Builder mired in lawsuits, tries to avoid bankruptcy

Monday, Dec. 11, 2000 | 11:35 a.m.

Lien foreclosure and other lawsuits are stacking up in Clark County District Court against a Las Vegas real estate developer battling to stay out of bankruptcy.

But Saxton Inc., a company that designs, develops and builds homes, offices and commercial properties and also manages property, has filed its own suits to stop a foreclosure and to collect damages from suppliers the company says failed to deliver construction materials.

As of Sept. 30, the company had 11 residential community developments in Nevada, Arizona and Utah and seven income-producing properties including about 258,449 square feet of office, retail and industrial uses.

A quarterly earnings report filed with the Securities and Exchange Commission in November illustrates the company's struggle. The company reported revenue of $8.8 million for the three months ending Sept. 30 compared with $38.7 million in the same period a year earlier.

The company showed a net loss of $6.4 million compared with net income of $547,000 a year ago and a loss per share of 77 cents compared with earnings per share of 7 cents for the same period in 1999.

Purchase blamed

Saxton blames its cash flow problems on the November 1998 purchase of Diamond Key Homes in Arizona for $12.9 million, $10.9 million of which was cash and a portion of which was borrowed, and on land purchases in Utah in the first and third quarters of 1999 for $4.5 million, in which high-interest short-term debt was accrued.

In July, Saxton sold a portion of those assets to improve cash flow.

In its SEC filings, Saxton also said its problems were compounded by having to work with subcontractors it hadn't worked with before.

Executives with Saxton have signed a "workout business plan" to manage cash flow and retire debt. But attorneys representing several of Saxton's suppliers are filing suits to stake a claim in case Saxton goes under.

Some suits are dragging in homeowners because they acquired homes that had liens slapped on them.

The company is refocussing on its home-building operation in Las Vegas in an effort to regain stability.

"Part of our restructuring was to work out the mechanic's liens," Michele Pori, executive vice president of Saxton, said earlier this year.

Pori said the agreement signed May 12 allowed the company to resume construction on homes in the Silver Springs area in southeast Las Vegas.

Saxton also is building the Sutter Creek and Pelican Creek neighborhoods in northwest Las Vegas. It also has the 272-unit South Valley Apartments and the Regency Plaza, a commercial development at Nellis Boulevard and Stewart Avenue.

More recently, Pori and other Saxton executives have been unavailable for comment on the status of the workout business plan or on whether the company has been able to stem the tide of red ink.

But six suits have been filed in Clark County by suppliers since the signing of the workout plan and another was filed over Saxton's alleged failure to pay rent on an easement. Meanwhile, there are two other suits pending and a third, filed by Community Bank of Nevada over an unpaid promissory note, was dismissed June 28 in the wake of the plan. The company also has been named in suits alleging construction defects.

District Court suits

In District Court, suits have been filed against Saxton, its executives or its subsidiaries by:

Active suits filed prior to the signing of the working plan include actions by:

Saxton has been sued on other matters as well.

In August, about 121 homeowners at Sterling At Silver Springs sued Jim Saxton Inc. and Saxton Inc., alleging defects in a residential development on Midnight Oil Drive. Another 113 Sutter Creek homeowners sued Saxton Inc. over alleged defects on homes on Sutters Fort Street in North Las Vegas.

And, in October, James Saxton, Saxton Inc. and the TVS Joint Venture and TVS General Partnership and several lien-holders were sued by Dorothy Kidd and the Dorothy Kidd Revocable Trust. Kidd sued to establish priority in the payment of liens after winning a judgment against Saxton for $750,000 in June.

In that case, the District Court determined that Saxton, who became a 50-50 partner with Kidd in the TVS partnership in 1987, sold property at 800 S. Valley View Blvd. without Kidd's consent to Saxton Inc. The Las Vegas Sun is a tenant at the Valley View property.

Attorneys busy

Saxton's own attorneys have been busy in District Court as well.

In September, Saxton, doing business as Saratoga Land and Development, filed suit against Associated Building Consultant Inc., its president, Ana Hostler, and U.S. Resources, for failing to deliver $191,000 worth of building materials for the 272-unit South Valley Apartments, 701 Aspen Peak Loop.

In the suit, Saxton says it paid $95,500 in both May and June 1999 to pay for the bath accessories, doors and hardware for the project. U.S. Resources is Associate's supplier of the materials, the suit says.

Saxton executives have said the workout plan should help solve many of the company's financial problems, which the company says in Securities and Exchange Commission filings, was brought upon by trying to expand too fast.

The workout plan was described in a document filed to the SEC by Saxton in August.

According to SEC filings, inadequate cash flow problems resulted from the purchase of Diamond Key Homes, Phoenix, in November 1998 for about $12.9 million and the purchases of land in the Salt Lake City area in the first and third quarters of 1999 for about $4.5 million.

In early 2000, the company hired consultants to develop the workout plan. The plan's key elements are to retire debt, sell off land assets and renegotiate agreements with lenders to improve the company's cash flow.

But the company's own filing admits that the plan may not work: "Although the company hopes that the workout plan will allow the company to avoid filing, or being forced into, bankruptcy, there can be no assurances that the workout plan will be approved by the company's creditors and subcontractors or, that if approved, the company will be able to successfully take the steps necessary under the workout plan to avoid filing, or being forced into, bankruptcy."

The negotiations with creditors has been anything but smooth.

Saxton's SEC filing cites a purchase and settlement agreement with Volunteers of America (VOA) National Housing in March, in which the company agreed to pay $1.3 million to acquire VOA's interest in Tax Credit Partnerships.

The purchase-settlement agreement was subsequently reduced to a judgment. Company officials were unavailable to explain the details of the action.

A portion of the judgment, $1 million, was to be paid by the company issuing 457,142 shares of Saxton common stock, which represented 5.8 percent of the company as of March 12.

But VOA contested the delivery of the stock in District Court. The court clarified its judgment to require not only delivery of the stock, but registration of the stock and ruled that the company had not complied with the stock component of the judgment. Saxton has since appealed to the Nevada Supreme Court.

The publicly traded company was on the Nasdaq exchange until June 14, when it was removed for falling below the market's listing criteria. A spokesman for Nasdaq said Saxton's tangible assets, market capitalization, total assets and total revenue and market value fell below the minimum requirement of the stock market. Mark Gunderson of Nasdaq also said the company did not file its SEC reports on time, another criterion for delisting the company.

Company warned

Saxton had been warned in April that the company was in jeopardy of being delisted. It appealed to the Nasdaq Listing Qualifications Panel but ultimately, the plunging stock price led to the change.

Currently, the company's stock trades on the over-the-counter bulletin board with the issue closing Friday at 31 cents a share. In June, the stock hit a low of a penny per share.

In the company's initial public offering in June 1997, 2,275,000 shares were sold for $8.25 a share.

Saxton also has its own suit pending against several limited partnerships that have allegedly removed Saxton Inc. or James Saxton from the partnerships without compensation.

In a suit filed Nov. 7, Saxton says in the written limited partnership agreements that it is entitled to receive a withdrawal note for fair market value of Saxton's interest at the date of its removal.

The suit was filed by Saxton Inc. and two affiliates -- Nevada Housing Opportunities LLC and Lake Tonopah LLC -- and James Saxton. It names South Valley Apartments LP, Spanish Hills Apartments LP, East Freemont Group LP, East Freemont Group II LP, Meadow Mesa Apartments LP, Paseo del Prado LP, Lake Tonopah LP, Saratoga Palms North LP, SLP Inc. and Boston Financial Institutional Tax Credits.

The suit accuses the limited partnerships of removing Nevada Housing Opportunities and Lake Tonopah LLCs as general partners and replacing them with SLP Inc., a Massachusetts corporation funded by Boston Financial.

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