<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 June 30, 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:
1
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Common Stock ($.01 Par Value) 7,332,000
(Title of Class) Shares Outstanding as of August 8, 1997
Transitional Small Business Disclosure Format: [ ] YES [X] NO
2
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CAPITOL COMMUNITIES CORPORATION
Form 10-QSB
QUARTER ENDED June 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
(Unaudited).........................................................4
Consolidated Balance Sheet
June 30, 1997.......................................................4
Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 1997 and 1996....................6
Consolidated Statement of Operations
For the Nine Months ended June 30, 1997 and 1996....................7
Consolidated Statement of Operations
For the Three Months ended June 30, 1997 and 1996...................8
Notes to Consolidated Financial Statements
June 30,1997........................................................9
Item 2. Management's Discussion And Analysis or Plan of
Operation..........................................................12
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior
Securities.........................................................20
Item 5. Other Information..................................................20
Item 6. Exhibits and Reports on Form 8-K...................................20
Signatures..................................................................23
Index to Exhibits
</TABLE>
3
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
Capitol Communities Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, 1997 and September 30, 1996
UNAUDITED
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1996
-------------- ------------------
<S> <C> <C>
Current Assets
Cash in Bank $ 538,474
Restricted Cash 675,100
Accounts Receivable 5,357 1,057
Prepaid Assets 156,908 6,893
Accrued Interest - 62,140
----------- -----------
Total Current Assets 1,375,839 70,090
Loan & Origination Fees,
Net of Amortization 325,328 211,601
Other Assets
Deposits 10,679 129
Furniture and Fixtures 10,083
Real Estate Holdings 8,925,067 9,156,357
Investments 3,500,000 3,500,000
----------- -----------
Total Other Assets 12,445,829 12,656,486
Total Assets $14,146,996 $12,938,177
=========== ===========
=====
Current Liabilities
Cash Overdraft $ 0 $ 185,911
Accounts Payable & 825,878 1,108,926
Accrued Expenses
Accrued Interest 808,089 252,671
Notes Payable 3,036,435 1,964,406
----------- -----------
Total Current Liabilities 4,670,402 3,511,914
Notes Payable 6,894,021 6,973,128
----------- -----------
Total Liabilities 11,564,423 10,485,042
Shareholders' Equity
Preferred Stock - -
Common Stock 7,112 7,000
Additional Paid in Capital 5,139,996 4,764,108
Accumulated Deficit (2,564,535) (2,317,973)
Total Shareholders' Equity 2,582,573 2,453,135
----------- -----------
Total Liabilities and
Shareholders' Equity $14,146,996 $12,938,177
=========== ===========
</TABLE>
4
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 1997 and 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(246,562) $(874,900)
Amortization 120,102 42,924
Adjustments to Reconcile Income
to Net Cash Used for operating Activities
(Increase) Decrease in Receivables (4,300) (7,799)
(Increase) Decrease in Restricted Cash (675,100)
(Increase) Decrease in Other Assets (20,633)
(Increase) Decrease in Real Estate Holdings 231,290 (133,176)
(Increase) Decrease in Accrued Interest
Receivable 62,140 (109,670)
(Increase) Decrease in Pre-Paid Assets (150,015) (356)
Increase (Decrease) in Accrued Expenses (283,048) 503,959
Increase (Decrease) in Short Term Notes 896
Increase (Decrease) in Accrued Interest
Payable 555,417 191,202
Net Cash Used for Operations (410,709) (386,920)
Cash Flows from Financing Activities:
Increase in Notes Payable 992,923
Loan Origination Fees (233,829) -
Cash Flows from Investing Activities:
Issuance of Common Stock 376,000 0
--------- ---------
Net Increase (Decrease) in Cash 724,385 (386,920)
Beginning Cash (185,911) 265,703
--------- ---------
Ending Cash $ 538,474 $(121,218)
========= =========
</TABLE>
5
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1997 and 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Sales $1,881,445 $ 0
Cost of Sales 447,593 -
---------- ----------
Gross Profit 1,433,852 0
Operating Expenses:
General & Administrative
Expenses 1,130,007 479,856
---------- ----------
Net Income (Loss) Before
Interest Income 303,845 (479,856)
Interest Income 67,618 184,151
Interest Expense (618,025) (579,195)
Net Income (Loss) $ (246,562) $ (874,900)
========== ==========
Net Income (Loss) per share $(0.035) $(0.125)
========== ==========
Weighted average shares outstanding: 7,144,747 7,000,000
========== ==========
Dividends per Share 0 0
---------- ----------
</TABLE>
6
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Capitol Communities Corporation and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended June 30, 1997 and 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Sales $1,593,980 $ 0
Cost of Sales 403,892 -
---------- ----------
Gross Profit 1,190,088 0
Operating Expenses:
General & Administrative
Expenses 570,609 176,068
---------- ----------
Net Income (Loss) Before
Interest Income 619,479 (176,068)
Interest Income 5,495 61,082
Interest Expense (224,276) (193,478)
Net Income (Loss) $ 400,698 $ (308,464)
========== ==========
Net Income (Loss) per share $0.056 $(0.044)
========== ==========
Weighted average shares outstanding: 7,132,044 7,000,000
========== ==========
Dividends per Share 0 0
---------- ----------
</TABLE>
7
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CAPITOL COMMUNITIES CORPORATION AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 30, 1997
-------------
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
Background
----------
The consolidated balance sheet at June 30, 1997 and the related
statements of operations and cash flows for the six month period ended
June 30, 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, which, since the filing of the
Company's Annual Report on Form 10-KSB/A for that fiscal year, have
been amended and are attached to this Report as Exhibit 99. The
Company intends to file such amended financial statements with the
SEC on Form 10-KSB/A, as part of its amended Annual Report for the
fiscal year ended September 30, 1996.
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
8
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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 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
------------------------------------------
June 30, 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 nine months ended June 30, 1997 was 7,144,747.
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.
9
<PAGE>
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.
In May 1977, one shareholder returned a total of 19,000 shares of
common stock for cancellation, pursuant to an agreement with the
Company.
On July 30,1997, the Company issued 100,000 shares of common stock to
an unaffiliated company for the purchase of all of the stock of
Capitol Resorts of Florida, Inc.,under an Agreement and Plan of
Reorganization, dated July 30, 1997.
10
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Item 2. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
Although the Company has not yet commenced any material development or
building activity, its primary focus is the development and sale of residential
single-family homes on the more than 1,700 acres it currently 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 acquisition, renovation,
development, sale and financing of vacation ownership interval interests
("VOIs") and vacation long-term leasehold interests ("LTLs") of resort, hotel
and vacation properties. In its efforts to diversify its development focus, the
Company has purchased approximately 34.7 acres of land and improvements in
Osceola County, Florida, for development as a LTL property and entered into an
agreement to purchase the assets of a development stage VOI property, located in
Branson, Missouri. See "LIQUIDITY AND CAPITAL RESOURCES." 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 liquidity problems, the success of the Company's future
capital-raising efforts 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
on a substantial portion of its debt. On May 20, 1977, the Company closed the
sale of 67 acres of its Maumelle single-family property for $1,552,730. As
discussed in more detail below, the Company obtained $977,706 in short-term debt
financing from private sources, (collectively the "Bridge Loans"), during the
four month period ended May 31, 1997. The Company may try to obtain an
additional $500,000 in short term debt by the end of the Company's fourth fiscal
quarter. There can be no assurance, however, that the Company will be able to
obtain the funds on favorable terms or at all. See "LIQUIDITY AND CAPITAL
RESOURCES."
The Company will need to raise additional funds or refinance or
restructure its current debt in order to avert 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. See "LIQUIDITY AND CAPITAL RESOURCES."
Since the end of the 1996 fiscal year, the Company has obtained two
commercial revolving lines of credit from the Bank of Little Rock, in Little
Rock, Arkansas. Both lines bear interest at the rate of 10.00% per annum. The
first line, in the amount of $400,000, requires the Company to pay interest only
per month on the outstanding amount, commencing May 10, 1997 until April 10,
1998, when the entire unpaid principal balance plus all accrued and unpaid
interest becomes due and payable. This line is secured by approximately an 11
acre multi-family
11
<PAGE>
parcel of the Company's Maumelle Property. The second line, in the amount of
$450,000, requires no monthly payment of principal or interest and is payable
the earlier of November 5, 1997 or on demand. This line is secured by
approximately a 19 acre multi-family parcel of the Company's Maumelle Property.
Change in Financial Condition Since the End of the Last Fiscal Year. As of
--------------------------------------------------------------------
June 30, 1997, the Company had total assets of $14,146,996, an increase of
$1,208,819, or 9.34% over the Company's total assets as of the Company's fiscal
year end of September 30, 1996. The Company had cash of $538,474 at June 30,
1997 compared to a negative cash position of $185,911 at September 30, 1996, an
improvement of $724,385. This improvement resulted from timber royalties
received during the nine month period, the sale of 2 acres of commercial
property, the Bridge Loans discussed later and the sale of a 67 acre single-
family parcel of land. See "LIQUIDITY AND CAPITAL RESOURCES."
Prepaid assets increased from $6,893 on September 30, 1996 by $150,015 to
$156,908 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 contract extends through December
31, 1997. The prepaid portion of these contracts as of March 31,1997 was
$139,000. 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 $231,290
during the nine months from $9,156,357 to $8,925,067. 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. The sale of a single family parcel resulted in a
reduction of real estate holdings of $322,256. These amounts represent the
allocated and land improvement costs of those particular sites, which was
recognized as part of the cost of sales of the sites. Additions to real estate
holdings resulted from expendituresal of a purchase agreement for the
acquisition of the west Little Rock, Capitol Lakes Estates project ("Capitol
Lakes Purchase Agreement"). On April 9,1997, the Company paid a fee of $10,000
for a six month extension on Capitol Lakes Purchase Agreement, to October 14,
1997. Additional capitalized costs totaling $38,902 in pre-development and
acquisition costs on four different properties in Maumelle increased the
carrying value of the Company's real estate holdings. In addition, new Special
Taxes of $46,235 were accrued and capitalized as part of the carrying value of
the 36 acre commercial site. The Company purchased
12
<PAGE>
a 3.8 acre commercial site for $200,665 from Maumelle Enterprises, Inc.
"Maumelle Enterprises"), a company affiliated with certain officers of the
Company. See "LIQUIDITY AND CAPITAL RESOURCES." Pre-acquisition costs
capitalized on this property total $11,000. Pre-acquisition costs on properties
located in Hot Springs, Arkansas; Branson, Missouri and Orlando, Florida,
totaled $189,277.
Total liabilities of the Company at June 30, 1997, had increased to
$11,564,423, an increase of $1,079,381 over the September 30, 1996 total of
$10,485,042. The liability for accrued interest increased to $808,089 at June
30, 1977 from $252,671 at September 30,1996. This increase of $555,418 reflects
the addition of $88,219 in interest resulting from the extension of the payment
due on September 30, 1996, to Resure Inc. ("Resure"), on the Resure Note I. See
"LIQUIDITY AND CAPITAL RESOURCES." The balance of the increase reflects the
fact that during the nine months ended June 30, 1997, the only substantive
interest payment made was the January, 1997 semi-annual payment of $123,507 on
Resure Note II. See "LIQUIDITY AND CAPITAL RESOURCES." The balance of
interest due on the Resure Notes was accrued. The current liability for notes
payable increased by $1,072,028 during the nine months, from $1,964,406 to
$3,036,435. This increase included the $977,706 in Bridge Loans obtained in
the nine month period and a $79,107 reclassification of notes payable to current
liability for a principal payment due within one year of June 30, 1997. The
extension of the Resure Note I payment due on October 1, 1996, increased the
liability by $13,372.
Accounts payable and accrued expenses decreased by $ 283,048. At September
30,1996 the liability for accounts payable and accrued expenses totaled
$1,108,926. At June 30, 1997 the balance was $825,878. Accrued Special Taxes
payable decreased by $161,940. The Special Tax decrease was a result of the bond
refinancing by the City of Maumelle, Arkansas, Multi-Purpose Improvement
District No. 2, encompassing the approximately 36 acres 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. Accrued real estate taxes payable also decreased by$27,694, which
represents the difference between new accruals of $44,993 and taxes paid for a
total of $72,687. These decreases were partially offset by additional accounts
payable incurred during the nine months ended June 30, 1997 including an
additional $180,000 in officers salary, $12,000 in accrued Directors' fees and
$16,200 in office lease payable.
Shareholders' Equity increased by $129,438 or 5.28%. The increase results
primarily from 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.
This was somewhat offset by the operating loss of $246,562 for the nine month
period ending June 30,1997.
Results of Operations
- ---------------------
Comparison of Nine Months Ended June 30,1997 to the Nine Months Ended June 30,
- -------------------------------------------------------------------------------
1996
- ----
For the nine months ended June 30, 1997, the Company experienced a loss of
$246,562
13
<PAGE>
compared with a loss of $874,900 for the nine months ended June 30, 1996. The
difference in performance was primarily due to a substantial increase in
revenues in the nine months ending June 30, 1997, which was offset by a
corresponding increase in general and administrative expenses.
Sales increased by $1,881,445 for the nine months ended June 30, 1997 from $0
for the nine months ended June 30, 1996, as a result of the sale of a 67 acre
single-family tract of land for $1,552,730, 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 $200,444. The gross profit for the nine months ended June 30,
1997 was $1,433,852. There was no gross profit for the nine months ended June
30, 1996, since there were no sales or costs of sales incurred during that
period.
For the nine months ended June 30, 1997, and the nine month period ended June
30, 1996, general and administrative expenses increased to $1,130,007 from
$479,856. This increase was due to increased expenses for financial consulting,
legal fees, amortization of loan costs on short term borrowings and recognition
of uncollectibitity of accrued interest from Resure.
The major portion of the general and administrative expenses for the nine
months ended June 30, 1997, were accrued by the Company, and include expenses
such as officers' salaries, in the amount of $180,000, office lease of $16,200
and directors' fees of $12,000. Management and consulting fees for the nine
months ended June 30, 1997 increased to $399,244 from $36,784 for the nine
months ended June 3, 1996. Although fees to Maumelle Enterprises increased
during the period to $102,312 from $36,239 in the prior period, the majority of
the increase was attributable to the consulting fees noted above. In addition,
legal and accounting fees increased from $47,401 for the nine months ended June
30, 1996 to $127,430 for the same period in 1997. Amortization expenses
increased by $77,178 in the nine months ended June 30,1997. The Company also
recognized an expense of $123,893 as an allowance for accrued interest due from
Resure as it may not be collectible, since on February 22, 1997, Resure was
placed in liquidation and Mark Boozell, Director of Insurance of the State of
Illinois, was appointed liquidator.
Comparison of The Three Months Ended June 30,1997 to the Three Months Ended
---------------------------------------------------------------------------
June 30,1996. For the three months ended June 30, 1997, the Company produced a
- -------------
profit of $400,698 compared with a loss of $308,464 for the three months ended
June 30, 1996. While general and administrative expenses increased
substantially, the increase was more than offset by the increased revenues in
the period.
Sales increased by $1,593,980 for the three months ended June 30, 1997 from $0
for the three months ended June 30, 1996, as a result of the sale of a 67 acre
single-family tract of land for $1,552,730, and the sale of timber from the
undeveloped single family portion of the Maumelle Property in the amount of
$41,250. The gross profit for the three months ended June 30, 1997, was
$1,190,088. There was no gross profit for the three months ended June 30, 1996,
14
<PAGE>
since there were no sales or costs of sales incurred during that quarter.
General and administrative expenses increased to $570,609 for the three
months ended June 30, 1997, from $176,068 in the three months ended June 30,
1996. The major portion of the general and administrative expenses for the three
months ended June 30, 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 June 30, 1997 amounted to $101,720. There were no
costs for consulting fees incurred in the three months ended June 30, 1996 .
Management fees for the period ended June 30, 1997 amounted to $57,312.
Management fees for the period ended June 30, 1996 were waived. Amortization
expenses for the three months ended June 30,1997 amounted to $77,801, an
increase of $63,493 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."
Interest income decreased from $61,082 for the three month period ended June
30, 1996, to $5,495 for the three month period ended June 30, 1997. This
resulted from the Company's decision not to accrue interest as a result of
Resure's default on its January and June 1997, semi-annual payments due under
the Resure 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 1,043.76 acres
of land secured by defaulted debt obligations and the restricted cash collateral
account of $675,100 pledged to the Resure Note II. 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.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents amount to $538,474 or 3.81% of total assets at June
30, 1997, as compared with negative $185,911 at September 30, 1996. In
addition, the Company has placed $675,100 into a restricted cash collateral
account which is pledged to the Resure Note II (see discussion below). The
Company's liquidity position at June 30, 1997, is not adequate to meet the
Company's liquidity requirements, which include approximately $8,950,000 in
defaulted debt. The Company's status as a going concern remains in doubt.
The Company has, as of July 31, 1997, borrowed $977,706 in Bridge Loans from
private sources with net proceeds to the Company of $733,279. 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 has provided 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 has also paid the investment banking firm that assisted the Company in
obtaining the Bridge Loans a fee equal to 15% of Bridge Loans gross proceeds
received.
15
<PAGE>
The Bridge Notes mature at the end of the fourth quarter 1997, and the first
quarter of 1998. The Company intends to negotiate with the note holders to
reinvest the Bridge Notes for an additional nine month period. If some or all
of the note holders choose not to reinvest, the Company will have to obtain
additional funds to pay the matured Bridge Notes. There can be no assurances,
however, that the Company will be able to obtain the funds necessary to pay the
matured Bridge Notes, particularly since the Company has not commenced
discussions or negotiations with the note holders.
The Company may try to secure an additional $500,000 in short-term debt
financing from private investors during the fourth quarter of 1997, for general
corporate purposes. There can be no assurances, however, that the Company will
be able to obtain debt financing on favorable terms or at all.
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 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. The
Company has entered into a tentative settlement agreement with Century, which
required a substantial payment on August 1, 1997. The Company was unable to
make this payment, but negotiated an extension of the agreement to September 1,
1997, for a payment of $25,000. The agreement may be further extended to October
1, 1997, upon payment of an additional $25,000. There are no assurances that
the Company will be able to fulfill Century's proposed terms given the
Company's present illiquidity.
The Company is in default on the Resure Note I, a $3,500,000 recourse note
secured by approximately 1,044-acre large residential tract of the Maumelle
Property. The Company missed four $101,591 quarterly principal and interest
payments that were due on October 1, 1996 and January 1, April 1, and July 1,
1997. Resure granted an extension of the October 1, 1996 payment to April 1,
1997, in consideration of a pledge of 200,000 shares of the Company's common
stock by two of the Company's major shareholders, Charlie Corporation and
Prescott Investments Limited Partnership. The Company has not yet made any of
the foregoing payments. As a result, the Resure Liquidator now has the right to
foreclose upon such shares, in addition to foreclosing on the real property
securing the Resure Note I and exercising its other rights and remedies.
Because Resure failed to make the January and June 1997 semi-annual payments
due to the Company under the Resure Debenture, the Company had no funds with
which to make the $123,507 semi-annual payments due under the Resure Note II (a
$3,500,00 non-recourse loan secured by the restricted cash collateral account
for $675,100 and approximately 339 acres of the large residential tract of the
Maumelle Property). In May, 1997, the Company brought current
16
<PAGE>
the Resure Note II from the proceeds from the sale of the 67 acres of the
Maumelle Property discussed below. However, the June 30, 1997, payments remains
unpaid, because the payment of like amount that was due to the Company under the
Resure Debenture has not been made. Although Resure has defaulted under the
Resure Debenture, the Company is required, nonetheless to continue to make
payments under the Resure Note II. Given the Company's present illiquidity,
there can be no assurance that the Company will be able to make the payments
required thereunder, particularly in light of Resure's insolvency.
The Company is currently negotiating with the Resure Liquidator to restructure
and/or retire the Company's obligations under the Resure Note I and the Resure
Note II. The Company believes that it has certain causes of action against
Resure arising from Resure's sale of the Resure Debenture to the Company and,
therefore, may commence litigation against the Resure estate and others if
settlement negotiations are not successful. There can be no assurance, however,
that the Company will prevail if such litigation is commenced.
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.
The Company must raise additional operating capital to retire or refinance the
above defaulted debt obligations, service other existing debt and meet the
Company's anticipated future operating cash needs. There can be no assurance,
however, that such capital can be raised.
On March 31, 1997, the Company obtained a fixed rate commercial revolving line
of credit from the Bank of Little Rock in the amount of $400,000, bearing an
interest rate of 10.00% per annum. The line is secured by approximately a
10.799 acre multi-family parcel of the Company's Maumelle Property. On July 29,
1997, the Company obtained a second commercial revolving line of credit from the
Bank of Little Rock, in the amount of $450,000, also bearing interest at the
rate of 10.00% per annum, payable principal and interest on demand or at
maturity on November 5, 1997. This line is secured by approximately a 19 acre
multi-family parcel of the Company's Maumelle Property. As of August 10, 1997,
the Company has drawn a total of $847,000 against the lines. The proceeds were
used to complete the purchase of approximately 35 acres of land and improvements
in Osceola County, Florida, known as the Florida Bible College. (See below).
On July 30, 1997, The Company acquired Capitol Resorts of Florida, Inc.
("CRF"), a Florida corporation formed on July 22, 1997, whose sole asset was the
right to purchase the Florida Bible College. On July 30, 1997, the Company
entered into a reorganization agreement with MLT Management Corp., the parent of
CRF. Under the terms of the agreement the Company acquired 1,000 shares of CRF
stock, which represented all of the issued and outstanding capital shares of
CRF, in exchange for 100,000 shares of the Company's voting common stock.
Upon acquisition of the CRF stock, its sole director resigned and Michael G.
Todd, president and director of the Company, was appointed the sole director of
CRF. On the same day, CRF closed on the contract to acquire the Florida Bible
College property for
17
<PAGE>
$922,000. The property was appraised by a third party on May 12, 1997 at a value
of $3,385,000. The Company intends to renovate the existing two buildings on
the property into a hotel. The buildings currently consists of a total of 95
rooms, a lobby area, offices, cafeteria, kitchen, and meeting space. Management
estimates that the renovation will costs approximately $1,200,000 and will
commence when the Company is able to re-finance the property, which currently is
unencumbered. The Company also plans to develop VOI units on portions of the 34
acres. There can be no assurance that the Company will be able to obtain the
necessary financing to renovate the existing facilities or to develop VOI units
on the property.
If the Company is able to obtain funds to renovate and develop the property,
it intends to utilize the property as hotel for discount vacation tours as part
of the Company's marketing plan to sell VOI and LTL units. Management intends
to contract with a non-affiliated management firm to manage the hotel.
The Company has signed agreements to purchase approximately 21 acres of
undeveloped land in Branson, Missouri, by no later than September 12, 1997 (the
"Palace View Agreements"). The aggregate purchase price for the property is
approximately $4,200,000. The Company intends to develop VOI units on the
property, assuming the Company can obtain the necessary funds to finance the
acquisition. There can be no assurance, however, that given the Company's
present illiquidity, it can obtain the necessary funds to acquire and develop
these properties.
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 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 favorable
terms or at all.
The Company had contracted to acquire the assets of SunBay, Inc., a vacation
interval resort located on 20 acres in Hot Springs, Arkansas ( the "SunBay
Agreement"). The contract expired on June 23, 1997, without the Company closing
on the property. Prior to the expiration of the contract, the Company duly
notified the seller that it had objections to the property's title. However,
the Company's earnest money deposit of $10,000 is still held in escrow, and
there is no assurance that the deposit will be returned or the purchase
completed.
In order to service existing debts and meet operating expenses, the Company
sold a 67 acre single-family parcel of the Maumelle Property for a price of
$1,552,730. The sale was completed on May 20, 1997. As discussed above, $675,100
of the proceeds from the sale were 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 that property could provide the Company with gross proceeds of
18
<PAGE>
approximately $1,000,000 which could be used for general corporate purposes.
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 resort and vacation properties and the development and sale of VOI
units and LTL units. This assumes that the Company can obtain the necessary
financial resources to overcome its present illiquidity and begin substantial
building operations and/or successfully negotiate the acquisition of leisure
properties. 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 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." As of the date
of filing this Report, the total arrearage on the Resure Note I is $406,365, on
the Resure Note II is 121,493, and on the Century Note I is approximately
$237,847 plus the mature $1,400,000 principal.
Item 5. OTHER INFORMATION.
The Company incorporates by reference the information regarding the Palace
View Resort and Condominiums Agreement, and the Florida Bible College Agreement
from Part I, Item 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
- -Liquidity and Capital Resources."
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 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
19
<PAGE>
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.*
<TABLE>
<CAPTION>
<S> <C>
3.3 Article of Incorporation of Capitol Resorts, Inc., dated April 17, 1997
3.4 Articles of Incorporation of Capitol Resorts of Florida, Inc., dated
July 22, 1997
3.5 Bylaws of Capitol Resorts of Florida, Inc., dated July 22, 1997
</TABLE>
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 Resure, Inc.*
10.10 Environmental Indemnity Agreement, dated September 11, 1995, between
AWEC
20
<PAGE>
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.****
10.23 Asset Purchase Agreement, effective June 16, 1997, between Capitol
Communities Corporation and PVP Development Company, L.L.C., an Arkansas
limited liability Company, for the purchase of approximately 20.71 acres
of land in Branson, Missouri.
21
<PAGE>
10.24 Asset Purchase Agreement, effective June 16, 1997, between Capitol
Communities Corporation and Palace View Ventures, L.L.C., a Missouri
limited liability Company, and Palace View, Inc., a Missouri
corporation, for the purchase of approximately 1 acre of land with 2
finished pads.
10.25 Agreement and plan of reorganization dated July 30, 1997 to acquire
shares of Capital Resorts of Florida Inc. and Florida Bible College.
11 Statement re: computation of per share earnings
23.1 Consent of Joel S. Baum, P.A., Independent Certified Public Accountant
27 Financial Data Schedule
99 Amended Financial Statements for fiscal year ended September 30, 1996
* 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.
**** Exhibit incorporated by reference from the March 31, 1997 Quarterly
Report on Form 10-QSB filed on May 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: August 14, 1997 By: /s/ Michael G. Todd
Michael G. Todd, Chairman,
President and Chief Executive
Officer
Date: August 14, 1997 By: /s/ David Paes
David Paes
Treasurer and Vice President
22
<PAGE>
EXHIBIT 3.3
ARTICLES OF INCORPORATION
OF
CAPITOL RESORTS, INC.
-----------------------------
The undersigned person hereby states the following in order to form a
corporation pursuant to the Arkansas Business Corporation Act:
1. The name of this corporation is "Capitol Resorts, Inc."
2. The corporation is authorized to issue Ten Thousand (10,000) shares of
stock and each share shall have a par value of One Cent ($.01).
3. The initial registered office of this corporation shall be located at
410 West Third Street, Suite 200, Little Rock, Arkansas 72201, and the name of
the registered agent of this corporation at that address is G. Robert Hardin.
4. The name and address of each incorporator is as follows:
G. Robert Hardin
410 West Third Street, Suite 200
Little Rock, Arkansas 72201
5. The nature of the business of the corporation and the object or
purposes proposed to be transacted, promoted or carried on by it are as follows:
(a) The primary purpose of the corporation shall be real estate
development in resort property.
(b) To conduct any other business enterprise not contrary to law.
(c) To exercise all of the powers enumerated in (S)4-27-302 of the
Arkansas Business Corporation Act.
6. The President and Secretary of the corporation shall have the authority
on behalf of the corporation to enter into any contract between the corporation
and all of its shareholders (a) imposing restrictions on the future transfer
(whether inter vivos,
<PAGE>
by inheritance or testamentary gift), hypothecation or other disposition of its
shares; (b) granting purchase options to the corporation or its shareholders; or
(c) requiring the corporation of its shareholders or purchase such shares upon
stated contingencies.
7. The number of directors constituting the initial Board of Directors
shall be one (1).
8. All shares of stock issued by the corporation shall be represented by
certificates.
EXECUTED this 17th day of April, 1997.
INCORPORATOR:
/s/ G. Robert Hardin
---------------------------
G. ROBERT HARDIN
<PAGE>
EXHIBIT 3.4
ARTICLES OF INCORPORATION
OF
CAPITOL RESORTS OF FLORIDA, INC.
The undersigned desiring to form a corporation for the purposes hereinafter
stated under and pursuant to the laws of the State of Florida, do hereby declare
as follows:
ARTICLE I
NAME
The name of the corporation shall be CAPITOL RESORTS OF FLORIDA, INC.
ARTICLE II
BUSINESS AND PURPOSE
The nature of the business which may be transacted by the corporation is as
follows: This corporation may engage in any activity or business permitted under
the laws of the State of Florida, and shall enjoy all the rights and privileges
of a corporation granted by the laws of the State of Florida.
ARTICLE III
STOCK
The maximum number of shares of stock which this corporation is authorized
to have outstanding at any time shall be 1000 shares of common stock having a
par value of $1.00 per share. The capital stock may be paid for in property,
labor or services at a just valuation to be fixed by the incorporators or by the
directors at a meeting called for such purpose or at the organization meeting.
Property, labor or services may be purchased or paid for with the capital stock
at a just valuation of said property, to be fixed by the directors of the
company. Stock in other corporations of going businesses may be purchased by the
corporation, in return for the issuance of its capital stock, and said purchases
shall be on such basis and for such consideration as the issuance of so much of
the capital stock as the directors of the company may decide.
ARTICLE IV
TERM OF EXISTENCE
This corporation shall have a perpetual existence unless sooner dissolved
according to law.
ARTICLE V
PRINCIPAL OFFICE
The principal office or place of business of the corporation shall be
located at 2055 WOOD STREET, SUITE 215, SARASOTA, FL 34237, with privilege of
having its offices and branch offices at other places within or without the
State of Florida.
1
<PAGE>
ARTICLE VI
REGISTERED OFFICE AND REGISTERED AGENT
The Registered Agent of this Corporation shall be MICHAEL M. WALLACK, Esq.,
a resident of Sarasota County, Florida, and the Registered Office of the
Corporation shall be 2055 Wood Street, Suite 215, Sarasota, FL 34237.
ARTICLE VII
BOARD OF DIRECTORS
The affairs of the corporation shall be conducted by a board of not less
than one and not more than seven directors.
ARTICLE VIII
INITIAL DIRECTORS
The names and addresses of the first Board of Directors, who, subject to
the provisions of these Articles of Incorporation, shall hold office for the
first year of the Corporation's existence or until their successors are elected
and shall have qualified are the following:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Diane Bloom 1756 Eagle Trace Blvd. West
Coral Springs, FL 33071
</TABLE>
ARTICLE IX
SUBSCRIBERS
The names and street addresses and the number of shares of stock subscribed
to by each person signing these Articles of Incorporation are:
<TABLE>
<CAPTION>
NAME ADDRESS NO. OF SHARES
---- ------- -------------
<S> <C> <C>
Michael M. Wallack 2055 Wood Street, Suite 215 1000
Sarasota, FL 34237
</TABLE>
ARTICLE X
ASSIGNMENT OF SUBSCRIPTION RIGHTS
The original incorporators of the Corporation shall have the right upon its
organization, to assign and deliver their subscriptions of stock to any other
person, or to firms or corporations who may hereafter become subscribers to the
capital stock of the corporation, who, upon acceptance of such assignment, shall
stand in lieu of the original incorporators, and assume and carry out all of the
rights, liabilities and duties entailed by said subscriptions, subject to the
laws of the State of Florida, and the execution of the necessary instruments of
assignment.
2
<PAGE>
ARTICLE XI
INITIAL OFFICERS
The names, offices, and streets addresses of the first officers of this
Corporation who, subject to the provisions of these Articles of Incorporation,
shall hold office for the first year of the Corporation's existence or until
their successors are elected and shall have qualified, are the following:
NAME OFFICE ADDRESS
---- ------ -------
Diane Bloom President 1756 Eagle Trace Blvd. West
Secretary Coral Springs, FL 33071
Treasurer
ARTICLE XII
MANAGEMENT
The Corporation shall be managed by the Board of Directors, which shall
exercise all powers conferred under the laws of the State of Florida including
without limitation the power:
SECTION A: To hold meetings, to have one or more offices, and to keep the
----------
books of the Corporation, except as otherwise expressly provided by law, at such
places, whether within or without the State of Florida, as may from time to time
be designated by the Board.
SECTION B: To make, alter, and repeal By-Laws of the Corporation, subject
----------
to the reserved power of the stockholders to make, alter, and repeal By-Laws.
SECTION C: To determine whether and to what extent and at what times and
----------
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account,
record, book, or document of the Corporation, except as conferred by the laws of
the State of Florida or as authorized by the Board.
SECTION D: To declare and pay dividends upon the shares of capital stock
----------
of the Corporation either out of net assets in excess of liabilities including
capital or, out of net earnings, all in accordance with the provisions of the
laws of the State of florida.
SECTION E: To fix and determine from time to time an amount to be set
----------
apart, out of any of the funds of the Corporation available for dividends, a
reserve or reserves for working capital or any other proper purpose or to
abolish any such reserve or reserves.
SECTION F: To make any lawful disposition of any paid in or of capital
----------
surplus, or create any reserves out of the same, or charge to the same
organization expenses or other similar expenses properly chargeable to capital
account.
3
<PAGE>
SECTION G: To use or apply any funds of the Corporation lawfully available
---------
therefore for the purchase or acquisition of shares of the capital stock or
bonds or other securities of the Corporation, in the market or otherwise, at
such price as may be fixed by the Board, and to such extent and in such manner
and for such purposes and upon such terms as the Board may deem expedient and as
may be permitted by law.
SECTION H: From time to time in such manner and upon such terms and
---------
conditions as may be determined by the Board, to provide and carry out and
recall, abolish, revise, alter, or change, one or more plan or plans for:
(1) The issue or the purchase and sale of its capital stock or
granting of options therefore to any or all of the employees, officers,
directors of the Corporation, or of any subsidiaries, and the payment of such
stock in installments or at one time, with or without the right to vote thereon
pending payment therefore in full, and for aiding any such persons in paying for
such stock by contributions, compensation for services, or otherwise;
(2) The participation by any or all of the employees, officers, or
directors of the Corporation, or of any subsidiaries in the profits of the
Corporation or of any branch, division, or subsidiary thereof, as part of the
Corporation's legitimate expenses; and,
(3) The furnishing of any or all of the employees, officers, or
directors, of the Corporation, or of any subsidiaries, at the expense, wholly
or in part, of the Corporation, of insurance against accident, sickness, or
death, pensions during old age, disability, or unemployment, or retirement
benefits.
SECTION I: From time to time to authorize and issue obligations of the
---------
Corporation, secured or unsecured, to include therein such covenants and
restrictions and such provisions as to redeemability, subordination,
convertibility, or otherwise and with such maturities, as the Board in its sole
discretion may determine, and to authorize the mortgaging of, granting a
security interest in, or pledging of, as security therefore, any part or all of
the property of the corporation, real or personal, including after acquired
property.
ARTICLE XIII
TRANSACTIONS WITH RELATED PARTIES
1. No contract or other transaction between the corporation and one or more
of its directors or any other corporation, firm, association or entity in which
one or more of its directors are directors or officers or are financially
interested, shall be either void or voidable because of such relationship or
interest or because such director or directors are present at the meeting of the
boards of directors or a committee thereof which authorizes, approves or
ratifies such contract or transaction or because his or their votes are counted
for such purpose, if:
(a) The fact of such relationship or interest is disclosed or known to
the board of directors or committees which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors;
4
<PAGE>
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
2. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract, or transaction.
ARTICLE XIV
CUMULATIVE VOTING
Cumulative voting may be permitted by the terms of the By-Laws.
ARTICLE XV
INDEBTEDNESS
The highest amount of indebtedness or liability to which this corporation
may at any time subject itself is unlimited.
ARTICLE XVI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
This Corporation shall indemnify and insure its officers and directors to
the fullest extent permitted by law either now or hereafter.
ARTICLE XVII
BEGINNING OF CORPORATE EXISTENCE
The corporate existence of this corporation shall commence at 8:00 A.M. on
the 23rd day of July, 1997.
IN WITNESS WHEREOF, the undersigned have made, subscribed and acknowledged
these Articles of Incorporation on this 22nd day of July, 1997.
/s/ Michael M. Wallack (SEAL)
--------------------------
MICHAEL M. WALLACK
5
<PAGE>
CERTIFICATE OF DESIGNATING PLACE OF BUSINESS OR DOMICILE FOR THE SERVICE
------------------------------------------------------------------------
OF PROCESS WITHIN THIS STATE NAMING AGENT UPON WHOM PROCESS MAY BE SERVED.
- ---------------------------------------------------------------------------
In pursuance of Chapter 48.091, Florida Statutes, the following is
submitted, in compliance with said Act:
First CAPITOL RESORTS OF FLORIDA, INC. desiring to organize under the laws
of the State of Florida, with its principal office, as indicated in the Articles
of Incorporation at the City of Sarasota, State of Florida, has named MICHAEL M.
WALLACK, Esq. located at 2055 Wood Street, Suite 215, Sarasota, FL 34237, as its
agent to accept service of process within the State.
Having been named to accept service of process for the above stated
Corporation, at place designated in this Certificate, I hereby accept to act
in this capacity and agree to comply with the provisions of said Act relative
to keeping open said office.
/s/ MICHAEL M. WALLACK
--------------------------
MICHAEL M. WALLACK
REGISTERED AGENT
6
<PAGE>
EXHIBIT 3.5
BY-LAWS OF
CAPITOL RESORTS OF FLORIDA, INC.
ARTICLE I-OFFICES
-----------------
The principal office of the corporation shall be established and
maintained at 1200 North Ocean Blvd., Pompano Beach, FL 33062 in the City of
Pompano Beach, County of Broward, State of Florida. The corporation may also
have offices as such places within or without the State of Florida as the board
may from time to time establish.
ARTICLE II - STOCKHOLDERS
-------------------------
1. PLACE OF MEETING
Meetings of stockholders shall be held at the principal office of the
corporation or at such place within or without the State of Florida as the board
shall authorize.
2. ANNUAL MEETING
The annual meeting of stockholders shall be held on the 1st day of July,
at 10:00 a.m. in each year; however, if such day falls on a Sunday or a legal
holiday, then on the next business day following at the same time, the
stockholders shall elect a board of directors and transact such other business
as may properly come before the meeting.
3. SPECIAL MEETINGS
Special meetings of the stockholders may be called by the board or by
the president or at the written request of stockholders owning a majority of the
stock entitled to vote at such meeting. A meeting requested by stockholders
shall be called for a date not less than ten nor more than sixty days after the
request is made. The secretary shall issue the call for the meeting unless the
president, the board or the stockholders shall designate another to make said
call.
4. NOTICE OF MEETINGS
Written notice of each meeting of stockholders shall state the purpose
of the meeting and the time and place of the meeting. Notice shall be mailed to
each stockholder having the right and entitled to vote at such meetings at his
last address as it appears on the records of the corporation, not less than ten
1
<PAGE>
nor more than sixty days before the date set for such meeting. Such notice shall
be sufficient for the meeting and any adjournment thereof. If any stockholder
shall transfer his stock after notice, it shall not be necessary to notify the
transferee. Any stockholder may waive notice of any meeting either before,
during or after the meeting.
5. RECORD DATE
The board may fix a record date not more than forty days prior to the date
set for a meeting of stockholders as the date as of which the stockholders of
record who have the right to an are entitled to notice of and to vote at such
meeting and any adjournment thereof shall be determined. Notice that such date
has been fixed shall be published in the city, town or county where the
principal office of the corporation is located and in each city or town where a
transfer agent of the stock of the corporation is located.
6. VOTING
Every stockholder shall be entitled at each meeting and upon each proposal
presented at each meeting to one vote for each share of voting stock recorded in
his name on the books of the corporation on the record date as fixed by the
board and if no record date was fixed on the date of the meeting, on the date of
the meeting. The books of records of stockholders shall be produced at the
meeting upon the request of any stockholder. Upon the demand of any stockholder,
the vote for directors and the vote upon any question before the meeting, shall
be by ballot. All elections for directors shall be decided by plurality vote;
all other questions shall be decided by majority vote.
7. QUORUM
The presence, in person or by proxy, of stockholders holding a majority of
the stock of the corporation entitled to vote shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat
present in person or by proxy, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
8. PROXIES
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At any stockholders meetings or any adjournment thereof, any stockholder or
record having the right and entitled to vote thereat may be represented and vote
by proxy appointed in a written instrument. No such proxy shall be voted after
three years from the date of the instrument unless the instrument provides for a
longer period. In the event that any such instrument provides for two or more
persons to act as proxies, a majority of such persons present at the meeting, or
if only one be present, that one, shall have all the powers conferred by the
instrument upon all the persons so designated unless the instrument shall
otherwise provide.
ARTICLE III - DIRECTORS
-----------------------
1. BOARD OF DIRECTORS
The business of the corporation shall be managed and its corporate powers
exercised by a board of two (2) directors, of whom shall be of full age. It
shall not be necessary for directors to be stockholders.
2. ELECTION AND TERM OF DIRECTORS
Directors shall be elected at the annual meeting of stockholders and each
director elected shall hold office until his successor has been elected and
qualified, or until his prior resignation or removal.
3. VACANCIES
If the office of any director, member of a committee or other office becomes
vacant the remaining directors in office, by a majority vote, may appoint any
qualified person to fill such vacancy, who shall hold office for the unexpired
term and until his successor shall be duly chosen.
4. REMOVAL OF DIRECTORS
Any or all of directors may be removed with or without cause by vote of a
majority of all the stock outstanding and entitled to vote at a special meeting
of stockholders called for the purpose.
5. NEWLY CREATED DIRECTORSHIPS
The number of directors may be increased by amendment of these By-Laws by the
affirmative vote of a majority of the directors, though less than a quorum, or,
by the affirmative vote of a majority in interest of the stockholders, at the
annual meeting or at a special meeting called for that
3
<PAGE>
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors are
elected and qualify.
6. RESIGNATION
A director may resign at any time by giving written notice to the board, the
president or the secretary of the corporation. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt thereof by the board or
such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
7. QUORUM OF DIRECTORS
A majority of the directors shall constitute a quorum for the transaction of
business. If at any meeting of the board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained and no further notice thereof need be give other than
by announcement at the meeting which shall be so adjourned.
8. PLACE AND TIME OF BOARD MEETINGS
The board may hold its meetings at the office of the corporation or at such
other places either within or without the State of Florida as it may from time
to time determine.
9. REGULAR ANNUAL MEETING
A regular annual meeting of the board shall be held immediately following
the annual meeting of stockholders at the place of such annual meeting of
stockholders.
10. NOTICE OF MEETINGS OF THE BOARD
Regular meetings of the board may be held without notice at such time and
place as it shall from time to time determine. Special meetings of the board
shall be held upon notice to the directors and may be called by the president
upon three days' notice to each director either personally or by mail or by
wire; special meeting shall be called by the president or by the secretary in a
like manner on written request of two directors. Notice of a meeting need not be
given to any director who submits a Waiver of Notice whether before or after the
meeting or who attends the meeting without protesting prior thereto or at its
commencement, the lack of notice to him.
11. EXECUTIVE AND OTHER COMMITTEES
4
<PAGE>
The board, by resolution, may designate two or more of their number to one
or more committees, which, to the extent provided in said resolution or these
By-Laws may exercise the powers of the board in the management of the business
of the corporation.
12. COMPENSATION
No compensation shall be paid to directors, as such, for their services, but
by resolution of the board a fixed sum and expenses for actual attendance, at
each regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV - OFFICERS
---------------------
1. OFFICERS, ELECTION AND TERM
a) The board may elect or appoint a chairman, a president, one or more
vice-presidents, a secretary, an assistant secretary, a treasurer and an
assistant treasurer and such other officers as it may determine who shall have
duties and powers as hereinafter provided.
b) All officers shall be elected or appointed to hold office until the
meeting of the board following the next annual meeting of stockholders and
until their successors have been elected or appointed and qualified.
c) Any two or more offices may be held by the same person.
d) The salaries of all officers shall be fixed by the board.
e) The directors may require any officer to give security for the faithful
performance of his duties.
3. CHAIRMAN
The chairman of the board, if one be elected, shall preside at all meetings
of the board and he shall have and perform such other duties as from time to
time may be assigned to him by the board or the executive committee.
4. PRESIDENT
The president shall be the chief executive officer of the corporation and
shall have the general powers and duties of supervision and management
5
<PAGE>
usually vested in the office of president of a corporation. He shall preside
at all meetings of the stockholders if present thereat, and in the absence or
non-election of the chairman of the board, at all meetings of the board, and
shall have general supervision direction and control of the business of the
corporation. Except as the board shall authorize the execution thereof in some
other manner, he shall execute bonds, mortgages and other contracts in behalf of
the corporation and shall cause the seal to be affixed to any instrument
requiring it and when so affixed, the seal shall be attested by the signature of
the secretary of the treasurer or an assistant secretary or an assistant
treasurer.
5. VICE-PRESIDENTS
During the absence or disability of the president, the vice-president, or
if there are more than one, the executive vice-president shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
6. SECRETARY
The secretary shall attend all meetings of the board and of the
stockholders, record all votes and minutes of all proceedings in a book to be
kept for that purpose, give or cause to be given notice of all meetings of
stockholders and of special meetings of the board, keep in safe custody the seal
of the corporation and affix it to any instrument when authorized by the board,
when required, prepare, cause to be prepared and available at each meeting of
stockholders a certified list in alphabetical order of the names of stockholders
entitled to vote thereat, indicating the number of shares of each respective
class held by each, keep all the documents and records of the corporation as
required by law or otherwise in a proper and safe manner, and perform such other
duties as may be prescribed by the board or assigned to him by the president.
7. ASSISTANT-SECRETARIES
During the absence or disability of the secretary, the assistant-secretary,
or if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the secretary.
8. TREASURER
The treasurer shall have the custody of the corporate funds and securities,
keep full and accurate accounts of receipts and disbursements in the corporate
books, deposit all money and other valuables in the name and to the credit of
the corporation in such depositories as may be designated by the
6
<PAGE>
board, disburse the funds of the corporation as may be ordered or authorized by
the board and preserve proper vouchers for such disbursements, render to the
president and board at the regular meetings of the board, or whenever they
require it, an account of all his transactions as treasurer and of the
financial condition of the corporation, render a full financial report at the
annual meeting of the stockholders if so requested, be furnished by all
corporate officers and agents at his request with such reports and statements as
he may require as to all financial transactions of the corporation, and perform
such other duties as are given to him by these By-Laws or as from time to time
are assigned to him by the board or the president.
9. ASSISTANT-TREASURERS
During the absence or disability of the treasurer, the assistant-treasurer,
or if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the treasurer.
10. SURETIES AND BONDS
In case the board shall so required, any officer or agent of the corporation
shall execute to the corporation a bond in such sum and with such surety or
sureties as the board may direct, conditioned upon the faithful performance of
his duties to the corporation and including responsibility for negligence and
for the accounting for all property, funds or securities of the corporation
which may come into his hands.
ARTICLE V - CERTIFICATE FOR SHARES
----------------------------------
1. CERTIFICATES
The shares of the corporation shall be represented by certificates. They
shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the president and the secretary and shall bear the corporate seal.
When such certificates are signed by a transfer agent or an assistant transfer
agent or by a transfer clerk acting on behalf of the corporation and a
registrar, the signatures of such officers may be facsimiles.
2. LOST OR DESTROYED CERTIFICATES
The board may direct a new certificate or certificates to be issued in place
of any certificates theretofore issued by the corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board may, in this discretion and as a
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<PAGE>
condition precedent to the issuance thereof require the owner of such lost or
destroyed certificate of certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or give the corporation a bond
in such sum and with such surety or sureties as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
3. TRANSFERS OF SHARES
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered on the transfer
book of the corporation which shall be kept at its principal office. Whenever a
transfer shall be made for collateral security, and not absolutely, it shall be
so expressed in the entry of the transfer. No transfer shall be made within ten
days next preceding the annual meeting of the stockholders.
4. CLOSING TRANSFER BOOKS
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (a) any stockholder's meeting, or (b) any date upon which
stockholders shall be called upon to or have a right to take action without a
meeting, or (c) any date fixed for the payment of a dividend or any other form
of distribution, and only those stockholders of records at the time the transfer
books are closed, shall be recognized as such for the purpose of (a) receiving
notice of or voting at such meeting or (b) allowing them to take appropriate
action, or (c) entitling them to receive an dividend or other form of
distribution.
ARTICLE VI - DIVIDENDS
----------------------
The board may out of fund legally available, at any regular or special
meeting, declare dividends upon the capital stock of the corporation as and when
it deems expedient. Before declaring any dividend there may be set apart out of
any funds of the corporation available for dividends, such sum or sums as the
board from time to time in their discretion deem proper for working capital or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the board shall deem conducive to the interest of the
corporation.
ARTICLE VII - CORPORATE SEAL
----------------------------
8
<PAGE>
The seal of the corporation shall be circular in form and bear the name of
the corporation, the year of its organization and the words "CORPORATE
SEAL, FLORIDA". The seal may be used by causing it to be impressed directly on
the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate obligation
for the payment of money may be facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
---------------------------------------
All corporate instruments and documents shall be signed or countersigned,
executed, verified or acknowledged by such officer or officers or other person
or persons as the board may from time to time designate.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner as shall be determined from time to time by resolution of the board.
ARTICLE X - NOTICE AND WAIVER OF NOTICE
---------------------------------------
Whenever any notice is required by these By-Laws to be given, personal
notice is not meant unless expressly so stated, and any notice so required shall
be deemed to be sufficient if given by depositing the same in a post office box
in a sealed post-paid wrapper, addressed to the person entitled thereto at his
last known post office address, and such notice shall be deemed to have been
given on the day of such mailing. Stockholders not entitled to vote shall not
be entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Articles of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein shall be deemed equivalent thereto.
ARTICLE XI - CONSTRUCTION
-------------------------
Whenever a conflict arises between the language of these By-Laws and the
Articles of Incorporation, the Articles of Incorporation shall govern.
ARTICLE XII - CLOSE CORPORATION
-------------------------------
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<PAGE>
Any action of the stockholders, directors or committee may be taken
without a meeting if consent in writing, setting forth the action so taken,
shall be signed by all persons who would be entitled to vote on such action at a
meeting and filed with the secretary of the corporation as part of the
proceedings of the stockholders, directors or committees as the case may be.
ARTICLE XIII - AMENDMENTS
-------------------------
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal to be made contained in the notice of such
special meeting, by the affirmative vote of a majority of the stock issued and
outstanding and entitled to vote thereat, or by the affirmative vote of a
majority of the board at any regular meeting of the board or at any special
meeting of the board if notice of the proposed alteration or repeal to be made
be contained in the notice of such special meeting.
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<PAGE>
EXHIBIT 10.23
ASSET PURCHASE AGREEMENT
(Sections B, C, D and E - Palace View Resort, Branson, Missouri)
--------------------------------------------------------------
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 PVP Development Company, LLC, an Arkansas limited liability
Company (the "Seller").
PREMISES:
Seller is the owner and operator of undeveloped land consisting of
"Sections B, C, D and E - Palace View Resort," located Branson, Missouri,
consisting of approximately 20.71 acres of land of which approximately 9.14
acres has been platted for development as Section B, consisting of sixteen (16)
separate building pads (Pads 1 through 16). Seller has constructed a six (6)
unit condominium building on Pad 1 and has commenced the sale of timeshare weeks
from the building, which building shall be retained by Seller and excluded from
the application of this Agreement.
WITNESSETH:
1. Sale and Purchase. 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 improvements, fixtures and
other items of real property now or hereafter located on such land situated in
Branson, Taney County, Missouri, and all Seller's interests in real estate in
Branson, Taney County, Missouri, including, but not limited to Seller's rights
and interests as a declarant, and the real property more particularly described
on Schedule 1.1(a) attached as a part hereof (all of the foregoing are referred
to herein as the "Real Property");
(b) All easements, rights of ways, privileges, appurtenances and other
rights pertaining to said Real Property;
ASSET PURCHASE AGREEMENT/PAGE 1
<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 improvements and land. 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; architect's construction plans
and specifications; contractor's warranties and guarantees; and all rights to
all trademarks and tradenames, including the non-exclusive right to use the
tradename, "Palace View", 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, if any, together with
all security deposits held pursuant to the Leases, if any.
1.5 Certain Contracts. Seller will assign to Buyer all Seller's rights and
-----------------
Buyer shall assume the obligations of Seller pursuant to the Condominium
Declaration of Condominium for Palace View Resort Condominium dated
____________, 1997, including ancillary documents thereto, the By-laws, the
Articles of Incorporation and By-laws of the Palace View Resort Condominium
Owners Association, Inc. (the "POA") and the agreements between the Seller and
the POA (the "Management Agreements"). Buyer agrees to abide by the By-laws of
the POA.
<PAGE>
Seller shall deliver to Buyer at Closing all instruments necessary to
convey the Project.
2. Purchase Price and Payment Terms.
---------------------------------
2.1 Purchase Price. The Purchase Price (the "Purchase Price") for the
--------------
Project shall be Three Million Three Hundred Thousand Dollars ($3,300,000.00).
2.2 Payment of Purchase Price. The Purchase Price shall be paid in full at
-------------------------
Closing by good funds in U.S. Dollars.
2.3 Earnest Money Deposit. Contemporaneously with the execution of this
---------------------
Agreement, Buyer shall deliver the sum of Twenty Thousand Dollars ($20,000.00)
to Tri-Lakes Title Company, Inc. ("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 its
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 71-0780209. 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 15/th/ 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")
ASSET PURCHASE AGREEMENT/PAGE 3
<PAGE>
reflecting Buyer as the proposed insured, in the amount equal to the Purchase
Price, issued by Tri-Lakes Title Company, Inc., 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, together with
copies of all documents listed therein as exceptions to title. After receipt of
the preliminary title binder and copies of all documents listed therein as
exceptions to title, 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 shall 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
or other exceptions are not against the Seller. Seller shall also deliver any
affidavits and documentary evidence 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 15th 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 Missouri 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 Palace
View Resort Condominium Owners Association, Inc. Contemporaneously with the
execution of this Agreement by both Seller and Buyer, Buyer
ASSET PURCHASE AGREEMENT/PAGE 4
<PAGE>
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, 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 and shall be true as of the
Closing Date:
4.1. Authorization. The Seller (i) is a limited liability company 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.
ASSET PURCHASE AGREEMENT/PAGE 5
<PAGE>
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 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 Branson, Missouri 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 and no part of the Project is subject to any building or use restrictions or
easements or right of way which will impair or interfere with the continued
use of the Project as it is presently used, except as disclosed in Schedule 4.4,
affixed hereto. To the best knowledge of Seller, no part of the Project is
subject to any building or use restrictions or any easements or right-of-way,
except as disclosed in Schedule 4.4, which will impair or 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 Branson, the
County of Taney, and State of Missouri, 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 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 and assessments with respect to the Project or its operation
which are or could become liens against the Project, in accordance with the
apportionments required by Section 7.1 (b) herein.
<PAGE>
4.7 Mechanic's and Materialman's Liens. All labor performed and materials
----------------------------------
supplied for the Project have been fully paid by Seller, or will be paid by
Seller at Closing, 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 other lien, charge or order for the payment of money shall be
filed against the Project, or any portion thereof as a result of labor or
material supplied to the Project on or prior to the Closing 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.
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. 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
Underwriters (or organization exercising similar functions) requesting the
performance of any work or alteration in respect of the Project. Seller shall
promptly notify Buyer if Seller receives any such notice before the Closing.
<PAGE>
4.13 Contractual Obligations. Any 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 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.
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,
regulation, except those disclosed on Schedule 4.17, affixed hereto.
4.18 Gold Crown Standards. At all times prior to the Effective Date and
--------------------
prior to the Closing Date, the operation of the Project has been and shall be
conducted in strict adherence to the "Gold Crown Standards" as adopted by
Resorts Condominiums International.
5. Right of Termination. It shall be a condition to Buyer's obligation to
--------------------
close that all of the 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 not merge with the
contract and shall
<PAGE>
survive the closing of this Agreement for the limited purpose of enforceability
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. Seller's covenants pursuant to this Section 6
shall not merge with the contract and shall survive the closing of this
Agreement for the limited purpose of enforceability for a period of five years
after delivery of the Warranty Deed, and any claim pursuant to the covenants in
this Section 6 must be asserted within that period.
7. Apportionments.
--------------
7.1 Items Prorated. The following items shall be apportioned as of 11:59
--------------
p.m. on the day immediately preceding the Closing Date:
(a) Real estate taxes due and payable prior to and accrued in the
year in which the closing occurs. The general real estate taxes for the
year of Closing so prorated will be deemed to be equal to 110% of the
amount of the general real estate taxes assessed for the year immediately
preceding the Closing Date. All levied and pending assessments as of the
Closing Date shall be the responsibility of and paid by Seller on the
Closing Date;
(b) 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
<PAGE>
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;
(c) 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
(d) 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 Survival. The provisions of Sections 7.1 shall survive the Closing
--------
hereunder in accordance with the provisions set forth in Section 5 hereof.
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 September 12, 1997 at 10:00 o'clock a.m. central
daylight savings time at Tri-Lakes Title Company, Inc., Branson, Missouri (the
"Original Closing Date"); provided, however, at any time before the Original
Closing Date, Buyer shall have the right to establish an earlier date (the
"Early Closing Date") for closing by giving Seller at least 5 business days'
written notice of such Early Closing Date. 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 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 Buyer elects an earlier date as provided herein, in which event, it will
refer to the Early Closing Date.
8.2 Seller's Closing Obligations. On the Closing Date, Seller shall
----------------------------
deliver to Buyer the following items:
ASSET PURCHASE AGREEMENT / PAGE 10
<PAGE>
(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;
(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 Manager and Members 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), if any, 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;
ASSET PURCHASE AGREEMENT/PAGE 11
<PAGE>
(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;
(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 Assignment of all Contracts of Sale, Notes and Mortgages or
other instruments securing same, together with the Original Notes, duly
endorsed in favor of Buyer.
8.3 Buyer's Closing Obligations. On the Closing Date, Buyer shall deliver
---------------------------
to Seller the following items:
(a) The Purchase Price provided in Section 2.2(b) in the sum of Three
Million Three Hundred Thousand Dollars ($3,300,000.00);
ASSET PURCHASE AGREEMENT / PAGE 12
<PAGE>
(b) A receipt for security deposits assigned or paid to the Buyer, if
any; 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.
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 of title insurance and mortgagee's policy of title
insurance, the fee for recording the Warranty Deed and the fee for recording any
mortgages.
9.3 Brokers; Indemnity. Buyer and Seller represent and warrant to each
-------------------
other that neither they nor their agents, officers or 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. 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 portions of
-------------
the Project are taken by eminent domain (or is the subject of a pending or
contemplated taking which has not been consummated), the Seller shall notify the
Buyer of such fact and the Buyer shall have the option (which option shall be
set forth in a notice from the Buyer to the Seller given not later than ten
(10) 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
ASSET PURCHASE AGREEMENT/PAGE 13
<PAGE>
(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.
If Buyer does not make either option within the time indicated, the
Buyer shall be deemed to have elected subsection 10.1(a) hereof.
10.2 Destruction
-----------
(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 ten (10) 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.
If Buyer does not make either option within the time indicated, the
Buyer shall be deemed to have elected subsection 10.1(a) hereof.
(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,
<PAGE>
(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 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 Delivery of Closing Documents. Seller shall have delivered to Buyer
-----------------------------
each 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. Condition to Obligations of Seller. The obligations of Seller, under
----------------------------------
this Agreement, shall be subject to the simultaneous closing by Buyer of the
acquisition of Pads 7 and 9 of Palace View Condominium, Branson, Missouri,
pursuant to the terms of an Asset Purchase Agreement of even date herewith
between Buyer and Palace View Ventures, LLC
<PAGE>
and Palace View, Inc. (the "Palace View Contract"). This condition may be waived
by Seller.
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
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
AND
WITH A COPY TO: Thom G. Field
Neale and Newman
P.O. Box 10327
Springfield, MO 65808
Telecopier (417)882-2529
TO THE BUYER: Michael G. Todd
Capitol Communities Corporation
25550 Hawthorne Boulevard, Suite 207
Torrence, CA 50505
Telecopier (310)375-3841
ASSET PURCHASE AGREEMENT/PAGE 16
<PAGE>
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.
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 Missouri applicable to contracts made and to be
performed wholly within that State; and the parties agree that venue for any
legal action arising from the agreement shall be in Taney County, Missouri.
13.8 Counterparts. This Agreement may be executed in counterparts as if
------------
each party executed one document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
indicated herein below.
SELLER:
PVP DEVELOPMENT COMPANY, LLC
BY: /s/ Stafford Kees, Jr.
DATE OF ----------------------------------------
EXECUTION: 6-12-97 Stafford Kees, Jr., Managing Member
-----------------------
BUYER:
CAPITOL COMMUNITIES CORPORATION
BY:
DATE OF ----------------------------------------
EXECUTION: Michael G. Todd
-----------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated hereinbelow.
SELLER:
PVP DEVELOPMENT COMPANY, LLC
DATE OF BY:
EXECUTION: ------------------------------------
-------------- Stafford Kees, Jr., Managing Member
BUYER:
CAPITOL COMMUNITIES CORPORATION
DATE OF BY: /s/ Michael G. Todd
EXECUTION: 6/16/97 ------------------------------------
-------------- Michael G. Todd
ASSET PURCHASE AGREEMENT/PAGE 18
<PAGE>
SCHEDULE 1.1 (a)
DESCRIPTION OF REAL PROPERTY
----------------------------
(Attached)
<PAGE>
SCHEDULE 3.1
DESCRIPTION OF PERMITTED EXCEPTIONS
-----------------------------------
None
<PAGE>
SCHEDULE 4.4
RESTRICTIONS AND EASEMENTS
--------------------------
Attached
<PAGE>
SCHEDULE 4.13
SERVICE CONTRACTS
-----------------
None
<PAGE>
SCHEDULE 4.17
KNOWN EXCEPTIONS TO ENVIRONMENTAL COMPLIANCE
--------------------------------------------
None
<PAGE>
EXHIBIT 10.24
ASSET PURCHASE AGREEMENT
(Pads 7 and 9, Palace View Condominiums, Branson, Missouri)
----------------------------------------------------------
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 Palace View Ventures, L.L.C., a Missouri limited liability
Company ("Ventures"), and Palace View Inc., a Missouri corporation ("Palace
View") (hereinafter Ventures and Palace View are collectively referred to as the
"Sellers").
PREMISES:
Ventures is the owner of pad seven (7) and Palace View is the owner of
pad nine (9) of Phase I, Palace View COndominium, Branson, Missouri, consisting
of approximately .5 acres of land for each pad foundation, which have been
platted for development. Sellers have constructed the concrete foundations for
a fourteen (14) unit condominium building on each pad, but have not commenced
construction of the planned condominium buildings thereon. Ventures intends to
construct a building on pad seven (7) according to approved plans and
specifications (the "Plans") for the purpose of building full ownership
condominiums.
WITNESSETH:
1. SALES AND PURCHASE. The Sellers agree to sell, and the Buyer agrees
to purchase on the terms hereafter stated, all of the Sellers' right, title and
interest in and to the following described property and improvements (hereafter
collectively called the "Project"):
1.1 Real Property.
(a) Pad seven (7) and nine (9) of Phase I, Palace View Place
Condominium, together with the foundations and improvements now or hereafter
located on such land situated in Branson, Taney County, Missouri, more
particularly described on Schedule 1.1(a) attached as a part hereof (all of the
foregoing are referred to herein as the "Real Property");
(b) All easements, rights of ways, privileges, appurtenances and other
rights pertaining to said Real Property;
ASSET PURCHASE AGREEMENT/PAGE 1
<PAGE>
(c) All right, title and interest, if any, of the Sellers 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 Intangible Personal Property. All the following intangible personal
property which is in the possession of the Sellers 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; architect's construction plans
and specifications; contractor's warranties and guarantees; and all rights to
all trademarks and tradenames, including the nonexclusive right to use the
tradename, "Palace View", and all artwork, brochures, artistic renderings and
advertising material.
1.3 Certain Contracts. Sellers will assign to Buyer all Sellers' rights
and Buyer shall assume the obligations of Sellers pursuant to the Condominium
Declaration of Condominium and By-laws dated November 1, 1993, filed of record
November 16, 1993, the Articles of Incorporation and By-laws of the Palace View
Place Property Owners Association (the "POA") dated November 24, 1993, and the
Agreements between Palace View and PVP Development Company, LLC all as listed
on Schedule 1.3. In addition, Buyer covenants and agrees that all construction
on Pads 7 and 9 shall be generally consistent with the Plans.
Sellers shall deliver to Buyer at Closing all instruments necessary to
convey the Project.
2. PURCHASE PRICE AND PAYMENT TERMS.
2.1 Purchase Price. The Purchase Price (the "Purchase Price") for the
Project shall be Nine Hundred Nine Thousand Dollars ($909,000.00).
ASSET PURCHASE AGREEMENT/PAGE 2
<PAGE>
2.2 Payment of Purchase Price. The Purchase Price shall be paid in U.S.
dollars at Closing.
2.3 Earnest Money Deposit. Contemporaneously with the execution of this
Agreement, Buyer shall deliver the sum of Five Thousand Dollars ($5,000.00) to
Tri-Lakes Title Company, Inc., Branson Missouri ("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 Sellers as liquidated damages for
Buyer's breach hereof.
2.4 Allocation of Purchase Price. With respect to the assets being sold
by Sellers 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. Ventures represents that
its taxpayer identification number is 43-1747112. Palace View represents that
its taxpayer identification number is 43-1622504. Each of Buyer and Sellers
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 Sellers 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 by Tri-Lakes Title
Company, Inc., as agent for Chicago Title Insurance Company, showing fee simple
title to the Project to be in Sellers, and containing only the exceptions
(hereafter called the "Permitted Exceptions") described on Schedule 3.1 attached
hereto and made a part hereof, together with copies of all documents listed
therein as exceptions to title. After receipt of the preliminary title binder,
Buyer shall be allowed fifteen (15) days to notify Sellers in writing of any
objections to Sellers' title to the Real Property. Said objections
ASSET PURCHASE AGREEMENT/PAGE 3
<PAGE>
shall be in writing to be deemed waived. Upon receipt of any written
objections, Sellers shall promptly undertake to correct the defects in title
objected to by the Buyer. If the Sellers are 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 Sellers, the Sellers, on request, shall deliver to the
Buyer and the title company affidavits showing that such judgments,
bankruptcies or other exceptions are not against the Sellers. Sellers shall
also deliver any affidavits and documentary evidence 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 15th 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 Missouri 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 Sellers 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
Palace View Place 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,
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,
ASSET PURCHASE AGREEMENT/PAGE 4
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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. Sellers 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, Sellers 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 SELLERS. 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. Ventures is a Missouri limited liability company and
Palace View is a Missouri corporation, both of which are (i) duly organized,
validly existing and in good standing under the laws of the State of Missouri,
(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. Sellers are the sole owners 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.
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 encroach on any other property and all
improvements on the Project are fully within its boundaries and violate no set
back requirements.
ASSET PURCHASE AGREEMENT/PAGE 5
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4.4 Regulations and Restrictions. To the best knowledge of Sellers, none
of the improvements on the Project violate any ordinance, regulation or
restriction of the City of Branson, Missouri, or any other governmental
authority, or any restrictions, covenants, or agreements of any kind or nature.
To the best knowledge of Sellers, the Project is properly zoned for its current
use and no part of the Project is subject to any building or use restrictions or
any easements or right-of-way which will impair or interfere with the continued
use of the Project as it is presently used, except as disclosed in Schedule 4.4,
affixed hereto. Sellers have 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 Sellers, all installations and improvements both constructed and
contemplated for construction pursuant to the Plans on the Project currently do,
and when constructed shall, fully and duly comply with all applicable
resolutions, statutes, rules, regulations and codes of the City of Branson, the
County of Taney, and State of Missouri, and all governmental agencies having
jurisdiction over the Project, and the requirements of all Boards of
Underwriters (or similar agencies), except to the extent that waivers have
previously been obtained.
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 and assessments with respect to the Project or its operation
which are or could become liens against the Project, in accordance with the
apportionments required by Section 7.1(b) herein.
4.7 Mechanic's and Materialman's Liens. All labor performed and
materials supplied for the Project have been fully paid by Seller, or will be
paid by Seller at Closing, 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,
and mechanic's or other lien, charge or order for the payment of money shall be
filed against the Project, or any portion thereof as a result of labor or
material supplied to the Project on or prior to the Closing Date, within two (2)
days after notice to the Seller of the filing thereof, the Seller shall take
such action, by
ASSET PURCHASE AGREEMENT/PAGE 6
<PAGE>
bonding, deposit, payment or otherwise, as will remove or satisfy such lien of
record against the Project.
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 of 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. 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
Underwriters (or organization exercising similar functions) requesting the
performance of any work or alteration in respect of the Project. Seller shall
promptly notify Buyer if Seller receives any such notice before the Closing.
4.13 Contractual Obligations. Any 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 Section 1.3.
ASSET PURCHASE AGREEMENT/PAGE 7
<PAGE>
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.
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, regulation, except those disclosed on Schedule 4.17, affixed hereto.
5. RIGHT OF TERMINATION. It shall be a condition to Buyer's obligation
to close that all of the material representations and warranties in Section 4
hereof shall be true at and as of the Closing (except to the extent Sellers are
permitted herein to take actions which may change such state of facts), and
Sellers further make such representations as of the Closing (except to the
extent Sellers are permitted herein to take actions which may change such state
of facts). Sellers' representations and warranties shall not merge with the
contract and shall survive the closing of this Agreement for the limited purpose
of enforceability for a period of five years after delivery of the Warranty
Deed, and any claim based upon breach of any such representation or warranty
must be asserted within that period. Without limiting any of the rights of the
Buyer to close under this Agreement is conditioned upon the accuracy of all of
the Sellers' material warranties and representations and the due compliance by
the Sellers with all of its agreements set forth in this Agreement. If on the
Closing Date, the Buyer determines that any of the Sellers' representations or
warranties is untrue and in any material respect, or if the Sellers have not
complied in all material respects with any of the Sellers' material agreements,
covenants or obligations in this Agreement, then the Buyer may elect to
terminate this Agreement by notice given to the Sellers, in which event neither
Sellers nor Buyer shall have any further rights or obligations hereunder.
ASSET PURCHASE AGREEMENT/PAGE 8
<PAGE>
6. INDEMNITY FOR SELLER'S BREACH. In the event the transaction set forth
in this Agreement is consummated, Sellers agree 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. Sellers' covenants pursuant to this Section 6 shall
not merge with the contract and shall survive the closing of this Agreement for
the limited purpose of enforceability for a period of five years after delivery
of the Warranty Deed, and any claim based upon breach of any such covenant
pursuant to this Section 6 must be asserted within that period.
7. APPORTIONMENTS.
7.1 Items Prorated. The following items shall be apportioned as of
11:59 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 general real estate taxes for
the year of Closing so prorated will be deemed to be equal to 110% of
the amount of the general real estate taxes assessed for the year
immediately preceding the Closing Date. 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;
ASSET PURCHASE AGREEMENT/PAGE 9
<PAGE>
(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 Survival. The provisions of Sections 7.1 shall not merge with the
contract and shall survive the closing of this Agreement for the limited purpose
of enforceability for a period of five years after delivery of the Warranty
Deed, and any claim to enforce the provisions of Section 7.1 must be asserted
within that period.
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 September 12, 1997 at 10:00 o'clock a.m. central
daylight savings time at Tri-Lakes Title Company, Inc., Branson, Missouri (the
"Original Closing Date"); provided, however, at any time before the Original
Closing Date, Buyer shall have the right to establish an earlier date (the
"Early Closing Date") for closing by giving Seller at least 5 business days'
written notice of such Early Closing Date. 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 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 Buyer elects an earlier date as provided herein, in which event, it will
refer to the Early Closing Date.
8.2 Seller's Closing Obligations. On the Closing Date, Sellers shall
deliver to Buyer the following items:
(a) A general warranty deed (the "Warranty Deed") in recordable form
conveying the Project, less and except the Units described on Schedule 1.4,
free and clear of all liens and encumbrances except the Permitted
Encumbrances;
ASSET PURCHASE AGREEMENT/PAGE 10
<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 Manager and Members of the
Ventures and from the directors and shareholders of Palace View 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 Sellers' 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 Sellers' 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 to the Project,
together with assignments of such guaranties and warranties to the Buyer to
the extent the same can be assigned;
ASSET PURCHASE AGREEMENT/PAGE 11
<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.
8.3 Buyer's Closing Obligations. On the Closing Date, Buyer shall deliver
to Sellers the following items:
(a) The Purchase Price provided in Section 2.2(b) in the sum of Nine
Hundred Nine Thousand Dollars ($909,000.00);
(b) 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.
ASSET PURCHASE AGREEMENT/PAGE 12
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9. COSTS, BROKERS AND TERMINATION
9.1 Sellers' Costs. The Sellers will pay the following costs: Sellers'
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 of title insurance and mortgagee's policy of title
insurance, and the fee for recording the Warranty Deed.
9.3 Brokers' Indemnity. Buyer and Sellers represent and warrant to each
other that neither they nor their agents, officers or 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. Sellers 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 portions of
the Project are taken by eminent domain (or is the subject of a pending or
contemplated taking which has not been consummated), the Seller shall notify the
Buyer of such fact and the Buyer shall have the option (which option shall be
set forth in a notice from the Buyer to the Sellers given not later than ten
(10) days after receipt of the Sellers' 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.
ASSET PURCHASE AGREEMENT/PAGE 13
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If Buyer does not make either option within the time indicated, the Buyer
shall be deemed to have elected subsection 10.1(a) hereof.
10.2 Destruction
(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 ten (10) days after
receipt of the Sellers' 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 Sellers
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.
If Buyer does not make either option within the time indicated, the Buyer
shall be deemed to have elected subsection 10.1(a) hereof.
(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
Sellers, 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.
ASSET PURCHASE AGREEMENT/PAGE 14
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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 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 Delivery of Closing Documents. Seller shall have delivered to Buyer
each 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. CONDITION TO OBLIGATIONS OF SELLERS. The obligations of Sellers,
under this Agreement, shall be subject to the simultaneous closing by Buyer of
the acquisition of Sections B, C, D and E - Palace View Resort, Branson,
Missouri, pursuant to the terms of an Asset Purchase Agreement of even date
herewith between Buyer and PVP Development Company, LLC (the "PVP Contract").
This condition may be waived by Sellers.
ASSET PURCHASE AGREEMENT/PAGE 15
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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 SELLERS: William Papaik
McConnell Building, Suite F
2445 North Main Street
Crossville, TN 38555
Telecopier (615)484-0054
WITH A COPY TO: Thom G. Field
Neale and Newman
P.O. Box 10327
Springfield, MO 65808
Telecopier (417)882-2529
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.
ASSET PURCHASE AGREEMENT/PAGE 16
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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.
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 Missouri applicable to contracts made and to be
performed wholly within that State.
13.8 Counterparts. This Agreement may be executed in counterparts as if
each party executed one document.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated hereinbelow.
SELLERS:
PALACE VIEW VENTURES, LLC
DATE OF BY: _______________________________
EXECUTION: __________________________
NAME: _____________________________
TITLE: ____________________________
ASSET PURCHASE AGREEMENT/PAGE 17
<PAGE>
PALACE VIEW, INC.
DATE OF BY:/s/Richard B. Short
EXECUTION: 6/16/97 -------------------------------
----------------- NAME: Richard B. Short
-----------------------------
TITLE: President
----------------------------
BUYER:
CAPITOL COMMUNITIES CORPORATION
DATE OF BY:/s/Michael G. Todd, President
EXECUTION: 6/16/97 ------------------------------
---------------- Michael G. Todd, President
ASSET PURCHASE AGREEMENT/PAGE 18
<PAGE>
SCHEDULE 1.1 (A)
DESCRIPTION OF REAL PROPERTY
(Attached)
ASSET PURCHASE AGREEMENT/PAGE 19
<PAGE>
SCHEDULE 4.13
SERVICES CONTRACTS
None
ASSET PURCHASE AGREEMENT/PAGE 20
<PAGE>
SCHEDULE 1.3
DESCRIPTION OF TANGIBLE PERSONAL PROPERTY
(Attached)
ASSET PURCHASE AGREEMENT/PAGE 21
<PAGE>
SCHEDULE 3.1
DESCRIPTION OF PERMITTED EXCEPTIONS
None
ASSET PURCHASE AGREEMENT/PAGE 22
<PAGE>
SCHEDULE 4.4
RESTRICTIONS AND EASEMENTS
Attached
ASSET PURCHASE AGREEMENT/PAGE 23
<PAGE>
SCHEDULE 4.17
KNOWN EXCEPTIONS TO ENVIRONMENTAL COMPLIANCE
None
ASSET PURCHASE AGREEMENT/PAGE 24
<PAGE>
EXHIBIT 10.25
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT made and entered into this 30th day of July, 1997, by and
between CAPITOL COMMUNITIES CORPORATION, a Nevada corporation (hereinafter
referred to as "CCC"), MLT MANAGEMENT CORP., a Florida corporation (hereinafter
referred to as "MLT"), and CAPITOL RESORTS OF FLORIDA, INC., a Florida
corporation (hereinafter referred to as "Resorts").
WITNESSETH:
WHEREAS, CCC is a corporation duly licensed and validly existing under the
laws of the state of Nevada; and
WHEREAS, MLT is the sole shareholder of Resorts owning 1,000 shares of the
capital stock of Resorts, which 1,000 shares constitutes all of the issued and
outstanding shares of the capital stock of Resorts; and
WHEREAS, CCC desires to acquire all of the issued and outstanding capital
stock of Resorts from MLT in exchange for capital stock to be issued by CCC in a
transaction that qualifies for non-recognition of gain as a tax free
reorganization under Section 368(b) of the Internal Revenue Code such that
immediately after the exchange MLT will be the owner and holder of one-hundred
thousand (100,000) shares of the issued and outstanding voting stock of CCC.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
SECTION I
WARRANTIES AND REPRESENTATIONS OF CCC
-------------------------------------
As an inducement to MLT to enter into this Agreement, CCC represents and
warrants to MLT that:
1. CCC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby will not, violate any provisions of CCC's Articles of Incorporation or
Bylaws, or any provisions of, or require any approval, consent, authorization or
order of or filing (other than SEC Form D filing and applicable state securities
law filings) with any federal, state or local governmental or regulatory body
under, any federal, state or local law or any rule or regulation of any such
body, or any provision of, or result in the acceleration of any obligation
under, any mortgage, lien, lease, franchise agreement, agreement, instrument,
order, arbitration award, judgment or decree to which CCC is a party or by which
it is bound. CCC has the corporate power to issue its capital stock in exchange
for the capital stock of another corporation subject only to the approval and
consent of the Board of Directors of CCC. CCC has corporate power to own all its
properties and assets and to carry on its business as now being conducted.
2. CCC is engaged in the business through one or more subsidiaries; and
CCC, through its subsidiary, Capitol Development of Arkansas, Inc., owns and is
engaged in the development 1600 acres of residential land in Maumelle, Arkansas.
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<PAGE>
3. CCC now has and at the time of delivery will have good and marketable
title to 100,000 shares of the authorized shares of capital stock of CCC, and
will have the full right and power to issue some or all of said shares to MLT,
free and clear of any security interests, liens, claims, options, charges or
other encumbrances (except for restrictions on transfer imposed by the
securities laws); the execution and delivery of this Agreement do not and the
consummation of the transactions contemplated hereby will not, violate any
provisions of, or any rule or regulation of any federal, state or local
governmental or regulatory body under, any federal, state or local law
applicable to CCC, or any provision of, or result in the acceleration of any
obligation under any mortgage, agreement, instrument, order, arbitration award,
judgment or decree to which CCC is a party or by which CCC is bound.
4. CCC has no subsidiaries other than as listed on Schedule "A" attached
hereto and by reference made a part hereof and has made no investment in or
advance of cash to any company other than in the ordinary course of business
and/or as listed on Schedule "A".
5. The authorized capital stock of CCC consists of 10,000,000 shares of
preferred stock of which no shares of preferred stock are outstanding and 40
million shares of common stock, $0.01 par value, of which 7,212,000 shares are
issued and outstanding, approximately 80% of which issued and outstanding shares
are owned by insiders. The outstanding shares of common stock of CCC have been
duly authorized, validly issued and are fully paid and non-assessable. All of
the authorized common stock of CCC is voting common stock of CCC.
6. The un-audited consolidated balance sheet of CCC and its subsidiaries
as of March 31, 1997, and the statement of income and expenses for the period
ending March 31, 1997, has been prepared at the direction of CCC, and CCC has
examined the same and the same are correct and complete, are prepared in
conformity with generally accepted accounting principles consistently applied
and fairly present the financial position of CCC as of March 31, 1997.
7. Except as may be disclosed in the balance sheet referred to in Section 6
hereof or otherwise disclosed herein, and for the lien for any current taxes not
yet delinquent, CCC owns and has good and marketable title in fee simple free
and clear of any liens, claims, charges, options or encumbrances on all of the
personal and real property reflected in the balance sheet as March 31, 1997 of
referred to above in Section 6, and all personal and real property acquired by
them since March 31, 1997, except such property as has been disposed of in the
ordinary course of their businesses or with the written consent of MLT. Except
as otherwise disclosed herein, since March 31, 1997 there has not been:
(a) Any change in the business, operations, assets or financial
condition or in the manner of conducting the business of CCC other than changes
in the ordinary course of business, none of which has had a material adverse
effect on such business, operations, assets or financial conditions;
(b) Any damage, destruction or loss (whether or not covered by
insurance) to property or equipment materially and adversely affecting the
business, operations, assets or financial condition of CCC;
(c) Any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of CCC, or any direct or
indirect redemption, purchase or other acquisition of any such shares by CCC;
Page 2
<PAGE>
(d) Any option to purchase, or other right to acquire stock of CCC
granted to any person;
(e) Any employment or deferred compensation agreement entered into
between CCC and any of its directors, officers or other employees or directors,
officers or other employees or consultants except as heretofore reported in
writing to MLT;
(f) Any issuance of shares of capital stock (including treasury
shares) of CCC;
(g) Any amendment of the Articles of Incorporation of CCC;
8. CCC has no powers of attorney outstanding other than those issued in
the ordinary course of business with respect to insurance and tax and
collection matters.
9. Except as otherwise disclosed herein, there are no material
liabilities of CCC, whether or not accrued and whether or not determined or
determinable, other than:
(a) Liabilities disclosed or provided for in the balance sheet as of
March 31, 1997, referred to in Section 1.6 above.
(b) Liabilities incurred in the ordinary course of business since
March 31, 1997, none of which have had a material adverse effect on the
business, assets, financial condition or operations of CCC and none of which are
attributable to any period prior to March 31, 1997, unless reflected in the
March 31, 1997 balance sheet.
10. During the one year period preceding the date hereof, CCC has not been
charged with infringement or violation of any adversely held trademark or trade
name and CCC has no reason to believe that CCC is using or in any way making use
of any confidential information or trade secrets of any former employer of any
present or past employee of CCC. CCC neither owns any patent nor uses any
invention which it knows to be covered by any patent.
11. Except as otherwise disclosed herein, CCC is neither a party to nor
subject to any judgment or decree or order entered in any suit or proceeding
brought by any governmental agency or by any person enjoining it in respect of
any business practice or the acquisition of any property or the conduct of
business in any area.
12. All structures and other improvements erected on any real property
owned by CCC comply in all respects with all applicable building codes, zoning
restrictions and other restrictions upon the use of such property.
13. CCC has filed all requisite Federal income, payroll and excise tax
returns and all appropriate state and local income, sales, payroll, personal
property, premium, and franchise tax returns required to be filed by it and has
paid all taxes and assessments (including interest or penalties) owed and, to
the extent that such taxes and assessments and any subsequent tax liabilities
have accrued but have not yet become payable, the full amounts thereof have been
reflected as liabilities on the books of CCC.
14. Except as otherwise disclosed herein, no litigation, investigation or
dispute is now pending against CCC which might materially affect its financial
condition and, to the best knowledge of the CCC, none is threatened.
Page 3
<PAGE>
15. At all times subsequent to January 1, 1997, CCC has been adequately
insured with respect to risks normally insured against by companies similarly
situated.
16. CCC has provided to MLT, and MLT acknowledges receipt of a Disclosure
Letter, which discloses certain matters which, together with the exhibits
attached and referred to in the Disclosure Letter, are herein incorporated by
reference.
SECTION II
WARRANTIES AND REPRESENTATIONS
------------------------------
OF MLT
------
As an inducement to CCC to enter into this Agreement, MLT represents and
warrants to CCC that:
1. MLT now has and at the time of delivery will have good and marketable
title to 1,000 shares of the issued and outstanding capital stock of Resorts and
will have the full right and power to transfer said shares to CCC free and clear
of any security interests, liens, claims, options, charges or other
encumbrances; the execution and delivery of this Agreement do not and the
consummation of the transactions contemplated hereby will not, violate any
provisions of MLT's Articles of Incorporation or Bylaws, or any rule or
regulation of any federal, state or local governmental or regulatory body under,
any federal, state or local law applicable to MLT, or any provision of, or
result in the acceleration of any obligation under any mortgage, agreement,
instrument, order, arbitration award, judgment or decree to which MLT is a party
or by which MLT is bound.
2. MLT and Resorts are corporations duly organized, validly existing and
in good standing under the laws of the State of Florida. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, violate any provisions of Resort's Article of
Incorporation or Bylaws, or any provisions of, or require any approval, consent,
authorization or order of or filing with any federal, state or local
governmental or regulatory body under, any federal, state or local law or any
rule or regulation of any such body, or any provision of, or result in the
acceleration of any obligation under, any mortgage, agreement, instrument,
order, arbitration award, judgment or decree to which the Resorts is a party or
by which it is bound. No action by the Board of Directors or the stockholders of
Resorts is required by law, its Articles of Incorporation, its Bylaws or
otherwise to authorize the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby. Resorts has corporate
power to own all its properties and assets and to carry on its business as now
being conducted, and does not own or lease any property or conduct any business
which requires it to be qualified to do business as a foreign corporation in any
jurisdiction other than Florida.
3. Resorts has no subsidiaries and has made no investment in or advance
of cash to any company other than in the ordinary course of business.
4. The authorized capital stock of Resorts consists of 1000 shares of
common stock, $1.00 par value, of which 1000 shares are issued and outstanding
all of which shares are owned by MLT. The outstanding shares of common stock of
Resorts have been duly authorized, validly issued and are fully paid and
non-assessable. Resorts has no outstanding option, warrants, rights, calls,
commitments, conversion rights, plans or other agreements of any character
providing for the purchase of any of its common stock. MLT has valid and
marketable title to all of the outstanding shares of common stock of Resorts,
free
Page 4
<PAGE>
and clear of all mortgages, liens, pledges, charges, equities or encumbrances of
any nature whatsoever, and has full legal power and right and all authorization
and approval required by law to sell, assign and transfer such shares to the CCC
as provided herein.
5. Except as is hereafter set forth, and for the lien for any current
taxes not yet delinquent, Resorts owns and has good and marketable title in fee
simple, free and clear of any liens, claims, charges, options or encumbrances on
all personal property owned by it, except such property as has been disposed in
the ordinary course of its business. Since July 23, 1997, there has not been:
(a) Any change in the business, operations, assets or financial
condition or in the manner of conducting the business of Resorts other than
changes in the ordinary course of business, none of which has had a material
adverse effect on such business, operations, assets or financial conditions;
(b) Any damage, destruction or loss whether or not covered by
insurance, to property or equipment materially and adversely affecting the
business operations, assets or financial condition of Resorts;
(c) Any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of Resorts or any direct or
indirect redemption, purchase or other acquisition of any such shares by
Resorts;
(d) Any option to purchase, or other right to acquire stock of
Resorts granted to any person;
(e) Any employment or deferred compensation agreement entered into
between Resorts and any of its directors, officers or other employees or
directors, officers or other employees or consultants except as heretofore
reported in writing to CCC;
(f) Any issuance of shares of capital stock (including treasury
shares) of Resorts, except to MLT;
(g) Any entering into, amendment, or termination by Resorts of any
material contract, agreement or license otherwise than in the ordinary course of
business;
(h) Any amendment of the Articles of Incorporation of Resorts.
7. MLT has no powers of attorney outstanding other than those issued in
the ordinary course of business with respect to insurance and tax and collection
matters.
8. There are not material liabilities of Resorts, whether or not accrued
and whether or not determined or determinable, other than liabilities incurred
in the ordinary course of business since July 23, 1997, none of which have had a
material adverse effect on the business, assets, financial condition or
operations of Resorts.
9. Neither MLT nor Resorts is a party to nor subject to any judgment or
decree or order entered in any suit or proceeding brought by any governmental
agency or by any person enjoining either of them in respect of any business
practice or the acquisition of any property or the conduct of business in any
area.
10. Resorts has filed all requisite Federal income, payroll and excise
tax returns and all appropriate state and local income, sales, payroll, personal
property,
Page 5
<PAGE>
premium, and franchise tax returns required to be filed by it and has paid all
taxes and assessments (including interest or penalties) owned and, to the extent
that such taxes and assessments and any subsequent tax liabilities have accrued
but have not yet become payable, the full amounts thereof have been reflected as
liabilities on the books of Resorts.
11. No litigation, investigation or dispute is now pending against Resorts
which might materially affect its financial condition and, to the best knowledge
of MLT, none is threatened.
12. At all times subsequent to July 23, 1997, Resorts has been adequately
insured with respect to risks normally insured against by companies similarly
situated.
13. All material contracts, agreements, plans, leases and licenses to which
Resorts is a party, whether or not entered into in the ordinary course of
business, are valid and in full force and effect and neither Resorts nor, to the
knowledge of MLT, any other party thereto has breached any material provision
of, or is in default in any material respect under the terms of any such
contract, agreement, plan, lease or license.
14. Resorts has all permits, licenses, orders or approvals of any federal,
state or local governmental or regulating body required in order to permit it to
carry on in business as presently conducted; all such permits, licenses, orders
and approvals are in full force and effect and no suspension or cancellation of
any of them is threatened.
15. Resorts is the contract vendee under that certain Agreement dated the
2nd day of May, 1997 entered into by and between Florida Bible College, Inc., as
seller, and MLT Management Corp., as purchaser, which Agreement contemplates the
purchase and sale of the Florida Bible College property located at the
intersection of US Highway 17/92 and Poinciana Blvd., in Osceola County, Florida
(the "Florida Bible College Contract"); said Florida Bible College Contract
having been assigned by MLT to Resorts by duly executed assignment of contract.
The said Florida Bible College Contract is current and is in full force and
effect.
16. Resorts is a newly formed Florida corporation which has conducted no
business operations and has entered into no contracts and incurred no
indebtedness except those arising from the purchase of the Florida Bible College
property pursuant to the Florida Bible College Contract, and, therefore, Resorts
has no other liabilities and no other assets other than Resorts has borrowed all
of the purchase price, down payment and earnest monies necessary to make the
acquisition with funds borrowed from Capital Development of Arkansas, Inc., a
subsidiary of CCC.
17. The stock of CCC which is being acquired by MLT pursuant to the
provisions of this Agreement is being acquired solely for the account of the
MLT, for investment purposes only and not with a view to, or in connection with,
any distribution or sale of securities. MLT has no contract, understanding or
arrangement with any person to sell, transfer or pledge to such person, or
anyone else, any of the stock of CCC which is being acquired by MLT, and the MLT
has no present plans or intentions to enter into any such contract,
understanding or arrangement. MLT is an "Accredited Investor" as defined in
Regulation D. MLT, either alone or in conjunction with its counsel and its other
representatives, has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of acquiring the
stock of CCC. MLT understands that there is a risk that it may lose all of its
investment in the CCC stock, but MLT feels that it could afford such a loss. MLT
understands that the shares of stock of CCC have not been registered under the
Securities Act of 1933 and that no federal or state agency
Page 6
<PAGE>
has passed upon the shares of stock of CCC or made any finding or determination
as to the fairness of an investment in shares of CCC and MLT further understands
that the shares of CCC cannot be resold in the absence of such registration or
an exemption therefrom. MLT is not dependent upon a current cash return with
respect to its investment in the shares of CCC. MLT understands that CCC is not
a "tax shelter," and any information to be provided to it concerning the income
tax consequences arising from an investment in the stock of CCC in necessarily
general in nature and the specific tax consequences to it relative to an
investment in CCC will depend upon its individual circumstances. MLT is relying
upon its own advisors with regard to the federal, state and local tax
consequences to MLT arising from this transaction. MLT understands that the
transferability of the shares of stock of CCC are restricted and that an
investment in the stock of CCC involves limited liquidity. MLT hereby
acknowledges and represents that it and its advisors, counsel and
representatives have had the opportunity to review the CCC's records and
documents, including, but not limited to all of CCC's 1934 Act filings, and ask
questions of CCC's President and discuss this investment and this transaction
and its risks with MLT's attorney and accountant.
SECTION III
TERMS OF TRANSACTION
--------------------
Based upon the representations, warranties and agreements of the parties
and subject to the conditions herein stated, the parties agree as follows:
1. At the closing MLT shall assign, transfer and deliver to CCC all of the
issued and outstanding capital stock of Resorts now owned by MLT consisting of
1,000 shares of the capital stock of Resorts.
2. Concurrently, and in exchange for common stock of Resorts transferred
to it by MLT, CCC shall issue, convey, and deliver to MLT ONE-HUNDRED THOUSAND
(100,000) shares of common stock of CCC.
SECTION IV
CLOSING
-------
Consummation of the transactions contemplated by Section III shall be
effected as soon as practicable after all of the conditions contained herein
shall have been satisfied by no later than July 30, 1997, unless extended by
agreement between the parties hereto. The closing shall be held in Pompano
Beach, Florida at ten o'clock a.m. in the office of MLT, 1200 North Ocean Blvd.,
Pompano Beach, Florida 33062, or such other place as the parties may agree upon.
The date of closing is herein called "Closing Date".
SECTION V
ADDITIONAL COVENANTS
--------------------
The parties agree that:
(a) Prior to the closing date, neither CCC nor Resorts shall issue or
sell any shares of their capital stock, or sell options, rights, or warrants to
subscribe to any shares of their capital stock, nor shall they declare or pay
any dividends on or make any distribution in respect of any shares of their
capital stock.
Page 7
<PAGE>
(b) Prior to the closing date, CCC and Resorts will operate their
businesses in a normal manner, consistent with past practices and will not incur
additional indebtedness, encumber any assets, or make any material commitment
with respect to the assets and businesses of said CCC or Resorts or enter into
any material transaction, otherwise than in the ordinary course of business and
as necessary to close the transaction contemplated by the Florida Bible College
Contract, without the prior written consent of MLT in the case of CCC and CCC in
the case of Resorts.
(c) Prior to the closing date neither CCC nor MOI nor Resorts will
enter into any employment agreements or grant any increase in compensation
payable to any employee, officer, director or stockholder, other than normal
merit increases, without the written consent of MLT in the case of CCC or CCC in
the case of Resorts.
SECTION VI
TERMINATION OF AGREEMENT
------------------------
In addition to any other termination rights which the parties may have,
this Agreement and the transactions contemplated hereby may be terminated at any
time prior to the closing date;
(a) By mutual consent of CCC and MLT;
(b) By either CCC or MLT if in the reasonable opinion of such party
there has been a material misrepresentation or breach of warranty on the part of
the other party in the representations and warranties set forth herein or in any
schedule delivered pursuant hereto;
(c) By CCC or MLT if for any reason the closing referred to in
Section IV hereof shall not have been completed by July 31, 1997, unless such
failure of consummation shall be the fault of the party seeking to terminate.
(d) By CCC or MLT if either shall reasonably determine that
transactions contemplated by this Agreement have become impracticable by reason
of the institution or threat by state, local or federal governmental authorities
or by any other person of material litigation or proceedings against either or
both of the parties.
(e) By CCC, if any of the representations contained in Section II
are improper, misleading, incorrect or false;
(f) By MLT if any of the representations contained in Section I are
improper, misleading, incorrect or false;
(g) By MLT if it shall have reasonably determined that the
business, assets, results of operations or financial condition of CCC taken as a
whole have been materially and adversely affected, whether by reason or changes
or developments, or operations in the ordinary course of business;
(h) By MLT if 100,000 shares of the capital stock of CCC shall not
be issued and tendered by CCC pursuant to the terms of this Agreement such that
MLT will be in a position to acquire 100,000 shares of the authorized, issued
and outstanding capital stock of CCC;
Page 8
<PAGE>
(i) By CCC if all of the issued and outstanding shares of
capital stock of Resorts shall not be tendered by MLT pursuant to the terms of
this Agreement.
SECTION VII
CONDITIONS TO MLT'S OBLIGATION
------------------------------
The obligation of MLT to consummate the transactions contemplated by this
Agreement is subject to the satisfaction on the closing date of the following
conditions:
1. Each of the actions and other undertakings of CCC to be performed on or
before the closing date pursuant to the terms hereof shall have been duly
performed; all representations and warranties made by CCC which are contained in
this Agreement or in any written statement which shall be delivered by CCC
pursuant to this Agreement shall be true and correct on and as of the closing
date as though such representations and warranties were made as of such date;
and MLT shall have received a certificate to such effect dated the closing date
and executed by CCC.
2. MLT shall have received a certificate of CCC dated the closing date
stating that the business, assets, results of operation and financial condition
of CCC have not been materially and adversely affected either by reason of
changes or developments, or operations in the ordinary course of business since
, 199 .
- ----------- --
3. MLT shall have received a certified resolution of the Board of
Directors of CCC authorizing the transactions contemplated by this Agreement and
directing the officers of CCC to take such actions as may be necessary to
consummate the transactions contemplated by this Agreement.
SECTION VIII
CONDITIONS TO CCC'S OBLIGATION
------------------------------
The obligation of CCC to consummate the transactions contemplated by this
Agreement is subject to the satisfaction on the closing date of the following
conditions:
1. Each of the actions and other undertakings of MLT and Resorts to be
performed on or before the closing date pursuant to the terms hereof shall have
been duly performed; all representations and warranties made by MLT and Resorts
which are contained in this Agreement or in any written statement which shall be
delivered by MLT or Resorts pursuant to this Agreement shall be true and correct
on and as of the closing date as though such representations and warranties
were made as of such date; and CCC shall have received a certificate to such
effect dated the closing date and executed by MLT and Resorts.
2. CCC shall have received a certificate of MLT and Resorts dated the
closing date stating that the business, assets, results of operations and
financial condition of Resorts have not been materially and adversely affected
either by reason of changes or developments, or operations in the ordinary
course of business since July 23, 1997.
3. On the closing date, the directors of Resorts shall resign and
replacement directors shall be elected in such a manner that, upon such
resignation and election, one-hundred (100%) percent of the Board of Directors
shall be elected by CCC.
SECTION IX
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<PAGE>
DELIVERY OF RECORDS
-------------------
The parties agree that on or before the closing date they will cause to be
delivered to MLT such public corporate records or other documents of CCC as MLT
may request. Conversely the parties agree that on or before the closing date
they will cause to be delivered to CCC such corporate records or other documents
of Resorts as CCC may request.
SECTION X
NO BROKER OR FINDER
-------------------
Each of the parties hereto represents that all negotiations relating to
this Agreement and the transactions contemplated hereby have been carried on by
the officers or employees of such party or its counsel directly with the
officers or employees or counsel for the other parties, without the intervention
of any other person and that no person is entitled to any brokerage commissions,
finder's fees or other like payment in connection with any transaction
contemplated by this Agreement by reason of the action of any such party.
SECTION XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
All representations, warranties and agreements included or provided for
herein, or in any schedule or instrument of transfer or other document delivered
pursuant hereto, shall remain operative and in full force and effect and shall
survive the closing.
SECTION XII
MISCELLANEOUS
-------------
1. Each party shall deliver such further instruments and take such further
action as may be reasonably requested by the other in order to carry out the
provisions and purposes of this Agreement.
2. Neither MLT nor CCC shall pay any cost or expenses of the respective
performance of and compliance with all agreements and conditions contained
herein to be performed or complied with by the other party, including fees,
expenses and disbursements of the counsel for the other party unless
specifically agree to herein to the contrary.
SECTION XIII
GOVERNING LAW
-------------
This Agreement shall be governed by and construed under and in accordance
with the laws of the State of Florida.
SECTION XIV
NOTICES
-------
Any notices or other communications required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed as follows:
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<PAGE>
TO MLT AND/OR RESORTS: 1200 North Ocean Blvd.
Pompano Beach, FL 33062
TO CCC: 25550 Hawthorne Blvd. Suite 207
Torrance, CA 90505
or such other addresses as shall be furnished in writing by either party, and
such of communication shall be deemed to have been given as of the date so
mailed.
SECTION XV
BINDING AGREEMENT
-----------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto, their heirs and personal representatives and their respective
successors and assigns.
SECTION XVI
COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same Agreement, and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party.
SECTION XVI
PAROLE EVIDENCE
---------------
This Agreement supersedes all prior oral and written agreements between the
parties hereto with respect to the subject matter hereof. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated
orally, but only be a statement in writing signed by the party or parties
against which enforcement or the charge, waiver, discharge or termination is
sought.
Page 11
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
affixed their seals as of the day and year first above written.
WITNESSES:
CCC:
CAPITOL COMMUNITIES CORPORATION,
a Nevada corporation
By: /s/
- ------------------------------ ---------------------------
Its: President
--------------------------
- ------------------------------
MLT:
MLT MANAGEMENT CORP., a
Florida corporation
By: /s/
- ------------------------------ ---------------------------
Its: Vice President
--------------------------
- ------------------------------
RESORTS:
CAPITOL RESORTS OF FLORIDA, INC.,
a Florida corporation
By: /s/
- ------------------------------ ---------------------------
Its: President
--------------------------
- ------------------------------
Page 12
<PAGE>
EXHIBIT 11
CAPITOL COMMUNITIES CORPORATION
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
1997 1997
---- ----
<S> <C> <C>
Shares Outstanding Beginning 7,000,000 7,188,000
Of Period
Shares Issued During Period
October 7, 1996 38,000 -
November 12, 1996 150,000 -
April 17, 1997 (38,000) (38,000)
April 25, 1997 (19,000) (19,000)
May 7, 1997 (19,000) (19,000)
Weighted average number of 7,144,747 7,132,044
shares outstanding
Total 7,144,747 7,132,044
Earnings (loss) applicable to $(246,562) $400,698
common shares
Earnings (loss) per share of $ (0.035) $ 0.056
common stock
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF JOEL S. BAUM, P.A., INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
JOEL S. BAUM, P.A.
CERTIFIED PUBLIC ACCOUNTANT MEMBER:
American Institute of CPAs
Florida Institute of CPAs
AICPA SEC & Private Companies
Division
Capitol Communities Corporation
25550 Hawthorne Blvd.
Suite 207
Torrance, CA 90505
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Reference is made to our firm's Independent Auditor's Report on the financial
statements of Capitol Communities Corporation ("Company") for the fiscal year
ended September 30, 1997, as amended and attached as Exhibit 99 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30, 1997. We
consent to the incorporation by reference of said Independent Auditor's Report
in the Registration Statement (Form S-8) of Capitol Communities Corporation
filed with the SEC on or about October 1, 1996.
August 14, 1997
Coral Springs, Florida
By: /s/ Joel Baum
<PAGE>
Exhibit 99
CAPITOL COMMUNITIES CORPORATION, INC.
AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
-1-
<PAGE>
CAPITOL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-18
</TABLE>
-2-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Capitol Communities Corporation, Inc. and Subsidiaries
We have audited the accompanying balance sheets of Capitol Communities
Corporation, Inc. and Subsidiaries as of September 30, 1996 and the related
statements of income and accumulated deficit, stockholders equity and cash flows
for the years ended September 30, 1996, and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Communities
Corporation, Inc. and Subsidiaries as of September 30, 1996 and the results of
its operations and its cash flows for the years ended September 30, 1996 and
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 15 to the
financial statements, the Company has suffered recurring losses from operations
and has net capital deficiencies that raise substantial doubt about it's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
January 8, 1997
(Except for Note 20 which
is dated August 1, 1997)
/s/ Joel S. Baum, P.A., CPA
Coral Springs, Florida
-3-
<PAGE>
ASSETS
------
<TABLE>
<CAPTION>
1996
----
<S> <C>
Current Assets
Account Receivable $ 1,057
Prepaid Assets 6,893
Accrued Interest 62,140
-----------
Total Current Assets 70,090
Loan & Origination Fees,
Net of Amortization (60,253) 211,601
Other Assets
Deposits 129
Real Estate Holdings 9,156,357
Investments 3,500,000
-----------
Total other Assets 12,656,486
-----------
Total Assets $12,938,177
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Cash Overdraft $ 185,911
Accounts Payable & Accrued Expenses 1,108,926
Accrued Interest 252,671
Notes Payable - Current Maturities 1,964,406
-----------
Total Current Liabilities 3,511,914
Notes Payable - Non Current 6,973,128
-----------
Total Liabilities 10,485,042
-----------
Shareholders' Equity
Preferred Stock, $.01 par value
none issued and outstanding - 0 -
Common Stock, $.001 Par Value;
Authorized 40,000,000 Shares;
Issued and Outstanding - 7,000,000 7,000
Additional Paid in Capital 4,764,108
Accumulated Deficit (2,317,973)
-----------
Total Shareholders' Equity 2,453,135
-----------
Total Liabilities and
Shareholders' Equity $12,938,177
===========
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Sales (Note 11) $ 31,676 $ 565,467
Cost of Sales - 0 - 587,525
----------- -----------
Gross Profit (Loss) 31,676 (22,058)
----------- -----------
Operating Expenses:
General & Administrative
Expenses 610,820 283,393
Interest Expense 775,814 593,684
----------- -----------
1,386,634 877,077
----------- -----------
Net Loss Before
Interest Income (1,354,958) (899,135)
Interest Income 245,905 13,217
----------- -----------
Net Loss (1,109,053) (885,918)
Accumulated Deficit (1,208,920) (323,002)
----------- -----------
$(2,317,973) $(1,208,920)
=========== ===========
Weighted Average
Common Shares Outstanding (.158) (.086)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
# SHARES AMOUNT CAPITAL DEFICIT
-------- ------ ---------- -----------
<S> <C> <C> <C> <C>
September 30, 1994 11,135,018 $11,135 $1,438,191 $ (323,002)
Reverse Stock
Split (July, 1995) (8,908,014) (8,908) 8,908 - 0 -
Additional Stock
Issued 4,772,996 4,773 3,317,009 - 0 -
Net Loss - 0 - - 0 - - 0 - (885,918)
----------- ------- ---------- -----------
September 30, 1995 7,000,000 7,000 4,764,108 (1,208,920)
Net Loss - 0 - - 0 - - 0 - (1,109,053)
----------- ------- ---------- -----------
September 30, 1996 7,000,000 $ 7,000 $4,764,108 $(2,317,973)
=========== ======= ========== ===========
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Operating
Activities:
Net Loss $(1,109,053) $ (885,918)
Adjustments to Reconcile
Net Loss to Net Cash Used
for Operating Activities:
Amortization 57,232 - 0 -
(Increase) in Receivables (38,191) (9,832)
(Increase) in Real Estate
Holdings (254,936) (90,935)
Increase (Decrease) in
Accrued Expenses 906,631 (137,766)
(Increase) Decrease in
Prepaid Assets 535 (7,557)
(Increase) in Loan
Origination Fees - 0 - (271,854)
----------- -----------
Net Cash (Used)
For Operations (437,782) (1,403,862)
Cash Flows From Financing
Activities:
Increase (Decrease)in
Long Term Debt (13,832) 1,639,169
----------- -----------
Net Increase (Decrease) in
Cash (451,614) 235,307
Cash - Beginning of Year 265,703 30,396
----------- -----------
Cash - (Overdraft) End of Year $ (185,911) $ 265,703
=========== ===========
</TABLE>
-6-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT
----------------------------
SEPTEMBER 30, 1996
------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. BACKGROUND
----------
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
-7-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
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. The Company is
currently in the business of developing and selling real estate
properties.
In February, 1994 Petro Source Energy Corporation transferred the
majority of its holdings in the common shares of the predecessor
corporation, AWEC Resources, Inc., to Prescott Investments Limited
Partnership and Charlie Corporation, both of which were then and
currently are affiliates of Michael Todd, Herbert Russell and John
DeHaven, the beneficial owners of the Company. These shares were
transferred in consideration for public relations services provided by
Prescott Limited Partnership and Charlie Corporation to Petro Source.
Such services were deemed by Petro Source to be integral and
indispensable to the concurrent acquisition of approximately 2,041
acres of land in Maumelle, Arkansas by the Company's Operating
Subsidiary. The Company was not a party to the transfer of shares. The
Company did not issue any new shares pursuant to the acquisition of
the land. Accordingly, the transfer of shares did not affect the
capitalization of the Company, and was non-dilutive to all other
shareholders.
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.
B. PRINCIPLES OF CONSOLIDATION
---------------------------
The Consolidated financial statements include accounts of its wholly-
owned subsidiaries. All material intercompany transactions have been
eliminated.
C. REAL ESTATE HOLDINGS
--------------------
Real estate investments are stated at the lower of cost or market.
Acquisition costs are allocated to respective properties based on
appraisals of the various properties acquired in the acquisition.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
D. INCOME TAXES
------------
In February 1992, the Financial Accounting Standards Board issued
Statement on Financial Accounting standards 109 of "Accounting for
Income Taxes." Under Statement 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and
-8-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
liabilities and their respective tax bases.
E. REVENUE RECOGNITION
-------------------
Revenue is recognized under the full accrual method of accounting upon
the completed sale of real property held for development and sale. All
costs incurred directly or indirectly in acquiring and developing the
real property are capitalized.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
G. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand, cash in banks, and any
highly liquid investments with a maturity of three months or less at
the time of purchase.
The Company and its Subsidiaries maintain cash and cash equivalent
balances at several financial institutions which are insured by the
Federal Deposit Insurance Corporation up to $100,000. At September 30,
1996 there is no concentration of credit risk from uninsured bank
balances.
H. 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 years ended September 30, 1996 and 1995
were 7,000,000 and 10,273,558, respectively.
NOTE 2 - CAPITAL TRANSACTIONS
--------------------
A. In May 1993, the Company executed a 15 to 1 reverse stock split.
B. In September 1993, the company issued an additional 4,282,126 shares
of common stock to existing stockholders.
C. 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.
D. In July 1995, the Company executed a 5 to 1 reverse stock split.
-9-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
E. In July 1995, the Company issued an additional 4,772,996 shares of
common stock to existing stockholders.
NOTE 3 - INVESTMENT IN OIL AND GAS PROPERTIES AND LITIGATION
---------------------------------------------------
On October 20, 1993, the Company incorporated Resource Equity
Corporation, a wholly-owned subsidiary. The purpose of that subsidiary
was to acquire royalty interests in oil and gas producing properties.
During November, 1993, Resource Equity Corporation acquired what it
believed were deposits to acquire royalty rights in producing oil and
gas fields located in the State of Texas for a total cost of
$1,360,567.
In 1994, the Company's corporate counsel determined that these rights
were fraudulently conveyed. A lawsuit was initiated to recover such
funds. Although the threatened lawsuit succeeded in obtaining a
settlement with summary judgment against the party who had conveyed
these rights and received the deposit proceeds, the Company's
corporate counsel does not believe any efforts to collect on the
judgement will be successful. Accordingly, the Company has concluded
that this asset be written off as a non-recurring loss.
On February 13, 1996, Resource Equity Corporation was dissolved by the
state of Texas for failure to pay state franchise taxes. The
dissolution has no material impact on the Company's future operations.
NOTE 4 - REFINANCING DEBT
----------------
During fiscal year ended September 30, 1995, Capitol Development of
Arkansas, Inc., a wholly owned subsidiary of the Corporation,
negotiated with Century Realty to eliminate a portion of the debt;
$3,321,794 of the balance owed was converted into 700,000 common
shares representing 10% of the outstanding common stock of the
corporation (See Note 10 for detailed explanation of the refinancing).
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996
------------------
NOTE 5 - INVESTMENT - DEBENTURE
----------------------
On September 11, 1995, the Corporation entered into a contribution
agreement with Resure, Inc. contributing to Resure, Inc. a note from
the corporation in the principal amount of $3,500,000 secured by
approximately 409.73 acre residential tract of land in the city of
Maumelle, Pulaski County, Arkansas, in exchange for which Resure, Inc.
issued to the Corporation a subordinated surplus debenture in the
amount of $3,500,000 bearing interest at a rate of 7% per annum. (See
Note 9, Mortgages)
-10-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
The debenture is payable to the Company in semi-annual payments of
interest only commencing December, 1995 and ending in June, 2000, at
which time the principle of $3,500,000 is due. The debenture payments
generally match the amount of the semi-annual interest payments,
payable by the Company to Resure, Inc. under Resure Note II. If the
Company defaults on its obligation under Resure Note II, Resure may
withhold the semi-annual interest payment due the Company on the
debenture. (See Note 20 B, Subsequent Events, for current status of
the subordinated surplus debenture).
NOTE 6 - AGREEMENTS
----------
The Corporation entered into an agreement with Century 21 Metro, Inc.
for managerial and agency services. This agreement was terminated as
of September 30, 1994.
Currently the Company has an oral agreement with Maumelle Enterprise,
Inc. (Maumelle), an affiliated company, to provide management, sales
and administrative services for the Company's inventory of property.
Under this oral agreement, payment to Maumelle for management services
depends upon the actual services rendered in a given month and the
current liquidity of the Company. If funds are not available, Maumelle
has agreed to defer payment of its fees.
For the fiscal year ended September 30, 1995, the Company paid
Maumelle $74,381 and the Company has accrued the unpaid fees to
Maumelle, in the aggregate amount of $198,230, for fiscal years ended
September 30, 1996 and 1995. Management intends to formalize this
agreement in writing in as yet to be determined terms and conditions.
NOTE 7 - CONTINGENCIES
-------------
There is a lawsuit pending in the amount of $200,000 with interest at
5% per annum dated February 9, 1994 against Pine Ridge Improvement
District, filed by Robert D. Holloway, Inc. for engineering services,
planning, and surveying. Capitol Communities Corporation, Inc. and its
subsidiary are not a party to the action; however, as owner of the
property, any judgement against the property is a liability of the
Company. Negotiations are currently taking place in order to settle
this lawsuit. (See note 20 F, Subsequent Events, for current status of
this contingency).
NOTE 8 - LIENS
-----
The special improvement district taxes constitute a lien on the
commercial tracts that is superior to mortgage liens in the event a
delinquency causes the improvement district to foreclose on the
property for nonpayment of the special tax. Payments to retire
improvement bond debt arising from tax delinquencies are accounted for
as additions to the cost basis of the related property.
Specifically, company owned property was subject to a special tax
levied by the residential improvement district for 1992,
-11-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
1993 and 1994. The revenues from the special tax were pledged by the
District to the payment of the bonds. The property was acquired by the
Company in February, 1994 subject to the special tax. It was sold in
December, 1994 under terms requiring that a "bond release price" be
paid to the bond trustee to release the property from future levies of
the special tax. The total amount paid to release the property, and to
satisfy delinquent taxes levied on the property prior to 1994, was
$148,356. This amount was an addition to basis, and consequently, a
cost of sales, since it was for payment of an improvement tax levied
for the purpose of paying the bond issue which provided the funds to
improve the property. This resulted in the classification of the tax
payments as a capital expenditure.
Currently the Company does not hold any funds, and has not deposited
money in any escrow accounts on behalf of any lot owners, with respect
to the improvement taxes referred to in the previous paragraphs.
However, the Company has accrued a liability in the amount $200,000 in
its fiscal year end 1995 financial statements because certain
properties located in Pine Ridge have been indentured to pay any taxes
levied by the Pine Ridge Improvement District in order to satisfy a
potential judgement against the Pine Ridge Improvement District
arising from the suit discussed in Note 7.
NOTE 9 - MORTGAGES
---------
On September 11, 1995, the Company entered into a promissory note with
Resure, Inc. for $3,500,000, bearing interest at 10% per annum,
payable in full on July 1, 2000 and secured by a 701.3 acre tract of
land in Maumelle, Arkansas. Payments of accrued interest only are due
for 1 year, payable quarterly on the unpaid principal balance, first
payment due October 1, 1995. Then payments in the amount of
$101,591.16 including principal and interest at 10% per annum, will be
paid quarterly with the first payment due October 1, 1996. The
remaining unpaid balance on this note after quarterly installments is
subjected to a final balloon payment. All payments shall be applied
first to interest, then to principal. The Company has not made the
quarterly payment due on October 1, 1996, in the amount of
$101,591.16, on the aforementioned Note, but on November 25, 1996 it
was granted an extension of time until April 1, 1997 in consideration
of a pledge of 200,000 shares of the Company's Common Stock by two of
the Company's major share holders. Under this extension of the time
agreement, Resure, Inc. has agreed to waive all rights, powers and
remedies it may have had on November 25, 1996, with respect to any
breach or default, including waiving any right to default due to the
Century Note default (see Note 14). See Note 20 B, Subsequent Events,
for a discussion of the current status of default by the Company due
to its inability to pay the Resure Note I, January payment and, as a
result its default on Note II under the cross-default provisions.
As discussed in Note 5, as part of the debenture agreement the Company
also entered into a second loan agreement with Resure,
-12-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
Inc. as lender and the Corporation as borrower, borrowing $3,500,000
from the lender and granting a mortgage on an approximate 409.73 acre
residential tract of land in the city of Maumelle, Pulaski County
Arkansas.
NOTE 10 - REFINANCING DEBT
----------------
The Company refinanced the promissory note to Century Realty as
follows: obtained a $3,500,000 loan from Resure, Inc. secured by 701.3
acres of property, of which $2,500,000 was paid directly to Century
Realty, $1,400,000 and $350,000 in promissory notes with Century
Realty, and issued 700,000 shares of the Company's common stock which
amounted to $3,321,794, representing $2,487,000 of the balance of the
original mortgage, $186,562.50 taxes, and $648,231.75 accrued
interest. The refinancing note from Resure, Inc. is cross
collateralized with a debenture and investment note for $3,500,000
discussed in Note 5. The proceeds of the investment note purchased a
$3,500,000 investment in Resure, Inc. (See Note 14 with regard to
foreclosure litigation on the Century debt).
The Company issued the Above mentioned 700,000 shares to Century
Realty in November of 1995 from Treasury Shares that had been
contributed to the Company by Michael Todd and John DeHaven, in the
amount of 350,000 shares from each shareholder, which therefore
resulted in no change to the capital structure of the Company during
the year ended September 30, 1996.
NOTE 11 - REVENUE
-------
For the year ending September 30, 1996, the only revenue that was
generated was from the receipt of timber royalties from the
residential lots.
NOTE 12 - LEASE AGREEMENT
---------------
The Company is subleasing office space from Dehaven & Todd Co., in
which Mike G. Todd, is a partner. The monthly lease payment began on
October 1, 1995 and is $1,800 per month. The lease expires September
30, 1998.
The lease commitment is as follows:
<TABLE>
<CAPTION>
Year ended September 30
<S> <C>
1996 $21,600
1997 21,600
1998 21,600
-------
Total Minimum
Rental Payments $64,800
=======
</TABLE>
As of September 30, 1996, all amounts due under this agreement have
been accrued.
NOTE 13 - EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
The Company has a five-year written agreement with Michael Todd to
perform the duties of President. Under the agreement, which
-13-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
became effective on October 1, 1995, Michael Todd is to be compensated
at a rate of $20,000. per month. The agreement expires on September
30, 2000. The Company is not a party to any other employment
agreements.
NOTE 14 - FORECLOSURE LITIGATION - CENTURY
--------------------------------
On August 12, 1996 Century Realty Inc. entered into a lawsuit against
Capitol Development of Arkansas & Capitol Communities Corporation,
Inc. in an action for foreclosure of a lien on approximately 36 acres
of commercial property for the non-payment of the entire unpaid
principal balances of promissory Note 1 and Note 2 previously
discussed in Note 10, together with all accrued and unpaid interest,
which became due and payable in full on January 9, 1996.
On September 16, 1996 a counter claim was filed against Century
Realty, Inc. for the complaint to be dismissed and that the Company
have judgement against Century for double the amount of interest paid
on both the February 15, 1994 note and the September 11, 1995 note.
The basis of the complaint was that Century Realty, Inc. mislabeled
other charges and interest exceeded the lawful amount allowable in an
effort to avoid Arkansas usury law. (See Note 20 A, Subsequent Events,
for current status of foreclosure litigation.)
NOTE 15 - GOING CONCERN
-------------
The Company currently is unable to meet its liquidity requirements
consisting of such items as taxes, interest payments, debt reduction,
assessments and general operating expenses. As discussed in Note 9,
the Company did not make the $101,591.16 October 1, 1996 payment under
the Resure Note I, but was granted an extension until April 1, 1997 in
consideration of a pledge of 200,000 shares of the Company's common
stock by two of the Company's major shareholders and Charlie
Corporation. The Company has not made the $101,591.16 quarterly
payment due January 1, 1997, and does not expect to be able to make
such payment unless it liquidates additional property inventory or can
otherwise raise capital. (See Note 20 B, Subsequent Events, for a
discussion of the current status of this debt.)
The Company is in negotiations with an investment banking firm to
arrange debt and construction financing in the total amount of
$20,000,000 (the "Construction Financing Loan"). If the 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 potions of the
Maumelle Property to secure $10,000,000 of the loan, with the
remaining $10,000,000 to be secured by home construction.
The Company is negotiating with private sources to secure bridge
financing of approximately $600,000, of which the Company would
receive net proceeds of $500,000. $200,000 of the net proceeds will be
used to service existing debt.
-14-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
The Company raised $110,000 from the sale of one commercial lot on
December 31, 1996. The Company expects to raise $542,000 from pending
sale of another 11 acre commercial parcel of the Maumelle Property.
The parcel is expected to close on or before March 31, 1997, with net
proceeds of approximately $500,000. Sale proceeds will be used to pay
accrued interest on the Resure Note I, and for general corporate
purposes.
With respect to prospective long-term liquidity, the Company intends
to generate the bulk of its cash from operations by building and
selling homes. At present, management of the Company believes that the
most likely source of substantial cash flow during the next two years
is the development of single-family home product in the $115,000 to
$200,000 price range on the approximately 3,500 single family home
sites it owns in Maumelle, assuming the Company can obtain the
necessary financial resources to undertake substantial building
operations on the Maumelle Property. Although there can be no
assurance that the Company can obtain such resources, the Company
believes that its ownership of a majority of the undeveloped home
sites in Maumelle will enable the Company to attract the necessary
financing to implement an orderly build-out program that will generate
cash flow.
The Company intends to raise operating capital by selling debt and/or
equity securities to the public or in private transactions. There can
be no assurance, however, that such public or, private offerings will
be successful.
NOTE 16 - NOTES PAYABLE
-------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
9/30/1996 9/30/1995
--------- ----------
<S> <C> <C>
Note Payable -Century Realty
----------------------------
Secured 9% per annum due
January 9, 1996 (Notes 10
and 14) $1,400,000 $1,400,000
Note Payable - Century Realty
-----------------------------
Unsecured 10% per annum due
September 11, 1998, deemed
current under default agreement
(notes 10 and 14) 350,000 - 0 -
Note Payable - Davister
-----------------------
Unsecured 9% per annum due
January 9, 1996 200,000 200,000
Notes Payable
-------------
Miscellaneous Short-Term 906 1,366
Note Payable - Resure Mortgage 13,500 - 0 -
------------------------------ ---------- ----------
Total Current Maturities 1,964,406 1,601,366
---------- ----------
Note Payable - Century Realty
-----------------------------
Unsecured 10% per annum due
</TABLE>
-15-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
<TABLE>
<S> <C> <C>
September 11, 1998 (Note 10) - 0 - 350,000
Note Payable - Resure Mortgage
------------------------------
Secured 10% per annum due
July 01, 2000 - Quarterly
payments beginning 10/01/96
for $101,591 (Note 9) 3,473,128 3,500,000
Note Payable -Resure Debenture
------------------------------
Secured 7% semi-annually due
June 30, 2000 (Notes 9 & 10) 3,500,000 3,500,000
---------- ----------
Total Non-Current 6,973,128 7,350,000
---------- ----------
Total Notes Payable $8,937,533 $8,951,366
========== ==========
</TABLE>
NOTE 17 - LOAN ORIGINATION FEES
---------------------
Loan origination fees were incurred in connection with the Resure,
Inc. debt refinancing September 11, 1995 as discussed in Notes 9 and
10. Said costs included attorney, consult, title, appraisal and survey
fees and are being amortized over 57 months on a straight-line basis.
NOTE 18 - JOINT VENTURE
-------------
The Company formed a joint venture in August 1996 with the Monterra
Group and purchased 6 lots on 1-1/2 acres of land in Calexico,
California for an aggregate purchase price of approximately $100,000.
The Company and the Monterra Group intended to build and sell homes on
the Calexico Property, but received an offer to sell the lots. The
sale of the lots was completed in October 1996. Prior to the
completion of the sale, the Company deeded its interest to Monterra,
and 50% of the sale profits, approximately $20,000, was credited to
the Company by Monterra for prepaid consulting fees.
NOTE 19 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Year End 1996 1995
---- ----
<S> <C> <C>
Interest Paid $775,814 $593,684
</TABLE>
NOTE 20 - SUBSEQUENT EVENTS
-----------------
A. The Company has entered into a tentative settlement agreement with
Century, which required a substantial payment on August 1, 1997. The
Company was unable to make this payment, but negotiated an extension
of the agreement to September 1, 1997 for a fee of $25,000. The
agreement may be further extended to October 1, 1997 upon payment of
an additional $25,000 fee. There are no assurances that the Company
will be able to meet Century's proposed terms due to its lack of
liquidity.
-16-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
B. Resure Note I and Resure Note II
a. The Company continues to be in technical default under the Resure
Note I, having not made the $101,591 quarterly payments due on
January 1, 1997 and April 1, 1997 nor the extension payment due
April 1, 1997. The extension payment originally due October 1,
1996 in the amount of $101,591.16 was extended in consideration
of a pledge of $200,000 shares of the Company's common stock by
two of the Company's major shareholders, Charlie Corporation and
Prescott Investment Limited Partnership.
b. On February 22, 1997, Mark Boozell, Director of Insurance of the
State of Illinois was appointed liquidator for Resure, Inc., due
to concerns about Resure's liquidity. The Company is currently
negotiating with Resure's liquidator to bring the technical
defaults current. If such negotiations are not successful, the
Company may commence litigation against the Resure assets or
estate violations the Company believes were committed by Resure
in connection with Resure's sale of the Resure Debenture to the
Company.
c. In May, 1997, Resure's liquidator agreed to release 67 acres he
held as collateral under the Resure Note I, to permit the Company
to sell the property. Approximately $128,000 of the sales
proceeds were used to pay interest due on the Resure Note II, and
$675,100 of the proceeds were placed in a restricted cash
collateral account as substitute collateral for the 67 acres.
d. Resure has not paid the semi-annual interest payment due on the
Resure Debenture. As a result, the Company was not able to make
the payment due to Resure in January and June, 1997 under the
Resure Note II. However, the Company made the January 1997
payment under the Resure Note II in May 1997, using the proceeds
from the sale of the 67 acres of the Maumelle Property released
by the Resure liquidator. The Company has not yet made its June
1997 payment due under the Resure Note II and is in technical
default under this Note.
e. Although Resure is in technical default under the Resure
Debenture and a liquidator has been appointed to oversee
liquidation of Resure, Company management believes that the
Resure Debenture should not yet be considered impaired and that
no actual deficit exists on the related $3,500,000 note, because
of negotiations that are currently taking place between the
Company and the Resure Liquidator. Based on such negotiations,
the Company believes that the Resure Liquidator is agreeable to a
settlement which would require the cancellation of the $3,500,000
Resure Debenture in exchange for the cancellation of the
$3,500,000 Resure Note II. However, there can be no assurance
that such a settlement will be reached
C. Subsequent to the Company's fiscal year-end, it obtained $977,706 in
short-term debt financing from private sources, with net proceeds to
the Company of $733,279 (collectively the "Bridge Loan"). The Majority
of the promissory notes interest
-17-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
at a rate of 10% per annum and mature nine months from the date of
issuance of each note. The Bridge Notes are unsecured, however the
Company has provided a guarantee approximately 10% of the gross
proceeds received from the Bridge Loan. The Company has paid to the
investment banking firm that assisted the Company in obtaining the
Bridge Loan a fee equal to 15% of the Bridge Loan gross proceeds
received. As of June 30, 1997, the Company has accrued $8,138.39 in
interest on the Bridge Notes. The Company is using the proceeds for
general operating purposes.
D. On March 31, 1997, the Company obtained a fixed rate commercial
revolving line of credit from the Bank of Little Rock in the amount of
$400,000, bearing an interest rate of 10.00% per annum, payable
monthly, and maturing on May 10, 1998. The line is secured by
approximately 10.7999 multi-family zoned acres of the Company's
Maumelle Property. On July 29, 1997, the Company obtained a second
commercial revolving line of credit from the Bank of Little Rock, in
the amount of $450,000, also bearing interest at the rate of 10.00%
per annum, payable principal and interest on demand or at maturity,
November 5, 1997. This line is secured by approximately 19 multi-
family zoned acres of the Company's Maumelle Property. As of August
10, 1997, the Company has drawn a total of $847,000 against the lines.
The proceeds were used to complete the purchase of the property in
Osceola County, Florida. (See H below)
E. On May 20, 1997, the Company closed the sale of 67 acres of its
Maumelle single-family property for a total sales price of $1,552,730.
Resure agreed to release the 67 acres as collateral under the Resure
Note I in exchange for the Company agreeing to place $675,100 of the
sale proceeds in a restricted cash collateral account for the benefit
of Resure.
F. On March 13, 1997 the Chancery Court of Pulaski County, Arkansas,
Second Division granted a summary judgement in favor of the Company,
relieving it of any liability arising from assessment or tax levy in
the matter of Robert Holloway, Inc. vs. Pine Ridge Residential
Property Owners Improvement District. The Plaintiff has filed a Notice
of Appeal to the Supreme Court of Arkansas.
G. In March, 1997, Michael G. Todd, a director and controlling
shareholder of the Company and James DeHaven, a beneficial shareholder
of the Company, together relinquished an aggregate of 200 shares of
Maumelle Enterprises' common stock, an affiliate of the Company, as
consideration for the agreement of Maumelle Enterprises to sell 3.829
acres of commercial property in the City of Maumelle to the Company.
The Maumelle Enterprise property was purchased for a total cost of
$200,665.
H. On July 30, 1997, The Company acquired Capitol Resorts of Florida,
Inc. ("CRF") in a stock exchange in which the Company exchanged
100,000 shares of its common stock for 1,000 shares of CFR common
stock, a newly formed corporation whose sole asset was the right
to purchase approximately 34.7 acres of land and improvements in
Osceola County, Florida. The Company entered into a reorganization
agreement with MLT Management Corp., the parent of CRF, with the
Company acquiring all of the stock. On the same day, CRF closed on the
contract to acquire
-18-
<PAGE>
CAPITAL COMMUNITIES CORPORATION, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO FINANCIAL STATEMENT (CONTINUED)
----------------------------
SEPTEMBER 30, 1996
------------------
the Property for $922,000.
I. Since the end of the Company's last fiscal year, the Company has
expanded its business focus to include the development, sale and
operation of vacation ownership interest ("VIP") properties. The
Company has signed agreements on June 16, 1997 to purchase
approximately 21 acres of undeveloped land in Branson, Missouri, by no
later than September 12, 1997. The aggregate purchase price for the
property is approximately $4,200,000. The Company intends to develop
VOI units on the property. The Company does not currently have the
financing necessary to purchase the property.
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 UNAUDITED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 538,474
<SECURITIES> 3,500,000
<RECEIVABLES> 5,357
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,375,839
<PP&E> 8,925,067
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,146,996
<CURRENT-LIABILITIES> 4,670,402
<BONDS> 0
0
0
<COMMON> 7,112
<OTHER-SE> 2,576,461
<TOTAL-LIABILITY-AND-EQUITY> 14,146,996
<SALES> 1,881,445
<TOTAL-REVENUES> 1,939,063
<CGS> 447,593
<TOTAL-COSTS> 447,593
<OTHER-EXPENSES> 1,748,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 618,025
<INCOME-PRETAX> (246,562)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,562)
<EPS-PRIMARY> (0.091)
<EPS-DILUTED> (0.091)
</TABLE>
