manager will, as authorized agent for the
Fund, provide exclusive management, development, marketing and sales efforts and
personnel to the Fund, and take all other actions necessary to manage the
development of the projects to completion and the sale of lots, golf
memberships, ancillary services and the Fawn Lake Country Club. The terms of the
Management Agreement have not yet been finalized.
A copy of the Letter of Intent is attached as Exhibit A.
Item 7. Financial Statements and Exhibits
Exhibits
A) Letter of Intent among the Fund, NTS Corporation, NTS
Development Company, NTS/Lake Forest II Residential Corporation and
NTS/Virginia Development Company.
* The Fawn Lake Country Club loan may be increased to $2,500,000 pursuant to
discussions between the Fund and PNC Bank.
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SIGNATURES
Pursuant to the requirements of the Securities exchange Act of 1934, NTS
Mortgage Income Fund has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
NTS MORTGAGE INCOME FUND
/s/ John W. Hampton Date: February 12, 1997
- ----------------------------------
John W. Hampton
Secretary/Treasurer of the
NTS Mortgage Income Fund
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Exhibit A
NTS Mortgage Income Fund
February 12, 1997
NTS/Lake Forest II Residential Corporation, NTS/Virginia Development Company,
NTS Corporation and NTS Development Company
Gentlemen:
The purpose of this letter ("Letter of Intent") is to summarize our
discussions and express our mutual intent regarding the general restructuring of
the relationship of NTS Mortgage Income Fund (the "Fund") with NTS Corporation
("NTS") and its various affiliates including NTS/Lake Forest II Residential
Corporation ("NTS/Lake Forest"), and NTS/Virginia Development Company
("NTS/Virginia") (together, the "Companies"), subject to the following terms and
conditions, including the execution by the parties of a mutually acceptable
definitive agreement ("Definitive Agreement") and related ancillary documents.
The restructuring would be undertaken in order to protect the capital of the
Fund and in an effort to ensure the return of shareholder capital.
1. Acquisition of Assets and Restructuring.
At the closing (the "Closing"), NTS/Lake Forest and
NTS/Virginia will transfer and assign to the Fund, and the Fund will acquire
from the Companies, all of the assets of NTS/Lake Forest and of NTS/Virginia
which are pledged to the Fund, free and clear of all claims, liens, charges,
security interests and encumbrances, except for current payables, indebtedness
to third parties and the mortgages of the Fund securing the loans of the Fund to
the Companies, and any other liens specifically excepted, in exchange for the
cancellation of indebtedness of the Companies to the Fund. The parties will also
consider a general restructuring of the relationships among the Fund, NTS, and
its various affiliates.
2. Management Agreement.
At the Closing, the Fund will enter into a management
agreement (the "Management Agreement") with NTS Development Company, or one of
its affiliates (the "Manager") pursuant to which the Manager will serve as the
agent of the Fund in providing exclusive management, development, marketing and
sales efforts and personnel to the Fund, and take all other actions necessary to
manage the development of the projects to completion and the sale of lots,
country club memberships, ancillary services and the Fawn Lake Country Club. The
terms of such Management Agreement shall be as mutually agreed by the parties in
the Definitive Agreement.
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February 12, 1997
Page 2
3. Representations, Warranties and Indemnities.
(a) The Definitive Agreement will contain such representations
and warranties by the NTS parties regarding their businesses, properties,
assets, liabilities, operations and conditions as are customary in a transaction
of this nature, including representations and warranties with respect to the
financial condition and operations of the NTS parties, compliance with
applicable laws, claims, litigation, liens, environmental matters, insurance and
such other representations and warranties as may be agreed to by the parties.
Representations and warranties shall be subject to such limitations, standards
and qualifications as the parties may agree.
(b) The Companies will agree to indemnify the Fund with
respect to any damages it may incur as a result of any material
misrepresentation or breach of warranty as mutually agreed in the Definitive
Agreement.
4. Access.
The NTS parties shall permit the Fund and its representatives
full access, at all reasonable times after the date hereof until the Closing, to
the books, records, property and personnel involved in the affairs of the Fund
as the Fund may reasonably request in order to facilitate a complete
investigation, inspection and analysis by the Fund of the businesses and
prospects of the Fund. The NTS parties shall also make available their
attorneys, accountants and other outside consultants for the purpose of
discussing with the Fund (and its representatives) the businesses and prospects
of the Fund.
5. Conditions to Closing.
The obligation of the Fund to consummate the transaction shall
be conditioned on such matters as may be provided in the Definitive Agreement,
including the following:
(a) The parties shall have entered into the Definitive
Agreement and related ancillary documents, in form and substance satisfactory to
each party.
(b) All representations and warranties of the NTS parties in
the Definitive Agreement and ancillary documents, all as mutually agreed in
accordance with paragraph 5(a), shall be true, correct and complete in all
material respects as of the date of Closing.
(c) All representations and warranties of the Fund in the
Definitive Agreement shall be true, correct and complete in all material
respects as of the date of Closing.
(d) The parties shall have received the consent or approval of
third parties (as specified in the Definitive Agreement), including, but not
limited to lenders, and applicable governmental or regulatory authorities, whose
consent or approval is necessary or desirable in connection with the
consummation of the transaction contemplated hereby or for Fund's operation of
the businesses transferred to it following the Closing.
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February 12, 1997
Page 3
(e) Each of the parties shall have performed and complied with
all material agreements and conditions to be performed or complied with by it
prior to the Closing.
(f) The results of the investigations by the Fund and its
representative of the business and prospects of the Fund as it is to be
constituted after the restructuring, and of the books, records and financial
statements relevant to the Fund and its operations, shall be satisfactory to the
Fund in all respects.
(g) No material litigation or governmental action shall be
pending or threatened with respect to the transaction contemplated hereby.
(h) The Special Committee of Independent Directors of the Fund
shall have approved the Definitive Agreement and the related ancillary
documents.
6. Conduct of the Companies' Business.
Between the date hereof and the Closing, the parties shall
conduct and operate their businesses in the usual and ordinary course and in
substantially the manner that they have heretofore been conducted.
7. Effect.
This Letter of Intent does not constitute a binding agreement
by the parties hereto; instead, it expresses a good faith intention of the
parties to use their best reasonable efforts to proceed expeditiously to
negotiate, prepare and execute the Definitive Agreement and related ancillary
documents in accordance with the provisions hereof. Except as provided in the
preceding sentence, no legally enforceable agreement of the parties as to the
subject matter of this Letter of Intent shall be created unless and until a
Definitive Agreement and related ancillary documents with respect to such
subject matter are duly authorized, executed and delivered. This Letter of
Intent shall terminate and be of no further force or effect if the execution and
delivery of the Definitive Agreement has not occurred on or before the date that
is forty-five (45) days after the date of this Letter of Intent.
8. Gender.
References herein to the neuter gender shall also be deemed to
include or refer to the masculine or feminine gender, as the context requires.
9. Governing Law.
This Letter of Intent shall be governed by and construed and
enforced in accordance with the laws of the State of Kentucky.
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February 12, 1997
Page 4
Please indicate the agreement of these various parties to the terms
hereof by having this Letter of Intent signed in the spaces provided below and
returning a copy to the undersigned no later than 6:00 p.m., Eastern Time, on
February 14, 1997 (at which time this Letter of Intent, if not so signed and
returned, will expire). This Letter of Intent may be signed in any number of
counterparts, all of which together shall constitute a single Letter of Intent.
Signatures of the parties transmitted by facsimile will be valid and binding for
all purposes.
Very truly yours,
NTS Mortgage Income Fund
By: /s/ Robert M. Day
-----------------
Name: Robert M. Day
Title: Director
ACCEPTED AND AGREED TO:
NTS/Lake Forest II Residential Corporation NTS/Virginia Development Company
By: /s/ Richard L. Good By: /s/ John W. Hampton
---------------------- --------------------
Name: Richard L. Good Name: John W. Hampton
Title: President Title: Senior Vice President
NTS Corporation NTS Development Company
By: /s/ Richard L. Good By: /s/ Richard L. Good
Name: Richard L. Good Name: Richard L. Good
--------------- ---------------
Title: President Title: President
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