<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
REGISTRATION NO.: 333-06151
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
METROGOLF INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7200 84-1288480
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
incorporation or organization) Classification Number) Identification
Number)
</TABLE>
1999 BROADWAY, SUITE 2435
DENVER, COLORADO 80202
(303) 294-9300
(Address and telephone number of principal executive offices)
------------------------------
CHARLES D. TOURTELLOTTE
1999 BROADWAY, SUITE 2435
DENVER, COLORADO 80202
(303) 294-9300
(Name, address and telephone number of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
<TABLE>
<S> <C>
Jeffrey M. Knetsch Kevin A. Cudney
Brent T. Slosky George A. Hagerty
Brownstein Hyatt Farber & Strickland, Dorsey & Whitney LLP
P.C.
410 17th Street, 22nd Floor 370 17th Street, Suite 4400
Denver, Colorado 80202 Denver, Colorado 80202
telephone: (303) 534-6335 / facsimile: telephone: (303) 629-3400 / facsimile:
(303) 623-1956 (303) 629-3450
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value..................... 1,933,571 $8.00 $15,468,568 $5,334(3)
</TABLE>
(1) Includes 180,000 shares to cover the Underwriters' Over-Allotment Option.
Also includes an indeterminate number of shares that are issuable upon
conversion of the PP Notes (as defined herein), presently estimated to be
553,571 shares.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a).
(3) Previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
METROGOLF INCORPORATED
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 CAPTION PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities to Be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Capitalization;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Description of Capital Stock; Consolidated and
Combined Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) an offering of
1,380,000 shares of common stock, no par value ("Common Stock"), including
shares of Common Stock to cover over-allotments, of MetroGolf Incorporated (the
"Company"), a Colorado corporation, for sale by the Company in an underwritten
public offering, and (ii) an additional 553,571 shares (the "Conversion Shares")
of Common Stock (or such greater number of shares as may be required) issuable
upon conversion of the Company's 12% Convertible Subordinated Notes due 1997
(the "PP Notes") that were issued in a private placement closed on May 30, 1996
to the holders thereof (the "Noteholders"). The PP Notes are convertible at 50%
of the price to public in the public offering (the "IPO") if converted
simultaneously with the closing of the IPO or at 50% of the Market Price of the
Common Stock (as defined), if converted at a later date. The above number of
Conversion Shares is determined utilizing a $7.00 per share price in the IPO
(the middle of the expected range).
The complete prospectus relating to the underwritten offering follows
immediately after this Explanatory Note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the
Conversion Shares, including alternative front and back cover pages and sections
entitled "Concurrent Public Offering," "Shares Eligible for Future Sale," and
"The Conversion" to be used in lieu of the sections entitled "Concurrent
Offering," "Shares Eligible for Future Sale" and "Underwriting" in the
Prospectus relating to the underwritten offering. Certain sections of the
Prospectus for the underwritten offering will not be used in the Prospectus
relating to the Conversion Shares such as "Use of Proceeds" and "Dilution." In
addition, certain language in the Prospectus for the underwritten offering
relating to the underwritten offering will be changed, with such changes being
submitted to the Securities and Exchange Commission in a Prospectus pursuant to
Rule 424.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 22, 1996
PROSPECTUS
[LOGO]
METROGOLF
INCORPORATED
1,200,000 SHARES OF COMMON STOCK
------------------
MetroGolf Incorporated ("MetroGolf" or the "Company") is hereby offering
1,200,000 shares of its common stock, no par value ("Common Stock").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock, and no assurance can be given that any such market will
develop. It is currently estimated that the initial public offering price of the
Common Stock will be between $6.00 and $8.00 per share. For information
regarding the factors considered in determining the price to the public in the
Offering, see "Underwriting." The Company has applied for listing of the Common
Stock on the Nasdaq SmallCap Market ("Nasdaq") under the proposed symbol "MGLF"
and the Boston Stock Exchange ("BSE") under the proposed symbol "MGO."
Concurrently with the Offering, the Company is also registering the shares
of Common Stock that may be acquired by holders (the "Noteholders") of the
Company's 12% Convertible Subordinated Notes due 1997 (the "PP Notes") upon
conversion thereof (the "Conversion Shares"). The Noteholders may not sell the
Conversion Shares until 180 days after the consummation of the Offering unless
earlier allowed by Laidlaw Equities, Inc. and Cruttenden Roth Incorporated, as
representatives (the "Representatives") of the several underwriters for the
Offering (the "Underwriters").
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" CONTAINED AT PAGES 8-13 OF THIS
PROSPECTUS AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO THE
PRICE TO THE PUBLIC AND COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ ($ if the over-allotment option granted to the
Underwriters described below is exercised in full).
(3) The Company has granted to the Underwriters an option, exercisable within 45
days after the date hereof (the "Underwriters' Over-allotment Option"), to
purchase up to 180,000 additional shares of Common Stock on the same terms
as set forth above, solely to cover over-allotments, if any. If the
Underwriters' Over-allotment Option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ and $ , respectively. See
"Underwriting."
--------------------------
The shares of Common Stock are offered when, as and if delivered to and
accepted by the Underwriters and subject to the approval of certain legal
matters by counsel and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock will be made
against payment therefor at the offices of Laidlaw Equities, Inc., 100 Park
Avenue, New York, New York 10017 on or about 1996.
--------------------------
LAIDLAW EQUITIES, INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1996
<PAGE>
[WATERMARK UNDERLAY OF METROGOLF LOGO]
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered by this Prospectus. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all amendments
thereto. This Prospectus does not contain all of the information set forth in
the Registration Statement and the schedules and exhibits thereto, to which
reference hereby is made. Any interested party may inspect the Registration
Statement and its exhibits, without charge, at the public reference facilities
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street
N.W., Room 1024, Washington, D.C. 20549, and at its regional offices at 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10007. Any interested party may obtain copies of
all or any portion of the Registration Statement and its exhibits at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street N.W., Room 1024, Washington, D.C.
20549.
As a result of the Offering, the Company will become subject to the periodic
reporting and other informational requirements of the Securities and Exchange
Act of 1934, as amended. As long as it is subject to such reporting and
informational requirements, the Company will file with the Commission all
reports, proxy statements and other information required thereby, which may be
inspected at the public reference facilities described above. The Company
intends to furnish its stockholders with annual reports containing consolidated
financial statements audited by independent certified public accountants and
with quarterly reports containing unaudited financial information for each of
the first three quarters of each fiscal year.
--------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ, BSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------------
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE COMMON STOCK BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH COMMON STOCK MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE
CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3)
ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A CORPORATION,
PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF PURCHASING THE
SECURITIES OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF
THE SECURITIES OFFERED HEREBY, (4) ANY NATURAL PERSON WHO (A) HAS INCOME OF
$65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH
CASE, EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES), OR (5) ANY
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED UNDER RULE 144A OF THE SECURITIES
ACT.
2
<PAGE>
FOLD OUT PAGE
[VIEW OF ILLINOIS CENTER GOLF]
METROGOLF'S ILLINOIS CENTER GOLF
CHICAGO
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL COMMON
STOCK AMOUNTS IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO REFLECT THE COMPANY'S
5.5-TO-1 STOCK SPLIT EFFECTED ON AUGUST 31, 1995 BUT DO NOT GIVE EFFECT TO THE
EXERCISE OF (I) THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE UNDERWRITER'S
WARRANTS, AND (III) UP TO 250,000 SHARES AVAILABLE FOR GRANT UNDER THE COMPANY'S
1996 STOCK OPTION AND STOCK BONUS PLAN (THE "STOCK OPTION PLAN"). THE COMPANY
WAS FORMERLY KNOWN AS THE VINTAGE GROUP USA, LTD. METROGOLF INCORPORATED, ITS
SUBSIDIARIES AND, IF THE CONTEXT SO REQUIRES, ILLINOIS CENTER GOLF PARTNERS,
L.P. ("ICGP") AND GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP ("GCGP"), AS
SUBSIDIARIES TO BE CONSOLIDATED WITH THE COMPANY, ARE REFERRED TO HEREIN AS THE
"COMPANY."
THE COMPANY
MetroGolf Incorporated acquires, develops and operates golf centers designed
to provide a wide variety of practice and play opportunities in major
metropolitan areas. The Company's centers are located in areas with high
concentrations of office, urban residential and hotel development that are
convenient for time-constrained golfers. The Company's golf centers typically
offer: practice facilities; instructional programs such as the David Leadbetter
Golf Academy-Registered Trademark- currently at the Company's Illinois Center
Golf facility; a full-line pro shop; restaurant, bar and catering facilities;
group meeting areas; and, in some cases, par-3 or executive-length golf courses.
The Company's golf centers are designed around a driving range with target
greens, bunkers and traps to simulate actual golf course conditions. The
Company's driving ranges, which typically include substantially more hitting
stations than the industry average, are lighted to permit night play and are
enclosed or sheltered in a climate-controlled environment.
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to accomplish this goal
principally by acquiring existing golf facilities that have the potential for
revenue enhancement through expansion of facilities, more efficient management
and innovative marketing strategies. The Company intends to develop new golf
centers in attractive markets where existing facilities are not suitable for
acquisition. The Company has capitalized on the national media and industry
recognition of its flagship development, Illinois Center Golf, a golf center and
par-3 golf course in downtown Chicago, and has built a substantial pipeline of
attractive projects for acquisition and development. In addition to Illinois
Center Golf, the Company currently operates Goose Creek Golf Club ("Goose
Creek"), an 18-hole golf course in suburban Washington, D.C., Fremont Golf
Center and Harborside Golf Center (described below). Based on written
acceptances to the Company's offer to purchase the limited partnership interests
in each of the limited partnerships that own Illinois Center Golf and Goose
Creek, the Company believes that, simultaneously with the closing of the
Offering, it will acquire most, if not all, of such limited partnership
interests for a combination of cash and convertible notes.
According to the National Golf Foundation (the "NGF"), there were over 24
million golfers in the United States in 1995. According to the editorial staff
of Golf Range & Recreation Report, as of November 1, 1995, there were 1,932
stand-alone golf ranges in the United States, up 11.6% from 1994. In addition,
there were approximately 8,000 other ranges associated with public and private
golf courses. The Company estimates that, in 1995, over 90% of all stand-alone
driving ranges were managed by independent owner-operators. The Company believes
that consolidation of this fragmented industry presents numerous opportunities
for the Company to acquire, upgrade and renovate golf facilities and to realize
economies of scale through efficiencies of management, marketing and purchasing.
The Company also believes that many individual owner-operators lack the
expertise and financial resources to compete effectively in a consolidating
industry.
4
<PAGE>
RECENT TRANSACTIONS AND OTHER POTENTIAL TRANSACTIONS
Consistent with its business strategy of increasing ownership and operation
of golf centers, the Company purchased the leasehold interest on an existing
driving range and learning center facility in Fremont, California (the east San
Francisco Bay area) on July 1, 1996, where it plans to develop an
executive-length golf course (the "Fremont Golf Center"). On July 1, 1996, the
Company also entered into a sublease, with an option to purchase, for the
Harborside Golf Center, a double-tiered, double-ended driving range, putting
green, clubhouse and sports bar/cafe in downtown San Diego, California. The
Company is also developing a golf center located on the top of the Port
Authority Bus Terminal in midtown Manhattan, New York City (the "New York Golf
Center").
The Company is actively pursuing acquisition or development projects in
major cities, including Atlanta, Denver, Los Angeles, St. Louis, San Diego, San
Francisco, Tampa and Toronto. The Company currently has 13 properties under
active review as candidates for acquisition and has either entered into or is
currently negotiating non-binding letters of intent with respect to nine of
these properties. Eight of those nine properties are located in or near a major
metropolitan area in the Western United States, and the remaining property is
located in a major metropolitan area in the Midwestern United States. Each of
the nine properties contains a driving range, pro shop and food and beverage
facility. In some cases, the property has either a golf course or adjacent land
available for expansion or development of additional golf facilities.
Consummation of any acquisition or development of these or any other future
sites is subject to the satisfaction of various conditions, including the
satisfactory completion of due diligence by the Company and the negotiation of
definitive agreements. The Company's strategy is to acquire up to three
additional golf centers by the end of 1996 and to acquire or develop five more
centers by the end of 1997. As consideration for any future acquisition or
development, the Company may pay cash, incur indebtedness or issue debt or
equity securities. Such acquisitions or developments could result in material
changes in the Company's financial condition and operating results; however,
there can be no assurance as to the occurrence of any of these acquisitions or
developments or, if they occur, as to the timing of the consummation of any
acquisitions or developments.
MetroGolf is organized under the laws of the State of Colorado. The
Company's principal executive offices are located at 1999 Broadway, Suite 2435,
Denver, Colorado 80202. Its phone number is (303) 294-9300.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................... 1,200,000 shares(a)
Common Stock to be Outstanding After
Offering............................... 3,592,647 shares(b)
Risk Factors........................... The Common Stock offered hereby involves a high
degree of risk and immediate and substantial
dilution. See "Risk Factors" and "Dilution."
Use of Proceeds........................ The Company will use the net proceeds from the
Offering to acquire and develop golf centers and
for working capital, to upgrade and renovate
existing golf centers, to acquire limited
partnership interests in ICGP and GCGP and to
redeem the Company's Redeemable Preferred Stock
(see "Description of Capital Stock -- Preferred
Stock"). See "Use of Proceeds."
Proposed Nasdaq Symbol................. "MGLF"
Proposed BSE Symbol.................... "MGO"
</TABLE>
- ------------------------
(a) Does not give effect to any exercise of the Underwriters' Over-allotment
Option.
(b) Includes issuance of 553,571 shares upon conversion of the PP Notes and
351,750 shares upon conversion of the convertible notes issued in connection
with the acquisition of 90% of the limited partnership interests in each of
ICGP and GCGP (the "Convertible Notes"). See "Concurrent Offering" and
"Partnership Acquisitions." Does not include (i) 157,500 shares issuable
upon conversion of the warrants issued in connection with the acquisition of
the limited partnership interests in ICGP, (ii) the 25,000 shares issuable
upon conversion of the warrant issued to Laidlaw Equities, Inc. for its
services as placement agent for the Private Placement, (iii) 120,000 shares
issuable to the Representatives upon conversion of warrants issued to them
for their services in connection with the Offering, (iv) up to 180,000
shares issuable upon exercise of the Underwriters' Over-allotment Option, or
(v) 250,000 shares of Common Stock available for future grant under the
Company's Stock Option Plan. See "Underwriting" and "Management -- Stock
Option Plan."
6
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The historical financial information set forth below has been derived from
the Consolidated and Combined Financial Statements of the Company for the
respective periods presented and is qualified in its entirety by, and should be
read in conjunction with, the Consolidated and Combined Financial Statements and
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial and statistical data included
elsewhere in this Prospectus. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that will be achieved for
future periods, including for the entire year ending on December 31, 1996. The
pro forma summary consolidated financial information set forth below for the
Company gives effect to the interest expense associated with proceeds from the
sale of the PP Notes and proceeds from the sale of Common Stock in the Offering
(but not including the shares issuable pursuant to the Underwriters'
Over-allotment Option), the acquisition by the Company of the Fremont Golf
Center, the acquisition of limited partnership interests in ICGP and GCGP, the
$1,750,000 in proceeds from ICGP's long-term debt and ICGP's $1,434,000 in
property and equipment acquisitions, and are based on the estimates and
assumptions set forth herein. The unaudited pro forma information has been
prepared utilizing historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the purchase been effected on the dates indicated or of the results
which may be obtained in the future. The unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements (including the notes to such financial statements) included elsewhere
in this Prospectus. The 1992 column reflects information from February 21, 1992
(date of inception) to December 31, 1992.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------------- -----------------------------------------------
PRO PRO INCEPTION TO
FORMA ACTUAL FORMA ACTUAL DECEMBER 31,
----------- ---------------------- ----------- ---------------------------------- ------------
1996 1996 1995 1995 1995 1994 1993 1992
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenues........... $ 1,291,202 $ 99,275 $ 85,013 $ 3,657,593 $ 335,303 $ 291,237 $ 106,313 $ 76,250
Total operating
expenses................ 2,016,706 422,296 371,011 4,704,460 882,709 565,811 109,176 47,655
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
Operating loss........... (725,504) (323,021) (285,998) (1,046,867) (547,406) (274,574) (2,863) 28,595
Other.................... (631,044) (36,959) 4,130 (1,190,943) 15,294 9,761 (1,304) (2,273)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
Net loss................. $(1,356,548) $ (359,980) $ (281,868) $(2,237,810) $ (532,112) $ (264,813) $ (4,167) $ 26,322
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
Net loss applicable to
common stockholders..... $(1,356,548) $ (445,292) $ (354,389) $(2,237,810) $ (687,164) $ (315,490) $ (4,167) $ 26,322
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
Net loss per common
share................... $ (.52) $ (.32) $ (.25) $ (.86) $ (.49) $ (.23) $ -- $ .02
Weighted average common
and common equivalent
shares outstanding...... 2,595,701 1,395,701 1,395,701 2,595,701 1,395,701 1,395,701 1,395,701 1,395,701
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996 AT DECEMBER 31, 1995
------------------------ --------------------
HISTORICAL PRO FORMA ACTUAL
----------- ----------- --------------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 1,313,841 $ 4,536,566 $ 324
Working capital (deficit)........................................ (1,340,376) (754,262) (505,968)
Total assets..................................................... 2,698,529 19,986,607 979,679
Short-term debt.................................................. 1,803,771 2,988,581 290,253
Long-term debt................................................... 13,586 8,468,483 23,151
Total stockholders' equity (deficit)............................. (52,801) 5,571,783 100,961
</TABLE>
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH
DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY THOSE PERSONS WHO ARE ABLE TO
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, AND ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
LIMITED OPERATING HISTORY; RECENT LOSSES
The Company's predecessor was formed in 1992. When consolidated with its
subsidiaries, the Company had losses of $359,980, $532,112, $264,813 and $4,167
for the six months ended June 30, 1996 and the twelve months ended December 31,
1995, 1994 and 1993, respectively. GCGP reported net losses of $261,569,
$75,624, $28,115 and $138,593 for the six months ended June 30, 1996 and the
twelve months ended December 31, 1995, 1994 and 1993, respectively. ICGP
reported net losses of $471,207, $535,212, $1,110,765 and $239,331 for the six
months ended June 30, 1996 and the twelve months ended December 31, 1995, and
1994 and from May 28, 1993 (inception date) to December 31, 1993, respectively.
At June 30, 1996, the Company reported an accumulated deficit of $1,019,416,
total stockholders' deficit of $52,801 and a working capital deficit of
$1,340,376.
ADDITIONAL CAPITAL REQUIREMENTS
The fiscal strength of the Company will be affected by the amount of funds
raised in the Offering, in project financings and in future equity and debt
financings. The Company's expected equity capital requirements for project
acquisition, development and expansion include approximately $500,000 for the
New York Golf Center, approximately $500,000 for the Fremont Golf Center,
approximately $1,575,000 for the acquisition of the limited partnership
interests in ICGP, approximately $475,000 for the acquisition of the limited
partnership interests in GCGP and approximately $2,560,000 for future
acquisitions and working capital. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The Company expects to incur mortgage or other
indebtedness relating to these and its other golf centers by borrowing from
banks, institutional lenders or private lenders in order to develop or purchase
these and its other golf centers and to finance improvements thereto. Failure to
raise capital will adversely affect the fiscal strength of the Company. In the
absence of such additional funds, the Company will have a less diversified
portfolio of investments in golf facilities and will have less capital to enable
it to withstand economic downturns. Should any such financing, together with the
revenues of such golf project subject to such financing, be insufficient to
service such debt and pay taxes and other operating costs of such project, the
Company would be required to utilize working capital, seek additional debt or
equity investment funds or suffer foreclosure of the project. Any such use of
working capital would decrease the funds available to the Company for its other
projects and future acquisitions and developments.
GOOSE CREEK GOING CONCERN OPINION
In their report dated May 17, 1996 included herein, BDO Seidman, LLP
("BDO"), independent certified public accountants for GCGP, expressed
"substantial doubts" about Goose Creek Golf Partners Limited Partnership's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." BDO has informed the
Company that, upon the closing of the Offering and the simultaneous acquisition
by the Company of approximately 90% of the limited partnership interests in
GCGP, their report with respect to the audited financial statements of GCGP
would no longer contain a "going concern" paragraph.
EXPANSION STRATEGY; POSSIBLE LACK OF SUITABLE LOCATIONS
The Company's ability to significantly increase revenue, net income and
operating cash flow over time depends in large part upon its success in
acquiring or leasing and constructing additional golf
8
<PAGE>
facilities at suitable locations upon satisfactory terms. There can be no
assurance that suitable golf facility acquisition or lease opportunities will be
available or that the Company will be able to consummate acquisition or leasing
transactions on satisfactory terms. The acquisition of golf facilities may
become more expensive in the future to the extent that competition for sites
increases. The likelihood of the success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the construction and opening or
renovation of new golf facilities. See "-- Additional Capital Requirement," "--
Dependence On Key Employees; Recruitment of Additional Personnel," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
To implement its expansion strategy, the Company must integrate acquired or
newly opened golf centers into its existing operations. As the Company grows,
there can be no assurance that additional golf centers can be readily
assimilated into the Company's operating structure. Inability to integrate golf
facilities efficiently will have a material adverse effect on the Company's
financial condition and results of operations. See "Business." The development
of golf centers is subject to all the delays and uncertainties associated with
development and construction projects generally, such as the performance by
construction contractors, costs of materials, labor and energy, inflation,
adverse weather, adverse subsurface conditions and other factors that could
cause construction and rehabilitation costs to exceed the Company's estimates.
The acquisition and development of golf centers may become more expensive in the
future to the extent that competition for sites increases. The future success
and growth of the Company will depend on, among other things, its ability to
acquire suitable operating properties and development sites and to obtain
required financing for future acquisitions or development of golf facilities.
There can be no assurance that the Company will be able to acquire suitable
sites or facilities or to obtain financing on favorable terms.
CONCENTRATION OF SHARE OWNERSHIP
Currently, 100% of the Company's capital stock is owned by Charles D.
Tourtellotte, the Company's President. Depending on whether or not the
Underwriters' Over-allotment Option is exercised, upon completion of the
Offering and before considering the exercise of all outstanding warrants (except
warrants held by officers and directors), options and conversion of all notes
convertible into Common Stock, Mr. Tourtellotte will own between 46.0% and 42.9%
of the outstanding shares of Common Stock. Based on acquisition of 90% of the
limited partnership interests in ICGP and GCGP, after giving effect to the
exercise of all outstanding warrants, options and conversion of notes
convertible into Common Stock, Mr. Tourtellotte will own between 26.8% and 25.6%
of the outstanding shares of Common Stock. The Company's Certificate of
Incorporation does not provide for cumulative voting. Accordingly, by virtue of
his Common Stock ownership, Mr. Tourtellotte will be in a position to
effectively control the election of all of the members of the Board of Directors
of the Company and to control the outcome of matters submitted to a vote of the
Company's stockholders, thereby completely controlling the management, policies
and operations of the Company. See "Principal Stockholders" and "Shares Eligible
for Future Sale."
NO PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
The Company has applied for the Common Stock to be traded, subject to official
notice of issuance, on Nasdaq and BSE; however, there can be no assurance that
the Common Stock will be accepted for such listing or that an active trading
market will develop after the Offering or, if developed, that it will be
sustained. The price to the public of the Offering (the "IPO Price") will be
determined through negotiations between the Underwriters and the Company. See
"Underwriting" for the factors considered in determining the IPO Price. There
can be no assurance that the price at which the Common Stock will trade in the
public market will not be lower than the IPO Price.
9
<PAGE>
DILUTION
Assuming that the IPO Price is $7.00, the IPO Price will exceed the net
tangible book value per share of the Common Stock by $4.70 or 67%. Accordingly,
purchasers of shares of Common Stock offered hereby will incur immediate and
substantial dilution. See "Dilution."
RISK OF TERMINATION OF ILLINOIS CENTER GOLF LEASE
The ground lease for Illinois Center Golf terminates on July 4, 2009, but is
subject to early termination under certain circumstances. See "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." Because of the financial penalties and costs to the landlord in a
termination, the Company believes such termination is unlikely for the next
several years; however, termination of the lease would result in the loss of the
Company's flagship project, which may have a negative impact on the Company's
visibility and ability to proceed with the construction or acquisition of new
metropolitan golf centers.
COMPETITION
The golf industry is highly competitive and includes competition from other
golf facilities, traditional golf ranges and golf courses, as well as other
recreational pursuits. The Company may face imitation and other forms of
competition. Many of the Company's potential competitors have considerably
greater financial and other resources, experience and customer recognition than
does the Company. The Company may also encounter substantial competition from
other investor groups, some of whom have significantly greater financial
resources than the Company, in seeking suitable golf investments. The Company's
golf investments may also experience competition in their day-to-day operations
from existing and newly constructed facilities. Such competition may adversely
impact the cash flow to the Company from its golf facility investments. See
"Business -- Competition."
VULNERABILITY TO WEATHER CONDITIONS AND SEASONAL RESULTS
The second and third quarters of the calendar year have historically
accounted for, and are expected in the future to account for, a greater portion
of the Company's operating revenue than do the first and fourth quarters of the
calendar year. This is primarily due to an outdoor playing season limited by
weather. Although most of the Company's driving ranges are designed to be
all-weather facilities, portions of such facilities, such as the golf courses,
are outdoors and vulnerable to weather conditions. Also, golfers are less
inclined to practice when weather conditions limit their ability to play golf on
outdoor courses. This seasonal pattern, as well as the timing of new golf center
openings, may cause the Company's results of operations to vary significantly
from quarter to quarter. Accordingly, period-to-period comparisons are not
necessarily meaningful and should not be relied on as indicative of future
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
POSSIBILITY OF NONSPECIFIED INVESTMENTS
As of the date hereof, the Company has a fully negotiated, but unsigned,
lease for the New York Golf Center site. The Company expects the lease to be
executed upon the completion of certain design and engineering studies. See
"Business -- Future Projects." In addition, the Company will select additional
projects prior or subsequent to completion of the Offering. Assuming the New
York Golf Center is completed, the Company's management will have the discretion
to allocate $2,560,000, or 36%, of the Net Proceeds of the Offering to other
selected projects and working capital. The Company may determine not to proceed
with any particular projects or may be unable to satisfy the conditions
contained in its agreements with respect to the New York Golf Center. While
holders of Common Stock may be provided information with respect to any
metropolitan golf facility which is purchased or developed by the Company, the
holders of Common Stock will not receive a general distribution of information
about any facility prior to acquisition, nor will such holders have a direct
opportunity to evaluate or approve any of the properties or terms of the
Company's investments. The purchasers of Common Stock must rely primarily upon
the ability of the officers and directors of the Company with respect to the
utilization of such unallocated proceeds and selection and negotiation of sites
or facilities. There can be no assurance that desirable golf facilities meeting
the Company's criteria will
10
<PAGE>
be available or can be developed on financially attractive terms. In addition,
there can be no assurance that any golf facility that is selected by the Company
for acquisition or development will meet its projections and the Company's
objectives.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING
The amount spent by consumers on discretionary items, such as family,
leisure and entertainment activities, like those offered by the Company's golf
centers, have historically been dependent upon levels of discretionary income,
which may be adversely affected by general economic conditions. A decrease in
consumer spending on golf will have an adverse effect on the Company's financial
condition and results of operations.
DEPENDENCE ON KEY EMPLOYEES; RECRUITMENT OF ADDITIONAL PERSONNEL
The continuing services of the Company's President, Charles D. Tourtellotte,
and Executive Vice President, J.D. Finley, are considered essential to the
successful operation of the Company. The Company has an employment contract with
each of Mr. Tourtellotte and Mr. Finley through December 31, 1998. If either Mr.
Tourtellotte or Mr. Finley should die or withdraw, or be removed from his
position with the Company, there can be no assurance that a capable successor
could be found. The Company maintains a $1,000,000 key-man life insurance policy
on Mr. Tourtellotte, the proceeds of which are payable to the Company, and will
have a similar policy on Mr. Finley prior to consummation of the Offering,. The
Company will also be required to hire additional personnel to staff the golf
centers it intends to develop or acquire. There can be no assurances that the
Company will be able to attract or retain qualified personnel. See "Business --
Employees."
USE OF LEVERAGE
The Company expects to incur mortgage and other indebtedness relating to its
golf facilities by borrowing from banks, institutional lenders or private
lenders in order to develop or purchase its golf facilities and to finance
rehabilitation and construction improvements thereto. In addition, GCGP
currently has indebtedness of approximately $3.3 million secured by Goose Creek
and guaranteed by the Company, and ICGP currently has indebtedness of
approximately $1.75 million secured by the assets of Illinois Center Golf and
guaranteed by the Company. There can be no assurance that the Company will be
able to satisfy such loans or to sell or refinance its golf facilities upon
favorable terms at the maturity of such loans. Should the revenues of any golf
project subject to financing be insufficient to service such debt and pay taxes
and other operating costs, the Company would be required to utilize working
capital, seek additional debt or equity investment funds or suffer foreclosure
of the project. There can be no assurance that additional funds, if needed,
would be available to the Company or, if available, would be made available on
terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability regardless of
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The existence of hazardous or toxic
substances or the failure to properly remediate such matters may adversely
affect the use of the property and result in a loss of value. In connection with
the ownership (direct or indirect), operation, management and development of
golf facilities, the Company may be liable for removal or remediation costs, as
well as certain other costs which could relate to such hazardous or toxic
substances (including governmental fines and injuries to persons and property).
The Company will make certain investigations and obtain a Phase I environmental
survey of a property prior to purchase or development, but such studies are not
designed to disclose all environmental hazards. The Company will not undertake
the investment in golf facilities if it believes that the environmental factors
might have a material adverse effect on the Company's business, assets or
results of operations.
11
<PAGE>
RISKS OF GOVERNMENTAL REGULATION
The rehabilitation and development of golf facilities is subject, both
directly and indirectly, to federal, state, and local governmental regulation,
including environmental, sewer, water, zoning and similar regulations. It is
possible that (i) the enactment of new laws, (ii) changes in the interpretation
or enforcement of applicable codes, rules and regulations, or (iii) the decision
of any authority to change current zoning classifications or requirements may
have a substantial adverse effect on the value of the Company's golf facilities.
No assurance can be given that any of the regulations or controls which affect
its golf facilities will not be changed, and the Company will have no control
over any such change. Consequently, it is possible that one or more changes
could decrease the value of a golf facility or impair the operations of a golf
facility after acquisition.
UNINSURED LOSSES
The Company intends to carry, and to cause its contractors, subcontractors
and its property managers to carry, insurance appropriate to their respective
activities, including liability and extended coverage insurance and
comprehensive "builder's all-risk" insurance on the Company's golf facilities,
with policy specifications and insured limits as are customarily carried for
similar properties. There may, however, be certain risks which are uninsurable
or not insurable on terms which are believed to be economical. Such risks could
include, but are not necessarily limited to, earthquakes, floods, hazardous
waste contamination and civil rights violations. Should a loss occur that is not
covered by insurance, the Company may be materially adversely affected. The
Company believes that its golf facilities will be adequately insured as is
customary in the industry for similar properties.
MAINTENANCE CRITERIA FOR NASDAQ SECURITIES; PENNY STOCK RISKS
The National Association of Securities Dealers, Inc., which administers
Nasdaq, recently made changes in the criteria for continued eligibility on
Nasdaq. In order to continue to be included on Nasdaq, the Company must maintain
$2 million in total assets, a $200,000 market value of its public float and $1
million in total capital and surplus. In addition, continued inclusion requires
two market-makers, at least 300 holders of the Common Stock and a minimum bid
price of the Common Stock of $1 per share; provided, however, that, if the
Common Stock falls below such minimum bid price, it will remain eligible for
continued inclusion on Nasdaq if the market value of the public float is at
least $1 million and the Company has $2 million in capital and surplus. The
Company's failure to meet these maintenance criteria in the future may result in
the discontinuance of the inclusion of its securities on Nasdaq. In such event,
trading, if any, in the securities may then continue to be conducted in the
non-Nasdaq over-the-counter market in less orderly markets commonly referred to
as the electronic bulletin board and the "pink sheets." As a result, an investor
may find it more difficult to dispose of or to obtain accurate quotations as to
the market value of the securities. In addition, the Company would be subject to
a rule promulgated by the Securities and Exchange Commission (the "Commission")
that, if the Company fails to meet criteria set forth in such rule, imposes
various sales practice requirements on broker-dealers who sell securities
governed by the rule to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
Company's securities, which may affect the ability of purchasers in the Offering
to sell the Company's securities in the secondary market.
If the Company fails to maintain its qualification for Common Stock to trade
on Nasdaq and is trading below $5.00 per share, the Common Stock will be subject
to the rules of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") relating to penny stocks. In that event, the Company's securities will be
subject to the disclosure rules for transactions involving penny stocks which
require broker-dealers, among other things, to (i) determine the suitability of
purchasers of the securities, and obtain the written consent of purchasers to
purchase such securities and (ii) disclose the best (inside) bid and offer
prices for such securities and the price at which the broker-dealers last
12
<PAGE>
purchased or sold the securities. The additional burdens imposed upon
broker-dealers may discourage them from effecting transactions in penny stocks,
which could reduce the liquidity of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
after the Offering could adversely affect the market price of the Common Stock.
Excluding the shares (and Representative warrants for 120,000 shares) issued in
the Offering and assuming all outstanding warrants, options and convertible
securities are exercised or converted into Common Stock, there will be 2,575,147
shares of Common Stock available for future sale. Of such shares, 553,571 shares
(from the conversion of the PP Notes (or such other number of shares issued upon
conversion) may not be sold for a period of 180 days following the date of
consummation of the Offering; 509,250 shares (from the conversion of the
Convertible Notes issued in connection with the Company's acquisition of the
limited partnership interests of ICGP and GCGP may not be issued and sold until
the date that is 13 months after the date of consummation of the Offering; and
1,233,284 shares which are owned by officers, directors or stockholders who own
5% or more of the outstanding Common Stock, and pursuant to an Underwriters'
lock-up, may not be sold for 13 months after the date of consummation of the
Offering.
In addition to the foregoing, in connection with the Offering, the Company
is adopting a stock option plan covering 250,000 shares of Common Stock, none of
which have been issued. Also, the Company issued warrants to purchase an
aggregate of 267,300 shares of Common Stock at an exercise price of $1.45 in
connection with the sale of the Redeemable Preferred Stock, all of which are
immediately exercisable. See "Management -- Stock Option Plan." All of the
Common Stock described above can only be issued if such stock is registered or
exempt from registration under the Securities Act. In addition, all such shares
will be "restricted shares" when issued unless registered under the Securities
Act.
POTENTIAL CONFLICT OF INTEREST
As disclosed in "Certain Transactions," the Company has, from time to time,
entered into various transactions with affiliates, including its President and
Executive Vice President, that may result in potential conflicts of interest.
See "Certain Transactions."
NO DIRECTOR PERSONAL LIABILITY
The Company's Articles of Incorporation provide that no Director shall be
personally liable to the stockholders for monetary damages for breach of
fiduciary duty as a Director, provided that the provision shall not apply (i)
for any breach of the Director's duty of loyalty, (ii) for acts or omissions not
in good faith or which involve misconduct or a knowing violation of law, (iii)
for certain acts specified in the Colorado statutes, or (iv) for any transaction
from which the Director derived an improper personal benefit.
13
<PAGE>
USE OF PROCEEDS
The net proceeds (the "Net Proceeds") to the Company from the sale of the
1,200,000 shares of Common Stock offered by the Company are estimated to be
approximately $7,110,000 ($8,244,000 if the Underwriters' Over-allotment Option
is fully exercised), based on an Offering price of $7.00 per share. The Company
expects to use the Net Proceeds as follows:.
<TABLE>
<CAPTION>
ANTICIPATED USE OF NET PROCEEDS AMOUNT PERCENTAGE
- ----------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Future Acquisitions and Working Capital...................................... $ 2,560,000 36%
Fremont Golf Center.......................................................... 500,000 7%
New York Golf Center......................................................... 500,000 7%
Limited Partnership Acquisitions:
ICGP....................................................................... 1,575,000 22%
GCGP....................................................................... 475,000 7%
Redemption of Redeemable Preferred Stock..................................... 1,500,000 21%
------------- ---
TOTAL.................................................................... $ 7,110,000 100%
</TABLE>
Pending their use as set forth above, the Company intends to invest the Net
Proceeds in short-term, investment grade, interest-bearing securities . The
described use of proceeds is based upon management's assumptions concerning
certain acquisition, development, financial and other matters which may affect
the Company in the future. If the development of the Company's business varies
materially from these assumptions, the Company may make changes in the proposed
location and size of its golf centers and may reallocate some proceeds in the
best interests of the Company. In the event that the Underwriters exercise the
Underwriters' Over-allotment Option, the Company will utilize any additional Net
Proceeds for future acquisitions and working capital.
DIVIDEND POLICY
The Company has not paid any dividends since its formation. The Company
intends to retain all future earnings for use in its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. This policy will be reviewed from time to time by the Company's Board of
Directors in light of, among other things, its results of operations and capital
requirements.
14
<PAGE>
DILUTION
The negative net tangible book value of the Company at June 30, 1996 was
$(1,696,210), or approximately $(1.38) per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets of the
Company, less total liabilities, divided by the number of shares of Common
Stock, warrants and certain rights outstanding. After giving effect to the sale
by the Company of shares of its Common Stock offered hereby and the application
of the Net Proceeds therefrom (including the redemption of all the outstanding
Redeemable Preferred Stock), the net tangible book value of the Company at June
30, 1996, after such adjustment would have been $5,599,240, or $2.30 per share
of Common Stock and warrants. This represents an immediate increase in net
tangible book value per share of $3.68 to current stockholders and an immediate
dilution in net tangible book value of $4.70 per share (or 67%) to investors in
the Offering at the assumed IPO Price of $7.00. The following illustrates this
dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 7.00
Net negative tangible book value before the Offering.............. $ (1.38)
Increase per share attributable to investors in the Offering...... 3.68
---------
Net tangible book value per share after the Offering................ $ 2.30
---------
---------
Dilution per share to investors in the Offering..................... $ 4.70
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1996, the difference in the
total consideration paid and the original price per share paid between current
shareholders and investors in the Offering with respect to the number of shares
of Common Stock purchased from the Company, assuming an IPO Price of $7.00 per
share.
<TABLE>
<CAPTION>
CONSIDERATION AVERAGE PRICE
SHARES OWNED PERCENT PAID PERCENT PER SHARE
--------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Current Stockholders......................... 1,233,284(1) 50.7% $ 273,012 3.0% $ 0.22
Investors in the Offering.................... 1,200,000 49.3% $ 8,400,000 97.0% $ 7.00
--------------- ----- ------------- -----
Total...................................... 2,433,284 100.0% $ 8,673,012 100.0%
--------------- ----- ------------- -----
--------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Includes all warrants (whether vested or unvested) issued to directors and
officers.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis at June 30, 1996, and as adjusted to give effect to the
Offering of 1,200,000 shares of Common Stock (assuming that the Underwriters'
Over-allotment Option is not exercised) at an assumed IPO Price of $7.00 per
share, net of underwriting discounts and estimated Offering expenses and the
application of the Net Proceeds. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996 PRO FORMA (1)
-------------- --------------
<S> <C> <C>
Long term debt, less current maturities................................. $ 13,586 $ 8,468,483
Investments in affiliates............................................... 6,318 -0 -
Minority interest in consolidated subsidiaries.......................... 21,773 487,014
-------------- --------------
Total long-term liabilities......................................... 41,677 8,955,497
Stockholders' equity
Preferred stock....................................................... 45,500 -0 -
Additional paid-in capital............................................ 940,609 -0 -
Common stock.......................................................... 146,830 7,256,830
Notes receivable, stockholder......................................... (166,324) (166,324)
Accumulated deficit................................................... (1,019,416) (1,518,723)
-------------- --------------
Total stockholders' equity (deficit)................................ (52,810) 5,571,783
-------------- --------------
Total long-term liabilities and stockholders' equity (deficit)...... $ (11,133) $ 14,527,280
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) The Pro Forma information of the Company gives effect to the proceeds from
the sale of Common Stock in the Offering, the acquisition by the Company of
the Fremont Golf Center pursuant to the purchase option agreement between
the parties, and the acquisitions of 90% of the limited partnership
interests in ICGP and GCGP and are based on the estimates and assumptions
set forth in the pro forma consolidated financial information headnote
(unaudited) and notes to pro forma consolidated financial statements
(unaudited) included elsewhere in this Prospectus.
16
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The historical selected consolidated financial information set forth below
has been derived from the Consolidated and Combined Financial Statements of the
Company for the respective periods presented and is qualified in its entirety
by, and should be read in conjunction with, the Consolidated and Combined
Financial Statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial and
statistical data included elsewhere in this Prospectus. Operating results for
the six months ended June 30, 1996 are not necessarily indicative of the results
that will be achieved for future periods, including for the entire year ending
on December 31, 1996. The pro forma selected consolidated financial information
set forth below for the Company gives effect to the interest expense associated
with the proceeds from the sale of the PP Notes and proceeds from the sale of
Common Stock in the Offering (but not including the shares issuable pursuant to
the Underwriters' Over-allotment Option), the acquisition by the Company of the
Fremont Golf Center, the acquisition of 90% of the limited partnership interests
in each of ICGP and GCGP, the $1,750,000 in proceeds from ICGP's long-term debt
and ICGP's $1,434,000 in property and equipment acquisitions, and are based on
the estimates and assumptions set forth herein. The unaudited pro forma
information has been prepared utilizing historical financial statements and
notes thereto, which are incorporated by reference herein. The unaudited pro
forma financial data does not purport to be indicative of the results which
actually would have been obtained had the purchase been effected on the dates
indicated or of the results which may be obtained in the future. The unaudited
pro forma financial statements should be read in conjunction with the historical
financial statements (including the notes to such financial statements) included
elsewhere in this Prospectus. The 1992 column reflects information from February
21, 1992 (date of inception) to December 31, 1992.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------------- -----------------------------------------------
INCEPTION TO
PRO FORMA ACTUAL PRO FORMA ACTUAL DECEMBER 31,
----------- ---------------------- ----------- ---------------------------------- -------------
1996 1996 1995 1995 1995 1994 1993 1992
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenues.......... $ 1,291,202 $ 99,275 $ 85,013 $ 3,657,593 $ 335,303 $ 291,237 $ 106,313 $ 76,250
Total operating
expenses............... 2,016,706 422,296 371,011 4,704,460 882,709 565,811 109,176 47,655
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
Operating loss.......... (725,504) (323,021) (285,998) (1,046,867) (547,406) (274,574) (2,863) 28,595
Other income (expense).. (694,372) (28,090) 9,669 (1,276,042) 35,122 13,630 88 (1,263)
Equity in loss of
affiliates............. -0 - (2,629) (877) (770) (309) (1,392) (1,010)
Minority interest in
income of consolidated
subsidiaries........... 63,328 (6,240) (4,662) 85,099 (19,058) (3,560)
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
Net loss................ $(1,356,548) $ (359,980) $ (281,868) $(2,237,810) $ (532,112) $ (264,813) $ (4,167) $ 26,322
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
Net loss applicable to
common stockholders.... $(1,356,548) $ (445,292) $ (354,389) $(2,237,810) $ (687,164) $ (315,490) $ (4,167) $ 26,322
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
Net loss per common
share.................. $ (.52) $ (.32) $ (.25) $ (.86) $ (.49) $ (.23) $ (0.00) $ .02
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
Weighted average common
and common equivalent
shares outstanding..... 2,595,701 1,395,701 1,395,701 2,595,701 1,395,701 1,395,701 1,395,701 1,395,701
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
----------- ---------- ---------- ----------- ---------- ---------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ---------------------------------------------
HISTORICAL PRO FORMA 1995 1994 1994 1992
---------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $1,313,841 $ 4,536,566 $ 324 $ 195,777 $ 41,590 $ 892
Working capital (deficit)............. (1,340,376) (754,262) (505,968) 179,422 (4,058) (392)
Total assets.......................... 2,698,529 19,986,607 979,679 812,725 206,388 8,218
Short-term debt....................... 1,803,771 2,988,581 290,253 43,910 4,296 20,000
Long-term debt........................ 13,586 8,468,483 23,151 26,287 21,595 0
Total stockholders' equity
(deficit)............................ (52,801) 5,571,783 100,961 489,066 19,084 (17,012)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements, and actual
results could differ materially from those projected in the forward-looking
statements, as well as those discussed in "Risk Factors" and elsewhere in this
Prospectus.
GENERAL BACKGROUND
On February 21, 1992, Mr. Tourtellotte incorporated and was the sole
stockholder of The Vintage Group USA, Ltd. On May 26, 1993, Mr. Tourtellotte
incorporated and was the sole stockholder of TVG (Illinois Center) Inc. ("IC").
On July 29, 1994, The Vintage Group USA, Ltd. changed its name to TVG (Virginia)
Inc. ("VA"). Simultaneously, Mr. Tourtellotte formed the Company under the name
of The Vintage Group (USA) Ltd. and contributed his common stock of VA and IC to
the Company in exchange for 100% of its outstanding common stock. The Company
recently changed its name to MetroGolf Incorporated. VA and IC were formed for
the purpose of holding the general partner interests in GCGP and ICGP. VA is the
general partner of GCGP. IC is the general partner of ICGP, which owns Illinois
Center Golf in downtown Chicago. See "Business -- Company Golf Centers."
OVERVIEW
The Company's strategy is to grow revenues and net income by increasing the
number of golf centers it owns, leases or manages by (i) identifying and
acquiring existing golf facilities that have the potential for revenue
enhancement through better management and improved or expanded facilities,
including the addition of enclosed hitting areas, full-line pro-shops and other
amenities, (ii) developing new golf centers in locations where suitable
acquisition opportunities are not available, and (iii) seeking to realize
economics of scale through centralized purchasing, accounting, management
information and cash management systems. Consistent with this strategy, the
Company believes it will acquire most, if not all, of the limited partnership
interests in ICGP and GCGP. In addition, The Company is actively pursuing
acquisition or development projects in major cities, including Atlanta, Denver,
Los Angeles, St. Louis, San Diego, San Francisco, Tampa and Toronto. The Company
currently has 13 properties under active review as candidates for acquisition
and has either entered into or is currently negotiating non-binding letters of
intent with respect to nine of these properties. Consummation of any acquisition
or development of these or any other future sites is subject to the satisfaction
of various conditions, including the satisfactory completion of due diligence by
the Company and the negotiation of definitive agreements. The Company's strategy
is to acquire up to three additional golf centers by the end of 1996 and to
acquire or develop five more centers by the end of 1997. As consideration for
any future acquisition or development, the Company may pay cash, incur
indebtedness or issue debt or equity securities. Such acquisitions or
developments could result in material changes in the Company's financial
condition and operating results; however, there can be no assurance as to the
occurrence of any of these acquisitions or developments or, if they occur, as to
the timing of the consummation of any acquisitions or developments.
RESULTS OF OPERATIONS
The Company derived its revenue from two major sources: development or
acquisition fees and management fees. Management fees are generated by three
subsidiaries of the Company: IC and VA, as managing general partners of ICGP and
GCGP, and MetroGolf Management, Inc. ("MGMI"), as property managers of Illinois
Center Golf, Goose Creek, Harborside Golf Center and Fremont Golf Center. The
Company initially used outside management companies to manage its golf centers.
In September 1995, the operations management subcontract for Illinois Center
Golf was terminated. In March 1996, the Company terminated the third-party
management company for Goose Creek. All Company properties are, and in the
future are expected to be, managed by MGMI.
18
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996, AS COMPARED TO SIX MONTHS ENDED JUNE 30,
1995
Total revenues, consisting solely of management fees, increased 15.7%, to
approximately $99,300 for the six months ended June 30, 1996, from approximately
$85,000 for the six months ended June 30, 1995.
Operating expenses increased 13.8% to $422,300 for the six months ended June
30, 1996, from $371,000 for the six months ended June 30, 1995. Officer salaries
increased to $269,752 in 1996 from $157,644 for the six months ended June 30,
1995 due to salary increases and the addition of two corporate officers. In
addition, other general and administrative expenses for the six months ended
June 30, 1996 decreased to $142,894 from $207,305 in 1995, due primarily to
decreases in legal and accounting fees associated with pursuing private
financing.
Depreciation expense remained relatively unchanged from 1995 to 1996
primarily because there was little change in depreciable assets from 1995 to
1996.
Interest expenses increased to $62,490 in 1996 from $10,371 in 1995
primarily due to placement of the $2,025,000 PP Notes in the second quarter of
1996. The Company expects the majority of the interest expense relating to the
PP Notes to be paid in stock, in accordance with the conversion terms of the PP
Notes.
Interest income increased to $34,400 in 1996 from $20,040 in 1995 as a
result of an increase in interest-bearing receivables of approximately $235,000.
TWELVE MONTHS ENDED DECEMBER 31, 1995, AS COMPARED TO DECEMBER 31, 1994
Total revenues for 1995 increased 15.1%, to approximately $335,000 from
approximately $291,000 for 1994. In 1995, the Company earned approximately
$190,000 from management fees, $120,000 from an acquisition fee and $25,000 from
consulting fees. In 1994, the Company earned approximately $160,000 from
management fees, $125,000 from development fees and $6,000 from consulting fees.
Each of these are discussed in more detail below.
VA, a wholly owned subsidiary, is the managing partner of GCGP, which is the
owner of Goose Creek. VA earns a fee of approximately $51,000 annually for
managing GCGP. The Company earned management fees of $51,000 for 1995, which
increased by 5% from the prior year in accordance with a contractual inflation
adjustment.
IC, an 89% owned subsidiary, is the managing general partner of ICGP, which
is the owner of Illinois Center Golf. IC earns a fee of approximately $60,000
annually for managing ICGP. The Company earned management fees of $60,000 for
1995 and $35,000 for 1994 as IC began earning its management fee beginning June
1, 1994.
MGMI, a 51% owned subsidiary during 1995 (now wholly owned), earned
management fees of approximately $79,000 and $76,000 in 1995 and 1994,
respectively, as the facility manager of Illinois Center Golf.
In 1995, the Company did not earn any development fees. In 1995, the Company
earned a fee of $120,000 for assigning its rights to purchase a golf course in
South Carolina. In addition, the Company earned a $25,000 fee in 1995 from the
purchaser of a promissory note held by the former owner of Goose Creek for
negotiating the purchase of the promissory note at a substantial discount. In
1994, the Company earned a development fee of $125,000 upon completion of the
Illinois Center Golf facility. Each of these sources of revenue are considered
nonrecurring.
Operating expenses increased to approximately $883,000 in 1995 from
approximately $566,000 in 1994. Although salaries decreased to $344,000 in 1995
from $374,000 in 1994, other general and administrative expenses increased to
$520,000 in 1995 from $181,000 in 1994. The primary reasons for the increase in
general and administrative expenses were an increase in legal and accounting
fees in 1995 associated with preparation of various securities offering
documents and the initial audit of the Company in 1995. In addition, the Company
paid a commission of $25,000 from the fees it earned
19
<PAGE>
for assigning its rights to purchase the South Carolina property and paid
subcontract property management fees of $45,000. These costs were not incurred
in 1994. The Company also leased new office space in September of 1994;
accordingly, rent expense is approximately $17,000 higher in 1995 than in 1994.
Depreciation expense increased to $19,000 in 1995 from $10,800 in 1994.
Interest income increased to $61,100 in 1995 from $15,500 in 1994 as a
result of interest-bearing loans to ICGP and GCGP, starting in September 1994
and November 1995, as well as interest-bearing loans to its sole Common Stock
holder.
Interest expense increased to $26,000 in 1995 from $1,800 in 1994, primarily
due to the Company's borrowings under its line of credit, which were primarily
used to make loans to ICGP and GCGP.
The equity in loss of affiliates represents the Company's proportional share
of the losses of ICGP and GCGP, which had larger losses in 1995 than in 1994.
TWELVE MONTHS ENDED DECEMBER 31, 1994, AS COMPARED TO DECEMBER 31, 1993
Total revenues for 1994 increased 174.5%, to approximately $291,000 from
approximately $106,000 for 1993. In 1994, the Company earned approximately
$160,000 from management fees from ICGP and GCGP, $125,000 from development fees
and $6,000 from consulting fees. In 1993, the Company earned approximately
$46,000 from management fees from GCGP and $60,000 from consulting fees.
Overall, operating expenses were $566,000 in 1994, as compared to $109,000
in 1993. The primary reason for the increase in 1994 is that the Company was
managing only one property in 1993. In 1994, the Company expanded operations,
added additional staff and leased new office space. Commencing January 1, 1994,
the President of the Company began earning a monthly salary of $15,000. In 1993,
nominal officer's compensation was paid.
Depreciation expense increased to $10,800 in 1994 from $5,000 in 1993 due to
the additions of depreciable assets in late 1993 and 1994.
Interest income increased to $15,000 in 1994 from $3,000 in 1993 as a result
of loans to ICGP starting in September 1994.
Interest expense decreased slightly to $1,800 in 1994 from $3,000 in 1993.
The change was due to a reduction in the amount of interest-bearing principal on
outstanding indebtedness in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficit of approximately
$1,340,376, as compared to a working capital deficit of $506,000 at December 31,
1995. The increase in working capital deficit is due to increases in accounts
payable and accrued salaries resulting from continued losses from operations,
costs associated with the placement of the PP Notes (including issue discount on
such PP Notes deemed for accounting purposes) and negative cash flow.
The cash used in operating activities increased to $221,689 in 1995 from
$103,585 in 1994. The primary reason for the increase has been the increase in
the net loss to $532,100 in 1995 from $264,800 in 1994. Cash raised in debt and
equity financing in 1994 and 1995 was primarily used to fund operating losses
and advances to related parties. In addition, the Company used accounts payable
as a source of financing. Trade accounts payable increased $104,000 in 1994 and
$260,000 in 1995. Because of reduced cash flows, officers of the Company were
not paid all of their salaries due them in 1994 and 1995.
For the six months ended June 30, 1996, the Company had net cash provided by
operations, despite a net loss of $360,000. The net cash provided by operations
was the result of an increase in
20
<PAGE>
accounts payable and accrued salaries of $349,600 from December 31, 1995 to June
30, 1996. In addition, the Company received $44,000 in management fees during
the six months ended June 30, 1996 which had been accrued for in prior periods.
Since its inception, the Company has been funded primarily through loans,
capital contributions and the sale of preferred stock. In May 1996, the Company
successfully completed the sale of $2,025,000 of PP Notes, resulting in net
proceeds of approximately $1,792,000. Some of the proceeds from the PP Notes
were used to pay off the Company's line of credit. After this payment, the
Company's primary liabilities are accounts payable and accrued salaries. With
the recent and expected future increased activities of the Company, the Company
expects certain operating expenses, such as office rent and salaries, to
increase. The working capital provided from the sale of the PP Notes, in the
opinion of management, is sufficient to fund the Company's day-to-day operations
through the end of 1996.
The Company is dependent upon the completion of the Offering to help fund
future acquisitions and developments, provide financing for the development of
the Fremont Golf Center and the New York Golf Center and for the acquisition of
the limited partnership interests in ICGP and GCGP. The Company's expected
capital requirements for project acquisition, development and expansion are
estimated at approximately $8,500,000. The Company has been granted the
exclusive right to negotiate an agreement to develop an adjacent 35-acre tract
of land owned by the City of Fremont into a 9-hole executive-length golf course
with expanded practice facilities and significantly improved clubhouse
amenities. This grant expires on September 30, 1996 unless mutually extended.
The Company expects to commence construction of the 9-hole executive-length golf
course and begin modifications to the existing facility in the fall of 1996,
with the completion of the golf center scheduled for the summer of 1997. The
total acquisition and proposed development budget is approximately $3,200,000.
Of such amount, $650,000 was paid utilizing the proceeds from the sale of the PP
Notes, and a $700,000 note was given to the seller of the leasehold interest.
The Company expects to utilize approximately $500,000 of the Net Proceeds,
together with debt from a prospective lender from whom the Company has received
a non-binding lending proposal for $2,000,000 or another bank or private lender,
to fund such development. The total expected cost of the New York Golf Center is
expected to be approximately $6,000,000. The Company expects to utilize
approximately $500,000 of the Net Proceeds, together with other undetermined
debt or equity financing from banks and institutional or private lenders to fund
such amount.
Upon completion of the Offering, the Company believes that a substantial
portion of the PP Notes will be converted to equity because the PP Notes are
convertible simultaneously with the closing of the Offering at 50% of the IPO
Price. If the Offering is not consummated or if the PP Notes are not converted
to equity, then the Company may not have sufficient working capital to complete
the development of the Fremont Golf Center, the development of the New York Golf
Center and repayment of the PP Notes when they come due in June 1997. See "Risk
Factors -- Use of Leverage."
ICGP had a net loss of approximately $1,110,000 in 1994, $535,000 in 1995
and had a net loss of $471,200 for the six months ended June 30, 1996. The net
loss for 1996 is not necessarily indicative of the results of operations
expected for 1996 because much of Illinois Center Golf's business is seasonal,
with most of its revenue generated during the period May 1 to October 1.
Illinois Center Golf, which was not completed until July of 1994, has increased
its revenue to $1.55 million in 1995 from $745,000 in 1994, and the Company
expects an increase in revenues in 1996 over 1995. Illinois Center Golf had
working capital deficits at June 30, 1996, December 31, 1995 and 1994. As of
June 30, the Company has funded losses of Illinois Center Golf of approximately
$500,000 and expects to fund additional losses through 1996.
GCGP had net losses from operations of approximately $28,000 in 1994,
$76,000 in 1995, and $262,000 for the six months ended June 30, 1996. In their
report dated May 17, 1996, included herein, BDO, independent certified public
accountants for GCGP, expressed "substantial doubts" about GCGP's ability to
continue as a going concern. BDO has informed the Company that, upon the closing
21
<PAGE>
of the Offering and the simultaneous acquisition by the Company of approximately
90% of the limited partnership interests in GCGP, their report with respect to
the audited financial statements of GCGP would no longer contain a "going
concern" paragraph. As with Illinois Center Golf, the net loss of Goose Creek
for the six months ended June 30, 1996 is not necessarily indicative of the
results of operations expected for 1996 as Goose Creek business is also
seasonal, with a substantial portion of their business between April 1 and
October 31. Goose Creek is a more mature golf course which generated revenues of
approximately $1.4 million in 1993, $1.7 million in 1994 and $1.5 million in
1995.
The Company has taken over management of both Goose Creek and Illinois
Center Golf on October 1, 1995 and April 1, 1996, respectively. Prior to this
time, an independent golf management company managed each facility. In addition
to generating revenues from these management activities, the Company believes it
will be able to better evaluate daily changes in operation and react in a more
timely basis if needed.
At June 30, 1996, the Company had a deferred tax asset of $189,000 that was
fully reserved to reflect management's evaluation that it is more likely than
not that all of the deferred tax asset will not be realized.
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets" and SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reported at the lower of the carrying amounts or their estimated
recoverable amounts, and the adoption of this statement by the Company is not
expected to have an impact on the financial statements. SFAS No. 123 encourages
the accounting for stock-based employee compensation programs to be reported
within the financial statements on a fair value based method. If the fair value
based method is not adopted, then the statement requires pro forma disclosure of
net income and earnings per share as if the fair value based method has been
adopted. The Company has not yet determined in what form SFAS No. 123 will be
adopted or its impact on the financial statements. Both statements are effective
for fiscal years beginning after December 15, 1995.
EFFECT OF CERTAIN FINANCINGS AND PROPOSED ACQUISITIONS
The accompanying unaudited pro forma financial statements of the Company,
give effect to (i) the proceeds from the sale of $2,025,000 PP Notes, (ii)
proceeds from the sale of Common Stock in the Offering, (iii) the acquisition by
the Company of the Fremont Golf Center, and (iv) the acquisitions of 90% of the
limited partnership interests in ICGP and GCGP. These transactions adversely
effect pro forma net income for the Company primarily due to the pro forma
interest expense relating to the PP Notes issued in connection with the Private
Placement, the acquisition of the limited partnership interests, and the Fremont
Golf Center acquisition, as well as the pro forma depreciation associated with
the acquisition of the limited partnership interests and the Fremont Golf
Center. Total pro forma interest for 1995 related to these transactions was
$430,110 for the year ended December 31, 1995 and $242,989 for the six months
ended June 30, 1996. In addition, the three proposed acquisitions reflect net
losses for both the year ended December 31, 1995 and the six months ended June
30, 1996, which adversely effect the Company's historical earnings. On a pro
forma basis, as adjusted to give effect to these transactions as if they had
occurred as of January 1, 1995, the Company reported total revenue of
approximately $3,600,000 and a net loss of approximately $1,900,000, compared
with total revenue of $335,303 and a net loss of $532,112 on a historical basis
for the year ended December 31, 1995. In addition, the total revenue is
$1,291,202 and net loss is $1,349,705 on a pro forma basis, compared with total
revenue of $99,275 and net loss of $359,980 on a historical basis for the six
months ended June 30, 1996. In the case of ICGP, the Company believes future
earnings will substantially improve as a result of the maturity of this new
operation. In the case of GCGP and Fremont, the Company believes it will enhance
revenues at these facilities by completing capital improvements, enhancing the
facilities and increasing and refocusing marketing efforts for these projects.
In addition, the Company believes it can improve cash flows and reduce expenses
by economies of scale achieved
22
<PAGE>
through centralized purchasing, accounting, management information systems and
cash management. There can be no assurance, however, that the Company will be
able to improve the performance of newly acquired facilities.
SEASONALITY
Historically, the second and third quarters have accounted for a greater
portion of the Company's operating income than have the first and fourth
quarters of the year. This is primarily due to an outdoor playing season limited
by inclement weather. Although most of the Company's facilities are designed to
be all-weather, portions of the facilities tend to be vulnerable to weather
conditions. Also, golfers are less inclined to practice when weather conditions
limit their ability to play golf on outdoor courses. This seasonal pattern, as
well as the timing of new golf facility acquisitions, developments and openings,
may cause the Company's results of operations to vary significantly from quarter
to quarter. Accordingly, period-to-period comparisons are not necessarily
meaningful and should not be relied on as indicative of future results.
TRENDS
The Company plans to acquire or develop additional golf centers. As such
additional golf centers are acquired or developed, total revenue should continue
to increase. In addition, the Company believes that, as its current golf centers
mature, revenues and operating income from such centers should increase due to
customer awareness, programs marketing the golf centers to various special
interest groups, expanded ties to local businesses and golfing communities and
marketing programs developed by the Company. Such increases may be partially
offset by initial losses from pre-opening costs (and initial operating losses)
associated with new golf centers. The Company's interest expense will likely
increase as a result of increased borrowings to fund new golf center development
but will decrease with the expected conversion of the PP Notes.
PARTNERSHIP ACQUISITIONS
On May 31, 1996, the Company commenced an offer (the "Offer to Purchase") to
the limited partners of ICGP and GCGP to purchase their limited partnership
interests for a combination of cash and Convertible Notes. Such Offer to
Purchase will terminate simultaneously with the consummation of the Offering.
The acquisitions are contingent upon the closing of the Offering. Limited
partners who elect not to exchange their interests will remain limited partners
in the Partnerships. Under the Offer to Purchase, (i) each limited partner of
ICGP who elects to sell will receive for each $50,000 limited partnership
interest, at such holder's option, either (a) $25,000 cash and a $25,000
Convertible Note or (b) a $50,000 Convertible Note and (ii) each limited partner
of GCGP who elects to sell will receive for each $25,000 limited partnership
interest, at such holder's option, either (a) $12,500 in cash and a $26,500
Convertible Note, or (b) a $39,000 Convertible Note. Each limited partner in
GCGP who does not qualify as an "accredited investor" under Regulation D under
the Securities Act has been offered $39,000 cash for each $25,000 of limited
partnership interest. Each limited partner in ICGP who does not qualify as an
"accredited investor" has been offered $50,000 cash for each $50,000 of limited
partnership interest. Each Convertible Note will bear interest at 6% per annum;
interest only will be payable for 24 months from issuance of the Convertible
Notes. Thereafter, interest will continue to be paid semi-annually and principal
will be amortized evenly over the remaining seven years until maturity. Each
Convertible Note will be convertible at the holder's option into Common Stock at
any time after the date that is 13 months after the closing of the Offering at a
conversion price equal to the IPO Price. In addition, each $25,000 Convertible
Note issued to the limited partners of ICGP will convert into a five-year
warrant to purchase 2,500 shares of Common Stock at an exercise price equal to
120% of the IPO Price.
Assuming that 90% of the limited partners of ICGP and GCGP accept the Offer
to Purchase, the Company would pay an aggregate of $4,515,000 to acquire the
limited partnership interests, of which amount the Company expects $2,462,250
will be in the form of Convertible Notes and $2,052,750 will be in cash. In
addition, the Company will issue five-year warrants to purchase 157,500 shares
of
23
<PAGE>
Common Stock in connection with the acquisition of the limited partnership
interests in ICGP. These amounts will be based on independent appraisals of the
fair market value of the assets of ICGP and GCGP expected to be $5,900,000 and
$5,425,000, respectively. The Company has agreed to file and use its best
efforts to cause to become effective, and cause to remain effective for one
year, a registration statement covering the Common Stock into which the
Convertible Notes may be converted. Limited partners who elect to sell will
retain the same golfing privileges as they currently hold and may also receive
golfing privileges at other Company-owned facilities for as long as the Company
owns or leases such facilities.
24
<PAGE>
BUSINESS
GENERAL
MetroGolf Incorporated acquires, develops and operates golf centers designed
to provide a wide variety of practice and play opportunities in major
metropolitan areas. The Company's centers are located in areas with high
concentrations of office, urban residential and hotel development that are
convenient to time-constrained golfers. The Company's golf centers typically
offer: practice facilities; instructional programs such as the David Leadbetter
Golf Academy at Illinois Center Golf; a full-line pro shop; restaurant, bar and
catering facilities; group meeting areas; and, in some cases, par-3 or
executive-length (shorter than a regulation-length course) golf courses. The
Company's golf centers are designed around a driving range with target greens,
bunkers and traps to simulate actual golf course conditions. The Company's
driving ranges, which typically include substantially more hitting stations than
the industry average, are lighted to permit night play and are enclosed or
sheltered in a climate-controlled environment.
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to accomplish this goal
principally by acquiring existing golf facilities that have the potential for
revenue enhancement through expansion of facilities, more efficient management
and innovative marketing strategies. The Company intends to develop new golf
centers in attractive markets where existing facilities are not suitable for
acquisition. The Company has capitalized on the national media and industry
recognition of its flagship development, Illinois Center Golf, and has built a
substantial pipeline of attractive projects for acquisition and development. In
addition to Illinois Center Golf, the Company currently operates Goose Creek,
Fremont Golf Center and Harborside Golf Center. Based on written acceptances of
the Offer to Purchase, the Company believes that, simultaneously with the
closing of the Offering, it will acquire most, if not all, of the limited
partnership interests in each of ICGP and GCGP for a combination of cash and
convertible notes. See "Partnership Acquisitions."
Consistent with its business strategy of increasing ownership and operation
of golf centers, on July 1, 1996, the Company purchased the leasehold interest
on the Fremont Golf Center. Also, on July 1, 1996, the Company entered into a
sublease, with an option to purchase, for the Harborside Golf Center. The
Company is also developing the New York Golf Center. In addition, the Company is
actively pursuing acquisition or development projects in major cities, including
Atlanta, Denver, Los Angeles, St. Louis, San Diego, San Francisco, Tampa and
Toronto. The Company currently has 13 properties under active review as
candidates for acquisition and has either entered into or is currently
negotiating non-binding letters of intent with respect to nine of these
properties. Eight of those nine properties are located in or near a major
metropolitan area in the Western United States, and the remaining property is
located in a major metropolitan area in the Midwestern United States. Each of
the nine properties contains a driving range, pro shop and food and beverage
facility. In some cases, the property has either a golf course or adjacent land
available for expansion or development of additional golf facilities.
Consummation of any acquisition or development of these or any other future
sites is subject to the satisfaction of various conditions, including the
satisfactory completion of due diligence by the Company and the negotiation of
definitive agreements. The Company's strategy is to acquire up to three
additional golf centers by the end of 1996 and to acquire or develop five more
centers by the end of 1997. As consideration for any future acquisition or
development, the Company may pay cash, incur indebtedness or issue debt or
equity securities. Such acquisitions or developments could result in material
changes in the Company's financial condition and operating results; however,
there can be no assurance as to the occurrence of any of these acquisitions or
developments or, if they occur, as to the timing of the consummation of any
acquisitions or developments.
INDUSTRY OVERVIEW
According to the NGF, there were over 24 million golfers in the United
States in 1995. The average age of the golf driving range user was 37.1 years
old, with an average household income of $55,700 per year. Those with household
income in excess of $75,000 (approximately 35% of all stand-
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alone range users) were the most likely to visit a stand-alone range, visiting
3.7 times more frequently than those with household income of less than $30,000
(19% of all stand-alone range users) and 1.5 times more frequently than those
with household incomes between $30,000 and $75,000 (46% of all stand-alone range
users).
The Company estimates that there are currently between 1,900 and 2,300
stand-alone driving ranges in the United States and that the average number of
tee stations per range in the industry in 1993 was 40, with 50% of all
stand-alone ranges offering 35 or fewer tee stations. Large stand-alone ranges,
defined as ranges with more than 50 tee stations, accounted for approximately
21% of all facilities. The stand-alone range industry is highly fragmented. The
Company estimates that in 1995 over 90% of stand-alone ranges were managed by
independent owner-operators. The Company believes that many of these
owner-operated ranges are managed by individuals who may lack the experience,
expertise and financial resources to compete effectively in a consolidating
industry.
Driving ranges and golf practice and learning centers, have experienced
significant growth in recent years. Golf practice and learning centers usually
consist of a driving range with a minimum of 50 tee stations (often covered and
heated in areas of colder climates), complete practice areas, including putting,
chipping and sand bunker areas and maintenance facilities. Indoor video and
other instructional analysis, in conjunction with a national golf academy or
other golf school, food and beverage services and golf equipment retail
operations, have become increasingly popular at these facilities. Occasionally,
such facilities are combined with or incorporated into the full-length or
executive course facility types.
The ownership and operation of golf courses, driving ranges and other golf
facilities in the United States is highly fragmented, with very few companies
owning or operating substantial portfolios of golf facilities. Over the last 10
years, however, there has been an accelerating trend towards consolidation of
ownership and management of 18-hole golf courses. What had been an industry
characterized by fragmentation of ownership and management is becoming
increasingly concentrated. The ownership and operation of driving ranges and
golf practice and learning centers in the United States, however, remains
fragmented, with very few companies owning or operating substantial golf
facility portfolios. The Company believes that there are very few companies who
currently own and operate more than one or two golf practice and learning
centers and only one that owns and operates more than ten golf practice and
learning centers in the United States.
BUSINESS STRATEGY
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to acquire existing
golf projects that have the potential for revenue enhancement through expansion
of facilities, more efficient management and innovative marketing strategies.
The Company intends to develop new golf centers in attractive markets where
existing facilities are not suitable for acquisition. The Company's golf centers
are designed around a driving range with target greens, bunkers and traps to
simulate actual golf course conditions. The Company's driving ranges, which
typically include substantially more hitting stations than the industry average,
are lighted to permit night play and are enclosed or sheltered in a
climate-controlled environment. The Company has capitalized on the national
recognition of its flagship development, Illinois Center Golf, a golf center and
par-3 golf course in downtown Chicago, and has built a substantial pipeline of
attractive projects for acquisition and development. The Company intends to
incorporate Illinois Center Golf's features into its renovation of existing golf
facilities and development of new golf centers. See "Risk Factors -- Risks of
Governmental Regulation" and "-- Environmental Matters."
ACQUISITION OF EXISTING GOLF FACILITIES. The Company believes the ownership
and operation of driving ranges and other golf facilities is highly fragmented
and presents numerous opportunities for it to acquire, upgrade and renovate golf
centers and driving ranges. The Company's acquisition strategy is to target
well-located, stand-alone ranges or golf centers in major metropolitan areas,
some of which may be underperforming. The Company will either purchase the land
and facilities or enter
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into long-term leases for each project. In determining which facilities may be
suitable acquisition candidates, management principally considers potential for
improvement in revenue and operating cash flow through capital improvements and
efficiencies in management. Capital improvements may include increasing the
number of tee stations, sheltering the hitting stations or enclosing the driving
range, installing lights to permit night play, adding or expanding pro shop and
clubhouse facilities and constructing other amenities to encourage corporate,
executive and business and leisure traveler participation.
DEVELOPMENTS OF NEW GOLF CENTERS. In desirable locations where suitable
acquisition opportunities are not available, the Company intends to construct
new facilities, often as an interim use for valuable urban real estate under
long-term leases. Such golf centers, typically modeled after Illinois Center
Golf, will be designed to provide a mix of features uniquely focused on the
demographics and other characteristics of the specific market area. The Company
s golf centers typically include: instructional programs such as the David
Leadbetter Golf Academy at Illinois Center Golf; enclosed heated hitting areas;,
putting, sand bunker and chipping practice areas; full-line pro shop;
restaurant, bar and catering facilities; group meeting areas; and, in some
cases, par-3 or executive-length golf courses.
ECONOMIES OF SCALE. The Company believes that, in the course of its
acquisition and development activities, it will realize efficiencies of
management, purchasing and marketing unavailable to independent owner-operators
who manage the vast majority of stand-alone golf facilities. It will also spread
corporate overhead costs, including accounting, insurance, cash management,
strategic marketing and financial reporting functions, over multiple facilities.
MARKETING STRATEGY. The Company believes it will achieve high margins from
strong demand and high utilization rates for golf practice and learning
facilities located in areas with few or nonexistent locally available
alternatives. It will accomplish this by providing a unique recreational
facility that is user-friendly for the novice and intermediate golfer; by
including internationally recognized golf instruction programs such as the David
Leadbetter Golf Academy at Illinois Center Golf for golf instruction; by
designing facilities that provide unique venues for corporate and business
outings, meetings and other special events; and by offering opportunities for
major corporate sponsorship and advertising.
METROPOLITAN GOLF CENTERS
Metropolitan golf centers have several attractive characteristics,
including: (i) ease of access for time-constrained metropolitan area residents
and local businesspersons in under-served markets; (ii) corporate entertainment
facilities and unique membership and entertainment opportunities for local and
national businesses; (iii) special appeal to women, beginning golfers and
high-handicap golfers because of the learning center and the shorter length golf
course; and (iv) availability of unique, outdoor recreation amenities for the
business and leisure traveler patronizing nearby hotels.
GOLF ACCESS TO UNDER-SERVED MARKET. Many major metropolitan areas lack
sufficient golf facilities to meet the increasing demand for tee times. Golfers
in densely populated areas frequently must drive long distances to play or
practice golf. In addition, the busy professional may lack sufficient time for
recreational activities. By locating a multi-use golf facility close to the
user's home or job in metropolitan residential or business districts, the
Company provides a convenience for the metropolitan golfer. By offering
opportunities to play and practice golf requiring only one to two hours,
including travel time, the Company allows the golfer more frequent outings and
meets the needs of a larger constituency. The metropolitan golf center is not
designed to replace the suburban country club or daily fee course, but rather to
supplement regular rounds and offer a high-quality practice medium.
CORPORATE ENTERTAINMENT CENTER. As corporate entertainment facilities,
metropolitan golf centers offer unique venues with easy access for client
entertainment and employee benefit functions. As highly visible outdoor
recreation facilities, metropolitan golf centers provide unique and attractive
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advertising and sponsorship opportunities. Each metropolitan golf center has
staff members dedicated to corporate membership, group outings and consumer
products sponsorship sales. The presence of a par-3 or executive-length golf
course in many facilities allows the Company to offer an enhanced opportunity to
increase sales of both individual and corporate memberships, host group outings
and sponsor special events.
PREFERABLE FACILITY FOR WOMEN AND HIGH-HANDICAP GOLFERS. Women tend to be
consumers of golf lessons, specialized golf equipment and golf apparel. The
highly developed learning and practice facilities and upscale retail
merchandising of the Company s metropolitan golf centers cater to these demands.
The executive-length or par-3 golf course holds specific appeal for women. High
handicap golfers are also drawn to the shorter courses as a lower cost
alternative and as a means to improve their golf game before playing a
full-length course.
TRAVELERS' AMENITY. Metropolitan golf centers offer hotels an outdoor
recreational product for their guests. Both business and leisure travelers may
take advantage of the proximity of the center to their hotel and of special
packages that may be offered to hotel guests. Hotels may be interested in block
purchases and may pay sponsorship fees to the metropolitan golf center, thereby
increasing the visibility of both the hotel and the golf facility.
OPERATIONAL STRUCTURE
Generally, the Company's golf centers are open seven days per week. The
Company's revenues are derived from the sale of greens fees, range balls, pro
shop merchandise (golf clubs, balls, bags, gloves, videos, apparel and related
accessories) and food and beverages and a portion of the revenue generated by
instructional programs. Golf facilities in general have seasonal attendance due
to outdoor facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
An on-site general manager of each center has overall administrative
responsibility for his or her center's day-to-day operation including, as
applicable, the driving range, golf course, instructional program, short-game
practice area, pro shop, restaurant, bar, as well as the condition of the
facilities. In addition, each general manager works with the Company's Chief
Financial Officer to prepare monthly and annual budgets and marketing plans.
The Company emphasizes recruiting and training skilled personnel. The
Company seeks general managers with broad and extensive business and management
skills, preferably from service and hospitality industries. General managers, as
well as other management personnel, are provided performance incentive bonuses.
The Company encourages each general manager to emphasize customer service at his
or her center. Employees undergo comprehensive training and are required to be
courteous, wear standardized clothing and display a professional attitude.
The Company also emphasizes the availability of high-quality, all-level golf
instruction at its golf centers. Currently, the Company has an agreement with
the internationally recognized David Leadbetter Golf Academy for instruction at
Illinois Center Golf. The Company is currently in discussions with the David
Leadbetter Golf Academy about operating the instruction program at other Company
golf facilities and expects to expand its relationship with the David Leadbetter
Golf Academy to many of the Company's golf centers.
By virtue of operating a number of golf centers, the Company believes it
achieves economies of scale not available to independent owner-operators.
Typically, the Company can acquire artificial turf, range balls, pro shop
merchandise and other golf center supplies and equipment at lower prices than
any individual owner-operator. The Company can also purchase insurance coverage
at a lower premium rate than would be charged for an individual golf center. The
Company's policies relating to personnel, labor, cash management and budgets are
formulated at the corporate level and required to be observed by each of the
Company's golf centers. The Company's accounting, legal, insurance and finance
functions and management information systems are also centralized, which enables
personnel at each golf center to focus solely on operational matters related to
the particular golf center.
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The Company advertises in newspapers and on radio and cable television and
uses direct mailings and other promotions, including sponsoring certain
charitable events and contests and giving free clinics and equipment
demonstrations, to increase public awareness of its golf centers. Each golf
center employs sales and marketing employees who coordinate advertising and
solicit group events and memberships. The compensation of sales and marketing
employees is predominantly incentive based. Pursuant to the Golf Academy
Agreement, David Leadbetter Golf Academy is required to market and promote the
Illinois Center Golf academy.
COMPANY GOLF CENTERS
<TABLE>
<CAPTION>
NO. OF DATE
TYPE OF HITTING OWNED OR OPENED OR
LOCATION OF FACILITY FACILITY NAME FACILITY TEES LEASED ACQUIRED
- -------------------------------- ---------------------------- --------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Chicago, IL Illinois Center Golf MetroGolf Center 92 Leased July 1994
Fremont, CA Fremont Golf Center MetroGolf Center 36 Leased July 1996
San Diego, CA Harborside Golf Center MetroGolf Center 80 Leased July 1996
Leesburg, VA Goose Creek 18-hole Course -- Owned June 1992
</TABLE>
ILLINOIS CENTER GOLF. Illinois Center Golf opened in July 1994 on an
approximately 23-acre parcel in downtown Chicago. This golf center features a
9-hole, par-3 golf course; a year-round, lighted, 92-stall driving range; and a
complete, full-service clubhouse and learning center. Illinois Center Golf is
located in the heart of Chicago's financial district adjacent to the Chicago
Loop and is designed to attract business people, travelers and residents in the
immediate and surrounding downtown area. There are more than 4,000 hotel rooms,
3,500 residences, and nine million square feet of Class A office space located
within two blocks of the facility. The Hyatt, Sheraton, Fairmont and Swissotel
hotels are located within one block of Illinois Golf Center and contribute over
1,000,000 room nights per year to the site area. In the immediate vicinity,
there are over 12,000 residents with mean household incomes in excess of
$70,000. In addition, over 650,000 people are employed within a 12-block radius
of the site.
The 9-hole, par-3 course was designed by Dye Designs International, Inc.
("Dye Designs") and features many of the trademark elements that characterize
Dye Designs courses. In particular, the 9th hole features an island green which
challenges the best golfers. Each hole has oversized tee boxes to facilitate tee
maintenance and offer frequent players varied approaches to each green. The
350-yard, double-ended driving range has a choice of grass or astroturf at
either end (with a portion covered and heated for winter use) and target
fairways and elevated greens at various distances. The clubhouse serves as the
focal point and includes restaurant, bar and catering facilities, a full-line
pro shop and a state-of-the-art teaching center featuring a David Leadbetter
Golf Academy with its internationally recognized teaching programs.
Illinois Center Golf generated approximately $1.6 million of revenue in its
first full year of operations (1995). Over 270 individual memberships have been
sold (generating both initiation fees and recurring monthly fees), and both the
course and driving range have received significant public usage. Corporate
membership sales at all levels reflect high interest from the business
community. Corporate and consumer product sponsorship interest has been strong,
with several sponsorship programs, including an agreement with Pepsico, Inc.,
having been sold. Additionally, arrangements have been made with local hotels,
including Swissotel, for block purchases of tee times, range usage and other
events. Illinois Center Golf has been featured on the TODAY SHOW, CNN and 25
local and syndicated television programs and has appeared in SPORTS ILLUSTRATED
and 180 trade publications and daily newspapers (including THE WALL STREET
JOURNAL and THE NEW YORK TIMES). The extensive media coverage of the Company's
Chicago operation attests to the innovative nature of its new metropolitan golf
centers and to the high level of public interest in metropolitan golf and
indicates the significant market potential for such facilities.
Illinois Center Golf is located on a property which is leased for 15 years,
terminating in 2009. The lease may be extended by mutual agreement between the
lessor and lessee. The lease may be terminated by the lessor under certain
conditions. If the lease is terminated prior to the end of the 15-year
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period, the lessor must pay the lessee a termination fee of up to $4.4 million,
reduced by net earnings from the facility. See "Risk Factors -- Risks of
Termination of Illinois Center Golf Lease." Illinois Center Golf was financed
through a $3.5 million private placement of limited partnership units in ICGP.
The Company is the owner of 89% of the common stock of IC which is the sole
general partner of ICGP, the holder of the ground sublease of the Illinois
Center Golf facility. Upon consummation of the Offering, the Company expects to
acquire approximately 90% of the limited partnership interests in ICGP. See
"Partnership Acquisitions."
FREMONT GOLF CENTER. On July 1, 1996, the Company purchased the leasehold
interest on an existing driving range and learning center facility in Fremont,
California for $1,350,000 (plus acquisition costs of approximately $78,000). The
existing golf facility consists of a 35-tee station driving range, two practice
putting greens, a clubhouse and a maintenance area on approximately 15 acres of
land. The current clubhouse includes a grill room and bar area not currently in
operation. The driving range has both natural and artificial tee areas and
lights for nighttime use.
In addition, the Company has been granted the exclusive right to negotiate
an agreement to develop an adjacent 35-acre tract of land owned by the City of
Fremont into a 9-hole executive-length golf course with expanded practice
facilities and significantly improved clubhouse amenities. This grant expires on
September 30, 1996 unless mutually extended. The Company expects to commence
construction of the 9-hole executive-length golf course and begin modifications
to the existing facility in the fall of 1996, with the completion of the golf
center scheduled for the summer of 1997. The total acquisition (including the
driving range and learning center) and proposed development budget is
approximately $3.5 million.
The new Fremont Golf Center is planned to include an expanded, 80-station
tee area, practice putting green, chipping and short game practice and sand
bunker areas. Plans call for the clubhouse to be redesigned and enhanced to
include a full-line pro shop, locker rooms and bar area and grill room with an
outdoor patio. A corporate entertainment and group event area will be located
adjacent to the patio. The 9-hole executive-length golf course is to be designed
by Dye Designs and will have many of the trademark elements that characterize
Dye Designs golf courses.
The Fremont Golf Center site is an urban, in-fill site in the east San
Francisco Bay area, located between Oakland and San Jose in the heart of the
Silicon Valley. An estimated two million people live and work in the east Bay
area. The site is adjacent to Fremont s Central Park, which serves as a regional
park for the east Bay area and frequently experiences weekend crowds in excess
of 50,000 people. The site provides a significant opportunity because of the
limited availability of golfing options in the Fremont area. The Company
believes, based on its market research in the area, that there is significant
undercapacity of golf facilities in the area.
The purchase agreement for the Fremont Golf Center provideds for payment of
$650,000 in cash, and $700,000 payable by a promissory note accruing interest at
a rate of 9% per annum, with all interest and principal payable in full on
November 15, 1996. The note is secured by a first deed of trust encumbering the
leasehold. The Company intends to retire the note as soon as possible upon
funding of permanent debt financing for the facility. The development budget for
the new 9-hole executive-length golf course, and modifications to the existing
facility, is anticipated to be approximately $2 million over a one-year
development period. The Company intends to fund the development through a
combination of equity, expected to be provided by the proceeds of the Offering,
and debt, expected to be provided by a commercial bank, specialized golf lending
institution or private lender.
HARBORSIDE GOLF CENTER. On July 1, 1996, the Company entered into a
sublease, with an option to purchase, for the Harborside Golf Center located in
downtown San Diego, California. The golf center is located on a 4.63 acre site
of land in close proximity to the San Diego Convention Center and International
Airport and is adjacent to major hotels, restaurants and approximately eight
million square feet of commercial office space. The facility includes a driving
range which has 80 tee stations, double-tiered and double-ended. There are 20
additional grass practice tees, a putting green, chipping
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green and sand bunker area. Multiple target greens and sand traps are located on
the driving range. The clubhouse covers approximately 10,000 square feet and
includes a pro shop, a sports bar/cafe, computerized video swing analysis and a
full-swing golf simulator.
The Company's sublease provides for a term of one year for both sublease and
purchase option, with an option to extend for three months. In addition to
monthly lease payments of approximately $35,000, the Company has agreed to pay
the sublessor 50% of net cash flow after monthly lease payments and management
fees of $6,000 payable to MGMI. The Company will provide the required capital
from funds from operations, existing cash, and, if necessary, from the proceeds
of the Offering.
If the Company elects to exercise its option to purchase the facility for
approximately $1.2 million, it intends to fund the acquisition and any
subsequent development expenses through a combination of equity, to be provided
by the Net Proceeds, and debt, expected to be provided by a commercial bank,
specialized golf lending institution or private lender. There can be no
assurances of the consummation of any of these financings or any other
financings on terms acceptable to the Company.
GOOSE CREEK. Goose Creek is a 20-year-old daily fee course located in
Leesburg, Virginia that was purchased by GCGP in June 1992. The golf course is
6,800 yards in length and has a 5,000 square-foot clubhouse. The club is located
seven miles from Dulles International Airport in the northern Virginia suburbs
of Washington, D.C. and logs in excess of 40,000 rounds annually at current fees
of as much as $30 per round. The facility has been remodeled and repositioned in
the market by the Company as a higher-end, country club-type experience for
daily fee golfers. Since its acquisition in 1992, greens fees have been
increased by as much as 40%. In 1995, Goose Creek generated over $1.4 million in
total revenue. Goose Creek was purchased by GCGP for slightly more than $4.3
million. Approximately $975,000 of equity was raised for the purchase through a
private limited partnership offering in GCGP. The balance of the funds was
provided by a mortgage loan and $400,000 carryback financing from the seller.
The Company owns 100% of the issued and outstanding stock of VA which is the
managing general partner of GCGP. In addition, upon consummation of the
Offering, the Company expects to acquire approximately 90% of the limited
partnership interests in GCGP. See "Partnership Acquisitions."
FUTURE PROJECTS
NEW YORK GOLF CENTER. The Company has fully negotiated a lease (the "Port
Authority Lease") with the Port Authority of New York and New Jersey (the "Port
Authority") to develop a driving range and learning center on top of the Port
Authority Bus Terminal in midtown Manhattan, New York City. Construction is
scheduled to commence in the first quarter of 1997, with the opening scheduled
for the second half of 1997. The proposed development budget is approximately
$5.5 million. The facility is planned to consist of a three-level facility
occupying a portion of the roof of the Port Authority Bus Terminal
(approximately three acres) and includes a 54-station tee area, a practice
putting green, a sand bunker practice area, a greenside chipping area, a video
instruction center, locker rooms, a David Leadbetter Golf Academy and a club
facility. The driving range will include covered, heated tee stations. The golf
instruction center, video instruction center, golf practice areas and locker
rooms will be located in the 24,000 square foot clubhouse, together with a
sports bar/cafe, outdoor patio, corporate entertainment and group event area,
pro shop and offices. The Company is currently in discussions with the David
Leadbetter Golf Academy about operating the golf instruction program at the New
York Golf Center.
The Port Authority Bus Terminal site location provides a development
opportunity that the Company believes is unparalleled in the golf industry. In
this midtown Manhattan location at 42nd Street and 8th Avenue, approximately
200,000 daily commuters pass through The Port Authority Bus Terminal, and
approximately 60,000 daily transit riders use the Times Square subway exit at
42nd Street. Peak pedestrian traffic counts at the corner of 42nd Street and 7th
Avenue show an average of approximately 45,000 people per day and are among the
highest in all of Manhattan. Demographics show that over 1.1 million employees
work in the New York City midtown area, and 525,000 permanent residents live in
the same area. In addition, over 20 million tourists visit New York
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City on an annual basis. The site location is adjacent to the Times Square
Business Improvement District, which includes 12,600 hotel rooms and
accommodates 1.7 million visitors annually. Several leading entertainment and
service industry companies, including Disney Enterprises, Inc.;, Viacom Inc./MTV
Networks Inc.;, Sony Corp.;, Virgin Records Inc.; and American Multi-Cinema Inc.
have recently announced or are considering projects near The Port Authority Bus
Terminal site. Because of the interest in the area, several large corporations
have expressed interest in sponsorship and advertising opportunities associated
with the facility.
The Company has received conditional approval of the structural feasibility
report for the project. Upon the Company's completion of certain design and
engineering studies to the satisfaction of the Port Authority staff, the Port
Authority Lease will be submitted to the Port Authority Board of Commissioners
for their final approval and the Port Authority's execution. Although the
Company believes that such studies will be approved and the Port Authority Lease
will be executed in the fall of 1996, there can be no assurance as to such
approval or lease execution.
For the purpose of developing the Port Authority site, the Company has
formed a limited liability company that is owned by the Company's wholly owned
subsidiary, MetroGolf New York, Inc. ("MGNY"), and several individual investors
(the "Class B Members") who assisted in the project presentation, concept
development and negotiations with the Port Authority. The Operating Agreement
for the limited liability company provides for distribution of cash to the
members (i) first, in return of capital contributed, plus a 15% per annum
cumulative compounded deferred return thereon (it is anticipated that the Class
B Members will provide 5% of the contributed capital); (ii) second, 75% to MGNY
and 25% to the Class B Members until MGNY has received a 30% internal rate of
return on its investment; and (iii) third, 70% to MGNY and 30% to the Class B
Members. MGNY is to be paid a development fee of $250,000 for development
services during construction and management fee of 5% per annum of gross
revenues upon completion for delivery of management services. The Company may
offer to acquire the Class B Members' current interests which could result in
100% Company ownership of the New York Golf Center; however, there can be no
assurance upon what terms, if any, such acquisition may occur. The Company plans
to finance the development budget of approximately $5.5 million for the New York
Golf Center primarily utilizing a combination of equity, expected to be provided
by the proceeds of the Offering, and debt, expected to be provided by a
commercial bank, specialized golf lending institution or private lender.
OTHER POTENTIAL PROJECTS. The Company is actively pursuing acquisition or
development projects in major cities, including Atlanta, Denver, Los Angeles,
St. Louis, San Diego, San Francisco, Tampa and Toronto. The Company currently
has 13 properties under active review as candidates for acquisition and has
either entered into or is currently negotiating non-binding letters of intent
with respect to nine of these properties. Eight of those nine properties are
located in or near a major metropolitan area in the Western United States, and
the remaining property is located in a major metropolitan area in the Midwestern
United States. Each of the nine properties contains a driving range, pro shop
and food and beverage facility. In some cases, the property has either a golf
course or adjacent land available for expansion or development of additional
golf facilities. Consummation of any acquisition or development of these or any
other future sites is subject to the satisfaction of various conditions,
including the satisfactory completion of due diligence by the Company and the
negotiation of definitive agreements. The Company's strategy is to acquire up to
three additional golf centers by the end of 1996 and to acquire or develop five
more centers by the end of 1997.
The Company plans to finance future projects directly through a combination
of the proceeds from the Offering, issuance of Company securities in connection
with acquisitions and development, and debt from banks or other lenders. The
balance of the capital requirements, if any, may be raised through subsequent
project specific private offerings or other financing structures. By providing a
substantial portion of the equity, the Company believes it can structure future
financings so that the Company will have majority, if not 100%, ownership
interests and thus receive percentages of the profits and cash flows that are
expected to be higher than the 40% interest in ICGP held prior to the
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partnership acquisition described herein. See "Partnership Acquisitions." The
Company plans to acquire the land for its metropolitan projects generally
through long-term ground leases of 15 years or more.
The Company believes it can obtain debt financing for at least 50% of the
capital required for leasehold property-type projects concurrent with
acquisition or commencement of construction. The Company has recently received
offers from a prospective lender to finance the New York and Fremont Golf
Centers which support this expectation and is currently negotiating with several
possible lenders for those and other future projects. The Company believes that
such financings will allow it to leverage the operating profit margins which are
characteristic of such facilities and thereby maximize its return on equity.
There can be no assurance of the consummation of such financings or any other
similar financings on terms acceptable to the Company.
METROGOLF MANAGEMENT
MGMI is a wholly owned golf management company formed to manage Illinois
Center Golf and other future projects of the Company and its affiliates. The
Company, through MGMI, manages the operations of Illinois Center Golf, Goose
Creek, Harborside Golf Center and Fremont Golf Center, and plans to similarly
manage operations of the New York Golf Center and other future projects.
Generally, all personnel employed at each facility are employees of MGMI. The
management contracts between each facility and MGMI generally include provisions
that the facility reimburse MGMI for the costs of such employees as are required
at each facility.
COMPETITION
On a national basis, the Company faces several major competitors with
sizable portfolios of golf facilities. However, while these companies own or
manage large numbers of golf facilities, overall golf facilities ownership and
management generally remains highly fragmented. The ten largest golf course
management companies own or operate only approximately 3% of the over 14,000
privately owned golf courses in the country. The vast majority of the remaining
97% of privately owned courses are held by regional multi-course (three to five)
companies, small ventures and individuals who have limited experience in
operating a course to maximize profit. These smaller operators tend to lack the
access to capital and management expertise enjoyed by large multi-course owners
and operators. Some of the multi-facility owners have recently completed public
offerings to increase their portfolios with opportunities to acquire facilities
which require professional ownership and management to maximize the potential of
the chosen facility. The trend toward consolidation of 18-hole golf course
facilities has become very profitable, but increasingly competitive, over the
past few years. However, the consolidation trend recently evident for 18-hole
golf courses is only in its infancy for the driving range and practice and
learning center segments of the industry.
Only one other company has emerged as an active developer and acquiror of
driving ranges, golf practice and learning facilities or executive/par-3
facilities on a national scale. Family Golf Centers Inc. ("FGCI"), recently
recapitalized through a public secondary offering, is the largest owner and
operator of golf driving ranges in the nation and is pursuing an aggressive
development and acquisition strategy that has already tripled the number of
ranges under its operation since January 1995. Its substantial capital gives it
a competitive advantage over the Company in attempting to absorb weaker
operations and provides it with increasing economies of scale. However, FGCI is
largely focused on the family golf market and on operations in suburban and
smaller metropolitan areas, although it has competed, and may in the future
compete, directly with the Company in certain large metropolitan areas. Other
public and private companies, such as Golden Bear Golf, Inc.;, Michael Jordan
Golf Co. and the Professional Golfers' Association of America, are pursuing
opportunities in the golf driving range and practice facility segment and may
compete directly or indirectly with the Company. Several other large and
well-financed companies are active in the full-length golf course segment;
however, none have focused on the driving range, golf practice and learning
center or executive/par-3 facility segments or on larger metropolitan areas,
although there can be no assurance that they may not do so in the future.
33
<PAGE>
EMPLOYEES
The Company has eight full-time employees at the corporate level, and a
variable number of additional full-time and part-time employees at the facility
level through its wholly owned subsidiary, MGMI. Currently, MGMI has
approximately 16 full-time equivalent employees during the slow season, and 60
full-time equivalent employees during the peak season. See "Business --
MetroGolf Management." In addition, the Company utilizes the services of various
independent contractors, primarily for computer, accounting and finance-related
services.
CORPORATE INFORMATION
On February 21, 1992, Mr. Tourtellotte incorporated and was the sole
stockholder of The Vintage Group USA, Ltd. On May 26, 1993, Mr. Tourtellotte
incorporated and was the sole stockholder of IC. On July 29, 1994, The Vintage
Group USA, Ltd. changed its name to TVG (Virginia) Inc. Simultaneously, Mr.
Tourtellotte formed the Company under the name of The Vintage Group (USA) Ltd.
and contributed his common stock of VA and IC to the Company in exchange for
100% of its outstanding common stock. Since such time, the Company has, as the
managing general partner in ICGP and GCGP, operated Illinois Center Golf and
Goose Creek. On July 1, 1996, the Company purchased the leasehold interest for,
and began operating, Fremont Golf Center. Also on such date, the Company
executed a sublease of, and began operating Harborside Golf Center.
The Company has recently changed its name to MetroGolf Incorporated and
intends to incorporate the name "MetroGolf" into the names of its golf centers.
The Company has applied for federal tradename protection for the name "MetroGolf
Incorporated," but there can be no assurance that such protection will be
granted. The Company is aware of other users of the name "MetroGolf" in some of
the markets where the Company currently operates golf centers or may operate
golf centers in the future. The Company does not believe that any such user is
in direct competition with the Company; however, the Company may choose not to
use the name "MetroGolf" in certain markets if it is inadvisable to do so
because there is an existing user of the name.
The Company leases 1,815 square feet of corporate office space in Denver,
Colorado for rental of approximately $21,780 per year.
LEGAL PROCEEDINGS
The Company knows of no material litigation or proceedings pending,
threatened or contemplated to which the Company is or may become a party.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names and ages, along with certain biographical information, of the
executive officers, directors, key employees and Director Nominee of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Charles D. Tourtellotte.......... 41 Chairman of the Board; President
J. D. Finley..................... 39 Executive Vice President; Chief Financial Officer and
Secretary
James K. Dignan.................. 38 Vice President -- Acquisitions
Kim E. Wermuth................... 35 National Director of Sales and Marketing
Anthony A. Suttile............... 42 National Director of Operations
Ernie Banks...................... 65 Director
Jack F. Lasday................... 39 Director
Michael S. McGetrick............. 36 Director Nominee
</TABLE>
The members of the Board of Directors hold office until the next annual
meeting of shareholders or until their successors have been elected and
qualified. Officers are appointed by, and serve at the pleasure of, the Board of
Directors. The Company expects to add at least two additional directors before
consummating the Offering, one of which is expected to be Michael S. McGetrick.
Following is a description of the Company's current Directors, officers, key
employees and Mr. McGetrick.
CHARLES D. TOURTELLOTTE. Mr. Tourtellotte is the President and Chairman of
the Board. Mr. Tourtellotte directs the development, acquisition and management
of the golf assets of the Company and the raising of debt and equity capital for
the Company's golf facilities portfolio. Prior to forming the Company in 1991,
Mr. Tourtellotte co-founded and served as a director and president of Dye Equity
Incorporated ("DEI"), the golf course development subsidiary of Dye Designs,
from January 1989 to December 1991. Dye Designs is a golf course design and
development firm headed by Perry Dye, son of renowned golf course architect Pete
Dye. During his tenure at DEI, Mr. Tourtellotte was responsible for acquisition
and development of golf and related real estate assets and sourced debt, equity,
and joint venture financing for DEI's and its clients' portfolios. From 1984 to
1989, Mr. Tourtellotte served as Senior Vice President of Acquisitions for
Johnstown American Companies, then one of the nation's largest real estate
investment and property management firms. Earlier, he served as senior
acquisition/investment officer at two national real estate companies,
Consolidated Capital Corporation and Robert A. McNeil Corporation.
J.D. FINLEY. Mr. Finley, Executive Vice President and Chief Financial
Officer, coordinates all financial functions of the Company, including
management and disbursement of development and acquisition funds for the Company
and its affiliated entities. Mr. Finley also provides due diligence analysis and
assistance in structuring proposed asset acquisitions and development projects.
In addition, Mr. Finley assists Mr. Tourtellotte in managing the day-to-day
affairs of the Company. Prior to joining the Company in September 1994, Mr.
Finley was a shareholder and director of Mitchell Finley and Company, P.C.
("Mitchell Finley"), a Denver-based certified public accounting firm. A portion
of Mr. Finley's time while with Mitchell Finley was devoted to servicing the
Company's account as a tax consultant. Prior to joining Mitchell Finley in 1990,
Mr. Finley was a shareholder and director of the accounting firm of Shenkin
Kurtz Baker and Company, P.C. Previous to his employment with Shenkin Kurtz
Baker and Company from 1985 to 1990, Mr. Finley was a manager with the
international accounting firm of Deloitte Haskins & Sells (now Deloitte &
Touche) from 1979 to 1985.
JAMES K. DIGNAN. Mr. Dignan, Vice President Acquisitions, joined the
Company in July 1993 to facilitate the acquisition and development of golf
assets for the Company's portfolio. Mr. Dignan
35
<PAGE>
assists in the acquisition, development and management of metropolitan golf
facilities for the Company. From 1986 to 1993, Mr. Dignan was an Associate
Director for Cushman and Wakefield where he was responsible for the leasing and
management of commercial real estate properties for several Fortune 500
companies. From 1982 to 1986, Mr. Dignan served as Vice President for
Heliconian, Ltd., a company which specializes in real estate investment
services. Mr. Dignan was a member of the Professional Golfers Association (PGA)
for several years.
KIM E. WERMUTH. Ms. Wermuth, National Director of Sales and Marketing,
joined the Company in August 1996. From January 1995 until joining the Company,
Ms. Wermuth was Vice President of Sales and Marketing for Chain Enterprises, a
graphic design company. From August 1994 to January 1995, she was Assistant Vice
President of Sales and Marketing for Sage Hospitality Resources, which operates
11 hotels throughout the United States. From July 1992 to August 1994 she was
Regional Marketing Manager for Howard Johnson Franchise Systems, Inc., and from
July 1990 to July 1992 she was the General Manager of the Howard Johnson Plaza
Hotel in Madison, Wisconsin and was also the Director of Marketing and
Advertising for that hotel and two affiliated hotels. She has also served as
Sales Manager or Director of Sales and Marketing for other hotels beginning in
May 1984.
ANTHONY A. SUTTILE. Mr. Suttile has been the General Manager of Illinois
Center Golf since September 1995. Upon his relocation to the Company's
headquarters in Denver, Colorado in September 1996, he will become the Company's
National Director of Operations. From April 1994 to August 1995 he was General
Manager of the Ambassador West Hotel in Chicago, Illinois, and from April 1993
to April 1994 he was General Manager of the Knickerbocker Hotel in Chicago,
Illinois, both owned by Grand Heritage Hotels International. From April 1991 to
March 1992, he was General Manager of the Maple Dale Country Club in Dover,
Delaware. Prior to that Mr. Suttile has worked in hotel management with various
companies since 1975.
ERNIE BANKS. Ernie Banks is a Director of the Company and was an all-star
shortstop and first baseman for the Chicago Cubs Baseball Club for 19 years,
retiring in 1971. Mr. Banks was elected to the Baseball Hall of Fame in 1977.
Since 1991, Mr. Banks has been the owner and chief executive officer of Ernie
Banks International, Inc., a sports marketing and promotions firm located in
Chicago, and Community Relations Director for the Chicago Cubs.
JACK F. LASDAY. Mr. Lasday is a Director of the Company and Senior Vice
President - Investments of Prudential Securities. Prior to joining Prudential
Securities in September 1994, he was a Senior Vice President at Rodman &
Renshaw, Inc., where he was employed from 1982 to 1994. Mr. Lasday is director
of Gateway Foundation and a member of the Illinois C.P.A. Society and the
American Institute of Certified Public Accounts.
MICHAEL S. MCGETRICK. Mr. McGetrick has agreed to be nominated as a
Director of the Company and is expected to be elected as a Director prior to the
closing of the Offering. Mr. McGetrick, a PGA Class A Member, has been the
Director of Instruction at the Meridian Golf Learning Center in Denver, Colorado
since 1993. From 1991 to 1993, he was the head teaching professional at Cherry
Hills Country Club in suburban Denver, Colorado. He has also served as head
teaching professional at a number of other country clubs or golf facilities and
coaches a number of players on the PGA and LPGA Tours. Mr. McGetrick has
published several instructional articles in national golf magazines. He was
named by Golf Magazine as one of the top 100 teaching professionals in America
in 1996..
COMMITTEES OF THE BOARD OF DIRECTORS
Within 90 days after consummation of the Offering, the Board of Directors
intends to establish an Audit Committee and a Compensation Committee. The
functions of the Audit Committee will be to recommend annually to the Board of
Directors the appointment of the independent certified public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit and review the results thereof with the independent certified public
accountants, review and approve non-audit services of the independent certified
public accountants, review compliance with existing
36
<PAGE>
major accounting and financial policies of the Company, review the adequacy of
the financial organization of the Company and review management's procedures and
policies relative to the adequacy of the Company's internal accounting controls.
The functions of the Compensation Committee will be to review and approve
annual salaries and bonuses for all executive officers and review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto and administer the Company's Stock Option Plan.
The Board of Directors will appoint independent directors to the Audit and
Compensation Committees.
DIRECTOR AND EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the only other officer of the Company
who received compensation in excess of $100,000 for services rendered to the
Company in all capacities during the three fiscal years ending December 31,
1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION SHARES OF
------------------------------------------------------ COMMON STOCK
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION WARRANTS (#) COMPENSATION ($)
- ---------------------------------------- --------- ------------- ----------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Tourtellotte................. 1993 30,000 -- -- -- --
Chairman of the Board 1994 180,000 -- -- -- --
and President 1995 180,000 -- -- 75,000(1) $ 125,000(2)
J.D. Finley............................. 1994 $ 30,000(3) -- -- -- --
Executive Vice President 1995 120,000 -- -- 75,000(1) --
and Chief Financial Officer
</TABLE>
- ------------------------
(1) Of these warrants, 37,500 shares are vested as of the date of this
Prospectus. Of the 37,500 unvested warrants, 50% will vest on August 28,
1996, and the remaining 50% will vest on February 28, 1997.
(2) Mr. Tourtellotte is entitled to receive $125,000 of compensation upon
receipt by the Company of the $125,000 contingent portion of its fee in
connection with the development of Illinois Center Golf. This $125,000 is
payable by ICGP upon the complete repayment of capital to the limited
partner investors, plus a preferred return of 15% per annum. Because of this
financial structure, this payment is not expected to be received before
1999, if at all.
(3) Mr. Finley joined the Company in September 1994.
WARRANT/OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OF TOTAL WARRANTS
SECURITIES GRANTED TO EXERCISE OF
UNDERLYING EMPLOYEES IN BASE
NAME WARRANTS GRANTED FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- -------------------------------------- ----------------- ------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Charles D. Tourtellotte............... 75,000 50% $1.45/sh December 1, 2000
J.D. Finley........................... 75,000 50% $1.45/sh December 1, 2000
</TABLE>
Although 50% of each of Mr. Tourtellotte's and Mr. Finley's warrants
described above are vested and exercisable (subject to an Underwriters' lock-up)
as of the date hereof, none were exercised in 1995. See "Principal
Stockholders."
37
<PAGE>
The members of the Company's Board of Directors are not presently
compensated directly by the Company for their service to the Company. Messrs.
Lasday and Banks have received warrants to purchase 12,513 shares each of Common
Stock at an exercise price of $1.45. The Company has agreed to issue Mr.
McGetrick options to purchase 5,000 shares of Common Stock under the Stock
Option Plan, at an exercise price equal to the IPO Price, upon his election as a
Director. In addition, outside directors will be compensated for their
reasonable expenses in attending meetings of the Board of Directors.
EMPLOYMENT CONTRACTS
CHARLES D. TOURTELLOTTE. Effective January 1, 1996, Mr. Tourtellotte
entered into a three-year employment agreement to serve as President of the
Company, which expires December 31, 1998. Such agreement provides for an annual
salary of $250,000, payable semi-monthly in arrears, plus such bonuses as the
Board of Directors of the Company may from time to time approve. The agreement
provides for certain athletic club memberships and allowances for an automobile,
parking and other perquisites as from time to time are made available to the
Company's executive officers. The agreement is terminable by the Company for
"Cause," which includes conduct which causes material harm to the Company,
willful and continued absence of employee (other than by reason of disability or
death), employee's abandonment of his duties and responsibilities, conviction of
the employee for a felony involving moral turpitude or fraud, misappropriation
or embezzlement of corporate funds. The agreement also has a noncompete clause
for a period of one-year immediately following the cancellation or termination
of the agreement for any reason. In the event of termination by reason of death
or disability and provided the Company has not otherwise provided Mr.
Tourtellotte with life or disability insurance of other benefit plan for such
occurrence, the Company is required to pay Mr. Tourtellotte or his estate
severance pay equal to six months' salary.
J.D. FINLEY. Effective January 1, 1996, Mr. Finley entered into a
three-year employment agreement to serve as Executive Vice President and Chief
Financial Officer of the Company, which expires December 31, 1998. Such
agreement provides a salary to Mr. Finley of $175,000 per year, plus such
bonuses as the Board of Directors of the Company may from time to time approve.
The agreement provides for payment of monthly dues for membership at a country
club and an allowance for a cellular phone, parking and other perquisites as
from time to time are made available by the Company to its executive officers.
The agreement is terminable by the Company for "Cause" as described above. The
agreement also has a noncompete clause effective for a period of one year
immediately following the cancellation or termination of the agreement. In the
event of termination by reason of death or disability and provided the Company
has not otherwise provided Mr. Finley with life or disability insurance of other
benefit plan for such occurrence, the Company is required to pay Mr. Finley or
his estate severance pay equal to six months' salary.
JAMES K. DIGNAN. Effective January 1, 1996, Mr. Dignan entered into a
three- year employment agreement to serve as Vice President -- Acquisitions of
the Company, which expires December 31, 1998. The agreement provides for a base
salary of $66,000 per year, plus such bonuses as the Board of Directors of the
Company may from time to time approve. The agreement is terminable by the
Company for "Cause" as described above. The agreement also has a noncompete
clause for a period of one year immediately following the cancellation or
termination of the agreement for any reason. In the event of termination by
reason of death or disability and provided the Company has not otherwise
provided Mr. Dignan with life or disability insurance of other benefit plan for
such occurrence, the Company is required to pay Mr. Dignan or his estate
severance pay equal to six months' salary.
STOCK OPTION PLAN
The Company's Stock Option Plan provides for issuance of up to 250,000
shares of Common Stock at exercise prices no less than 85% of the fair market
value of the Common Stock at the time of grant. The purpose of the Stock Option
Plan is to enable the Company to attract or attain the services of the type of
professional and managerial employees and other persons considered essential to
the long-range success of the Company by providing long-term incentives to the
Company's officers and
38
<PAGE>
employees. The options will vest over a five-year period, except that up to 10%
of the options may be subject to a shorter vesting period at the discretion of
the Company's Board of Directors. Options may not be exercised more than three
months after an employee's termination of employment with the Company unless
such termination was a result of death, disability or retirement, in which case
the exercise period is extended to one year. The exercise price may be paid in
cash, by tendering shares of Common Stock (valued at fair market value on the
date of exercise) if so provided in the applicable stock option agreement, or by
a combination of such means of payment, as may be determined by the Compensation
Committee. The Stock Option Plan provides that the total number of option shares
covered by such Plan, the number of shares covered by each option and the
exercise price per share may be proportionately adjusted by the Board of
Directors or the Compensation Committee in the event of a stock split, reverse
stock split, stock dividend or similar capital adjustment effected without
receipt of consideration by the Company. To date, no options have been granted
pursuant to the Stock Option Plan.
The Stock Option Plan will be administered by the Compensation Committee.
Prior to appointment of the Compensation Committee, the Stock Option Plan will
be administered by the Board of Directors. Subject to the terms of the Stock
Option Plan, the Compensation Committee will determine the persons to whom
options are granted and the terms of each option. The Compensation Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended, or
are not intended to be incentive stock options.
Other than the Stock Option Plan, no retirement, pension, profit-sharing or
similar program has been adopted or is in effect by the Company for the benefit
of its directors, officers or employees. In the future, however, the Company
will adopt such plans or other forms of incentive compensation as the Board of
Directors determines to be necessary or appropriate to promote and foster the
loyalty and dedication of its directors, officers and employees.
CERTAIN TRANSACTIONS
The following discussion of certain transactions and documents is qualified
in its entirety by reference to certain documents described, copies of which are
available from the Company upon request.
TRANSACTIONS WITH CHARLES D. TOURTELLOTTE
Charles D. Tourtellotte, the Company's President, received a total of
$30,000 in compensation in 1993. From January 1, 1994 through July 31, 1994, Mr.
Tourtellotte deferred $105,000 of compensation. As of June 30, 1996, $58,333 of
this deferred compensation remains unpaid. In addition, since November 1, 1995
and continuing through the date of this Prospectus, Mr. Tourtellotte has
deferred additional amounts of compensation under his employment contracts
which, as of the date of this Prospectus, total $192,500 (not including the
$125,000 described below). From time to time, the Company has made loans to Mr.
Tourtellotte against deferred compensation or in anticipation, but in advance,
of Mr. Tourtellotte earning bonus or other extraordinary compensation. These
loans are evidenced by two note agreements. The notes bear interest at eight
percent per annum and are due on demand. The total original principal amount of
these loans is $152,638 as of June 30, 1996, the aggregate outstanding balance
on the two notes was $166,324. Mr. Tourtellotte has paid the required amounts
under the loans when due. Mr. Tourtellotte continues to receive his base salary
while these notes remain outstanding. Pursuant to Mr. Tourtellotte's employment
contract, any amount still outstanding on the first note must be paid from the
$58,333 of deferred compensation referred to above. During 1996, the Company
expects that the payment of Mr. Tourtellotte s deferred compensation will be
offset by the outstanding balance of the first note which will be cancelled. Mr.
Tourtellotte's employment contract also specifies that any unpaid balance on the
second note must be repaid from the $125,000 Mr. Tourtellotte may receive upon
receipt of the contingent portion of the Company's development fee for Illinois
Center Golf described under "Management -- Director
39
<PAGE>
and Executive Compensation." This $125,000 is payable by ICGP upon the complete
repayment of capital to the limited partner investors, plus a preferred return
of 15% per annum. Because of this financial structure, this payment is not
expected to be received before 1999, if at all. Any further loans to Mr.
Tourtellotte will be approved by the Board of Directors and will be made only if
the aggregate of all outstanding loans do not exceed the amount of reasonably
anticipated compensation owed to him, which may include the balance of the
$125,000 of deferred compensation referred to above. Mr. Tourtellotte has
personally guaranteed $5.12 million of indebtedness of ICGP and GCGP.
LOANS BY J.D. FINLEY
In 1995 and 1996, J.D. Finley, the Company's Executive Vice President and
Chief Financial Officer, made various loans to the Company. The balance
outstanding as of June 30, 1996 and December 31, 1995, including accrued
interest is $4,825 and $26,127. As of the date of this Prospectus, the unpaid
balance of such loans is approximately $4,075. These loans are due on demand and
bear interest at an annual rate of prime plus 2%.
TRANSACTIONS WITH OFFICERS, INDEPENDENT CONTRACTORS AND AFFILIATES
Since November 1, 1995 and continuing through the date of this Prospectus,
payment of various amounts due for salaries, fees and reimbursable expenses of
the officers of the Company and certain independent contractors have been
deferred. As of the date of this Prospectus, deferred compensation owed to
certain officers and former officers of the Company aggregates approximately
$327,500. The Company anticipates that substantially all the deferred amounts
will be paid to the officers and independent contractors by September 30, 1996
out of the Company's available cash flow.
NOTES RECEIVABLE, FROM RELATED PARTIES
On September 1, 1994, IC entered into a $500,000 note agreement with ICGP.
Advances under the agreement accrue interest at two percent over the Citibank's
prime rate, which was 8.75 percent at December 31, 1995. The note is unsecured
and due the earlier of demand or September 1, 1996. The balance outstanding on
the note is $500,000, $459,739 and $275,724 as of June 30, 1996, and December
31, 1995 and 1994.
On April 15, 1996, VA entered into a $150,000 note agreement with Goose
Creek. Advances under the agreement accrue interest at two percent over the
Citibank's prime rate, which is 8.75 percent at December 31, 1995. The note is
unsecured and due the earlier of demand or April 15, 1997. The balance
outstanding on the note is $106,823 and $54,989 as of June 30, 1996 and December
1995.
As described above in "Transactions with Charles D. Tourtellotte," the
Company entered into two note agreements with Charles D. Tourtellotte during
1994. The notes bear interest at eight percent per annum and are due on demand.
The balances outstanding on the notes are $166,324, $120,300 and $64,803 as of
June 30, 1996 and December 31, 1995 and 1994.
DEVELOPMENT FEES FROM ILLINOIS CENTER GOLF
During 1994, the Company earned $125,000 for land acquisition, concept
planning design and development services provided to Illinois Center Golf.
PROPERTY MANAGEMENT FEES
On December 1, 1993, MGMI entered into a property management agreement with
ICGP. The management agreement expires on January 1, 1997. The terms of the
management agreement provide for a management fee of $5,000 per month, plus a
membership incentive fee of ten percent of the gross proceeds received from
membership initiation fees and the equivalent of one month's membership dues as
received by Illinois Center Golf. The membership incentive fee for renewal
memberships will be reduced to four percent of annual dues for renewal members.
In addition, the management agreement provides for an annual incentive fee of
five percent of the amount of the annual net operating income in excess of
$1,600,000.
MGMI initially was operated by Club Sports International ("CSI"). On October
1, 1994, CSI was removed as operator of MGMI. On November 17, 1994, Billy Casper
Golf Management, Inc.
40
<PAGE>
("BCGM") was engaged as the new operator of MGMI. From the period June 1, 1994
through September 30, 1994, MGMI's base fee was split between CSI and the
Company, with CSI receiving $4,000 and the Company receiving $1,000. From
October 1, 1994 through November 18, 1994, the Company earned the full amount of
MGMI's fee. From November 18, 1994 through November 30, 1995, BCGM earned the
entire fee. During November 1995, BCGM was removed as operator of MGMI. In
addition, MGMI has agreed to waive 80 percent of the deferred $5,000 monthly
fees that it had earned under its contract from the period December 1, 1993 to
May 31, 1994. For the six months ended June 30, 1996 and for the years ended
December 31, 1995 and 1994, property management fees, including incentive fees,
were $441,551, $79,243 and $76,063. As of June 30, 1996 and December 31, 1995
and 1994, ICGP owes MGMI $ 39,252, $83,256 and $41,063.
IC, as managing general partner of ICGP, is entitled to receive an asset
management fee from ICGP of $60,000 per annum increased by a factor of 5% per
annum. Asset management fees for the six months ended June 30, 1996 and for the
years ended December 31, 1995 and 1994 were $31,500, $60,000 and $35,000,
respectively.
VA, as managing general partner of GCGP, receives an asset management fee
from GCGP of $5,000 per annum that started June 1, 1992 and increased by a
factor of five percent per annum on June 1 of each year. The Company also is
entitled to receive a fee equal to one percent of the gross proceeds upon any
disposition of GCGP property. Asset management fees for the six months ended
June 30, 1996 and for the years ended December 31, 1995, 1994 and 1993, were
$126,264, $51,059, $48,628, and $46,313, respectively.
DIRECTOR APPROVAL
The Company believes that all of the transactions described in this "Certain
Transaction" section were on terms no less favorable to the Company than those
that could have been obtained from unaffiliated parties. Future transactions, if
any, between the Company and its officers, directors, holders of 5% or more of
the Common Stock and other affiliated parties, if any, will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the Company's independent disinterested directors.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering by the Company of 553,571
shares of Common Stock (or such other number of shares issued upon conversion)
to the Converting Shareholders in connection with the conversion of the PP
Notes. Each Converting Shareholder has agreed not to sell, transfer or otherwise
publicly dispose of the Converting Shareholders' Common Stock for up 180 days
from the date of this Prospectus without the prior written consent of Laidlaw
Equities, Inc. The PP Notes may be converted to Common Stock, at the option of
the holder thereof, simultaneously with the consummation of the Offering at 50%
of the IPO Price or, thereafter, until November 30, 1996, at 50% of the then
current market price of the Common Stock.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
Charles D. Tourtellotte, whose address is MetroGolf Incorporated, 1999
Broadway, Suite 2435, Denver, Colorado 80202, owns 1,045,000 shares of Common
Stock, which represents 100% of the Common Stock currently outstanding. In
addition, as of the date of this Prospectus, the Company has issued warrants to
purchase 467,326 shares of Common Stock to various individuals, and the Company
has adopted the Stock Option Plan covering up to 250,000 shares of Common Stock.
See "Management -- Stock Option Plan." The Company also will sell to the
Representatives, or their designee, warrants to purchase an aggregate of 120,000
shares of Common Stock. The following table summarizes the current Common Stock
and warrant ownership of the Company as of the date of this Prospectus by (i)
each person who is known by the Company to own beneficially 5% or more of the
Common Stock, (ii) all directors of the Company, and (iii) all directors and
officers as a group. Except for the individuals listed in the table, no person
is the beneficial owner of more than 5% of Common Stock. See "Risk Factors --
Concentration of Share Ownership."
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK OWNED
--------------------------------------
WARRANTS AFTER OFFERING
PRIMARY ---------------------- TOTAL OF 1,200,000
BENEFICIAL OWNER SHARES HELD VESTED UNVESTED HOLDINGS PRIOR TO OFFERING(1) SHARES (2)
- ----------------------------------- ----------- --------- ----------- ------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Tourtellotte, President
(3)............................... 1,045,000 37,500 37,500 1,120,000 54.9% 31.2%
J.D. Finley, Vice President (3).... 43,000 37,500 80,500 3.9% 2.2%
Ernie Banks, Director (4).......... 6,256 6,256 12,513 0.6% 0.3%
Jack F. Lasday, Director (4)(5).... 14,014 6,256 20,271 1.0% 0.6%
----------- --------- ----------- ------------- --- ---
All Officers and Directors as a
Group............................. 1,045,000 100,770 87,512 1,233,284 60.4% 34.3%
----------- --------- ----------- ------------- --- ---
----------- --------- ----------- ------------- --- ---
</TABLE>
- ------------------------
(1) Does not include (i) the 509,250 shares issuable upon conversion of the
notes and warrants issued in connection with the acquisition of the limited
partnership interests in ICGP and GCGP, (ii) the 25,000 shares issuable upon
conversion of the warrant issued to Laidlaw Equities, Inc., (iii) the
120,000 shares issuable upon conversion of the Representatives' warrants
once issued, (iv) 250,000 shares of Common Stock available for future grant
under the Company's Stock Option Plan, or (v) the exercise of the
Underwriters' Over-allotment Option. See "Management -- Stock Option Plan."
(2) Does not include (i) 157,500 shares issuable upon conversion of the warrants
issued in connection with the acquisition of the limited partnership
interests in ICGP, (ii) the 25,000 shares issuable upon conversion of the
warrant issued to Laidlaw Equities, Inc. (iii) the 120,000 shares issuable
upon conversion of the Representatives' warrants once issued, (iv) 250,000
shares of Common Stock available for future grant under the Company's Stock
Option Plan or (v) the exercise of the Underwriters' Over-allotment Option.
See "Management -- Stock Option Plan."
(3) Of the 37,500 unvested warrants, 50% will vest on August 28, 1996, and the
remaining 50% will vest on February 28, 1997.
(4) Directors were granted warrants equal to 5% of the total warrants issued in
connection with the Company's Redeemable Preferred Stock offering. Of the
6,256 unvested warrants, 50% will vest on August 28, 1996, and the remaining
50% will vest on February 28, 1997.
(5) In addition to the warrants Mr. Lasday received as a director of the
Company, he received 7,758 warrants from Rodman & Renshaw, Inc. as
compensation while employed there.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 9,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of Preferred Stock, par value
$1.00 per share (the "Redeemable Preferred Stock").
COMMON STOCK
Each holder of Common Stock will be entitled to one vote per share of such
stock with respect to all matters. The holders of shares of the Redeemable
Preferred Stock described below shall not have any right or power to vote on any
question or in any proceeding or to be represented at or receive notice of any
meeting of Common Stock holders, except as described below in "Preferred Stock;"
provided, however, that so long as any shares of the Redeemable Preferred Stock
remain outstanding, the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Redeemable Preferred Stock is necessary to
permit (i) the authorization, creation or issuance, or any increase in the
authorized or issued amount of any class or series of stock ranking prior to the
Redeemable Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, dissolution or winding up, or (ii) the
amendment, alteration or appeal of any provisions of the Certificate of
Incorporation which would materially and adversely affect any right, preference,
privilege or voting power of the Redeemable Preferred Stock or of the holders
thereof. In addition, so long as any shares of the Redeemable Preferred Stock
remain outstanding, an affirmative vote of the holders of at least a majority of
the shares of the Redeemable Preferred Stock, is necessary to permit, effect or
validate the authorization of a merger or consolidation of the Company if the
effect of such merger or consolidation would be to materially and adversely
alter or change the rights, preferences, privileges or voting power given to the
holders of any shares of the Redeemable Preferred Stock. The foregoing voting
provisions do not apply if, at or prior to the time when the act with respect to
such vote would otherwise be required, all outstanding shares of the Redeemable
Preferred Stock shall have been redeemed or sufficient funds shall have been
deposited in trust to effect such redemption.
The vote of holders of a majority of the shares of Common Stock is required
to decide any question brought before such stockholders, unless the question is
one upon which by express provision of a statute a different vote is required,
in which case such express provision shall govern and control the decision of
such question. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of the funds
legally available therefor, subject to any preferential dividend rights of any
outstanding Redeemable Preferred Stock. See "-- Preferred Stock." It is not
anticipated that any Common Stock dividends will be paid by the Company in the
foreseeable future since the Company intends to retain its earnings to finance
the growth of its business. The terms of the Redeemable Preferred Stock prohibit
the payment of dividends on the Common Stock (other than in shares of Common
Stock) unless all past dividends on the Redeemable Preferred Stock are paid and
the current dividend is either paid or provided for in cash. As of June 30,
1996, the total dividends that the Company would be obligated to pay on the
outstanding Redeemable Preferred Stock was 291,041. See "-- Preferred Stock."
Future dividend policies will depend upon the Company's earnings, financial
needs and other pertinent factors. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company, available after payment of all debts and other
liabilities, subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The shares of Common Stock are not subject to repurchase by
the Company or conversion into any other securities. The outstanding shares of
Common Stock offered in the Offering will be, when issued and paid for, fully
paid and non-assessable.
TRANSFER AGENTS AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
PREFERRED STOCK
The Company has 45,500 shares of Redeemable Preferred Stock outstanding. The
Company will redeem all such shares, together with accrued dividends, out of the
proceeds of the Offering.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 3,895,147 shares of
the Common Stock outstanding (including shares of Common Stock issuable upon
exercise of certain warrants, conversion of the PP Notes, conversion of the
Convertible Notes and other rights to acquire Common Stock (not including shares
issuable pursuant to the Underwriters' Over-allotment Option or 250,000 shares
issuable under the Stock Option Plan). Of these shares, the 1,200,000 shares of
Common Stock sold in the Offering will be freely tradable without restriction or
future registration under the Securities Act and Exchange Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act. Of the remaining
2,575,147 shares of Common Stock, 553,571 shares issuable upon conversion of the
PP Notes (or such other number of shares issued upon conversion) will be
registered shares which will be freely tradable upon expiration of the 180-day
Underwriters' lock-up or upon earlier waiver of such lock-up by the
Representatives.
In addition, the Company has agreed to file and use its best efforts to
become effective on the date that is 13 months after the date of the closing of
the Offering, and to cause to remain effective for a period of one year, a
registration statement covering the shares of Common Stock issuable upon
conversion of the Convertible Notes and the warrants issued in connection
therewith. All of the shares that are owned by Mr. Tourtellotte, all officers;
directors; and persons owning 5% or more of the outstanding Common Stock of the
Company, or warrants or options to purchase 5% or more of such Common Stock, or
securities convertible into 5% five percent or more of such Common Stock, or any
combination thereof that aggregates 5% or more of the outstanding Common Stock
will, on the date of consummation of the Offering, be subject to a lock-up to
refrain from making any public sale or distribution of their Common Stock or
such warrants, options or convertible securities (pursuant to Rule 144 or
otherwise) without the prior written consent of the Representatives for 13
months after the effective date of the Registration Statement for the Offering.
In general, under Rule 144 as it is currently in effect, a person (or
persons whose shares are required to be aggregated) who beneficially owns
restricted shares with respect to which at least two years have elapsed since
the later of the date the shares were acquired from the Company, including
persons who may be deemed to be affiliates of the Company, would be entitled to
sell, within any three-month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of the Common Stock or the
average weekly reported trading volume in the over-the-counter market during the
four calendar weeks preceding the filing of the Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and to the availability of current public
information about the Company. A person who is not an affiliate of the Company
under the Securities Act, has not been an affiliate during the preceding 90
days, and who beneficially owns shares with respect to which at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company is entitled to sell such shares
under Rule 144(k) without regard to the requirements described above.
Until the existing stockholders of the Company have held the Restricted
Shares for two years, no sale of Restricted Shares will be permitted under Rule
144. The Company is unable to estimate the number of shares that may be sold
under Rule 144 after the two-year minimum holding period has elapsed, since this
will depend on the market price for the Common Stock, the personal circumstances
of the sellers and other factors. Additionally, Laidlaw Equities, Inc. has the
right under its warrant to purchase 25,000 shares of Common Stock, at any time
during the exercise period thereof, to require the Company to file and keep
effective for so long as may be reasonably necessary for Laidlaw Equities, Inc.
to dispose of such shares, a registration statement covering such shares.
The Company may file a registration statement under the Securities Act to
register Common Stock to be issued to employees pursuant to the Stock Option
Plan. Such registration statement may be filed at any time after the date of
this Prospectus and would become effective immediately upon filing. Shares
issued pursuant to the Stock Option Plan after the effective date of any
registration
44
<PAGE>
statement covering such shares generally will be available for sale in the open
market. As of the date of this Prospectus, no options to purchase shares of
Common Stock have been granted under the Stock Option Plan; however, the Company
expects to grant options to purchase 5,000 shares of Common Stock at the IPO
Price to Michael S. McGetrick if he is elected as a Director of the Company. See
"Management -- Stock Option Plan."
The following table summarizes all shares eligible for future sale as of the
date of this Prospectus, assuming an IPO Price of $7.00 per share, conversion of
100% of the PP Notes on the date of consummation of the Offering, conversion of
the Convertible Notes (assuming 90% of the limited partners of ICGP and GCGP
accept the Offer to Purchase and elect to receive 55% (ICGP) and 65% (GCGP)
Convertible Notes) and exercise all of warrants, whether vested or unvested.
This table does not reflect any options eligible for issuance under the Stock
Option Plan or the Underwriters' Over-allotment Option.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP PERCENTAGE OWNERSHIP
NAME NUMBER OF SHARES PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C>
Charles D. Tourtellotte........................... 1,120,000 41.6% 28.8%
J.D. Finley....................................... 80,500 3.0% 2.1%
Ernie Banks....................................... 12,513 0.5% 0.3%
Jack F. Lasday.................................... 20,271 0.8% 0.5%
Preferred Stockholders............................ 244,750 9.1% 6.3%
Rodman & Renshaw, Inc............................. 9,292 0.3% 0.2%
Laidlaw Equities, Inc............................. 25,000 0.9% 0.6%
Representatives' Warrants......................... 120,000 4.4%
Holders of PP Notes............................... 553,571 20.5% 14.2%
Holders of Convertible Notes...................... 509,250 18.9% 13.1%
----------------- ----- ---
Total........................................... 2,695,147 100.0% 69.2%
----------------- ----- ---
----------------- ----- ---
</TABLE>
Prior to the Offering, there has been no public market for any of the
Company's securities, including the Common Stock, and no predictions can be made
as to the effect, if any, that market sales of shares or the availability of
shares for sale will have on the market price prevailing from time to time.
There can be no assurance that a regular trading market will develop in the
Common Stock.
45
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement between the
Company and the Underwriters, to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of shares set forth opposite
their names in the table below at the price set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Laidlaw Equities, Inc......................................................
Cruttenden Roth Incorporated...............................................
-----------------
Total.................................................................... 1,200,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by counsel and to certain other
conditions. Pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all of the shares of Common Stock offered hereby (other
than the shares of Common Stock covered by the Underwriters' Over-allotment
Option) if any are purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock to the public initially at the IPO Price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share to certain other dealers. After the
initial public offering of the shares of Common Stock, the public offering price
and other selling terms may be changed by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 45 days from the date hereof, to
purchase up to an additional 180,000 shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page hereof. The Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Common Stock offered hereby.
To the extent the Underwriters' Over-allotment Option is exercised, the
Underwriters will become obligated, subject to certain conditions, to purchase
such additional shares.
Subject to certain limited exceptions, the Company, its directors and
officers, and certain other security holders of the Company have agreed with the
Underwriters not to offer, sell, contract to sell, grant any other option to
purchase or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for, or
warrants, rights or options to acquire, Common Stock or enter into any agreement
to do any of the foregoing for a period of 13 months after the date of this
Prospectus without the prior written consent of the Representatives.
The Company has agreed to pay to the Representatives an expense allowance,
on a non-accountable basis, equal to 1.5% of the gross proceeds derived from the
sale of the shares of Common Stock. The Company has paid an advance on such
allowance in the amount of $30,000. The Company has also agreed to pay certain
of the Representatives' expenses in connection with this Offering, including
expenses in connection with qualifying the shares of Common Stock offered hereby
for sale under the laws of such states as the Representatives may designate. In
addition, the Company will sell to the Representatives, or to their designees,
at a purchase price of $.001 per warrant, warrants to purchase
46
<PAGE>
an aggregate of 120,000 shares of Common Stock. The Representatives' Warrants
are exercisable for a period of four years commencing one year from the date of
this Prospectus at an exercise price per share (the "Exercise Price") of 120% of
the public offering price per share. The Representatives' Warrants may not be
sold, transferred, assigned, pledged or hypothecated for a period of 12 months
from the date of this Prospectus except to members of the selling group and
officers and partners of the Representatives and members of the selling group.
The Representatives' Warrants contain anti-dilution provisions providing for
adjustment of the Exercise Price and number of shares issuable upon exercise
upon the occurrence of certain events, including stock dividends, stock splits,
recapitalizations and sales of Common Stock below the exercise price thereof.
The holders of the Representatives' Warrants have no voting, dividend or other
rights as stockholders of the Company with respect to shares of Common Stock
underlying the Representatives' Warrants unless the Representatives' Warrants
have been exercised.
A new registration statement or post-effective amendment to the Registration
Statement will be required to be filed and declared effective before
distribution to the public of the Representatives' Warrants and the shares of
Common Stock issuable upon exercise of the Representatives' Warrants (the
"Warrant Shares"). During such period beginning one year after the date of this
Prospectus and ending four years thereafter, the Company has agreed, on one
occasion if requested by the holders of a majority of the Representatives'
Warrants or Warrant Shares, to make all necessary filings to permit a public
offering of the Warrant Shares and to use its best efforts to cause such filing
to become effective under the Securities Act; provided, however, that no such
registration is required if upon receipt of such request the Company or holders
of 15% or more of the Common Stock agree to purchase the Representatives'
Warrants for the excess of the aggregate current market price for the Warrant
Shares over the aggregate Exercise Price of the Representatives' Warrants. In
addition, during the period beginning one year after the date of this Prospectus
and concluding five years after the date hereof, the Company has agreed to give
advance notice to holders of the Representatives' Warrants and Warrant Shares of
its intention to file a registration statement and, in such case, holders of the
Representatives' Warrants shall have the right to require the Company to include
the Warrant Shares in such registration statement at the Company's expense.
During the period that the Representatives' Warrants are exercisable, the
Representatives and any transferee will have the opportunity to profit from a
rise in the market price of the Common Stock with a resulting dilution in the
interest of other stockholders. In addition, the terms on which the Company will
be able to obtain additional capital during the exercise period may be adversely
affected since the Representatives are likely to exercise the Representatives'
Warrant at a time when the Company would, in all likelihood, be able to obtain
capital by a new offering of securities on terms more favorable than those
provided by the terms of the Representatives' Warrants.
In connection with the Offering, the Company has agreed that, for the
three-year period commencing on the date of this Prospectus, Laidlaw Equities,
Inc. has the right to appoint a designee as an observer at all meetings of the
Company's Board of Directors. This designee has the right to attend all meetings
of the Board of Directors, provided that the Board of Directors shall have the
right to exclude such observer at any meeting in which, in the opinion of the
Board of Directors, confidential or sensitive matters are discussed. Such
observer shall be entitled to receive reimbursement for all expenses of
attendance at such meetings and an amount equal to any fee paid to outside
directors for attending any Board of Directors meetings.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Underwriters have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the total number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common Stock.
The IPO Price was determined through negotiations among the Company and the
Underwriters. Among the factors
47
<PAGE>
considered in such negotiations were an assessment of the Company's results of
operations, the future prospects of the Company and its industry in general, the
ability of the Company's management, the price/earnings ratio and market prices
of securities of similar companies and prevailing conditions in the securities
market at the time of the Offering. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the IPO Price.
The Company intends to apply to have the Common Stock approved for quotation
on Nasdaq and BSE. There can be no assurance that the Common Stock will be
accepted for such listing or any similar listing.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado,
and for the Underwriters by Dorsey & Whitney LLP, Denver, Colorado. Shareholders
or employees of Brownstein Hyatt Farber & Strickland, P.C. may purchase Common
Stock in the Offering.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the period
indicated in their reports, have been audited by BDO Seidman, LLP, independent
certified public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
48
<PAGE>
[AERIAL VIEW OF ILLINOIS CENTER GOLF]
METROGOLF'S ILLINOIS CENTER GOLF
CHICAGO
[AERIAL VIEW OF HARBORSIDE GOLF CENTER]
METROGOLF'S HARBORSIDE GOLF CENTER
SAN DIEGO
49
<PAGE>
METROGOLF INCORPORATED
AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
CONTENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
(UNAUDITED)
Pro Forma Consolidated Financial Information Explanatory Headnote (Unaudited).................. F-3 - F-6
Pro Forma Consolidated Balance Sheet (Unaudited)............................................... F-7 - F-9
Pro Forma Consolidated Statements of Operations (Unaudited).................................... F-10 - F-11
Notes to Pro Forma Consolidated Financial Statements (Unaudited)............................... F-12 - F-17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................... F-18
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS:
Balance Sheets................................................................................. F-19 - F-20
Statements of Operations....................................................................... F-21
Statements of Stockholders' Equity (Deficit) F-22 - F-23
Statements of Cash Flows....................................................................... F-24 - F-25
Summary of Accounting Policies................................................................. F-26 - F-29
Notes to Financial Statements.................................................................. F-30 - F-42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE...................... F-43
Schedule II - Valuation and Qualifying Accounts.................................................. F-44
FREMONT PARK GOLF CENTER:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................... F-45
FINANCIAL STATEMENTS:
Statements of Net Assets....................................................................... F-46
Statements of Operations....................................................................... F-47
Statements of Cash Flows....................................................................... F-48
Summary of Accounting Policies................................................................. F-49 - F-51
Notes to Financial Statements.................................................................. F-52 - F-53
ILLINOIS CENTER GOLF PARTNERS, L.P.:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................... F-54
FINANCIAL STATEMENTS:
Balance Sheets................................................................................. F-55 - F-56
Statements of Operations....................................................................... F-57
Statements of Changes in Partners' Capital..................................................... F-58
Statements of Cash Flows....................................................................... F-59
Summary of Accounting Policies................................................................. F-60- F-61
Notes to Financial Statements.................................................................. F-62 - F-67
GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................... F-71
FINANCIAL STATEMENTS:
Balance Sheets................................................................................. F-72 - F-73
Statements of Operations....................................................................... F-74
Statements of Changes in Partners' Capital..................................................... F-75
Statements of Cash Flows....................................................................... F-76 - F-77
Summary of Accounting Policies................................................................. F-78 - F-80
Notes to Financial Statements.................................................................. F-81 - F-88
</TABLE>
F-1
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED)
INTRODUCTION
The accompanying unaudited pro forma consolidated financial statements of
MetroGolf Incorporated and Subsidiaries, formerly The Vintage Group USA, Ltd.
(the "Company"), give effect to the interest expense associated with the
proceeds from the sale of convertible subordinated notes in a private placement
during May 1996, proceeds from the sale of common stock in an initial public
offering ("IPO"), the acquisition by the Company of Fremont Park Golf Center
("Fremont") pursuant to the Option Agreement between the parties, the
acquisitions of 90% limited partnership interests in Illinois Center Golf
Partners, L.P. ("Illinois Center") and Goose Creek Golf Partners Limited
Partnership ("Goose Creek"), the $1,750,000 in proceeds from Illinois Center's
long-term debt and Illinois Center's acquisition of $1,434,000 in property and
equipment (the "Transactions") and are based on the estimates and assumptions
set forth herein. This unaudited pro forma information has been prepared
utilizing the historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the purchase been effected on the dates indicated or of the results
which may be obtained in the future. The unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements set forth herein.
The pro forma condensed consolidated balance sheet as of June 30, 1996
assumes the Transactions were consummated as of June 30, 1996 and the pro forma
condensed consolidated statements of operations for the six months ended June
30, 1996 and for the year ended December 31, 1995 assume the Transactions were
consummated as of January 1, 1995.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
CONVERTIBLE SUBORDINATED NOTE OFFERING
During May 1996, the Company completed the sale in a private placement of
$2,025,000 convertible subordinated notes. The convertible notes bear interest
at 12% and are due June 1, 1997. The Company received $1,757,122 in net proceeds
after paying $267,878 in debt issue costs.
PROPOSED INITIAL PUBLIC OFFERING
The Company has signed a letter of intent with Laidlaw & Co. for its
subsidiary, Laidlaw Equities, Inc., to complete an initial public offering
("IPO") of the Company's no par value common stock. The Company intends to offer
approximately 1,200,000 shares of its common stock at a proposed price to the
public of $7 per share for gross proceeds of approximately $8,400,000 and net
proceeds of $7,110,000 after deducting estimated offering costs of $1,290,000.
The shares offered for sale to the public intended to be registered with the
Securities and Exchange Commission on Form S-1.
ACQUISITION OF FREMONT PARK GOLF CENTER
The Company has entered into an agreement to acquire Fremont for $650,000 in
cash, a $700,000 note due to the seller, and $81,472 in acquisition costs. The
$700,000 note will accrue interest at 9% and is due November 15, 1996.
The purchase price for Fremont is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Inventories.................................................... $ 55,000
Building and improvements...................................... 1,151,472
Furniture and equipment........................................ 225,000
----------
Total purchase price........................................... $1,431,472
----------
----------
</TABLE>
F-2
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED) (CONTINUED)
ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P.
The Company has offered to purchase all of the limited partnership interests
in Illinois Center. Under the Company's proposal, (i) each limited partner who
is an accredited investor and who elects to sell will receive for each $50,000
limited partnership interest either (a) $25,000 cash and a $25,000 convertible
note or (b) a $50,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $50,000 in cash for
each $50,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Illinois Center for cash of $1,575,000,
convertible notes of $1,575,000 and acquisition costs of $17,773.
The purchase price for a 90% limited partnership interest in Illinois Center
is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 27,760
Accounts receivable............................................ 9,542
Inventories.................................................... 17,112
Other current assets........................................... 14,420
Property and equipment......................................... 5,900,000
Excess of cost over net assets acquired........................ 1,225,479
Intangible assets.............................................. 173,035
Deposits....................................................... 6,786
----------
7,374,134
----------
Less:
Accounts payable............................................... 400,955
Checks written against future deposits......................... 61,620
Accounts payable, related party................................ 39,252
Accrued real estate taxes...................................... 377,315
Accrued expenses............................................... 117,343
Deferred sponsorship revenue................................... 20,000
Deferred membership revenue.................................... 133,768
Note payable, related party.................................... 500,000
Current maturities of long-term debt........................... 183,569
Minority interest.............................................. 324,396
Long-term debt, less current maturities........................ 2,048,143
----------
4,206,361
----------
Total purchase price........................................... 3,167,773
Less convertible notes payable................................. 1,575,000
Less deferred acquisition costs................................ 17,773
----------
Cash to be paid at closing..................................... $1,575,000
----------
----------
</TABLE>
ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP
The Company has offered to purchase all of the limited partnership interests
in Goose Creek. Under the Company's proposal, (i) each limited partner who is an
accredited investor and who elects to sell will receive for each $25,000 limited
partnership interest either (a) $12,500 cash and a $26,500 convertible note or
(b) a $39,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $39,000 in cash for
each $25,000 limited partnership
F-3
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED) (CONTINUED)
interest. Based on the Company's discussions with certain limited partners, the
Company anticipates that it will acquire a 90% limited partnership interest in
Goose Creek for cash of $477,750, convertible notes of $887,250 and acquisition
costs of $15,588.
The purchase price for a 90% limited partnership interest in Goose Creek is
anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash............................................................. $ 37,681
Inventories...................................................... 23,796
Prepaid and other current assets................................. 32,445
Property and equipment........................................... 5,425,000
Excess of cost over net assets acquired.......................... 766,696
Intangible assets................................................ 40,379
Deposits......................................................... 1,866
---------
6,327,863
---------
Less:
Accounts payable................................................. 332,993
Checks written against future deposits........................... 53,930
Accrued expenses................................................. 41,774
Deferred membership revenue...................................... 25,166
Line of credit................................................... 74,941
Notes payable, other............................................. 28,600
Note payable, related party...................................... 106,823
Current maturities of long-term debt............................. 197,700
Minority interest................................................ 140,844
Long-term debt, less current maturities.......................... 3,944,504
---------
4,947,275
---------
---------
Total purchase price............................................. 1,380,588
Less convertible notes payable................................... 887,250
Less deferred acquisition costs.................................. 15,588
---------
Cash to be paid at closing....................................... $ 477,750
---------
---------
</TABLE>
NOTES PAYABLE AND EQUIPMENT PURCHASE
On January 31, 1996, Illinois Center entered into a $2,000,000 promissory
note with Textron Financial Corporation ("Textron"). Textron advanced $1,750,000
to Illinois Center. The note bears interest at 3% above the Chase Manhattan
Bank's prime rate and is due on or before December 31, 2002. Illinois Center
applied $900,000 of the proceeds to its working capital and applied the
remaining $850,000 of the proceeds to the purchase of a clubhouse facility and
various items of equipment. The total purchase price of the clubhouse and
equipment was $1,434,000. Illinois Center entered into a $584,000 promissory
note for the remaining purchase price. The promissory note bears interest at 8%
per annum and is due June 1, 2005. Principal and interest payments on the note
commence January 1, 1998.
F-4
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED) (CONTINUED)
The purchase price for a 90% limited partnership interest in Illinois Center
is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 27,760
Accounts receivable............................................ 9,542
Inventories.................................................... 17,112
Other current assets........................................... 14,420
Property and equipment......................................... 5,900,000
Excess of cost over net assets acquired........................ 1,225,479
Intangible assets.............................................. 173,035
Deposits....................................................... 6,786
----------
7,374,134
----------
Less:
Accounts payable............................................... 400,955
Checks written against future deposits......................... 61,620
Accounts payable, related party................................ 39,252
Accrued real estate taxes...................................... 377,315
Accrued expenses............................................... 117,343
Deferred sponsorship revenue................................... 20,000
Deferred membership revenue.................................... 133,768
Note payable, related party.................................... 500,000
Current maturities of long-term debt........................... 183,569
Minority interest.............................................. 324,396
Long-term debt, less current maturities........................ 2,048,143
----------
4,206,361
----------
Total purchase price........................................... 3,167,773
Less convertible notes payable................................. 1,575,000
Less deferred acquisition costs................................ 17,773
----------
Cash to be paid at closing..................................... $1,575,000
----------
----------
</TABLE>
ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP
The Company has offered to purchase all of the limited partnership interests
in Goose Creek. Under the Company's proposal, (i) each limited partner who is an
accredited investor and who elects to sell will receive for each $25,000 limited
partnership interest either (a) $12,500 cash and a $26,500 convertible note or
(b) a $39,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $39,000 in cash for
each $25,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Goose Creek for cash of $477,750,
convertible notes of $887,250 and acquisition costs of $15,588.
F-5
<PAGE>
The purchase price for a 90% limited partnership interest in Goose Creek is
anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 37,681
Inventories.................................................... 23,796
Prepaid and other current assets............................... 32,445
Property and equipment......................................... 5,425,000
Excess of cost over net assets acquired........................ 766,696
Intangible assets.............................................. 40,379
Deposits....................................................... 1,866
----------
6,327,863
----------
Less:
Accounts payable............................................... 332,993
Checks written against future deposits......................... 53,930
Accrued expenses............................................... 41,774
Deferred membership revenue.................................... 25,166
Line of credit................................................. 74,941
Notes payable, other........................................... 28,600
Note payable, related party.................................... 106,823
Current maturities of long-term debt........................... 197,700
Minority interest.............................................. 140,844
Long-term debt, less current maturities........................ 3,944,504
----------
4,947,275
----------
Total purchase price........................................... 1,380,588
Less convertible notes payable................................. 887,250
Less deferred acquisition costs................................ 15,588
----------
Cash to be paid at closing..................................... $ 477,750
----------
----------
</TABLE>
NOTES PAYABLE AND EQUIPMENT PURCHASE
On January 31, 1996, Illinois Center entered into a $2,000,000 promissory
note with Textron Financial Corporation ('Textron'). Textron advanced $1,750,000
to Illinois Center. The note bears interest at 3% above the Chase Manhattan
Bank's prime rate and is due on or before December 31, 2002. Illinois Center
applied $900,000 of the proceeds to its working capital and applied the
remaining $850,000 of the proceeds to the purchase of a clubhouse facility and
various items of equipment. The total purchase price of the clubhouse and
equipment was $1,434,000. Illinois Center entered into a $584,000 promissory
note for the remaining purchase price. The promissory note bears interest at 8%
per annum and is due June 1, 2005. Principal and interest payments on the note
commence January 1, 1998.
F-6
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
PRO FORMA FORMA ILLINOIS FORMA
JUNE 30, 1996 THE COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current:
Cash...................................... $ 1,313,841 $7,295,450(2) $ $ $ 27,760 $
(600,000)(4)
(1,575,000)(5)
(477,750)(6)
(1,485,416)(3)
Accounts receivable....................... 9,542
Management fee receivable, related
party.................................... 39,252
Inventories............................... 52,448 2,552(4) 17,112
Other current assets...................... 16,184 5,732 (5,732)(8) 14,420
------------ ------------ ------------ ------------ ------------ ------------
Total current assets........................ 1,369,277 3,157,284 58,180 (3,180) 68,834
------------ ------------ ------------ ------------ ------------ ------------
Property and equipment, net................. 54,302 456,276 920,196(4) 4,395,199 1,504,801(5)
------------ ------------ ------------ ------------ ------------ ------------
Other:
Investments in subsidiaries............... 1,431,472(4)
3,167,773(5)
1,380,588(6)
Excess of cost over net assets acquired,
net of accumulated amortization.......... 592,180 (592,180)(8) 977,272(5)
Debt issue costs, net of accumulated
amortization............................. 245,555
Notes receivable, related parties......... 606,823
Intangible assets, net of accumulated
amortization............................. 2,297 (2,297)(8) 173,035
Deferred offering costs................... 185,450 (185,450)(2)
Deposit on acquisition.................... 50,000 (50,000)(4)
Deferred acquisition costs................ 147,322 (81,472)(4)
(17,773)(5)
(15,588)(6)
Deposits.................................. 39,800 6,786
------------ ------------ ------------ ------------ ------------ ------------
Total other assets.......................... 1,274,950 5,629,550 594,477 (594,477) 179,821 977,272
------------ ------------ ------------ ------------ ------------ ------------
$ 2,698,529 $8,786,834 $ 1,108,933 $ 322,539 $ 4,643,854 $2,482,073
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
GOOSE CREEK
PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 GOOSE CREEK ADJUSTMENTS ENTRIES PRO FORMA
- -------------------------------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash...................................... $ 37,681 $ $ $ 4,536,566
Accounts receivable....................... 9,542
Management fee receivable, related
party.................................... (39,252)(7)
Inventories............................... 23,796 95,908
Other current assets...................... 32,445 63,049
------------ ------------ ------------- -------------
Total current assets........................ 93,922 (39,252) 4,705,065
------------ ------------ ------------- -------------
Property and equipment, net................. 4,948,837 476,163(6) 12,755,774
------------ ------------ ------------- -------------
Other:
Investments in subsidiaries............... (1,431,472)(7)
(3,167,773)(7)
(1,380,588)(7)
Excess of cost over net assets acquired,
net of accumulated amortization.......... 653,709(6) 354,877 1,985,858
Debt issue costs, net of accumulated
amortization............................. 245,555
Notes receivable, related parties......... (606,823)(7)
Intangible assets, net of accumulated
amortization............................. 40,379 213,414
Deferred offering costs...................
Deposit on acquisition....................
Deferred acquisition costs................ 32,489
Deposits.................................. 1,866 48,452
------------ ------------ ------------- -------------
Total other assets.......................... 42,245 653,709 (6,231,779) 2,525,768
------------ ------------ ------------- -------------
$ 5,085,004 $1,129,872 $ (6,271,031) $ 19,986,607
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-7
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
PRO FORMA FORMA ILLINOIS FORMA
JUNE 30, 1996 THE COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 548,174 $ $ 33,542 $ (33,542)(8) $ 400,955 $
Accounts payable, related party........... 39,252
Accrued real estate taxes................. 377,315
Checks issued against future deposits..... 6,377 (6,377)(8) 61,620
Deferred membership revenue............... 133,768
Deferred sponsorship revenue.............. 20,000
Accrued expenses.......................... 117,343
Accrued interest expense.................. 20,250
Accrued salaries.......................... 327,458
Advances payable.......................... 10,000
Notes payable, other......................
Notes payable, related party.............. 500,000
Note payable, officer..................... 4,825
Lines of credit...........................
Convertible subordinated notes payable,
net...................................... 1,781,400
Current maturities of long-term debt...... 17,546 700,000(4) 76,760 (76,760)(8) 183,569
------------ ------------ ------------ ------------ ------------ ------------
Total current liabilities................... 2,709,653 700,000 116,679 (116,679) 1,833,822
------------ ------------ ------------ ------------ ------------ ------------
Long-term debt, less current maturities..... 13,586 1,575,000(5) 164,096 (164,096)(8) 2,048,143
887,250(6)
------------ ------------ ------------ ------------ ------------ ------------
Investments in affiliates................... 6,318
Minority interest in consolidated
subsidiaries............................... 21,773
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities........................... 2,751,330 3,162,250 280,775 (280,775) 3,881,965
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
GOOSE CREEK
PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 GOOSE CREEK ADJUSTMENTS ENTRIES PRO FORMA
- -------------------------------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 332,993 $ $ $ 1,282,122
Accounts payable, related party........... (39,252)(7)
Accrued real estate taxes................. 377,315
Checks issued against future deposits..... 53,930 115,550
Deferred membership revenue............... 25,166 158,934
Deferred sponsorship revenue.............. 20,000
Accrued expenses.......................... 8,541 125,884
Accrued interest expense.................. 33,233 53,483
Accrued salaries.......................... 327,458
Advances payable.......................... 10,000
Notes payable, other...................... 28,600 28,600
Notes payable, related party.............. 106,823 (606,823)(7)
Note payable, officer..................... 4,825
Lines of credit........................... 74,941 74,941
Convertible subordinated notes payable,
net...................................... 1,781,400
Current maturities of long-term debt...... 197,700 1,098,815
------------ ------------ ------------- -------------
Total current liabilities................... 861,927 (646,075) 5,459,327
------------ ------------ ------------- -------------
Long-term debt, less current maturities..... 3,944,504 8,468,483
------------ ------------ ------------- -------------
Investments in affiliates................... (6,318)(7)
Minority interest in consolidated
subsidiaries............................... 465,241 (7) 487,014
------------ ------------ ------------- -------------
Total liabilities........................... 4,806,431 (187,152) 14,414,824
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-8
<PAGE>
METROGOLF INCORPORATED AND SUBISIDARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
PRO FORMA FORMA ILLINOIS FORMA GOOSE
JUNE 30, 1996 THE COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS CREEK
- ---------------------------------- ----------- ------------- ---------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity:
Preferred stock................. 45,500 (45,500)(3)
Common stock.................... 146,830 7,110,000(2)
Additional paid-in capital...... 940,609 (940,609)(3)
Partners' capital............... 761,889 2,482,073(5) 278,573
Net assets...................... 828,158 922,748(4)
(319,434)(8)
Notes receivable, stockholder... (166,324)
Accumulated deficit............. (1,019,416) (499,307)(3)
----------- ------------- ---------- ------------ ---------- ------------- ----------
Total stockholders' equity
(deficit)........................ (52,801) 5,624,584 828,158 603,314 761,889 2,482,073 278,573
----------- ------------- ---------- ------------ ---------- ------------- ----------
$ 2,698,529 $ 8,786,834 $1,108,933 $ 322,539 $4,643,854 $ 2,482,073 $5,085,004
----------- ------------- ---------- ------------ ---------- ------------- ----------
----------- ------------- ---------- ------------ ---------- ------------- ----------
<CAPTION>
GOOSE CREEK
PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 ADJUSTMENTS ENTRIES PRO FORMA
- ---------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock.................
Common stock....................
Additional paid-in capital...... 7,256,830
Partners' capital............... 1,129,872(6) (4,652,407)(7)
Net assets...................... (1,431,472)(7)
Notes receivable, stockholder... (166,324)
Accumulated deficit............. (1,518,723)
-------------- -------------- ------------
Total stockholders' equity
(deficit)........................ 1,129,872 (6,083,879) 5,571,783
-------------- -------------- ------------
$ 1,129,872 $ (6,271,031) $19,986,607
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-9
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO GOOD CREEK
SIX MONTHS ENDED JUNE 30, THE PRO FORMA FORMA ILLINOIS FORMA GOOSE PRO FORMA
1996 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS CREEK ADJUSTMENTS
- ---------------------------- ---------- ----------- --------- ----------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 99,275 $ $ 208,746 $ $ 509,517 $ $ 572,939 $
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Operating expenses.......... 422,296 222,837 25,417(10) 842,981 46,594(10) 565,353 (9,497)(10)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Income (loss) from
operations................. (323,021) (14,091) (25,417) (333,464) (46,594) 7,586 9,497
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Other income (expense):
Interest income........... 34,400 2,432
Interest expense.......... (62,490) (250,229) 11) (9,155) (137,743) (271,587)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Total other income
(expense).................. (28,090) (250,229) (9,155) (137,743) (269,155)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Equity in loss of
affiliates................. (2,629)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Minority interest in loss of
consolidated
subsidiaries............... (6,240)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Net loss.................... (359,980) (250,229) (23,246) (25,417) (471,207) (46,594) (261,569) 9,497
Dividend requirements on
preferred stock............ 85,312 (85,312)(3)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Loss applicable to common
stock...................... $ (445,292) $(164,917) $ (23,246) $ (25,417) $(471,207) $ (46,594) $(261,569) $ 9,497
---------- ----------- --------- ----------- --------- ----------- --------- -------------
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Net loss per common share... $ (.32)
---------- ----------- --------- ----------- --------- ----------- --------- -------------
---------- ----------- --------- ----------- --------- ----------- --------- -------------
Weighted average number of
common shares outstanding.. 1,395,701
---------- ----------- --------- ----------- --------- ----------- --------- -------------
---------- ----------- --------- ----------- --------- ----------- --------- -------------
<CAPTION>
SIX MONTHS ENDED JUNE 30, ELIMINATING CONSOLIDATED
1996 ENTRIES PRO FORMA
- ---------------------------- ----------- ------------
<S> <C> <C>
Revenues.................... $ (99,275)(7) $1,291,202
----------- ------------
Operating expenses.......... (99,275) 2,016,706
----------- ------------
Income (loss) from
operations................. (725,504)
----------- ------------
Other income (expense):
Interest income........... (25,239)(7) 11,593
Interest expense.......... 25,239(7) (705,965)
----------- ------------
Total other income
(expense).................. (694,372)
----------- ------------
Equity in loss of
affiliates................. 2,629(7)
----------- ------------
Minority interest in loss of
consolidated
subsidiaries............... 69,568(7) 63,328
----------- ------------
Net loss.................... 72,197 (1,356,548)
Dividend requirements on
preferred stock............
----------- ------------
Loss applicable to common
stock...................... $ 72,197 $(1,356,548)
----------- ------------
----------- ------------
Net loss per common share... $ (.52 )
----------- ------------
----------- ------------
Weighted average number of
common shares outstanding.. 2,595,701 (12)
----------- ------------
----------- ------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-10
<PAGE>
METROGOLF INCORPORATED AND SUBISIDARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
THE PRO FORMA FORMA ILLINOIS FORMA GOOSE
YEAR ENDED DECEMBER 31, 1995 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS CREEK
- ----------------------------- ---------- ------------- --------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 335,303 $ $ 507,959 $ $1,552,712 $ $1,451,922
---------- ------------- --------- ------------ ---------- ------------- ----------
Operating expenses........... 882,709 125,000(9) 531,638 50,833 (10 2,011,646 164,889 (10 1,227,543
(80,500)(13)
---------- ------------- --------- ------------ ---------- ------------- ----------
Income (loss) from
operations.................. (547,406) (125,000) (23,679) (50,833) (458,934) (84,389) 224,379
---------- ------------- --------- ------------ ---------- ------------- ----------
Other income (expense):
Interest income............ 61,116 6 3,830
Interest expense........... (25,994) (540,956)(11) (28,585) (76,284) (199,443)(11) (469,732)
---------- ------------- --------- ------------ ---------- ------------- ----------
Total other income
(expense)................... 35,122 (540,956) (28,585) (76,278) (199,443) (465,902)
---------- ------------- --------- ------------ ---------- ------------- ----------
Equity in loss of
affiliates.................. (770)
---------- ------------- --------- ------------ ---------- ------------- ----------
Minority interest in loss of
consolidated subsidiaries... (19,058)
---------- ------------- --------- ------------ ---------- ------------- ----------
Net loss from continuing
operations.................. (532,112) (665,956) (52,264) (50,833) (535,212) (283,832) (241,523)
Dividend requirements on
preferred stock............. 155,052 (155,052)(3)
---------- ------------- --------- ------------ ---------- ------------- ----------
Loss applicable to common
stock....................... $ (687,164) $ (510,904) $ (52,264) $ (50,833) $ (535,212) $ (283,832) $ (241,523)
---------- ------------- --------- ------------ ---------- ------------- ----------
---------- ------------- --------- ------------ ---------- ------------- ----------
Net loss per common share
from continuing
operations.................. $ (.49)
----------
----------
Weighted average number of
common shares outstanding... 1,395,701
----------
----------
<CAPTION>
GOOSE CREEK
PRO FORMA ELIMINATING CONSOLIDATED
YEAR ENDED DECEMBER 31, 1995 ADJUSTMENTS ENTRIES PRO FORMA
- ----------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
Revenues..................... $ $ (190,303)(7) $ 3,657,593
------------- ------------- ---------------
Operating expenses........... (18,995)(10) (190,303)(7) 4,704,460
------------- ------------- ---------------
Income (loss) from
operations.................. 18,995 (1,046,867)
------------- ------------- ---------------
Other income (expense):
Interest income............ 64,952
Interest expense........... (1,340,994)
------------- ------------- ---------------
Total other income
(expense)................... (1,276,042)
------------- ------------- ---------------
Equity in loss of
affiliates.................. 770(7)
------------- ------------- ---------------
Minority interest in loss of
consolidated subsidiaries... 104,157(7) 85,099
------------- ------------- ---------------
Net loss from continuing
operations.................. 18,995 104,927 (2,237,810)
Dividend requirements on
preferred stock.............
------------- ------------- ---------------
Loss applicable to common
stock....................... $ 18,995 $ 104,927 $ (2,237,810)
------------- ------------- ---------------
------------- ------------- ---------------
Net loss per common share
from continuing
operations.................. $ (.86)
---------------
---------------
Weighted average number of
common shares outstanding... 2,595,701(12)
---------------
---------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-11
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRO FORMA ADJUSTMENTS
The pro forma condensed consolidated balance sheet as of June 30, 1996
assumes the Transactions were consummated as of June 30, 1996 and the pro forma
condensed consolidated statements of operations for the six months ended June
30, 1996 and for the year ended December 31, 1995 assumes the Transactions were
consummated as of January 1, 1995.
2. PROPOSED INITIAL PUBLIC OFFERING
Reflects the sale of 1,200,000 shares of the Company's common stockat a
price of $7 per share for gross proceeds of$8,400,000 and net proceeds of
$7,110,000 after deducting estimated offering costs of $1,290,000.
3. REDEMPTION OF PREFERRED STOCK
Reflects the redemption of the preferred stock. The preferred stock has a
redemption value of $1,194,375 as of June 30, 1996 and dividends in arrears of
$291,041 as of June 30, 1996.
4. ACQUISITION OF FREMONT PARK GOLF CENTER
The Company has entered into an agreement to acquire Fremont for $650,000 in
cash, a $700,000 note due to the seller, and $81,472 in acquisition costs. The
$700,000 note will accrue interest at 9% and is due November 15, 1996. The
acquisition of Fremont is recorded using the purchase method.
The purchase price for Fremont is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Inventories.................................................... $ 55,000
Building and improvements...................................... 1,151,472
Furniture and equipment........................................ 225,000
----------
Total purchase price........................................... $1,431,472
----------
----------
</TABLE>
5. ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P.
The Company has offered to purchase all of the limited partnership interests
in Illinois Center. Under the Company's proposal, (i) each limited partner who
is an accredited investor and who elects to sell will receive for each $50,000
limited partnership interest either (a) $25,000 cash and a $25,000 convertible
note or (b) a $50,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $50,000 in cash for
each $50,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Illinois Center for cash of $1,575,000,
convertible notes of $1,575,000 and acquisition costs of $17,773. The
acquisition of Illinois Center is recorded using the purchase method.
F-12
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P. (CONTINUED)
The purchase price for a 90% limited partnership interest in Illinois Center
is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 27,760
Accounts receivable............................................ 9,542
Inventories.................................................... 17,112
Other current assets........................................... 14,420
Property and equipment......................................... 5,900,000
Excess of cost over net assets acquired........................ 1,225,479
Intangible assets.............................................. 173,035
Deposits....................................................... 6,786
----------
7,374,134
----------
Less:
Accounts payable............................................... 400,955
Checks written against future deposits......................... 61,620
Accounts payable, related party................................ 39,252
Accrued real estate taxes...................................... 377,315
Accrued expenses............................................... 117,343
Deferred sponsorship revenue................................... 20,000
Deferred membership revenue.................................... 133,768
Note payable, related party.................................... 500,000
Current maturities of long-term debt........................... 183,569
Minority interest.............................................. 324,396
Long-term debt, less current maturities........................ 2,048,143
----------
4,206,361
----------
Total purchase price........................................... 3,167,773
Less convertible notes payable................................. 1,575,000
Less deferred acquisition costs................................ 17,773
----------
Cash to be paid at closing..................................... $1,575,000
----------
----------
</TABLE>
6. ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP
The Company has offered to purchase all of the limited partnership interests
in Goose Creek. Under the Company's proposal, (i) each limited partner who is an
accredited investor and who elects to sell will receive for each $25,000 limited
partnership interest either (a) $12,500 cash and a $26,500 convertible note or
(b) a $39,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $39,000 in cash for
each $25,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Goose Creek for cash of $477,750,
convertible
F-13
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP (CONTINUED)
notes of $887,250 and acquisition costs of $15,558. The acquisition of Goose
Creek is recorded using the purchase method. The purchase price for a 90%
limited partnership interest in Goose Creek is anticipated to be allocated as
follows:
<TABLE>
<S> <C>
Cash........................................................... $ 37,681
Inventories.................................................... 23,796
Prepaid and other current assets............................... 32,445
Property and equipment......................................... 5,425,000
Excess of cost over net assets acquired........................ 766,696
Intangible assets.............................................. 40,379
Deposits....................................................... 1,866
----------
6,327,863
----------
Less:
Accounts payable............................................... 332,993
Checks written against future deposits......................... 53,930
Accrued expenses............................................... 41,774
Deferred membership revenue.................................... 25,166
Line of credit................................................. 74,941
Notes payable, other........................................... 28,600
Note payable, related party.................................... 106,823
Current maturities of long-term debt........................... 197,700
Minority interest.............................................. 140,844
Long-term debt, less current maturities........................ 3,944,504
----------
4,947,275
----------
Total purchase price........................................... 1,380,588
Less convertible note payable.................................. 887,250
Less deferred acquisition costs................................ 15,588
----------
Cash to be paid at closing..................................... $ 477,750
----------
----------
</TABLE>
7. ELIMINATING ENTRIES
INTERCOMPANY RECEIVABLES AND PAYABLES
Removes the Company's notes receivable due from Illinois Center and Goose
Creek against Illinois Center's and Goose Creek's notes payable due to the
Company.
INTERCOMPANY REVENUES AND EXPENSES
Removes the Company's intercompany revenues generated from Illinois Center
and Goose Creek against Illinois Center's and Goose Creek's intercompany
expenses generated from the Company.
INVESTMENTS IN AFFILIATES
Reflects the net adjustment in investment in affiliates when Illinois Center
and Goose Creekare consolidated with the Company.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Reflects the minority interest in Illinois Center and Goose Creek when these
entities are consolidated with the Company.
F-14
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. ELIMINATING ENTRIES (CONTINUED)
NET ASSETS OF FREMONT
Reflects the adjustment to remove the net assets of Fremont when Fremont is
consolidated with the Company.
PARTNERS' CAPITAL
Reflects the adjustment to remove the partners' capital of Illinois Center
and Goose Creek when these entities are consolidated with the Company.
EQUITY IN LOSS OF AFFILIATE
Removes the Company's equity in earnings of Illinois Center and Goose Creek
when these entities are consolidated with the Company.
MINORITY INTEREST IN LOSS OF CONSOLIDATED SUBSIDIARIES
Reflects the Company's minority interest in loss of Illinois Center and
Goose Creek when these entities are consolidated with the Company.
8. UNACQUIRED ASSETS AND LIABILITIES
Removes assets not acquired and liabilities not assumed in the acquisition
of Fremont.
9. COMPENSATION EXPENSE
Reflects the change in compensation of the Company's President from $180,000
to $250,000 and the change in compensation of the Company's Executive Vice
President from $120,000 to $175,000 for the year ended December 31, 1995.
FREMONT
10. DEPRECIATION AND AMORTIZATION
Reflects additional depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 5 to 31.5 years.
ILLINOIS CENTER
Reflects additional depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 14.5 to 39 years. Reflects
amortization of cost in excess of assets acquired using the straight-line method
over 14.5 years. The pro forma consolidated statement of operations for the year
ended December 31, 1995 reflects additional depreciation on clubhouse and
equipment using the straight-line method (see Note 13). The estimated useful
lives of the clubhouse and equipment range from 5 to 39 years.
GOOSE CREEK
Reflects change in depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 5 to 31.5 years. Reflects
amortization of cost in excess of assets acquired using the straight-line method
over 20 years.
11. INTEREST EXPENSE
THE COMPANY
Reflects interest expense for the $2,025,000 in convertible subordinated
notes payable. The convertible subordinated notes payable bear interest at 12%
and are due June 1, 1997. Reflects
F-15
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. INTEREST EXPENSE (CONTINUED)
interest expense for the $700,000 note payable used to finance the acquisition
of Fremont. The note payable bears interest at 9% and is due on November 15,
1996. Reflects interest expense for the $2,462,250 convertible notes payable
used to finance the acquisition of Illinois Center and Goose Creek. The
convertible notes payable bear interest at 6% per annum and are due on June 1,
2005. Reflects a reduction in interest expense on the Company's $225,000 line of
credit since the line of credit was paid off. The line of credit bore interest
at 8.5% per annum.
Reflects amortization of debt issue costs due to the issuance of the
convertible subordinated notes. The debt issue costs are being amortized over 29
months.
ILLINOIS CENTER
The pro forma consolidated statement of operations for the year ended
December 31, 1995 reflects interest expense on Illinois Center's $1,750,000 and
$584,000 promissory notes payable (see Note 13).
12. WEIGHTED AVERAGE SHARES OUTSTANDING
On a pro forma basis, weighted average shares are adjusted to reflectthe
1,200,000 shares issued in the IPO. The 1,200,000 shares are assumed to be
outstanding for the entire period.
13. NOTES PAYABLE AND EQUIPMENT PURCHASE
On January 31, 1996, Illinois Center entered into a $2,000,000 promissory
note with Textron. Textron advanced $1,750,000 to Illinois Center. The note
bears interest at 3% above the Chase Manhattan Bank's prime rate and is due on
or before December 31, 2002. Illinois Center applied $900,000 of the proceeds to
its working capital and applied the remaining $850,000 of the proceeds to the
purchase of a clubhouse facility and various items of equipment. The total
purchase price of the clubhouse and equipment was $1,434,000. Illinois Center
entered into a $584,000 promissory note for the remaining purchase price. The
promissory note bears interest at 8% per annum and is due June 1, 2005.
Principal and interest payments on the note commence January 1, 1998.
The pro forma consolidated statement of operations for the year ended
December 31, 1995 reflects a reduction in equipment lease expense as a result of
Illinois Center purchasing its clubhouse and equipment.
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MetroGolf Incorporated (Formerly The Vintage Group USA, Ltd.)
Denver, Colorado
We have audited the accompanying consolidated balance sheets of MetroGolf
Incorporated and subsidiaries (the "Company"), formerly The Vintage Group USA,
Ltd., as of December 31, 1995 and 1994 and the related consolidated statement of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1995 and the related combined statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1994 and
1993. These consolidated and combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated and combined 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
MetroGolf Incorporated and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995, 1994 and 1993 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996
F-17
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
JUNE 30, --------- ---------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 5)
Current:
Cash and cash equivalents................................................... $1,313,841 $ 324 $ 195,777
Restricted cash (Note 3).................................................... -- 222,700 200,000
Management fee receivable, related parties (Note 7)......................... 39,252 83,256 41,063
Commission advances to officer.............................................. -- -- 13,500
Other current assets........................................................ 16,184 15,452 18,417
----------- --------- ---------
Total current assets.................................................... 1,369,277 321,732 468,757
----------- --------- ---------
Property and equipment:
Automobile.................................................................. 52,262 35,715 35,715
Furniture and equipment..................................................... 35,715 52,262 13,455
----------- --------- ---------
87,977 87,977 49,170
Less accumulated depreciation................................................. 33,675 24,025 4,726
----------- --------- ---------
Net property and equipment.................................................... 54,302 63,952 44,444
----------- --------- ---------
Other:
Notes receivable, related parties (Note 1).................................. 606,823 514,728 275,724
Debt issue costs net of accumulated amortization of $22,323 as of June 30,
1996....................................................................... 245,555 -- --
Deposits.................................................................... 39,800 19,800 18,800
Deferred offering costs..................................................... 185,450 -- 5,000
Deferred acquisition costs.................................................. 147,322 59,467 --
Deposit on acquisition...................................................... 50,000 -- --
----------- --------- ---------
Total other assets............................................................ 1,274,950 593,995 299,524
----------- --------- ---------
$2,698,529 $ 979,679 $ 812,725
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 548,174 $ 380,217 $ 120,413
Accrued salaries............................................................ 327,458 145,784 69,705
Accrued payroll taxes and other liabilities................................. 20,250 1,446 45,307
Advances payable............................................................ 10,000 10,000 10,000
Note payable, officer (Note 4).............................................. 4,825 26,827 --
Lines of credit (Note 3).................................................... -- 246,937 38,863
Convertible subordinated notes payable, net of original issue discount of
$243,600 (Note 13)......................................................... 1,781,400 -- --
Current portion of long-term debt (Note 5).................................. 17,546 16,489 5,047
----------- --------- ---------
Total current liabilities..................................................... 2,709,653 827,700 289,335
----------- --------- ---------
Long-term debt, less current portion (Note 5)................................. 13,586 23,151 26,287
----------- --------- ---------
Investments in affiliates (Note 2)............................................ 6,318 3,689 2,919
----------- --------- ---------
Minority interest in consolidated subsidiaries................................ 21,773 24,178 5,118
----------- --------- ---------
Total liabilities............................................................. 2,751,350 878,718 323,659
----------- --------- ---------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit) (Note 8):
Preferred stock -- $1 par value; 1,000,000 shares authorized; 45,500, 45,500
and 37,500 shares issued and outstanding; liquidation value of $25 per
share plus dividends in arrears of $291,041, $205,729 and $50,677 (in the
aggregate $1,428,541, $1,343,229 and $988,177)............................. 45,500 45,500 37,500
Additional paid-in capital.................................................... 940,609 940,609 749,105
Common stock -- no par value; 9,000,000 shares authorized; 1,045,000 shares
issued and outstanding....................................................... 146,830 (96,770) (96,770)
Notes receivable, stockholder (Note 1)...................................... (166,324) (120,300) (64,803)
Accumulated deficit......................................................... (1,019,416) (668,078) (135,966)
----------- --------- ---------
Total stockholders' equity (deficit).......................................... (52,801) 100,961 489,066
----------- --------- ---------
$2,698,529 $ 979,679 $ 812,725
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-18
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
CONSOLIDATED CONSOLIDATED COMBINED
------------------------ ------------ ------------------------
1996 1995 1995 1994 1993
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Management fees, related parties (Notes 2
and 7)................................... $ 99,275 $ 85,013 $ 190,303 $ 159,691 $ 46,313
Acquisition fee........................... -- -- 120,000 -- --
Development fees, related party (Note
7)....................................... -- -- -- 125,000 --
Consulting fees........................... -- -- 25,000 6,546 60,000
----------- ----------- ------------ ----------- -----------
Total revenues.......................... 99,275 85,013 335,303 291,237 106,313
----------- ----------- ------------ ----------- -----------
Operating expenses:
Salaries and bonuses...................... 269,752 157,644 343,827 373,779 50,816
General and administrative................ 142,894 207,305 519,583 181,201 53,438
Depreciation.............................. 9,650 6,062 19,299 10,831 4,922
----------- ----------- ------------ ----------- -----------
Total operating expenses................ 422,296 371,011 882,709 565,811 109,176
----------- ----------- ------------ ----------- -----------
Loss from operations........................ (323,021) (285,998) (547,406) (274,574) (2,863)
----------- ----------- ------------ ----------- -----------
Other income (expense):
Interest income........................... 34,400 20,040 61,116 15,472 3,146
Interest expense.......................... (62,490) (10,371) (25,994) (1,842) (3,058)
----------- ----------- ------------ ----------- -----------
Total other income (expense)............ (28,090) 9,669 35,122 13,630 88
----------- ----------- ------------ ----------- -----------
Equity in loss of affiliates (Note 2)....... (2,629) (877) (770) (309) (1,392)
----------- ----------- ------------ ----------- -----------
Minority interest in income of consolidated
subsidiaries............................... (6,240) (4,662) (19,058) (3,560) --
----------- ----------- ------------ ----------- -----------
Net loss.................................... (359,980) (281,868) (532,112) (264,813) (4,167)
Dividend requirements on preferred stock.... 85,312 72,521 155,052 50,677 --
----------- ----------- ------------ ----------- -----------
Loss applicable to common stock............. $ (445,292) $ (354,389) $ (687,164) $ (315,490) $ (4,167)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Net loss per common share................... $ (.32) $ (.25) $ (.49) $ (.23) $ 0
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Weighted average number of common shares
outstanding................................ 1,395,701 1,395,701 1,395,701 1,395,701 1,395,701
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-19
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF STOKCHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK ADDITIONAL COMMON STOCK NOTES
-------------------- PAID-IN -------------------- RECEIVABLE, ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT STOCKHOLDER DEFICIT
--------- --------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993............... -- $ -- $ -- 100 $ 100 $ (40,073) $ 22,554
Issuance of IC's common stock for
cash................................ -- -- -- 900 90 -- --
Change in notes receivable,
stockholder -- -- -- -- -- (79,552) --
Combined net loss.................... -- -- -- -- -- -- (4,167)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1993............. -- -- -- 1,000 190 (119,625) 18,387
Issuance of IC's common stock for
cash................................ -- -- -- 100 15,000 -- --
Business reorganization as of July
29, 1994............................ -- -- -- (1,100) (15,190) -- --
Issuance of common stock in
connection with business
reorganization...................... -- -- -- 1,045,000 13,690 -- --
Reclassification of VA's and IC's
subchapter S income and losses from
accumulated deficit to common
stock............................... -- -- -- -- (110,460) -- 110,460
Issuance of preferred stock for cash
in private offering, net of stock
issuance costs of $150,895.......... 37,500 37,500 749,105 -- -- -- --
Change in notes receivable,
stockholder......................... -- -- -- -- -- 54,822 --
Combined net loss.................... -- -- -- -- -- -- (264,813)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1994............. 37,500 37,500 749,105 1,045,000 (96,770) (64,803) (135,966)
Issuance of preferred stock for
cash................................ 8,000 8,000 191,504 -- -- -- --
Change in notes receivable,
stockholder......................... -- -- -- -- -- (55,497) --
Net loss............................. -- -- -- -- -- -- (532,112)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1995............. 45,500 45,500 940,609 1,045,000 (96,770) (120,300) (668,078)
Change in notes receivable,
stockholder......................... -- -- -- -- -- (46,024) --
Increase in ownership of subsidiary
for no consideration................ 8,642
Discount on debt..................... -- -- -- -- 243,600 -- --
Net loss (Unaudited)................. -- -- -- -- -- -- (359,980)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, June 30, 1996 (Unaudited)..... 45,500 $ 45,500 $ 940,609 1,045,000 $ 146,830 $(166,324) $(1,019,416)
--------- --------- ----------- --------- --------- ----------- ------------
--------- --------- ----------- --------- --------- ----------- ------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-20
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------- YEARS ENDED DECEMBER 31,
---------------------------------------
CONSOLIDATED CONSOLIDATED COMBINED
--------------------------- ------------ -------------------------
1995 1995 1994 1993
1996 ------------ ------------ ------------ -----------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents
Operating activities:
Net loss...................................... $ (359,980) $ (281,868) $ (532,112) $ (264,813) $ (4,167)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation................................ 9,650 6,062 19,299 10,831 4,922
Interest expense............................ 22,323 -- -- -- --
Salary expense.............................. -- -- -- 125,000 --
Write off of deferred offering costs........ -- 5,000 5,000 -- --
Deferred revenue............................ -- -- -- (125,000) --
Equity in loss of affiliates................ 2,629 877 770 309 1,392
Minority interest in income of consolidated
subsidiaries............................... 6,240 4,662 19,060 3,560 --
Changes in operating assets and liabilities:
Management fee receivable, related party.... 44,005 (4,341) (42,193) (41,063) --
Commission advances to officer.............. -- (18,000) 13,500 (13,500) --
Other current assets........................ (736) 18,368 2,965 (17,837) (520)
Accounts payable............................ 167,957 80,732 259,804 103,916 12,066
Accrued salaries............................ 181,674 (11,372) 76,079 69,705 --
Accrued payroll taxes and other
liabilities................................ 18,804 (47,995) (43,861) 45,307 --
Deferred revenue............................ -- -- -- -- 125,000
------------- ------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities................................... 92,566 (247,875) (221,689) (103,585) 138,693
------------- ------------ ------------ ------------ -----------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-21
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- ---------------------------------------
CONSOLIDATED CONSOLIDATED COMBINED
--------------------------- ------------ -------------------------
1996 1995 1995 1994 1993
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Investing activities:
Restricted cash................................... 222,700 -- (22,700) (200,000) --
Payments for notes receivable, related parties.... (92,095) (90,890) (239,004) (166,099) --
Proceeds from notes receivable, stockholder....... -- -- -- -- 17,280
Payments for notes receivable, stockholder........ (46,024) (40,691) (55,497) (189,803) (93,686)
Purchase of furniture and equipment............... -- (38,807) (38,807) (8,437) (20,569)
Payments for deferred acquisition costs........... (87,855) -- (59,467) -- --
Payment for deposit on acquisition................ (50,000) -- -- -- --
Payment for investment in affiliate............... -- -- -- -- (90)
Deposits.......................................... (20,000) 17,000 (1,000) (18,800) --
------------- ------------ ------------ ------------ -----------
Net cash used in investing activities............... (73,274) (153,388) (416,475) (583,139) (97,065)
------------- ------------ ------------ ------------ -----------
Financing activities:
Proceeds from advances payable.................... -- -- -- -- 20,000
Proceeds from (payments) on lines of credit....... (246,937) 178,164 208,074 38,863 --
Proceeds from convertible subordinated notes
payable.......................................... 2,025,000 -- -- -- --
Proceeds from long-term debt...................... -- 22,786 22,971 10,000 --
Proceeds from notes payable, officer.............. -- -- 48,827 -- --
Payments for long-term debt....................... (8,508) (6,705) (14,665) (4,557) (1,120)
Payments on note payable, officer................. (22,002) -- (22,000) -- --
Principal payments for notes payable.............. -- -- -- -- (20,000)
Payments for debt issue costs..................... (267,878) -- -- -- --
Increase in deferred offering costs............... (185,450) -- -- (5,000) --
Proceeds from issuance of common stock............ -- -- -- 15,000 190
Proceeds from issuance of preferred stock, net of
stock issuance costs............................. -- 75,000 199,504 786,605 --
------------- ------------ ------------ ------------ -----------
Net cash provided by (used in) financing
activities......................................... 1,294,225 269,245 442,711 840,911 (930)
------------- ------------ ------------ ------------ -----------
Increase (decrease) in cash and cash equivalents.... 1,313,517 (132,018) (195,453) 154,187 40,698
Cash and cash equivalents, beginning of period...... 324 195,777 195,777 41,590 892
------------- ------------ ------------ ------------ -----------
Cash and cash equivalents, end of period............ $ 1,313,841 $ 63,759 $ 324 $ 195,777 $ 41,590
------------- ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ -----------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-22
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
ORGANIZATION AND BUSINESS
MetroGolf Incorporated, formerly The Vintage Group USA, Ltd., (the Company),
a Colorado corporation, was incorporated on July 29, 1994 by its sole common
stockholder. The Company was formed for the purpose of acquiring and
consolidating its stockholder's ownership of two pre-existing corporations, as
described below and, therefore, it is a continuation of these pre-existing
corporations. The Company acquires, develops and manages urban golf centers and
other golf facilities.
On July 29, 1994, the Company acquired all of the issued and outstanding
common stock of MetroGolf Virginia, Inc., formerly TVG (Virginia), Inc. (VA) a
Colorado corporation incorporated on February 21, 1992. Prior to the formation
of the Company, VA was the primary operating entity in the business of golf
course management, development and acquisition. VA is the managing general
partner of Goose Creek Golf Partners Limited Partnership (Goose Creek), a
Virginia Limited Partnership formed on June 1, 1992. Also on July 29, 1994, the
Company acquired 90 percent of the issued and outstanding common stock of
MetroGolf Illinois Center, Inc., formerly TVG (Illinois Center), Inc. (IC), a
Colorado corporation incorporated on May 26, 1993.IC is the managing general
partner of Illinois Center Golf Partners, L.P. (Illinois Center), an Illinois
Limited Partnership formed on May 28, 1993. The Company issued 1,045,000 shares
of its common stock to an individual for 100 percent of his interest in VA and
90 percent of his interest in IC. This exchange of ownership with entities under
common control has been accounted for at historical cost in a manner similar to
that of a pooling of interest. As of December 31, 1995, the Company held 89
percent of the issued and outstanding common stock of IC. Prior to the July 29,
1994 business reorganization, VA and IC were entities under common control and
management.
On March 30, 1994, the Company formed and acquired 51 percent of the issued
and outstanding common stock of MetroGolf Management, Inc., formerly Vintage
Golf Management, Inc. - (MGM), a Colorado Corporation. MGM provides golf
management services to Illinois Center.
During April 1996, the Company acquired the remaining 49 percent of MGM for
no consideration.
On May 24, 1995, the Company formed and acquired 100 percent of the issued
and outstanding common stock of MetroGolf New York, Inc., formerly TVG (New
York), Inc., (NY), a New York Corporation.NY is the 100 percent Class A member
of Vintage New York Golf L.L.C., a limited liability company formed to develop
and operate an urban golf center facility.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned subsidiaries as of December
31, 1995 and for the year then ended, and as of December 31, 1994. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
COMBINED FINANCIAL STATEMENTS
The combined statements of operations, stockholders' equity and cash flows
include the accounts of the Company for the period from July 29, 1994
(inception) to December 31, 1994, the accounts of VA for the years ended
December 31, 1994 and 1993, the accounts of IC for the year ended December 31,
1994 and for the period from May 26, 1993 (inception) to December 31, 1993 and
the accounts of MGM for the period from March 30, 1994 (inception) to December
31, 1994. All significant intercompany accounts and transactions have been
eliminated in combination.
F-23
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements for the six months ended June 30, 1996 and 1995 are presented on a
basis consistent with the audited financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ended June 30, 1996 are not necessarily indicative of the results
to be expected for the year ending December 31, 1996.
CASH AND CASH EQUIVALENTS
The Company considers all money market accounts and highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation are removed from the
related accounts and any gain or loss is reflected in operations. Depreciation
is provided on the straight-line method based upon the estimated useful lives of
the depreciable assets.
DEFERRED OFFERING COSTS
Deferred offering costs include professional fees directly related to the
Company's proposed private and public offerings.If the offerings are successful,
costs incurred will be offset against the proceeds of the offerings. If the
offerings are unsuccessful, such costs will be expensed.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs include professional fees and other direct costs
related to evaluation of prospective property acquisitions. If the acquisitions
are completed, these costs are included as property costs. If a prospective
property is not acquired, the costs are expensed.
DEBT ISSUE COSTS
Debt issue costs are being amortized using the straight-line method over the
term of the convertible subordinated notes payable (see Note 13).
INVESTMENTS IN AFFILIATES
The Company has recorded its investments in limited partnerships using the
equity method of accounting. Under such method, the Company's share of net
income (loss) is included as a separate item in the statement of operations.
CONCENTRATION OF RISK
Financial instruments which potentially expose the Company to concentration
of credit risk, as defined by Financial Accounting Standards Board Statement No.
105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, consist primarily of cash equivalents and notes receivable with the
Company's related parties. The Company establishes an allowance for doubtful
accounts based on factors surrounding the credit risk of specific customers,
historical trends and other information.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported
F-24
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and SFAS No. 123, Accounting for Stock Based Compensation. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reported
at the lower of the carrying amounts or their estimated recoverable amounts and
the adoption of this statement by the Company is not expected to have an impact
on the financial statements. SFAS No. 123 encourages the accounting for
stock-based employee compensation programs to be reported within the financial
statements on a fair value based method. If the fair value based method is not
adopted, then the statement requires pro forma disclosure of net income and
earnings per share as if the fair value based method has been adopted. The
Company has not yet determined how SFAS No. 123 will be adopted nor its impact
on the financial statements. Both statements are effective for fiscal years
beginning after December 15, 1995.
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
RECEIVABLES FROM RELATED PARTIES
Due to the related party nature and terms of the receivables from related
parties, the Company cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all of these notes bear interest at a floating rate of
interest based upon the lending institutions prime lending rate. Accordingly,
the fair value approximates their reported carrying amount at June 30, 1996, and
December 31, 1995 and 1994.
LOSS PER SHARE
Primary loss per share is computed using the weighted average number of
common and common equivalent shares outstanding during each period. Pursuant to
the requirements of the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 83 (SAB 83), common shares issued by the Company during
the twelve months immediately preceding the initial public offering at a price
below the initial public offering price plus the number of common share
equivalents which result from the grant of common stock options and warrants
having exercise prices below the initial public offering price during the same
period have been included in the calculation of the shares used in computing
loss per share as if they were outstanding for all periods presented.
F-25
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
1. NOTES RECEIVABLE
NOTES RECEIVABLE, RELATED PARTIES
On September 1, 1994, IC entered into a $500,000 note agreement with
Illinois Center.Advances under the agreement accrue interest at two percent over
the Citibank's prime rate, which is 8.75 percent at December 31, 1995. The note
is unsecured and due on the earlier of demand or September 1, 1996. The balance
outstanding on the note is $500,000, $459,739 and $275,724 as of June 30, 1996,
and December 31, 1995 and 1994.
On November 21, 1995, VA entered into a $100,000 note agreement with Goose
Creek. On April 15, 1996, the note agreement was increased to $150,000. Advances
under the agreement accrue interest at two percent over the Citibank's prime
rate, which is 8.75 percent at December 31, 1995.The note is unsecured and due
on the earlier of demand or November 21, 1996. The balance outstanding on the
note is $106,823 and $54,989 as of June 30, 1996 and December 31, 1995.
NOTES RECEIVABLE, STOCKHOLDER
During 1994, the Company entered into two note agreements and in 1995 the
Company entered into one note agreement with its sole common stockholder. The
notes bear interest at eight percent per annum and are due on demand. The
balances outstanding on the notes are $166,324, $120,300 and $64,803 as of June
30, 1996 and December 31, 1995 and 1994.
2. INVESTMENTS IN AFFILIATES
INVESTMENT IN GOOSE CREEK
VA is the managing general partner of Goose Creek in which it holds a 0.5
percent general partnership interest. As the managing general partner of Goose
Creek, VA is responsible for the day-to-day management and operation of the
business and property of Goose Creek. The administrative general partner of
Goose Creek, an unaffiliated corporation also having a 0.5 percent interest in
Goose Creek, holds joint authority with VA over annual budgets, significant
capital expenditures, significant deposits into and withdrawals from the Goose
Creek reserve account, as defined, and replacement of the management company, as
hired by Goose Creek. The general partners do not have the authority to sell or
refinance all or any material portion of the property without the consent of 51
percent of the Class A limited partners. Both general partners contributed their
expertise to Goose Creek's formation and other consideration in exchange for an
interest in Goose Creek.
In addition to its 0.5 percent general partnership interest, VA holds a
10.33 percent Class B limited partnership interest in Goose Creek. The Company
accounts for its 10.33 percent Class B limited partnership interest using the
cost method of accounting. The Class B limited partnership interest entitles the
Company to share in cash distributions and profit or loss allocations, as
described below, subsequent to the Class A limited partners receiving a
preferred return of 12 percent on their capital contributions and certain other
funding requirements.
Goose Creek's partnership agreement allows for cash distributions to the
general and limited partners from available net cash flow, at the discretion of
the managing general partner. Net cash flow is defined as the excess of
operating cash receipts over operating cash disbursements after the funding of
reasonable reserves for anticipated expenses and capital replacement.
Profits and losses are allocated to the partners in the same proportion as
net cash flow is distributed subject to the provision of Section 704(b) of the
Internal Revenue Code of 1986 relating to substantial economic effect. As of
June 30, 1996 and December 31, 1995 and 1994, the Company has recorded an
investment in Goose Creek of $(6,347), ($3,731), and ($2,975).
F-26
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
2. INVESTMENTS IN AFFILIATES (CONTINUED)
In addition to the above, VA as managing general partner, receives an asset
management fee from Goose Creek of $45,000 per annum that started June 1, 1992
and increased by a factor of five percent per annum on June 1st of each year.
The Company is also be entitled to receive a fee equal to one percent of the
gross proceeds upon any disposition of Goose Creek's property. Asset management
fees for the six months ended June 30, 1996 and for the years ended December 31,
1995, 1994 and 1993, are $26,264, $51,059, $48,628, and $46,313.
INVESTMENT IN ILLINOIS CENTER
IC is the managing general partner of Illinois Center in which it holds a 40
percent general partnership interest. As the managing general partner, IC has
the responsibility to make all decisions affecting the day-to-day business of
Illinois Center. The general partner does not have the authority except under
certain conditions as provided for in the partnership agreement, to cause
Illinois Center to secure certain indebtedness of Illinois Center with a
mortgage, deed of trust or similar lien on the property, nor shall the general
partner have the authority to sell or transfer all or substantially all of the
assets of Illinois Center, unless the general partner first obtains the majority
consent of the limited partners. The general partner contributed $90, its
agreement to develop and acquire the Illinois Center's ground lease and
expertise to Illinois Center's formation in exchange for its interest in
Illinois Center.
Illinois Center's partnership agreement allows for cash distributions to the
general and limited partners from available net cash flow. Net cash flow is
defined for any period as the excess, if any, of revenues over expenses. Net
cash flow is to be distributed not less frequently than quarterly, commencing
after the first full calendar quarter following the opening to the public of
Illinois Center. Profits and losses are allocated to the partners as defined in
the partnership agreement. As of June 30, 1996 and December 31, 1995 and 1994,
the Company has recorded an investment in Illinois Center of $29, $42 and $56.
In addition to the above, IC, as managing general partner, is entitled to
receive an asset management fee from Illinois Center of $60,000 per annum
increased by a factor of five percent per annum. Asset management fees for the
six months ended June 30, 1996 and for the years ended December 31, 1995 and
1994 were approximately $31,500, $60,000 and $35,000.
The Company, as general partner of Goose Creek, does not have the authority
to sell or refinance all or any material portion of the property without the
consent of 51 percent of the Class A limited partners. The Company, as general
partner of Illinois Center, does not have the authority except under certain
conditions as provided for in the partnership agreement, to cause Illinois
Center to secure certain indebtedness of Illinois Center with a mortgage, deed
of trust or similar lien on the property, nor does the general partner have the
authority to sell or transfer all or substantially all of the assets of Illinois
Center, unless the general partner first obtains the majority consent of the
limited partners. Accordingly, the Company has recorded its investments in
affiliates using the equity method of accounting.
3. LINES OF CREDIT
The Company entered into a $225,000 line of credit agreement dated December
20, 1994 and a $22,000 line of credit dated November 28, 1995. Borrowings under
the lines accrue interest at the National Prime Lending Rate (8.5 percent) and
are due on March 25, and May 28, 1996, respectively. The $225,000 line is
collateralized by the Company's note receivable from a related party, a $200,000
money market account and is personally guaranteed by the sole common stockholder
of the Company. The $225,000 line of credit was paid in full during May 1996 and
the Company redeemed its $200,000
F-27
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
3. LINES OF CREDIT (CONTINUED)
money market account. The $22,000 line of credit is collateralized by a $22,700
certificate of deposit. The $22,000 line of credit was paid in full during June
1996 and the Company redeemed its $22,700 certificate of deposit.
The balance outstanding on the lines are $0, $246,937 and $38,863 as of June
30, 1996 and December 31, 1995 and 1994.
4. NOTE PAYABLE, OFFICER
During 1995, an officer of the Company advanced funds to the Company. The
advances are due on demand and accrue interest at two percentage points over
Citibank's prime rate.The balance outstanding at June 30, 1996 and December 31,
1995 including accrued interest is $4,825 and $26,827.
5. LONG-TERM DEBT
The following is a summary of the Company's long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
JUNE 30, --------- ---------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, interest at 7.75 percent; principal and
interest payments of $545 through October 1998. The note is
collateralized by an auto and is personally guaranteed by the
common stockholder of the Company................................. $ 13,778 $ 16,547 $ 21,334
Note payable to a bank, interest at ten percent; principal and
interest payments of $1,099 through December 25, 1997. The note is
collateralized by substantially all assets of the Company and is
personally guaranteed by the common stockholder of the Company.... 17,354 23,093 10,000
----------- --------- ---------
31,132 39,640 31,334
Less current portion............................................... 17,546 16,489 5,047
----------- --------- ---------
$ 13,586 $ 23,151 $ 26,287
----------- --------- ---------
----------- --------- ---------
</TABLE>
Future maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 16,489
1997.............................................................. 15,629
1998.............................................................. 7,522
---------
Total......................................................... $ 39,640
---------
---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
During 1994, the Company entered into employment agreements with its
President through December 1996 and with its Executive Vice President through
September 1997. The employment agreements set forth annual compensation of
$180,000 to the President and $120,000 to the Executive Vice President plus
bonuses as the board of directors of the Company may from time to time approve.
Effective January 1, 1996, both agreements were extended until December 31, 1998
with annual salaries of $250,000 and $175,000, respectively.
F-28
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES
The Company leases office space and equipment under noncancelable leases
with terms that expire at various dates through August 1997. Future minimum
lease payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 23,000
1997.............................................................. 15,500
---------
Total............................................................. $ 38,500
---------
---------
</TABLE>
Total lease expenses for the six months ended June 30, 1996 and for the
years ended December 31, 1995, 1994 and 1993 are approximately $14,000, $25,000,
$8,000 and $7,000.
DIRECT GUARANTEES
The Company is the guarantor of long-term indebtedness of Illinois Center
totaling approximately $1,750,000, and the Company is the guarantor of long-term
acquisition indebtedness of Goose Creek totaling approximately $3,345,000 and
$3,333,000 as of June 30, 1996 and December 31, 1995. In addition, VA has
guaranteed Goose Creek's $150,000 line of credit subsequently reduced to $74,941
during April 1996. Goose Creek's balance on the line of credit is $74,941,
$150,000 and $0 as of June 30, 1996 and December 31, 1995 and 1994.
7. RELATED PARTY TRANSACTIONS
DEVELOPMENT FEES
During 1994, the Company earned $125,000 for land acquisition, concept
planning design and development services provided to Illinois Center. The
Company earned no development fees for the year ended December 31, 1995.
PROPERTY MANAGEMENT AGREEMENT
On December 1, 1993, MGM entered into a property management agreement with
Illinois Center.The management agreement expires on January 1, 1997.The terms of
the management agreement provide for a management fee of $5,000 per month plus a
membership incentive fee of ten percent of the gross proceeds received from
membership initiation fees and the equivalent of one month's membership dues as
received by Illinois Center. The membership incentive fee for renewal
memberships will be reduced to four percent of annual dues for renewal members.
In addition, the management agreement provides for an annual incentive fee of
five percent of the amount of annual net operating income in excess of
$1,600,000.
MGM initially was operated by Club Sports International (CSI). On October 1,
1994, CSI was removed as operator of MGM. On November 17, 1994, Billy Casper
Golf Management, Inc. (BCGM) was engaged as the new operator of MGM. From the
period June 1, 1994 through September 30, 1994, MGM's' base fee was split
between CSI and the Company with CSI receiving $4,000 and the Company receiving
$1,000. From October 1, 1994 through November 18, 1994, the Company earned the
full amount of MGM's fee. From November 18, 1994 through November 30, 1995, BCGM
earned the entire fee. During November 1995, BCGM was removed as operator of
MGM. In addition, MGM has agreed to waive 80 percent of the deferred $5,000 per
month fees that it had earned under its contract from the period December 1,
1993 to May 31, 1994. For the six months ended June 30, 1996 and for the
F-29
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
7. RELATED PARTY TRANSACTIONS (CONTINUED)
years ended December 31, 1995 and 1994, property management fees, including
incentive fees, are $41,511, $79,243 and $76,063. As of June 30, 1996 and
December 31, 1995 and 1994, Illinois Center owes MGM $39,252, $83,256 and
$41,063.
8. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK
During August 1995, the Company amended its articles of incorporation to
increase the authorized shares of preferred stock from 100,000 to 1,000,000
shares. Of the 1,000,000 authorized shares, 100,000 shares have been designated
as redeemable preferred stock. The holders of redeemable preferred stock are
entitled to receive, when, and if declared by the Board of Directors and out of
funds legally available for the payment of dividends or if mandatorily
redeemable as discussed below, dividends at the annual dividend rate of 15
percent per annum ($3.75) on each outstanding share of preferred stock,
commencing upon issuance and thereafter through the end of the eighth complete
calendar quarter after the date of issuance. Thereafter, the annual dividend
rate on the redeemable preferred stock is 18 percent per annum ($4.50) on each
outstanding share of preferred stock. Dividends on shares of the redeemable
preferred stock are payable in four equal quarterly installments on the last day
of March, June, September and December beginning September 30, 1994. The
dividends shall accrue and become cumulative not compounded from the date of
issuance. Accumulated dividends do not bear interest. Whenever dividends on the
redeemable preferred stock are in arrears for eight consecutive quarters or in
an amount equal to at least 12 quarterly dividends, the holders of such stock
(voting as a class) have the right to elect one director of the Company until
all cumulative dividends have been paid in full. Dividends in arrears on the
outstanding preferred shares total $291,041, $205,729 and $50,677 as of June 30,
1996 and December 31, 1995 and 1994. No dividends have been declared for the six
months ended June 30, 1996 and for the years ended December 31, 1995 and 1994.
Therefore, assuming no dividends are paid and the redeemable preferred stock is
not redeemed prior to September 30, 1996, the holders of such stock will have
the right to appoint one director on such date.
Shares of the redeemable preferred stock are redeemable, at the Company's
election, in whole or in part. However, if IC declares a dividend, the Company
is contractually obligated to use those proceeds, subject to sufficient legally
available funds to redeem, in whole or in part, the preferred stock, to the
extent such cash dividends are not applied to payment of accrued dividends on
redeemable preferred stock. The shares are redeemable at $26.25 per share
together with accrued and unpaid dividends, if any. Shares of the redeemable
preferred stock have a liquidation value of $25 per share plus accrued
dividends, including cumulative dividends.
COMMON STOCK
During August 1995, the Company amended its articles of incorporation to
increase the authorized shares of common stock from 1,000,000 shares to
9,000,000 shares.
PREFERRED STOCK OFFERING
During 1994, the Company offered to sell 50,000 Units in a private offering
of up to $1.25 million in redeemable preferred stock and warrants at $25 per
Unit. Each Unit consists of one share of preferred stock and one warrant to
purchase 5.5 shares of the Company's common stock at an exercise price of $1.45
per share subject to antidilution adjustments. The warrants expire five years
from the
F-30
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
date of issuance. During 1995, the Company sold 8,000 shares of preferred stock
resulting in net proceeds of $199,504 and during 1994, the Company issued 37,500
shares of its preferred stock resulting in net proceeds to the Company after
paying offering costs of $786,605.
The underwriter received warrants entitling the underwriter to purchase
17,050 shares of common stock at an exercise price of $1.45 per share on a fully
diluted basis. At the closing of the offering, two directors of the Company will
receive, as compensation, warrants equal to five percent of the number of Units
sold in the offering entitling them to purchase one percent of the outstanding
common stock at an exercise price of $1.45 per share on a fully diluted basis.
Twenty-five percent of the warrants issued to the directors vested on August 28,
1995 and an additional 25 percent will vest every six months thereafter.
OFFICERS' WARRANTS
During 1995, the Company issued warrants to its officers to purchase an
aggregate of 150,000 shares of common stock at an exercise price of $1.45 per
share. Twenty-five percent of the warrants vested on December 1, 1995 and an
additional 25% will vest every six months thereafter.
STOCK SPLIT
During August 1995, the Company declared a 5.5 to 1.0 forward stock split.
All other share information herein has been restated to reflect the 5.5 to 1.0
forward stock split.
9. INCOME TAXES
At June 30, 1996 and December 31, 1995, the Company has available net
operating loss carry forwards of approximately $942,000 and $584,000 for tax
reporting purposes which expire through 2012. These operating loss carry
forwards are subject to various limitations imposed by the rules and regulations
of the Internal Revenue Service.
The Company has deferred tax assets fully reserved as of June 30, 1996 and
December 31, 1995 and 1994. The tax effect on the components is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
JUNE 30, ------------ ------------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carry forward............................... $ 188,000 $ 117,000 $ 35,000
Salary accrual................................................. -- 29,000 13,000
Basis difference in property and equipment..................... 1,000 1,000 1,000
----------- ------------ ------------
189,000 147,000 49,000
Valuation allowance............................................ (189,000) (147,000) (49,000)
----------- ------------ ------------
$ -- $ -- $ --
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
A 100 percent valuation allowance has been established to reflect
management's evaluation that it is more likely than not that all of the deferred
tax assets will not be realized. For the six months ended June 30, 1996 and for
the years ended December 31, 1995 and 1994, the valuation allowance increased by
$42,000, $98,000 and $49,000.
F-31
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
9. INCOME TAXES (CONTINUED)
VA and IC are Subchapter S Corporations for income tax purposes through July
27, 1994. Under provisions of the Internal Revenue Code, the net income or loss
of VA and IC are to be included in the Federal income tax returns of the
individual stockholders. Since VA and IC incurred losses while Subchapter S
Corporations, no pro forma income tax provision is required.
10. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
CONSOLIDATED CONSOLIDATED COMBINED
-------------------- ------------ --------------------
1996 1995 1995 1994 1993
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payments for interest................. $ 42,240 $ 10,371 $ 25,994 $ 1,842 $ 3,058
</TABLE>
Excluded from the consolidated and combined statements of cash flows were
the effects of certain noncash investing and financing activities as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Increase in common stock for
discount on debt................ $ 243,600 $ -- $ -- $ -- $ --
Increase in ownership of
subsidiary...................... $ 8,642 $ -- $ -- $ -- $ --
Payable to related party
offset.......................... $ -- $ -- $ -- $ 10,000 $ --
Vehicle acquired through long-
term debt....................... $ -- $ -- $ -- $ -- $ 27,011
Reclassification of VA's and IC's
Subchapter S income and losses
from accumulated deficit to
common stock.................... $ -- $ -- $ -- $ 110,460 $ --
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
11. ACQUISITIONS
FREMONT PARK GOLF CENTER
The Company has executed an agreement to purchase the leasehold interest on
an existing driving range/learning center facility for $1,350,000 plus
acquisition costs of approximately $81,000. The acquisition is expected to close
during the summer of 1996. The existing golf facility consists of a 35-tee
station driving range, two practice putting greens, a clubhouse and a
maintenance area on approximately 15 acres of land. The current clubhouse design
will require modifications to re-incorporate a grill room and bar area with an
outdoor patio after the acquisition.
After closing of the acquisition, the Fremont Park Golf Center will be
expanded to include an 80-station tee area, practice putting green,
chipping/short game practice and sand bunker areas. The clubhouse redesign will
also include a pro shop and locker rooms. A corporate entertainment and group
area will be located adjacent to the patio.
HARBORSIDE GOLF CENTER
The Company has entered into a letter of intent to sublease, with an option
to purchase, the Harborside Golf Center located in downtown San Diego,
California. Under the current agreement, the Company intends to operate the
Harborside Golf Center sublease commencing in the summer of 1996.
F-32
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
11. ACQUISITIONS (CONTINUED)
ACQUISITIONS OF LIMITED PARTNERSHIP INTERESTS
The Company has offered to purchase all of the limited partnership interests
in Illinois Center and Goose Creek. Under the Company's current proposal, (i)
each accredited limited partner of Illinois Center who elects to sell will
receive for each $50,000 limited partnership interest either (a) $25,000 cash
and a $25,000 convertible note or (b) a $50,000 convertible note (ii) each
accredited limited partner of Goose Creek who elects to sell will receive for
each $25,000 limited partnership interest (a) $12,500 in cash and a convertible
note in the amount of $26,500 or (b) a convertible note in the amount of
$39,000. The convertible notes will bear interest at 6% per annum and will
mature on June 1, 2005; interest only will be payable for the first 24 months
from the date of the issuance of the convertible notes. Thereafter, interest
will continue to be paid semi-annually and principal will be amortized evenly
over the remaining seven years until maturity. Each convertible note will be
convertible at the holder's option into common stock at any time after the date
that is 13 months after the closing of the IPO at a conversion price equal to
the price of the common stock to public in the IPO (see Note 12). In addition,
each convertible note issued to the limited partners of Illinois Center will
convert into warrants to purchase 2,500 shares of common stock at an exercise
price equal to 120% of the IPO price. Non-accredited investors of Illinois
Center will receive cash only in the amount of $50,000 for each $50,000 limited
partnership interest. Non-accredited investors of Goose Creek will receive cash
only in the amount of $39,000 for each $25,000 limited partnership interest. The
acquisitions will be contingent upon the closing of the IPO.
12. PUBLIC OFFERING
The Company has signed a letter of intent with Laidlaw & Co. for its
subsidiary, Laidlaw Equities, Inc., to complete an initial public offering of
the Company's common stock. The Company intends to offer approximately 1,200,000
shares of its common stock at a proposed price to the public of $7 per share.
The shares offered for sale to the public intend to be registered with the
Securities and Exchange Commission on Form S(1.)
13. EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS (UNAUDITED)
CONVERTIBLE SUBORDINATED NOTE OFFERING
On May 30, 1996, the Company completed its offer for sale in a private
placement $2,025,000 in convertible subordinated notes (Notes). The Notes were
offered by Laidlaw Equities, Inc. (Laidlaw) on a best efforts basis. Net
proceeds from the offering, after paying commissions and offering costs were
approximately $1,757,122. The Notes bear interest at 12 percent, with interest
payable June 1 and December 1 of each year commencing on December 1, 1996. The
Notes are due on June 1, 1997. The Notes, including any accrued but unpaid
interest, are convertible, at the option of the holder, at any time upon the
earlier of (i) the closing of the Company's IPO or (ii) November 30, 1996, into
shares of common stock of the Company at either 50 percent of the IPO price, if
converted simultaneously with the closing of the IPO, or 50 percent of the
market price, if converted after the IPO.
The market interest rate on the convertible subordinated notes payable has
been determined to be greater than the stated interest rate which results in an
original issue discount on the face amount of the convertible subordinated notes
payable in the amount of $243,600 based on an effective rate of 24%. This
original issue discount is being charged to interest over the life of the
convertible subordinated notes payable under the effective interest method.
F-33
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED
13. EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS (UNAUDITED) (CONTINUED)
Laidlaw purchased for $100 warrants to purchase 25,000 shares of common
stock at an exercise price equal to 120% of the IPO price.
STOCK OPTION PLAN
In connection with the IPO, the Board of Directors is adopting the Company's
stock option plan (the Stock Option Plan). The Stock Option Plan provides for an
initial authorization of 250,000 shares of Common Stock for issuance thereunder
at exercise prices no less than 85% of the fair market value of the Common Stock
at the time of grant. The options will vest over a five-year period, except that
up to 10% of the options may be subject to a shorter vesting period at the
discretion of the Company's Board of Directors. Options may not be exercised
more than three months after an employee's termination of employment with the
Company unless such termination was a result of death, disability or retirement,
in which case the exercise period is extended to one year. The exercise price
may be paid in cash, by tendering shares of the Common Stock (valued at fair
market value on the date of exercise) if so provided in the applicable stock
option agreement, or by a combination of such means of payment, as may be
determined by the Committee. To date, no options have been granted pursuant to
the Stock Option Plan. Prior to the IPO, the Stock Option Plan will be approved
by the Company's sole stockholder.
F-34
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MetroGolf Incorporated
(Formerly The Vintage Group USA, Ltd.)
Denver, Colorado
The audits referred to in our report to MetroGolf Incorporated dated May 17,
1996 which is contained in the Prospectus constituting part of this Registration
Statement included the audits of the schedules listed under Item 16 for the
years ended December 31, 1995, 1994 and 1993. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996
F-35
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED
BEGINNING TO COSTS BALANCE AT
OF YEAR AND EXPENSES DEDUCTIONS END OF YEAR
------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995; Deferred tax asset
valuation allowance................................... $ 49,000 $ 98,000 $ -- $ 147,000
Year Ended December 31, 1994; Deferred tax asset
valuation allowance................................... $ -- $ 49,000 $ -- $ 49,000
Year Ended December 31, 1993; Deferred tax asset
valuation allowance................................... $ -- $ -- $ -- $ --
------------ -------- ----------- -----------
------------ -------- ----------- -----------
</TABLE>
F-36
<PAGE>
FREMONT PARK GOLF CENTER
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
MetroGolf Incorporated
We have audited the accompanying statements of net assets of Fremont Park
Golf Center (the "Center") as of December 31, 1995 and 1994 and the related
statements of operations and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Center's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
The accompanying statements of net assets and statements of operations were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration statement
on Form S-1 of MetroGolf Incorporated) as described in the Summary of Accounting
Policies.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of Fremont Park Golf Center at December
31, 1995 and 1994 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
May 24, 1996
F-38
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF NET ASSETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
JUNE 30, 1996 ------------- -------------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Cash............................................................... $ -- $ 9,571 $ 2,568
Inventories........................................................ 52,448 41,128 72,660
Prepaid expenses................................................... 5,732 8,147 779
------------- ------------- -------------
Total current assets............................................. 58,180 58,846 76,007
------------- ------------- -------------
Property and equipment, net (Note 2)............................... 456,276 469,227 496,568
------------- ------------- -------------
Other assets:
Excess of costs over net assets acquired, net of accumulated
amortization of $120,430, $102,830 and $67,574.................... 592,180 609,780 645,036
Other intangibles.................................................. 2,297 3,097 2,647
------------- ------------- -------------
Total other assets............................................... 594,477 612,877 647,683
------------- ------------- -------------
Total assets..................................................... $ 1,108,933 $ 1,140,950 $ 1,220,258
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Current liabilities:
Checks issued against future deposits.............................. $ 6,377 $ -- $ --
Accounts payable and accrued expenses.............................. 33,542 30,042 52,596
Current maturities of notes payable (Note 3)....................... 76,760 76,760 36,490
------------- ------------- -------------
Total current liabilities............................................ 116,679 106,802 89,086
Notes payable, less current maturities (Note 3)...................... 164,096 182,744 227,504
------------- ------------- -------------
Total liabilities.................................................... 280,775 289,546 316,590
------------- ------------- -------------
Commitments (Note 1)
Net assets........................................................... $ 828,158 $ 851,404 $ 903,668
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-39
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------------------ -------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Range......................................... $ 147,114 $ 105,749 $ 293,030 $ 331,047 $ 336,383
Merchandise................................... 46,474 47,214 136,917 144,649 169,698
Lessons....................................... 8,272 10,523 65,819 68,111 75,554
Food and beverage............................. 6,886 4,859 12,193 14,477 8,551
----------- ----------- ----------- ----------- -----------
Total revenues.............................. 208,746 168,345 507,959 558,284 590,186
----------- ----------- ----------- ----------- -----------
Operating expenses:
Range operations.............................. 99,741 99,955 240,440 299,641 288,255
Merchandise expenses.......................... 34,645 47,600 115,043 100,338 120,523
Lessons expense............................... 3,805 4,125 29,932 34,231 37,198
Food and beverage expenses.................... 3,193 2,560 6,043 7,395 4,606
General and administrative.................... 48,053 45,522 75,153 73,540 79,230
Depreciation and amortization................. 33,400 33,400 65,027 65,215 62,702
----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 222,837 233,162 531,638 580,360 592,514
----------- ----------- ----------- ----------- -----------
Loss from operations............................ (14,091) (64,817) (23,679) (22,076) (2,328)
Interest expense (Note 3)....................... (9,155) (16,001) (28,585) (22,387) (35,024)
----------- ----------- ----------- ----------- -----------
Net loss........................................ $ (23,246) $ (80,818) $ (52,264) $ (44,463) $ (37,352)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-40
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net loss......................................... $ (23,246) $ (80,818) $ (52,264) $ (44,463) $ (37,352)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................... 15,000 15,000 30,221 29,606 25,798
Amortization................................... 18,400 18,400 34,806 35,609 34,318
Change in operating assets and liabilities:
Inventories.................................. (11,320) 24,737 31,532 (7,491) (169)
Prepaid expenses............................. 2,415 (4,953) (7,368) 2,721 3,500
Accounts payable and accrued expenses........ 3,500 10,527 (22,554) 22,588 17,818
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities........................................ 4,749 (17,107) 14,373 38,570 43,913
---------- ---------- ---------- ---------- ----------
Cash flows used in investing activities
Purchases of property and equipment.............. (2,049) (2,840) (2,880) (8,148) --
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Checks issued against future deposit............. 6,377 -- -- -- --
Proceeds from note payable....................... -- 32,000 32,000 -- --
Payments on note payable......................... (18,648) (14,113) (36,490) (37,613) (34,154)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities........................................ (12,271) 17,887 (4,490) (37,613) (34,154)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.................... (9,571) (2,060) 7,003 (7,191) 9,759
---------- ---------- ---------- ---------- ----------
Cash, beginning of period.......................... 9,571 2,568 2,568 9,759 -0-
---------- ---------- ---------- ---------- ----------
Cash, end of period................................ $ -- $ 508 $ 9,571 $ 2,568 $ 9,759
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-41
<PAGE>
FREMONT PARK GOLF CENTER
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The statements of net assets and statements of operations relate to the
operations of a golf center in Fremont, California. The Fremont Park Golf Center
(the "Center") operates a practice golf driving range. The Center also provides
individual and group lessons in addition to selling various golf merchandise.
The Center was constructed in 1989 and has since been owned and operated by
various entities and individuals. In February 1993, the Center was sold for $1.2
million in a transaction involving unrelated entities. The purchase price was
financed through a $335,000 bank note payable, the issuance of a short-term note
to the seller of $625,000 (which was paid off in July 1993) and cash of
approximately $300,000. In July 1993, the entity was again sold in a transaction
involving related parties. The February 1993 sales transaction is being used as
the basis for valuing the purchased assets and liabilities since this was the
last arm's-length transaction involving the transfer of ownership. The fair
value assigned to the property and equipment resulting from the 1993 sales
transactions approximates the historical cost to construct the facility in 1989.
The Center currently is owned by an individual and the related land lease (Note
1) controlled by an affiliated entity. Subsequent to December 31, 1995, the
owner and operator of the Center have entered into a preliminary agreement to
sell the assets and assign the land lease of the Center to MetroGolf
Incorporated ("MetroGolf").
MetroGolf intends to use funds raised from the placement of convertible
subordinated notes to purchase the assets (Note 4).
Expenses of the Center have been allocated to the business using primarily
the specific identification method. The Center's management believes that the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the business had operated as a separate
company.
The statements of net assets and statements of operations have been prepared
to substantially comply with rules and regulations of the Securities and
Exchange Commission for business combinations to be accounted for as a purchase.
INVENTORIES
Inventories consisting primarily of golf merchandise are recorded at lower
of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND AND DEPRECIATION
Property and equipment are valued at cost and are depreciated on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings............................................... 31.5 years
Furniture, fixtures and equipment....................... 5-7 years
Land improvement........................................ 15 years
</TABLE>
EXCESS OF COSTS OVER NET ASSETS ACQUIRED
The excess of costs over net assets acquired, which relate to the February
1993 acquisition of the Center, is being amortized over a 20-year period using
the straight-line method. The Center periodically evaluates realization of this
asset based on discounted cash flows.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as operating results are reportable in the
tax returns of the owner.
F-42
<PAGE>
FREMONT PARK GOLF CENTER
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Center's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash. The Center's cash is in demand deposit
accounts placed with federally insured financial institutions. Such deposit
accounts at times may exceed federally insured limits. The Center has not
experienced any losses on such amounts.
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
NOTE PAYABLE TO AN AFFILIATE
Due to the related party nature and terms of the $32,000 note payable to an
affiliate, the Company cannot estimate the fair market value of such financial
instruments.
NOTE PAYABLE
The note bears interest at a floating rate of interest based upon the
lending institution's prime lending rate. Accordingly, the fair value
approximates their reported carrying amount at June 30, 1996, and December 31,
1995 and 1994.
REVENUE RECOGNITION
Range, merchandise and food and beverage revenue are recognized as revenue
immediately upon sale to the customer. Lessons revenue is recognized when the
lessons are provided.
RECENT ACCOUNTING PRONOUNCEMENT
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amounts of
their estimated recoverable amounts and the adoption of this statement by the
Center is not expected to have an impact on the financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1996 and 1995 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
F-43
<PAGE>
FREMONT PARK GOLF CENTER
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED.
1. LEASE OBLIGATION
The Center is operated from land which is subject to a lease with the City
of Fremont through the year 2014, with an option to extend for 10 years. The
lease requires monthly payments equal to the following percentages of gross
revenue:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Range balls............................................................ 12% 10% 10%
Golf lessons........................................................... 12 10 10
Merchandise............................................................ 5 5 5
Food and beverage...................................................... 10 10 10
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 and for
the six months ended June 30, 1996 and 1995 totaled $49,718, $46,142, $45,273,
$20,247 and $22,084.
The terms of the lease also require the Center's operator to maintain
certain insurance levels for general upkeep of the facility and provide golf
professionals to teach lessons to the public.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
JUNE 30, ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Building.............................................. $ 308,922 $ 308,922 $ 308,922
Land improvements..................................... 211,793 211,793 211,793
Furniture, fixtures and equipment..................... 36,186 34,137 31,257
----------- ----------- -----------
556,901 554,852 551,972
Less accumulated depreciation......................... 100,625 85,625 55,404
----------- ----------- -----------
$ 456,276 $ 469,227 $ 496,568
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
3. NOTES PAYABLE
In connection with the acquisition in February 1993, a $335,000 note payable
was incurred by the buyers to finance the acquisition. The note requires monthly
principal payments of $3,730 plus interest through December 2000. The note bears
interest at prime (8.5% at December 31, 1995) plus 1.5%. In January 1995, the
Center borrowed $32,000 from an affiliate of the owner to fund operating
expenses. This note bears interest at 10% and was due to be paid in March 1995.
This note has not yet been repaid.
Annual maturities of notes payable for the years subsequent to December 31,
1995 are as follows:
<TABLE>
<S> <C>
Years ending December 31, 1996 $ 76,760
1997................................................... 44,760
1998................................................... 44,760
1999................................................... 44,760
2000................................................... 48,464
---------
259,504
Less current portion..................................... 76,760
---------
$ 182,744
---------
---------
</TABLE>
F-44
<PAGE>
FREMONT PARK GOLF CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED.
4. OFFER TO PURCHASE
MetroGolf has executed an agreement to purchase the leasehold interest and
related assets of the Center for $1,350,000. The closing of the acquisition is
expected during the summer of 1996.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
- -------------------- -------------------------------
1996 1995 1995 1994 1993
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 9,155 $ 16,001 $ 28,585 $ 22,387 $ 35,024
</TABLE>
F-45
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Illinois Center Golf Partners, L.P.
(An Illinois Limited Partnership)
Denver, Colorado
We have audited the accompanying balance sheets of Illinois Center Golf
Partners, L.P. (an Illinois limited partnership) (the "Partnership") as of
December 31, 1995 and 1994 and the related statements of operations, changes in
partners' capital and cash flows for the years ended December 31, 1995 and 1994
and for the period from May 28, 1993 (Inception) to December 31, 1993. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide 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 the Partnership at December
31, 1995 and 1994 and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1994 and for the period from May 28, 1993
(Inception) to December 31, 1993.
BDO SEIDMAN, LLP
Denver, Colorado
May 3, 1996
F-47
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
Current:
Cash................................................................... $ 27,760 $ 7,349 $ 56,871
Accounts receivable.................................................... 9,542 -- --
Inventories............................................................ 17,112 11,196 18,690
Prepaid expenses....................................................... -- -- 16,437
Other current assets................................................... 14,420 3,521 2,100
----------- ----------- -----------
Total current assets................................................. 68,834 22,066 94,098
----------- ----------- -----------
Fixed assets (Note 2):
Course and practice facility........................................... 1,503,943 1,503,943 1,503,943
Building and related improvements...................................... 2,181,797 1,140,097 1,125,605
Design and development costs........................................... 524,719 524,719 522,056
Furniture, fixtures and equipment...................................... 588,252 163,973 143,020
----------- ----------- -----------
4,798,711 3,332,732 3,294,624
Less accumulated depreciation and amortization......................... 403,512 275,284 90,029
----------- ----------- -----------
Net fixed assets....................................................... 4,395,199 3,057,448 3,204,595
----------- ----------- -----------
Other:
Organization costs..................................................... 175,017 175,017 175,017
Loan fees.............................................................. 113,269 21,000 --
----------- ----------- -----------
288,286 196,017 175,017
Less accumulated amortization.......................................... 115,251 90,426 55,422
----------- ----------- -----------
173,035 105,591 119,595
Deposits............................................................... 6,786 36,022 35,222
----------- ----------- -----------
Total other assets....................................................... 179,821 141,613 154,817
----------- ----------- -----------
$ 4,643,854 $ 3,221,127 $ 3,453,510
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable....................................................... $ 400,955 $ 757,025 $ 795,007
Accrued real estate taxes.............................................. 377,315 285,573 83,335
Checks written against future deposits................................. 61,620 -- --
Deferred membership revenue............................................ 133,768 106,250 166,583
Deferred sponsorship revenue........................................... 20,000 -- --
Accrued expenses and liabilities....................................... 117,343 15,277 42,222
Accounts payable, related party (Note 5)............................... 39,252 83,256 41,063
Line of credit (Note 2)................................................ -- 200,000 200,000
Notes payable (Note 3)................................................. -- 80,911 81,268
Note payable, related party (Note 4)................................... 500,000 459,739 275,724
Current maturities of long-term debt................................... 183,569 -- --
----------- ----------- -----------
Total current liabilities............................................ 1,833,822 1,988,031 1,685,202
----------- ----------- -----------
Long-term debt, less current maturities................................ 2,048,143 -- --
----------- ----------- -----------
Total liabilities.................................................... 3,881,965 1,988,031 1,685,202
----------- ----------- -----------
Commitments and contingencies (Note 5)
Partners' capital (Note 1)
General partner........................................................ 29 42 56
Limited partners....................................................... 781,860 1,233,054 1,768,252
----------- ----------- -----------
751,889 1,233,096 1,768,308
----------- ----------- -----------
$ 4,643,854 $ 3,221,127 $ 3,453,510
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-48
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28,
1993
(INCEPTION)
SIX MONTHS ENDED TO
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER
---------------------- ------------------------- 31,
1996 1995 1995 1994 1993
---------- ---------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Green fees and driving range
revenue........................... $ 208,202 $ 245,834 $ 579,186 $ 238,099 $ --
Membership revenue................. 141,060 151,583 352,324 245,749 --
Instruction revenue................ 3,478 119,580 145,226 55,026 --
Merchandise........................ 19,731 27,223 63,969 83,415 --
Food and beverage.................. 54,112 88,186 194,117 60,982 --
Special events..................... 33,422 9,330 62,446 54,084 --
Sponsorship........................ 20,000 25,000 75,000 -- --
Parking............................ 28,191 19,482 51,474 -- --
Other income....................... 1,321 17,753 28,970 7,792 --
---------- ---------- ----------- ------------ -----------
Total revenues................... 509,517 703,971 1,552,712 745,147 --
---------- ---------- ----------- ------------ -----------
Operating expenses:
Pro shop expenses.................. 108,380 99,976 152,586 239,856 --
Instruction expenses............... -- 100,782 146,651 46,247 --
Food and beverage expenses......... 65,489 97,397 201,013 178,344 --
Special events..................... 52,472 -- -- -- --
Golf course maintenance expenses... 111,434 129,137 196,938 155,663 --
General and administrative
expenses.......................... 279,142 401,686 954,957 1,007,443 244,678
Depreciation and amortization...... 153,053 109,712 220,258 125,033 20,419
Asset management fees, affiliate
(Notes 4 and 5)................... 73,011 60,000 139,243 111,063 --
---------- ---------- ----------- ------------ -----------
Total operating expenses......... 842,981 998,690 2,011,646 1,863,649 265,097
---------- ---------- ----------- ------------ -----------
Loss from operations................. (333,464) (294,719) (458,934) (1,118,502) (265,097)
---------- ---------- ----------- ------------ -----------
Other income (expense):
Interest income.................... -- -- 6 27,121 25,766
Interest expense................... (137,743) (34,074) (76,284) (19,384) --
---------- ---------- ----------- ------------ -----------
Total other income (expenses).... (137,743) (34,074) (76,278) 7,737 25,766
---------- ---------- ----------- ------------ -----------
Net loss............................. $ (471,207) $ (328,793) $ (535,212) $ (1,110,765) $(239,331)
---------- ---------- ----------- ------------ -----------
---------- ---------- ----------- ------------ -----------
Net loss allocated to general
partner............................. $ (13) $ (9) $ (14) $ (28) $ (6)
Net loss allocated to limited
partners............................ $ (471,194) $ (328,784) $ (535,198) $ (1,110,737) $(239,325)
---------- ---------- ----------- ------------ -----------
---------- ---------- ----------- ------------ -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-49
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994, AND FOR THE
PERIOD FROM MAY 28, 1993 (INCEPTION) TO DECEMBER 31, 1993
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- -------------- --------------
<S> <C> <C> <C>
Capital balance, May 28, 1993 (inception)............................... $ -- $ -- $ --
Capital contributions, net of syndication costs of $365,171........... 90 2,984,839 2,984,929
Net loss.............................................................. (6) (239,325) (239,331)
----------- -------------- --------------
Capital balance, December 31, 1993...................................... 84 2,745,514 2,745,598
Capital contributions, net of syndication costs of $16,525............ -- 183,475 183,475
Partner redemption.................................................... -- (50,000) (50,000)
Net loss.............................................................. (28) (1,110,737) (1,110,765)
----------- -------------- --------------
Capital balance, December 31, 1994...................................... 56 1,768,252 1,768,308
Net loss.............................................................. (14) (535,198) (535,212)
----------- -------------- --------------
Capital balance, December 31, 1995...................................... 42 1,233,054 1,233,096
Net loss (Unaudited).................................................. (13) (471,194) (471,207)
----------- -------------- --------------
Capital Balance, June 30, 1996 (Unaudited).............................. $ 29 $ 761,860 $ 761,889
----------- -------------- --------------
----------- -------------- --------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-50
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28,
1993
(INCEPTION)
SIX MONTHS ENDED YEARS ENDED DECEMBER TO
JUNE 30, 31, DECEMBER
-------------------- ---------------------- 31,
1996 1995 1995 1994 1993
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................... $(473,207) $(328,793) $(535,212) $(1,110,765) $(239,331)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 153,053 109,712 220,258 125,033 20,419
Changes in operating assets and
liabilities:
Accounts receivable................ (9,542) -- -- -- --
Inventories........................ (5,916) 8,198 7,494 (18,690) --
Receivable, affiliate.............. -- -- -- 8,000 (20,000)
Prepaid expenses and other current
assets............................ (10,899) 7,462 15,016 (16,437) (100)
Accounts payable................... (356,070) (172,574) (37,981) 521,895 52,741
Accrued real estate taxes.......... 91,742 101,118 202,238 83,335 --
Checks written against future
deposits.......................... 61,620 22,937 -- -- --
Accrued expenses and liabilities... 102,066 56,771 (1,950) 46,350 --
Deferred membership revenue........ 27,518 30,418 (60,333) 166,584 --
Deferred sponsorship revenue....... 20,000 25,000 -- -- --
Accounts payable, related party.... (44,004) 4,341 42,193 41,063 --
--------- --------- --------- ----------- -----------
Net cash used in operating activities.... (441,639) (135,410) (148,277) (153,632) (186,271)
--------- --------- --------- ----------- -----------
Investing activities:
Purchase of and construction of fixed
assets................................ (1,137) -- (38,108) (2,018,656) (983,238)
Payment of syndication costs........... -- -- -- (16,525) (360,132)
Payment of organization costs.......... -- -- -- -- (154,863)
Payments for deposits.................. (1,606) 2,238 (800) (26,522) (8,700)
--------- --------- --------- ----------- -----------
Net cash used in investing activities.... (2,743) 2,238 (38,908) (2,061,703) (1,506,933)
--------- --------- --------- ----------- -----------
Financing activities:
Payments on, proceeds from line of
credit................................ (200,000) -- -- 200,000 --
Proceeds from note payable,
affiliate............................. 40,261 90,890 213,679 266,074 --
Proceeds from note payable............. 900,000 -- -- -- --
Payments on note payable, affiliate.... -- -- (51,259) -- --
Payments on note payable............... (183,199) (651) (3,757) (764) --
Payments for loan fees................. (92,269) -- (21,000) -- --
Proceeds from capital contributions.... -- -- -- 62,500 3,350,100
Proceeds from subscriptions pending.... -- -- -- -- 137,500
Payments for redemption of limited
partner's interest.................... -- -- -- (50,000) --
--------- --------- --------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 464,793 90,239 137,663 477,810 3,487,600
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash.......... 20,411 (42,933) (49,522) (1,737,525) 1,794,396
Cash, beginning of period................ 7,349 56,871 56,871 1,794,396 --
--------- --------- --------- ----------- -----------
Cash, end of period...................... $ 27,760 $ 13,938 $ 7,349 $ 56,871 $1,794,396
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-51
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
ORGANIZATION AND BUSINESS
Illinois Center Golf Partners, L. P. (the "Partnership") was formed on May
28, 1993 under the laws of the State of Illinois. The Partnership was formed for
the purpose of developing, owning and operating a public, nine-hole, par 3 golf
course and driving range practice facility located in downtown Chicago known as
Illinois Center Golf and commenced primary operation in August 1994. The
Partnership's business is seasonal. A substantial portion of its business is
between May 1 to October 1. Limited partnership interests were offered to
investors through a private placement, which raised $3,500,000. The limited
partners hold a 60 percent interest in the Partnership (see Note 1).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1996 and 1995 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
original maturities of three months or less and money market accounts to be cash
equivalents.
INVENTORIES
Inventories, which consist of pro-shop merchandise and food and beverage,
are recorded at the lower of cost (first-in, first-out) or market.
FIXED ASSETS
Fixed assets are stated at cost and are depreciated and amortized on a
straight-line basis over the estimated useful lives of the assets or over the
term of the lease, whichever is shorter.
LOAN FEES
Loan fees are recorded at cost and are amortized using the straight-line
method over the term of the long-term debt (see Note 3).
ORGANIZATION COSTS
Organization costs are recorded at cost and are amortized using the
straight-line method over 60 months.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as taxable income or losses are reportable in
the tax returns of the individual partners. The net difference between the tax
basis and the reported amounts of the Partnership's assets and liabilities as of
June 30, 1996 and December 31, 1995 and 1994 are approximately $744,000,
$678,000 and $733,000.
F-52
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
CONCENTRATIONS OF CREDIT RISK
The Partnership's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and cash equivalents. The Partnership's
cash equivalents are in demand deposit accounts placed with federally insured
financial institutions. Such deposit accounts at times may exceed federally
insured limits. The Partnership has not experienced any losses on such accounts.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
ACCOUNTS PAYABLE AND NOTE PAYABLE RELATED PARTIES
Due to the related party nature and terms of the payables to related
parties, the Partnership cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all these notes bear interest at a floating rate of interest
based upon a lending institution's prime lending rate. Accordingly, the fair
value approximates the reported carrying amount at June 30, 1996, December 31,
1995 and 1994.
REVENUE RECOGNITION
Green fees, driving range fees, instruction revenue, merchandise and food
and beverage revenue are recognized as revenue immediately upon sale to the
customer. Membership fees are recognized as revenue ratably over the life of the
membership, usually 12 months. Sponsorship revenue is recognized as revenue
ratably over the life of the contract.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amounts or
their estimated recoverable amounts and the adoption of this statement by the
Partnership is not expected to have an impact on the financial statements.
F-53
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. PARTNERS' CAPITAL ACCOUNTS
The general partner of the Partnership, with a 40-percent interest in the
Partnership, has the responsibility to make all decisions affecting the
day-to-day business of the Partnership. The general partner does not have the
authority except under certain conditions as provided for in the partnership
agreement, to cause the Partnership to secure any indebtedness of the
Partnership with a mortgage, deed of trust or similar lien on the property, nor
does the general partner have the authority to sell or transfer all or
substantially all of the assets of the Partnership, unless the general partner
first obtains the majority consent of the limited partners. The general partner
contributed $90, its agreement to develop and acquire the ground lease (see Note
5) and expertise to the Partnership formation in exchange for its interest in
the Partnership. The selling agent for the Partnership received a special
limited partner interest for its services. For financial statement purposes,
activity for the special limited partner is grouped with the limited partners.
The Partnership agreement allows for cash distributions to the general and
limited partners from available net cash flow. Net cash flow is defined for any
period as the excess, if any, of revenues over expenses. Net cash flow is to be
distributed not less frequently than quarterly, commencing after the first full
calendar quarter following the opening to the public of Illinois Center Golf, as
follows:
a. first, 100 percent to the limited partners until the limited partners
have received cash in an amount equal to a 15 percent per annum return on
their net capital contribution calculated on a cumulative and compounded
basis from the date on which their capital contributions were delivered
to the Partnership;
b. second, to the limited partners in proportion to their net capital
contributions until their net capital contributions are reduced to zero;
and
c. thereafter, 57 1/2 percent to the limited partners, 40 percent to the
general partner and 2-1/2 percent to the special limited partner.
Profits and losses are allocated to the partners as follows:
PROFITS
a. first, to the partners in proportion to their negative adjusted capital
account balances, if any, until the negative balance of each partner's
adjusted capital account equals such partner's share of partnership
minimum gain and partner nonrecourse debt minimum gain;
b. second, to the partners until the aggregate amount allocated to each
partner for all years equals the aggregate of net losses allocated to
each partner for all previous years, pro rata in proportion to the net
losses being offset;
c. third, to the general partner until the aggregate amount allocated to
the general partner for all years equals the aggregate distributions of
net cash flow to the general partner for all years;
d. fourth, to the special limited partner until the aggregate amount
allocated to the special limited partner for all years equals the
aggregate distributions of net cash flow to the special limited partner
for all years; and
e. the balance, if any, to the limited partners.
F-54
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. PARTNERS' CAPITAL ACCOUNTS (CONTINUED)
LOSSES
a. first, to the limited partners until the amount allocated to each
partner equals the aggregate of net profits allocated to each limited
partner for all previous years;
b. second, to the special limited partner until the amount allocated to the
special limited partner equals the aggregate of net profits allocated to
the special limited partner for all previous years;
c. third, to the general partner until the amount allocated to the general
partner equals the aggregate net profits allocated to the general partner
for all previous years;
d. fourth, to the partners up to the amount of net capital contributions,
allocated pro rata in proportion to net capital contributions; and
e. the balance, if any, to the general partner.
2. LINE OF CREDIT
The Partnership entered into a $200,000 line of credit agreement dated May
6, 1994. Borrowings under the line accrue interest at 1.5 percent over the
Associated Bank's prime rate, which was 8.5 percent at December 31, 1995. The
line is collateralized by inventory, contract rights, equipment and fixtures.
The balance outstanding on the line of credit was $200,000 as of December 31,
1995. The line of credit was paid in full during January 1996.
3. NOTES PAYABLE
During 1994, the Partnership entered into two note agreements with a
contractor of the Illinois Center Golf facility. Both note agreements are
unsecured, accrue interest at fifteen percent and were due in monthly principal
and interest installments of $500 through June 1, 1995. The balances on the
notes as of December 31, 1995 are $58,493 and $22,418 and as of December 31,
1994 are $57,030 and $24,238. During January 1996, the notes were paid in full.
NOTE PAYABLE -- TEXTRON
On January 31, 1996, subsequent to year end, the Partnership entered into a
$2,000,000 promissory note with Textron. Textron advanced $1,750,000 to the
Partnership. The Partnership may be entitled to receive additional advances up
to $250,000 from Textron pursuant to the terms of the note agreement. The note
bears interest at three percent above the Chase Manhattan Bank's prime rate and
is due on or before December 31, 2002. Principal and interest payments are due
under a seasonal payment structure. The note is collateralized by substantially
all of the assets of the Partnership and is personally guaranteed by the
president of the managing general partner.
EQUIPMENT PURCHASE
On January 31, 1996, subsequent to year end, the Partnership purchased its
clubhouse facility and various items of equipment which were previously under
operating leases for $1,434,000. The Partnership paid $850,000 in cash and
entered into a $584,000 promissory note. The note bears interest at eight
percent per annum and is due June 1, 2005. Principal and interest payments on
the note commence January 1, 1998. The note is collateralized by its clubhouse
facility and various items of equipment. The note is subordinate to the Textron
note payable.
F-55
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
4. RELATED PARTY TRANSACTIONS
ASSET MANAGEMENT FEE
The general partner is entitled to receive a $60,000 annual asset management
fee, increased by five percent per annum, for its services relating to the
operation of Illinois Center Golf, financial advisory services, partnership
reporting and other administrative services. The asset management fee is payable
in monthly installments beginning July 1994. For the six months ended June 30,
1996 and for the years ended December 31, 1995 and 1994, the Partnership
incurred asset management fees of $31,500, $60,000 and $35,000.
NOTE PAYABLE TO AFFILIATE
On September 1, 1994, the Partnership entered into a $500,000 note agreement
with its general partner. Borrowings under the agreement accrue interest at two
percent over the Citibank's prime rate, which was 8.5 percent at December 31,
1995. The note is unsecured and due the earlier of demand or September 1, 1996.
The balance outstanding on the note is $500,000, $459,739 and $275,724 as of
June 30, 1996 and December 31, 1995 and 1994.
5. COMMITMENTS AND CONTINGENCIES
PROPERTY MANAGEMENT AGREEMENT
On December 1, 1993, the Partnership entered into a property management
agreement with Metrogolf Management, Inc., formerly Vintage Golf Management,
Inc. ("MGM"), an affiliate of the general partner. The management agreement
expires on January 1, 1997. The terms of the management agreement provide for a
management fee of $5,000 per month plus a membership incentive fee of ten
percent of the gross proceeds received from membership initiation fees and the
equivalent of one month's membership dues as received by Illinois Center Golf.
The membership incentive fee for renewal memberships will be reduced to four
percent of annual dues for renewal memberships. In addition, the management
agreement provides for an annual incentive fee of five percent of the amount of
annual net operating income in excess of $1,600,000.
Prior to November 11, 1994, MGM was operated by Club Sports International
("CSI"). On October 1, 1994, CSI was removed as operator of MGM. On November 11,
1994, Billy Casper Golf Management, Inc. ("BCGM") was engaged as the new
operator of MGM. From June 1, 1994 through September 30, 1994, MGM's base
management fee was split between CSI and the general partner, with CSI receiving
$4,000 and the general partner receiving $1,000. From October 1 through November
10, the general partner earned the full amount of MGM's fee. Starting November
11, 1994 through November 30, 1995, BCGM earned the entire fee. During November
1995, BCGM was removed as operator of MGM and the general partner became the
operator of MGM. In addition, MGM has agreed to waive 80% of the deferred $5,000
per month fees that it had earned under its contract from the period December 1,
1993 to May 31, 1994.
For the six months ended June 30, 1996 and for the years ended December 31,
1995 and 1994, property management expense, including the incentive fees, were
$41,511, $79,243 and $76,063. As of June 30, 1996 and December 31, 1995 and
1994, the Partnership owed MGM $39,252, $83,256 and $41,063 in unpaid property
management fees and incentive fees.
F-56
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASING ACTIVITY
The Partnership has noncancelable operating lease agreements for equipment
and golf carts which expire through October 1998. Total lease expense
approximated $11,062, $159,000, $179,000 and $-0- for the six months ended June
30, 1996 and for the years ended December 31, 1995 and 1994, and for the period
from May 28, 1993 (inception) to December 31, 1993.
Future minimum payments in accordance with the above lease agreements as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996...................................................... $ 23,000
1997...................................................... 17,000
1998...................................................... 7,000
---------
$ 47,000
---------
---------
</TABLE>
GROUND SUBLEASE AND SUBLICENSE AGREEMENT
The Partnership entered into a ground sublease and sublicense agreement on
July 14, 1993 for the property on which Illinois Center Golf is constructed. The
term of the lease is for fifteen years, commencing with the opening date of July
14, 1994, and may be extended by agreement of the parties.
The sublease agreement calls for the payment of a tax contribution, land
rent, and additional rent. Payments for these amounts are subject to available
operational proceeds, which are applied and expended in the following order:
1. Expenses
2. Debt service
3. Tax contribution
4. Operational reserve
5. Partnership preferred return
6. Partnership contribution
7. Land rent
8. Distributable cash
The tax contribution is in the amount of $10,417 per month starting August
1, 1994, increased by $6,250 per month for any month in which land rent is not
paid. Land rent is in the amount of $6,250 per month pro rated from July 13,
1994 to August 17, 1994, and $12,500 per month thereafter. Additional land rent
is payable in the amount of 32.5 percent of distributable cash. The contingent
payments for tax contribution and land rent as of December 31, 1995 were
approximately $285,600 and $282,500. As of December 31, 1995, the Partnership
paid no tax contribution nor land rent to the lessor. As of June 30, 1996 and
December 31, 1995 and 1994, the Partnership has accrued tax contributions of
approximately $377,315, $285,600 and $83,300. As of June 30, 1996 and December
31, 1995, the Partnership was not obligated to pay land rent under the
provisions of the agreement.
F-57
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
6. SUPPLEMENTAL DISCLOSURES FOR THE STATEMENTS OF CASH FLOWS
The following is a summary of noncash investing and financing activities.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28, 1993
SIX MONTHS ENDED YEARS ENDED DECEMBER (INCEPTION)
JUNE 30, 31, TO
-------------------- -------------------- DECEMBER 31,
1996 1995 1995 1994 1993
--------- --------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Construction of course, practice facility,
building and related improvements financed
with accounts payable...................... $ -- $ -- $ -- $ 259,224 $ 33,507
Purchase of equipment with long-term debt... $1,434,000 $ -- $ -- $ -- $ --
Purchase of equipment financed with
deposits................................... $ 30,482 $ -- $ -- $ -- $ --
Organization costs financed with accounts
payable.................................... $ -- $ -- $ -- $ -- $ 20,154
Syndicated costs financed with accounts
payable.................................... $ -- $ -- $ -- $ -- $ 5,039
Accounts payable converted to notes
payable.................................... $ -- $ -- $ -- $ 81,758 $ --
Accounts payable converted to note payable,
affiliate.................................. $ -- $ 15,000 $ -- $ 15,796 $ --
Accrued interest converted to note
payable.................................... $ -- $ -- $ 3,400 $ 274 $ --
Accrued interest converted to note payable,
affiliate.................................. $ -- $ -- $ 21,595 $ 3,854 $ --
Receivable due from affiliate offset against
note payable, affiliate.................... $ -- $ -- $ -- $ 10,000 $ --
Subscriptions pending converted to partners'
capital.................................... $ -- $ -- $ -- $ 137,500 $ --
</TABLE>
The Partnership made cash payments for interest of $108,080, $3,482, $37,523,
$17,716 and $0 for the six months ended June 30, 1996 and 1995 and for the years
December 1995, 1994 and for the period from May 28, (inception) to December 31,
1993.
7. PROPOSED PARTNERSHIP ACQUISITION
MetroGolf Illinois Center, Inc., formerly TVG (Illinois Center), Inc., is
the managing general partner of the Partnership and is a majority owned
subsidiary of MetroGolf Incorporated (the "Company"). The Company has offered to
purchase limited partnership interests for a combination of cash and convertible
notes. The acquisition will be contingent upon the closing of the Company's
initial public offering ("IPO").
Limited partners who elect not to exchange their interest will remain
limited partners in the partnership. Under the Company's current proposal, each
limited partner who elects to sell will receive for each $50,000 limited
partnership interest either $25,000 cash and a $25,000 convertible note or a
$50,000 convertible note. Each convertible note will bear interest at 6% per
annum and will mature on June 1, 2005; interest only will be payable for the
first 24 months from issuance of the convertible notes, with the remaining
interest and principal being amortized evenly over the remaining seven years.
Each convertible note will be convertible at the holder's option into common
stock at any time after the date is 13 months after the closing of the IPO at a
conversion price equal to the price of the common stock to the public in the
IPO. In addition, each $25,000 convertible note issued to the limited partners
will convert into warrants to purchase 2,500 shares of common stock at an
exercise price equal to 120% of the IPO price.
When the convertible notes are first convertible into the common stock of
the Company, the Company will use its best efforts to cause such shares to be
registered.
F-58
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
7. PROPOSED PARTNERSHIP ACQUISITION (CONTINUED)
The closing of the acquisition of the limited partnership interests and the
promissory notes is contingent upon the closing of the Company's IPO. The
limited partnership and promissory note acquisitions will not be consummated
before the closing of the IPO and there can be no assurance that the limited
partnership interests and promissory note acquisitions or the IPO will occur.
8. LIQUIDITY
As of December 31, 1995, the Partnership had negative working capital. As
discussed in Note 3, the Partnership was advanced $1,750,000 on January 31,
1996. The Partnership believes that with this loan it will have sufficient
working capital to fund its 1996 operations.
F-59
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Goose Creek Golf Partners Limited Partnership
(A Virginia Limited Partnership)
Denver, Colorado
We have audited the accompanying balance sheets of Goose Creek Golf Partners
Limited Partnership (a Virginia limited partnership) (the "Partnership") as of
December 31, 1995 and 1994 and the related statements of operations, changes in
partners' capital and cash flows for the years ended December 31, 1995, 1994 and
1993. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits 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 audits provide 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 the Partnership as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the Partnership has suffered recurring losses from
operations and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996
F-61
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
JUNE 30,
1996
-----------
(UNAUDITED)
ASSETS (NOTE 3)
<S> <C> <C> <C>
Current:
Cash..................................................................... $ 37,681 $ 19,386 $ 26,466
Restricted cash (Note 2)................................................. -- 75,000
Inventories.............................................................. 23,796 34,145 31,226
Prepaid insurance and other current assets............................... 10,022 15,521 5,030
Real estate tax escrow................................................... 22,423 11,666 6,474
----------- ---------- ----------
Total current assets................................................... 93,922 155,718 69,196
----------- ---------- ----------
Fixed assets:
Land..................................................................... 3,526,961 3,526,961 3,526,961
Buildings................................................................ 861,501 859,401 859,401
Furniture, fixtures and equipment........................................ 1,127,060 1,127,060 1,109,701
----------- ---------- ----------
5,515,522 5,513,422 5,496,063
Less accumulated depreciation and amortization........................... 566,685 500,877 333,542
----------- ---------- ----------
Net fixed assets........................................................... 4,948,837 5,012,545 5,162,521
----------- ---------- ----------
Other:
Organization costs....................................................... 89,463 89,463 89,463
Loan fees................................................................ 119,305 119,305 119,305
----------- ---------- ----------
208,768 208,768 208,768
Less accumulated amortization............................................ 168,389 148,479 106,725
----------- ---------- ----------
40,379 60,289 102,043
Deposits................................................................. 1,866 1,866 2,300
----------- ---------- ----------
Total other assets..................................................... 42,245 62,155 104,343
----------- ---------- ----------
$5,085,004 $5,230,418 $5,336,060
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable......................................................... $ 332,993 $ 220,687 $ 135,448
Accounts payable, related party.......................................... -- -- 393
Checks written against future deposits................................... 53,930
Sales tax payable........................................................ 8,541 547 1,120
Accrued interest......................................................... 33,233 30,700 28,567
Deferred membership revenue.............................................. 25,166 51,210 69,574
Line of credit (Note 2).................................................. 74,941 149,941 --
Note payable, related party (Note 6)..................................... 106,823 54,989 --
Notes payable, other..................................................... 28,600 11,650 --
Note payable -- Textron, current portion (Note 3)........................ 88,811 84,477 76,441
Convertible notes payable, current portion (Note 3)...................... -- -- 527,307
Capital lease obligations, current portion (Note 5)...................... 108,889 103,343 93,084
----------- ---------- ----------
Total current liabilities.............................................. 861,927 707,544 931,934
----------- ---------- ----------
Long-term liabilities:
Note payable -- Textron, less current portion (Note 3)................... 3,256,062 3,248,486 3,332,953
Convertible notes payable, less current portion (Note 3)................. 380,000 380,000 --
Capital lease obligation, less current portion (Note 5).................. 308,442 354,246 455,407
----------- ---------- ----------
Total long-term liabilities............................................ 3,944,504 3,982,732 3,788,360
----------- ---------- ----------
Total liabilities...................................................... 4,806,431 4,690,276 4,720,294
----------- ---------- ----------
Commitments and contingencies (Note 5)
Partners' capital (Note 4)
General partners......................................................... (6,347) (3,731) (2,975)
Limited partners......................................................... 284,920 543,873 618,741
----------- ---------- ----------
278,573 540,142 615,766
----------- ---------- ----------
$5,085,004 $5,230,418 $5,336,060
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-62
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Greens fees.................... $ 225,748 $ 324,014 $ 655,398 $ 743,816 $ 704,953
Golf cart rental............... 98,682 140,180 304,188 336,180 266,809
Merchandise.................... 57,409 82,268 176,185 204,356 190,073
Food and beverage.............. 73,119 95,453 188,953 222,570 174,235
Outings and events............. 62,554 -- -- -- --
Membership revenue............. 42,773 61,953 114,574 154,007 104,158
Other income................... 12,654 4,652 12,624 -- 388
--------- --------- ---------- ---------- ----------
Total revenues............... 572,939 708,520 1,451,922 1,660,929 1,440,616
--------- --------- ---------- ---------- ----------
Operating expenses:
Pro shop....................... 170,957 147,077 295,546 304,337 312,520
Food and beverage.............. 47,056 59,593 120,698 128,071 103,982
Golf course maintenance........ 105,060 106,252 258,147 241,283 183,652
General and administrative..... 130,298 132,123 293,004 279,901 322,165
Depreciation and
amortization.................. 85,718 92,147 209,089 237,966 174,132
Asset management fee, related
party (Note 6)................ 26,264 25,013 51,059 48,628 46,313
--------- --------- ---------- ---------- ----------
Total operating expenses..... 565,353 562,205 1,227,543 1,240,186 1,142,764
--------- --------- ---------- ---------- ----------
Income (loss) from operations.... 7,586 146,315 224,379 420,743 297,852
--------- --------- ---------- ---------- ----------
Other income (expenses):
Interest income................ 2,432 73 3,830 384 1,073
Interest expense............... (271,587) (233,228) (469,732) (449,242) (437,518)
--------- --------- ---------- ---------- ----------
Total other (expenses)....... (269,155) (233,155) (465,902) (448,858) (436,445)
--------- --------- ---------- ---------- ----------
Loss before extraordinary item... (261,569) (86,840) (241,523) (28,115) (138,593)
Extraordinary item, debt
extinguishment.................. -- -- 165,899
--------- --------- ---------- ---------- ----------
Net loss......................... $(261,569) $ (86,840) $ (75,624) $ (28,115) $ (138,593)
Net loss allocated to general
partners........................ $ (2,616) $ (868) $ (756) $ (281) $ (1,386)
Net loss allocated to limited
partners........................ $(258,953) $ (85,972) $ (74,868) $ (27,834) $ (137,207)
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-63
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- --------- ---------
Balance, January 1, 1993.................................... $ (1,308) $ 747,115 $ 745,807
<S> <C> <C> <C>
Capital contributions..................................... -- 50,000 50,000
Distribution to partners.................................. -- (13,333) (13,333)
Net loss.................................................. (1,386) (137,207) (138,593)
--------- --------- ---------
Balance, December 31, 1993.................................. (2,694) 646,575 643,881
Net loss.................................................. (281) (27,834) (28,115)
--------- --------- ---------
Balance, December 31, 1994.................................. (2,975) 618,741 615,766
Net loss.................................................. (756) (74,868) (75,624)
--------- --------- ---------
Balance, December 31, 1995.................................. (3,731) 543,873 540,142
Net loss (Unaudited)...................................... (2,616) (258,953) (261,569)
--------- --------- ---------
Balance, June 30, 1996 (Unaudited).......................... $ (6,347) $ 284,920 $ 278,573
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-64
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss................................ $(261,569) $ (86,840) $ (75,624) $ (28,115) $ (138,593)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization......... 85,718 92,147 209,089 237,966 174,132
Extraordinary item, debt
extinguishment....................... -- -- (165,899) -- --
Debt issued for services.............. -- -- 11,650 -- --
Changes in operating assets and
liabilities:
Inventories........................... 10,349 (45,297) (2,919) 9,036 10,273
Prepaid insurance..................... 15,521 5,030 (10,491) (979) 3,983
Real estate tax escrow................ (10,757) -- (5,192) (3,031) 8,281
Other current assets.................. (10,022) (1,308) -- -- (5,732)
Accounts payable...................... 112,306 79,844 85,239 25,472 46,657
Accounts payable, related party....... -- (393) (393) 393 --
Checks written against future
deposits............................. 53,930 -- -- -- --
Accrued expenses...................... 53,046 38,823 77,857 131,759 41,745
Deferred membership revenue........... (26,044) (33,843) (18,364) (6,610) 73,850
--------- --------- ---------- ---------- ----------
Net cash provided by operating
activities............................... 22,478 48,163 104,953 365,891 214,596
--------- --------- ---------- ---------- ----------
Investing activities:
Proceeds from certificate of deposit.... 75,000 -- -- -- --
Purchase of certificate of deposit...... -- (75,000) (75,000) -- --
Purchase of fixed assets................ (2,100) (17,168) (17,359) (157,128) (263,066)
Decrease in deposits.................... -- (2,300) 434 1,250 --
--------- --------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities............................... 72,900 (89,868) (91,925) (155,878) (263,066)
--------- --------- ---------- ---------- ----------
Financing activities:
Payments on long-term debt.............. (30,609) (52,841) (131,953) (161,760) (62,778)
Borrowings on convertible notes
payable................................ -- -- 380,000 -- --
Payments on convertible notes payable... -- -- (380,000) -- --
Payments on capital lease obligations... (40,258) (36,557) (93,085) (81,174) (71,790)
Borrowings on line-of-credit............ 140,755 149,941 -- --
Payments on line of credit.............. (75,000) -- -- -- --
Borrowings on note payable, related
party.................................. 51,834 -- 54,989 -- --
Borrowings on notes payable, other...... 20,000 -- -- -- --
Payments on notes payable, other........ (3,050) -- -- -- --
Partner capital contributions........... -- -- -- -- 50,000
Partner distributions................... -- -- -- -- (13,333)
--------- --------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities............................... (77,083) 51,357 (20,108) (242,934) (97,901)
--------- --------- ---------- ---------- ----------
Net increase (decrease) in cash........... 18,295 9,652 (7,080) (32,921) (146,371)
Cash, beginning of period................. 19,386 26,466 26,466 59,387 205,758
--------- --------- ---------- ---------- ----------
Cash, end of period....................... $ 37,681 $ 36,118 $ 19,386 $ 26,466 $ 59,387
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-65
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
ORGANIZATION AND BUSINESS
Goose Creek Golf Partners Limited Partnership (the "Partnership") was formed
on May 1, 1992 under the laws of the State of Virginia. The Partnership was
formed for the purpose of acquiring, owning, managing and improving a public,
daily fee golf course located in Virginia known as Goose Creek Golf Course and
commenced primary operations on June 1, 1992. The Partnership's business is
seasonal. A substantial portion of its business is between April 1 to October
30. Limited partnership interests were offered to investors through a private
placement which raised $975,000. The limited partners hold a 99 percent interest
in the Partnership. The managing general partner and the administrative general
partner each hold a 0.5 percent interest in the Partnership (see Note 4).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1996 and 1995 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
original maturities of three months or less and money market accounts to be cash
equivalents.
INVENTORIES
Inventories, consisting of proshop merchandise and food and beverage, are
recorded at lower of cost (first-in, first-out) or market.
FIXED ASSETS
Fixed assets are stated at cost and are depreciated on a straight line basis
over the estimated useful lives of the assets. Equipment under capital leases is
stated at cost and is amortized over the estimated useful life of the equipment
or over the term of the lease, whichever is shorter.
LOAN FEES
Loan fees are recorded at cost and are amortized using the straight-line
method over the term of the long-term debt (see Note 3).
ORGANIZATION COSTS
Organization costs are recorded at cost and are amortized using the
straight-line method over 60 months.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as taxable income or losses are reportable in
the tax returns of the individual partners. The net difference between the tax
basis and the reported amounts of the Partnership's assets and liabilities as of
June 30, 1996 and December 31, 1995 and 1994 are approximately $57,000, $1,000
and $114,000.
F-66
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
CONCENTRATION OF CREDIT RISK
The Partnership's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and cash equivalents. The Partnership's
cash and cash equivalents are in demand deposit accounts placed with federally
insured financial institutions. Such deposit accounts at times may exceed
federally insured limits. The Partnership has not experienced any losses on such
amounts.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
ACCOUNTS PAYABLE AND NOTE PAYABLE RELATED PARTIES
Due to the related party nature and terms of the payables to related
parties, the Partnership cannnot estimate the fair market value of such
financial instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all these notes bear interest at a floating rate of interest
based upon a lending institutions prime lending rate. Accordingly, the fair
value approximates their reported carrying amount at June 30, 1996, December 31,
1995 and 1994.
REVENUE RECOGNITION
Green fees, golf cart rental, merchandise and food and beverage are
recognized as revenue immediately upon sale to the customer. Membership fees are
recognized as revenue ratably over the life of the membership, usually 12
months.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amounts or
their estimated recoverable amounts, and the adoption of this statement by the
Partnership is not expected to have an impact on the financial statements.
F-67
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. GOING CONCERN
The Partnership has incurred losses since its inception and had a working
capital deficit of $768,005 and $551,826 as of June 30, 1996 and December 31,
1995 (reduced from $862,738 as of December 31, 1994 and $589,838 as of December
31, 1993). These conditions raise substantial doubt about the Partnership's
ability to continue as a going concern. The Partnership's continued existence is
dependent on management's ability to generate additional cash flow from
operations or obtain financing to meet its obligations when due (see Note 8).
The general partner has replaced the management company in an effort to improve
operations (see Note 5) and is negotiating with a lender to refinance its
existing long-term debt, to make additional capital improvements to the golf
course, and to retire short-term debt obligations. In addition, the general
partner has advanced funds to the Partnership to help it meet its obligations.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
2. LINE OF CREDIT
The Partnership entered into a $150,000 line of credit agreement dated
December 23, 1994. Borrowings under the line accrue interest at two percent over
the prime rate, which was 8.5 percent at December 31, 1995. The line is due on
July 22, 1996. The Partnership deposited a $75,000 certificate of deposit with
the lender as collateral for the debt, and the managing general partner of the
Partnership has guaranteed the debt. As of June 30, 1996 and December 31, 1995
and 1994 the balance on the line of credit is $74,941, $149,941 and $0.
3. LONG-TERM DEBT
NOTE PAYABLE -- TEXTRON
On June 1, 1992, the Partnership was advanced $3.6 million under a loan
agreement whereby the Partnership may borrow up to $4.2 million. The loan
agreement bears interest at 10.05 percent and has a five-year term which may be
extended for an additional five-year term under certain conditions of the loan
agreement. Principal and interest payments are due under a seasonal payment
structure with a balloon payment of principal due on June 1, 1997, unless the
Partnership exercises its right to extend the maturity date. The loan agreement
allows for subsequent advances in amounts of at least $100,000 each until total
advances reach $4.2 million, so long as no more than one advance occurs in any
12-month period. The amount of additional advances are tied to a formula
involving certain net operating income levels and debt-coverage ratios. The loan
is collateralized by all property of the Partnership and is personally
guaranteed by the president of the managing general partner.
CONVERTIBLE NOTES PAYABLE
On June 1, 1992, the Partnership entered into a convertible note agreement
for $400,000 with the seller of the golf course land, buildings and
improvements. The note had an original maturity date of June 1, 1994.
As of June 2, 1994, the Partnership was in default of a provision of the
conversion agreement requiring all net proceeds from the sale of Class A Limited
Partnership Interests in excess of the initial $950,000 to be paid to the
seller. Accordingly, interest has been accrued at the default rate as specified
in the note agreement from April 2, 1993 (the date of default).
F-68
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
During August 1995, the general partner negotiated the purchase, at a
discount, of the seller's note for $380,000 as payment in full under the note
agreement. The purchase price was $165,899 less than the outstanding balance on
the note at the time of the purchase. Accordingly, the partnership recorded
$165,899 in debt extinguishment income for the year ended December 31, 1995.
During August 1995, the Partnership entered into three unsecured convertible
note agreements. The notes accrue interest at 8 percent per annum through August
1, 1996. Thereafter, the notes accrue interest at 15 percent per annum.
Interest-only payments are due on the first of each month. The notes are due on
August 1, 1997. The note agreements are subordinate to the note payable with
Textron.
The note agreements contain a conversion provision whereby the noteholders
may convert no less than all of the then outstanding principal and accrued
interest into limited partnership interests.
Future maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................... $ 84,477
1997................................................... 3,628,486
----------
$3,712,963
----------
----------
</TABLE>
4. PARTNERS' CAPITAL ACCOUNTS
The managing general partner of the Partnership, with a 0.5 percent interest
in the Partnership, is responsible for the day-to-day management and operation
of the business and property of the Partnership. The administrative general
partner of the Partnership, who also has a 0.5 percent interest in the
Partnership, holds joint authority with the managing general partner over annual
budgets, capital expenditures, significant deposits into and withdrawals from
the Partnership reserve account, as defined, and replacement of the management
company (see Note 5). The general partners shall not have the authority to sell
or refinance all or any material portion of the property without the consent of
51 percent of the limited partners. Both general partners contributed their
expertise to the Partnership formation in exchange for an interest in the
Partnership.
The Partnership agreement allows for cash distributions to the general and
limited partners from available net cash flow, at the discretion of the managing
general partner. Net cash flow is defined as the excess of operating cash
receipts over operating cash disbursements after the funding of reasonable
reserves for anticipated expenses and capital replacement. Net cash flow is
distributed as follows:
(i) 99 percent to the limited partners and one percent to the general
partners (0.5 percent to each) until the limited partners have received an
amount equal to 12 percent per annum, cumulative, noncompounded, on their
capital contributions;
(ii) thereafter, to the Partnership reserve account, as defined; and
(iii) thereafter, distributed to the general and limited partners in
accordance with their percentage interests in the Partnership.
Profits and losses are allocated to the partners in the same proportion as
net cash flow is distributed subject to the provisions of Section 704(b) of the
Internal Revenue Code of 1986 relating to substantial economic effect.
F-69
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
PROPERTY MANAGEMENT AGREEMENT
On June 1, 1992, the Partnership entered into a five-year property
management agreement with a Virginia corporation in the business of managing
golf courses and clubs. The terms of the management agreement provide for a
management fee of $5,000 per month plus an incentive fee of four percent of
gross monthly revenues, to the extent the amount exceeds $5,000 per month. In
addition, the management agreement provides for an annual incentive fee of
$15,000 plus an additional five to fifteen percent of net operating income in
excess of $600,000. The aggregate amount of these fees shall not exceed six
percent of gross revenues with respect to the applicable calendar year or
portion thereof. In addition, a membership fee of 10 percent of the gross
proceeds received from initiation fees is to be paid to the management company.
For the six months ended June 30, 1996 and for the years ended December 31,
1995, 1994, and 1993, the Partnership incurred $25,476, $60,000, $60,000, and
$60,000 for management fees.
During March 1996, the general partner gave notice to terminate the property
management agreement discussed above. In accordance with the property management
agreement, the Partnership is required to pay as much as $75,000 to the property
manager for cancelling the agreement as long as the property manager is not in
default with respect to this agreement. The general partner is of the opinion
that the property manager is in default; accordingly, no provision for any
liability that may result from this agreement has been recognized in the
accompanying financial statements.
CAPITAL LEASE OBLIGATIONS
The Partnership has various lease agreements for irrigation system,
maintenance equipment and golf carts. These obligations extend through 2001 with
unexpired terms ranging from one to five years.
Included in fixed assets in the accompanying balance sheets are the
following assets held under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
JUNE 30, ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Turf and maintenance equipment.................................. $ 261,000 $ 261,000 $ 261,000
Golf carts...................................................... 196,345 196,345 196,345
Irrigation system............................................... 284,662 284,662 284,662
----------- ----------- -----------
Assets under capital lease...................................... 742,007 742,007 742,007
Less accumulated amortization................................... 365,077 313,295 209,729
----------- ----------- -----------
Assets under capital lease, net................................. $ 376,930 $ 428,712 $ 532,278
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-70
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments and the present value of the minimum lease
payments under the capital lease obligations as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Total future minimum lease payments...................................... $ 738,826
Less amount representing interest........................................ 281,237
---------
Present value of minimum lease payments.................................. 457,589
Current portion of capital lease obligations............................. 103,343
---------
Long-term portion of capital lease obligations........................... $ 354,246
---------
---------
</TABLE>
As of December 31, 1995, annual maturities of the capital lease obligations
for each of the next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 103,343
1997..................................................... 87,772
1998..................................................... 26,804
1999..................................................... 27,628
Thereafter............................................... 212,042
---------
$ 457,589
---------
---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
ASSET MANAGEMENT FEE
The general partner is entitled to receive a $45,000 annual asset management
fee, increased by five percent per annum, for its services relating to the
Partnership. For the six months ended June 30, 1996 and for the years ended
December 31, 1995, 1994 and 1993, the Partnership incurred asset management fees
of $26,264, $51,059, $48,628 and $46,313.
NOTE PAYABLE, RELATED PARTY
On November 21, 1995, the Partnership entered into a $100,000 note agreement
with its general partner. On April 15, 1996, the note agreement was increased to
$150,000. Advances under the agreement accrue interest at two percent over the
Citibank's prime rate, which was 8.75 percent at December 31, 1995. The note is
unsecured and due the earlier of demand or on November 21, 1996. The balance
outstanding on the note is $106,823 and $54,989 as of June 30, 1996 and December
31, 1995.
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was $226,535 and $197,467 for the six months ended
June 30, 1996 and 1995, and $335,625, $291,047 and $356,822 for the years ended
December 31, 1995, 1994 and 1993.
F-71
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
Excluded from the statements of cash flows were the effects of certain
noncash investing and financing activities as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accrued interest converted to debt......... $ 42,519 $ 63,703 $ 76,297 $ 132,146 $ 44,266
Equipment acquired through capital lease
obligations............................... $ -- $ -- $ -- $ 297,680 $ --
</TABLE>
8. PROPOSED PARTNERSHIP ACQUISITION
MetroGolf Virginia, Inc., formerly TVG (Virginia), Inc. is the managing
general partner of the Partnership and is a wholly-owned subsidiary of MetroGolf
Incorporated (the "Company"). The Company has offered to purchase the limited
partnership interests for a combination of cash and convertible notes. The
acquisition will be contingent upon the closing of the Company's initial public
offering ("IPO").
Limited partners who elect not to exchange their interest will remain
limited partners in the old partnership. Each limited partner who elects to sell
will receive for each $25,000 limited partnership interest $12,500 in cash and a
convertible note in the amount of $26,500 or a convertible note in the amount of
approximately $39,000. Each convertible note will bear interest at 6% per annum
and will mature on June 1, 2005; interest only will be payable for the first 24
months from the date of the issuance of the convertible notes, with the
remaining interest and principal being amortized evenly over the remaining seven
years until maturity. Each convertible note will be convertible at the holder's
option into common stock at any time after the date that is 13 months after the
closing of the IPO at a conversion price equal to the price of the Common Stock
to the public in the IPO.
When the convertible notes are first convertible into the common stock of
the Company, the Company will use its best efforts to cause such shares to be
registered.
The closing of the acquisition of the limited partnership interests and the
promissory notes is contingent upon the closing of the Company's IPO. The
limited partnership and promissory note acquisitions will not be consummated
before the closing of the IPO, and there can be no assurance that the limited
partnership interests and promissory note acquisitions or the IPO will occur.
F-72
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY............................. 4
RISK FACTORS................................... 8
USE OF PROCEEDS................................ 14
DIVIDEND POLICY................................ 14
DILUTION....................................... 15
CAPITALIZATION................................. 16
SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL
DATA.......................................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 18
PARTNERSHIP ACQUISITIONS....................... 23
BUSINESS....................................... 25
MANAGEMENT..................................... 35
CERTAIN TRANSACTIONS........................... 39
CONCURRENT OFFERING............................ 41
PRINCIPAL STOCKHOLDERS......................... 42
DESCRIPTION OF CAPITAL STOCK................... 43
SHARES ELIGIBLE FOR FUTURE SALE................ 44
UNDERWRITING................................... 46
LEGAL MATTERS.................................. 48
EXPERTS........................................ 48
</TABLE>
--------------------------
Until , 19 (25 days after the date hereof), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as Underwriter.
1,200,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
LAIDLAW EQUITIES, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
[ALTERNATE PAGE]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
A-1
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 22, 1996
PROSPECTUS
COMMON STOCK
METROGOLF INCORPORATED
----------
This Prospectus relates to the shares of common stock, no par value (the
"Common Stock"), of MetroGolf Incorporated, a Colorado corporation (the
"Company"), to be issued by the Company to certain holders ("Converting
Shareholders") of the Company's 12% Convertible Subordinated Notes Due 1997 (the
"PP Notes") upon conversion thereof. The PP Notes were issued by the Company in
a private placement that ended May 30, 1996. See "The Conversion."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
1,200,000 shares of Common Stock and the shares of Common Stock offered hereby
(the "Offering") was declared effective by the Securities and Exchange
Commission. The Company will receive approximately $7,110,000 in net proceeds
from such public offering (assuming no exercise of the Underwriter's
Over-allotment Option) after payment of underwriting discounts and commissions
and estimated expenses of such offering.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1996
A-2
<PAGE>
[ALTERNATE PAGE]
THE CONVERSION
The PP Notes are convertible into shares of Common Stock at the option of
the holder of the PP Notes at any time upon the earlier of (i) the closing of
the Offering; or (ii) November 30, 1996. If conversion occurs simultaneously
with the closing of the Offering, each PP Note, including any accrued but unpaid
interest, will convert into Common Stock at a conversion price equal to 50% of
the IPO Price. After the closing of the Offering, each PP Note, including any
accrued but unpaid interest, will be convertible into Common Stock at a
conversion price of 50% of the "Market Price of the Common Stock." The "Market
Price of the Common Stock" is defined as follows: (i) if the Common Stock is
listed on the New York Stock Exchange, the American Stock Exchange or another
securities exchange designated by the Company's Board of Directors, or if the
Common Stock is quoted on a National Association of Securities Dealers, Inc.
system that reports closing prices, the market price shall be the average
closing price of the Common Stock as reported by THE WALL STREET JOURNAL for the
previous five trading days from the date the price is to be determined, or, if
no such price is reported for any of such days, then the average will be
calculated as of the last immediately preceding five trading days on which the
closing price is so reported; or (ii) if the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, the market price will be
the average of the last reported highest bid and lowest asked prices for the
previous five trading days as quoted on the NASD Automated Quotation System; or
(iii) if the Common Stock is not so listed or admitted to unlisted trading
privileges or so quoted, and bid and asked prices are not reported, the market
price will be determined in such reasonable manner as may be determined by the
Company's Board of Directors.
The Common Stock issuable upon conversion of the PP Notes is registered
herewith. Pursuant to the terms of the PP Notes, holders of such Common Stock
may not sell such Common Stock for a period of 180 days following the date of
consummation of the Offering unless sooner allowed by the underwriters (the
"Underwriters") of the Offering.
A-2
<PAGE>
[ALTERNATE PAGE]
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 3,895,147 shares of the Common Stock outstanding (including
shares of Common Stock issuable upon exercise of certain warrants, conversion of
the PP Notes, conversion of the Convertible Notes and other rights to acquire
Common Stock (not including 25,000 shares issuable upon exercise of Laidlaw
Equities, Inc.'s warrant, or 250,000 shares issuable under the Stock Option
Plan). Of these shares, 1,200,000 shares of Common Stock are freely tradable
without restriction or future registration under the Securities Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. Of the remaining 2,575,147 shares of Common Stock, the
shares offered hereby are freely tradable upon expiration of the 180-day
Underwriters' lock-up or upon earlier waiver of such lock-up by the
Underwriters.
In addition, the Company has agreed to file and use its best efforts to
become effective on the date that is 13 months after the date of the closing of
the Offering and to cause to remain effective for a period of one year, a
registration statement covering the shares of Common Stock issuable upon
conversion of the Convertible Notes and the warrants issued in connection
therewith. All of the shares that are owned by Mr. Tourtellotte; officers;
directors; and persons owning 5% or more of the outstanding Common Stock of the
Company, or warrants or options to purchase 5% or more of such Common Stock, or
securities convertible into 5% or more of such Common Stock, or any combination
thereof that aggregates 5% or more of the outstanding Common Stock are subject
to a lock-up to refrain from making any public sale or distribution of their
Common Stock or such warrants, options or convertible securities (pursuant to
Rule 144 or otherwise) without the prior written consent of the Underwriters for
13 months after the date hereof.
In general, under Rule 144 as it is currently in effect, a person (or
persons whose shares are required to be aggregated) who beneficially owns
Restricted Shares with respect to which at least two years have elapsed since
the later of the date the shares were acquired from the Company, including
persons who may be deemed to be affiliates of the Company, would be entitled to
sell, within any three-month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of the Common Stock or the
average weekly reported trading volume in the over-the-counter market during the
four calendar weeks preceding the filing of the Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and to the availability of current public
information about the Company. A person who is not an affiliate of the Company
under the Securities Act, has not been an affiliate during the preceding 90
days, and who beneficially owns shares with respect to which at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) without regard to the requirements described above.
Until the existing stockholders of the Company have held the Restricted
Shares for two years, no sale of Restricted Shares will be permitted under Rule
144. The Company is unable to estimate the number of shares that may be sold
under Rule 144 after the two-year minimum holding period has elapsed, since this
will depend on the market price for the Common Stock, the personal circumstances
of the sellers and other factors. Additionally, Laidlaw Equities, Inc. has the
right under its warrant to purchase 25,000 shares of Common Stock, at any time
during the exercise period thereof, to require the Company to file and keep
effective for so long as may be reasonably necessary for Laidlaw Equities, Inc.
to dispose of such shares, a registration statement covering such shares.
The Company may file a registration statement under the Securities Act to
register Common Stock to be issued to employees pursuant to the Stock Option
Plan. Such registration statement may be filed at any time after the date of
this Prospectus and would become effective immediately upon filing. Shares
issued pursuant to the Stock Option Plan after the effective date of any
registration statement covering such shares generally will be available for sale
in the open market. As of the date of this Prospectus, no options to purchase
shares of Common Stock have been granted under the Stock Option Plan; however,
the Company expects to grant options to purchase 5,000 shares of Common Stock at
the IPO Price to Michael C. McGetrick if he is elected as a Director of the
Company. See "Management -- Stock Option Plan."
A-3
<PAGE>
[ALTERNATE PAGE]
The following table summarizes all shares eligible for future sale as of the
date of this Prospectus assuming, conversion of the PP Notes on the date of the
closing of the Company's initial public offering, conversion of the Convertible
Notes (assuming 90% of the limited partners of ICGP and GCGP accept the Offer to
Purchase and elect to receive 55% (ICGP) and 65% (GCGP) Convertible Notes) and
exercise all of warrants, whether vested or unvested. This table does not
reflect any options eligible for issuance under the Stock Option Plan.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE OWNERSHIP
- ----------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Charles D. Tourtellotte.............................. 1,120,000 28.8%
J.D. Finley.......................................... 80,500 2.1%
Ernie Banks.......................................... 12,513 0.3%
Jack F. Lasday....................................... 20,271 0.5%
Preferred Stockholders............................... 244,750 6.3%
Preferred Stock Placement Agent...................... 9,292 0.2%
Laidlaw Equities, Inc................................ 25,000 0.6%
Underwriters' warrants............................... 120,000 3.1%
PP Notes............................................. 553,571 14.2%
Convertible Notes.................................... 502,500 13.1%
-----------------
Shares publicly held................................. 1,200,000 30.8%
----------------- -----
Total............................................ 3,895,147 100.0%
----------------- -----
----------------- -----
</TABLE>
Prior to the Offering, there has been no public market for any of the
Company's securities, including the Common Stock, and no predictions can be made
as to the effect, if any, that market sales of shares or the availability of
shares for sale will have on the market price prevailing from time to time.
There can be no assurance that a regular trading market will develop in the
Common Stock.
A-4
<PAGE>
[ALTERNATE PAGE]
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering of
1,200,000 shares of Common Stock by the Company and up to 180,000 additional
shares of Common Stock to cover over-allotment, if any.
A-5
<PAGE>
[ALTERNATE PAGE]
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY.............................
RISK FACTORS...................................
DIVIDEND POLICY................................
CAPITALIZATION.................................
SELECTED CONSOLIDATED FINANCIAL DATA...........
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................
PARTNERSHIP ACQUISITION........................
BUSINESS.......................................
MANAGEMENT.....................................
CERTAIN TRANSACTIONS...........................
CONCURRENT PUBLIC OFFERING.....................
PRINCIPAL STOCKHOLDERS.........................
DESCRIPTION OF CAPITAL STOCK...................
SHARES ELIGIBLE FOR FUTURE SALE................
LEGAL MATTERS..................................
EXPERTS........................................
</TABLE>
--------------------------
UNTIL , 19 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITER.
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The amount of expenses in connection with the issuance and distribution of
the Common Stock registered hereby are set forth in the following table. All the
amounts shown are estimates, except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 5,334.00
NASD Filing Fee................................................ 1,932.00
Accounting Fees and Expenses................................... *
Legal Fees and Expenses........................................ *
Printing and Engraving Costs................................... *
Blue Sky Fees and Expenses..................................... *
Stock Exchange Fees............................................ *
Transfer Agent and Registrar Fees.............................. *
Miscellaneous.................................................. *
----------
Total..........................................................
----------
----------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article 109 of the Colorado Business Corporation Act ("CBCA") authorizes the
Registrant to indemnify its directors and officers under specified
circumstances. The Bylaws of the Registrant provide that the Registrant shall,
subject to approval by a majority of its directors, indemnify, to the extent
permitted by Colorado law, its directors and officers. The CBCA does not limit
an officer's or director's liability for violation of the federal securities
laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three year period prior to the filing of this Registration Statement,
the Registrant has sold the following unregistered securities:
COMMON STOCK
On July 29, 1994, the date of incorporation of the Company, the Company
issued 1,045,000 shares of its Common Stock to the Company's founder, Charles D.
Tourtellotte, in exchange for all of his common stock of the general partners of
ICGP and GCGP.
PREFERRED STOCK UNITS
Between July 29, 1994 and August 28, 1995, the Registrant sold 45,500 Units;
each Unit consists of one share of its Redeemable Preferred Stock and warrants
to purchase 5.5 shares of its Common Stock at an exercise price of $1.45 per
share. The Units were sold for cash at $25 per unit, resulting in gross proceeds
to the issuer of $1,137,500. Rodman & Renshaw, Inc. acted as placement agent for
the offering of Units and received cash compensation equal to 9% of the gross
proceeds raised in the offering ($101,250). In addition, Rodman & Renshaw, Inc.
received warrants to purchase 17,050 shares of Common Stock at an exercise price
of $1.45 per share. None of the warrants have been exercised as of the date of
this Registration Statement.
CONVERTIBLE NOTES
Between May 20, 1996 and May 30, 1996, the Registrant sold $2,025,000
aggregate principal amount of its 12% Convertible Subordinated Notes Due 1997
(the "PP Notes"). The PP Notes were sold for 100% of their principal amount,
resulting in gross proceeds to the issuer of $2,025,000. Laidlaw Equities, Inc.
acted as placement agent for the PP Notes and received cash compensation equal
to 10% of the gross proceeds raised in the offering ($202,500). In addition,
Laidlaw Equities, Inc.
II-1
<PAGE>
purchased for $100 warrants to purchase 25,000 share of Common Stock at an
exercise price equal to 120% of the price to public in the offering of the
Common Stock registered hereby. None of the warrants have been exercised as of
the date of this Registration Statement.
OFFICERS' AND DIRECTORS' WARRANTS
In 1995, the Registrant issued warrants to purchase 12,513 shares of Common
Stock at an exercise price of $1.45 per share to each of its two non-management
directors, Ernie Banks and Jack F. Lasday. These warrants were issued as
compensation for serving as directors. The Registrant does not otherwise
compensate its directors except for their reasonable expenses in attending
meetings of the board of directors. None of the warrants has been exercised as
of the date of this Registration Statement.
As compensation for their services in 1995, the Registrant issued warrants
to purchase 75,000 shares of Common Stock at an exercise price of $1.45 per
share to each of Charles D. Tourtellotte, its President, and J.D. Finley, its
Executive Vice President and Chief Financial Officer. None of the warrants has
been exercised as of the date of this Registration Statement.
EXEMPTION FROM REGISTRATION CLAIMED
The Common Stock, Units and PP Notes described above were issued pursuant to
Section 4(2) of the Securities Act of 1933 and in reliance on Rules 505 and 506
of Regulation D under the Securities Act of 1933. The Common Stock, Units and
the PP Notes were offered and sold in separate private offerings not involving
any form of general solicitation and only to persons that the Company reasonably
believed to be "accredited investors" as contemplated by Regulation D or to
fewer than 35 persons that the Company had reason to believe were not
"accredited investors" but that the Company reasonably believed satisfied the
conditions set forth in Rule 506(b)(ii), and in each case who made appropriate
investment representations in their purchase agreements. The Officers' and
Directors' warrants were issued as compensation for services and were not
offered to any other person.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1 Form of Underwriting Agreement**
3.1 Articles of Incorporation, as amended, incorporated herein by reference from
the Registrant's Offering Statement on Form 1-A (File No. 24D-3840) with
June 3, 1996 amendment filed herewith.
3.2 Bylaws, incorporated herein by reference from the Registrant's Offering
Statement on Form 1-A (File No. 24D-3840)
4 Specimen Common Stock Certificate of MetroGolf Incorporated**
4.2 Form of Note Purchase Agreement dated May 8, 1996 between The Vintage Group
USA, Ltd. and the Purchasers of its 12% Convertible Subordinated Notes due
1997 (the PP Notes)
5 Form of Opinion of Brownstein Hyatt Farber & Strickland, P.C.**
10.1 Employment Agreement between the Company and Charles D. Tourtellotte
effective as of January 1, 1996
10.2 Employment Agreement between the Company and J.D. Finley effective as of
January 1, 1996
10.3 Employment Agreement between the Company and James K. Dignan effective as of
July 1, 1996
10.4(a) Form of outstanding Warrant Certificates, incorporated herein by reference
from the Registrant's Offering Statement on Form 1-A (File No. 24D-3840)
10.4(b) Warrant Agreement, incorporated herein by reference from the Registrant's
Offering Statement on Form 1-A (File No. 24D-3840)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 Agreement of Limited Partnership of Illinois Center Golf Partners L.P.,
incorporated herein by reference from the Registrant's Offering Statement on
Form 1-A (File No. 24D-3840)
10.8 Ground Sublease and Sublicense Agreement for Illinois Center Golf Facilities
between Illinois Center Golf Partners L.P. and Illinois Center Plaza
Venture, as amended, incorporated herein by reference from the Registrant's
Offering Statement on Form 1-A (File No. 24D-3840)
10.9 Agreement of Limited Partnership of Goose Creek Golf Partners Limited
Partnership, incorporated herein by reference from the Registrant's Offering
Statement on Form 1-A (File No. 24D-3840)
10.10 Credit Line Deed of Trust for the benefit of Textron Financial Corporation,
incorporated herein by reference from the Registrant's Offering Statement on
Form 1-A (File No. 24D-3840)
10.11 Port Authority Letter Agreement, incorporated herein by reference from the
Registrant's Offering Statement on Form 1-A (File No. 24D-3840)
10.12 Operating Agreement of Vintage New York Golf L.L.C., incorporated herein by
reference from the Registrant's Offering Statement on Form 1-A (File No.
24D-3840)
10.13 Agreement of Purchase and Sale between Robert Selleck and Fremont Golf
Partnership and The Vintage Group USA Ltd. dated as of March 19, 1996
10.14 Letter of Intent relating to Harborside Golf Center from The Vintage Group
USA Ltd. to Shapery Enterprises dated March 18, 1996
10.15 Management Agreement between MetroGolf Management, Inc. and Illinois Center
Golf, incorporated herein by reference from the Registrant's Offering
Statement on Form 1-A (File No. 24D-3840)
10.16 Settlement Agreement relating to 15% interest in Illinois Center Golf and
Goose Creek, incorporated herein by reference from the Registrant's Offering
Statement on Form 1-A (File No. 24D-3840)
10.17 Company's 1996 Stock Option and Stock Bonus Plan
10.18 Management Agreement between MetroGolf Management, Inc. and the Company dated
July 1, 1996 relating to Fremont Golf Center.**
10.19 Management Agreement between MetroGolf Management, Inc. and MetroGolf (San
Diego) Incorporated dated July 1, 1996 relating to Harborside Golf Center.**
10.20 Form of Note from the Company to the limited partners of ICGP that accept the
Offer to Purchase.**
10.21 Form of Warrant from the Company to the limited partners of ICGP that accept
the Offer to Purchase.**
10.22 Form of Note from the Company to the limited partners of GCGP that accept the
Offer to Purchase.**
11 Statement re Computation of per share Earnings**
21 Subsidiaries of the Registrant**
23.1 Consent of BDO Seidman, LLP**
23.2 Consent of Brownstein Hyatt Farber & Strickland, P.C. (included in their
opinion filed as Exhibit 5.1)**
23.3 Consent of Michael S. McGetrick**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
24 Power of Attorney (appears on the signature page of Form S-1 Registration
Statement)
27.1 Financial Data Schedule**
(b) Financial Statement Schedules
(i) MetroGolf Incorporated and Subsidiaries
Report of Independent Certified Public Accountants
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
- ------------------------
** Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) To reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant tot he foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defence of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of
II-4
<PAGE>
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such case.
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 4214(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment No. 1 to the Company's Registration
Statement (Form S-1) to be signed on its behalf by the undersigned thereunto
duly authorized on .
METROGOLF INCORPORATED
By: /s/ CHARLES D. TOURTELLOTTE
-----------------------------------
CHARLES D. TOURTELLOTTE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Company's Registration Statement (Form S-1) has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
August 22, 1996 /s/ CHARLES D. TOURTELLOTTE
- -------------------------------------- --------------------------------------------------
Date CHARLES D. TOURTELLOTTE
President and Director
August 22, 1996 /s/ J.D. FINLEY
- -------------------------------------- --------------------------------------------------
Date J. D. FINLEY
Vice President and Chief Financial Officer
August 22, 1996 /s/ ERNIE BANKS
- -------------------------------------- --------------------------------------------------
Date ERNIE BANKS
Director
August 22, 1996 /s/ JACK F. LASDAY
- -------------------------------------- --------------------------------------------------
Date JACK F. LASDAY
Director
</TABLE>
II-6
<PAGE>
1,200,000 SHARES
METROGOLF INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
September __, 1996
Laidlaw Equities, Inc.
100 Park Avenue
New York, New York 10017
Cruttenden Roth Incorporated
18301 Von Karman
Irvine, California 92715
As Representatives of the Several Underwriters
Ladies and Gentlemen:
MetroGolf Incorporated, a Colorado corporation (the "Company"), proposes
to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), an aggregate of One Million Two Hundred Thousand
(1,200,000) shares (the "Company Shares") of Common Stock, no par value, of
the Company (the "Common Stock"). In addition, solely to cover
overallotments in connection with the sale of the Company Shares, the Company
proposes to grant to the Underwriters an option to purchase an additional
number of shares not exceeding One Hundred Eighty Thousand (180,000) shares
in the aggregate. The shares subject to the option are herein called the
"Option Shares." The Company Shares and any Option Shares purchased pursuant
to this Underwriting Agreement are sometimes hereinafter collectively
referred to as the "Shares." As used in this Agreement, the term
"Underwriter" includes any party substituted for an Underwriter under Section
13 hereof. Unless the context otherwise requires, the term the "Company"
shall mean and include MetroGolf
<PAGE>
Incorporated, each of its subsidiaries and each limited partnership of which
a subsidiary of MetroGolf Incorporated is general partner.
The Company also hereby confirms its agreement to issue to the
Representatives (each individually) a warrant for the purchase of
_______________ (______) shares of the Common Stock as described in Section 5
hereof (each, a "Representative's Warrant"), contingent upon the purchase by
the Underwriters of the Company Shares. The shares issuable upon exercise of
the Representative's Warrants are referred to in this Underwriting Agreement
as the "Warrant Shares."
As Representatives, you have advised the Company that: (i) you are
authorized to enter into this Underwriting Agreement on behalf of the
Underwriters and (ii) the Underwriters are willing, acting severally and not
jointly, to purchase the numbers of the Company Shares, aggregating One Million
Two Hundred Thousand (1,200,000) shares, set forth opposite their respective
names in Schedule I, plus their pro rata portion of the Option Shares purchased
if you elect to exercise the overallotment option in whole or in part for the
accounts of the Underwriters.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-06151) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended, including the information (if any) deemed to be part thereof pursuant
to Rule 430A under the Act, is herein called the "Registration Statement." The
form of prospectus first filed by the Company with the Commission pursuant to
Rules 424(b) and 430A under the Act is herein called the "Prospectus." Each
preliminary prospectus included in the Registration Statement prior to the time
it becomes effective or filed with the Commission pursuant to Rule 424(a) under
the Act is referred to herein as a "Preliminary Prospectus." Any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein, as of the date
of such Preliminary Prospectus or the Prospectus, as the case may be; and any
reference to any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed after the
date of such Preliminary Prospectus or the Prospectus, as the case may be, under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or the Prospectus, as
the case may be. Copies of the Registration Statement, including all exhibits
and schedules thereto and documents incorporated by reference therein, any
amendments thereto and all Preliminary Prospectuses have been delivered to you.
2
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) The Registration Statement has been declared effective under
the Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. No stop order suspending the
effectiveness of the Registration Statement has been issued, and, to the
Company's knowledge, no proceeding for that purpose has been instituted or
threatened by the Commission.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
promulgated thereunder and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, the Company makes no
representation or warranty as to information contained in or omitted in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, expressly for use in
the preparation thereof.
(iii) The Registration Statement conforms, and each Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto will
conform, in all material respects to the requirements of the Act and the rules
and regulations thereunder. Neither the Registration Statement nor any
amendment thereto, and neither the Prospectus nor any Preliminary Prospectus or
any supplement to the Prospectus, contains or will contain, as the case may be,
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representation or
warranty as to information contained in or omitted from the Registration
Statement or the Prospectus or any Preliminary Prospectus, or any such amendment
or supplement to the Prospectus, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, expressly for use in the preparation thereof.
(iv) The Company has been duly organized and is validly existing
in good standing under the laws of the state of its incorporation or
organization. The Company's subsidiaries and each limited partnership of which
any subsidiary is general partner are listed in Exhibit A hereto. The Company
has
3
<PAGE>
the power and authority to own or lease its properties and conduct its
business as described in the Prospectus, and is duly qualified to transact
business as a foreign corporation or limited partnership, as the case may be,
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification and the failure to so qualify
would have a material adverse effect on the business, condition (financial or
otherwise), results of operations, shareholders' equity or prospects of the
Company ("Adverse Effect").
(v) The outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
The Shares to be issued and sold by the Company to the Underwriters pursuant to
this Agreement have been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and nonassessable. The
Warrant Shares have been duly authorized and reserved for issuance and, when
issued and paid for pursuant to the terms of the Representative's Warrants, will
be validly issued, fully paid and nonassessable. Except as described in the
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
capital stock of the Company pursuant to the Company's Articles of
Incorporation, or Certificate of Limited Partnership and agreement of limited
partnership, as the case may be, Bylaws or any agreement or other instrument to
which the Company is a party or by which the Company is bound. Except as
described in the Prospectus, neither the filing of the Registration Statement
nor the offering or the sale of the Shares as contemplated by this Agreement
gives rise to any rights for, or relating to, the registration of any shares of
capital stock or other securities of the Company, except such rights which have
been validly waived or satisfied or which are not exercisable with respect to
the offering of the Shares. Except as described in the Prospectus, there are no
outstanding options, warrants, agreements, contracts or other rights to purchase
or acquire from the Company any shares of its capital stock or any securities
convertible into shares of the Company's capital stock. Upon the closing of the
offering of the Shares the Company will have the authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the Prospectus.
The outstanding capital stock of the Company conforms, and the Shares to be
issued by the Company to the Underwriters will conform, to the description
thereof contained in the Prospectus.
(vi) The financial statements (including any pro forma financial
statements), together with the related notes and schedules included or
incorporated by reference in the Registration Statement and Prospectus, present
fairly the financial position, results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and all adjustments
necessary for a fair
4
<PAGE>
presentation of results for such periods have been made, except as otherwise
stated therein. No other financial statements or schedules are required to
be included in the Registration Statement. The selected consolidated and pro
forma financial data included in the Registration Statement present fairly
the information shown therein on the basis stated in the Registration
Statement and have been compiled on a basis consistent with the financial
statements presented therein.
(vii) There is no action or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the Company before
any court or administrative or regulatory agency which, if determined adversely
to the Company, would, individually or in the aggregate, result in an Adverse
Effect, except as set forth in the Registration Statement.
(viii) The Company has good and marketable title to all
properties and assets reflected as owned in the financial statements hereinabove
described or in the Prospectus, in each case free and clear of all liens,
encumbrances and defects, except (i) such as are described in the Prospectus,
(ii) for taxes not yet due and payable, or (iii) such that do not substantially
affect the value of such properties and assets and do not materially interfere
with the use made and proposed to be made of such properties and assets by the
Company; and any real property and buildings held under lease by the Company are
held under valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company. The Company has not committed a
breach of or violated any such lease in any material respect and is not aware of
any such breach or violation on the part of the other party to any such lease.
(ix) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented, (A) there
has not been any Adverse Effect, or any development involving a prospective
Adverse Effect, whether or not occurring in the ordinary course of business, (B)
there has not been any transaction not in the ordinary course of business
entered into by the Company which is material to the Company, other than
transactions described in or contemplated by the Registration Statement, as it
may be amended or supplemented, (C) the Company has not incurred any material
liabilities or obligations which are not in the ordinary course of business or
which could result in a material reduction in the future earnings of the Company
other than transactions described in or contemplated by the Registration
Statement, as it may be amended or supplemented, (D) the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered by
insurance, (E) except as contemplated by the Registration Statement, as it may
be amended or supplemented, there has not been any change in the capital stock
of the Company or any material increase in the short-term or long-term debt
(including capitalized
5
<PAGE>
lease obligations) of the Company, and (F) except as contemplated by the
Registration Statement, as it may be amended or supplemented, there has not
been any issuance of warrants, options, convertible securities or other
rights to purchase or acquire any capital stock of the Company.
(x) The Company is not in violation of or in default under its
Articles of Incorporation, or Certificates of Limited Partnership and agreements
of limited partnership, as the case may be, or Bylaws, or any statute, rule,
regulation, order, judgment, decree or authorization of any governmental or
administrative agency, court or other body having jurisdiction over the Company
or any of its properties, or any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument to which
the Company is a party or by which it is bound or to which any property or
assets of the Company are subject, which violation or default would have an
Adverse Effect.
(xi) The issuance and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions contemplated herein will not violate any
provision of the Articles of Incorporation, or Certificates of Limited
Partnership and agreements of limited partnership, as the case may be, or Bylaws
of the Company or any statute, rule, regulation, order, judgment, decree or
authorization of any governmental or administrative agency, court or other body
having jurisdiction over the Company or any of its properties, and will not
conflict with, result in a breach or violation of, or constitute, either by
itself or upon notice or passage of time or both, a default under any indenture,
mortgage, deed of trust, loan agreement, lease, franchise, license or other
contract, agreement or instrument to which the Company is a party or by which
the Company is bound or to which any property or assets of the Company are
subject, other than conflicts or defaults that will not have an Adverse Effect.
No approval, consent, order, authorization, designation, declaration or filing
by or with any governmental or administrative agency, court or other body is
required for the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated, except as may be required
under the Act, the Exchange Act or any state securities or blue sky laws.
(xii) The Company holds, and is operating in compliance with, all
licenses, authorizations, approvals, certificates and permits from governmental
and regulatory authorities, foreign and domestic, which are necessary to the
conduct of its business as described in the Prospectus, except where the failure
to so hold or comply would not have an Adverse Effect.
(xiii) No labor disturbance or dispute by the employees or
consultants or contractors to the Company exists, or to the Company's knowledge,
is threatened which could reasonably be expected to have an Adverse Effect.
6
<PAGE>
(xiv) The Company has the corporate power and authority to enter
into this Agreement and the Representative's Warrants and to authorize, issue
and sell the Shares and the Warrant Shares as contemplated hereby and by the
Representative's Warrants. This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(xv) BDO Seidman, LLP, which has certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
rules and regulations of the Commission promulgated thereunder.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which might
reasonably be expected to cause or result in, stabilization or manipulation of
the price of the Common Stock.
(xvii) The Company's applications for listing on the Nasdaq
SmallCap Market ("Nasdaq") and the Boston Stock Exchange ("BSE") have been
approved.
(xviii) The Company has obtained and delivered to the
Representatives written agreements, in form and substance satisfactory to the
Representatives, of each of its directors and executive officers named in
Schedule II hereto, that, subject to the terms of such written agreements, no
offer, sale, contract to sell, other disposition of any Common Stock of the
Company will be made for a period of 13 months after the effective date of the
Registration Statement, directly or indirectly, by such holder otherwise than
with the prior written consent of the Representatives.
(xix) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares other than any Preliminary Prospectus or the Prospectus or other
materials permitted by the Act to be distributed by the Company, provided that
the Company makes no representation as to any materials distributed by the
Underwriters at any "road show" or other marketing meeting.
(xx) The Company has filed all federal, state, local and foreign
tax returns or reports required to be filed by it and has paid in full all taxes
indicated by said returns or reports and all assessments received by it to the
extent that such taxes have become due and payable, except where the Company is
contesting in good faith such taxes and assessments and has posted a bond or
other security in the amount of the contested taxes.
7
<PAGE>
(xxi) The Company maintains at least $1 million in "key man"
insurance on the lives of each of Charles D. Tourtellotte and J. D. Finley, with
nationally recognized life insurance companies and with death benefits payable
exclusively to the Company, and will continue to maintain such life insurance
for a period ending no earlier than the third anniversary of the effective date
of the Registration Statement. In addition, the Company maintains insurance of
the type and in the amounts generally deemed adequate for its business and
consistent with insurance coverage maintained by similar companies and
businesses, including, without limitation, product liability insurance and
insurance covering all real and personal property owned or leased by it, all of
which is in full force and effect.
(xxii) To the Company's knowledge, none of the Company's
officers, directors or security holders, other than Kevin Wood, Jack F. Lasday,
Gregg D. and Laurie B. Pollack, John S. Gallop, Edward Lainfiesta, John Daniel,
J.B. Bocklet, Jr., Christopher D. Jennings, Edmond J. Harris and Rodman &
Renshaw, Inc. has any affiliation with the National Association of Securities
Dealers, Inc.
(xxiii) The Company intends to apply the proceeds from the sale
of the Shares by it to the purposes and substantially in the manner set forth
under "Use of Proceeds" in the Prospectus.
(xxiv) To the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or the Underwriters for
services as a finder in connection with the transactions contemplated by this
Agreement.
(xxv) The conditions for use of a registration statement on Form
S-1 for the distribution of the Shares have been satisfied with respect to the
Company.
(xxvi) To the Company's knowledge, it has not offered or sold
any securities in violation of Section 5 of the 1933 Act or in violation of any
other federal or state securities laws or regulations.
(xxvii) The Company has complied and will comply with all
provisions of Florida Statutes Section 517.075 (Chapter 92-198, Laws of
Florida). Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall be deemed
to be a representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
8
<PAGE>
2. PURCHASE AND SALE; DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties, and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each of the Underwriters, and the
Underwriters agree, severally and not jointly, to purchase, at a purchase
price equal to __________________ (___%) of the per share price to public of
$______, the respective amount of Company Shares set forth opposite such
Underwriter's name in Schedule I hereto. The Underwriters will collectively
purchase all of the Company Shares if any are purchased.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Underwriters to purchase an aggregate of up to
One Hundred Eighty Thousand (180,000) Option Shares, at the same purchase price
as the Company Shares, for use solely in covering any overallotments made by the
Underwriters in the sale and distribution of the Company Shares. The option
granted hereunder may be exercised at any time (but not more than once) within
45 days after the date on which the Registration Statement is declared effective
under the Act, as described in Section 1(a)(i) hereof (the "Effective Date")
upon notice (confirmed in writing) by the Representatives to the Company setting
forth the aggregate number of Option Shares as to which the Underwriters are
exercising the option and the date on which certificates for such Option Shares
are to be delivered. Option Shares shall be purchased severally for the account
of each Underwriter in proportion to the number of Company Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
(c) The Company will deliver the Company Shares to the
Representatives at the offices of Laidlaw Equities, Inc., 100 Park Avenue,
New York, New York 10017, unless some other place is agreed upon, at 10:00
a.m., Eastern Daylight time, against payment of the purchase price as set
forth in Section 2(a), on the third full business day after commencement of
the offering or, if the offering commences after 4:30 p.m., Eastern Daylight
Time, on the fourth full business day after commencement of the offering, or
such earlier time as may be agreed upon by the Representatives and the
Company, such time and place being herein referred to as the "First Closing
Date."
(d) The Company will deliver the Option Shares being purchased by the
Underwriters to the Representatives at the offices of Laidlaw Equities, Inc.,
100 Park Avenue, New York, New York 10017 as set forth in Section 2(c) above,
unless some other place is agreed upon, at 10:00 a.m., Eastern Daylight Time,
against payment of the purchase price at the same place, on the date determined
by the Representatives and of which the Company has received notice as provided
in Section 2(b), which shall not be earlier than two nor later than three full
business
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days after the exercise of the option as set forth in Section 2(b), or at
such other time not later than ten full business days thereafter as may be
agreed upon by the Representatives and the Company, such time and date being
herein referred to as the "Second Closing Date."
(e) Certificates for the Shares to be delivered will be registered in
such names and issued in such denominations as the Underwriters request at least
two business days prior to the First Closing Date or the Second Closing Date, as
the case may be. The certificates will be made available to the Underwriters in
definitive form for the purpose of inspection and packaging at least 24 hours
prior to each respective closing date.
(f) Payment to the Company for the Shares sold shall be made by wire
transfer to the account designated by the Company or by certified or official
bank check or checks in Clearing House (same day) funds, payable to the order of
the Company.
(g) The Underwriters will make a public offering of the Shares
directly to the public (which may include selected dealers who are members in
good standing of the National Association of Securities Dealers, Inc. ("NASD")
or foreign dealers not eligible for membership in the NASD, but who have agreed
to abide by the interpretation of the NASD's Board of Governors with respect to
free-riding and withholding), as soon as the Underwriters deem practicable after
the Registration Statement becomes effective at the public offering price set
forth in Section 2(a) above subject to the terms and conditions of this
Agreement and in accordance with the Prospectus; concessions from the public
offering price may be allowed selected dealers who are members of the NASD as
the Underwriters determine and the Underwriters will furnish the Company with
such information about the distribution arrangements as may be necessary for
inclusion in the Registration Statement. It is understood that the public
offering price and concessions may vary after the public offering. The
Underwriters shall offer and sell the Shares only in jurisdictions in which the
offering of Shares has been duly registered or qualified, or is exempt from
registration or qualification, and shall take reasonable measures to effect
compliance with applicable federal and state securities laws.
(h) It is understood that the Representatives, individually and not
as Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for the Shares to be purchased by such
Underwriter or Underwriters. No such payment by either of the Representatives
shall relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
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(i) On the First Closing Date, the Company shall issue and deliver to
you, each Representative, a Representative's Warrant in return for payment of
$______ each.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement (to the
extent any such information was omitted) in reliance on Rule 430A under the Act
and will not file any amendment to the Registration Statement or supplement to
the Prospectus of which the Representatives shall not previously have been
advised and furnished with a copy and as to which the Representatives shall have
objected in writing promptly after reasonable notice thereof or which is not in
compliance with the Act or the rules and regulations thereunder.
(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus or suspending such
qualification and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale under
the securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing and will, or will cause counsel for the Underwriters
to, make such applications, file such documents and furnish such information as
may be reasonably requested by the Representatives, provided that the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies of
any Preliminary Prospectus as the Representatives may reasonably request and,
during the period when delivery of a prospectus is required under the Act, the
Company will furnish the Underwriters with as many copies of the Prospectus in
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final form, or as thereafter amended or supplemented, as the Representatives
may, from time to time, reasonably request. The Company will deliver to the
Representatives, at or before the First Closing Date, one signed copy of the
Registration Statement and all amendments thereto, including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement, including any documents incorporated by reference,
without exhibits, and of all amendments thereto, as the Representatives may
reasonably request.
(e) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or if for
any other reason it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare, and after
consultation with the Representatives and counsel to the Underwriters, file with
the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they are made, when it is so delivered, not
misleading, or so that the Prospectus will comply with law. In case any
Underwriter is required to deliver a prospectus in connection with sales of any
Shares at any time nine months or more after the effective date of the
Registration Statement, upon the request of the Representatives but at the
expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as the Representatives may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
fourteen months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 thereunder and will advise
you in writing when such statement has been so made available.
(g) The Company will, for five years after the First Closing Date,
deliver to the Representatives copies of its annual report and copies of all
other documents, reports and information furnished by the Company to its
security holders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Exchange Act.
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(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible securities
or other rights to acquire such Common Stock or other capital stock (other than
pursuant to employee stock option plans, outstanding warrants or on the
conversion of convertible securities outstanding on the date of this Agreement)
will be made for a period of 13 months after the effective date of the
Registration Statement, directly or indirectly, by the Company without the prior
written consent of the Representatives.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the purposes
set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the listings of
the Common Stock on Nasdaq and BSE.
(k) Subject to the provisions set forth below, the Company shall be
responsible for and pay all costs and expenses incident to the performance of
its obligations under this Agreement including, without limiting the generality
of the foregoing, (i) all costs and expenses in connection with the preparation
and printing of the Registration Statement, Preliminary Prospectuses, the
Underwriting Agreement and other underwriting documents, the preliminary and
final Blue Sky memoranda and the Prospectus and any amendments thereof or
supplements to any of the foregoing; (ii) the issuance and delivery of the
Shares, including taxes, if any; (iii) the cost of all certificates representing
the Shares; (iv) the fees and expenses of the Transfer Agent for the Shares; (v)
the fees and disbursements of counsel for the Company; (vi) all fees and other
charges of the independent public accountants of the Company; (vii) the cost of
furnishing and delivering to the Underwriters and dealers participating in the
offering copies of the Registration Statement (including appropriate exhibits),
Preliminary Prospectuses, the Prospectus and any amendments of, or supplements
to, any of the foregoing; (viii) the NASD filing fee; (ix) all accountable fees
and expenses of counsel for the Company and counsel for the Representatives
incurred in qualifying the Shares for sale under the laws of such jurisdictions
upon which the Representatives and the Company may agree (including filing
fees); and (x) the non-accountable expenses (not to exceed one and one-half
percent (1.5%) of the gross proceeds from the sale of the Company Shares and the
Option Shares) of the Representatives (the "Non-Accountable Expense Allowance"),
including, but not limited to, fees and expenses of the Representative's
counsel, costs and expenses of conducting a due diligence investigation of the
Company and due diligence meetings, costs of travel in connection with the
selling effort and tombstone advertisements. The Representatives acknowledge
receipt of advances aggregating $50,000 against the Non-Accountable Expense
Allowance. In the event this Agreement is terminated pursuant to Section
8 below, the Company
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shall not be obligated to pay the Non-Accountable Expense Allowance, but
shall remain obligated to pay the Representatives for any fees and expenses
described in (ix) above and for all other accountable out-of-pocket expenses
actually incurred by the Representatives hereunder.
4. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The respective obligations of the Underwriters to purchase and pay for
the Shares as provided herein shall be subject to the accuracy of the
representations and warranties of the Company, in the case of the Company Shares
as of the First Closing Date (as if made on and as of the First Closing Date),
and in the case of the Option Shares, as of the Second Closing Date (as if made
on and as of the Second Closing Date), to the performance by the Company (in the
case of the First Closing Date) of its obligations hereunder, and to the
satisfaction of the following additional conditions on or before the First
Closing Date in the case of the Company Shares and on or before the Second
Closing Date in the case of the Option Shares:
(a) To the extent required by applicable law, the Prospectus shall
have been filed with the Commission pursuant to Rule 424(b) within the
applicable time period prescribed for such filing by the rules and regulations
under the Act and in accordance with Section 1 hereof; no stop order suspending
the effectiveness of the Registration Statement, as amended from time to time,
or any part thereof shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to the reasonable satisfaction of the Representatives.
(b) The Representatives shall have received the opinion of Brownstein
Hyatt Farber & Strickland, P.C., counsel for the Company, dated as of such
respective closing dates and satisfactory in form and substance to the
Representatives and counsel to the Underwriters, substantially to the effect
that:
(i) The Company has been duly organized and is validly existing
in good standing under the laws of the state of its incorporation or
organization. The Company's subsidiaries and each limited partnership of which
any subsidiary is general partner are listed in Exhibit A hereto. The Company
has the power and authority to own or lease its properties and conduct its
business as described in the Prospectus, and is duly qualified to transact
business as a foreign corporation or limited partnership, as the case may be, in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification and the failure to so qualify
would have an Adverse Effect.
(ii) The Company has the authorized and outstanding capital stock
as described in the Prospectus. The outstanding shares of the Company's
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capital stock have been duly authorized and validly issued and are fully paid
and nonassessable. The Shares to be issued and sold by the Company pursuant
to this Agreement have been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and nonassessable.
Except as disclosed in the Prospectus, no preemptive rights pursuant to
corporate law or, to the knowledge of such counsel, other preemptive or
similar subscription rights of shareholders of the Company, or of holders of
warrants, options, convertible securities or other rights to acquire shares
of capital stock of the Company, exist with respect to any of the Shares or
the issue and sale thereof. The capital stock of the Company, including the
Shares, conforms in all material respects to the description thereof
contained in the Prospectus.
(iii)To the knowledge of such counsel and except for the rights
in connection with the Representative's Warrants as disclosed in the Prospectus,
no rights to register outstanding shares of the Company's capital stock, or
shares issuable upon the exercise of outstanding warrants, options, convertible
securities or other rights to acquire shares of such capital stock, exist which
have not been validly exercised or waived with respect to the Registration
Statement or which are not exercisable with respect to the offering of the
Shares.
(iv) The Registration Statement has become effective under the
Act, and no stop order or proceedings with respect thereto have been instituted
or, to the knowledge of such counsel, are pending or threatened, by the
Commission.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements and
notes thereto and other financial and statistical data included therein).
(vi) To such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement or required to be incorporated by reference into
the Prospectus which are not disclosed or filed or incorporated by reference, as
required.
(vii) Neither the execution and delivery of this Agreement nor
the performance of the Company's obligations hereunder or the consummation of
the transactions contemplated hereunder, will (A) conflict with, result in an
breach of, or constitute a default under the terms of; (i) any obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, joint venture or other material agreement or
instrument ("Material Contracts")
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identified to us as the only Material Contracts to which the Company is a
party or by which the Company or any of its properties is bound; (ii) any
law; or (iii) to the best of our knowledge, any order, rule, regulation,
writ, injunction or decree of any government, governmental instrumentality or
court, domestic or foreign, the violation of which could have a Material
Adverse Effect, or (B) violate any of the provisions of the Articles of
Incorporation or Bylaws of the Company as in effect on the date hereof.
(viii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body of the State of Colorado, or, to such counsel's knowledge, any
other state, is necessary in connection with the execution and delivery of this
Agreement and the consummation of the transactions herein contemplated (other
than as may be required by state securities and blue sky laws, as to which such
counsel need express no opinion, and as to federal securities laws, as to which
such counsel has otherwise opined) except such as have been obtained or made,
specifying the same.
(ix) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue and sell the Shares as contemplated
hereby. This Agreement has been duly and validly authorized, executed and
delivered by the Company.
(x) The Company has the corporate power and authority to issue
the Representative's Warrants. The Representative's Warrants have been duly
authorized, executed and delivered by the Company and constitute the valid and
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application affecting creditors' rights generally, and by general principles of
equity; the Warrant Shares issuable upon exercise of the Representative's
Warrants have been duly authorized and reserved for issuance upon exercise of
the Representative's Warrants, and, upon exercise of the Representative's
Warrants and receipt by the Company of the consideration for such shares in
accordance with the terms thereof, such Warrant Shares will be validly issued,
fully paid and nonassessable.
(xi) To counsel's knowledge, there are no legal or governmental
proceedings, pending or threatened, before any court or administrative body or
regulatory agency to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or statutes or
regulations that are required to be described in the Registration Statement or
the Prospectus that are not so described.
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(xii) The form of certificate for the Shares is in due and proper
form and complies with all applicable statutory requirements.
(xiii) All prior offers and sales of securities of the Company
were exempt from registration under the Act and were either registered pursuant
to, or exempt from registration under, all pertinent state securities, or blue
sky, laws.
(xiv) To such counsel's knowledge, there are no pending legal
proceedings relating to trademarks, tradenames or service marks of the Company,
and no such proceedings are threatened or contemplated.
In rendering the opinions described above, counsel for the Company may
rely, as to matters of fact with respect to the Company, upon representations of
the Company contained in this Agreement and certificates of officers of the
Company, provided that copies of such certificates are delivered to the
Representatives.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that, although such counsel is not passing upon and
does not assume any responsibility for, the accuracy, completeness or fairness
of any of the statements contained in the Registration Statement or Prospectus
and such counsel makes no representation that it has independently verified the
accuracy, completeness or fairness of such statements, in connection with such
counsel's representation of the Company in the preparation of the Registration
Statement and Prospectus nothing came to the attention of such counsel which
caused it to conclude that, as of its effective date, the Registration Statement
or any further amendment thereto (other than the financial statements and notes
thereto and other financial and statistical data included therein, as to which
such counsel need express no opinion) made by the Company prior to the First
Closing Date or the Second Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment or supplement
thereto (other than the financial statements and notes thereto and other
financial and statistical data included therein, as to which such counsel need
express no opinion) made by the Company prior to the First Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
(c) The Representatives shall have received from Dorsey & Whitney
LLP, counsel for the Underwriters, an opinion dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the incorporation
of the Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the Representatives may reasonably
request, and such
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counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters.
(d) The Representatives shall have received on each of the date
hereof, the First Closing Date and the Second Closing Date, as the case may be,
a signed letter, dated as of the date hereof, the First Closing Date or the
Second Closing Date, as the case may be, in form and substance satisfactory to
the Representatives, from BDO Seidman, LLP to the effect that they are
independent public accountants with respect to the Company within the meaning of
the Act and the related rules and regulations and containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus specified
by the Representatives and counsel for the Underwriters.
(e) Subsequent to the execution and delivery of this Agreement and
prior to the First Closing Date or the Second Closing Date, as the case may be,
there shall not have been any Adverse Effect or any development involving a
prospective Adverse Effect, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in your judgment, makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at the First Closing Date or the Second Closing Date, as the
case may be, on the terms and in the manner contemplated in the Prospectus.
(f) The Representatives shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing Date, as
the case may be, signed on behalf of the Company by each of the president and
the chief financial officer of the Company to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of each closing date. The
Company has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at, or prior to, such date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that purpose has
been instituted or is pending or, to the knowledge of such officers, is
contemplated under the Act.
(iii) Neither the Registration Statement nor the Prospectus nor
any amendment thereof or supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and, since the effective
date of the Registration
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Statement, there has occurred no event required to be set forth in an amended
or supplemented prospectus which has not been so set forth; provided, however,
that such certificate does not require any representation concerning statements
in, or omissions from, the Registration Statement or Prospectus or any amendment
thereof or supplement thereto, which are based solely upon and conform to
written information furnished to the Company by any of the Underwriters
specifically for use in the preparation of the Registration Statement or the
Prospectus or any such amendment or supplement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as
contemplated by or referred to in the Prospectus, the Company has not incurred
any direct or contingent liabilities or obligations material to the Company, or
entered into any material transactions, except liabilities, obligations or
transactions in the ordinary course of business, and there has not been any
change in the capital stock, short-term debt, or long-term debt of the Company
other than trade credit of the Company, debt incurred in connection with the
financing of receivables arising in the ordinary course of the Company's
business or the exercise of options or warrants for Common Stock disclosed in
the Prospectus, any Adverse Effect or declaration or payment of any dividend by
the Company.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss of, or damage to, its properties, whether or not
insured.
(vi) Except as is otherwise expressly stated in the Registration
Statement and Prospectus there are no material actions, suits or proceedings
pending before any court or governmental agency, authority or body, or, to such
officers' knowledge, threatened, to which the Company is a party or of which the
business or property of the Company is the subject.
(g) The Representatives shall have received, dated as of the First
Closing Date or Second Closing Date, as the case may be, from the Secretary of
the Company a certificate of incumbency certifying the names, titles and
signatures of the officers authorized to execute, deliver and perform this
Agreement. Attached to such certificate shall be a copy of the Bylaws of the
Company and the resolutions of the Board of Directors of the Company authorizing
the execution, delivery and performance of this Agreement. Such certificate
shall also certify that such resolutions, the Articles of Incorporation of the
Company and the Bylaws of the Company have been validly adopted and have not
been amended or modified, except as described in the Prospectus.
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(h) The Representatives shall have received a written agreement from
each of the officers and directors named in Schedule II hereto, that, subject to
the terms of such written agreements, no offer, sale, contract to sell, other
disposition of any Common Stock of the Company will be made for a period of 13
months after the effective date of the Registration Statement, directly or
indirectly, by such holder otherwise than with the prior written consent of the
Representatives.
(i) The Shares shall have been approved for listing, subject to
notice of issuance, on Nasdaq and BSE.
(j) The Company shall have furnished to the Underwriters, dated as of
the date of each closing date, such further certificates and documents as the
Representatives shall have reasonably required.
(k) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Representatives and its legal counsel. All statements contained in any
certificate, letter or other document delivered pursuant hereto by, or on behalf
of, the Company shall be deemed to constitute representations and warranties of
the Company.
(l) The Representatives may waive in writing the performance of any
one or more of the conditions specified in this Section 4 or extend the time for
their performance.
(m) The Company shall have furnished to the Representatives a
certificate, dated as of the closing date, from the Company stating that the
offers to the limited partners of Illinois Center Golf Partners, L.P. and Goose
Creek Golf Club Partnership to purchase their limited partnership interests have
been completed in accordance with the provisions of the related offers to
purchase and specifying the limited partnership interests of each such limited
partnership tendered and paid for with the proceeds of the offering of the
Shares.
(n) If any of the conditions specified in this Section 4 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the First Closing Date or Second Closing Date, as the
case may be, by the Representatives. Any such cancellation shall be without
liability of the Underwriters to the Company or to any other party, and shall
not relieve the Company of its obligations under Section 3(k) hereof. Notice of
such cancellation shall be given to the Company at the address specified in
Section 11 hereof in writing, or by facsimile or telephone and confirmed in
writing.
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5. REPRESENTATIVE'S WARRANT.
On the First Closing Date, the Company shall sell to each of the
Representatives a Representative's Warrant for a price equal to $_____. Each
Representative's Warrant shall first become exercisable one year after the
Effective Date and shall remain exercisable for a period of four years
thereafter. The Representative's Warrants shall be subject to certain transfer
restrictions and shall be in substantially the form filed as an exhibit to the
Registration Statement and attached as Appendix B hereto.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls each Underwriter, their
affiliated companies and each of such affiliated companies' respective officers,
directors, agents and controlling persons (within the meaning of each of
Section 20 of the Securities and Exchange Act of 1934 and Section 15 of the Act)
(each of the foregoing, including the Underwriters, is individually referred to
in this Section 6 and in Section 7 as an "Underwriter" and collectively are
referred to as the "Underwriters") against any losses, claims, damages or
liabilities, joint or several, brought by a third party, to which such
Underwriter or each such controlling person may become subject, under the Act,
the Exchange Act, the common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, or are
based upon: (i) any claim by any person, directly or indirectly, for
compensation for services as a finder in connection with the transactions
contemplated by this Agreement; (ii) any claim by any person, directly or
indirectly, alleging unfair competition, trademark, tradename or service mark
infringement or similar cause of action arising out of the Company's use of the
name "MetroGolf," either alone or in connection with any logo, trade dress or
trade style; (iii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (provided that the Company shall not be liable to any Underwriter
under the indemnity agreement in this subsection (iii) with respect to any
Preliminary Prospectus to the extent that any such loss, claim, damage or
liability (or action in respect thereof) results from the fact that such
Underwriter sold Common Stock to a person to whom there was not sent or given,
at or prior to the written confirmation of such sale, a copy of the Prospectus
as then amended or supplemented if the Company has previously furnished copies
thereof to such Underwriter); or (iv) any untrue statement or alleged untrue
statement of a material fact contained in any application or other statement
executed by the Company or
21
<PAGE>
based upon written information furnished by the Company and filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares or
the sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such application
or statement a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; and, subject to the provisions of paragraph (d) of
this Section 6, will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or controlling person in connection with investigating or defending against
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement,
or alleged untrue statement, omission or alleged omission, made in reliance upon
and in conformity with information furnished to the Company by, or on behalf of,
any Underwriter in writing specifically for use in the preparation of the
Registration Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or other application or statement filed
under any states' securities, or blue sky, law or any such amendment thereof or
supplement thereto. This indemnity agreement is in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, agrees to indemnify
and hold harmless the Company, each of the Company's directors, each of the
Company's officers who has signed the Registration Statement, and each person
who controls the Company within the meaning of Section 15 of the Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act, the Exchange Act, the common law or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of, or
are based upon: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by the
Company or by any Underwriter or based upon written information furnished by the
Company or the Underwriters and filed in any jurisdiction in order to qualify
the Shares under, or exempt the Shares or the sale thereof from qualification
under, the securities laws of such jurisdiction, or the omission or alleged
omission to state in such application or statement a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; in each of the above
22
<PAGE>
cases to the extent, but only the extent, that such untrue statement, alleged
untrue statement, omission or alleged omission, was made in reliance upon and in
conformity with information furnished to the Company by, or on behalf of, any
Underwriter in writing specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or in any application or other statement executed by the
Company or by any Underwriter and filed in any jurisdiction; and each
Underwriter will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, or controlling person in connection
with investigating or defending against any such loss, claim, damage, liability
or action. This indemnity agreement is in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 6, notify in writing the indemnifying party of the commencement thereof.
The omission to so notify the indemnifying party will not relieve it from any
liability under this Section 6 as to the particular item for which
indemnification is then being sought, unless such omission so to notify
prejudices the indemnifying party's ability to defend such action. In case any
such action is brought against any indemnified party and the indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel who shall be reasonably satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if, in the reasonable judgment
of the indemnified party or parties, it is advisable for such party or parties
and any controlling persons to be represented by separate counsel by reason of a
conflict of interest of the counsel chosen by the indemnifying party, any
indemnified party shall have the right to employ separate counsel to represent
it and other parties and their controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by any party hereunder, in which event the reasonable fees and expenses of such
separate counsel shall be borne by the indemnifying party. In any such event,
the indemnifying party will not be obligated to pay the fees and expenses of
more than one counsel for the indemnified parties with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other indemnified
parties with respect to such claim, in which event the indemnifying party shall
be obligated to pay the reasonable fees and expense of additional counsel
23
<PAGE>
or counsels for the indemnified parties. Any such indemnifying party shall
not be liable to any such indemnified party on account of any settlement of
any claim or action effected without the consent of such indemnifying party.
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable
under applicable law to any indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the parties in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The Company and the Underwriters agree that
contribution determined by per capita allocation (even if the Underwriters were
considered a single person) would not be equitable. The respective relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering of the Shares
(before deducting expenses) received by the Company bears to the total
underwriting discount received by the Underwriters, in each case as set forth in
the Prospectus. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the parties, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission and the extent to which a loss, claim, damage or liability
(or action in respect thereof) with respect to any Preliminary Prospectus result
from the fact that an Underwriter sold Common Stock to a person to whom there
was not sent or given, at or prior to the written confirmation of such sale, a
copy of the Prospectus if the Company has previously furnished copies thereof to
such Underwriter. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. Notwithstanding
the provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto. The Underwriters' obligation to
24
<PAGE>
contribute pursuant to this Section 7 are several and not joint in proportion
to their respective obligations under Section 7. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person
who controls an Underwriter within the meaning of the Act or the Exchange Act
shall have the same rights to contribution as such Underwriter, each person
who controls the Company within the meaning of the Act or the Exchange Act
shall have the same rights to contribution as the Company and each officer of
the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company.
(b) Promptly after receipt by a party to this Agreement of notice of
the commencement of any action, suit, or proceeding as to which contribution may
be sought, such person will, if a claim for contribution in respect thereof is
to be made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to notify
the Contributing Party will not relieve the Contributing Party from any
liability which it may have to any party other than under this Section 7, unless
such omission so to notify prejudices the Contributing Party's ability to defend
such action. Any notice given pursuant to Section 7 hereof shall be deemed to
be like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party of the
commencement thereof, the Contributing Party will be entitled to participate
therein with the notifying party and any other Contributing Party similarly
notified.
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective the later of (a) the date
and time that this Agreement is executed and delivered by the parties hereto and
(b) at 10:00 a.m., Eastern Daylight Time, on the first full business day
following the Effective Date, or at such earlier time after the Effective Date
as the Representatives in their discretion shall first release the Shares for
offering to the public. For purposes of this Section 8, the Shares shall be
deemed to have been released to the public upon release by the Representatives
of the publication of a newspaper advertisement relating to the Shares or upon
release of a facsimile or a letter offering the Shares for sale to securities
dealers, whichever shall first occur.
(b) Until the First Closing Date, this Agreement may be terminated by
the Representatives, at their option, by giving notice to the Company, if (i)
the Company shall have sustained a loss by fire, flood, accident or other
calamity which has an Adverse Effect; the Company has become a party to material
litigation required to be, but not disclosed in the Registration Statement or
the Prospectus; or the business or financial condition of the Company has become
the subject of any
25
<PAGE>
material litigation not disclosed in the Registration Statement or the
Prospectus, or there shall have been, since the respective dates as of which
information is given in the Registration Statement or the Prospectus, any
Adverse Effect, whether or not arising in the ordinary course of business,
which Adverse Effect, in the reasonable judgment of the Representatives,
shall render it inadvisable to proceed with the delivery of the Shares,
whether or not such Adverse Effect shall have been insured; (ii) trading in
securities generally on the New York Stock Exchange, American Stock Exchange,
Nasdaq, BSE or any over-the-counter market shall have been suspended or
minimum prices shall have been established by the Commission or by any such
exchange; (iii) a general banking moratorium shall have been declared; (iv)
there shall have been such a material adverse change in general economic,
monetary, political or financial conditions, or the effect of international
conditions on the financial markets in the United States shall be such as, in
the judgment of the Representatives, makes it inadvisable to proceed with the
delivery of the Shares; (v) there shall have been the enactment, publication,
decree or other promulgation of any federal or state statute, regulation,
rule or order of any court or other governmental authority, which in the
judgment of the Representatives has been or will have an Adverse Effect; or
(vi) there shall be a material outbreak of hostilities or material escalation
and deterioration in the political and military situation between the United
States and any foreign power or a formal declaration of war by the United
States of America shall have occurred. Any such termination shall be without
liability of any party to any other party, except as provided in Sections 6
and 7 hereof; provided, however, that the Company shall remain obligated to
pay costs and expenses to the extent provided in Section 3(k) hereof.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section 8,
it shall notify the Company by facsimile or telephone, confirmed by letter sent
to the address specified in Section 11 hereof. If the Company shall elect to
prevent this Agreement from becoming effective, it shall notify the
Representatives promptly by facsimile or telephone, confirmed by letter sent to
the addresses specified in Section 11 hereof.
9. DEFAULT OF UNDERWRITER.
If, on the First Closing Date or the Second Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your best efforts to procure
within 36 hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company such amounts as may be agreed upon, and upon the
terms set forth herein, of the Company Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as
26
<PAGE>
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Company Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(A) if the aggregate number of Shares with respect to which such default
shall occur does not exceed 10% of the Company Shares or Option Shares, as
the case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Company Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Company Shares or Option Shares, as the case may
be, which such defaulting Underwriter or Underwriters failed to purchase or
(B) if the aggregate number of shares of Company Shares or Option Shares, as
the case may be, with respect to which such default shall occur exceeds 10%
of the Company Shares or Option Shares, as the case may be, covered hereby,
the Company or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part
of the non-defaulting Underwriters or of the Company except for expenses to
be borne by the Company, and the Underwriters as provided in Section 3(k)
hereof and the indemnity and contribution agreements in Sections 6 and 7
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the First Closing Date or Second Closing Date, as
the case may be, may be postponed for such period, not exceeding seven days,
as you, as Representatives, may determine in order that the required changes,
not including a reduction in the number of Company Shares, in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 6 and 7, respectively, the representations
and warranties of the Company set forth in Section 1 and Section 2 hereof,
respectively, and the covenants of the Company set forth in Section 4 hereof,
respectively, shall remain operative and in full force and effect, regardless of
any investigation made by, or on behalf of, the Underwriters, the Company, any
of its officers and directors, or any controlling person referred to in Sections
6 and 7, and shall survive the delivery of and payment for the Shares. The
aforesaid indemnity and contribution agreements shall also survive any
termination or cancellation of this Agreement. Any successor of any party or of
any such controlling person, or any legal Representatives of such controlling
person, as the case may be, shall be entitled to the benefit of the respective
indemnity and contribution agreements.
27
<PAGE>
11. NOTICES.
All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Representatives
or any of the Underwriters, shall be mailed, delivered, or telecopied and
confirmed, to Laidlaw Equities, Inc., 100 Park Avenue, New York, New York
10017, Attention: Barbara Bradley, with a copy to Andrew J. Cahill, and
Cruttenden Roth Incorporated, 18301 Von Karman, Irvine, California 92715,
Attention: Christopher D. Jennings, with a copy to Kevin A. Cudney, Esq., Dorsey
& Whitney LLP, Suite 4400, 370 Seventeenth Street, Denver, Colorado 80202; if
sent to the Company, shall be mailed, delivered, or telecopied, and confirmed,
to MetroGolf Incorporated, 1999 Broadway, Suite 2435, Denver, Colorado 80202,
Attention: Charles D. Tourtellotte, with a copy to Jeffrey M. Knetsch, Esq.,
Brownstein Hyatt Farber & Strickland, P.C., 410 Seventeenth Street, 22nd Floor,
Denver, Colorado 80202.
12. INFORMATION FURNISHED BY THE UNDERWRITER.
The statements relating to the stabilization activities of the Underwriters
and the statements in the paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the only information
furnished by, or on behalf of, the Underwriters in writing specifically for use
in the preparation of the Registration Statement or any post-effective amendment
thereof, any preliminary Prospectus or the Prospectus or any amendment thereof
or supplement thereto, or in any application or other statement executed by the
Company or the Underwriter and filed in any jurisdiction as referred to in
Section 6 hereof.
13. PARTIES.
This Agreement shall inure to the benefit of and be binding upon the
Underwriters and the Company, their respective successors and assigns and the
officers, directors and controlling persons referred to in Sections 6 and 7.
Nothing expressed in this Agreement is intended or shall be construed to give
any person or corporation, other than the parties hereto, their respective
successors and assigns and the controlling persons, officers and directors
referred to in Sections 6 and 7 any legal or equitable right, remedy or claim
under, or in respect of, this Agreement or any provision herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors, assigns and such controlling
persons, officers and directors, and for the benefit of no other person or
corporation. No purchaser of any Shares from the Underwriters shall be
construed a successor or assign merely by reason of such purchase.
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<PAGE>
14. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the laws
of the State of New York, without regard to its conflict of law provisions.
15. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
taken together shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterpart of this Agreement,
whereupon it will become a binding agreement between the Company and each of the
Underwriters in accordance with its terms.
Very truly yours,
METROGOLF INCORPORATED
-------------------------------------
By: Charles D. Tourtellotte, Chairman
and President
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us for
itself and as Representatives of the
Underwriters referred to in the foregoing
Agreement as of the date first above written.
LAIDLAW EQUITIES, INC.
- -------------------------------
By: Barbara Bradley
CRUTTENDEN ROTH INCORPORATED
- -------------------------------
By: Christopher D. Jennings
29
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NAME OF UNDERWRITER NUMBER OF COMPANY SHARES
------------------- ------------------------
Laidlaw Equities, Inc.
Cruttenden Roth Incorporated
---------
Total 1,200,000
---------
---------
I-1
<PAGE>
SCHEDULE II
SCHEDULE OF OFFICERS AND DIRECTORS
REQUIRED TO EXECUTE LOCK-UP AGREEMENTS
Charles D. Tourtellotte
J.D. Finley
Ernie Banks
Jack F. Lasday
II-1
<PAGE>
EXHIBIT 4
STOCK CERTIFICATE
STOCK CERTIFICATE WITH A CERTIFICATE NO., THE NUMBER OF SHARES AND THE METROGOLF
INCORPORATED EMBLEM, WITH THE FOLLOWING TEXT:
"MetroGolf Incorporated, incorporated under the laws of the State of Colorado.
Common Stock. CUSIP No. 59164106. This certifies that _________________ is the
registered holder of ________________ fully paid and non-assessable shares of
Common Stock, no par value, of MetroGolf Incorporated, transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney, upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar. In witness whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its Corporate Seal
to the hereunto affixed."
Dated ____________, 19__.
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY.
- -------------------------- ----------------------------------------
Secretary President
Corporate Seal
BACK OF CERTIFICATE: VARIOUS ABBREVIATIONS AND THE LANGUAGE:
"For value received, _____ hereby sell, sign and transfer unto ______________
________ Shares of the Common Stock represented by the within Certificate and do
hereby irrevocably constitute and appoint ________________ Attorney to transfer
the said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ____________, 19__.
In the presence of ______________.
Notice: The signature of the Assignment must correspond with the name as
written upon the face of the Certificate and every particular without alteration
or enlargement or any change whatever. Social security or other identifying
number of Assignee."
<PAGE>
August___, 1996
MetroGolf Incorporated
1999 Broadway
Suite 2435
Denver, CO 80202
Gentlemen:
MetroGolf Incorporated (the "Company") has filed with the Securities and
Exchange Commission a registration statement (the "Registration Statement")
on Form S-1 (No. 333-06151) which relates to the sale of up to 1,933,571
shares of the Company's Common Stock by the Company, including up to 1,380,000
shares (the "Underwriter Shares") to be sold to the Underwriters (as defined
in the underwriting agreement filed as Exhibit 1 to the Registration Statement
(the "Underwriting Agreement")) and up to 553,571 shares (the "Conversion
Shares") to be issued to the holders of the Company's outstanding 12%
Convertible Subordinated Notes due 1997 (the "Notes") upon conversion thereof
in accordance with the note purchase agreement filed as Exhibit 4.2 to the
Registration Statement (the "Note Purchase Agreement").
We have examined such corporate records of the Company and such other
documents as we have deemed appropriate to give this opinion.
Based upon the foregoing, we are of the opinion that (i) the Underwriter
Shares, when issued and sold in accordance with the terms of the Underwriting
Agreement and upon receipt by the Company of the consideration therefor in
accordance with the Underwriting Agreement, will be validly issued, fully
paid and nonassessable, and (ii) the Conversion Shares, when issued upon
conversion of the Notes in accordance with the Note Purchase Agreement, and
upon receipt by the Company of the consideration therefor in accordance with
the Note Purchase Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement as it is proposed to be amended and to the use of our
name in the Prospectus that is a part of the Registration Statement under the
caption "Legal Matters."
Very truly yours,
<PAGE>
FREMONT GOLF CENTER
MANAGEMENT AGREEMENT
THIS AGREEMENT is made as of this 1st day of July, 1996, by and between
METROGOLF MANAGEMENT, INC., a Colorado corporation ("MGM"), having an address of
1700 Broadway, Suite 1900, Denver, Colorado 80290, and METROGOLF INCORPORATED, a
Colorado corporation ("Owner") having an address of 1999 Broadway, Suite 2435,
Denver, Colorado 80202.
WHEREAS, Owner leases premises consisting of a clubhouse, a driving range
and related recreational facilities located in Fremont, California, known as the
Fremont Golf Center (the "Facility");
WHEREAS, MGM is in the business of managing golf courses and clubs; and
WHEREAS, Owner desires to engage MGM to manage the Facility;
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties contained herein, it is mutually agreed as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
July 1, 1996, (the "Effective Date") and shall expire on June 30, 2001, unless
earlier terminated pursuant to Paragraph 7 hereof.
2. MANAGEMENT SERVICES. Owner agrees that MGM shall, during the term of
the Agreement and subject to the terms of this Agreement, have the sole and
exclusive right to manage the Facility as an independent contractor pursuant to
the terms of this Agreement. Owner agrees that it will cooperate reasonably
with MGM to permit MGM to carry out its duties under this Agreement. MGM shall
have the responsibility for providing and the authority to provide the general
operational management services for the Facility, including, without limitation,
the following services, subject to Owner's continuing performance of its
obligations hereunder:
A. MGM shall, at the expense of the Facility, recruit, employ, and
supervise all personnel necessary to provide services at the Facility
as may be contemplated by the Annual Budget and Program (as
hereinafter defined) including, but not limited to a full-time, on-
site general manager. The cost of all on-site personnel will be an
expense of the Facility. Additionally, if it becomes necessary to
move accounting personnel off-site, the cost of such off-site office
space shall be an expense of the Facility in accordance with a budget
approved by the Owner.
<PAGE>
B. MGM shall, at the expense of the Facility, obtain (in accordance
with the Annual Budget and Program) merchandise for the pro shop, if
any, at the Facility.
C. MGM shall supervise and operate on behalf of Owner, as
applicable, the practice range, pro shop, food and beverage, golf
schools, teaching programs and other ancillary services at the
Facility.
D. MGM shall develop a list of required equipment and a
purchase/lease schedule and maintain in good working condition and
order the physical plant and equipment at the Facility, including all
physical structures which are part of the Facility, and all vehicles
and other maintenance equipment necessary to the maintenance and
operation of the Facility in the normal course of business.
E. MGM shall, at no additional charge to Owner other than
reimbursement of reasonable out-of-pocket travel-related expenses,
make its staff available to Owner upon request for consultation
regarding the Facility, including, as applicable, but not limited to,
operating procedures, agronomy, golf shop and food and beverage
service, management and operation, capital improvements (exclusive of
the services described in Paragraph 6B as being services not included
in MGM's normal duties), driving range operation, clubhouse space
utilization and operations, and fee structure.
F. MGM shall recommend a schedule of prices and fees for Facility
products and services for Owner's approval and design and implement
such special events and marketing strategies, such as golf programs,
exhibitions and clinics, as it may deem appropriate to promote the
Facility.
G. MGM shall provide the following budgeting, bookkeeping and
reporting services to Owner (it being understood that copies of all
books and records shall be kept at the Facility or other agreed upon
location):
a. MGM shall prepare and deliver to the Owner and its designees
in accordance with its own procedures and formats regular
monthly and annual operating statements which shall include,
without limitation, comments regarding each monthly and
annual report and such other items as Owner may reasonable
request. As part of its management responsibilities, MGM
will assign a regional controller to review all accounting
work.
2
<PAGE>
Monthly operating statements shall be furnished to Owner and
its designees by the 15th day following the last day of each
month; and annual operating statements shall be furnished by
the 30th day following the last day of each calendar year.
b. MGM shall prepare and deliver to Owner prior to September 1,
1996 for the first year of operation through December 31,
1996 and no later than October 15 of each subsequent year
for the duration of this Agreement for the following
calendar year, (i) an annual operating budget, including a
projection of anticipated monthly revenues and expenses and
cash flows for the Facility for the following calendar year
including, without limitation, a reasonable contingency and
anticipated working capital requirements over the course of
the year, (ii) a capital improvements budget for the next
calendar year, (iii) if applicable, a corporate and
individual membership program, (iv) if applicable, a hotel
package program and (v) a general marketing and operational
program with respect to the Facility including, without
limitation, operating policies, standards for operations and
quality of service standards (collectively, the "Annual
Budget and Program"). MGM and Owner shall use their mutual
best efforts to agree upon the Annual Budget and Program for
the following year on or before calendar year end. Each
party may from time to time propose to the other party
during the course of the year such changes or amendments to
the Annual Budget and Program as such party may consider
necessary or appropriate and MGM and Owner shall use their
mutual best efforts to agree upon such changes or amendments
within thirty (30) days after such proposal is made. Any
approved modifications shall be in writing. MGM shall
obtain prior approval for contracts in excess of $10,000 or
12 months in duration. MGM shall secure the approval of
Owner for expenditures in excess of 110% of any expense line
item in the Annual Budget, except for emergencies.
c. MGM shall establish, administer, and maintain the payroll
procedure and systems for the MGM employees at the Facility
and shall be responsible for providing benefits to, and
handling the appropriate payroll deductions for, individual
employees. All personnel
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shall be employees of MGM. Benefits will include vacations,
sick leave, and such additional benefits as MGM may
reasonably deem in its discretion appropriate for the
employees.
H. MGM shall, at Owner's request, at the end of each calendar month
remit directly to Owner all amounts then in the Working Capital
Account (as hereinafter defined) in excess of the Minimum Funds
Balance (as hereinafter defined) by wire transfer to said account as
Owner may from time to time designate by written notice to MGM.
MGM shall pay all operating expenses for the Facility on behalf of
Owner from the Working Capital Account which expenses shall include,
but not be limited to, payments of any debt service, leasehold
obligations, personal property taxes, payroll and related expenses,
management fees, and operating expenses.
Owner shall maintain resources to cover shortfalls in winter months.
I. MGM shall regularly consult with the Owner regarding the Facility
and its operations.
3. WORKING CAPITAL. Owner shall have the ongoing responsibility to
provide all necessary funding of the working capital requirements of the
Facility as set forth in the Annual Budget and Program then in effect. At the
commencement of this Agreement, Owner shall establish a business checking
account for the Facility (the "Working Capital Account") and delegate exclusive
control over such Working Capital Account to MGM subject to its use being in
compliance with the Annual Budget and Program. Owner agrees to maintain
adequate reserves based on the Annual Budget and Program so as to maintain
operations throughout the term of this Agreement. Whenever the funds balance in
the Working Capital Account is less than the minimum funds needed to maintain
operations, Owner shall, within ten (10) business days after being notified
thereof by MGM, deposit into the Working Capital Account such additional funds
as will restore the account to the amount necessary; provided that upon
cancellation or termination of this Agreement for any reason or upon the
occurrence of a material default by MGM the delegation of control over such
Working Capital Account to MGM shall be immediately revoked and all funds in the
Working Capital Account shall be immediately paid over to Owner by MGM.
4. INSURANCE. MGM shall negotiate, secure and at all times maintain
liability, property damage and other insurance for the Facility in such amounts
and through agents and with underwriters reasonably acceptable to Owner and in
compliance with Owner's sublease. Owner shall be liable for the payment of the
premiums of said insurance for so long as Owner shall own or operate the
4
<PAGE>
Facility during the term of this Agreement. Such policies shall name MGM,
Owner, and its landlord as co-insured under such policies. All insurance
policies required hereunder shall contain a provision requiring the insurer to
notify MGM, Owner and its landlord at least thirty (30) days in advance of any
cancellation or termination of such policy and satisfactory waiver of
subrogation provisions. MGM shall be responsible for securing and maintaining
all of the insurance policies required hereunder, provided, however that MGM
shall have no obligation to pay such premiums from its own funds. If MGM
secures such insurance as a part of any blanket policy the premiums attributable
to the Facility shall be determined by making a reasonable allocation based on
the relation of the amount of insurance carried for the Facility to the total
policy amount. The liability insurance must have a minimum limit of [TEN
MILLION DOLLARS ($10,000,000)] and the property damage insurance shall be
written on a full replacement cost basis and otherwise in accordance with the
requirements of Owner and its landlord. The premiums for any such policies
shall be paid from the working capital to be provided by Owner pursuant to
Paragraph 3 hereof and in accordance with the Annual Budget and Program, or by
Owner in the event there is insufficient working capital available.
5. COMPENSATION AND FEES.
A. For its services hereunder, MGM shall be entitled to a base fee
(the "Base Fee") of $5,000.00 per month with respect to each month
during the term of this Agreement payable on the first day of each
such month.
B. Owner shall also pay MGM an annual operating incentive fee (the
"Operating Incentive Fee") based upon annual net operating income (as
herein defined) in respect to each calendar year or portion thereof
during the term of this Agreement according to the following schedule:
ANNUAL NET OPERATING INCOME OPERATING INCENTIVE FEE
Minimum of $600,000 5% of amount of Annual Net Operating
Income in excess of $600,000
The Annual Operating Incentive Fee shall be payable within 30 days
after MGM has provided owner with the operating statement for the club
for the subject calendar year or portion thereof.
C. In the event a membership program is established for the
Facility, Owner shall pay MGM a fee for the sale of memberships of
whatever kind in the Facility (the "Membership Fee") in an amount
equal to ten percent (10%) of the gross proceeds from initiation fees
paid for said membership plus the equivalent of one month's dues as
5
<PAGE>
received by the Facility. The Membership Incentive Fee for renewal
memberships will be reduced to 4% of annual dues for renewal
memberships. Said Membership Fees shall be payable within thirty (30)
days after receipt by the Facility of the initiation fee and first
month's dues or in the case of renewals 30 days after receipt by the
Facility of the dues payment. The salaries, benefits and commissions
payable to sales persons will be paid as an operating expense of the
Facility.
D. The term "Gross Revenues from the Facility" as used herein shall
include the total aggregate amount of the business done, sales made,
and services performed in, on or from the Facility both for cash and
on credit, including without limitation, all charges for greens fees,
if any, practice range fees, and other rentals, the gross amount
charged for merchandise, food and beverage, dues, if any, and the
gross amount received from all other sources and income derived from
activities in, on, or from the Facility less membership initiation and
monthly fees, if any, and any and all actual refunds or credits for
returned merchandise, exchanges, and allowances, including all
allowances for bad debts (provided the purchase price of the
merchandise was previously included in Facility's gross sales), and
less all sums collected by Facility from Facility's customers and paid
by Facility for all sales, use, value included, and excise taxes on
sales and rentals where such taxes are both added to the selling price
or charge, stated, separately, and paid by Facility directly to the
taxing authorities.
E. As used herein, "Gross Revenues from the Facility" shall not
include amounts paid for sale of the Facility, proceeds from the sale
of the name of the Facility or other sponsorship fees, financing
proceeds, insurance and condemnation proceeds, and proceeds and sales
of equipment and property, other than inventory.
F. Unless otherwise provided herein, any interest due to either MGM
or Owner pursuant to this Agreement shall accrue at a rate equal to
the prime rate publicly announced by Citibank, N.A. on the date such
interest began to accrue. Except as otherwise specifically provided
herein interest on any payment due by either party to the other
hereunder shall be payable from and after the date upon which such
payment was due if such payment is not timely made.
G. Upon reasonable notice (which may be verbal) representatives of
Owner shall have the right to any time during normal business hours to
review all of MGM's books and records relating to the Facility
including, without limitation, MGM's workpapers related to MGM's
preparation
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<PAGE>
of operating statements and calculating the Incentive Fee. All
expenses related to any such review shall be exclusively borne by
Owner for purposes of this Agreement unless such review reveals an
overpayment of any fees or other amounts. Owner's exercise of its
right of review or to dispute any fee or expense reimbursement claimed
by MGM shall not delay payment of the undisputed portion thereof by
Owner within the time frames set forth herein. However, payment by
Owner of a fee or other amount hereunder shall not constitute a waiver
of Owner's right to subsequently dispute the amount thereof. If Owner
and MGM determine that any portion of the Base Fee, Incentive Fee,
Membership Fee, if any, or any other amount was improperly paid to
MGM, MGM shall refund such improperly paid fee together with interest
thereon from the time when such fee was paid to MGM within five (5)
business days after receipt of notice from Owner to MGM. If there is
any dispute between the parties regarding whether or not any payments
of the Base Fee, Incentive Fee, Membership Fee, if any, or any other
amount were proper, such disputes shall be resolved by arbitration in
accordance with the rules of the American Arbitration Association.
H. The term "Annual Net Operating Income" as used herein shall be
defined as Gross Revenues from the Facility as defined in Paragraphs
5(D) and (E), minus all operating expenses which are attributable, in
accordance with federal tax accounting principles, to the use and
operation of the Facility including, without limitation, the Base Fee,
expense reimbursements (including, without limitation, reasonable out-
of-pocket travel related expenses), all insurance costs related to the
operation of the Facility and personal property taxes; provided,
however, such expenses shall not include any charges for amortization
and depreciation, debt service, capital expenditures, income taxes,
and Owner overhead allocations, or any Incentive Fees paid to MGM
hereunder.
6. CAPITAL EXPENDITURES.
A. Capital improvements shall be deemed to include any item
purchased in connection with the operation of the Facility which:
a. has an economic useful life in excess of one (1) year; and
b. costs in excess of Ten Thousand Dollars ($10,000).
All costs for capital improvements shall be the responsibility of
Owner and all decisions as to whether or not to undertake any capital
improvements projects or
7
<PAGE>
otherwise in respect of any capital improvements shall be made by the
Owner.
B. MGM shall (except in the case of supervision of repair and
replacements made in the normal course which shall be a part of MGM's
regular duties under this Agreement) upon the request of Owner perform
construction supervision over the capital development or capital
improvement to the Facility, its related facilities or the land upon
which they are erected, provided, however, that prior to performing
such services the parties shall have agreed to the amount of
additional compensation to be paid to MGM for said services as well as
the scope of the additional services. Notwithstanding the foregoing,
MGM shall, as a part of its regular duties, but without the obligation
to supervise the capital improvement project in question, review with
Owner, solely in its capacity as manager of the Facility, the design
and construction of such capital improvement projects and alert Owner
to any problems or defects of which it becomes aware.
7. CANCELLATION.
A. Either party may immediately cancel this Agreement by delivering
written notice thereof to the other if the other becomes insolvent,
makes an assignment for the benefit of its creditors, or becomes a
party for more than sixty (60) days to any voluntary or involuntary
insolvency proceeding or bankruptcy under any state statute or
reorganization.
B. Either party may unilaterally cancel this Agreement at any time
upon sixty (60) days prior written notice to the other in the event of
a default hereunder.
C. Upon 30 days notice from Owner, in the event of sale or other
transfer of the Facility, Owner shall have the unilateral right to
cancel this Agreement without penalty.
D. Upon ninety (90) days' written notice given to MGM and payment of
a termination fee equal to $600,000 on the effective date of
termination, Owner may terminate this Agreement.
E. Upon termination of Owner's sublease for the Facility, this
Agreement shall terminate.
In the event of termination, MGM shall be paid all deferred fees with
interest due hereunder on the effective date of termination.
8
<PAGE>
8. DEFAULT.
A. Subject to the grace periods provided in paragraph 9A below,
Owner shall be in material default of this Agreement if it:
a. fails to timely pay MGM any fees, compensation or
reimbursement due MGM pursuant to this Agreement;
b. fails to provide working capital in accordance with
Paragraph 3 hereof; or
c. breaches any other material provision of this Agreement.
B. Subject to the grace periods provided in paragraph 9A below, MGM
shall be in material default of this Agreement if it:
a. commits waste upon the Facility or fails to maintain in good
working order any material improvements or component of the
Facility;
b. fails to maintain the amenities of the Facility in
reasonably good condition, subject to the abnormal weather
conditions, acts of God, or other events or conditions
beyond the reasonable control of MGM;
c. breaches any other material provision of this Agreement or
fails to provide customary management services to operate
the Facility on a first class basis and to use its best
efforts to maintain and maximize profitability.
9. REMEDIES FOR DEFAULT.
A. When either party to this Agreement believes that the other party
(the "Defaulting Party") is in material default of this Agreement, it
shall give written notice thereof to the Defaulting Party, and the
Defaulting Party shall have ten (10) days in the event of a payment
default by either party, or such longer period (not to exceed a period
of 30 days) as shall be reasonably necessary due to weather, growing
conditions, or other factors beyond the reasonable control of the
Defaulting Party, within which to cure the default.
If the Defaulting Party does not cure the default in a timely manner,
the other party may terminate this Agreement by delivering written
notice thereof to the Defaulting Party, in which case this Agreement
shall
9
<PAGE>
terminate as of the date of such notice. Upon such termination, in
addition to any applicable provisions under this Agreement or
available remedies at law or in equity, the parties shall pay each
other any amounts described in Paragraph 5 hereof which have accrued
through the date of such termination subject to any offsets which may
exist and the determination of any arbitration regarding the default
in question.
B. In addition to the provisions of Paragraph 9A above, and the
other cancellation and termination rights set forth in this Agreement,
the non-defaulting party shall be entitled to all other rights and
remedies available at law or in equity.
10. USE OF FACILITY. During the term of this Agreement, the Facility
shall be open to the public and operated on a selected daily fee basis unless
otherwise provided and agreed to in the Annual Budget and Program.
11. LIQUOR LICENSE. Subject to any relevant California Alcoholic Beverage
Control ("ABC") licensing requirements, Owner shall maintain at all times
(except for the application period) a valid liquor license on the premises and
MGM shall use its best efforts to comply with all relevant ABC laws regarding
the use of such license. MGM may engage a separate entity to apply for and hold
a liquor license, and operate such on the premises under a separate management
agreement.
12. FORCE MAJEURE; FIRE AND OTHER CASUALTY. If all or any portion of the
Facility is destroyed by fire or other casualty, such damage or destruction
shall not be a cause for termination hereunder by either party unless such
damage or destruction results in the whole or a substantial part of the Facility
being unusable for its intended purpose for a period of six months or longer or,
in the case of such total or substantial damage or destruction that Owner shall
decide not to rebuild, then in either such event, this Agreement shall terminate
on notice from Owner to MGM of such termination and neither party shall have any
further rights or obligations hereunder provided that MGM shall be paid all of
its accrued and deferred fees upon termination.
13. INDEMNIFICATION.
A. Owner agrees to indemnify and hold harmless MGM, its officers,
directors and employees from and against any and all losses, claims,
damages, expenses, or liabilities (or actions in respect thereof)
which arise out of or are based upon, directly or indirectly, the
performance of its duties pursuant to the terms of this Agreement or
result from any violation or omissions on their part of any agreement
or undertaking set forth herein except for items of breach of the
Agreement or negligence or willful misconduct on the part of MGM.
Expenses shall include
10
<PAGE>
any legal or other expenses reasonable incurred by MGM, its officers,
directors and employees in connection with investigating or defending
any such loss, claim, damage, liability or action.
B. Promptly after receipt by MGM or its officers, directors and
employees under this Paragraph 13 of notice of the commencement of any
action against such party, such indemnified party will, if a claim in
respect thereof is to be made against Owner under this Paragraph 13,
notify Owner of the commencement thereof within 14 days after receipt
by the indemnified party of notice of the commencement of any action
against such party. An omission to so notify will relieve Owner from
any liability which it may have to an indemnified party under this
Paragraph 13 if such omission impairs Owner's ability to defend or
minimize exposure. In case any such action is brought against any
indemnified party, and it notifies Owner of the commencement thereof,
Owner will be entitled to participate in and, to the extent that it
may wish, assume the defense of such action, with counsel satisfactory
to such indemnified party. Upon notice of their election to assume
the defense of such action, Owner will not be liable to such
indemnified party under this Paragraph 13 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of
investigation, unless incurred at the request or with the consent of
Owner.
C. The agreements contained in this Paragraph 13 and the
representations, warranties and covenants made by Owner in this
Agreement, as set forth above, shall remain operative and in full
force and effect regardless of:
a. any investigation made by or on behalf of any person
indemnified;
b. a sale or other transfer of the ownership of the Facility;
c. termination of this Agreement pursuant to Paragraph 8 and/or
9 above; or
d. cancellation of this Agreement pursuant to Paragraph 7
above.
14. GENERAL PROVISIONS.
A. This Agreement represents the entire understanding and agreement
between the parties with respect to the subject matter hereof, and
supersedes all other negotiations, understandings, and representations
(if any) made by and between such parties.
11
<PAGE>
B. The provisions of this Agreement may only be amended or
supplemented in a writing signed by both parties.
C. Neither party may assign its rights and/or obligations hereunder
without the prior written consent of the other party.
D. The parties hereby agree from time to time to execute and deliver
such further and other instruments and documents, and do all such
other acts and things which may be convenient or necessary to more
effectively and completely carry out the intentions of the Agreement.
E. Subject to any problem which may be encountered due to the
circumstances arising from the prior operation of the Facility, MGM
shall endeavor at all times operate, use, and conduct the business of
the Facility in a lawful manner and in full compliance with all
applicable governmental laws, ordinances, rules and regulations, and
maintain all licenses and permits relating to the Facility, with
Owner's full cooperation, in full force and effect and cooperate and
endeavor to obtain all licenses and permits first required after the
commencement of the term of this Agreement required in connection with
the management, use, and operation of the Facility.
F. All of the terms and provisions of this Agreement shall be
binding and inure to the benefit of the parties and their respective
permitted successors and assigns provided that this Agreement is not
assignable by either party without the prior written consent of the
other party. This Agreement is solely for the benefit of the parties
hereto and not for the benefit of any third party, provided, however,
a sale, lease, or other transfer of the Facility by Owner shall not
terminate this Agreement and the purchaser and/or assignee of Owner
shall be bound by the provisions hereof, in which event (excluding the
lease of the Facility) Owner shall be released from all liability
hereunder except for obligations accruing prior to said sale, lease or
transfer payment of accrued fees and Paragraph 13 hereof.
G. All notices, request, consents and other communications required
or permitted under this Agreement shall be in writing and shall be
deemed to have been given:
a. when delivered, if hand delivered; or
b. One (1) business day after deposit with a reputable
overnight courier marked for "next business day" delivery;
or
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<PAGE>
c. upon receipt, if sent by telefacsimile, provided that an
original thereof is thereafter sent in the manner provided
above, and shall be addressed as follows:
In the case of MGM:
MetroGolf Management, Inc.
1700 Broadway, Suite 1900
Denver, Colorado 80290
Attn: Anthony A. Suttile
Telephone: (303) 294-9300
Facsimile: (303) 294-9360
In the case of Owner:
MetroGolf Incorporated
1999 Broadway, Suite 2435
Denver, Colorado 80202
Attention: Charles D. Tourtellotte
Telephone: (303) 294-9300
Telefacsimile: (303) 294-9360
or to such other address as either party may designate by
notice complying with the terms of this subparagraph.
H. The headings contained this Agreement are for convenience of
reference only, and shall not limit or otherwise affect in any way the
meaning or interpretation of this Agreement.
I. If any provision of this Agreement or any other agreement entered
into pursuant hereto is contrary to, prohibited by or deemed invalid
or unenforceable under, applicable law or regulation, such provision
shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, invalid or unenforceable, but the remainder of such
provision and this Agreement shall not be invalidated or rendered
unenforceable thereby, and shall be given full force and effect so far
as possible.
J. The failure or delay of either party at any time to require
performance by the other party of any provision of this Agreement
shall not affect the right of such party to subsequently require
performance of that provision or to exercise any right, power or
remedy hereunder. Waiver by either party of a breach of any provision
of this Agreement shall not be construed as a waiver of any continuing
or succeeding breach of such provision, a waiver of the provision
itself, or a waiver of any right, power or remedy under this
Agreement. No notice to or demand on either party in any event shall,
of itself, entitle such party to any other or further
13
<PAGE>
notice or demand in similar or other circumstances, except as
otherwise herein provided.
K. This Agreement and all transactions contemplated hereunder shall
be governed by, construed, and enforced in accordance with, the laws
of the state of Colorado, without regard to its conflicts of law
provisions.
L. Nothing in this Agreement shall be construed to create a
partnership or joint venture between the parties. The parties
acknowledge that the relationship of MGM to Owner is that of an
independent contractor.
M. No remedy herein conferred upon either party is intended to be
exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity.
N. Each party hereby represents to the other party that it has the
right, power, authority, and financial ability to enter into this
Agreement and to perform its obligations under this Agreement, and
that it is not restricted by contract or otherwise from entering into
and performing this Agreement. In addition to all other remedies
available hereunder or at law or in equity, each party hereby agrees
to defend, indemnify and hold the other harmless against and from any
and all costs, damages, claims, and expenses (including, without
limitation, all reasonable attorneys' fees and expenses) incurred by
the indemnitee as a result of or relating to the breach of any
provision of this Agreement by the indemnitor.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
OWNER:
METROGOLF (SAN DIEGO) INCORPORATED, a
Colorado corporation
By: /s/ J.D. Finley
----------------------------------
J.D. Finley
Vice President
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<PAGE>
MANAGER:
METROGOLF MANAGEMENT, INC., a Colorado
corporation
By: /s/ J.D. Finley
-----------------------------------
J.D. Finley
Vice President
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 15th day of
August, 1996, by J.D. Finley, as Vice President of Metrogolf (San Diego)
Incorporated, a Colorado corporation.
WITNESS my hand and official seal.
My commission expires: MY COMMISSION EXPIRES DEC. 15, 1998
410 17TH ST., 22ND FLOOR
DENVER, COLORADO 80202
/s/ signature illegible
------------------------------------
Notary Public
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 15th day of
August, 1996, by J.D. Finley, as Vice President of Metrogolf Management, Inc., a
Colorado corporation.
WITNESS my hand and official seal.
My commission expires: MY COMMISSION EXPIRES DEC. 15, 1998
410 17TH ST., 22ND FLOOR
DENVER, COLORADO 80202
/s/ signature illegible
---------------------------------------
Notary Public
15
<PAGE>
HARBORSIDE GOLF CENTER
MANAGEMENT AGREEMENT
THIS AGREEMENT is made as of this 1st day of July, 1996, by and between
METROGOLF MANAGEMENT, INC., a Colorado corporation ("MGM"), having an address of
1700 Broadway, Suite 1900, Denver, Colorado 80290, and METROGOLF (SAN DIEGO)
INCORPORATED, a Colorado corporation ("Owner") having an address of c/o
MetroGolf Incorporated, 1999 Broadway, Suite 2435, Denver, Colorado 80202.
WHEREAS, Owner subleases premises consisting of a clubhouse, a double-
tiered, double-ended driving range and related recreational facilities located
in San Diego, California, known as the Harborside Golf Center (the "Facility");
WHEREAS, MGM is in the business of managing golf courses and clubs; and
WHEREAS, Owner desires to engage MGM to manage the Facility;
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties contained herein, it is mutually agreed as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
July 1, 1996, (the "Effective Date") and shall expire on June 30, 1997, unless
earlier terminated pursuant to Paragraph 7 hereof.
2. MANAGEMENT SERVICES. Owner agrees that MGM shall, during the term of
the Agreement and subject to the terms of this Agreement, have the sole and
exclusive right to manage the Facility as an independent contractor pursuant to
the terms of this Agreement. Owner agrees that it will cooperate reasonably
with MGM to permit MGM to carry out its duties under this Agreement. MGM shall
have the responsibility for providing and the authority to provide the general
operational management services for the Facility, including, without limitation,
the following services, subject to Owner's continuing performance of its
obligations hereunder:
A. MGM shall, at the expense of the Facility, recruit, employ, and
supervise all personnel necessary to provide services at the Facility
as may be contemplated by the Annual Budget and Program (as
hereinafter defined) including, but not limited to a full-time, on-
site general manager. The cost of all on-site personnel will be an
expense of the Facility. Additionally, if it becomes necessary to
move accounting personnel off-site, the cost of such off-site office
space shall be an
<PAGE>
expense of the Facility in accordance with a budget approved by the
Owner.
B. MGM shall, at the expense of the Facility, obtain (in accordance
with the Annual Budget and Program) merchandise for the pro shop, if
any, at the Facility.
C. MGM shall supervise and operate on behalf of Owner, as
applicable, the practice range, pro shop, food and beverage, golf
schools, teaching programs and other ancillary services at the
Facility.
D. MGM shall develop a list of required equipment and a
purchase/lease schedule and maintain in good working condition and
order the physical plant and equipment at the Facility, including all
physical structures which are part of the Facility, and all vehicles
and other maintenance equipment necessary to the maintenance and
operation of the Facility in the normal course of business.
E. MGM shall, at no additional charge to Owner other than
reimbursement of reasonable out-of-pocket travel-related expenses,
make its staff available to Owner upon request for consultation
regarding the Facility, including, as applicable, but not limited to,
operating procedures, agronomy, golf shop and food and beverage
service, management and operation, capital improvements (exclusive of
the services described in Paragraph 6B as being services not included
in MGM's normal duties), driving range operation, clubhouse space
utilization and operations, and fee structure.
F. MGM shall recommend a schedule of prices and fees for Facility
products and services for Owner's approval and design and implement
such special events and marketing strategies, such as golf programs,
exhibitions and clinics, as it may deem appropriate to promote the
Facility.
G. MGM shall provide the following budgeting, bookkeeping and
reporting services to Owner (it being understood that copies of all
books and records shall be kept at the Facility or other agreed upon
location):
a. MGM shall prepare and deliver to the Owner and its designees
in accordance with its own procedures and formats regular
monthly and annual operating statements which shall include,
without limitation, comments regarding each monthly and
annual report and
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<PAGE>
such other items as Owner may reasonable request. As part
of its management responsibilities, MGM will assign a
regional controller to review all accounting work.
Monthly operating statements shall be furnished to Owner and
its designees by the 15th day following the last day of each
month; and annual operating statements shall be furnished by
the 30th day following the last day of each calendar year.
b. MGM shall prepare and deliver to Owner prior to September 1,
1996 (i) an annual operating budget, including a projection
of anticipated monthly revenues and expenses and cash flows
for the Facility for the following calendar year including,
without limitation, a reasonable contingency and anticipated
working capital requirements over the course of the year,
(ii) a capital improvements budget for the next calendar
year, (iii) if applicable, a corporate and individual
membership program, (iv) if applicable, a hotel package
program and (v) a general marketing and operational program
with respect to the Facility including, without limitation,
operating policies, standards for operations and quality of
service standards (collectively, the "Annual Budget and
Program"). MGM and Owner shall use their mutual best
efforts to agree upon the Annual Budget and Program for the
following year on or before calendar year end. Each party
may from time to time propose to the other party during the
course of the year such changes or amendments to the Annual
Budget and Program as such party may consider necessary or
appropriate and MGM and Owner shall use their mutual best
efforts to agree upon such changes or amendments within
thirty (30) days after such proposal is made. Any approved
modifications shall be in writing. MGM shall obtain prior
approval for contracts in excess of $10,000 or 12 months in
duration. MGM shall secure the approval of Owner for
expenditures in excess of 110% of any expense line item in
the Annual Budget, except for emergencies.
c. MGM shall establish, administer, and maintain the payroll
procedure and systems for the MGM
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employees at the Facility and shall be responsible for
providing benefits to, and handling the appropriate payroll
deductions for, individual employees. All personnel shall
be employees of MGM. Benefits will include vacations, sick
leave, and such additional benefits as MGM may reasonably
deem in its discretion appropriate for the employees.
H. MGM shall, at Owner's request, at the end of each calendar month
remit directly to Owner all amounts then in the Working Capital
Account (as hereinafter defined) in excess of the Minimum Funds
Balance (as hereinafter defined) by wire transfer to said account as
Owner may from time to time designate by written notice to MGM .
MGM shall pay all operating expenses for the Facility on behalf of
Owner from the Working Capital Account which expenses shall include,
but not be limited to, payments of any debt service, leasehold
obligations, personal property taxes, payroll and related expenses,
management fees, and operating expenses.
Owner shall maintain resources to cover shortfalls in winter months.
I. MGM shall regularly consult with the Owner regarding the Facility
and its operations.
3. WORKING CAPITAL. Owner shall have the ongoing responsibility to
provide all necessary funding of the working capital requirements of the
Facility as set forth in the Annual Budget and Program then in effect. At the
commencement of this Agreement, Owner shall establish a business checking
account for the Facility (the "Working Capital Account") and delegate exclusive
control over such Working Capital Account to MGM subject to its use being in
compliance with the Annual Budget and Program. Owner agrees to maintain
adequate reserves based on the Annual Budget and Program so as to maintain
operations throughout the term of this Agreement. Whenever the funds balance in
the Working Capital Account is less than the minimum funds needed to maintain
operations, Owner shall, within ten (10) business days after being notified
thereof by MGM, deposit into the Working Capital Account such additional funds
as will restore the account to the amount necessary; provided that upon
cancellation or termination of this Agreement for any reason or upon the
occurrence of a material default by MGM the delegation of control over such
Working Capital Account to MGM shall be immediately revoked and all funds in the
Working Capital Account shall be immediately paid over to Owner by MGM.
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<PAGE>
4. INSURANCE. MGM shall negotiate, secure and at all times maintain
liability, property damage and other insurance for the Facility in such amounts
and through agents and with underwriters reasonably acceptable to Owner and in
compliance with Owner's sublease. Owner shall be liable for the payment of the
premiums of said insurance for so long as Owner shall own or operate the
Facility during the term of this Agreement. Such policies shall name MGM,
Owner, and its landlord as co-insured under such policies. All insurance
policies required hereunder shall contain a provision requiring the insurer to
notify MGM, Owner and its landlord at least thirty (30) days in advance of any
cancellation or termination of such policy and satisfactory waiver of
subrogation provisions. MGM shall be responsible for securing and maintaining
all of the insurance policies required hereunder, provided, however that MGM
shall have no obligation to pay such premiums from its own funds. If MGM
secures such insurance as a part of any blanket policy the premiums attributable
to the Facility shall be determined by making a reasonable allocation based on
the relation of the amount of insurance carried for the Facility to the total
policy amount. The liability insurance must have a minimum limit of [TEN
MILLION DOLLARS ($10,000,000)] and the property damage insurance shall be
written on a full replacement cost basis and otherwise in accordance with the
requirements of Owner and its landlord. The premiums for any such policies
shall be paid from the working capital to be provided by Owner pursuant to
Paragraph 3 hereof and in accordance with the Annual Budget and Program, or by
Owner in the event there is insufficient working capital available.
5. COMPENSATION AND FEES. For its services hereunder, MGM shall be
entitled to a base fee (the "Base Fee") of $5,000.00 per month with respect to
each month during the term of this Agreement payable on the first day of each
such month.
6. CAPITAL EXPENDITURES.
A. Capital improvements shall be deemed to include any item
purchased in connection with the operation of the Facility which:
a. has an economic useful life in excess of one (1) year; and
b. costs in excess of Ten Thousand Dollars ($10,000).
All costs for capital improvements shall be the responsibility of
Owner and all decisions as to whether or not to undertake any capital
improvements projects or otherwise in respect of any capital
improvements shall be made by the Owner.
5
<PAGE>
B. MGM shall (except in the case of supervision of repair and
replacements made in the normal course which shall be a part of MGM's
regular duties under this Agreement) upon the request of Owner perform
construction supervision over the capital development or capital
improvement to the Facility, its related facilities or the land upon
which they are erected, provided, however, that prior to performing
such services the parties shall have agreed to the amount of
additional compensation to be paid to MGM for said services as well as
the scope of the additional services. Notwithstanding the foregoing,
MGM shall, as a part of its regular duties, but without the obligation
to supervise the capital improvement project in question, review with
Owner, solely in its capacity as manager of the Facility, the design
and construction of such capital improvement projects and alert Owner
to any problems or defects of which it becomes aware.
7. CANCELLATION.
A. Either party may immediately cancel this Agreement by delivering
written notice thereof to the other if the other becomes insolvent,
makes an assignment for the benefit of its creditors, or becomes a
party for more than sixty (60) days to any voluntary or involuntary
insolvency proceeding or bankruptcy under any state statute or
reorganization.
B. Either party may unilaterally cancel this Agreement at any time
upon sixty (60) days prior written notice to the other in the event of
a default hereunder.
C. Upon 30 days notice from Owner, in the event of sale or other
transfer of the Facility, Owner shall have the unilateral right to
cancel this Agreement without penalty.
D. Upon ninety (90) days' written notice given to MGM and payment of
a termination fee equal to $30,000.00 on the effective date of
termination, Owner may terminate this Agreement.
E. Upon termination of Owner's sublease for the Facility, this
Agreement shall terminate.
In the event of termination, MGM shall be paid all deferred fees with
interest due hereunder on the effective date of termination.
6
<PAGE>
8. DEFAULT.
A. Subject to the grace periods provided in paragraph 9A below,
Owner shall be in material default of this Agreement if it:
a. fails to timely pay MGM any fees, compensation or
reimbursement due MGM pursuant to this Agreement;
b. fails to provide working capital in accordance with
Paragraph 3 hereof; or
c. breaches any other material provision of this Agreement.
B. Subject to the grace periods provided in paragraph 9A below, MGM
shall be in material default of this Agreement if it:
a. commits waste upon the Facility or fails to maintain in good
working order any material improvements or component of the
Facility;
b. fails to maintain the amenities of the Facility in
reasonably good condition, subject to the abnormal weather
conditions, acts of God, or other events or conditions
beyond the reasonable control of MGM;
c. breaches any other material provision of this Agreement or
fails to provide customary management services to operate
the Facility on a first class basis and to use its best
efforts to maintain and maximize profitability.
9. REMEDIES FOR DEFAULT.
A. When either party to this Agreement believes that the other party
(the "Defaulting Party") is in material default of this Agreement, it
shall give written notice thereof to the Defaulting Party, and the
Defaulting Party shall have ten (10) days in the event of a payment
default by either party, or such longer period (not to exceed a period
of 30 days) as shall be reasonably necessary due to weather, growing
conditions, or other factors beyond the reasonable control of the
Defaulting Party, within which to cure the default.
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<PAGE>
If the Defaulting Party does not cure the default in a timely manner,
the other party may terminate this Agreement by delivering written
notice thereof to the Defaulting Party, in which case this Agreement
shall terminate as of the date of such notice. Upon such termination,
in addition to any applicable provisions under this Agreement or
available remedies at law or in equity, the parties shall pay each
other any amounts described in Paragraph 5 hereof which have accrued
through the date of such termination subject to any offsets which may
exist and the determination of any arbitration regarding the default
in question.
B. In addition to the provisions of Paragraph 9A above, and the
other cancellation and termination rights set forth in this Agreement,
the non-defaulting party shall be entitled to all other rights and
remedies available at law or in equity.
10. USE OF FACILITY. During the term of this Agreement, the Facility
shall be open to the public and operated on a selected daily fee basis unless
otherwise provided and agreed to in the Annual Budget and Program.
11. LIQUOR LICENSE. Subject to any relevant California Alcoholic Beverage
Control ("ABC") licensing requirements, Owner shall maintain at all times
(except for the application period) a valid liquor license on the premises and
MGM shall use its best efforts to comply with all relevant ABC laws regarding
the use of such license. MGM may engage a separate entity to apply for and hold
a liquor license, and operate such on the premises under a separate management
agreement.
12. FORCE MAJEURE; FIRE AND OTHER CASUALTY. If all or any portion of the
Facility is destroyed by fire or other casualty, such damage or destruction
shall not be a cause for termination hereunder by either party unless such
damage or destruction results in the whole or a substantial part of the Facility
being unusable for its intended purpose for a period of six months or longer or,
in the case of such total or substantial damage or destruction that Owner shall
decide not to rebuild, then in either such event, this Agreement shall terminate
on notice from Owner to MGM of such termination and neither party shall have any
further rights or obligations hereunder provided that MGM shall be paid all of
its accrued and deferred fees upon termination.
13. INDEMNIFICATION.
A. Owner agrees to indemnify and hold harmless MGM, its officers,
directors and employees from and against any and all losses, claims,
damages, expenses, or liabilities
8
<PAGE>
(or actions in respect thereof) which arise out of or are based upon,
directly or indirectly, the performance of its duties pursuant to the
terms of this Agreement or result from any violation or omissions on
their part of any agreement or undertaking set forth herein except for
items of breach of the Agreement or negligence or willful misconduct
on the part of MGM. Expenses shall include any legal or other
expenses reasonable incurred by MGM, its officers, directors and
employees in connection with investigating or defending any such loss,
claim, damage, liability or action.
B. Promptly after receipt by MGM or its officers, directors and
employees under this Paragraph 13 of notice of the commencement of any
action against such party, such indemnified party will, if a claim in
respect thereof is to be made against Owner under this Paragraph 13,
notify Owner of the commencement thereof within 14 days after receipt
by the indemnified party of notice of the commencement of any action
against such party. An omission to so notify will relieve Owner from
any liability which it may have to an indemnified party under this
Paragraph 13 if such omission impairs Owner's ability to defend or
minimize exposure. In case any such action is brought against any
indemnified party, and it notifies Owner of the commencement thereof,
Owner will be entitled to participate in and, to the extent that it
may wish, assume the defense of such action, with counsel satisfactory
to such indemnified party. Upon notice of their election to assume
the defense of such action, Owner will not be liable to such
indemnified party under this Paragraph 13 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of
investigation, unless incurred at the request or with the consent of
Owner.
C. The agreements contained in this Paragraph 13 and the
representations, warranties and covenants made by Owner in this
Agreement, as set forth above, shall remain operative and in full
force and effect regardless of:
a. any investigation made by or on behalf of any person
indemnified;
b. a sale or other transfer of the ownership of the Facility;
c. termination of this Agreement pursuant to Paragraph 8 and/or
9 above; or
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<PAGE>
d. cancellation of this Agreement pursuant to Paragraph 7
above.
14. GENERAL PROVISIONS.
A. This Agreement represents the entire understanding and agreement
between the parties with respect to the subject matter hereof, and
supersedes all other negotiations, understandings, and representations
(if any) made by and between such parties.
B. The provisions of this Agreement may only be amended or
supplemented in a writing signed by both parties.
C. Neither party may assign its rights and/or obligations hereunder
without the prior written consent of the other party.
D. The parties hereby agree from time to time to execute and deliver
such further and other instruments and documents, and do all such
other acts and things which may be convenient or necessary to more
effectively and completely carry out the intentions of the Agreement.
E. Subject to any problem which may be encountered due to the
circumstances arising from the prior operation of the Facility, MGM
shall endeavor at all times operate, use, and conduct the business of
the Facility in a lawful manner and in full compliance with all
applicable governmental laws, ordinances, rules and regulations, and
maintain all licenses and permits relating to the Facility, with
Owner's full cooperation, in full force and effect and cooperate and
endeavor to obtain all licenses and permits first required after the
commencement of the term of this Agreement required in connection with
the management, use, and operation of the Facility.
F. All of the terms and provisions of this Agreement shall be
binding and inure to the benefit of the parties and their respective
permitted successors and assigns provided that this Agreement is not
assignable by either party without the prior written consent of the
other party. This Agreement is solely for the benefit of the parties
hereto and not for the benefit of any third party, provided, however,
a sale, lease, or other transfer of the Facility by Owner shall not
terminate this Agreement and the purchaser and/or assignee of Owner
shall be bound by the provisions hereof, in which event (excluding the
lease of the Facility) Owner shall be released from all liability
hereunder except for
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<PAGE>
obligations accruing prior to said sale, lease or transfer payment of
accrued fees and Paragraph 13 hereof.
G. All notices, request, consents and other communications required
or permitted under this Agreement shall be in writing and shall be
deemed to have been given:
a. when delivered, if hand delivered; or
b. One (1) business day after deposit with a reputable
overnight courier marked for "next business day" delivery;
or
c. upon receipt, if sent by telefacsimile, provided that an
original thereof is thereafter sent in the manner provided
above, and shall be addressed as follows:
In the case of MGM:
MetroGolf Management, Inc.
1700 Broadway, Suite 1900
Denver, Colorado 80290
Attn: Anthony A. Suttile
Telephone: (303) 294-9300
Facsimile: (303) 294-9360
In the case of Owner:
MetroGolf (San Diego) Incorporated
c/o MetroGolf Incorporated
1999 Broadway, Suite 2435
Denver, Colorado 80202
Attention: Charles D. Tourtellotte
Telephone: (303) 294-9300
Telefacsimile: (303) 294-9360
or to such other address as either party may designate by
notice complying with the terms of this subparagraph.
H. The headings contained this Agreement are for convenience of
reference only, and shall not limit or otherwise affect in any way the
meaning or interpretation of this Agreement.
I. If any provision of this Agreement or any other agreement entered
into pursuant hereto is contrary to, prohibited by or deemed invalid
or unenforceable under, applicable law or regulation, such provision
shall be
11
<PAGE>
inapplicable and deemed omitted to the extent so contrary, prohibited,
invalid or unenforceable, but the remainder of such provision and this
Agreement shall not be invalidated or rendered unenforceable thereby,
and shall be given full force and effect so far as possible.
J. The failure or delay of either party at any time to require
performance by the other party of any provision of this Agreement
shall not affect the right of such party to subsequently require
performance of that provision or to exercise any right, power or
remedy hereunder. Waiver by either party of a breach of any provision
of this Agreement shall not be construed as a waiver of any continuing
or succeeding breach of such provision, a waiver of the provision
itself, or a waiver of any right, power or remedy under this
Agreement. No notice to or demand on either party in any event shall,
of itself, entitle such party to any other or further notice or demand
in similar or other circumstances, except as otherwise herein
provided.
K. This Agreement and all transactions contemplated hereunder shall
be governed by, construed, and enforced in accordance with, the laws
of the state of Colorado, without regard to its conflicts of law
provisions.
L. Nothing in this Agreement shall be construed to create a
partnership or joint venture between the parties. The parties
acknowledge that the relationship of MGM to Owner is that of an
independent contractor.
M. No remedy herein conferred upon either party is intended to be
exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity.
N. Each party hereby represents to the other party that it has the
right, power, authority, and financial ability to enter into this
Agreement and to perform its obligations under this Agreement, and
that it is not restricted by contract or otherwise from entering into
and performing this Agreement. In addition to all other remedies
available hereunder or at law or in equity, each party hereby agrees
to defend, indemnify and hold the other harmless against and from any
and all costs, damages, claims, and expenses (including, without
limitation, all reasonable attorneys' fees and expenses) incurred by
the indemnitee as a result of or relating to the breach of any
provision of this Agreement by the indemnitor.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
OWNER:
METROGOLF (SAN DIEGO) INCORPORATED, a
Colorado corporation
By: /s/ J.D. Finley
--------------------------------
J.D. Finley
Vice President
MANAGER:
METROGOLF MANAGEMENT, INC., a Colorado
corporation
By: /s/ J.D. Finley
---------------------------------
J.D. Finley
Vice President
STATE OF Colorado )
) ss.
City and COUNTY OF Denver)
The foregoing instrument was acknowledged before me this 15th day of
August, 1996, by J.D. Finley, as Vice President of Metrogolf (San Diego)
Incorporated, a Colorado corporation.
WITNESS my hand and official seal.
My commission expires: MY COMMISSION EXPIRES DEC. 15, 1998
410 17TH ST., 22ND FLOOR
DENVER, COLORADO 80202
/s/ signature illegible
--------------------------------------
Notary Public
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<PAGE>
STATE OF Colorado )
) ss.
City and COUNTY OF Denver)
The foregoing instrument was acknowledged before me this 15th day of
August, 1996, by J.D. Finley, as Vice President of Metrogolf Management, Inc., a
Colorado corporation.
WITNESS my hand and official seal.
My commission expires: MY COMMISSION EXPIRES DEC. 15, 1998
410 17TH ST., 22ND FLOOR
DENVER, COLORADO 80202
/s/ signature illegible
-------------------------------------------
Notary Public
14
<PAGE>
EXHIBIT 1
FORM OF NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), THE SECURITIES LAWS OF THE STATE OF
COLORADO OR THE SECURITIES LAWS OF ANY OTHER STATE. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, OR (C) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO THIS CLAUSE (C)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO THE COMPANY. THIS LEGEND REPRESENTS A
RESTRICTION ON TRANSFERABILITY OF THIS SECURITY.
NOTICE TO CONNECTICUT RESIDENTS
THIS SECURITY HAS NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT SECURITIES LAW AND BUSINESS OPPORTUNITY INVESTMENT ACT, AND
THEREFORE, CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR UNLESS
AND EXEMPTION FROM REGISTRATION IS AVAILABLE.
NOTICE TO GEORGIA RESIDENTS
THIS SECURITY HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
TO THE EXTENT ANY SECURITY ISSUED UPON CONVERSION HEREOF IS NOT
REGISTERED UNDER THE SECURITIES ACT, SUCH SECURITY WILL BEAR LEGENDS
SUBSTANTIALLY SIMILAR TO THOSE ABOVE
<PAGE>
THE VINTAGE GROUP USA, LTD.
6% CONVERTIBLE SUBORDINATED NOTE
$_________ , 1996
The Vintage Group USA, Ltd., a Colorado corporation (hereinafter
referred to as the "Company"), for value received, hereby promises to pay to
_______________, at the address designated below, or to its successors and
assigns (hereinafter referred to as "Holder"), the principal sum of
_____________ Dollars ($________) in lawful money of the United States of
America, plus simple interest (computed on the basis of actual days elapsed,
divided by 360) on the unpaid principal balance of this Note at an annual
rate of twelve percent (6%) until maturity. The Company agrees to pay
interest on overdue principal, and (to the extent legally enforceable) on any
overdue installment of interest, at the rate of 9% per annum after the due
date, whether by acceleration or otherwise, until paid. The principal amount
of this Note shall be due and payable on June 1, 2005. Accrued interest
shall be payable semi-annually on June 1 and December 1 of each year,
commencing on ____________________, 1996; provided, however, that interest
only will be payable for the first 24 months. Thereafter, interest will
continue to be paid semi-annually and principal will be amortized evenly over
the remaining seven years to maturity.
Both the principal hereof and interest hereon are payable in coin or
currency of the United States of America that at the time of payment shall be
legal tender for the payment of public and private debts.
This Note may be declared due prior to its expressed maturity date on
the terms and in the manner provided herein. This Note is not subject to
prepayment or redemption at the option of the Company prior to its expressed
maturity date except on the terms and conditions set forth herein.
This Note will be a general unsecured obligation of the Company payable
on a PARI PASSU basis with all other general unsecured indebtedness of the
Company. This Note is effectively subordinate to all secured debt of the
Company.
DEFINITIONS. In addition to other capitalized terms defined elsewhere
in this Note, the following terms shall have the respective meanings set
forth below:
"Affiliate" shall mean any person (other than a Subsidiary) (a) that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company, (b) that
beneficially owns or holds 5% or more of any class of the Common Stock of the
Company, or (c) 5% or more of the Common Stock (or, in the case of a person
that
2
<PAGE>
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary.
"Common Stock" shall mean the common stock, no par value, of the Company.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default, as defined in Section 8 hereof.
"Holder" shall mean the registered holder hereof as reflected on the
books of the Company.
"Initial Public Offering" or "IPO" shall mean the first underwritten
public offering of Common Stock made pursuant to a registration statement
filed by the Company with, and declared effective by, the Securities and
Exchange Commission in accordance with the Securities Act.
"IPO Price" shall mean the price per share of Common Stock at which the
Common Stock is offered pursuant to an Initial Public Offering.
"Market Price of the Common Stock" shall mean (i) if the Common Stock is
listed on the New York Stock Exchange, the American Stock Exchange or another
securities exchange designated by the Company's Board of Directors, or if the
Common Stock is quoted on a National Association of Securities Dealers, Inc.
system that reports closing prices, the average closing price of the Common
Stock as reported by THE WALL STREET JOURNAL for the previous five trading
days from the date the price is to be determined, or, if no such price is
reported for any of such days, then the average closing price of the Common
Stock calculated as of the last immediately preceding 20 trading days on
which the closing price is so reported; or (ii) if the Common Stock is not so
listed or admitted to unlisted trading privileges or so quoted, the average
of the last reported highest bid and lowest asked prices for the previous 20
trading days as quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System; or (iii) if the Common Stock is not so
listed or admitted to unlisted trading privileges or so quoted, and bid and
asked prices are not reported, such price as is determined in a reasonable
manner by the Board of Directors.
"Subsidiary" shall mean, as to the Company, any corporation of which
more than 50% (by number of votes) of the voting stock shall be beneficially
owned, directly or indirectly, by the Company or a another Subsidiary of the
Company or any other person or entity (other than a corporation) in which the
Company or a Subsidiary of the Company directly or indirectly, at the date of
determination thereof, has at least a majority ownership interest.
1. PREPAYMENT. Upon fifteen days' prior written notice to a
Holder, the Company may prepay in cash all or any part of the principal
amount of such Holder's Note, together with accrued and unpaid interest
thereon, but without payment of any penalty or
3
<PAGE>
premium, at any time or from time to time, commencing 13 months after the
date a registration statement for an Initial Public Offering has been
declared effective by the Securities and Exchange Commission (or such shorter
time as is agreed to by the underwriter for the IPO) provided the shares
issuable upon conversion will be registered under the Securities Act),
provided that the Market Price of the Common Stock has been equal to or
greater than 125% of the IPO Price prior to the date of delivery of the
notice from the Company to the Holders. Notwithstanding the foregoing, a
Holder shall have the right to convert such Holder's Note in accordance with
Section 6 hereof during the 15-day notice period. Any partial prepayment
made by the Company pursuant to this Section 1 shall be applied first to the
payment of accrued interest and then to the unpaid principal installments in
the inverse order of maturity.
2. CONVERSION RIGHTS. The Notes shall be convertible, in whole or
in part, into:
(i) a warrant (as in the form attached hereto as Exhibit A) to
purchase 2,500 shares of Common Stock for each $25,000 principal amount of
Convertible Notes at an exercise price equal to 120% of the IPO Price, and
(ii) fully paid and nonassessable shares of Common Stock, at the
option of a Holder, upon the following terms:
(a) A Holder may exercise its right of conversion at any time
after the date that is 13 months after the closing of the IPO and prior to
the full payment by the Company of the principal balance of the Note.
(b) The Company shall not be required to issue any fraction of a
share of Common Stock or scrip representing a fraction of a share of Common
Stock upon any conversion of this Note. The Company may make a cash
adjustment in lieu of any such fraction of a share which otherwise would be
issuable upon such conversion.
(c) The "Conversion Price" at which the Notes may be converted
shall be at the rate of such number of shares of Common Stock as shall
equal the principal of the Note being converted, plus accrued and unpaid
interest thereon, divided by the IPO Price.
(d) The Conversion Price shall be subject to adjustment from
time to time as hereinafter provided in this subparagraph 2(d).
(i) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or substantially
all of its assets to another corporation shall be effected in such a
way that holders of the Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for such
Common Stock, then, as a condition of such reorganization,
4
<PAGE>
reclassification, consolidation, merger or sale, each Holder shall
have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Note and in lieu of the shares
of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby,
such shares of stock, other securities or assets as would have been
issued or delivered to such Holder if such Holder had exercised the
conversion rights set forth in this Section 2 and had received such
shares of Common Stock prior to such reorganization, reclassification,
consolidation, merger or sale. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the Holder at the last address of such Holder appearing on
the books of the Company, the obligation to deliver to such Holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase.
(ii) If the Company takes any other action, or if any other
event occurs, which does not come within the scope of the provisions
of subparagraph 2(d)(i), but which should result in an adjustment in
the conversion price and/or the number of shares subject to the
conversion rights of the Notes in order to fairly protect the
conversion rights of the Holders, an appropriate adjustment in such
conversion rights shall be made by the Company, but no adjustment
shall be required upon the issuance of any capital stock of the
Company for the "Fair Market Value," which shall mean (i) if the
capital stock is listed on the New York Stock Exchange, the American
Stock Exchange or another securities exchange designated by the
Company's Board of Directors, or if the capital stock is quoted on a
National Association of Securities Dealers, Inc. system that reports
closing prices, the average closing price of the capital stock as
reported by THE WALL STREET JOURNAL for the previous five trading days
from the date the price is to be determined, or, if no such price is
reported for any of such days, then the average closing price of the
capital stock calculated as of the last immediately preceding five
trading days on which the closing price is so reported; or (ii) if the
capital stock is not so listed or admitted to unlisted trading
privileges or so quoted, the average of the last reported highest bid
and lowest asked prices for the previous five trading days as quoted
on the National Association of Securities Dealers, Inc. Automated
Quotation System; or (iii) if the capital stock is not so listed or
admitted to unlisted trading privileges or so quoted, and bid and
asked prices are not reported, such price as is determined by the
Board of Directors, acting in its reasonable discretion, to be the
fair market value of such capital stock.
(e) To convert a Note into shares of Common Stock, a Holder
shall (i) surrender this Note at the principal office of the Company, duly
endorsed in blank,
5
<PAGE>
and (ii) give written notice to the Company that it elects to convert all,
or any part of, this Note, which notice shall specify the portion hereof to
be converted. As promptly as possible thereafter, the Company shall issue
and deliver to such Holder certificates representing the number of its
shares of Common Stock into which such Holder's Note has been converted.
Thereupon, this Note, or the portion thereof converted, shall be deemed to
have been satisfied and discharged, and the shares of Common Stock into
which this Note shall be so converted shall be fully paid and nonassessable
shares. In the event the Note has not been converted in full, the Company
shall issue and deliver to the converting Holder a new Note identical to
the one surrendered, except that it shall be in the reduced principal
amount giving effect to the partial conversion.
3. FINANCIAL STATEMENTS AND REPORTS. So long as any amount is
owing to Holders pursuant to the Notes, the Company shall keep proper books
of record and account in which full and correct entries shall be made of all
dealings or transactions of, or in relation to, the business and affairs of
the Company, in accordance with generally accepted accounting principles
("GAAP") consistently applied (except for changes disclosed in the financial
statements filed pursuant to the Securities Act and concurred in by the
Company's independent public accountants), and shall furnish to the Holders
quarterly and annual reports, including financial statements, filed pursuant
to the Securities Act.
4. EVENTS OF DEFAULT. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default in the payment of interest on the Notes when the
same shall have become due and such default shall have continued for a period
of 30 days; or
(b) Default in the making of any payment of the principal of
the Notes at the expressed or any accelerated maturity date or at any date
fixed for prepayment; or
(c) Default in the observance or performance of any covenant
or agreement contained in the Notes, provided that no Event of Default will
occur if the default is cured by the Company no later than 30 days after the
earlier of (i) the day on which the Company first obtains knowledge of such
default, or (ii) the day on which notice thereof is given to the Company by
the Holders of a majority of the principal amount of the Notes;
(d) A custodian, liquidator, trustee or receiver is appointed
for the Company or for the major part of its property and is not discharged
within 30 days after such appointment; or
(e) The Company becomes insolvent or bankrupt, is generally
not paying its debts as they become due or makes an assignment for the
benefit of creditors, or the Company applies for or consents to the
appointment of a custodian, liquidator, trustee or receiver for the Company
or for the major part of its property; or
6
<PAGE>
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar
law or laws for the benefit of debtors. are instituted by or against the
Company or any Subsidiary of the Company and, if instituted against the
Company or any Subsidiary of the Company, are consented to or are not
dismissed within 60 days after such institution.
5. REMEDIES.
(a) ACCELERATION OF MATURITIES. When an Event of Default has
occurred and is continuing, a Holder may, by notice to the Company, declare
the entire principal and all interest accrued on its Note to be, and such
Note shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. Thereupon, the Company shall forthwith pay to such
Holder the entire principal and interest accrued on its Note. No course of
dealing on an Holder's part nor any delay or failure on its part to exercise
any right will operate as a waiver of such right or otherwise prejudice
Holder's rights, powers and remedies. The Company also shall, to the extent
permitted by law, pay to a Holder all costs and expenses incurred by such
Holder in the collection of its Note upon any default hereunder, including
compensation to such Holder's attorneys for all services rendered in
connection therewith.
6. TRANSFER OF NOTE. By execution of this Note Agreement, Holder
agrees to give written notice to the Company before transferring any Note or
transferring any shares of the Common Stock issuable or issued upon the
exercise of such Note, describing briefly the manner of any proposed transfer
of the Note or Holder's intention as to the shares of Common Stock issued
upon the exercise thereof. Holder further agrees to offer, sell or otherwise
transfer such security, prior to the date which is three years after the
later of the original issue date hereof and the last date on which the
Company or any Affiliate of the Company was the owner of this security (or
any predecessor of such security), only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, or (c) pursuant to an available exemption from the registration
requirements of the Securities Act, subject to the Company's right prior to
any such offer, sale or transfer pursuant to this clause (c) to require the
delivery of an opinion of counsel, certification and/or other information
satisfactory to the Company. If such opinion of counsel, certification,
and/or other information is deemed satisfactory to the Company, in its sole
discretion, Holder shall be entitled to transfer its Note, or to exercise its
Note in accordance with the terms hereof and dispose of the shares received
upon such exercise or to dispose of shares of Common Stock received upon the
previous exercise of its Note, all in accordance with the terms of the notice
delivered by Holder to the Company, provided that an appropriate legend in
substantially the form required by the Company respecting the foregoing
restrictions on transfer and disposition may be endorsed on the Note or the
certificates for such shares.
7. REGISTRATION RIGHTS; COVENANT RE SALE OF COMMON STOCK. The
Company will file, and use its best efforts to cause to become effective on
or after the date that is 13 months from the date of the closing of the IPO
and to remain effective for one year, subject to
7
<PAGE>
Section 7(c) below, a registration statement covering the shares into which
the Notes may be converted.
(a) REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 11(a) to effect the registration of any
shares under the Securities Act, the Company shall:
(i) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement effective
for such period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months;
(iii) furnish to Holders such reasonable number of copies of
the registration statement, final prospectus and such other documents as
Holders may reasonably request in order to facilitate the public offering
of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the underwriters in
the IPO reasonably requested in connection with the IPO, except that the
Company shall not for any purpose be required to execute a general consent
to service of process or to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified; and
(v) prepare and promptly file with the Commission and
promptly notify Holders of the filing of any amendment or supplement to
such registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating to
such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading.
(b) EXPENSES. With respect to any registration of shares
pursuant to Section 7, the Company shall bear the following fees, costs and
expenses: all registration and other filing fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, all internal
Company expenses, the premiums and other costs of policies of insurance
8
<PAGE>
against liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue
sky laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants
for Holders, underwriting discounts and commissions and Transfer taxes for
Holders and any other expenses incurred by Holders not expressly included
above shall be borne by Holders.
(c) DELAY OR SUSPENSION OF REGISTRATION. The Company may
delay or suspend the effectiveness of any registration statement filed
pursuant to this Section 7 if such filing would require disclosure of a
material fact that the Company determines would have a material adverse
effect on any proposal or plan by the Company or any of its subsidiaries or
Affiliates to engage in any acquisition of assets or any merger,
consolidation, tender offer or other significant transaction; provided, that
any such delay or suspension shall not reduce the Company's obligation in
Section 7(a) to maintain the effectiveness of such registration statement for
a total period of one year.
(d) INDEMNIFICATION. In the event that any shares owned by
Holders are included in a registration statement under this Section 7:
(i) The Company shall indemnify and hold harmless Holders
(as defined in the Securities Act) from and against any and all loss,
damage, liability, cost and expense to which Holders may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission (i) so made in conformity with information furnished by Holders;
or (ii) in any preliminary prospectus, if a copy of an amended or
supplemented prospectus which, as amended or supplemented, would have cured
the defect giving rise to such loss, claim, damage, liability, cost or
expense, was not delivered by or on behalf of such Holder to the person
asserting the claim or action, if required by law to have been so delivered
by Holders, at or prior to the written confirmation of the sale of the
Common Stock.
(ii) Holders shall indemnify and hold harmless the Company
and any underwriter from and against any and all loss, damage, liability,
cost or expense to which the Company or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
9
<PAGE>
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in conformity with
information furnished by Holders.
(iii) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (i) or (ii) of this subsection of
notice of the commencement of any action involving the subject matter of
the foregoing indemnity provisions, such indemnified party shall, if a
claim thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (i) or (ii), promptly notify the indemnifying
party of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than hereunder. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified party
and the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on
behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (i) or (ii)
for any legal or other expense subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (B) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action, or (C) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
8. NOTICES. All demands and notices to be given hereunder shall be
delivered or sent by certified mail, return receipt requested; in the case of
the Company, addressed to its corporate headquarters, 1999 Broadway, Suite 2435,
Denver, Colorado 80202, until a new address shall have been substituted by like
notice; and in the case of a Holder, addressed to Holder at the address for the
Holder set forth in such Holder's Response Form, until a new address shall have
been substituted by like notice.
10
<PAGE>
9. MISCELLANEOUS.
(a) HOLDERS' CONSENT REQUIRED. Any term, covenant, agreement
or condition of this Note binding upon or to be performed or complied with by
the Company may be waived (either generally or in a particular instance and
either retroactively or prospectively) with the Holders' consent, which
consent may be given on behalf of all Holders by the Holders of a majority of
the principal amount of the Notes.
(b) LOSS, THEFT, ETC. OF NOTE. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
a Note and, if reasonably requested by the Company, a reasonable
indemnification by the Holder of such Note, the Company shall make and
deliver without expense to such Holder, a new Note, of like tenor and issue,
in lieu of such lost, stolen, destroyed or mutilated Note.
(c) POWERS AND RIGHTS NOT WAIVED. No delay or failure on the
part of a Holder in the exercise of any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of the Holders are cumulative to, and are
not exclusive of, any rights or remedies the Holders would otherwise have.
(d) SUCCESSORS AND ASSIGNS. This Note and the rights
evidenced hereby shall inure to the benefit of and be binding upon and the
successors and permitted assigns of the Company and the Holders.
(e) AMENDMENTS. This Note may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company
and the holders of a majority of the principal amount of the Notes.
(f) HEADINGS. The index and the descriptive headings of
sections of this Note are provided solely for convenience of reference and
shall not, for any purpose, be deemed a part of this Note.
(g) GOVERNING LAW. This Note and all matters concerning this
Note shall be governed by the laws of the State of Colorado for contracts
entered into and to be performed in such State, without regard to principles
of conflicts of laws.
Holder is registered on the books of the Company. This Note is
transferable only by surrender at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by
such Holder or Holder's attorney duly authorized in writing. Payment of or
on account of principal and interest on this Note shall be made only to or
upon the order in writing of such Holder.
The Company waives presentment, notice of dishonor and protest with
respect to any payment due under this Note.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer as of the date first above written.
THE VINTAGE GROUP USA, LTD.
By
------------------------------------
Charles D. Tourtellotte
President
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<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER
STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN VIOLATION
OF SUCH ACT OR LAW OR THE PROVISIONS OF THIS WARRANT.
ANY SECURITY ISSUABLE UPON THE EXERCISE HEREOF THAT IS NOT REGISTERED UNDER THE
ACT MAY BEAR A LEGEND SUBSTANTIALLY SIMILAR TO THE ABOVE LEGEND.
WARRANT
TO PURCHASE 2,500 SHARES OF
COMMON STOCK OF
THE VINTAGE GROUP USA, LTD.
THIS CERTIFIES THAT ________________ (the "Holder"), or its registered assigns,
is entitled to subscribe for and purchase from The Vintage Group USA, Ltd., a
Colorado corporation (the "Company"), at any time during the Exercise Period (as
defined below), 2,500 fully paid and nonassessable shares of the Common Stock of
the Company at a price per share equal to the 120% of the IPO Price (as defined
below), subject to the antidilution provisions, and to the provisions of
Section 9, of this Warrant. The shares which may be acquired upon exercise of
this Warrant are referred to herein as the "Warrant Shares."
The following capitalized terms shall have the respective meanings set
forth below:
"Common Stock" shall mean and include the Company's presently authorized
common stock, no par value, and shall also include any capital stock of any
class of the Company hereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up of the Company.
"Exercise Period" shall mean the period beginning on the day that is 13
months after consummation of the Initial Public Offering and ending five years
after consummation of the Initial Public Offering.
"Exercise Price" shall mean 120% of IPO Price.
"Holder" shall mean the holder of this Warrant on the books of the Company,
any party who acquires all or a part of this Warrant as a registered transferee
of the Holder, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant.
<PAGE>
"Initial Public Offering" or "IPO" shall mean the first underwritten public
offering of Common Stock made pursuant to a registration statement filed by the
Company with, and declared effective by, the Securities and Exchange Commission
in accordance with the Securities Act of 1933, as amended (the "1933 Act").
"IPO Price" shall mean the price per share of Common Stock at which the
Common Stock is offered pursuant to an Initial Public Offering.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), by written notice of exercise (in the form attached hereto)
delivered to the Company at the principal office of the Company prior to
the expiration of this Warrant and accompanied or preceded by the surrender
of this Warrant along with a check in payment of the Exercise Price for
such shares or without payment of cash pursuant to Section 9 hereof.
(b) Holder must give written notice to the Company before
transferring this Warrant or transferring any shares of the Common Stock
issuable or issued upon the exercise of such Warrant (if such shares are
not registered under the 1933 Act), describing briefly the manner of any
proposed transfer of the Warrant or Holder's intention as to the shares of
Common Stock issued upon the exercise thereof. Holder may offer, sell or
otherwise transfer this Warrant, prior to the date which is three years
after the later of the original issue date hereof and the last date on
which the Company or any Affiliate of the Company was the owner of this
security (or any predecessor of such security), only (a) to the Company,
(b) pursuant to a registration statement which has been declared effective
under the 1933 Act, or (c) pursuant to an available exemption from the
registration requirements of the 1933 Act, subject to the Company's right
prior to any such offer, sale or transfer pursuant to this clause (c) to
require the delivery of an opinion of counsel, certification and/or other
information satisfactory to the Company. If such opinion of counsel,
certification, and/or other information is deemed satisfactory to the
Company, in its sole discretion, Holder shall be entitled to transfer its
Warrant, or to exercise its Warrant in accordance with the terms hereof and
dispose of the shares received upon such exercise or to dispose of shares
of Common Stock received upon the previous exercise of its Warrant, all in
accordance with the terms of the notice delivered by Holder to the Company,
provided that an appropriate legend in substantially the form required by
the Company respecting the foregoing restrictions on transfer and
disposition may be endorsed on the Warrant or the certificates for such
shares.
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<PAGE>
2. EXCHANGE AND REPLACEMENT.
Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon
the surrender hereof by the Holder to the Company at its principal office for
new Warrants of like tenor representing in the aggregate the right to purchase
the number of Warrant Shares purchasable hereunder, each of such new Warrants to
represent the right to purchase such number of Warrant Shares (not to exceed the
aggregate total number purchasable hereunder) as shall be designated by the
Holder at the time of such surrender. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
this Warrant, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by
the Company upon the surrender hereof in connection with any exchange or
replacement. The Holder shall pay all expenses, taxes (including any stock
transfer taxes), and other charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as of the close
of business on the date on which this Warrant shall have been surrendered
and the payment made for such Warrant Shares as aforesaid. Subject to the
provisions of the next section, certificates for the Warrant Shares so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired, a new
Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised
shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of
this Warrant except in accordance with exemptions from the applicable
securities registration requirements or registrations under applicable
securities laws. Nothing herein, however, shall obligate the Company to
effect registrations under federal or state securities laws, except as
provided in Section 8.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees that all Warrant Shares will, upon
issuance, be duly authorized and issued, fully paid, nonassessable, and free
from all taxes, liens, and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issue or transfer upon
exercise
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<PAGE>
of the subscription rights evidenced by this Warrant a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented
this Warrant
5. ANTIDILUTION ADJUSTMENTS.
The provisions of this Warrant are subject to adjustment as provided
in this Section 5.
(a) The Exercise Price shall be adjusted from time to time such that
in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Exercise Price in effect immediately prior to
such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price determined by dividing (a) the
total number of shares of Common Stock outstanding immediately prior to
such event (including the maximum number of shares of Common Stock issuable
in respect of any securities convertible into Common Stock), multiplied by
the then existing Exercise Price, by (b) the total number of shares of
Common Stock outstanding immediately after such event (including the
maximum number of shares of Common Stock issuable in respect of any
securities convertible into Common Stock), and the resulting quotient shall
be the adjusted Exercise Price per share. An adjustment made pursuant to
this subsection shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or
more classes of capital stock or shares of Common Stock and other capital
stock of the Company, the Board of Directors of the Company (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock. All calculations
under this subsection shall be made to the nearest cent. In the event that
at any time as a result of an adjustment made pursuant to this subsection,
the holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive any shares of the Company other than shares of Common
Stock, the Exercise Price of such other shares so receivable upon exercise
of any Warrant shall be subject to adjustment from
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<PAGE>
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in
this Section.
(b) Upon each adjustment of the Exercise Price pursuant to Section
5(a) above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Exercise Price the
number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as
a result of all adjustments in the Exercise Price in effect prior to such
adjustment) by the Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), there shall be no
adjustment under subsection (a) of this Section above but the Holder of
each Warrant then outstanding shall have the right thereafter to convert
such Warrant into the kind and amount of shares of stock and other
securities and property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange,
sale, or conveyance had such Warrant been converted immediately prior to
the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders
of the Warrant, to the end that the provisions set forth in this Section
shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock and other securities and
property thereafter deliverable on the exercise of the Warrant. The
provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Exercise Price, then and in each such
case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the
Company, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such adjusted Exercise Price upon the exercise
of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
6. NO VOTING RIGHTS.
This Warrant shall not entitle the Holder to any voting rights or
other rights as a shareholder of the Company.
-5-
<PAGE>
7. FRACTIONAL SHARES.
Fractional shares shall not be issued upon the exercise of this
Warrant, but in any case where the Holder would, except for the provisions of
this Section, be entitled under the terms hereof to receive a fractional share,
the Company shall, upon the exercise of this Warrant for the largest number of
whole shares then called for, pay a sum in cash equal to the sum of (a) the
excess, if any, of the Market Price on the date of exercise of such fractional
share over the proportional part of the Exercise Price represented by such
fractional share, plus (b) the proportional part of the Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" as of a particular date with respect to shares of Common Stock of
any class or series means the last reported sale price on such date or, if none,
the average of the last reported closing bid and asked prices on any national
securities exchange or quoted in the National Association of Securities Dealers,
Inc.'s Automated Quotation System (Nasdaq), or if not listed on a national
securities exchange or quoted in Nasdaq, the average of the last reported
closing bid and asked prices as reported by Hanifen Imhoff, Inc., Denver,
Colorado.
8. REGISTRATION RIGHTS. The Company will file, and use its best
efforts to cause to become effective on or after the date that is 13 months from
the date of the closing of the IPO and to remain effective for one year, subject
to Section 8(c) below, a registration statement covering the shares issuable
upon exercise of this Warrant.
(a) REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 8 to effect the registration of any shares
under the 1933 Act, the Company shall:
(i) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months;
(ii) prepare and file with the Commission such
amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such
registration statement effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed twelve
(12) months;
(iii) furnish to Holders such reasonable number of
copies of the registration statement, final prospectus and such other
documents as Holders may reasonably request in order to facilitate the
public offering of such securities;
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<PAGE>
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the underwriters in
the IPO reasonably requested in connection with the IPO, except that the
Company shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified; and
(v) prepare and promptly file with the Commission and
promptly notify Holders of the filing of any amendment or supplement to
such registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the 1933 Act, any
event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances in which they
were made, not misleading.
(b) EXPENSES. With respect to any registration of shares
pursuant to Section 8, the Company shall bear the following fees, costs and
expenses: all registration and other filing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, all internal Company
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
Holders, underwriting discounts and commissions and transfer taxes for Holders
and any other expenses incurred by Holders not expressly included above shall be
borne by Holders.
(c) DELAY OR SUSPENSION OF REGISTRATION. The Company may delay
or suspend the effectiveness of any registration statement filed pursuant to
this Section 8 if such filing would require disclosure of a material fact that
the Company determines would have a material adverse effect on any proposal or
plan by the Company or any of its subsidiaries or Affiliates to engage in any
acquisition of assets or any merger, consolidation, tender offer or other
significant transaction; provided, that any such delay or suspension shall not
reduce the Company's obligation in Section 8 to maintain the effectiveness of
such registration statement for a total period of one year.
(d) INDEMNIFICATION. In the event that any shares owned by
Holders are included in a registration statement under this Section 8:
(i) The Company shall indemnify and hold harmless
Holders (as defined in the 1933 Act) from and against any and all loss,
damage, liability, cost and expense to which Holders may become subject
under the 1933 Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by
-7-
<PAGE>
any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, damage, liability, cost
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission (i) so made in
conformity with information furnished by Holders; or (ii) in any
preliminary prospectus, if a copy of an amended or supplemented
prospectus which, as amended or supplemented, would have cured the
defect giving rise to such loss, claim, damage, liability, cost or
expense, was not delivered by or on behalf of such Holder to the person
asserting the claim or action, if required by law to have been so
delivered by Holders, at or prior to the written confirmation of the
sale of the Common Stock.
(ii) Holders shall indemnify and hold harmless the
Company and any underwriter from and against any and all loss, damage,
liability, cost or expense to which the Company or any underwriter may
become subject under the 1933 Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue or alleged
untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in conformity
with information furnished by Holders.
(iii) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (i) or (ii) of this subsection
of notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party shall, if
a claim thereof is to be made against the indemnifying party pursuant to
the provisions of said paragraph (i) or (ii), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right
to select separate counsel to participate in the defense of such action
on behalf
-8-
<PAGE>
of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party pursuant to the provisions of said paragraph (i)
or (ii) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (A) the indemnified party
shall have employed counsel in accordance with the proviso of the
preceding sentence, (B) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action, or (C) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of
the indemnifying party.
9. ADDITIONAL RIGHT TO CONVERT WARRANT.
(a) The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into shares of Company
Common Stock as provided for in this Section 9. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any Exercise Price) that number of shares of Company
Common Stock equal to the quotient obtained by dividing (x) the value of
the Warrant at the time the Conversion Right is exercised (determined by
subtracting the Exercise Price for a Warrant Share in effect immediately
prior to the exercise of the Conversion Right from the Fair Market Value of
a Warrant Share immediately prior to the date of the exercise of the
Conversion Right and multiplying that number by the number of Warrant
Shares for which the Conversion Right is being exercised) by (y) the Fair
Market Value of a Warrant Share immediately prior to the exercise of the
Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to the expiration of the Warrant, on any
business day by delivering a written notice in the form attached hereto
(the "Conversion Notice") to the Company at the offices of the Company
stating that the Holder desires to exercise the Conversion Right and
specifying (i) the total number of shares with respect to which the
Conversion Right is being exercised and (ii) a place and date not less than
five or more than 20 business days from the date of the Conversion Notice
for the closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder (A) a
certificate or certificates for the number of shares of Company Common
Stock issuable upon such conversion, together with cash, in lieu of any
fraction of a share and (B) a new warrant representing the number of
shares, if any, with respect to which the Warrant shall not have been
exercised.
-9-
<PAGE>
(d) For purposes of this Section 9, Fair Market Value of a Warrant
Share as of a particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on Nasdaq, then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date, and
(ii) If the Company's Common Stock is not traded on an exchange
or on Nasdaq but is traded on the over-the-counter market, then the
average closing bid and asked prices reported for the ten (10)
business days immediately preceding the Determination Date.
IN WITNESS WHEREOF, The Vintage Group USA, Ltd. has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
______ __, 1996.
THE VINTAGE GROUP USA, LTD.
------------------------------------
By:
Its:
-10-
<PAGE>
THE VINTAGE GROUP USA, LTD.
WARRANT EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _______ shares of the Common Stock of The
Vintage Group USA, Ltd., to which such Warrant relates and herewith makes
payment of $____________ therefor in cash or by certified or cashier's check and
requests that the certificates for such shares be issued in the name of, and be
delivered to _______________________, whose address is set forth below the
signature of the undersigned. If said number of shares shall not be all the
shares purchasable under the Warrant, a new warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
Name of Warrant Holder:
-------------------------------
(Please print)
Address of Warrant Holder:
-------------------------------
-------------------------------
Tax Identification No. or Social Security
No. of Warrant Holder:
-------------------------------
Signature:
--------------------
NOTE: THE ABOVE SIGNATURE SHOULD CORRESPOND
EXACTLY WITH THE NAME OF THE WARRANT HOLDER
AS IT APPEARS ON THE FIRST PAGE OF THE
WARRANT OR ON A DULY EXECUTED WARRANT
ASSIGNMENT
Dated:
------------------------
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<PAGE>
THE VINTAGE GROUP USA, LTD.
WARRANT ASSIGNMENT
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________, the assignee, whose address is
_________________________________________________________, and whose tax
identification or social security number is _______________________, the
right represented by the foregoing Warrant to purchase _________ shares of
the Common Stock of The Vintage Group USA, Ltd., to which the foregoing
Warrant relates and appoints ________ attorney to transfer said right on the
books of The Vintage Group USA, Ltd., with full power of substitution in the
premises. If said number of shares shall not be all the shares purchasable
under the Warrant, a new warrant is to be issued in the name of the
undersigned for the balance remaining of the shares purchasable thereunder.
Name of Warrant Holder:
-------------------------------
(Please print)
Address of Warrant Holder:
-------------------------------
-------------------------------
Tax Identification No. or Social
Security No. of Warrant Holder:
-------------------------------
Signature
---------------------
NOTE: THE ABOVE SIGNATURE SHOULD CORRESPOND
EXACTLY WITH THE NAME OF THE WARRANT HOLDER
AS IT APPEARS ON THE FIRST PAGE OF THE
WARRANT OR ON A DULY EXECUTED WARRANT
ASSIGNMENT
Dated:
-------------------------
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<PAGE>
THE VINTAGE GROUP USA, LTD.
CONVERSION NOTICE
(TO BE EXECUTED ONLY UPON CONVERSION OF WARRANT PURSUANT TO SECTION 9)
The undersigned hereby irrevocably elects to exercise the Conversion Right
as provided for in Section 9 of the foregoing Warrant, with respect to _________
of the previously unexercised shares, which shall result pursuant to the
conversion provisions of Section 9 in the purchase thereunder of _____________
shares of Common Stock of The Vintage Group USA, Ltd., and herewith tenders the
Warrant in full payment for the purchased shares, as provided for in Section 9
of the foregoing Warrant. If said number of shares shall not be all the shares
purchasable under the Warrant, a new warrant is to be issued in the name of the
undersigned for the remaining balance of the unexercised shares.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share, to:
Name of Warrant Holder:
-------------------------------
(Please print)
Address of Warrant Holder:
-------------------------------
-------------------------------
Tax Identification No. or Social
Security No. of Warrant Holder:
-------------------------------
Signature
---------------------
NOTE: THE ABOVE SIGNATURE SHOULD CORRESPOND
EXACTLY WITH THE NAME OF THE WARRANT HOLDER
AS IT APPEARS ON THE FIRST PAGE OF THE
WARRANT OR ON A DULY EXECUTED WARRANT
ASSIGNMENT
Dated:
-------------------------
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<PAGE>
EXHIBIT 1
FORM OF NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES LAWS OF THE STATE OF COLORADO OR
THE SECURITIES LAWS OF ANY OTHER STATE. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, OR (C) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO THIS CLAUSE (C) TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
THE COMPANY. THIS LEGEND REPRESENTS A RESTRICTION ON TRANSFERABILITY OF THIS
SECURITY.
NOTICE TO CONNECTICUT RESIDENTS
THIS SECURITY HAS NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT SECURITIES LAW AND BUSINESS OPPORTUNITY INVESTMENT ACT, AND
THEREFORE, CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR UNLESS AND
EXEMPTION FROM REGISTRATION IS AVAILABLE.
NOTICE TO GEORGIA RESIDENTS
THIS SECURITY HAS BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
TO THE EXTENT ANY SECURITY ISSUED UPON CONVERSION HEREOF IS NOT REGISTERED
UNDER THE SECURITIES ACT, SUCH SECURITY WILL BEAR LEGENDS SUBSTANTIALLY SIMILAR
TO THOSE ABOVE
<PAGE>
THE VINTAGE GROUP USA, LTD.
6% CONVERTIBLE SUBORDINATED NOTE
$_________ , 1996
The Vintage Group USA, Ltd., a Colorado corporation (hereinafter
referred to as the "Company"), for value received, hereby promises to pay to
_______________, at the address designated below, or to its successors and
assigns (hereinafter referred to as "Holder"), the principal sum of
_____________ Dollars ($________) in lawful money of the United States of
America, plus simple interest (computed on the basis of actual days elapsed,
divided by 360) on the unpaid principal balance of this Note at an annual
rate of twelve percent (6%) until maturity. The Company agrees to pay
interest on overdue principal, and (to the extent legally enforceable) on any
overdue installment of interest, at the rate of 9% per annum after the due
date, whether by acceleration or otherwise, until paid. The principal amount
of this Note shall be due and payable on June 1, 2005. Accrued interest
shall be payable semi-annually on June 1 and December 1 of each year,
commencing on _____________, 1996; provided, however, that interest only will
be payable for the first 24 months. Thereafter, interest will continue to be
paid semi-annually and principal will be amortized evenly over the remaining
seven years to maturity.
Both the principal hereof and interest hereon are payable in coin or
currency of the United States of America that at the time of payment shall be
legal tender for the payment of public and private debts.
This Note may be declared due prior to its expressed maturity date on the
terms and in the manner provided herein. This Note is not subject to prepayment
or redemption at the option of the Company prior to its expressed maturity date
except on the terms and conditions set forth herein.
This Note will be a general unsecured obligation of the Company payable on
a PARI PASSU basis with all other general unsecured indebtedness of the Company.
This Note is effectively subordinate to all secured debt of the Company.
DEFINITIONS. In addition to other capitalized terms defined elsewhere in
this Note, the following terms shall have the respective meanings set forth
below:
"Affiliate" shall mean any person (other than a Subsidiary) (a) that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company, (b) that
beneficially owns or holds 5% or more of any class of the Common
2
<PAGE>
Stock of the Company, or (c) 5% or more of the Common Stock (or, in the case
of a person that is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by the Company or a Subsidiary.
"Common Stock" shall mean the common stock, no par value, of the Company.
"Default" shall mean any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default, as defined in Section 8 hereof.
"Holder" shall mean the registered holder hereof as reflected on the books
of the Company.
"Initial Public Offering" or "IPO" shall mean the first underwritten public
offering of Common Stock made pursuant to a registration statement filed by the
Company with, and declared effective by, the Securities and Exchange Commission
in accordance with the Securities Act.
"IPO Price" shall mean the price per share of Common Stock at which the
Common Stock is offered pursuant to an Initial Public Offering.
"Market Price of the Common Stock" shall mean (i) if the Common Stock is
listed on the New York Stock Exchange, the American Stock Exchange or another
securities exchange designated by the Company's Board of Directors, or if the
Common Stock is quoted on a National Association of Securities Dealers, Inc.
system that reports closing prices, the average closing price of the Common
Stock as reported by THE WALL STREET JOURNAL for the previous five trading days
from the date the price is to be determined, or, if no such price is reported
for any of such days, then the average closing price of the Common Stock
calculated as of the last immediately preceding 20 trading days on which the
closing price is so reported; or (ii) if the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, the average of the last
reported highest bid and lowest asked prices for the previous 20 trading days as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System; or (iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked prices are not
reported, such price as is determined in a reasonable manner by the Board of
Directors.
"Subsidiary" shall mean, as to the Company, any corporation of which more
than 50% (by number of votes) of the voting stock shall be beneficially owned,
directly or indirectly, by the Company or a another Subsidiary of the Company or
any other person or entity (other than a corporation) in which the Company or a
Subsidiary of the Company directly or indirectly, at the date of determination
thereof, has at least a majority ownership interest.
1. PREPAYMENT. Upon fifteen days' prior written notice to a Holder,
the Company may prepay in cash all or any part of the principal amount of such
Holder's Note,
3
<PAGE>
together with accrued and unpaid interest thereon, but without payment of any
penalty or premium, at any time or from time to time, commencing 13 months
after the date a registration statement for an Initial Public Offering has
been declared effective by the Securities and Exchange Commission (or such
shorter time as is agreed to by the underwriter for the IPO) provided the
shares issuable upon conversion will be registered under the Securities Act),
provided that the Market Price of the Common Stock has been equal to or
greater than 125% of the IPO Price prior to the date of delivery of the
notice from the Company to the Holders. Notwithstanding the foregoing, a
Holder shall have the right to convert such Holder's Note in accordance with
Section 6 hereof during the 15-day notice period. Any partial prepayment
made by the Company pursuant to this Section 1 shall be applied first to the
payment of accrued interest and then to the unpaid principal installments in
the inverse order of maturity.
2. CONVERSION RIGHTS. The Notes shall be convertible, in whole or
in part, into fully paid and nonassessable shares of Common Stock, at the option
of a Holder, upon the following terms:
(a) A Holder may exercise its right of conversion at any time
after the date that is 13 months after the closing of the IPO and prior to the
full payment by the Company of the principal balance of the Note.
(b) The Company shall not be required to issue any fraction of a
share of Common Stock or scrip representing a fraction of a share of Common
Stock upon any conversion of this Note. The Company may make a cash adjustment
in lieu of any such fraction of a share which otherwise would be issuable upon
such conversion.
(c) The "Conversion Price" at which the Notes may be converted
shall be at the rate of such number of shares of Common Stock as shall equal the
principal of the Note being converted, plus accrued and unpaid interest thereon,
divided by the IPO Price.
(d) The Conversion Price shall be subject to adjustment from
time to time as hereinafter provided in this subparagraph 2(d).
(i) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that holders
of the Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for such Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger
or sale, each Holder shall have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Note and in lieu
of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such shares of stock, other securities or assets as would have been
issued or delivered to such Holder if such Holder had exercised the
conversion rights set forth in this Section 2 and had received such shares
of Common Stock prior
4
<PAGE>
to such reorganization, reclassification, consolidation, merger or sale.
The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or
the corporation purchasing such assets shall assume by written
instrument executed and mailed to the Holder at the last address of such
Holder appearing on the books of the Company, the obligation to deliver
to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(ii) If the Company takes any other action, or if any other
event occurs, which does not come within the scope of the provisions of
subparagraph 2(d)(i), but which should result in an adjustment in the
conversion price and/or the number of shares subject to the conversion
rights of the Notes in order to fairly protect the conversion rights of the
Holders, an appropriate adjustment in such conversion rights shall be made
by the Company, but no adjustment shall be required upon the issuance of
any capital stock of the Company for the "Fair Market Value," which shall
mean (i) if the capital stock is listed on the New York Stock Exchange, the
American Stock Exchange or another securities exchange designated by the
Company's Board of Directors, or if the capital stock is quoted on a
National Association of Securities Dealers, Inc. system that reports
closing prices, the average closing price of the capital stock as reported
by THE WALL STREET JOURNAL for the previous five trading days from the date
the price is to be determined, or, if no such price is reported for any of
such days, then the average closing price of the capital stock calculated
as of the last immediately preceding five trading days on which the closing
price is so reported; or (ii) if the capital stock is not so listed or
admitted to unlisted trading privileges or so quoted, the average of the
last reported highest bid and lowest asked prices for the previous five
trading days as quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System; or (iii) if the capital stock is not so
listed or admitted to unlisted trading privileges or so quoted, and bid and
asked prices are not reported, such price as is determined by the Board of
Directors, acting in its reasonable discretion, to be the fair market value
of such capital stock.
(e) To convert a Note into shares of Common Stock, a Holder
shall (i) surrender this Note at the principal office of the Company, duly
endorsed in blank, and (ii) give written notice to the Company that it elects to
convert all, or any part of, this Note, which notice shall specify the portion
hereof to be converted. As promptly as possible thereafter, the Company shall
issue and deliver to such Holder certificates representing the number of its
shares of Common Stock into which such Holder's Note has been converted.
Thereupon, this Note, or the portion thereof converted, shall be deemed to have
been satisfied and discharged, and the shares of Common Stock into which this
Note shall be so converted shall be fully paid and nonassessable shares. In the
event the Note has not been converted in full, the Company shall issue and
deliver to the converting Holder a new Note identical to the one surrendered,
except that it shall be in the reduced principal amount giving effect to the
partial conversion.
5
<PAGE>
3. FINANCIAL STATEMENTS AND REPORTS. So long as any amount is owing
to Holders pursuant to the Notes, the Company shall keep proper books of record
and account in which full and correct entries shall be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company, in
accordance with generally accepted accounting principles ("GAAP") consistently
applied (except for changes disclosed in the financial statements filed pursuant
to the Securities Act and concurred in by the Company's independent public
accountants), and shall furnish to the Holders quarterly and annual reports,
including financial statements, filed pursuant to the Securities Act.
4. EVENTS OF DEFAULT. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default in the payment of interest on the Notes when the
same shall have become due and such default shall have continued for a period of
30 days; or
(b) Default in the making of any payment of the principal of the
Notes at the expressed or any accelerated maturity date or at any date fixed for
prepayment; or
(c) Default in the observance or performance of any covenant or
agreement contained in the Notes, provided that no Event of Default will occur
if the default is cured by the Company no later than 30 days after the earlier
of (i) the day on which the Company first obtains knowledge of such default, or
(ii) the day on which notice thereof is given to the Company by the Holders of a
majority of the principal amount of the Notes;
(d) A custodian, liquidator, trustee or receiver is appointed
for the Company or for the major part of its property and is not discharged
within 30 days after such appointment; or
(e) The Company becomes insolvent or bankrupt, is generally not
paying its debts as they become due or makes an assignment for the benefit of
creditors, or the Company applies for or consents to the appointment of a
custodian, liquidator, trustee or receiver for the Company or for the major part
of its property; or
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the benefit of debtors. are instituted by or against the Company or
any Subsidiary of the Company and, if instituted against the Company or any
Subsidiary of the Company, are consented to or are not dismissed within 60 days
after such institution.
5. REMEDIES.
(a) ACCELERATION OF MATURITIES. When an Event of Default has
occurred and is continuing, a Holder may, by notice to the Company, declare the
entire principal and all interest accrued on its Note to be, and such Note shall
thereupon become, forthwith due and
6
<PAGE>
payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. Thereupon, the Company shall
forthwith pay to such Holder the entire principal and interest accrued on its
Note. No course of dealing on an Holder's part nor any delay or failure on
its part to exercise any right will operate as a waiver of such right or
otherwise prejudice Holder's rights, powers and remedies. The Company also
shall, to the extent permitted by law, pay to a Holder all costs and expenses
incurred by such Holder in the collection of its Note upon any default
hereunder, including compensation to such Holder's attorneys for all services
rendered in connection therewith.
6. TRANSFER OF NOTE. By execution of this Note Agreement, Holder
agrees to give written notice to the Company before transferring any Note or
transferring any shares of the Common Stock issuable or issued upon the exercise
of such Note, describing briefly the manner of any proposed transfer of the Note
or Holder's intention as to the shares of Common Stock issued upon the exercise
thereof. Holder further agrees to offer, sell or otherwise transfer such
security, prior to the date which is three years after the later of the original
issue date hereof and the last date on which the Company or any Affiliate of the
Company was the owner of this security (or any predecessor of such security),
only (a) to the Company, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, or (c) pursuant to an available
exemption from the registration requirements of the Securities Act, subject to
the Company's right prior to any such offer, sale or transfer pursuant to this
clause (c) to require the delivery of an opinion of counsel, certification
and/or other information satisfactory to the Company. If such opinion of
counsel, certification, and/or other information is deemed satisfactory to the
Company, in its sole discretion, Holder shall be entitled to transfer its Note,
or to exercise its Note in accordance with the terms hereof and dispose of the
shares received upon such exercise or to dispose of shares of Common Stock
received upon the previous exercise of its Note, all in accordance with the
terms of the notice delivered by Holder to the Company, provided that an
appropriate legend in substantially the form required by the Company respecting
the foregoing restrictions on transfer and disposition may be endorsed on the
Note or the certificates for such shares.
7. REGISTRATION RIGHTS; COVENANT RE SALE OF COMMON STOCK. The
Company will file, and use its best efforts to cause to become effective on or
after the date that is 13 months from the date of the closing of the IPO and to
remain effective for one year, subject to Section 7(c) below, a registration
statement covering the shares into which the Notes may be converted.
(a) REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 11(a) to effect the registration of any
shares under the Securities Act, the Company shall:
(i) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for such
period as may be
7
<PAGE>
reasonably necessary to effect the sale of such securities, not to exceed
twelve (12) months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement effective
for such period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months;
(iii) furnish to Holders such reasonable number of
copies of the registration statement, final prospectus and such other
documents as Holders may reasonably request in order to facilitate the
public offering of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the underwriters in
the IPO reasonably requested in connection with the IPO, except that the
Company shall not for any purpose be required to execute a general consent
to service of process or to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified; and
(v) prepare and promptly file with the Commission and
promptly notify Holders of the filing of any amendment or supplement to
such registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating to
such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading.
(b) EXPENSES. With respect to any registration of shares
pursuant to Section 7, the Company shall bear the following fees, costs and
expenses: all registration and other filing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, all internal Company
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
Holders, underwriting discounts and commissions and Transfer taxes for Holders
and any other expenses incurred by Holders not expressly included above shall be
borne by Holders.
(c) DELAY OR SUSPENSION OF REGISTRATION. The Company may delay
or suspend the effectiveness of any registration statement filed pursuant to
this Section 7 if such filing would require disclosure of a material fact that
the Company determines would have a
8
<PAGE>
material adverse effect on any proposal or plan by the Company or any of its
subsidiaries or Affiliates to engage in any acquisition of assets or any
merger, consolidation, tender offer or other significant transaction;
provided, that any such delay or suspension shall not reduce the Company's
obligation in Section 7(a) to maintain the effectiveness of such registration
statement for a total period of one year.
(d) INDEMNIFICATION. In the event that any shares owned by
Holders are included in a registration statement under this Section 7:
(i) The Company shall indemnify and hold harmless Holders
(as defined in the Securities Act) from and against any and all loss,
damage, liability, cost and expense to which Holders may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission (i) so made in conformity with information furnished by Holders;
or (ii) in any preliminary prospectus, if a copy of an amended or
supplemented prospectus which, as amended or supplemented, would have cured
the defect giving rise to such loss, claim, damage, liability, cost or
expense, was not delivered by or on behalf of such Holder to the person
asserting the claim or action, if required by law to have been so delivered
by Holders, at or prior to the written confirmation of the sale of the
Common Stock.
(ii) Holders shall indemnify and hold harmless the Company
and any underwriter from and against any and all loss, damage, liability,
cost or expense to which the Company or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in conformity with
information furnished by Holders.
(iii) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (i) or (ii) of this subsection of
notice of the commencement of any action involving the subject matter of
the foregoing indemnity provisions, such
9
<PAGE>
indemnified party shall, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said paragraph (i) or
(ii), promptly notify the indemnifying party of the commencement
thereof; but the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of interest
which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party pursuant to the provisions
of said paragraph (i) or (ii) for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless (A)
the indemnified party shall have employed counsel in accordance with
the proviso of the preceding sentence, (B) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the
notice of the commencement of the action, or (C) the indemnifying party
has authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party.
8. NOTICES. All demands and notices to be given hereunder shall be
delivered or sent by certified mail, return receipt requested; in the case of
the Company, addressed to its corporate headquarters, 1999 Broadway, Suite 2435,
Denver, Colorado 80202, until a new address shall have been substituted by like
notice; and in the case of a Holder, addressed to Holder at the address for the
Holder set forth in such Holder's Response Form, until a new address shall have
been substituted by like notice.
9. MISCELLANEOUS.
(a) HOLDERS' CONSENT REQUIRED. Any term, covenant, agreement or
condition of this Note binding upon or to be performed or complied with by the
Company may be waived (either generally or in a particular instance and either
retroactively or prospectively) with the Holders' consent, which consent may be
given on behalf of all Holders by the Holders of a majority of the principal
amount of the Notes.
(b) LOSS, THEFT, ETC. OF NOTE. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of a
Note and, if reasonably requested by the Company, a reasonable indemnification
by the Holder of such Note, the
10
<PAGE>
Company shall make and deliver without expense to such Holder, a new Note, of
like tenor and issue, in lieu of such lost, stolen, destroyed or mutilated
Note.
(c) POWERS AND RIGHTS NOT WAIVED. No delay or failure on the
part of a Holder in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any other
or further exercise thereof, or the exercise of any other power or right, and
the rights and remedies of the Holders are cumulative to, and are not exclusive
of, any rights or remedies the Holders would otherwise have.
(d) SUCCESSORS AND ASSIGNS. This Note and the rights evidenced
hereby shall inure to the benefit of and be binding upon and the successors and
permitted assigns of the Company and the Holders.
(e) AMENDMENTS. This Note may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company and
the holders of a majority of the principal amount of the Notes.
(f) HEADINGS. The index and the descriptive headings of
sections of this Note are provided solely for convenience of reference and shall
not, for any purpose, be deemed a part of this Note.
(g) GOVERNING LAW. This Note and all matters concerning this
Note shall be governed by the laws of the State of Colorado for contracts
entered into and to be performed in such State, without regard to principles of
conflicts of laws.
Holder is registered on the books of the Company. This Note is
transferable only by surrender at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by
such Holder or Holder's attorney duly authorized in writing. Payment of or on
account of principal and interest on this Note shall be made only to or upon the
order in writing of such Holder.
The Company waives presentment, notice of dishonor and protest with respect
to any payment due under this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer as of the date first above written.
THE VINTAGE GROUP USA, LTD.
By
----------------------------------------
Charles D. sTourtellotte
President
11
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Historical per share information is not considered relevant as it would
differ materially from pro forma per share data, given the contemplated
acquisition of Fremont Golf Center, 90% of the limited partnership interests
in Illinois Center Golf Partner, L.P. and Goose Creek Golf Partners Limited
Partnership, the sale of 1,200,000 shares of common stock in an Initial
Public Offering and the convertible subordinated notes not being considered a
common stock equivalent in computing primary earnings per share. Convertible
subordinates notes are not considered common stock equivalents in the
computation of primary and fully diluted loss per share since their
inconclusion would be anti-dilutive.
SIX MONTHS
ENDED
PRIMARY EARNINGS PER SHARE JUNE 30, 1996
- -------------------------- --------------
Pro forma net loss $(1,356,548)
----------
----------
Shares:
Historical shares outstanding 1,395,701
Shares to be issued in IPO 1,200,000
----------
Pro forma weighted average number of
shares outstanding 2,595,701
----------
----------
Primary net loss per share $ (.52)
----------
----------
<PAGE>
SIX MONTHS
ENDED
FULLY DILUTED EARNINGS PER SHARE JUNE 30, 1996
- -------------------------------- --------------
Pro forma net loss $(1,356,548)
----------
----------
Shares:
Historical shares outstanding 1,395,701
Shares to be issued in IPO 1,200,000
----------
Pro forma weighted average number of
shares outstanding 2,595,701
----------
----------
Fully diluted loss per share $ (.52)
----------
----------
ADDITIONAL FULLY DILUTED COMPUTATION
- ------------------------------------
This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
Pro forma net loss $(1,356,548)
Add: interest on 12% convertible subordinated notes 101,250
Add: interest on 6% convertible notes 73,868
----------
Net loss, as adjusted $(1,181,430)
----------
----------
Additional adjustment to weighted average number of
shares outstanding:
Pro forma weighted average number of shares
outstanding 2,595,701
12% convertible subordinated notes 553,571
6% convertible notes 351,750
Outstanding warrants 157,500
----------
----------
Weighted average number of shares outstanding, as adjusted 3,658,522
----------
Fully diluted net loss per share $ (.32)
----------
----------
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Subsidiaries of METROGOLF INCORPORATED:
METROGOLF MANAGEMENT, INC., a Colorado corporation
METROGOLF ILLINOIS CENTER, INC.. a Colorado corporation,
METROGOLF VIRGINIA, INC., a Colorado corporation
METROGOLF NEW YORK, INC., a Colorado corporation
METROGOLF (SAN DIEGO) INCORPORATED, a Colorado corporation
METROGOLF FOOD SERVICE, INC., an Illinois corporation
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MetroGolf Incorporated
(Formerly The Vintage Group USA, Ltd.)
Denver, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 17, 1996 relating to the
consolidated financial statements of MetroGolf Incorporated (formerly The
Vintage Group USA, Ltd.) which is contained in that Prospectus, and of our
report dated May 17, 1996 relating to the schedule, which is contained in
Part II of the Registration Statement.
We also consent to the reference to us under the captions "Selected Consolidated
Financial Data" and "Experts" in the Prospectus.
BDO Seidman, LLP
Denver, Colorado
August 21, 1996
<PAGE>
CONSENT
I, Mike McGetrick, hereby consent to the use of my name as a director
nominee in the Registration Statement (No. 333-06151) filed by MetroGolf
Incorporated.
Dated: August 15, 1996 /s/ MIKE McGETRICK
--------------------------------
Mike McGetrick
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 324 1,313,841
<SECURITIES> 0 0
<RECEIVABLES> 83,256 39,252
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 321,732 1,369,277
<PP&E> 87,977 87,977
<DEPRECIATION> 24,025 33,675
<TOTAL-ASSETS> 979,679 2,698,529
<CURRENT-LIABILITIES> 827,700 2,953,253
<BONDS> 0 0
0 0
45,500 45,500
<COMMON> (96,770) 146,830
<OTHER-SE> 820,309 744,285
<TOTAL-LIABILITY-AND-EQUITY> 979,679 2,698,529
<SALES> 335,303 99,275
<TOTAL-REVENUES> 335,303 99,275
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 882,709 422,296
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,994 62,490
<INCOME-PRETAX> (532,112) (359,980)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (532,112) (359,980)
<EPS-PRIMARY> (.49) (.32)
<EPS-DILUTED> (.49) (.32)
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