1 SCOTT B. COHEN, SBA #014377 PATRICK A. CLISHAM, SBA #023154 2 BRADLEY D. PACK, SBA #023973 ENGELMAN BERGER, P.C. 3 2800 NORTH CENTRAL AVENUE, SUITE 1200 PHOENIX, 85004 ______4 Ph: (602) 271-9090 Fax: (602) 222-4999 5 Email: [email protected] Email: [email protected] Email: [email protected] 6 ______7 Proposed Counsel for Debtor and Debtor in Possession Continental Country Club, Inc., an Arizona Non-profit 8 corporation

9 IN THE UNITED STATES BANKRUPTCY COURT

10 FOR THE DISTRICT OF ARIZONA

11 In re: Chapter 11 Proceeding

12 CONTINENTAL COUNTRY CLUB, Case No. 3:21-bk-00956-EPB INC., an Arizona Non-profit corporation, 13 EIN 86-0414438 14 Debtor. 15 16 17 DECLARATION OF JON HELD IN SUPPORT OF CHAPTER 11 BANKRUPTCY PETITION 18 19 I, Jon Held, hereby declare under penalty of perjury that the following statements are 20 true and correct to the best of my information, knowledge and belief: 21 1. I am the President of Continental Country Club, Inc., the debtor and debtor-in- 22 possession in the above reorganization case (the “Association”) and I am its designated debtor 23 representative in this chapter 11 proceeding. As such I have the authority to make this 24 declaration on behalf of the Association. I am thoroughly familiar with all aspects and 25 operations of the Association and am familiar with its business affairs, assets and liabilities, 26 and its books and records. 27 2. I submit this Declaration in support of the Association’s chapter 11 bankruptcy

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1 petition and a series of related motions filed or to be filed by the Association in connection 2 with its bankruptcy proceedings (the “Motions”). Unless required otherwise by the context, all 3 capitalized terms used herein shall have the same meaning ascribed to them in the Motions. 4 A. My Professional Background 5 3. I am an experienced business executive having retired in 2016 after working in 6 executive and management positions in the newspaper publishing industry for more than 20 7 years, including having served as Chief Financial Officer for and as 8 Senior Vice President of Finance and Business planning for the entire newspaper division 9 (over 100 newspapers and USA Today) of its parent company Gannet Publishing prior to 10 retirement with responsibility for finance and all printing and distribution across the country. I

11 graduated from University of Wisconsin – Whitewater majoring in accounting. I was a

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, 12 Certified Public Accountant until the time of my retirement. 13 4. I have been a homeowner and member of the Association since 2005. ERGER B 14 5. In November of 2019, I was elected as President of the Association and have 15 since been actively involved in the operations and management of the Association. Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN B. Background of the Association E

280 0 17 6. The Association is a non-profit Arizona corporation with its principal place of 18 business in Flagstaff, Arizona. 19 7. The Association was formed in 1972 to own and operate the Continental 20 Country Club in Flagstaff, Arizona (the “Club”) for the use and enjoyment of its homeowner 21 members and the broader general public. 22 8. The Association operates as a full-service country club with golf, tennis, 23 pickleball, , fitness, clubhouse, and dining amenities for the benefit of its members, 24 who are primarily comprised of homeowners in the Association’s residential developments. 25 9. The Association was first developed by the late Charles Keating and his 26 affiliated development companies in the early 1970s as part of the broader Continental 27 development in Flagstaff, Arizona.

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1 10. Over the course of the past fifty years, the Association has been operated as a 2 non-profit corporation supported by annual assessments paid by its 2,395 homeowner 3 members and the business revenues generated through the ongoing operation of the Club 4 facilities. 5 11. Under the currently applicable Amended and Unified Declaration of Restrictions 6 (“CC&Rs”) each member is required to pay the Association regular annual assessments and 7 special assessments as authorized under the CC&Rs and approved by the members. 8 12. Based on current assessment levels, the Association generates approximately 9 $1.2 million in assessment revenues annually. The Association also generates approximately 10 $1.7 million in income from business operations annually.

11 C. Events Leading to Bankruptcy

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, 12 Lake Elaine Litigation and Liabilities 13 13. The Association is a non-profit homeowners association responsible for ERGER B 14 enforcing the deed restrictions for the Continental Country Club development in Flagstaff, 15 Arizona (the “Development”), which includes numerous residential subdivisions and a total of Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN over 2,395 single family and multi-family homes. E

280 0 17 14. One of the subdivisions includes a man-made body of water known as “Lake 18 Elaine.” 19 15. In 1987, the Plaintiffs, who owned homes near Lake Elaine, filed a lawsuit in 20 Coconino Superior Court (“Superior Court”) against the successors to the developer, alleging 21 that the developer misrepresented the quality of the construction and maintenance of Lake 22 Elaine. Plaintiffs also sued the Association, alleging that it is responsible for maintaining Lake 23 Elaine and that it failed to do so. 24 16. The Class Action was never brought to trial. Instead, the parties reached a 25 settlement, which was incorporated into a settlement agreement and stipulated judgment 26 entered between and among the Association and several other parties in 1990 (the “Settlement 27 Agreement”).

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1 17. Under the Settlement Agreement, the Association agreed to reconstruct and 2 restore Lake Elaine in accordance with a plan developed by outside consultants (the 3 “Consultants Plan”). 4 18. The reconstruction and restoration work was completed in 1994. 5 19. In 2017, however, Plaintiffs sought to hold the Association in contempt for 6 allegedly violating the terms of the Settlement Agreement. They allege that the Consultants 7 Plan imposed a perpetual obligation on the Association to “maintain” Lake Elaine, and that 8 the Association failed to do so by, among things, failing to maintain a water level at an 9 elevation of 6,845 feet above sea level. 10 20. Conditions have changed significantly since the Settlement Agreement was

11 entered. Operation of Lake Elaine in conformity with the Consultants Plan is no longer

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, 12 physically possible or economically feasible. 13 21. Notwithstanding the change in conditions, Plaintiffs have shown no desire to ERGER B 14 cooperate with the Association to modify the Settlement Agreement so that maintenance of 15 Lake Elaine is feasible in light of current conditions. They have instead sought crushing Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN sanctions that the Association has no ability to pay. E

280 0 17 22. On October 30, 2020, the Superior Court, which has been overseeing litigation 18 between the Association and a class of Lake Elaine lakeside homeowners announced it would 19 be holding the Association in contempt and requiring it to repair and fill Lake Elaine to a level 20 of 6,845 feet as provided in the Settlement Agreement. In addition, the Superior Court 21 announced its intention to impose sanctions against the Association of $700 per day for each 22 day that the Association was not actively refilling Lake Elaine and $500 per day for each day 23 that Lake Elaine was actively being refilled until the minimum surface elevation was achieved. 24 23. The Superior Court’s preliminary ruling had several significant practical and 25 financial implications for the Association including, among other things: 26 a. Lake Elaine suffers from engineering and design problems that make it 27 technically impossible to comply with the terms of the Settlement Agreement, as interpreted

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1 by the Superior Court, and otherwise satisfy the requirements of the Superior Court’s recent 2 directives; 3 b. Because Lake Elaine is a manmade lake with an artificial liner, significant 4 repairs and re-engineering of the lake would be required before the Association could begin to 5 attempt to fill it. These repairs could take up to two years to complete and their costs are 6 estimated to range between $1.5 million and $4.0 million; 7 c. Once repairs are completed and refilling is undertaken, it could take up to 8 six months to refill the lake and require at least 115 million gallons of water, the cost of which 9 (based on current rates) will be approximately $200,000; and 10 d. Based on the foregoing timeline, the fine schedule announced by the

11 Superior Court could result in fines for the entire period of repairing and refilling Lake Elaine

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, 12 in excess of $600,000. 13 24. The findings by the Superior Court, which were reflected in the Superior Court’s ERGER B 14 oral ruling and in a subsequent unsigned minute entry, were never entered as a final judgment 15 or order, as competing forms of judgment were lodged following the October 30, 2020 hearing Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN with competing objections to each that followed thereafter. E

280 0 17 25. The Association also subsequently filed a motion asking the Superior Court to 18 reconsider its preliminary ruling, and a hearing for oral argument on the motion to reconsider 19 was scheduled for February 10, 2021. 20 26. The Association lacks sufficient resources to address the obligations that the 21 Superior Court was expected to imminently impose upon it. 22 Deferred Maintenance Obligations 23 27. The Association has recently undertaken an analysis of deferred maintenance 24 and future capital investment needs for the Club. 25 28. Based on the information gathered to date, the Association anticipates that it will 26 need approximately $8 million of funds to address deferred maintenance and capital 27 improvement costs that will be required to be incurred at the Club over the next ten years,

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1 excluding Lake Elaine. Further reserve analysis suggests that the Club may require as much as 2 $16 million over the next thirty years and that the Association’s reserves at the end of 30 years 3 should be in excess of $5 million. 4 29. As of the Petition Date, the Association had reserve funds of $193,000 to 5 address these obligations and, without a dues increase and/or a special assessment, the 6 Association has no meaningful mechanism for addressing these obligations through 7 anticipated revenues of the Association. 8 The Association’s SunWest Bank Obligations 9 30. As of the Petition Date, the Association is obligated to SunWest Bank 10 (“SunWest”) in the approximate amount of $674,000 under the terms of the SunWest Loan,

11 which loan is evidenced by, among other documents, a secured promissory note in the original

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, 12 principal amount of $1,100,000.00, dated October 19, 2011 (the “SunWest Note”). 13 31. As security for repayment and satisfaction of all obligations owing by the ERGER B 14 Association under the SunWest Note, SunWest holds an alleged first priority lien and security 15 interest in substantially all of the Association’s assets, including accounts receivable. Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN 32. As security for the SunWest Loan, SunWest alleges a security interest in and to E

280 0 17 the Club and all of the personal and real property improvements located thereon. 18 33. SunWest also asserts a security interest in and to the rents and income derived 19 from the Association (the “Cash Collateral”).1 20 34. As of the Petition Date, the Association was holding approximately $1.3 million 21 of Cash Collateral in its operating and reserve accounts. 22 35. The Association’s cash and other collateral allegedly securing the SunWest Loan 23 have a combined value substantially in excess of its SunWest Loan obligations. 24 36. As of the Petition Date, the Association was current with all payment obligations 25 due and owing on the SunWest Loan. 26 1 The Association is still reviewing SunWest’s claims and the extent and nature of any liens or 27 interests SunWest claims in the Association’s assets. The Association reserves all of its rights and remedies until it completes its review.

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1 37. In order to provide SunWest with adequate protection, the Association proposes 2 to continue timely making principal and interest payments as they become due and grant 3 SunWest replacement liens on its post-petition assets to the same extent that SunWest held 4 valid liens on its prepetition assets. 5 D. The Association’s Need for Use of Cash Collateral 6 38. The Association has prepared a cash collateral budget (“Budget”) which reflects 7 average anticipated income and expenses for the coming six weeks (the “Budget Period”). 8 39. As reflected in the Budget, the Association anticipates that, during the Budget 9 Period, it will generate sufficient cash flow to pay all of its ordinary operating expenses. 10 40. The Association must have immediate approval to pay certain operating

11 expenses in order to avoid irreparable harm. These expenses are reflected in the Budget and

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, 12 include, among others, employee payroll obligations, insurance, postpetition utility 13 obligations, and maintenance expenses. In order to continue operating, the Association must ERGER B 14 make the above budgeted payments from the cash available in the Association’s operating and 15 reserve accounts. Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN E. The Association’s Need to Employ Professionals E

280 0 17 41. In order to administer its chapter 11 reorganization case, the Association requires 18 the assistance of professionals including, bankruptcy counsel. 19 42. Subject to Court approval, the Association has retained the law firm of 20 Engelman Berger, P.C. (“EB”) as its bankruptcy counsel. 21 43. EB and its professionals are experienced in representing chapter 11 debtors and 22 are well-qualified to serve as bankruptcy counsel to the Association. 23 44. The Association paid EB a prepetition retainer of $75,000, about 50% of which 24 has been applied for prepetition services rendered by EB and for the filing fee to initiate this 25 chapter 11 proceeding. 26 45. The Association will also require the assistance of special counsel during its 27 chapter 11 proceedings from Krupnik & Speas, PLLC (the “Krupnik Firm”) and Warner Angle

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1 Hallam Jackson & Formanek (“Warner Angle”). 2 46. The Association requires the assistance of the Krupnik Firm as its special 3 counsel to provide ongoing advice and counsel regarding the day-to-day operation of the 4 Association and with respect to issues arising under the CC&Rs. 5 47. The Krupnik Firm has been serving as HOA counsel to the Association for more 6 than 18 years, is deeply familiar with the CC&Rs and the operation of the Association 7 thereunder. In that regard, the Krupnik Firm is uniquely qualified to serve as the Association’s 8 special counsel during this chapter 11 proceeding. 9 48. Warner Angle has been serving as defense counsel to the Association in the 10 Lake Elaine litigation since its inception in 2017. Warner Angle will be called upon by EB to

11 assist it with the defense or prosecution of any Lake Elaine related issues before this Court or

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, 12 the Superior Court as may be appropriate. Warner Angle’s depth of knowledge and experience 13 with the Lake Elaine litigation uniquely qualifies it to serve in this capacity as the ERGER B 14 Association’s special counsel. 15 F. The Association’s Need to Limit Notice Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth

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NGELMAN 49. The Association submits that notice by mail of all the pleadings to all 2,395 E

280 0 17 homeowners is impracticable and unduly burdensome under the circumstances. For the notice 18 of commencement, the Debtor is emailing and/or mailing them and sending them a press 19 release as well. After that, they will have actual notice of the reorganization case. 20 50. The Association is a nonprofit that cannot afford to mail notice to all 2,395 21 homeowners of all pleadings. The homeowners are not creditors but parties in interest. 22 Moreover, many of the homeowners have more than one physical mailing address, e.g., one 23 address in Continental Country Club and one at their primary residence. 24 51. In the Association’s business judgment, notice of all pleadings to all 25 homeowners is cost prohibitive and would cause immediate and irreparable harm to the 26 Debtor’s ability to reorganize. 27 52. Further, such a constant drain on the Association’s finances as an administrative

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1 expense would significantly decrease any recovery for the Association’s creditors. 2 53. The Association operates a web portal for its homeowner members that can be 3 used efficiently for posting notices and copies of pleadings filed in the bankruptcy case. 4 Indeed, on the Petition Date, a notice of the commencement if this chapter 11 proceeding was 5 posted to the web portal and within less than 24 hours more than 500 homeowners had already 6 accessed the portal and reviewed and/or downloaded the notice. 7 DATED this 10th day of February, 2021

8 /s/ Jon Held Jon Held 9

10

COPY of the foregoing e-mailed th this 10 day of February, 2021, to: 11

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Larry L. Watson , 12 OFFICE OF THE U.S. TRUSTEE Via Email: [email protected] 13 Via email: [email protected] ERGER

B 14 Alissa Brice Castaneda QUARLES & BRADY 15 Email: [email protected] Phoenix, Arizona 85004 Arizona Phoenix, orth Central Avenue, Suite 1200 Suite Avenue, Central orth Attorneys for Sunwest Bank N 16 NGELMAN E 280 0 17 /s/ Marie Kelly 18 19 20 21 22 23 24 25 26 27

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3:21-bk-00956-EPB CONTINENTAL COUNTRY CLUB, INC. Type: bk Chapter: 11 v Office: 3 (Prescott) Assets: y Judge: EPB

U.S. Bankruptcy Court

District of Arizona

Notice of Electronic Filing

The following transaction was received from PATRICK A. CLISHAM entered on 2/10/2021 at 4:06 PM AZ and filed on 2/10/2021 Case Name: CONTINENTAL COUNTRY CLUB, INC. Case Number: 3:21-bk-00956-EPB Document Number: 15

Docket Text: Declaration of Jon Held in Support of Chapter 11 Bankruptcy Petition filed by PATRICK A. CLISHAM of ENGELMAN BERGER PC on behalf of CONTINENTAL COUNTRY CLUB, INC.. (related document(s)[1] Voluntary Petition (Chapter 11)) (CLISHAM, PATRICK)

The following document(s) are associated with this transaction:

Document description:Main Document Original filename:01189321.PDF Electronic document Stamp: [STAMP bkecfStamp_ID=875559564 [Date=2/10/2021] [FileNumber=46749178-0 ] [1cc1d76ab3eb43649a6cb779ef6d7fecf2f2c9bbac7e1140184e72c350c22d62a02 bef5b567e5c6e6ee3fe0b48c44a4feb4e7f1e3dd8942901ae4cbcd3f2aa8e]]

3:21-bk-00956-EPB Notice will be electronically mailed to:

PATRICK A. CLISHAM on behalf of Debtor CONTINENTAL COUNTRY CLUB, INC. [email protected], [email protected],[email protected],[email protected]

SCOTT B. COHEN on behalf of Debtor CONTINENTAL COUNTRY CLUB, INC. [email protected], [email protected]

LARRY L. WATSON on behalf of U.S. Trustee U.S. TRUSTEE [email protected], [email protected],[email protected]

3:21-bk-00956-EPB Notice will not be electronically mailed to:

PRA Receivables Management, LLC PO Box 41021 Norfolk, VA 23541

https://ecf.azb.uscourts.gov/cgi-bin/Dispatch.pl?301826944991651 1/1