<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from _____ to_____
Commission File No. 001-12171
CAPITOL COMMUNITIES CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
Nevada 88-0361144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25550 Hawthorne Boulevard
Suite 207
Torrance, CA 90505
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 375-2266
Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 12 months (or for
such period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] YES [_] NO
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock ($.01 Par Value) 7,131,000
(Title of Class) Shares Outstanding as of
April 30, 1997
Transitional Small Business Disclosure Format: [_] YES [X] NO
<PAGE>
CAPITOL COMMUNITIES CORPORATION
Form 10-QSB
QUARTER ENDED March 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).................................. 3
Consolidated Balance Sheet
March 31, 1997.................................................... 3
Consolidated Statement of Cash Flows
For the Six Months Ended March 31, 1997 and 1996.................. 4
Consolidated Statement of Operations
For the Six Months ended March 31, 1997 and 1996.................. 5
Consolidated Statement of Operations
For the Three Months ended March 31, 1997 and 1996................ 6
Notes to Consolidated Financial Statements
March 31, 1997.................................................... 7
Item 2. Management's Discussion And Analysis of Plan of Operation......... 9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings................................................. 16
Item 3 Defaults Upon Senior Securities................................... 16
Item 5. Other Information................................................. 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures.................................................................. 19
Index to Exhibits
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
Capitol Communities Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and September 30, 1996
UNAUDITED
<TABLE>
<CAPTION>
March 31, 1997 September 30,1996
-------------- -----------------
<S> <C> <C>
Current Assets
Cash in Bank $ 273,761 (185,911)
Accounts Receivable 1,057 1,056
Prepaid Assets 226,962 6,893
Accrued Interest 123,893 62,140
----------- -----------
Total Current Assets 625,673 (115,822)
Loan & Origination Fees,
Net of Amortization 271,700 211,601
Other Assets
Deposits 14,129 129
Real Estate Holdings 8,766,594 9,156,357
Investments 3,500,000 3,500,000
----------- -----------
Total Other Assets 12,280,723 12,656,486
Total Assets $13,178,096 $12,752,265
=========== ===========
Current Liabilities
Accounts Payable & $ 809,410 $ 1,108,924
Accrued Expenses
Accrued Interest 733,282 251,712
Notes Payable 2,525,313 1,995,975
----------- -----------
Total Current Liabilities 4,068,005 3,356,611
Notes Payable 6,926,712 6,941,558
----------- -----------
Total Liabilities 10,994,717 10,298,169
Shareholders' Equity
Preferred Stock - -
Common Stock 7,188 7,000
Additional Paid in Capital 5,139,920 4,764,108
Accumulated Deficit (2,963,729) (2,317,012)
Total Shareholders' Equity 2,183,379 2,454,096
----------- -----------
Total Liabilities and
Shareholders' Equity $13,178,096 $12,752,265
=========== ===========
</TABLE>
3
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 1996 and 1997
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(646,717) $(566,436)
Amortization 42,301 28,616
Adjustments to Reconcile Income
to Net Cash Used for operating Activities
(Increase) Decrease in Receivables (1) 11,332
(Increase) Decrease in Other Assets (14,000) (10,000)
(Increase) Decrease in Real Estate Holdings 389,763 (113,642)
(Increase) Decrease in Accrued Interest
Receivable (61,753) (121,702)
(Increase) Decrease in Pre-Paid Assets (220,069) (2,251)
Increase (Decrease) in Accrued Expenses (299,514) 316,295
Increase (Decrease) in Accrued Interest
Payable 481,570 277,639
Net Cash Used for Operations (328,420) (180,149)
Cash Flows from Financing Activities:
Increase in Notes Payable 514,492 1,836
Loan Origination Fees (102,400) -
Cash Flows from Investing Activities:
Issuance of Common Stock 376,000 0
--------- ---------
Net Increase (Decrease) in Cash 459,672 (178,313)
Beginning Cash (185,911) 265,703
--------- ---------
Ending Cash $ 273,761 $ 87,390
========= =========
</TABLE>
4
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended March 31, 1996 and 1997
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Sales $ 287,465 $ 0
Cost of Sales 43,701 -
---------- ----------
Gross Profit 243,764 0
Operating Expenses:
General & Administrative
Expenses 952,604 689,505
---------- ----------
Net Income (Loss) Before
Interest Income (708,840) (689,505)
Interest Income 62,123 123,069
---------- ----------
Net Income (Loss) $ (646,717) $ (566,436)
========== ==========
Net Income (Loss) per share $(0.090) $(0.081)
========== ==========
Weighted average shares outstanding: 7,151,099 7,000,000
========== ==========
Dividends per Share 0 0
---------- ----------
</TABLE>
5
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 1996 and 1997
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Sales $ 68,891 $ 0
Cost of Sales - -
---------- ----------
Gross Profit 68,891 0
Operating Expenses:
General & Administrative
Expenses 486,504 305,973
---------- ----------
Net Income (Loss) Before
Interest Income (417,913) (305,973)
Interest Income 370 58,920
---------- ----------
Net Income (Loss) $ (417,543) $ (247,053)
========== ==========
Net Income (Loss) per share $(0.058) $(0.035)
========== ==========
Weighted average shares outstanding: 7,188,000 7,000,000
========== ==========
Dividends per Share 0 0
---------- ----------
</TABLE>
6
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CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997
--------------
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
Background
----------
The consolidated balance sheet at March 31, 1997 and the related
statements of operations and cash flows for the six month period
ended March 31, 1997 include the accounts of Capitol Communities
Corporation and its wholly owned subsidiaries and are unaudited. All
inter-company accounts and transactions have been eliminated in
consolidation.
These unaudited interim consolidated financial statements should be
read in conjunction with the September 30, 1996 fiscal year end
financial statements and related notes. The unaudited interim
financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of results for the
interim periods presented and all such adjustments are of a normal
recurring nature. Interim results are not necessarily indicative of
results for a full year.
The Company was originally incorporated in the State of New York on
November 8, 1968 under the name of Century Cinema Corporation. In
1983, the Company merged with a privately owned company, Diagnostic
Medical Equipment Corp., and as a result changed its name to that of
the acquired company. By 1990, the Company was an inactive publicly
held corporation. In 1993, the Company changed its name to AWEC
Resources, Inc., and commenced operations. On February 11, 1994, the
Company formed a wholly-owned subsidiary, AWEC Development Corp., an
Arkansas corporation, which later changed its name to Capitol
Development of Arkansas Inc., on January 29, 1996. The Company was
formed to develop and sell real estate properties. In May 1994, the
Company formed a wholly-owned subsidiary, AWEC Homes, Inc., an
Arkansas corporation for the purpose of building single-family homes.
The subsidiary's name was changed to Capitol Homes, Inc., on January
29, 1996.
In order to effectuate a change in domicile and name change, approved
by a majority of the Predecessor Corporation shareholders, the
Predecessor Corporation merged, effective January 30, 1996, into
Capitol Communities Corporation, a Nevada corporation formed in August
1995, solely for the purpose of the merger.
Revenue Recognition
-------------------
The full accrual method is used to determine the recognition of
revenue. In order to recognize revenue and profit under the full
accrual method the following
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criteria must be met. The profit from the sale must be determinable,
that is, the collectibility of the sales price is reasonably assured,
or any portion which may not be collectible can be reasonably
estimated. In addition, the earnings process must be complete, with no
significant activities required of the seller after the sale in order
to earn the profit from the sale.
CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 1997
--------------
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
------------------------------------------------
POLICIES (Continued)
--------------------
Earnings/Loss Per Share
-----------------------
Primary earnings per common share are computed by dividing the net
income (loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during the year. The number
of shares used for the fiscal year ended September 30, 1996 was
7,000,000 and for the six months ended March 31, 1997 was 7,151,099.
NOTE 2 - CAPITAL TRANSACTIONS
--------------------
In May 1993, the Company executed a 15 to 1 reverse stock split.
In September 1993, the Company issued an additional 4,282,126 shares
of common stock to existing stockholders.
In October 1993, the Company issued to Petro Source 6,079,000 shares
of common stock to acquire royalty interests in oil and gas properties
owned by Petro Source Energy Corp.
In July 1995, the Company executed a 5 to 1 reverse stock spilt.
In July 1995, the Company issued an additional 4,772,996 shares of
common stock to existing stockholders.
In October 1996, an individual pursuant to a consulting agreement,
exercised an option to purchase 38,000 shares of common stock.
In November 1996, an individual pursuant to a consulting agreement,
exercised an option to purchase 150,000 shares of common stock.
In April 1997 two shareholders returned a total of 57,000 shares of
common stock for cancellation, pursuant to an agreement with the
Company.
8
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Item 2. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
Although the Company has yet to commence development, its focus is directed
towards the development and sale of commercial and residential real estate
projects on the more than 1,800 acres it owns in the City of Maumelle, Arkansas
("the Maumelle Property"), a 5,000 acre master planned community located fifteen
miles from downtown Little Rock. In addition, the Company has expanded its
focus to include the development and sale of vacation ownership interval ("VOI")
properties and hotel and vacation properties. In its efforts to diversify its
development focus, the Company has entered into an agreement to purchase the
assets of a VOI resort (SunBay Inc.), located in Hot Springs, Arkansas. See
"LIQUIDITY AND CAPITAL RESOURCES" below. The Company believes that its ability
to generate revenues in the future from its real estate development and other
activities will depend in large part on its ability to solve its current
illiquidity problems, the success of the Company's future capital-raising
efforts to overcome its present illiquidity position, and the Company's ability
to develop or acquire greater construction, sales and other real estate
development expertise than the Company now possesses. The following discussion
should be read in conjunction with the financial statements and the notes
thereto appearing in Item 1 of this Part I (the "Financial Statements").
Financial Condition
- -------------------
There continues to be substantial doubt about the Company's ability to
continue as a going concern, due to its current illiquidity and uncured defaults
in most of its secured debt. As discussed in more detail below, the Company
obtained $833,660 in secured short-term debt financing from private sources
during the three month period ended April 30, 1997 ,and has subsequently
obtained an additional $144,046 as of May 14, 1997. The Company is attempting to
obtain up to an additional $300,000 in such financing by the end of the
Company's third fiscal quarter. There can be no assurance, however, that such
additional financing can be obtained, or that it will be obtained in time to
permit the Company to forestall foreclosure on the property securing its
defaulted debt obligations. Even if such financing is obtained, the Company will
require substantial additional capital to satisfy its long-term liquidity
requirements.
Change in Financial Condition Since the End of the Last Fiscal Year.
--------------------------------------------------------------------
At March 31, 1997, the Company had total assets of $13,178,096, an increase of
$425,831, or 3.3% over the Company's total assets as of the Company's fiscal
year end of September 30, 1996. The Company had cash of $273,761 at March 31,
1997 compared to a negative cash position of $185,911 at September 30, 1996, an
improvement of $459,672. This improvement resulted from timber royalties
received during the six month period, sale of land and the secured short- term
debt financing (the "Bridge Loans") discussed later. See "LIQUIDITY AND CAPITAL
RESOURCES" below.
Prepaid assets increased from $6,893 on September 30, 1996 by $220,069 to
$226,962 on March 31, 1997. This increase was due to the prepayment of amounts
owed under two separate financial consulting contracts. One contract extends
through September 30, 1997, while the other
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contract extends through December 31, 1997. The prepaid portion of these
contracts as of March 31, 1997 was $218,000. The prepayment of these amounts did
not result in a decrease in cash, since no cash was paid. Instead the
consultants were given credits against the exercise price of certain stock
options granted to them pursuant to the consulting contracts.
The carrying value of the Company's real estate holdings declined by $389,763
during the six months from $9,156,357 to $8,766,594. The largest component of
this decrease was the elimination of $208,172 of Special Taxes on certain
Maumelle Property commercial tracts. This cost had previously been capitalized,
so the elimination reduced the carrying value of the property. The Special Tax
reduction occurred as a result of a bond refinancing by the Improvement District
containing the bulk of the Company's commercial land. A second major component
of the decrease was the dismissal of the Holloway lawsuit against the Pine Ridge
District. The Company had accrued a liability of $200,000 which was capitalized
as part of the cost of the tract. Upon dismissal of the suit, this liability was
eliminated and the carrying value of the tract reduced. The sale of a portion
of one of the Commercial sites in December resulted in a net reduction of real
estate holdings of $28,361. This represents the allocated and land improvement
cost of that particular site, which was recognized as part of the cost of sales.
Additions to real estate holdings resulted from expenditures of $31,386 in
connection with the revival of a Purchase Contract for the acquisitions
project. The contract was renewed after an appeal and subsequent reversal of
the Little Rock City Council's prior denial of zoning changes and annexation
into the City. On April 9,1997 the Company paid a fee of $10,000 for a six
month extension on the agreement, to October 14, 1997. Additional capitalized
costs totaling $15,384 were added to real estate holdings primarily for pre-
development/acquisition costs on three different properties in Maumelle and one
in Hot Springs .
Total liabilities of the Company at March 31, 1997, had increased to
$10,994,717, an increase of $696,548 over the September 30, 1996 total of
$10,298,169. The liability for accrued interest increased to $733,282 at March
31, 1977 from $251,712 at September 30,1996. This increase of $481,570 reflects
the addition of $88,219 of interest resulting from the cancellation of the
payment made to Resure at September 30, 1996 due to the Company's inability to
acquire sufficient cash that had been anticipated to be received during October.
The balance of the increase reflects the fact that no interest was paid during
the six months ended March 31, 1997. The current liability for notes payable
increased by $529,338 during the six months, from $1,995,975 to $2,525,313.
This increase included the $412,000 of secured short term loans (the "Bridge
Loans") obtained in the six month period and a $14,846 reclassification of notes
payable to current liability for a principal payment due within one year of
March 31, 1997. The increase also included $89,120 in new borrowings. The
cancellation of the payment due to Resure on October 1, 1996 increased the
liability by $13,372.
Accounts payable and accrued expenses decreased by $299,514. At September
30,1996 the liability for accounts payable and accrued expenses totaled
$1,108,924. At March 31, 1997 the balance was $809,410. Accrued Special Taxes
payable decreased by $208,172. The Special
10
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Tax decrease was a result of the bond refinancing by the Improvement District
encompassing the bulk of the Company's commercial land. A decrease in Pine Ridge
District liability of $200,000 resulted from the dismissal of the lawsuit filed
against the District by the plaintiff. As the sole property owner in the Pine
Ridge District, any liability of the District would impact on the Company. These
decreases were partially offset by additional accounts ended March 31, 1997
including an additional $90,000 in officers salary, $9,000 in accrued Directors'
fees and $10,800 in office lease payable. Accrued real estate taxes payable also
increased by $2,579 which represents the difference between a payment made of
$27,417 and accruals of $29,996 in new taxes.
Shareholders' Equity decreased by $270,717 or 11.03%. The decrease results
primarily from the operating loss of $646,717 for the six month period ending
March 31,1997. This was somewhat offset by the issuance of 188,000 new shares of
the Company's common stock at $2.00 per share, pursuant to the Consultants'
stock options discussed above.
Results of Operations
- ---------------------
Comparison of Six Months Ended March 31,1997 to the Six Months Ended March
--------------------------------------------------------------------------
31,1996 For the six months ended March 31, 1997, the Company experienced a loss
- -------
of $646,717 compared with a loss of $566,436 for the six months ended March 31,
1996. The difference in performance was primarily due to an increase in fees
paid to consultants retained in October of 1996. The related expense recognized
in the six months ended March 31, 1997 for these fees and costs totaled
$158,000. The dissolution of the Monterra Group joint venture in California
resulted in an additional $18,122 in fees incurred in the quarter ended December
31, 1996. There were no comparable expenses in the six months ended March 31,
1996.
Sales increased by $287,465 for the six months ended March 31, 1997 from $0
for the six months ended March 31, 1996, as a result of the sale of a commercial
two-acre parcel of the Maumelle Property for a sales price of $110,000 and the
sale of timber from the undeveloped single family portion of the Maumelle
Property in the amount of $159,343. The dissolution of the joint venture with
the Monterra Group provided sales of $18,122 from the net proceeds of the sale
of the lots. The gross profit for the six months ended March 31, 1996 was
$243,764. There was no gross profit for the six months ended March 31, 1996
since there were no sales or costs of sales incurred during that period.
For the six months ended March 31, 1997 and the six month period ended March
31, 1996, general and administrative expenses increased to $952,604 from
$689,505. This increase was due to the payment of the consulting fees
associated with the Monterra Group joint venture in the amount of $18,122 and
the above-mentioned financial consulting fees of $158,000.
The major portion of the general and administrative expenses for the six
months ended March 31, 1997, were accrued by the Company, and include expenses
such as officers' salaries, office lease and directors' fees. Management and
consulting fees for the six months ended
11
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March 31, 1997 increased to $240,212 from $36,239 for the six months ended
March 31, 1996. Although fees to Maumelle Enterprises, Inc. ("Maumelle
Enterprises") increased during the period to $45,000 from $36,239 in the prior
period, the bulk of the increase was attributable to the consulting fees noted
above. In addition, legal and accounting fees increased from $47,401 for the six
months ended March 31, 1996 to $91,081 for the same period in 1997. Amortization
expenses increased by $13,385 in the six months ended March 31, 1997.
Comparison of The Three Months Ended March 31, 1997 to the Three Months Ended
----------------------------------------------------------------------------
March 31, 1996 For the three months ended March 31, 1997, the Company
- --------------
experienced a loss of $417,913 compared with a loss of $247,053 for the three
months ended March 31, 1996. The difference in performance was primarily due to
the increase in fees to consultants retained in October 1996 as well as the
decrease in recognition of interest income.
Sales increased by $68,891 for the three months ended March 31, 1997 from $0
for the six months ended March 31, 1996, as a result of the sale of timber from
the undeveloped single family portion of the Maumelle, Arkansas property. The
gross profit for the three months ended March 31, 1997 was $68,891. There was
no gross profit for the six months ended March 31, 1996 since there were no
sales or costs of sales incurred during that quarter.
General and administrative expenses increased to $486,804 for the three
months ended March 31, 1997 from $305,973 in the three months ended March 31,
1996. The major portion of the general and administrative expenses for the three
months ended March 31, 1997, were accrued by the Company, and include expenses
such as officers' salaries, office lease and directors' fees. Consulting fees
for the three months ended March 31, 1997 increased to $97,840 from $510 for the
three months ended March 31, 1996. Management fees for the period ended March
31, 1997 amounted to $45,000. Management fees for the period ended March 31,
1996 were waived. Amortization expenses for the three months ended March 31,
1997 amounted to $27,993, an increase of $13,385 over the comparable period in
1996, resulting from costs related to the Bridge Loans obtained by the Company
and described in "Liquidity and Capital Resources" below. Legal and Accounting
costs for the three month period ended March 31, 1996 amounted to $34,762, an
increase of $18,322 over the comparable period in 1996.
Interest income decreased from $58,920 for the three month period ended March
31, 1996, to $370 for the three month period ended March 31, 1997. This resulted
from the Company's decision not to accrue interest due to the company on the
Resure debenture since Resure is in receivership and the interest is not
currently being paid on the Debenture.
The Company does not foresee any significant elements of income or loss that
would not arise from its ordinary course of business, except for the losses that
would likely arise if the Company were to lose the approximately 1,110.76 acres
of land secured by defaulted debt obligations. As set forth elsewhere in this
Report, the Company has no immediate source of cash for bringing its obligations
current, other than the Bridge Loans, discussed below.
12
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Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents amount to $273,761 or 2.08% of total assets at March
31, 1997, as compared with negative $185,911 at September 30, 1996. The
Company's liquidity position at March 31, 1997, is not adequate to meet the
Company's liquidity requirements, which include approximately $8,600,000 in
defaulted debt. The Company's status as a going concern remains in doubt.
The Company has, as of May 14, 1997, borrowed $977,706 from private sources,
with net proceeds to the Company of $733,279, and is attempting to borrow an
additional $300,000 from private sources by the end of the third quarter of this
fiscal year, with anticipated net proceeds to the Company of approximately
$225,000 (collectively, the "Bridge Loans"). The majority of the promissory
notes evidencing the Bridge Loans (the "Bridge Notes") bear interest at a rate
of 10% per annum and mature nine months from the date of each Note. The Bridge
Loans are unsecured, however the Company is providing a guarantee bond to the
Bridge Note holders at a cost to the Company of approximately 10% of the gross
proceeds received from the Bridge Loans. The Company is further obligated to pay
the investment banking firm that is assisting the Company in obtaining the
Bridge Loans a fee equal to 15% of Bridge Loans gross proceeds received and 15%
on any additional Bridge Loans obtained by the firm.
There can be no assurance that the Company can obtain the additional $300,000
in Bridge Loans. Even if the Company is able to obtain such financing, the
Company will need to obtain additional funds to reinstate or refinance its
defaulted loans, meet its operating costs, and commence substantial development
activities. There can be no assurance that the holders of the Company's
defaulted secured debt will cooperate with the Company in its efforts to cure
its current loan defaults.
The Company is currently in default under most of its debt obligations. A
$1,400,000 recourse note to Century Realty Inc. ("Century) secured by
approximately 36 acres of commercial lots (the "Century Note I"), matured
January 9, 1996, and remains unpaid. Based on cross-default provisions in a
Century $350,000 unsecured recourse note ("the Century Note II"), Century claims
that the Century Note II is also now in default. Century filed a foreclosure
complaint against the Company with respect to this debt on August 12, 1996. On
September 16, 1996, the Company filed an answer and counterclaim against Century
claiming the Century Note I and the Century Note II were usurious. There can be
no assurance, however, that the Company will prevail in this litigation.
Although the Company has continued to negotiate with representatives of Century
to settle the suit, the Company has been unable to meet Century's proposed terms
due to its lack of liquidity.
The Company did not make the $101,591 October 1, 1996 payment due to Resure,
Inc. ("Resure"), under a $3,500,000 recourse note secured by approximately
1,111-acre large residential tract of the Maumelle Property (the "Resure Note
I"), but was granted an extension until April 1, 1997 (the "extension payment")
in consideration of a pledge of 200,000 shares of
13
<PAGE>
the Company's common stock by two of the Company's major shareholders, Charlie
Corporation and Prescott Investments Limited Partnership (the "Pledge
Agreement"). The Company has not made the $101,591 quarterly payment due January
1, 1997, the quarterly payment of like amount due April 1, 1997, nor the
$101,591 extension payment that was due April 1, 1997. Due to Resure's own
financial and liquidity concerns, a liquidator, Mark Boozell, Director of
Insurance of the State of Illinois, was appointed and confirmed by the court for
Resure. The Company is currently negotiating with the liquidator to bring the
debt current. The Company currently does not have sufficient liquidity to retire
the Resure debt, however it intends to make the January 1 payment, the April 1
payment and the extension payment by June 1, 1997 from the proceeds of the
Bridge Loans. However there can be no assurance that the Company will be able to
make one or all of the defaulted payments by June 1, 1997 or at all. Resure has
agreed to release the 67 acres of the Company's Maumelle property, pledged as
partial consideration under the Resure NoteI, in order that the Company may
complete the sale of the residential property currently under contract (See Real
Estate Contract discussed below). In exchange for the release of the property,
the Company has agreed to provide Resure with $675,100, to be placed in a
Restricted Cash Collateral Account by Resure.
Until the Company is able to cure its default on the Resure Note I payments,
the Company will remain in default on a $3,500,000 non-recourse loan to Resure,
secured by approximately 410 acres of the large residential tract of the
Maumelle Property (the "Resure Note II"), due to cross-default provisions in the
Resure Note I. As of May 14, 1997, Resure has not instituted any proceeding or
action against the Company, nor has it exercised its right to foreclose on the
200,000 shares pledged for the extension payment. However, Resure has formally
notified the Company of its default. There can be no assurance that Resure
will not institute further proceedings if the Company is not able to bring the
defaulted payments current and remain in compliance under the terms of the
Resure Note I agreement.
Under the terms of the Resure Note I, if the payment is not current Resure
may withhold the semi-annual interest payments payable to the Company under the
Resure Debenture (a debenture issued to the Company in return for the Resure
Note II). As of May 14, 1997, Resure has not paid the January, 1997 payment of
$123,507 due on the Debenture and the Company is currently in default on the
January, 1997 Resure Note II payment in the same amount. The Company is
negotiating to bring the payment current upon the sale of the 67 acres.
The Company continues to be in default on a $200,000 unsecured recourse note
payable to Davister Corp. (the "Davister Note") which matured January 9, 1996.
To retire or refinance the above defaulted debt obligations, service other
existing debt and meet the Company's anticipated future operating cash needs,
the Company must raise additional operating capital. There can be no assurance,
however, that such capital can be raised.
The Company is currently negotiating with a mortgage banking firm to arrange
debt and construction financing in the amount of $15,000,000 (the "Construction
Financing Loan"). If the
14
<PAGE>
Construction Financing Loan is obtained, the Company intends to use the net
proceeds to begin operations as a home builder and to service existing debt.
The Company intends to use part of the unsecured portions of the Maumelle
Property to secure $10,000,000 of the loan, with the remaining $5,000,000 to be
secured by home construction. Such negotiations remain in their initial stage,
however, and there can be no assurance that the Company will be able to obtain
the Construction Financing Loan on good terms or at all.
The Company has contracted to acquire the assets of SunBay, Inc., a vacation
interval resort located on 20 acres in Hot Springs, Arkansas (the "SunBay
Agreement"). The property consists of approximately 6,000 VOIs of which
approximately 400 remain available for sale as of March 31, 1997. The purchase
price for the project is $2,750,000. The Company's ability to complete this
acquisition is dependent upon its ability to obtain 100% financing for the
project. To this end, the Company is holding discussions with several lenders
whose business it is to provide capital to the time share industry. To obtain
this financing it may be necessary for the Company to provide the lender with
additional collateral. This additional collateral could be a security interest
in other assets of the Company. There can be no assurances that the Company will
be able to obtain the financing it requires, at terms acceptable to the Company,
or at all.
The Company has liquidated part of its assets through the sale of portions of
the Maumelle Property to obtain operating funds and pay debt and may liquidate
additional parcels of the Maumelle Property during the 1997 fiscal year for such
purposes. The Company raised $110,000 from a sale of a 2-acre parcel of its
Maumelle Property commercial lots, which closed on December 31, 1996. However,
the Company's sale of an 11 acre parcel of Maumelle Property commercial lots
which was expected to close on or before March 31, 1997 was canceled because the
buyer was unable to obtain the financing it required. The Company has no present
plans to sell this property.
In order to service existing debts and meet operating expenses, the Company
has entered into a Real Estate Contract for the sale of a 67 acre single-family
parcel of the Maumelle Property for a price of $1,552,730. The Company expects
the sale to be completed no later than May 28, 1997. As discussed above,
$675,100 of the proceeds from the sale will be placed in a Restricted Cash
Collateral Account as substitute collateral for Resure. The Company may also
decide to sell a 19-acre multi-family parcel of the Maumelle Property.
Management believes that the sale of both properties could provide the Company
with gross proceeds of approximately $2,600,000. There can be no assurance,
however that the Company will be able to sell the property for this amount or at
all.
In respect to prospective long-term liquidity, the Company intends to generate
the bulk of its cash from operations by building and selling homes initially on
the Maumelle Property, as well as the acquisition, development and subsequent
operation of hotel and vacation properties and the development and sale of
vacation ownership intervals ("VOI"). This assumes that the Company can obtain
the necessary financial resources to overcome its present illiquidity and begin
substantial building operations and successfully negotiate the acquisition of
leisure
15
<PAGE>
properties such as SunBay Resort Inc. There can be no assurances that the
Company can obtain the necessary resources, or negotiate acceptable terms for
the acquisition and development of the properties, or at all.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 13, 1997 the Company's subsidiary, Capitol Development of Arkansas,
Inc., as Intervenor was granted a Summary Judgement in the Case of Robert D.
Holloway, Inc., plaintiff, vs. Pine Ridge Additional Residential Property Owners
Multi-Purpose Improvement District NO. 9, Defendant, in the Chancery Court of
Pulaski County, Arkansas, Second Division. The Pine Ridge lots owned by the
Company have been indentured to pay any taxes levied by the Pine Ridge
Improvement District. The Plaintiff has filed a Notice of Appeal to the Supreme
Court of Arkansas. It has 90 days to file its brief and may be granted a 90 day
extension if it is requested. The Company's attorneys believe that the lower
court's decision will be upheld.
.
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company incorporates by reference the information regarding defaults of
certain debt obligations from Part I, Item 2 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF PLAN OF OPERATION - Liquidity and Capital Resources."
Item 5. OTHER INFORMATION.
The Company incorporates by reference the information regarding the SunBay
Agreement and the Real Estate Contract from Part I, Item 2 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF PLAN OF OPERATION - Liquidity and Capital Resources."
The Company has an option agreement (the "Option Agreement") to purchase
approximately 192 acres located in Little Rock, Arkansas for $1,190,945. The
Company has paid the owner a fee of $10,000 to extend the option period from
April 16, 1997 to October 15, 1997. The Company further has the option to extend
the expiration date to April 15, 1998 upon payment of another extension fee of a
like amount.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBITS
The following Exhibits are filed as part of this Report. (Exhibits numbers
correspond to the
16
<PAGE>
exhibits required by Item 601 of Regulation S-B).
2.1.1 Articles of Merger, filed with State of Nevada, dated November 29,
1995, merging AWEC Resources into Capitol Communities Corporation.*
2.1.2 Agreement of Merger, filed with State of Nevada, dated November 15,
1995, between AWEC Resources, Inc., and Capitol Communities
Corporation.*
2.2 Certificate of Merger, filed with State of New York, dated January
5, 1996, merging AWEC Resources, Inc., into Capitol Communities
Corporation.*
3.1.1 Articles of Incorporation of Capitol Communities Corporation, dated
August 18, 1995.*
3.1.2 Certificate of Amendment of Articles of Incorporation of Capitol
Communities Corporation, dated February 6, 1996.*
3.2 Bylaws of Capitol Communities Corporation, dated August 22, 1995.*
10.1 Contribution Agreement, dated September 11, 1995, between AWEC
Development Corporation and Resure, Inc.*
10.2 Subordinated Surplus Debenture, dated September 11, 1995, between AWEC
Development Corporation and Resure, Inc.*
10.3 Non-Recourse Promissory Note, dated September 11, 1995, between AWEC
Development Corporation and Resure, Inc.*
10.4 Non-Recourse Mortgage, dated September 11, 1995 between AWEC
Development Corporation and Resure, Inc.*
10.5 Security Agreement, dated September 11, 1995 between AWEC Development
Corporation and Resure, Inc.*
10.6 Environmental Indemnity Agreement, dated September 11, 1995, between
AWEC Development Corporation and Resure, Inc.*
10.7 Loan Agreement, dated September 11, 1995 between AWEC Development
Corporation and Resure, Inc.*
10.8 Promissory Note, dated September 11, 1995 between AWEC Development
Corporation and Resure, Inc.*
10.9 Mortgage, dated September 11, 1995 between AWEC Development
Corporation and
17
<PAGE>
Resure, Inc.*
10.10 Environmental Indemnity Agreement, dated September 11, 1995, between
AWEC Development Corporation and Resure, Inc.*
10.11 Agreement for Refinance of Secured Note, dated September 11, 1995
between Century Realty, Inc., AWEC Resources, Inc., and AWEC
Development Corporation.*
10.12 Promissory Note, dated September 11, 1995, between AWEC Development
Corporation and Century Realty, Inc. in the amount of $1,400,000.*
10.13 Mortgage, dated September 11, 1995, between AWEC Development
Corporation and Century Realty, Inc. in the amount of $350,000.*
10.14 Promissory Note, dated September 11, 1995, between AWEC Development
Corporation and Century Realty, Inc.*
10.15 Guaranty, dated September 11, 1995, between AWEC Development
Corporation and Century Realty, Inc.*
10.16 Stock Option Agreement, dated September 11, 1995, between Century
Realty, Inc., and AWEC Development Corporation.*
10.17 Release Deed, dated September 9, 1995, between Century Realty, Inc.,
and AWEC Development Corporation.*
10.18 Employment Agreement, dated July 14, 1995 between the Company and
Michael G. Todd.*
10.19 Olsen Consultant Agreement, dated October 7, 1996 between the Company
and Jens Olsen.**
10.20 Purchase Agreement, dated October 24, 1995, between John L. Burnett,
Trustee for Wood Heath Joint Venture and the Company.***
10.21 Asset Purchase Agreement effective February 21,1997, between Capitol
Communities Corporation and SunBay Inc. for the purchase of the SunBay
Resort.
10.22 Real Estate Contract effective February 28, 1997, between Capitol
Communities Corporation and Steve Hockersmith as agent for an
unidentified buyer for the sale of 67.51 acres of land in Maumelle,
Arkansas.
11 Statement re: computation of per share earnings
18
<PAGE>
27 Financial Data Schedule
* Exhibit(s) incorporated by reference from the Registration on
Form 10-SB of the Company, Registration No.915636 filed on
September 16, 1996.
** Exhibit incorporated by reference from the Current Report on
Form 8-K, Commission File No. 915636 filed on October 18, 1996.
*** Exhibit incorporated by reference from the December 31,1996
Quarterly Report on Form 10-QSB filed on February 19,1997.
b) REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CAPITOL COMMUNITIES CORPORATION
Date: May 15, 1997 By: /s/ Michael G. Todd
Michael G. Todd, Chairman,
President and Chief Executive Officer
Date: May 15, 1997 By: /s/ David Paes
Treasurer and Vice President
19
<PAGE>
EXHIBIT 10.21
ASSET PURCHASE AGREEMENT
(SunBay Resort, Hot Springs, Arkansas)
_________________________________________________
This Asset Purchase Agreement (this "Agreement") is made effective on
the date indicated hereinbelow that the last party executed this Agreement (the
"Effective Date"), between Capitol Communities Corporation, a Nevada corporation
(the "Buyer"), and SunBay, Inc., an Arkansas corporation (the "Seller").
PREMISES:
Seller is the owner and operator of the "Sunbay Resort," located on
Lake Hamilton in Hot Springs, Arkansas, including the Athletic Club, Restaurant
and Lounge, equipment and supplies, land, buildings and timeshare weeks. Seller
intends to convey same to Buyer, pursuant to this Agreement.
WITNESSETH:
1. SALE AND PURCHASE OF BUILDING. The Seller agrees to sell, and the
-----------------------------
Buyer agrees to purchase on the terms hereafter stated, all of the Seller's
right, title and interest in and to the following described property and
improvements (hereafter collectively called the "Project"):
1.1 Real Property.
-------------
(a) All of Seller's land, together with the buildings, improvements,
fixtures and other items of real property now or hereafter located on such land,
in an as-is condition, situated on Lake Hamilton, Hot Springs, Garland County,
Arkansas, and all Seller's timeshare interests and all Seller's interests in
real estate in Garland County, Arkansas, including, but not limited to "The
Wharf" and "North Shore" developments and that real property (other than
timeshare weeks) more particularly described on Schedule 1.1(a) attached as a
part hereof and those timeshare weeks more particularly described on Schedule
1.1(a)-1 (the "Real Property");
(b) All easements, rights of ways, privileges, appurtenances and other
rights pertaining to said Real Property;
<PAGE>
(c) All right, title and interest, if any, of the Seller in and to:
(1) Any land lying in the bed of any street, in front of or
adjoining the Real Property.
(2) Any award made or to be made in lieu thereof;
(3) Any unpaid award for damage to the Real Property by reason
of change of street grade or otherwise;
(4) Any strips and small parcels of land adjoining the Real
Property; and
1.2 Tangible Personal Property. All of Seller's rights in all
--------------------------
tangible personal property (the "Tangible Personal Property") located on the
Real Property and used in the ownership, financing, operation and maintenance of
the aforesaid buildings, improvements and land, including, without limitation,
all fixtures; machinery; equipment; attachments; lighting fixtures; partitions;
doors; cabinets; elevators; electric motors; screens; flag poles; pumps;
sprinklers; plumbing; heating; air conditioning; electrical; ventilating and
lighting systems; carpeting and other floor coverings, appliances, blinds,
screens, built-in items, trees, shrubs and plants, including, but not limited
to, those items described on Schedule 1.2 affixed hereto. The Tangible Personal
Property will be conveyed at Closing in an "as-is" condition.
1.3 Intangible Personal Property. All the following intangible
----------------------------
personal property which is in the possession of the Seller and affiliates
("Intangible Personal Property") and used in the ownership, financing, operation
and maintenance of the Real Property: all contract rights relating to the Real
Property, deposits, permits, warranties, instruments, documents of title, and
business records pertaining to the Real Property; construction plans and
specifications; contractor's warranties and guarantees; and all rights to all
trademarks and tradenames, including the tradename, "SunBay", and all artwork,
brochures, artistic renderings and advertising material.
1.4 Leases. All rights of the lessor in the lease agreements (the
------
"Leases") for lease of any portion of the Real Property which are described on
Schedule 1.4 affixed hereto, together with all security deposits held pursuant
to the Leases.
1.5 Certain Equipment Leases. Seller shall assign to Buyer and Buyer
------------------------
shall assume the equipment leases which are described on Schedule 1.5, affixed
hereto and by this
2
<PAGE>
reference made a part hereof.
1.6 Interim Sales of Timeshare in the Ordinary Course. Seller shall
-------------------------------------------------
have the right to sell and retain the sales price for the timeshare weeks set
forth on Schedule 1.1(a)-1 in the ordinary course of Seller's business and
without changing the prices or method of sales currently being conducted by
Seller. Specifically, Seller shall not increase sales activities through lead
generation and premiums, shall not hire or contract with additional salesmen and
shall not offer any promotional premiums or discount prices for timeshare weeks.
Further, Seller may be reacquiring timeshare weeks originally sold by the Seller
from third parties. Seller will deliver an Amended Schedule 1.1(a)-1 at Closing
to reflect all the timeshare weeks which Seller is conveying to Buyer at
Closing. In the event that the total value of timeshare weeks reflected on the
Amended Schedule 1.1 (a)-1(the "Actual Timeshare Value") should be less than the
result obtained by subtracting $75,000 from the total value of timeshare weeks
reflected on the Schedule 1.1(a)-1 affixed hereto(the "Preliminary Timeshare
Value"), then that Purchase Price pursuant to Section 2.1 hereof shall be
reduced by the amount by which the result obtained by subtracting $75,000 from
the Preliminary Timeshare Value exceeds the Actual Timeshare Value. The value
of each of the timeshare weeks shall be $800 for "blue weeks", $1,000 for "white
weeks" and $1,200 for "red weeks." In the event that any of the timeshare weeks
at Closing are subject to a pending contract of sale to a third party who has
agreed to purchase same at an arms-length price in the ordinary course of
Seller's business, then such timeshare week shall be included on the Amended
Schedule 1.1(a)-1 and Seller shall assign and Buyer shall assume such contract
of sale at Closing.
1.7. Certain Contracts. Seller will assign to Buyer all Seller's
-----------------
rights and Buyer shall assume the obligations of Seller pursuant to the
Agreement between Seller and the SunBay Beach Club Council of Co-Owners, Inc
(the "POA") dated February 11, 1997 (the "Amenity Agreement"). Buyer agrees to
abide by the Bylaws of the POA dated May 3, 1994 (the "Bylaws") following the
Closing.
1.8 Excluded Assets. Notwithstanding any other provision hereof, the
---------------
Seller is not selling to Buyer pursuant to this Agreement and shall retain at
Closing (i) that certain golf course maintenance equipment under lease with
Stearns Financial Corporation, which equipment is located in Crossville,
Tennessee, and (ii) all of Seller's accounts receivable and reserves established
to meet the repurchase obligation relative to timeshare weeks previously sold by
Seller to financial institutions.
Seller shall deliver to Buyer at Closing all instruments necessary to
convey the Project.
3
<PAGE>
2. PURCHASE PRICE AND PAYMENT TERMS.
---------------------------------
2.1 Purchase Price. The Purchase Price (the "Purchase Price") for
--------------
the Project shall be Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000.00).
2.2 Payment of Purchase Price. The Purchase Price shall be paid, in
-------------------------
cash, upon closing.
2.3 Earnest Money Deposit. Contemporaneously with the execution of
---------------------
this Agreement, Buyer shall deliver the sum of Ten Thousand Dollars ($10,000.00)
to Beach Abstract & Guaranty Company ("Escrow Agent"), as escrow agent, to be
held as earnest money (the "Earnest Money Deposit"). If all the conditions
precedent to Buyer's obligations under this Agreement are satisfied in full or
expressly waived, the Earnest Money Deposit shall be applied to the Purchase
Price at Closing. If, after fulfillment of all the conditions precedent to
Buyer's obligations hereunder, fulfillment of title conditions and tender of
full and complete performance by Seller, Buyer should otherwise fail to fulfill
his obligation to tender the Purchase Price at Closing, the parties agree that
the Earnest Money Deposit shall be paid to Seller as liquidated damages for
Buyer's breach hereof.
2.4 Allocation of Purchase Price. With respect to the assets being
----------------------------
sold by Seller to Buyer pursuant to this Agreement, the Buyer and Seller agree
to allocate the Purchase Price among such assets in accordance with the
Allocation of Purchase Price to be set forth in a schedule which will be
prepared and approved by Buyer and Seller at or prior to Closing. Each party
agrees to file Form 8594 pursuant to Section 1060 of the Internal Revenue Code
of 1986 in accordance with the allocation made pursuant to this section. Buyer
represents that its taxpayer identification number is 88-0361144. Seller
represents that its taxpayer identification number is ______________. Each of
Buyer and Seller agree, prior to filing the Form 8594 with the Internal Revenue
Service, to provide to each other a true, complete and legible copy of its Form
8594 it shall file with the Internal Revenue Service in order to ensure that the
filings will be consistent.
3. TITLE AND SURVEY.
-----------------
3.1 Title Commitment. On or before 5:00 o'clock p.m. central
----------------
daylight savings time on the 15th day after the Effective Date, the Seller
will provide to the Buyer a preliminary binder for issuance of an ALTA owner's
title insurance policy (the "Title Commitment") reflecting Buyer as the proposed
insured, in the amount equal to the Purchase Price, issued
4
<PAGE>
by Hot Springs Title Company, as agent for Chicago Title Insurance Company,
showing fee simple title to the Project to be in Seller, and containing only the
exceptions (hereafter called the "Permitted Exceptions") described on Schedule
3.1 attached hereto and made a part hereof. After receipt of the preliminary
title binder, Buyer shall be allowed fifteen (15) days to notify Seller in
writing of any objections to Seller's title to the Real Property. Said
objections to be in writing or be deemed waived. Upon receipt of any written
objections, Seller shall promptly undertake to correct the defects in title
objected to by the Buyer. If the Seller is unable to correct such defects
within one hundred twenty (120) days after Seller's receipt of any written
objections to title, the Buyer will have the option to waive such defect or
terminate this Agreement, in which event neither party shall have any further
rights or obligations hereunder. If the title binder discloses judgments,
bankruptcies or other exceptions against other persons having names the same as
or similar to that of the Seller, the Seller, on request, shall deliver to the
Buyer and the title company affidavits showing that such judgments,
bankruptcies required by the title company to eliminate all exceptions other
than the Permitted Exceptions appearing in the title binder.
3.2 Title Policy. On the Closing Date, Buyer may obtain, at Buyer's
-------------
sole cost and expense, if there is any additional cost, an owner's policy of
title insurance issued pursuant to the Title Commitment.
3.3 Survey. On or before 5:00 o'clock p.m. central daylight savings
-------
time on the 15/th/ day after the Effective Date, Seller shall deliver to Buyer a
current ALTA-ACSM survey of the Real Property certified to Buyer and the title
company, with the signature and seal of a Registered Land Surveyor for the State
of Arkansas showing all easements affecting the land, the relation of the land
to public thoroughfares for access purposes, the location of all buildings, and
improvements and legal description compatible with Schedule 1.1(a), and
sufficient to convey title to the Real Property.
3.4 Environmental Report; Investigation. The Seller shall, promptly
-----------------------------------
after the Effective Date, provide the Buyer with all books, records and
documents (collectively, the "Documents") pertaining to the Project and the
operation thereof (to the extent not theretofore furnished), including, without
limitation, all documents referred to in this Agreement and the schedules
annexed hereto, and all financial statements and contracts of and for the Sunbay
Resort Property Owner's Association. Contemporaneously with the execution of
this Agreement by both Seller and Buyer, Buyer shall have the right, at Buyer's
expense, to (i) engage environmental engineering firm acceptable to Buyer to
prepare and deliver to Buyer before Closing, an environmental audit for the
Project and (ii) engage structural engineers, consultants, and firms to
thoroughly inspect, audit and test the Project for the existence of any poor
conditions or defects in the structure or the mechanical,
5
<PAGE>
electrical or plumbing systems serving the Project, or its compliance with
"Americans with Disabilities Act" and other regulatory requirements. The scope,
sequence and timing of the environmental audit and/or the structural inspection
shall be at the sole discretion of Buyer, and the environmental audit and/or the
structural inspection shall be commenced as soon as reasonably practicable after
the Effective Date.
Buyer shall have the right, without the obligation, to enter upon the
Project prior to the Closing to undertake sampling at the Project at Buyer's own
expense. Seller shall, upon request of Buyer, provide to Buyer a description of
all known operations, past and present, undertaken at the Project and any
existing building construction and as-built plans and drawings and maps and
diagrams designating the location of past and present operations and past and
present storage of hazardous material, above and below ground, at the Project.
If Buyer's sampling reveals that there has been a spill or discharge of a
hazardous substance or waste or the existence of any hazardous material at the
Project, or if the inspections performed by Buyer or any of its contractors
indicate any unsatisfactory condition of the Project, Seller shall have the
right to correct any such unsatisfactory condition within 90 days after receipt
of notice from Buyer that such unsatisfactory condition exists. If such
unsatisfactory conditions are not corrected within such 90-day period, the Buyer
may elect to terminate this Agreement, or close and accept the Project subject
to such unsatisfactory conditions.
4. Representations and Warranties of Seller. To induce Buyer to
-----------------------------------------
enter into this Agreement, Seller makes the following representations and
warranties, each of which is material and relied upon by Buyer:
4.1 Authorization. The Seller (i) is a corporation duly organized,
-------------
validly existing and in good standing under the laws of the State of Arkansas,
(ii) has the power and authority to sell and convey the Project; and (iii) prior
to the Closing, shall have taken all actions required for the consummation of
the transactions contemplated by this Agreement, or any other document delivered
or to be delivered in connection with this Agreement;
4.2 Title. Seller is the sole owner of good, fee simple,
-----
unencumbered, marketable title to all of the real and personal property to be
sold to Buyer under this Agreement, subject only to the liens and encumbrances
expressly stated in the Title Commitment, and the rights of tenants in
possession under leases specified in this Agreement and in Schedule 1.4.
4.3 Easements and Encroachments. Except as expressly stated in the
---------------------------
Title Commitment, there are no encroachments, easements, or rights-of-way on,
over, under, or across the Project or any part of it. No part of the buildings
or structures on the Project
6
<PAGE>
encroach on any other property and all improvements on the Project are fully
within its boundaries and violate no set back requirements.
4.4 Regulations and Restrictions. To the best knowledge of Seller,
----------------------------
none of the improvements on the Project violate any ordinance, regulation or
restriction of the City of Hot Springs or any other governmental authority, or
any restrictions, covenants, or agreements of any kind or nature. To the best
knowledge of Seller, the Project is properly zoned for its current use. To the
best knowledge of Seller, no part r interfere with the continued use of the
Project as it is presently used. Seller has received no notices of any
violations of any rule, regulation, code, resolution, ordinance, statute, or law
involving the use, maintenance, operation, or condition of the Project or
improvements. To the best knowledge of Seller, all installations and
improvements on the Project fully and duly comply with all applicable
resolutions, statutes, rules, regulations and codes of the City of Hot Springs,
the County of Garland, and State of Arkansas, and all governmental agencies
having jurisdiction over the Project, and the requirements of all Boards of
Underwriters (or similar agencies).
4.5 Improvements and Systems. To the best knowledge of Seller, the
------------------------
structural components of the Real Property (including all its mechanical,
electrical, plumbing and structural components) has been constructed in a good
workmanlike manner and in compliance with all applicable laws, statutes, codes,
and requirements of all governmental authorities having jurisdiction and all
Boards of Underwriters, and the Real Property and all parts thereof are
structurally safe and sound and in good operating condition. Seller does not
know or have reason to know of any defects in or about any part of the Project
which is impairing or interfering, or may impair or interfere, with the day to
day use and operation of the Project as it is presently used.
4.6 Taxes. Seller has timely paid, or will pay at or prior to
-----
Closing, all of its taxes with respect to the Project or its operation which are
or could become liens against the Project.
4.7 Mechanic's and Materialman's Liens. All labor performed and
----------------------------------
materials supplied for the Project have been fully paid by Seller, and no
mechanic's lien or other lien may be claimed by any person for such labor or
materials. If, subsequent to the Closing Date, any mechanic's or oth filed
against the Project, or any portion thereof as a result of labor or m Date,
within two (2) days after notice to the Seller of the filing thereof, the Seller
shall take such action, by bonding, deposit, payment or otherwise, as will
remove or satisfy such lien of record against the Project.
7
<PAGE>
4.8 Condemnation Proceedings. No condemnation proceedings are
------------------------
pending, or to the best of Seller's knowledge are threatened, against the
Project or any part thereof, and Seller has not received any oral or written
notice that any public authority or utility intends or desires to take or use
the Project or any part thereof.
4.9 Truth and Accuracy of Material Facts. To the best knowledge of
------------------------------------
Seller, all statements made and information given to Buyer in this Agreement,
including any related Schedules and Exhibits, are true and accurate in every
material respect, and no material fact has been withheld from Buyer. To the
best knowledge of Seller, no representation or warranty of Seller in this
Agreement contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements not misleading.
4.10 Other Facts or Circumstances. Seller has no knowledge or
----------------------------
information of any facts, circumstances, or conditions which do or would in any
way adversely affect the Project, the improvements thereon, or the successful
operation of the Project, except as specifically stated in this Agreement or any
related Schedules and Exhibits.
4.11 Leases. There are no leases or other occupancy agreements
------
relating to the Project other than those set forth in Schedule 1.4. Seller has
not collected any prepaid rent in advance in excess of rent for the month during
which the Closing occurs or the month immediately following such month, and as
of the date hereof, there are no leasing commissions owing in connection with
the Project.
4.12 Pending Alterations. Seller has not received (and has no
-------------------
knowledge of) any notice or request from any insurance company or Board of Fire
Underptly notify Buyer if Seller receives any such notice before the Closing.
4.13 Contractual Obligations. All installations of personal property
-----------------------
and any alterations or work in connection with the Project performed or required
to be performed by Seller (i) under the terms of any leases, or (ii) under any
contracts or other agreements affecting the Project have been completed and
fully paid for by Seller. No rents or leases have been assigned (except
pursuant to any mortgage to which Buyer agrees to take subject and for which
Buyer receives a credit towards the purchase price). There are no contracts or
agreements for services rendered in connection with the operation of the Project
which Buyer shall be required to take the Project subject to, except as set
forth in Schedule 1.4 and Schedule 4.13, affixed hereto, and both schedules are
true, correct, and complete.. Seller has paid all sums due for wages,
utilities, or fees pursuant to all service contracts, management agreements,
union contracts, or other agreements affecting the Project except as set forth
in Schedule 4.13.
8
<PAGE>
4.14 Rights of Third Party Purchasers. To the best of Seller's
--------------------------------
knowledge, no person, firm, or entity (except as may be set forth in this
Agreement) has any rights in or right to acquire the Project or any part
thereof.
4.15 Litigation. Seller is not a party to any litigation, nor does
----------
he know of any threatened litigation, affecting the Project, and Seller shall
give Buyer prompt notice if any such litigation is instituted before the
Closing.
4.16 New Contracts. Seller shall not, without Buyer's written
-------------
consent, negotiate or enter into any new service or other contract affecting the
Project which cannot be terminated without cost to Buyer on or before the
Closing.
4.17 Environmental Compliance. Seller has no knowledge of any
------------------------
conditions of the Real Property which violate any state or federal environmental
law, rule, regught of Terminae material representations and warranties in
Section 4 hereof shall be true at and as of the Closing (except to the extent
Seller is permitted herein to take actions which may change such state of
facts), and Seller further makes such representations as of the Closing (except
to the extent Seller is permitted herein to take actions which may change such
state of facts). Seller's representations and warranties shall survive the
closing of this Agreement for a period of five years after delivery of the
Warranty Deed, and any claim based upon breach of any such representation must
be asserted within that period. Without limiting any of the rights of the Buyer
provided for elsewhere in this Agreement, it is agreed that the obligation of
the Buyer to close under this Agreement is conditioned upon the accuracy of all
of the Seller's material warranties and representations and the due compliance
by the Seller with all of its agreements set forth in this Agreement. If on the
Closing Date, the Buyer determines that any of the Seller's representations or
warranties is untrue and in any material respect, or if the Seller has not
complied in all material respects with any of the Seller's material agreements,
covenants or obligations in this Agreement, then the Buyer may elect to
terminate this Agreement by notice given to the Seller, in which event neither
Seller nor Buyer shall have any further rights or obligations hereunder.
6. INDEMNITY FOR SELLER'S BREACH. In the event the transaction set
------------------------------
forth in this Agreement is consummated, Seller agrees to indemnify the Buyer and
hold the Buyer harmless and defend the Buyer from and against any and all loss,
cost, claims, liabilities, damages and expenses, including, without limitation,
reasonable attorneys' fees, arising as the result of a breach of any material
representations, warranties, covenants, agreements or obligations of the Seller
set forth in this Agreement.
7. APPORTIONMENTS.
---------------
9
<PAGE>
7.1 Items Pro:59 p.m. on the day immediately preceding the Closing
--------------------------------------------------------------
Date:
----
(a) Current and pre-paid rents as of the Closing Date on any
Leases on the Project (but not past-due rents as of the Closing Date
on the Leases on the Project);
(b) Real estate taxes due and payable prior to and accrued in
the year in which the closing occurs. The 1997 general real estate
taxes so prorated will be deemed to be equal to 110% of the amount of
the general real estate taxes assessed for the year 1996. All levied
and pending assessments as of the Closing Date shall be the
responsibility of and paid by Seller on the Closing Date;
(c) Charges for water, sewer, electricity, gas and telephone,
which are not metered to tenants under any leases or otherwise charged
directly to tenants under any leases; provided that if the consumption
of any such utilities is measured by meters, the Seller, on the
Closing Date, shall furnish a current reading of each meter; and
further provided that if there is not a meter or if the current bill
for any of such utilities has not been issued prior to the Closing
Date, the charges therefor shall be adjusted on the Closing Date on
the basis that the charges for the prior period for which bills were
issued and shall be further adjusted when the bills for the current
period are issued;
(d) Amounts paid or payable under transferable service and
maintenance contracts, if any such service or maintenance contracts
shall, at the Buyer's option, be assigned to and assumed by the Buyer
on the Closing Date; and
(e) Premiums on any existing transferable insurance policies or
renewals of those expired prior to the Closing Date, if any such
policy shall, at Buyer's option, be assigned to and assumed by the
Buyer on the Closing Date.
7.2 Repurchase of Timeshare Weeks. Seller is obligated pursuant to
---------------------------------
those agreements which are described on Schedule 7.2 affixed hereto (the
"Repurchase Agreements"), to repurchase timeshare weeks from third parties.
Buyer shall have the option to repurchase from Seller any or all of the
timeshare weeks that are put back to Seller on or before five (5) years after
the Closing Date at a purchase price of $800 for each "blue week", $1,000 for
10
<PAGE>
each "white week" and $1,200 for each "red week," payable in cash upon delivery
of good title in the timeshare week to Buyer. Seller shall give Buyer prompt
notice of any notices received by Seller that timeshare weeks have been put back
to Seller pursuant to the Repurchase Agreements and otherwise facilitate the
repurchase of time-share weeks by Buyer. Buyer shall have 30 days following
receipt of such notice from Seller to exercise its option granted herein by
giving Seller written notice of exercise of such option. Closing shall occur
within ten (10) days after Buyer has exercised its option. At closing of the
transfer of timeshare weeks, Seller shall execute and deliver to Buyer a
memorandum (the "Option Memorandum") in recordable form setting forth the terms
of this option.
7.3 Survival. The provisions of Sections 7.1 and 7.2 shall survive the
--------
Closing hereunder.
8. CLOSING.
--------
8.1 Closing Date and Documents. The closing (the "Closing") of the
--------------------------
transactions contemplated hereby shall, subject to the provisions of this
Agreement, take place on the 120/th/ day after Effective Date at 10:00 o'clock
a.m. central daylight savings time at Hot Springs Title Company, Hot Springs,
Arkansas (the "Original Closing Date"); provided, however, that the Closing Date
shall be extended for an additional 90 days (the "Extended Closing Date"), if,
on or before the Original Closing Date, Purchaser shall pay to Seller the sum of
One Hundred Thousand Dollars ($100,000.00) in cash (the " Extension Payment").
The Extension Payment shall for all purposes under this Agreement become and be
deemed Earnest Money pursuant to Section 2.3 and, except as set forth in the
next sentence, shall be non-refundable but shall be applied to the payment of
the Purchase Price at Closing. If Buyer does not close the transaction
contemplated herein for any reason other than a material breach by the Seller,
then Seller shall retain the Earnest Money and Extension Payment as liquidated
damages for Buyer's breach of this Agreement and neither party shall have any
further liability or obligation hereunder. With respect to the Closing Date,
time is of the essence. The term, "Closing Date," shall refer to the Original
Closing Date unless the Extension Payment is timely made, in which event, it
will refer to the Extended Closing Date.
8.2 Seller's Closing Obligations. On the Closing Date, Seller shall
----------------------------
deliver to Buyer the following items:
(a) A general warranty deed (the "Warranty Deed") in recordable
form conveying the Project free and clear of all liens and
encumbrances except the Permitted Encumbrances;
11
<PAGE>
(b) Copies of all policies of insurance covering the Project
assigned to Buyer, at Buyer's option (which assignment shall be
subject to the consent of the insurer), together with evidence of
premium payment therefor;
(c) An affidavit in a form acceptable to the title insurance
company certifying that the Project is free from claims for
mechanic's, materialman's and laborer's liens;
(d) Appropriate resolutions from the Board of Directors and
shareholders of the Seller authorizing the transactions contemplated
hereby and the execution and delivery of all of the documents executed
in connection with this Agreement;
(e) A certificate of the Seller dated as of the Closing Date
certifying that all of the Seller's representations and warranties set
forth in this Agreement remain true as of the Closing Date, or if not,
specifying the respect in which such representation or warranty is no
longer true;
(f) A bill of sale conveying all of Seller's right, title and
interest in and to all of the Tangible Personal Property and
Intangible Personal Property comprising a portion of the Project free
and clear of all liens and encumbrances, except the Permitted
Exceptions;
(g) An assignment of any service and maintenance contracts (to
the extent that the Buyer, at its option, has elected to assume the
same), to the extent the same can be assigned;
(h) Copies of all the plans, specifications, and blueprints for
the Project which are available to Seller;
(i) All maintenance records and operating manuals pertaining to
the Project available to Seller;
(j) All keys to the Project;
(k) All contractors' warranties and guaranties pertaining to the
Project, together with assignments of such guaranties and warranties
to the Buyer to the extent the same can be assigned;
12
<PAGE>
(l) Any operating statements relating to the Project available
to Seller;
(m) Any documents necessary to file the Warranty Deed;
(n) Seller's original soil core tests, if available;
(o) Seller shall satisfy each requirement of the Title
Commitment;
(p) A separate Estoppel, Subordination and Attornment Agreement
executed by each of the lessees of the Leases which is in form
reasonably acceptable to Buyer and Buyer's lender;
(q) A notice of assignment of the Leases, if any, addressed to
the lessees of the Leases, executed by Seller, advising each of the
lessees of the assignment of its respective Lease and directing
payments of all future rent to Buyer;
(r) An assignment of each of the Leases, if any, in recordable
form; and
(s) Such other documents as may be reasonably required by Buyer
to effectuate the sale of the Project.
(t) Proof, satisfactory to Buyer, that all of Seller's trade
payables and other liabilities arising from the operation of the
Project have been satisfied in full, or will be satisfied at Closing.
(u) An executed Option Memorandum.
8.3 Buyer's Closing Obligations. On the Closing Date, Buyer shall
---------------------------
deliver to Seller the following items:
(a) The cash payment of the Purchase Price in the sum of Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00).
(b) A receipt for security deposits assigned or paid to the
Buyer; and
(c) Such affidavits and other documents as the title insurance
company may reasonably request regarding Buyer for the purposes of
issuing title insurance for the Project.
13
<PAGE>
9. COSTS, BROKERS AND TERMINATION.
-------------------------------
9.1 Seller's Costs. The Seller will pay the following costs: Seller's
--------------
attorneys' fees, all abstracting costs, costs incurred in issuing the Title
Commitment (including any search charges and service fee), all revenue stamps,
taxes or filing fees due with respect to the recording of any mortgage
satisfactions or releases of any liens.
9.2 Buyer's Costs. Buyer will pay the following costs: Buyer's attorney's
-------------
fees, costs incurred in connection with Buyer's due diligence investigation, any
premium on the owner's policy for issuance of the owner's policy and
mortgagee's policy of title insurance, and the fee for recording the Warranty
Deed.
9.3 Brokers; Indemnity. Buyer and Seller represent and warrant to each
------------------
other that neither they nor their agents, officers, employees, have entered into
any agreement, engaged, used the services of or otherwise dealt with any broker
or real estate agent in connection with this transaction other than John W.
DeHaven ("DeHaven"). Seller shall be solely responsible for payment of a sales
commission payable to DeHaven in the amount of two percent (2%) of the Purchase
Price. Seller and Buyer agree to indemnify and hold each other harmless and
defend each other from and against any claim, loss, damage and liability,
including without limitation reasonable attorneys' fees resulting from the
claims of any broker or real estate agent if there is a breach of the foregoing
warranty and representation. The provisions of this Section shall survive the
Closing hereunder.
10. CONDEMNATION AND DESTRUCTION.
-----------------------------
10.1 Condemnation. If, prior to the Closing Date, all or any portion of
------------
the Project are taken by eminent domain (or is the subject of a pend later than
two (2) days after receipt of the Seller's notice):
(a) To terminate this Agreement, in which event neither party
shall have any further rights or obligations hereunder; or
(b) To accept title to the Project (other than the portion so
taken) without any abatement of the Purchase Price, in which event the
Seller shall assign and turn over to the Buyer at the Closing, and the
Buyer shall be entitled to receive and keep, all amounts awarded or to
be awarded as the result of the taking.
10.2 Destruction.
------------
14
<PAGE>
(a) If, prior to the Closing Date, all or any material portion of the
Project or the Tangible Personal Property is damaged or destroyed by fire or
other casualty, the Seller shall notify the Buyer of such fact and the Buyer
shall have the option (which option shall be set forth in a written notice from
the Buyer to the Seller given not later than two (2) days after receipt of the
Seller's notice):
(1) To terminate this Agreement, in which event neither party
shall have any further right or obligations hereunder;
(2) To accept title to the Project in its existing condition
without any abatement of the Purchase Price, in which event the Seller
shall assign to the Buyer, at the Closing, all of the Seller's right,
title and interest in and to the insurance proceeds awarded or to be
awarded to the Seller as the result of such damage or destruction.
(b) In the event there is damage to or destruction of an immaterial part
of the Project or the Tangible Personal Property by fire or other casualty, such
damage or destruction shall be repaired promptly by the Seller, and in the event
the same is not repaired on or before the Closing Date, then at the Buyer's
option:
(1) The Closing shall be postponed until such repairs have been
completed; or,
(2) The reasonable cost of such repairs, as estimated by the
Buyer, shall be withheld from the Purchase Price and paid over to the
Seller upon completion of the repairs and delivery to the Buyer of
satisfactory evidence that all mechanics, laborers and materialmen
providing services or materials in connection therewith have been paid
in full, and the Seller's obligation to complete such repairs promptly
shall survive the Closing hereunder.
11. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer, under
----------------------------------
this Agreement, shall be subject to the following conditions, any of which may
be waived by Buyer:
11.1 Representations and Warranties True at Closing. Buyer shall not
----------------------------------------------
have discovered any material error, misstatement or omission in the
representations and warranties made by the Seller in Section 4 hereof; the
respective representations and warranties made by the Seller herein shall be
deemed to have been made again at and as of the time of Closing and shall then
be true in all material respects; the Seller shall have performed and complied
15
<PAGE>
in all material respects with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by them at or prior to the
Closing; and Buyer shall have received a certificate, dated to the effect set
forth in this Section 11.1.
11.2 No Damage or Destruction. Prior to the Closing, there shall not have
------------------------
occurred any casualty to any facility, property, machinery, equipment or the
building owned or used by the Seller. Additionally, there shall have been no
change in the business, properties or operations of the Seller which would have
a materially adverse effect on the value of the business and properties of the
Seller.
11.3 Consents. Seller shall have obtained and delivered to Buyer written
--------
consents or approvals of all persons or entities whose consent or approval is
required to consummate the transactions contemplated herein.
11.4 of the closing documents listed and set forth herein, together with any
additional documents which Buyer may reasonably request in writing to effect the
transactions contemplated herein.
12. SPECIAL CONTINGENCY. The obligations of both Seller and Buyer, under
-------------------
this Agreement, shall be subject to the receipt by Seller, prior to the earlier
of (i) ten (10) days prior to the Original Closing Date or (ii) within fifteen
(15) days afion 12, of the written consent of Litchfield Financial Corporation
to Seller conveying the Project pursuant to this Agreement.
13. MISCELLANEOUS.
--------------
13.1 Notices.
--------
(a) All notices, demands or requests made pursuant to, under or by virtue
of this Agreement must be in writing and mailed to the party to which the
notice, demand or request is being made by postage, prepaid, certified or
registered mail, return receipt requested, as follows:
TO THE SELLER: William Papaik
McConnell Building, Suite F
2445 North Main Street
Crossville, TN 38555
Telecopier (615)484-0054
16
<PAGE>
WITH A COPY TO: Thomas A. Clure
Clure, Eaton, Butler, Michelson,
Ferguson & Munger, P.A.
222 West Superior Street, Suite 200
Duluth, MN 55802
Telecopier (218)720-6722
TO THE BUYER: Michael G. Todd
Capitol Communities Corporation
25550 Hawthorne Boulevard
Suite 207
Torrence, CA 50505
Telecopier (310)375-3841
WITH A COPY TO: G. Robert Hardin
HARDIN & GRACE, P. A.
410 West Third Street, Suite 200
Little Rock, AR 72201
Telecopier (501) 376-6337
(b) Any such notice, demand or request shall be deemed to have been
rendered or given on the date of mailing.
(c) Notice of any address change shall be given in accordance with the
provisions of this Section.
13.2 Entire Agreement. This Agreement and the Exhibits attached hereto
----------------
contain all of the terms agreed upon between the parties with respect to the
subject matter hereof and supersedes any and all prior written understandings.
All provisions of this Agreement shall survive closing.
13.3 Amendments. This Agreement may not be changed, modified or
----------
terminated except by an instrument executed by the parties hereto.
13.4 Waiver. No waiver by either party of any failure or refusal of the
------
other party to comply with any of its obligations shall be deemed a waiver of
any other or subsequent failure or refusal so to comply.
17
<PAGE>
13.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
13.6 Section Headings. The headings of the various Sections of this
----------------
Agreement have been inserted only for the purposes of convenience, and are not
part of this Agreement and shall not be deemed in any manner to modify, explain,
qualify or restrict any of the provisions of this Agreement.
13.7 Governing Law. This Agreement shall be governed by and in accordance
-------------
with the laws of the State of Arkansas applicable to contracts made and to be
performed wholly within that State.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated hereinbelow.
SELLER:
SUNBAY, INC
BY: /s/ William V. Papaik
DATE OF -----------------
EXECUTION: 2-21-97 William V. Papaik, President
------------------
BUYER:
CAPITOL COMMUNITIES CORPORATION
BY: /s/ Michael G. Todd
DATE OF ---------------
EXECUTION: 2-21-97 Michael G. Todd
------------------
18
<PAGE>
EXHIBIT 10.22
REAL ESTATE CONTRACT
This Agreement ("Agreement") is entered into by and between Capitol
Development of Arkansas, Inc. (hereinafter referred to as "Seller") and Steve
Hockersmith, the agent for an unidentified Purchaser (hereinafter referred to as
"Purchase") pursuant to the following terms and conditions:
1. SALE AND PURCHASE Seller agrees to sell to Purchaser, and Purchaser agrees to
purchase from Seller, for the consideration and subject to the terms,
conditions, and provisions hereinafter stated, that certain real property (the
"Property") described as:
lands Lying in west half of Section 32, Township 3 north, range 13 west
Maumelle, Pulaski County, Arkansas, containing approximately 67.51 acres
more or less. (less attached legal Exhibit A.)
2. PURCHASE PRICE. The purchase price for the Property shall be approximately
one million five hundred fifty-two thousand seven hundred thirty dollars and
no/100 ($1,552,730.00). The exact purchase price shall be determined from the
new survey referred to in paragraphs 1 and 5 hereof, by multiplying the exact
acreage of the subject Property by twenty-three thousand dollars and no/100
($23,000.00) per acre.
3. PAYMENT OF PURCHASE PRICE. The purchase price shall be payable as follows:
Cash at Closing.
4. TITLE INSURANCE. Within twenty (20) business days of acceptance, Seller shall
furnish to Purchaser, at Seller's cost, a commitment for an American Land Title
Association (ALTA) owner's title insurance policy on the Property in the amount
of the purchase price issued by a company authorized to insure title to real
Property in the state of Arkansas and which company is reasonably acceptable to
Purchaser along with legible copies of any special exceptions referred to in the
title commitment.
Where the title commitment shows special exceptions to title other than
those standard exceptions contained in the ALTA commitment form, and where such
special exceptions relate to restrictions, conditions, defects or other matters
which would interfere with Purchaser's use or, in Purchaser's sole discretion,
adversely affect the value of the Property, then within ten (10) business days
of delivery of the title commitment, legible copies of any exceptions, and the
survey described in paragraph 5, Purchaser shall deliver written notice thereof
to Seller. Such notice shall state specifically those exceptions to which
Purchaser objects. All objections not specifically enumerated within such a
timely delivered notice shall be deemed to be waived by Purchaser.
Within twenty (20) business days of Purchaser to Seller, Seller may cure
such objections or have the exceptions waived or removed by the title company
issuing the commitment. If, within such twenty (20) business day period, Seller
fails to cure and/or have waived such objection and exceptions, or within that
period, Seller delivers written notice to Purchaser that it
<PAGE>
will not so cure (whichever is applicable), Purchaser shall have the option to:
a. Terminate this Agreement by delivering written notice thereof to Seller, in
which event all sums paid or deposited by Purchaser shall be resumed to
Purchaser; or
b. Purchase the Property subject to such objections and exceptions with no
reduction in the purchase price; or
c. Agree to extend the Closing Date for thirty (30) days to give Seller
additional time to cure such objections.
If Purchaser fails to deliver notice of termination or grant an extension
of the Closing Date within that period, the objections shall be deemed to be
waived and the transaction shall close as scheduled.
Seller shall furnish the committed final owner's title policy as soon as
practicable after Closing, and shalt pay all expenses related to this title
insurance policy for a standard 3.0 policy. Said final owner's policy shall be
delivered with all general or so called standard exceptions deleted.
5. SURVEY. Within twenty (20) business days from Seller's acceptance of this
Agreement, Seller shall obtain at Seller's expense a current survey of the
Property, prepared by an Arkansas registered land surveyor, acceptable to
Purchaser, showing boundaries, dimensions, improvements, location of all
utilities, encroachments, legal description, and the surveyor's certification,
indicating that the survey has been prepared for the benefit of both Seller and
Purchaser, Purchaser's lender and the title company. The current survey shall be
prepared and certified in accordance with the ALTA standards so that the title
insurance issuer can remove the survey exception from the standard exceptions in
the title policactory to Purchaser. The survey shall indicate that all land
subject to this Agreement is located outside the "one hundred year flood plain"
as determined by the U.S. Army Corps of Engineers. If any of the Property is
shown to be in the "one hundred year flood plain", Purchaser can declare this
Agreement null and void and Purchaser's earnest money shall be promptly returned
to Purchaser. If within three (3) business days Purchaser has not objected to
the survey or any lands within the one hundred year flood plain then this
condition to Closing is waived by Purchaser.
6. WARRANTY DEED AND POSSESSION. At the time of the Closing, Seller shall
deliver to Purchaser a general warranty deed conveying the Property to
Purchaser, free of any liens, encumbrances and mortgages of any kind whatsoever.
7. TAXES. Seller warrants that all taxes, charges and other assessments on the
Property are paid (or will be paid at the "Closing") including the immediate
past real estate tax year for his or her respective tracts. Taxes for the
current real estate tax year shall be prorated between Seller and Purchaser as
of the Closing Date, based on most current statements.
8. CLOSING. Closing (hereinafter referred to as the "Closing") shall take
place at Beach
<PAGE>
Abstract & Guaranty company in Little Rock, Arkansas on or before
ten (10) days after removal of said conditions, or at such other place, time and
date as Seller and Purchaser may agree upon (said date is herein referred to as
the "Closing Date"). Closing date shall be no later than April 15, 1997 (see
paragraph 13).
9. COMMISSIONS. In the event this transaction closes, and only in that event,
Seller agrees to pay a five percent (5%) fee for professional services rendered
in connection with this contract at Closing to Vogel-Jones Realty Company
(Broker) of Little Rock, Arkansas. Vogel-Jones Realty Company (Broker) shall
receive 4.25% and John W. DeHaven, (co-broker), shall receive .75%. Each of the
parties hereto agrees to indemnify, protect, defend and hold harmless the other
estate commissions arising from this transaction and the conduct of the
indemnifying party, except the above stated fees due by Seller and Broker.
10. EARNEST MONEY. Upon acceptance of this Contract, Purchaser agrees to deposit
a check for twenty thousand dollars and no/100 ($20,000.00) as earnest money
which shall apply to the purchase price. Earnest money shall be held in escrow
by Beach Abstract & Guaranty Company in an interest bearing account. If title
requirements are not fulfilled, or if the contingencies described in paragraphs
4, 5 and 13 are not removed, then the earnest money deposit together with the
interest earned thereon shall be refunded to Purchaser. If Seller has complied
with all of its obligations herein contained, and all of the conditions herein
have been met to Purchaser's satisfaction or waived in writing by Purchaser, but
Purchaser fails to proceed with the purchase of said Property, then Seller shall
have as its sole and exclusive remedy the right to declare the earnest money
forfeited to Seller as liquidated damages.
11. CLOSING COSTS. Seller shall pay for the cost of title insurance, all tax
certificates, real estate transfer taxes attributable to Seller, and its share
of prorated real estate taxes and special assessments. Purchaser shall pay for
its prorated real estate taxes, special assessments and the recording fee for
the deed and mortgage and real estate transfer taxes attributable to Purchaser.
Should there be any title curative instruments, same shall be prepared and
recorded at Seller's expense. Seller and Purchaser agree to pay their own
respective attorney's fees. Additionally, any expenses, charges and fees of the
Closing, not specifically allocated herein, shall be born by the parties
according to n Little Rock, Arkansas.
12. CONDEMNATION. In the event that during the period of time after the date of
this Agreement and prior to the Closing Date, any portions of the Property taken
in condemnation or under right of eminent domain (or conveyed in lieu thereof),
Seller shall notify Purchaser in writing of such condemnation or conveyance in
lieu thereof, and Purchaser may, at its option, either:
a. terminate this Agreement in which case neither party shall have any further
liability under this Agreement; or
b. receive a pro-rata reduction in such purchase price, based on a revised
survey, and proceed to consummate this Agreement as to the remaining portion of
the Property in accordance with the terms and provisions of this Agreement.
<PAGE>
13. ENGINEERING AND FEASIBILITY STUDY. Purchaser, at its expense, may conduct
such soil, engineering, environmental and feasibility tests and permit request
submissions as Purchaser may deem appropriate to determine whether or not the
Property is suitable for Purchaser's intended use at costs which Purchaser deems
acceptable in its sole judgment. If such tests or studies, etc. indicate, in
Purchaser's sole judgment, that the Property is not suitable for Purchaser's
intended use, Purchaser shall have the right to terminate this Agreement by
sending written notice to Seller within forty-five (45) days from the date the
conditions in paragraph 4 and 5 hereof have been removed by Seller. In the event
this Agreement is terminated pursuant to this paragraph, the earnest money
deposit together with interest earned therein shall be refunded to Purchaser,
except actual costs incurred by Seller for the preliminary title commitment and
survey which shall be paid to Seller out of such earnest money deposit. Seller
hereby indemnifies Purchaser and holds Purchaser harmless from and against any
and all claims and liabilities arising in any manner whatsoever out of any
hazardous waste on, about, incident upon or in the location affecting the
Property. This indemnity shall survind delivery of the warranty deed herein
required. Closing date shall be no later than April 15, 1997. In the event
closing does not occur by April 15, 1997, the purchase price shall increase to
$1,600,000.00 and all other terms and conditions shall remain in effect until
May 15, 1997. If transaction is not closed by May 15, 1997, this contract shall
become null and void.
14. PURCHASER'S RIGHT TO ENTER PROPERTY. Purchaser and its employees and
agents shall have the right and permission from the date hereof while this
Agreement is in effect to enter upon the Property or any part thereof at all
reasonable times and from time to time for the purpose, at Purchaser's cost and
expense, of making all engineering and other tests or studies both surface and
subsurface required for the completion of the engineering and feasibility work
specified in paragraph 13; however, Purchaser shall indemnify and hold harmless
Seller from and against any mechanics or any other liens or claims of any nature
that may be filed or asserted against the Property or Seller by anyone
performing such work for Purchaser.
15. UTILITIES SUFFICIENT. Seller warrants and represents that there are water,
sewer, gas and electricity lines to the Property which are available for
connection by Purchaser at standard rates. This warranty shall be deemed made by
Seller and confirmed as of the Closing Date and shall be deemed to survive the
Closing Date.
16. REPRESENTATIONS AND WARRANTIES. Seller hereby represents and warrants to
Purchaser, which representations and shall be deemed made by Seller to Purchaser
as of the Closing Date, that:
a. Restrictions. There are no recorded or unrecorded deed restrictions affecting
any portion of the Property.
b. Condemnation or Assessment. There is not pending or threatened condemnation
or similar proceeding or assessment affecting the Property, or any part thereof,
nor to the best knowledge and belief of Seller is any such proceeding or
assessment contemplated by any governmental authority, other thnt districts that
may affect the Property.
<PAGE>
c. Compliance. To the best of its knowledge, Seller has complied with applicable
laws, ordinances, regulations, statutes, rules and restrictions relating to the
Property and every part thereof.
d. Litigation. There is no litigation or actual knowledge of threatened
litigation affecting Seller or the Property which would in any way constitute a
lien, claim, or obligation of any kind against the Property.
e. Contamination. To the best of its knowledge, Seller believes that subject
Property is free from any and all environmental hazards, toxic substances and
hazardous wastes.
17. COVENANTS. Seller covenants and agrees as follows
a. From the date hereof to the date of Closing, Seller will perform all of its
monetary and non-monetary obligations under any prior lien indebtedness(es) and
the liens securing same, if any.
b. From the date hereof to the date of Closing, Seller will not allow any lien
to be attached to the Property or any part thereof except the lien for ad
valorem taxes and special assessments which are not due and payable, nor will
Seller grant, create, or voluntarily allow the creation of, or amend, modify or
change, any easement, right-of-way, encumbrances, restriction, covenant, lease
or other right affecting the Property or any part thereof.
c. From the date hereof to the date of Closing, Seller will maintain the
Property in good order and condition and in substantially the condition that
exists on the date hereof.
d. From the date hereof to the date of Closing Seller will notify Purchaser of
any event affecting the Property or any part thereof promptly upon learning of
the occurrence of such event.
In the event of default by Seller in the performance of its obligations
under this paragraph 18. Purchaser (without any obligations to do so) may cure
such default and may offset the cost doing so against the purchase price.
18. CONTINGENCIES. The Closing of this Contact is subject to and expressly
contingent upon:
a. The agreement of both parties as to the exact location and dimensions of the
Property, as outlined in paragraph 1 and 5 hereof within twenty (20) days from
the acceptance of this Agreement.
b. Purchaser shall have obtained suitable, in Purchaser's sole opinion,
financing to purchase the Property and develop the improvements thereon prior to
Closing.
c. Purchaser shall have obtained suitable, in Purchaser and lender's sole
opinion, an appraisal report for the 67.51 acres in an amount to be no less than
one million, five hundred fifty-two thousand, seven hundred thirty dollars and
no/100 ($1,552,730.00) prior to Closing.
<PAGE>
d. Verification from the City of Maumelle allowing R-1 residential use.
19. TIME OF THE ESSENCE. Time is of the essence of this Agreement.
20. ASSIGNMENT Agreement may be assigned by Purchaser and all powers, rights and
privileges herein reserved and given to Purchaser or the Seller shall inure to
the benefit of and be held by the respective successors and assigns of the
parties, and all liabilities or obligations imposed on each shall be binding
upon the respective successors and assigns of the parties.
21. NOTICE. Any notice, demand or request which may be permitted, required or
desired to be given in connection herewith shall be in writing and deemed given
when directed to the Seller and Purchaser by certified mail, return receipt
requested, postage prepaid, at the respective addresses stated on the signature
line of this Agreement. In the event such notice or other communication is
effective by personal delivery, the date and hour of actual delivery shall fix
the time of notice.
22. ENTIRE AGREEMENT. This Agreement shall represent the entire agreement by and
between the parties hereto, except as otherwise provided for herein and it may
not be changed except by written agreement duly executed by the parties hereto.
23. CAPTIONS. The headings in this Agreement have been used for administrative
convenience only, and shall not be used in interpreting or construing the
meaning of any provision of this Agreement.
24. FURTHER. In the event any supplemental agreement or writing contemplated
hereunder is not executed at or prior to the Closing through oversight or
otherwise, the terms and provisions of this Agreement shall nevertheless survive
the Closing of the sale and purchase and shall continue in full force and effect
until all such obligations are fully performed and satisfied.
25. SURVIVAL OF COVENANTS. The respective obligations and covenants herein
contained are of a continuing nature and shall survive the Closing Date.
26. AUTHORITY. All parties to this Agreement warrant and represent that they
have the power and authority to enter into this Agreement in the names, titles
and capacities herein stated and on behalf of any entities, persons represented
by such person, and that all formal requirements necessary or required by any
state or federal law in order for Seller to enter into this Agreement have been
complied with fully. Seller hereby further represents, warrants and covenants to
and for the benefit of Purchaser, its successors and assigns that Seller's
entering into, execution and performance of this Contract has been duty
authorized by its Board of Directors, and will not violate or contravene any
statute, regulations, agreement, contract, indenture or similar instrument,
written or oral, to which Seller or any subsidiary company or agent of Seller or
the Property is bound or by which they (it) may be affected.
27. SEVERABILITY. If any provisions of this Agreement shall, for any reason, be
held violative of any applicable law, and so much of said Agreement is held to
be unenforceable, then the
<PAGE>
invalidity of such specific provisions herein shalt not be held to invalidate
any other provisions herein which shall remain in full force and effect.
28. AGENCY. Purchaser and Seller acknowledge Vogel-Jones Realty Company is
representing the Purchaser in this transaction. All licensed personnel
associated with Vogel-Jones Realty Company represent and are responsible to the
Purchaser.
Steve Hockersmith, as agent for an unidentified Purchaser, is a licensed real
estate salesman in Little Rock, Arkansas.
Executed by Purchaser in multiple original copies effective the 28th day of
February, 1997.
This Agreement is binding if executed by Seller by 5:00 p.m. Wednesday, February
28th, 1997.
This Agreement is accepted by Seller at 3:30 p.m., Feb. 28, 1997.
SELLER: PURCHASER:
CAPITOL DEVELOPMENT OF
ARKANSAS INC.
By: /s/ David Paes By: /s/ Steve Hockersmith
David Paes Steve Hockersmith
Vice President Agent for unidentified Buyer
Agents: Vogel-Jones Realty Company
By Steve Hockersmith
11219 Financial Centre Parkway,
Suite 300
Little Rock, Arkansas 72211
Phone: (501)225-6018
Fax: (501)225-6308
Principal Broker:
/s/ Robert A. Vogel 2-28-97
Robert A. Vogel Date
Vogel-Jones Realty
<PAGE>
LANDS LYING IN THE WEST HALF OF SECTION 32. TOWNSHIP 3 NORTH, RANGE 13
WEST. Maumelle LE. PULASKI COUNTY, ARKANSAS BEING MORE PARTICULARLY
DESCRIBED AS FOLLOWS:
Commencing at the Southeast Corner of said Section 32; thence along the South
line of said West half of Section 32 South 88 31' 15' East, 716.72 feet, thence
leaving said South line North 01, 28' 45 29.64 feet to the point of beginning
thence North 39 05' 24" West. 351 16 feet: thence North 47 13 58- West, 671 55
feet; thence North 08 15'04" East 334.46 feet; thence North 56 45'32" East,
176.95 feet; thence North 08 35'01 West, 268 00 feet; thence North 39 29'12"
East. 183.99 feet; thence South 82 48'03" East. 95.75 feet; thence North 08
01'21" East. 300.95 feet: thence North 0l 47'04" West. 642.31 feet; thence North
31 24' 23' East. 466.32 feet; thence South 51 20'25" East. 204.90 feet; thence
South 66 34 '37" East. 163.43 feet; thence North 77 39' 39" East. 163.78 feet;
thence North 49 26' 33" East. 274.32 feet to a Point on the South Right of Way
line of South Odom Boulevard; thence along said South Right of Way l in along a
6.8606 degree curve to the left 560.43 feet to a point which has a chord bearing
and distance of South 52 27' 51" East. 549.97 feet thence South 67 48'01" East.
105.60 feet: thence leaving said South Right of Way line South 34 10' 37" West.
207 84 feet; thence South 27 4 '21" West. 800.00 feet; thence South 64 10' 59"
East. 150.09 feet; thence South 04 15' 28" West. 339.65 feet thence South 67 03'
45" West. 223.64 feet; thence South 23 56' 24" West. 710.90 feet; thence South
62 30' 03" East. 493.10 feet; thence South 49 19' 45" West. 111.30 feet thence
South 70 38' 07" West. 645.93 feet to the point of beginning containing 67.51
acres, more or less.
EXHIBIT "A"
<PAGE>
AMENDMENT TO REAL ESTATE CONTRACT
This Amendment to Real Estate Contract (this "Amendment") is entered into
by and between Capitol Development of Arkansas, Inc. (hereinafter referred to as
"Seller'') and Steve Hockersmith, the agent for an unidentified purchaser
(hereinafter referred to as "Purchaser"). Seller and Purchaser entered into a
Real Estate Contract for the sale of approximately 67.51 acres dated effective
February, 28, 1997 for the sale of a certain tract of land containing
approximately 67.51 acres more or less, and described on Exhibit "A", attached
hereto (the "Contract").
Purchaser has notified Seller this date by letter from its attorney which
is marked Schedule "B" and affixed hereto that Purchaser is ready, willing and
able to close the purchase, but Seller requires additional time in order to
obtain all necessary documents for closing the transaction.
The last three sentences of Section 13 of the Contract provides, "Closing
date shall be no later than April 15, 1997. If closing does not occur by April
15, 1997, the purchase price shall increase to $1,600,000.00, and that all other
conditions shall remain in effect until April 15, 1997. If the Contract does not
close by May 15, 1997, this Contract shall become null." The quoted last three
sentences of said Section 13 are hereby stricken and are hereby revised to
provide as follows:
"Closing date shall be no later than April 30, 1997. In the event closing does
not occur by April 30, 1997, the Purchase Price shall increase to $1,600,000.00,
and all other terms and conditions shall remain in effect until May 30, 1997. If
the transaction is not closed by May 30, 1997, this Contract shall become null
and void."
The parties agree that all other terms and conditions, except as amended
herein, are hereby confirmed and affirmed.
IN WITNESS WHEREOF, the Purchaser and Seller have executed this Amendment
effective this 14th day of April, 1997.
CAPITOL DEVELOPMENT OF ARKANSAS, INC.
BY: /s/ Michael G. Todd
Michael FOR
UNIDENTIFIED PURCHASER
<PAGE>
SECOND AMENDMENT TO REAL ESTATE CONTRACT
This Second Amendment to Real Estate Contract (this "Second Amendment") is
entered into by and between Capitol Development of Arkansas, Inc (hereinafter
referred to as "Seller") and Steve Hockersmith, the agent for an unidentified
purchaser (hereinafter referred to as "Purchaser"). Seller and Purchaser entered
into a Real Estate Contract for the sale of approximately 67.51 acres dated
effective February 28, 1997 for the sale of a certain tract of land containing
approximately 67.51 acres more or less, and described on Exhibit "A", attached
hereto (the "Contract"), and amended same by an Amendment to Real Estate
(contract dated April 14, 1997 (the "First Amendment")).
Purchaser has notified Seller by letter from its attorney which is marked
Schedule "B" and affixed hereto that Purchaser is ready, willing and able to
close the purchase, but Seller requires additional time in order to obtain all
necessary documents for closing the transaction.
The last three sentences of Section 13 of the Contract, as amended by the
First Amendment, provides, "Closing date shall be no later than April 30, 1997.
If closing does not occur by April 30 1997, the purchase price shall increase
to $1,600,000.00, and that all other conditions shall remain in effect until May
30, 1997. If the Contract does not close by May 30, 1997, this Contract shall
become null." The quoted last three sentences of said Section 13 are hereby
stricken and are hereby revised to provide as follows:
"Closing date shall be no later than May 15, 1997. In the event closing does
not occur by May 15, 1997, the purchase Price shall increase to $1,600,000.00,
and all other terms and conditions shall remain in effect until June 15, 1997.
If the transaction is not closed by June 15, 1997, this Contract shall become
null and void."
The parties agree that all other terms and conditions, except as amended
herein) are hereby confirmed and affirmed.
IN WIT Amendment effective this 29th day of April, 1997.
CAPITOL DEVELOPMENT OF ARKANSAS, INC.
BY: /s/ Michael G. Todd
Michael G. Todd, President
/s/ Steve Hockersmith
STEVE HOCKERSMITH, AGENT FOR
UNIDENTIFIED PURCHASER
<PAGE>
EXHIBIT 11
CAPITOL COMMUNITIES CORPORATION
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Six Months Ended
March 31,
<S> <C> <C>
1997 1996
---- ----
Shares Outstanding Beginning 7,000,000 7,000,000
Of Period
Shares Issued During Period
October 7, 1996 38,000 -
November 12, 1996 150,000 -
Weighted average number of 7,151,099 7,000,000
shares outstanding
Total 7,151,099 7,000,000
Earnings (loss) applicable to $(646,717) $(566,436)
common shares
Earnings (loss) per share of $ (0.090) $ (0.081)
common stock
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<MULTIPLIER> 1
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 273,761
<SECURITIES> 3,500,000
<RECEIVABLES> 1,057
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 625,673
<PP&E> 8,766,594
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,178,096
<CURRENT-LIABILITIES> 4,068,005
<BONDS> 0
0
0
<COMMON> 7,188
<OTHER-SE> 2,176,191
<TOTAL-LIABILITY-AND-EQUITY> 13,178,096
<SALES> 243,764
<TOTAL-REVENUES> 305,887
<CGS> 43,701
<TOTAL-COSTS> 43,701
<OTHER-EXPENSES> 952,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394,710
<INCOME-PRETAX> (646,717)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,717)
<EPS-PRIMARY> (0.091)
<EPS-DILUTED> (0.091)
</TABLE>
