U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
_____________
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 000-28251
SUNVEST RESORTS, INC.
a Florida corporation
(IRS Employer Identification No. 65-0693150)
307 South 21st Avenue
Hollywood, Florida 33020
(954) 922-6070
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
____
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, Par Value $.02 per share
________________________
Check whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
_________________________
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained
herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form
10-KSB or any amendment to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December
31, 1999 were $2,234,100
The aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant on March
31, 2000, was $5,227,125. The aggregate market value of the
Common Stock of the Registrant held by non-affiliates was
computed by reference to the price at which such Common
Stock was sold on the OTC Bulletin Board on such date of $3
5/16. For purposes of this response, directors, executive
officers and holders of five percent (5%) or more of the
Registrant's Common Stock are considered the affiliates of
the Registrant at that date.
The number of shares outstanding of the Registrant's Common
Stock as of March 31, 2000: 9,000,000 shares of Common
Stock.
Transitional Small Business Disclosure Format:
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Item 1. Description of Business.
General
SunVest Resorts, Inc., a Florida corporation (the
"Company"), was created on August 6, 1996, through the
merger of Telshare International, Inc., a publicly-held
Delaware corporation, and two Florida corporations, Colony
Plaza Development, Inc. ("Colony"), and Cove Development,
Inc.("Cove"). Telshare International, Inc., had ceased
operations in 1988, but maintained its publicly held status.
As a result of the merger, the shareholders of Colony and
Cove, Harvey Birdman, Diane Birdman, Louis Birdman, Herbert
Hirsch and Bonita Hirsch (collectively, the "HB Group"),
acquired 8,000,000 out of 8,866,000 shares of common stock
outstanding, or 90.12% of the outstanding stock of the
Company. At the time of the merger, Colony owned a newly-
acquired 302-room resort hotel called Colony Plaza and
located in Ocoee, west of Orlando, Florida, and Cove owned a
newly-acquired 173-room resort hotel called Pirates Cove and
located in Daytona Beach Shores, Florida. The Company
conducts all of its activities strictly through subsidiaries
and, as used herein, the term "Company" refers to SunVest
Resorts, Inc. acting through one or more subsidiary, unless
the context indicates otherwise. Colony and Cove are the
Company's only corporate subsidiaries. As discussed below,
the Company also owns 100% of the membership interests in
Lakeshore Club Development LC, a Florida limited liability
company.
The HB Group, the members of which constitute the
management of the Company, See, Directors, Executive
Officers, Promoters and Control Persons, has engaged in the
business of acquiring, renovating and converting hotels into
resort hotel condominiums ("condotels") and multi-family
rental projects into primary and second home condominium
communities for the last ten years. Through the end of
1999, the HB Group had converted 11 condotels and multi-
family projects, containing 1711 units with an aggregate
sell-out price of $70.3 million.
Current Business and Properties
The Company has converted two hotels into condotels and
is developing one large-scale age-focused community,
commonly known in the industry as an "active adult community
(AAC)." All of the Company's current projects are located
in Florida.
Condotels
Conversion into condotels is accomplished through the
purchase and renovation of resort hotels. A typical project
consists of substantial interior and exterior renovation and
upgrading of the existing property through the installation
of kitchens, and other condominium amenities, upgrading
bathrooms and renovation of the common areas such as the
front desk, swimming pool, tennis courts, restaurant,
lounge, gift shop and laundry facility.
In both of its condotel projects, Colony Plaza and
Pirates Cove, the Company had retained ownership and
responsibility for the operation of the front desk,
restaurant, lounge and gift shop (the "Commercial
Component"). The Company has outsourced property
maintenance, laundry, rental and resale agent services to
organizations experienced in hotel/condominium management
under 15-year contracts, expiring in February 2011 (with
respect to Colony Plaza) and in September 2010 (with respect
to Pirate's Cove). These organizations manage the units for
the owners and retain 55% of the total rental income and pay
45% of the total rental income to the unit owners. Under
these contracts, the Company has been receiving 3% of the
gross revenue from rental operations and 5% of the gross
revenue from food and beverage operations.
Since 1996, the Company has converted Colony Plaza and
Pirates Cove. Colony's total investment in Colony Plaza was
approximately $6.25 million financed by means of a
$1,548,000 first mortgage loan from BankAtlantic FSB, Ft.
Lauderdale, Florida ("BankAtlantic"), personally guaranteed
by members of the HB Group, and a three-year, 18% second
mortgage loan from Mortgage Investment Group 9, Ltd., a
Florida limited partnership ("MIG-9"). The general partner
of MIG-9, owning a 1% general partnership interest, is an
entity owned by the HB Group; the members of the HB Group
have also purchased 18% of the limited partnership interests
in MIG-9 at the same price as the other limited partners.
In 1996, 25 units at Colony Plaza were transferred by Colony
to Holiday Vacation Ventures, a Florida general partnership
("HVV"), in exchange for a 65% partnership interest. HVV, in
turn, sold timeshare interests in such units. As of December
31, 1999, HVV owned approximately 204 weeks in timeshare
interests. All of the remaining 277 units were owned by
individual unit owners. As of December 31, 1999, the assets
of Colony consisted of the general partnership interest in
HVV, the Commercial Component and a four-acre parcel of land
held for future development. During February and March
2000, Colony sold its interest in the Commercial Component
and the land held for development for the aggregate selling
price of approximately $1,450,000 in cash and purchase money
notes.
Cove's total investment in Pirates Cove was
approximately $5.4 million, financed by means of a
$1,258,000 first mortgage loan from BankAtlantic, personally
guaranteed by members of the HB Group, and a $1,300,000
second mortgage loan from Mortgage Investment Group 10, Ltd.
("MIG-10"). MIG-10 has been structured identically to MIG-
9. As of December 31, 1999, the assets of Cove consisted of
the Commercial Component of Pirates Cove, eleven (11) unsold
condotel units, from which Cove derived rental income on the
same basis as the individual owners of the other 162 units,
and two small parcels of land used for parking lots..
The Active Adult Community
AACs are large-scale master planned communities for
active adults age 55 and over. A typical AAC is a complex
of individually-owned garden style or multi-story
residences, with resort-type amenities, such as swimming
pool, tennis court and fitness center, as well as amenities
associated with permanent residence, such as community
center, hobby rooms, and convenience store. AACs are a
segment of the resort market experiencing above-average
growth due to the general aging of the U.S. population with,
according to Modern Maturity, the number of Americans over
age 55 projected to grow to 75 million by 2010. The
resulting increase in demand for AAC units is projected to
occur as "baby boomers" acquire second homes to be used as
eventual retirement residences.
The Company entered the AAC business in late 1998 by
acquiring, through a wholly-owned Florida limited liability
company, Lakeshore Club Development LC ("Lakeshore LC"),
Lakeshore Club. Lakeshore LC was established by the Company
by means of a nominal contribution to capital. Lakeshore
Club is a complex of 500 already existing garden-style units
set on 110 acres in Fedhaven, Polk County, Florida, 10 miles
east of Lake Wales, 45 miles south of Disney World, in
Orlando, Florida, and on a 7500-acre Lake "Walk in the
Water".
Lakeshore LC acquired Lakeshore Club for $5.4 million,
expecting to spend an additional $7.5 million in renovation
costs of the 500 units and the common areas, for a total
investment of $26,000 per unit in combined construction and
acquisition costs. The renovated common areas were to
include: a fishing pier, marina, lakefront promenade, tennis
courts, exercise rooms, miniature golf course and driving
range, baseball, basketball, volleyball and handball courts,
as well as community-type amenities such as a clubhouse, 350-
seat theater for shows and social events (under the
direction of a full-time social director), arts and crafts
rooms, library, bank, post office, laundromat, beauty salon,
restaurant/convenience store, and a 24-hour, on-call
paramedic emergency service and an on-site fire department.
The total cost of the 500-unit conversion, including soft
costs (i.e. interest, marketing, advertising and support
personnel costs) and $5.4 million in acquisition costs, was
estimated at $20.1 million. A total sellout of $33.0
million was projected, with an average sales price per unit
of $66,000.
Lakeshore LC has financed the acquisition and initial
renovation and other costs of the Lakeshore Club through a
$6.9 million first mortgage from BankAtlantic and a $2.5
million second mortgage loan from Mortgage Investment Group
20, Ltd. (MIG-20"). MIG-20 has been structured identically
to MIG-9 and MIG-10. The terms of the first mortgage are:
maturity date of September 1, 2001 and interest rate at
prime + 1-1/2%. The terms of the second mortgage are: maturity
December 2001, interest rate 18%, with no principal
amortized. As of December 31, 1999, the conversion and
renovation of the first 60 among the Lakeshore Club units
was substantially completed. On March 24, 2000, Lakeshore LC
closed the sale of the first of such units.
On December 30, 1998, Lakeshore LC acquired, for
approximately $1.8 million, 420 acres of undeveloped land
contiguous to Lakeshore Club. Lakeshore LC financed this
purchase by means of a $1.35 million first mortgage seller-
financed non-recourse loan and a $400,000 second mortgage
loan from Mortgage Investment Group 24, Ltd. ("MIG-24"). MG-
24 has been structured identically to MIG-9 and MIG-10.
This phase II parcel has the capacity for the development of
additional AAC units and a golf course. On March 24, 2000,
the seller-mortgagee of the Phase II parcel informed
Lakeshore LC of its intention to foreclose on the portion of
the parcel subject to the $1.35 million mortgage because of
non-payment of debt service for the last three months. If
management were to determine that it does not wish to oppose
the foreclosure, a mortgage debt and an asset, each at $1.35
million, would be eliminated from the Company's financial
statements and no gain or loss would be realized.
Construction
Presently, all renovation activities are carried out by
the Company through third party general contractors and
subcontractors, under the supervision of the Company's
management. If the Company were to expand its development
as opposed to renovation activities, the Company would
become subject to the risks and challenges typically
associated with development. Among such risks are
construction-related risks, e.g. weather, local labor
conditions and availability of materials and supplies.
Among such challenges is proper coordination between
construction of units with unit sales orders in order to
control the costs and risks associated with completed but
unsold inventory.
Marketing and Sales Activities
Domestically, the Company has been marketing its
condotels through newspaper and other advertising and
contacts within real estate brokerage firms in the area
where the project is located. In Puerto Rico and South
America, where the Company has discovered a significant as
yet untapped market for their products, the Company markets
through newspaper advertising and local real estate
brokerage companies. Sales to residents of Puerto Rico and
South America are facilitated by a program developed by the
Company for verifying the income, employment status and
credit history of these customers thus facilitating their
obtaining acquisition financing from U.S. lending
institutions.
The Company's marketing activities in connection with
the Lakeshore Club have been focused on 50 and over active
adults in South Florida, New York, New Jersey,
Massachusetts, Michigan, Ohio, Illinois, Wisconsin and
Ontario and Quebec, Canada. The Company has been using
advertising in retirement publications, newspapers, radio
and television and an in-house telemarketing program. To
attract attention from potential purchasers travelling
through Central Florida for vacation or otherwise, the
Company has from time to time used billboards located along
key stretches of highways connecting Fedhaven to Orlando,
Tampa and South Florida.
While more than one factor may contribute to a given
sale, the Company believes that a substantial portion of
sales at its AAC will be attributable to follow-ups on
referrals from residents of this community and to exposing
potential purchasers to the AAC experience. As a result, as
more units at the Lakeshore Club become renovated and all
the amenities are completed, the Company will implement a
program which enables prospective purchasers to visit and
stay (for a modest charge) in vacation homes for a few days
to one week to experience the Lakeshore Club lifestyle prior
to deciding whether to purchase a home. The Company has
been selling all of the units through in-house commissioned
sales personnel.
Employees
Since its inception and as of December 31, 1999, the
Company had no employees. However, as of that date, the
Company leased the services of 95 full-time employee
equivalents, which are being leased from an independent
employee leasing company. Substantially all of such
personnel work within the state of Florida, primarily at the
Company's main office complex located in Hollywood, Broward
County, Florida, and in various sales offices throughout the
state and Puerto Rico.
Regulation
The Company's sales and operations are subject to
regulation by the federal government and by the State of
Florida. On a federal level, the Federal Trade Commission
enforces the Federal Trade Commission Act, which prohibits
unfair or deceptive acts or competition in interstate
commerce. Other federal legislation to which the Company is
or may be subject is contained in the Securities Act of
1933, as amended, the Securities and Exchange Act of 1934,
as amended, the Truth-in-Lending Act and Regulation Z, the
Equal Opportunity Credit Act and Regulation B, the
Interstate Land Sales Full Disclosure Act and the Civil
Rights Acts of 1964 and 1968. In Florida, the Condominium
Act and the rules and regulations promulgated thereunder as
administered by the Division of Land Sales, Condominiums and
Mobile Homes of the Department of Business and Professional
Regulations, provide the most significant regulation of its
conversion business. Florida law requires the Company to
file and obtain approval for a detailed offering statement
describing its business and all material aspects of a
proposed development and sale of fee simple interests. The
Company is required to deliver the offering statement to all
prospective purchasers, together with certain additional
information concerning the terms of the purchase. Florida
law also permits the purchaser of a fee simple interest to
cancel a contract of purchase at any time within fifteen
(15) calendar days following the date on which the purchaser
has received the last of the documents that Florida law
requires the seller to provide. The Company believes that
it is in material compliance with all federal and state laws
and regulations to which it is currently or may be subject.
Any failure to comply with applicable laws or regulations
could have a material adverse effect on the profitability of
the Company.
Market and Competition
All of the Company's real estate operations are located
in Florida and are subject to significant competition. A
heavy concentration of hotel and resort properties
throughout Florida provides a competitive alternative to the
purchase of a condotel or an AAC unit.
The condotel conversion segment of the Company's
business is fragmented and localized. Competitors are
typically private and, often, single-project companies.
Some may have greater capital resources than the Company.
The Company's AAC faces direct and increasing
competition from companies exclusively or primarily
marketing homes to buyers age 55 or older, as well as from
non-age-qualified, master-planned communities, where the
Company competes with new home sales and resales in such
communities. The Central Florida market where Lakeshore Club
is located includes at least one leading national AAC
developer, Del Webb Corporation, which recently acquired the
Spring Creek communities near Ocala, Florida. The Company
anticipates significant new competition in AAC development
from other local national homebuilders and family community
developers. Many such developers possess significantly
greater financial, marketing, personnel and other resources
than the Company.
The Company believes that the major competitive factors
affecting purchases at its condotel and AAC developments are
location, home quality, availability of recreational
facilities and other amenities, price, value, design,
mortgage financing terms and builder/developer reputation.
There is no assurance that any of the Company's projects is
superior with respect to any of these factors to competitive
projects in the relevant market.
Potential Merger
On March 15, 2000, the Company entered in an Agreement
and Plan of Merger (the "Merger Agreement") with US Data
Authority, Inc. ("USDA"), its controlling shareholders and
certain investors contemplating an equity investment in
USDA. Under the Merger Agreement, USDA would merge into the
Company, with the USDA shareholders receiving 90% of the
post merger equity of the Company and electing all of the
five directors of the Company. Immediately prior to the
merger, the Company will effect a 3.6:1 reverse stock split
of its Common Stock and will distribute to all the
shareholders a special dividend consisting of the common
stock of Colony and Cove and the membership interests in
Lakeshore LC. The Company believes that the dividend will
not cause the Company or the shareholders to recognize
taxable income as a result thereof. As a result of the
dividend, the Company will, immediately before the effective
time of the merger, have no assets or liabilities.
The merger is subject to completion of due diligence by
both parties and may be aborted if either the Company or
USDA is dissatisfied with the results of its due diligence
on or before April 17, 2000. There is no assurance that the
merger will not be aborted.
USDA is a privately-held Florida corporation,
established in January 1999, based in Palm Beach County,
Florida. It offers Internet access, co-location and remote
access communication services through a hybrid network of
AT&T and Cable & Wireless fiber optic networks containing
the Internet Protocol backbone.
On an unaudited basis, from inception to December 31,
1999, USDA had total revenues of approximately $429,000 and
net income of approximately $155,000.
The proposed merger and the related dividend is
consistent with management's intention to transform the
Company's business from real estate to technology-related.
This intention is based on management's belief that engaging
in a business which is perceived by the capital markets as
having an above average growth potential would enhance the
Company's ability to raise equity capital and thus would
facilitate a more active trading market in the Company's
stock and liquidity for the shareholders.
Forward Looking Information; Certain Cautionary Statements.
Certain statements contained in this Report are
"forward-looking statements," including statements
concerning plans, objectives, future events or performance
and assumptions and other statements that are not statements
of historical fact. The Company caution readers that the
following important factors, among others, could cause the
Company's actual results to differ materially from the
forward-looking statements contained in this Report: (i) the
effect on the Company's competitive position within the
market area where its active adult community is located of
the increasing competition from larger national developers
of active adult communities as well as from regional and
local developers of single-family residential projects, (ii)
the effect of changes in interest rates; and (iii) the
effect of changes in the business cycle and downturns in the
local, regional or national economies.
Item 2. Description of Property.
Except for its conversion and development projects, the
Company does not own any property. The Company's executive
offices are located at 307 South 21st Avenue in Hollywood,
Florida, in a 2,500 square foot building owned by Vacation
Investment Plan, Inc., an entity owned by the HB Group. In
1999, the Company paid $28,000 in rent to such entity. In
the opinion of management, the Company's properties owned by
Colony, Cove and Lakeshore LC are adequately covered by
insurance.
Item 3. Legal Proceedings.
The Company is not a party to, nor is any of its
property the subject of, any material legal proceeding that
is not routine litigation incidental to the Company's
business.
Item 4. Submission of Matters to a Vote of the Security Holders.
No matter was submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the OTC
Bulletin Board under the symbol "SUNE." The following table
sets forth the range of high and low bids for the Common
Stock within the last eight quarters as reported by NASDAQ.
These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent
actual transactions.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
Bid Bid Bid Bid Bid Bid Bid Bid
1998 2 1 3-5/8 2-1/2 2 1 4-1/4 1-1/4
1999 2-1/2 1/2 3 1-1/2 2-7/8 1-7/8 1-1/2 5/8
As of March 31, 2000, the Company had 429 shareholders
of record.
The Board of Directors has not declared and the Company
has not paid any dividends during the last two years.
On October 30, 1998, the Company issued 11,500 shares
of Common Stock to 115 individual, all of whom were either
employees leased to the Company or consultants or advisors
to the Company and none of whom were members of the HB Group
or their immediate families. These shares were issued for no
consideration and under a one-time bonus plan. All of the
recipients received and executed a contract relating to the
bonus plan. This offering was made in reliance on the
exemption from the registration requirements under the
Securities Act of 1933 set forth in Rule 701 to such Act.
On October 1, 1999, the Company issued, 122,468 shares
of Common Stock to four individuals in consideration of
their efforts in assisting the Company in identifying
potential opportunities for merger partners in the
technology area. In exchange for the shares, the individuals
had foregone the receipt of approximately $120,000 in
consulting fees. All of these individuals qualified as
"accredited investors" within the meaning of Rule 501(a) of
Regulation D and acquired such shares for investment and not
with the view to distribution. This offering was made in
reliance on the exemption from the registration statements
under the Securities Act of 1933 set forth in Section 4(2)
of such Act.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Discussion of the financial condition and results of
operations of the Company should be read in conjunction with
the Company's consolidated financial statements and related
notes which are included elsewhere herein.
Results of Operations.
For the years ended December 31, 1999 and 1998,
respectively, net loss was $2,224,000 and $204,900,
respectively. For 1999 and 1998, respectively, basic (and
diluted) loss per share was $.25 and $.02, respectively.
The increase in the net loss was primarily due to a decrease
of $955,000 (or approximately 30%) in revenues in 1999
compared to 1998 and an increase of $597,700 (or
approximately 114%) in net interest expense in 1999 compared
to 1998. The decrease in revenues was a result of a
reduction in inventory of condominium units for sale at
Colony Plaza and Pirates Cove without a commensurate
increase in AAC units for sale at Lakeshore Club, where
renovation activities were being carried out for most of
1999. The increase in net interest expense was attributable
to the debt service with respect to Lakeshore Club, which,
unlike in 1998, the Company had to carry for an entire year
in 1999.
Key Factors Affecting the Company's Operations.
Set forth below is a brief description of certain
factors that materially affect the Company's operations.
Financing and Leverage
The maturity dates, interest rate and outstanding
balance, as of December 31, 1999, of the Company's mortgage
loans were as follows:
Maturity Inter
Borrower Lender Secured by Date est Balance
Rate
Lakeshore MIG-20 Phase I of October 1, 18% 2,500,000
LC Lakeshore 2001
Club
Lakeshore MIG-24 420 Acres July 1, 18% 400,000
LC (Phase II 2001
land)
Lakeshore BankAtlant Phase I October 1, Prime 6,566,000
LC ic FSB Lakeshore 2002 +
Club 1.5%
Lakeshore Lightsey 420 Acres April 1, 8% 1,350,000
LC (Seller) (Phase II 2009
land)
Colony (as Litchfield Timeshare September Prime 233,700
a partner Financial interests 30, 2000 + 3%
in HVV) Corp
Colony (as Litchfield A/R from Revolving Prime 311,300
a partner Corp sales of loan with + 3%
in HVV) timeshare no maturity
Interests date
Colony Union Bank Commercial April 29, 8-3/4% 373,800
Component 2003
at Colony
Plaza
Cove BankAtlantic 11 unsold June 30, 10.25% 295,000
units 2000
Cove Union Bank Commercial April 29, 8-3/4% 225,400
Component 2003
at Pirates
Cove
TOTAL $12,255,200
As shown above, of the mortgage loans, the loan from
Litchfield Financial Corp to Colony (as a partner in HVV),
secured by timeshare interests, with a principal amount of
$233,700, and the loan from BankAtlantic to Cove, secured by
the 11 unsold units, with an aggregate principal amount of
$295,000, are due in their entirety in the next twelve
months. With respect to the Litchfield loan, HVV has been
repaying this loan from proceeds of sales of timeshare
interests; in fact, the principal balance of this loan as of
March 31, 2000, was reduced to $192,500. Management
believes that HVV will be able to refinance this loan with
the current lender - it is currently engaged in discussions
with such lender -- or any one of the many other lenders in
the Orlando area specializing in timeshare financing. With
respect to the loan to Cove secured by the 11 unsold units,
management believes that the fair market value of this
collateral is at least equal to the balance of the mortgage
and that Cove would be able to refinance the BankAtlantic
loan if a sufficient number of units is not sold before June
30, 2000.
The loans to HVV from Litchfield Financial Corp. would,
in the aggregate, require a debt service of approximately
$67,000 over the next twelve months. HVV's income from
rental of the units and sales of timeshare interests in the
units is estimated to be sufficient to carry the two loans.
The timeshare interests are listed for sale as a block at a
price which would repay the two loans. The loan to Colony
from Union Bank will be repaid from future installments of
the proceeds of Colony's sale of the Commercial Component
which, as reported above, took place in February 2000.
In terms of Colony's debt service requirements in the
next twelve months, the combination of rental income from
the 11 unsold units and Cove's share of the revenue from the
Commercial Component in 2000 is projected to be sufficient -
if none of these units or the Commercial Component itself
are sold and these loans are not paid off - to pay the
approximately $38,000 in debt service for the twelve months.
As shown on Exhibit A to the note referenced in Exhibit
10.3, the terms of the acquisition/construction loan to
Lakeshore LC from BankAtlantic calls for certain principal
payments. However, under the note, the borrower has 120
days to make up a shortfall in principal reduction for a
given quarter. By operation of both of these provisions,
Lakeshore LC's principal repayment obligations for the next
twelve months under the BankAtlantic note are, in the
aggregate, $2.7 million ($225,000 + $787.500 + $1,012,500 +
$675,000). These principal repayment requirements must be
read in light of the arrangement agreed to by BankAtlantic
that $25,000 from the proceeds of each of the first 150
units at Lakeshore Club would be paid to the lender as a
release price and that $37,500 of such proceeds from the
sale of each of the other 350 units would be paid to the
lender as a release price.
Lakeshore LC would be able to repay the $2.7 million in
principal payments if it were to sell 108 AAC units during
2000. As of March 31, 2000, only one unit has been sold,
with only approximately two dozen units pending a sale.
There is no assurance, therefore, that 108 units would be
sold in accordance with a schedule which would provide
Lakeshore LC with the net proceeds to make timely reductions
of principal.
If sales of units at Lakeshore Club continue to occur
slower than projected, management will first attempt to
obtain a modification of the BankAtlantic loan delaying
principal repayments further into the future. Management
has already advertised Lakeshore Club for sale with the view
to selling it at a price at least sufficient to repay all of
the indebtedness of Lakeshore LC, except the seller
financing with respect to the Phase II land. Also,
management believes that, given its long-term relationship
with BankAtlantic, it has at least until June 30, 2000, to
convert Lakeshore Club into a rental project and refinance
it as such. In this connection, it is to be noted that
before its acquisition by Lakeshore LC, Lakeshore Club was
an entirely rental project and that the units not yet
converted are still being rented by Lakeshore LC, yielding,
during 1999, approximately $1,057,538 in rental income.
Management believes that, if necessary, the units at
Lakeshore Club could be slightly refurbished and the project
would be a viable rental property that could carry the
existing debt on Lakeshore Club. There is no assurance,
however, that management's efforts to achieve a loan
modification, an outright sale or a refinancing into a
rental project will be successful.
The interest component of the debt service requirements
of Lakeshore LC over the next twelve months would be paid
timely and in full if sales of 108 units were to occur
during 2000, from proceeds of unit sales and additional
borrowings under the BankAtlantic loan (which would then
have borrowing capacity due to reductions in principal
caused by the units sold). In the absence of significant
sales of units to meet the interest requirements, and until,
if at all, Lakeshore Club is refinanced as a rental project
and rental income stabilizes, the HB Group (and its
affiliated entities) may continue to make cash advances to
Lakeshore LC. As of December 31, 1999, the total amounts
advanced to Cove, Colony and Lakeshore LC, all bearing
interest at 12% and due on demand, were as follows:
Member of HB Group Amount
Herbert Hirsch $356,000
Diane Birdman 233,000
Harvey Birdman 185,100
TOTAL $774,100
Affiliated Entity
VIP 1,295,800
Corporate Realty Services, Inc.
(Accrued fees for administrative 34,000
support services)
TOTAL $1,329,800
GRAND TOTAL $2,103,900
To be sure, members of the HB Group have personally
guaranteed the BankAtlantic debt of Lakeshore LC and would
be motivated to continue to make advances to Lakeshore LC in
order to allow it to meet its cash flow needs. There is,
however, no assurance that they will be willing or able to
do so for an indefinite period of time.
In summary, Colony Plaza and Pirates Cove have been
profitable in the past, are now breaking even and could
generate modest profits when all of its assets are sold.
The sales at Lakeshore Club, on the other hand, have been
slower than projected, making Lakeshore LC highly leveraged.
Management's plan is to see whether sales pick up
significantly during the first six months of 2000 while, at
the same time, attempting to sell the project outright
and/or begin efforts to convert it into a rental property.
There is no assurance that this plan will succeed.
Cyclical Nature of Real Estate Operations and Other
Conditions Generally. In general terms, all of the Company's
projects are subject to real estate market conditions (both
where they are located and in areas where potential
customers reside), the cyclical nature of real estate
operations, general national economic conditions and
changing demographic conditions. These are long-term
projects and sales activity varies from period to period,
with the ultimate success of any project not to be judged by
results in any particular period or periods. A project may
generate significantly higher sales levels at inception
(whether because of pent-up demand or other reasons) than it
does during later periods. Revenues and earnings of the
Company will also be affected by period-to-period
fluctuations in the mix of product and unit closing among
the Company's projects.
Profitability of the Company's real estate operations
also depend upon the availability and cost of mortgage
financing available to the potential buyers of its units. An
increase in interest rates, which may result from
governmental policies and other factors outside the control
of the Company, may adversely affect the buying decisions of
potential unit buyers and their ability to sell their
existing homes.
Item 7. Financial Statements.
Attached as Addendum "FS" are Consolidated Financial
Statements for the years ended December 31, 1998 and 1999,
including balance sheets and statements of operations, cash
flows and shareholders' deficits, accompanied by an
independent auditor's report.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company made no change in, and had no disagreements
with its accountants.
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Securities and Exchange Act of 1934.
Position with the Issuer, Term of Service;
Name Age Business Experience and Family Relationships
Herbert 59 Mr. Hirsch has served as President and a
Hirsch director of the Company since August 1996. Mr.
Hirsch's primary responsibilities are to
coordinate all sales and marketing activities,
to review and approve all sales contracts and
closings and to coordinate all advertising
efforts. Since 1990, Mr. Hirsch, as a member of
the HB Group, has been a principal with several
single project entities engaged in the resort
condominium and second home residential
condominium conversion and development business.
Harvey 61 Mr. Birdman has served as Executive Vice
Birdman President and a director of the Company since
August 1996. Mr. Birdman's primary
responsibilities are to initiate all project
acquisitions, to arrange all financing and to
analyze all strategic and project planning.
Since 1990, Mr. Birdman, as a member of the HB
Group, has served as a principal with several
single-project entities engaged in the resort
condominium and second home residential
condominium conversion and development business.
Mr. Birdman is the husband of Diane Birdman and
father of Louis Birdman.
Diane 55 Mrs. Birdman has served as a Vice President, the
Birdman Treasurer and a director of the Company since
August 1996. Mrs. Birdman's primary
responsibilities are to coordinate the
administration of the condominium associations
at the resort properties owned and developed by
the Company and to oversee the accounting
department. Since 1990, Mr. Birdman, as a
member of the HB Group, has served as a
principal with several single-project entities
engaged in the resort condominium and second
home residential condominium conversion and
development business. Mrs. Birdman attended
Broward Community College, where she majored in
Accounting, and attended Temple University,
where she majored in Business. Mrs. Birdman is
the wife of Harvey Birdman and the mother of
Louis Birdman.
Louis 35 Mr. Birdman has served as a Vice President, the
Birdman Secretary and a director of the Company since
August 1996. Mr. Birdman's primary
responsibilities are to manage all design and
construction activities, as well as to interact
with municipal planning, zoning and building
officials. Mr. Birdman is the owner of Louis
Birdman Architect, P.A., and was the co-founder
and principal-in-charge of ARC Avenue, Inc.,
from 1985-1995 and co-founder of ARC-CON Design
Build, Inc., - General Contractors, where he was
principal-in-charge from 1989-1995. Mr. Birdman
is a registered architect in Florida and a
certified member of the National Council of
Architectural Registration Boards. He received
his Bachelor's degree in Design and Architecture
from the University of Florida and his
Bachelor's degree in Architecture from the
University of Miami. Mr. Birdman is the son of
Harvey and Diane Birdman.
Cary 52 Mr. Greenberg has served as Vice President and
Greenberg Chief Financial Officer of the Company since
March 1998. Mr. Greenberg's primary
responsibilities include oversight of the
financial accounting and internal controls
systems of the Company. In addition, he
participates in the analysis of the financial
feasibility of proposed projects. Prior to
joining the Company, Mr. Greenberg served for
twelve years as the Chief Financial Officer of a
subsidiary of American Greetings Corporation.
Mr. Greenberg is a Certified Public Accountant
in New York, Florida and Texas.
Compliance with Section 16(a)
Because the Company had no class of equity securities
registered pursuant to Section 12 of the Securities and
Exchange Act of 1934 (the "Exchange Act") during the period
covered by this report, its securities were not subject to
the reporting requirements of Section 16(a) of the Exchange
Act.
Item 10. Executive Compensation.
(a) Name of Capacity in Whit Aggregate
Individual Remuneration was Remuneration
or Identity of Received
Group
3 highest paid Directors, President, $0
directors and Vice-President, and
executive Treasurer or
officers as a Secretary
group
(b) Remuneration pursuant to ongoing plan or arrangement.
None
Item 11 Security Ownership of Certain Beneficial Owners
and Management.
The following table sets forth information as of March
31, 2000, about each shareholder who owns more that five
percent (5%) of any class of the Company's securities:
Amount Owned Percent of
Title of Name and Address of Before Class*
Class Owner Offering
Common Stock, Herbert Hirsch 1,442,250 16.03%
$.02 par 700 S. Ocean Blvd., Shares
value #1106
Boca Raton, Florida
33432
Common Stock, Harvey Birdman 1,263,250 14.04%
$.02 par 3755 NE 214th Street Shares
value Aventura, Florida
33180
Common Stock, Diane Birdman 1,514,250 16.83%
$.02 par 3755 NE 214th Street Shares
value Aventura, Florida
33180
Common Stock, Louis Birdman1 1,752,250 19.47%
$.02 par 4000 Island Blvd., Shares
value #2701
Williams Island,
Florida 33150
Common Stock, Bonita Hirsch2 1,445,000 16.06%
$.02 par 700 S. Ocean Blvd., Shares
value #1106
Boca Raton, Florida
33432
___________________
* Percentages are based on 9,000,000 shares of Common Stock
issued and outstanding on March 23, 2000.
1 Includes 100,000 Shares owned by Mr. Birdman's children.
Mr. Birdman disclaims beneficial ownership of such shares.
2 Includes 300,000 shares owned by Mrs. Hirsch's
grandchildren. Mrs. Hirsch disclaims beneficial ownership of
such shares.
The following table sets forth information about the
voting securities held of record as of March 31, 2000, by
each of the officers and directors of the Company and all
such persons as a group:
Amount Owned Percent
Title of Name and Address of Before of
Class Owner Offering Class*
Common Stock, Herbert Hirsch 1,442,250 16.03%
$.02 par 307 South 21st Ave. Shares
value Hollywood, FL 33020
Common Stock, Harvey Birdman 1,263,250 14.04%
$.02 par 307 South 21st Ave. Shares
value Hollywood, FL 33020
Common Stock, Diane Birdman 1,514,250 16.83%
$.02 par 307 South 21st Ave. Shares
value Hollywood, FL 33020
Common Stock, Louis Birdman1 1,752,250 19.47%
$.02 par 307 South 21st Ave. Shares
value Hollywood, FL 33020
Common Stock, Cary Greenberg 5,000 .04%
$.02 par 307 South 21st Avenue Shares
value Hollywood, FL 33020
All Officers 5,977,000 66.41%
and Directors Shares
as a Group
* Percentages are based on 9,000,000 shares of Common Stock
issued and outstanding on March 31, 2000.
1 Includes 100,000 Shares owned by Mr. Birdman's children.
Mr. Birdman disclaims beneficial ownership of such shares.
As of March 31, 2000, there were no outstanding
options, warrants or other rights to purchase securities
from the Company.
Item 12. Certain Relationships and Related Transactions.
Employee Leasing
Until May 1999, the Company leased employees providing
personnel-related services from P.D. Payroll Corp., a
Florida corporation owned by the HB Group ("PD"). PD
employed the sales, administrative and in-house construction
personnel relating to properties converted by the Company.
In addition, PD provided centralized payroll and personnel
services, including worker's compensation administration.
The Company reimbursed PD at cost for the salaries and
benefits of such personnel. In the last two years, the
Company paid $374,000 to PD. As stated above, since May
1999, these employees have been employed by an unrelated
company.
The Company has received administrative support from
Corporate Realty Services, Inc. ("CRS"), 48% of which is
owned by the HB Group. The administrative support services
have included such services as record keeping, accounting,
use of office equipment and management services for each of
the properties converted by the Company. The Company pays
CRS a base rate fee of $229,000 per annum plus expenses,
which management believes represents an arms-length, fair
price for such services. CRS maintains credit with
suppliers and is reimbursed for the cost of supplies
incurred in connection with the services provided to the
resort properties. In the last two years, the Company has
paid $360,000 to CRS.
Other Transactions
From time to time, in order to help the Company meet
its cash flow obligations, members of the HB Group and
entities controlled by them have made advances to the
Company. These advances have been unsecured and have
carried an interest rate of 12%. As of December 31, 1999,
the Company owed $774,000 to members of the HB Group and
$1,329,000 to entities controlled by the HB Group.
During 1998, the Company made advances in the total
amount of $335,000 to one or more entities controlled by the
HB Group. All but $59,500 of these advances, which were
unsecured and carried interest at 12%, were repaid during
1999.
Members of the HB Group own 100% of the stock of the
general partner of MIG-9, MIG-10, MIG-20 and MIG-24, each a
limited partnership which is a second mortgage lender to
Colony, Cove and Lakeshore LC, respectively. The HB Group
also owns an 18% limited partnership interest in each of MIG-
9, MIG-10, MIG-20 and MIG-24, which it acquired on the same
terms as the other limited partners. The mortgage loans
held by MIG-9 and MIG-10 have been repaid as of December 31,
1998. In the last two years, the HB Group received in the
aggregate $49,750 in their distributive share of interest
received by MIG-9, MIG-10, MIG-20 and MIG-24.
Item 13. Exhibits, Lists and Reports on Form 8-K.
Exhibit
Number Sequential Description
- ------- ----------------------
3(i) Articles of Incorporation of Registrant, dated
August 6, 1996, incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form
10-SB, File No. 000-28251, filed on November 21,
1999 and which became effective on January 21,
2000.
3(ii) Amended and Restated Bylaws of Registrant
incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form 10-SB, File No. 000-
28251, filed on November 21, 1999, and which became
effective on January 21, 2000.
10.1 Mortgage and Security Agreement between Lakeshore
Club Development, Inc. (predecessor in interest to
Lakeshore Club Development, LC) and Mortgage
Investment Group 20, Ltd., dated September 30,
1998, incorporated by reference to Exhibit 6(a).1
to the Registration Statement on Form 10-SB, File
No. 000-28251, filed on November 21, 1999, and
which became effective on January 21, 2000.
10.2 Mortgage and Security Agreement between Lakeshore
Club Development, LC, and Mortgage Investment Group
24, Ltd., dated June 30, 1999, incorporated by
reference to Exhibit 6(a).2 to the Registration
Statement on Form 10-SB, File No. 000-28251, filed
on November 21, 1999, and which became effective on
January 21, 2000.
10.3 Consolidation Promissory Note made by Lakeshore
Club Development, LC, to the order of BankAtlantic,
FSB, dated June 30, 1999, incorporated by reference
to Exhibit 6(a).3 to the Registration Statement on
Form 10-SB, File No. 000-28251, filed on November
21, 1999, and which became effective on January 21,
2000.
10.4 Purchase Mortgage between Lakeshore Club
Development, LC, and Cary Lightsey and Layne
Lightsey, dated December 31, 1998, incorporated by
reference to Exhibit 6(a).4 to the Registration
Statement on Form 10-SB, File No. 000-28251, filed
on November 21, 1999, and which became effective on
January 21, 2000.
10.5 Agreement and Plan of Merger by and among SunVest
Resorts, Inc., US Data Authority, Inc. et al.,
dated effective March 15, 2000.
21 Subsidiaries of Registrant
27 Financial Data Schedule
No reports on Form 8-K were filed by the Registrant during
the last quarter of 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Exchange Act, the Registrant has caused this report to
be signed on behalf of the undersigned, thereunto duly
authorized.
SUNVEST RESORTS, INC.
(Registrant)
By: /S/ Herbert Hirsch
---------------------
--------
Herbert Hirsch,
President
Date: April 10, 2000
Pursuant to the requirements of the Exchange Act, this
report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/S/ Herbert Hirsch
____________________________ Director April 10, 2000
Herbert Hirsch
/S/ Harvey Birdman
____________________________ Director April 10, 2000
Harvey Birdman
/S/ Diane Birdman
____________________________ Director April 10, 2000
Diane Birdman
/S/ Louis Birdman
____________________________ Director April 10, 2000
Louis Birdman
Addendum FS
SUNVEST RESORTS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
Independent auditors' report 1
Consolidated financial statements:
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of shareholders' deficit 4
Consolidated statements of cash flows 5-6
Summary of significant accounting policies 7-10
Notes to consolidated financial statements 11-24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Sunvest Resorts, Inc. and Subsidiaries
Hollywood, Florida
We have audited the accompanying consolidated balance sheets
of Sunvest Resorts, Inc. and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of
operations, shareholders' deficit and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our 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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Sunvest Resorts, Inc. and
Subsidiaries, as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the
years then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 of Notes to consolidated
financial statements, the Company has suffered recurring
losses from operations and has negative working capital that
raises substantial doubt about the ability to continue as a
going concern. Management's plan in regards to these
matters is also described in Notes 2 and 3 of notes to
consolidated financial statements. The consolidated
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/S/ Hixson, Marin, Powell & DeSanctis, P.A.
North Miami Beach, Florida
March 31, 2000
SUNVEST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
Cash and equivalents $ 9,200 $ 852,800
Deposits held in escrow 87,300 166,400
Mortgage notes receivable 603,400 1,096,100
Condominium units held for sale 2,841,600 1,602,200
Condominium units under development 1,454,200 2,958,200
Income producing property 5,498,000 3,747,800
Land held for future development 1,842,500 1,842,500
Deferred costs 202,900 313,000
Deferred tax asset - 231,500
Due from affiliates, deemed fully collectible 59,500 335,000
Other 47,100 154,900
----------- ----------
$ 12,645,700 $ 13,300,400
============ ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities:
Notes and mortgages payable $ 12,255,200 $ 11,298,200
Accounts payable and accrued 1,074,900 590,000
liabilites
Deposits on sales contracts 72,300 61,400
Due to condominium associations 34,300 56,300
Advances from shareholders 774,100 967,700
Due to related parties 1,329,800 1,053,800
---------- ----------
$ 15,540,600 $ 14,027,400
---------- -----------
Minority interest 48,500 114,900
---------- -----------
Financial results, liquidity,
strategic planning, proposed merger,
spin-offs, transactions with related
parties, commitments and
contingencies (Notes 2, 3 ,7 and 9)
Shareholders' deficit:
Common stock, $.02 par, authorized
25,000,000 shares; issued and
outstanding 9,000,000 shares in 1999
and 8,877,532 shares in 1998 180,000 177,500
Capital in excess of par 699,600 579,600
Accumulated deficit (3,823,000) (1,599,000)
---------- ----------
(2,943,400) (841,900)
---------- ----------
$12,645,700 $13,300,400
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Revenues:
Condominium units $ 883,100 $ 2,109,300
Timeshare interests 111,800 488,700
Rents 1,239,200 591,100
---------- ----------
2,234,100 3,189,100
---------- ----------
Cost of sales:
Condominium units 439,400 1,527,600
Timeshare interests 60,800 184,500
Rents 731,400 114,900
1,231,600 1,827,000
--------- ---------
1,002,500 1,362,100
--------- ---------
Operating expenses:
Advertising 131,500 34,700
Selling and promotion 277,200 168,700
General and administrative 1,285,300 877,100
Depreciation and amortization 350,600 208,400
--------- ---------
2,044,600 1,288,900
--------- ---------
Income (loss) before other income
(expenses), minority interest and
provision for income taxes (benefit) (1,042,100) 73,200
---------- ---------
Other income (expenses):
Interest income 120,200 219,300
Other 106,600 134,600
Interest expense (1,243,600) (745,000)
---------- --------
(1,016,800) (391,100)
---------- --------
(Loss) before minority interest and
provision for income taxes (benefit) (2,058,900) (317,900)
Minority interest in (income) losses
of joint venture 66,400 (27,700)
---------- --------
(Loss) before provision for income
taxes (benefit) (1,992,500) (345,600)
Provision for income taxes (benefit) 231,500 (140,700)
---------- ---------
Net (loss) $ (2,224,000) $ (204,900)
============ ==========
(Loss) per share of common stock:
Basic $ (0.25) $ (0.02)
============ ==========
Diluted $ (0.25) $ (0.02)
============ ==========
Weighted average common shares outstanding
used in computing basic and diluted (loss)
per share of common stock 8,910,749 8,868,080
=========== ==========
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of
which are an integral part of this consolidated financial statement.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock
Total Shares Amount
--------- ---------------------
Balance, beginning $(648,500) 8,866,032 $177,300
Year ended December 31, 1998:
Common stock issued for 11,500 11,500 200
promotional purposes
Net (loss) (204,900) - -
--------- --------- --------
Balance, December 31, 1998 (841,900) 8,877,532 177,500
Year ended December 31, 1999:
Common stock issued for professional
services 122,500 122,468 2,500
Net (loss) (2,224,000) - -
----------- --------- --------
Balance, ending $(2,943,400) 9,000,000 $180,000
=========== ========= ========
Capital in Accumulated
excess of par deficit
Balance, beginning $568,300 $(1,394,100)
Year ended December 31, 1998:
Common stock issued for 11,300
promotional purposes
Net (loss) - (204,900)
--------- -----------
Balance, December 31, 1998 579,600 (1,599,000)
Year ended December 31, 1999:
Common stock issued for
professional services 120,000
Net (loss) - (2,224,000)
--------- -----------
Balance, ending $ 699,600 $(3,823,000)
========== ===========
Read the accompanying summary of significant accounting
policies
and notes to consolidated financial statements, both of
which are an integral
part of this consolidated financial statement.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Cash flows from operating activities:
Sources of cash:
Customers $1,426,500 $2,684,700
Proceeds from sale of mortgage notes
receivable 563,000 783,700
Interest and dividends 139,400 206,700
Rents 1,244,300 592,500
Other 175,100 120,200
--------- ---------
3,548,300 4,387,800
Uses of cash: --------- ---------
Condominium units 1,628,700 2,878,900
Suppliers and employees 943,900 1,424,400
Interest 1,239,800 701,600
Rental properties 731,400 114,900
--------- ---------
4,543,800 5,119,800
--------- ---------
Cash (used-in) operating activities (995,500) (732,000)
Cash flows from investing activities:
Sources of cash:
Related parties 193,500 -
Uses of cash: --------- ---------
Payments for:
Related parties - 74,800
Shareholders 193,600 270,100
Income producing property 793,600 2,802,600
Land held for future development - 1,814,100
Other assets 11,300 168,600
(998,500) (5,130,200)
--------- ----------
Cash (used-in) investing activities (805,000) (5,130,200)
Cash flows from financing activities:
Sources of cash:
Proceeds from:
Mortgages and notes 2,880,500 7,011,100
Mortgage, related party - 2,500,000
Minority interests - 37,100
--------- ----------
2,880,500 9,548,200
Uses of cash:
Payment of:
Mortgages and notes 1,923,600 3,256,600
--------- ---------
Cash provided by financing activities 956,900 6,291,600
--------- ---------
Increase (decrease) in cash and (843,600) 429,400
equivalents
Cash and equivalents, beginning 852,800 423,400
--------- ---------
Cash and equivalents, ending $ 9,200 $ 852,800
========= =========
Read the accompanying summary of significant accounting
policies
and notes to consolidated financial statements, both of
which are an integral
part of this consolidated financial statement.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- ---------
Reconciliation of net (loss) to cash
(used-in) operating activities:
Net (loss) $(2,224,000) $(204,900)
Adjustments to reconcile net (loss) to
cash (used-in) operating activities:
Depreciation and amortization 350,600 208,400
Deferred income taxes 231,500 (140,700)
Services paid in form of common stock 122,500 11,500
Provision for losses on loans 138,000 15,000
receivable
Minority interest in joint ventures' (66,400) 27,700
income (loss)
Changes in assets and liabilities:
Deposits held in escrow 79,100 37,600
Mortgages receivable 354,700 836,000
Condominium units (563,100) (1,596,700)
Prepaid expenses and other 107,800 (33,000)
Accounts payable and accrued 484,900 196,000
liabilities
Due to condominium association (22,000) (7,500)
Deposits on sales contracts 10,900 (81,400)
--------- ----------
Total adjustments 1,228,500 (527,100)
--------- ----------
Cash (used-in) operating activities $ (995,500) $ (732,000)
========== ==========
Read the accompanying summary of significant accounting
policies
and notes to consolidated financial statements, both of
which are an integral
part of this consolidated financial statement.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED DECEMBER 31, 1999 AND 1998
Basis of accounting:
- -------------------
SunVest Resorts, Inc. and Subsidiaries (the Company)
prepares its financial statements in accordance with
generally accepted accounting principles. This basis of
accounting involves the application of accrual accounting;
consequently, revenues and gains are recognized when earned,
and expenses and losses are recognized when incurred.
Financial statement items are recorded at historical cost
and may not necessarily represent current values.
Principles of consolidation:
- ---------------------------
The consolidated financial statements include the accounts
of SunVest Resorts, Inc. and all subsidiaries. All
significant inter-company balances and transactions have
been eliminated in consolidation.
Management estimates:
- --------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Certain amounts
included in the financial statements are estimated based on
currently available information and management's judgment as
to the outcome of future conditions and circumstances.
Changes in the status of certain facts or circumstances
could result in material changes to the estimates used in
the preparation of the financial statements and actual
results could differ from those estimates. Every effort is
made to ensure the integrity of such estimates.
Fair value of financial instruments:
- -----------------------------------
The carrying amounts of cash and equivalents, receivables
(mortgage notes, trade, other and related parties), accounts
payable, accrued liabilities and due to related parties
approximate their fair values because of the short duration
of these instruments.
Impairment of long-lived assets:
- -------------------------------
Long-lived assets and certain identifiable intangibles held
and used by the Company are reviewed for possible impairment
whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable.
Revenue recognition:
- -------------------
Condominiums:
The Company utilizes the full accrual method when all of the
following conditions are met: (a) buyer/seller are bound by
contract, consideration exchanged after certain down
payments and other continuing investments tests are met (not
less than 10% of the sales price), financing is arranged and
all conditions have been met by closing; (b) investment is
considered adequate; (c) no future subordination of
receivables and (d) ownership of the unit has been
transferred. Gain (revenue less related costs) is then
recognized when the collectibility is reasonably assured,
the process is substantially complete and the requisite
rescission period has expired. The agreement provides that
the condominium unit is collarteralized to its mortgage
note, payable monthly with interest at 9.875% over a fifteen-
(15) year period.
Timeshare units:
Revenues on sales of timeshare interests are recognized
using the full accrual method when a minimum of 10% of the
sales price has been received in cash, the refund period has
expired, collectibility of the receivable representing the
remainder of the sales price is reasonably assured and the
Company has completed substantially all of its obligations
with respect to the development related to the project. In
cases where not all development has been completed, the
Company recognizes revenue in accordance with the percentage
of completion method of accounting. For those units sold,
all development has been completed. When a unit is sold,
the Company may finance a portion of the sales price with
interest at eighteen percent (18.0%) for a seven- (7) year
period. Maintenance fees on sold units are paid to an
independent association of the unit owners. The sold units
do not apply to a specific unit and the buyer retains a fee
simple ownership of real estate. The timeshare unit owner
has the right to use the type of unit acquired for a one-
week period annually.
Rentals:
Revenues from rentals is recognized using the straight line
method over the life of the lease.
Other information:
Profit is recognized on estimates of the average gross
profit per unit within each resort property after the
allocation of acquisition and development costs based upon
average cost per unit. Estimated profits are deferred until
sales meet the requirements for revenue recognition.
Certain sales with receipts less than the minimum requisite
of 10% are accounted for using the installment method, under
which, gain is recognized as principal payments on the
related notes are collected.
The sales price, less provisions for loan losses and
cancellations (net of retained payments), is recorded as
revenue and the estimated average cost of the resort
condominium units and timeshare interest is charged against
income in the year of revenue recognition. Estimated
profits may be deferred until the sale meets the
requirements for sales of real estate. All payments
received prior to revenue recognition are accounted for as
deposits on sales contracts. Installment notes receivable
(resulting from sales) are deemed cancelled when a
delinquency is greater than ninety days (90). If the
cancellation occurs in the year of sale, revenue on those
sales are reversed. If the cancellation occurs subsequent
to a year end, the cancellation will be charged to the
allowance for cancellation.
Cash and equivalents:
- --------------------
The Company considers all highly liquid investments
purchased with original maturities of three months or less
to be cash equivalents.
Real property:
- -------------
Condominium units held for sale and other real property are
stated at the lower of cost or market. Costs include the
original acquisition, carrying costs capitalized during the
development period and the cost of improvements.
Costs incurred for the timeshare condominiums are
capitalized and include costs of acquisition, renovation and
carrying costs.
Income producing property retained by the Company is stated
at cost, less accumulated depreciation. Depreciation is
computed on the straight-line method over estimated useful
lives of the assets. Estimated useful lives are as follows:
Estimated
Useful Lives
(in years)
------------
Land improvements 15
Buildings and improvements 30
Furniture, fixtures and equipment 5 - 10
The cost of the land, buildings and equipment was allocated
from the original purchase price for that portion that is
being retained by the Company.
Repairs and maintenance are charged to operations as
incurred, and expenditures for significant betterments and
renewals are capitalized. The cost of property and
equipment retired or sold, together with the related
accumulated depreciation, are removed from the appropriate
asset and depreciation accounts, and the resulting gain or
loss is included in operations.
Land held for future development:
- --------------------------------
Land held for future development consists of undeveloped and
partially developed land and is carried at the lower of cost
or net realizable value.
Capitalized costs:
- -----------------
Interest and real estate taxes incurred and applicable to
property being developed are capitalized to the property.
These amounts are stated at cost not in excess of market
value.
Amortization:
- ------------
Loan and organizational costs are being amortized using the
straight-line method over a period not exceeding five (5)
years. Deferred condominium conversion costs are amortized
based upon the sale of condominium units and deferred
management agreement costs are amortized over the terms of
the agreements, not exceeding 15 years.
Advertising:
- -----------
The Company expenses advertising costs incurred.
Income taxes:
- ------------
The Company files a consolidated tax return and adheres to
the asset/liability approach for financial accounting and
reporting for income taxes. Income tax expense is provided
for the tax effects of transactions reported in the
financial statements and consists of taxes currently due
plus deferred taxes related primarily to differences between
the bases of the balance sheet for financial and income tax
reporting. The deferred tax assets and liabilities
represent the future tax consequences of those differences,
which will either be taxable or deductible when they are
recovered or settled. Deferred taxes are also recognized
for operating losses that are available to offset future
taxable income and tax credits that are available to offset
future income taxes. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the
period that includes the enactment date. A valuation
allowance is provided on deferred tax assets when it is more
likely than not that the asset will not be realized.
Per share amounts:
- -----------------
Basic (loss) per share is calculated by dividing net (loss)
by the weighted average number of common shares outstanding
throughout the year. Diluted (loss) per share includes
additional dilution from potential common stock, such as
stock options and warrants. There were no stock options and
warrants authorized, issued or outstanding for the current
two (2) years.
Stock based compensation:
- ------------------------
The Company applies the intrinsic value method for
accounting for stock based compensation described by
Accounting Principles Bound Opinion No. 25, "Accounting for
Stock Issued to Employees." Had the Company applied the
fair value method described by the Statement of Financial
Accounting Standards Board (SFAS) No. 123, "Accounting for
Stock-Based Compensation," it would report the effect of
compensation expense for stock based compensation as pro-
forma effects on income and earnings per share, if material.
Accounting for transfer of financial asset:
- ------------------------------------------
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities provides accounting and
reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The standard
provides for distinguishing transfers of financial assets
that are sales from transfers that are collateralized
borrowings. The standards would require that servicing
assets be measured by allocating the carrying amount between
the assets sold and retained interests based on
their relative fair value. Implementation of the new
standard does not have a material impact on the consolidated
financial statements, as the book values of receivables
approximate fair value.
Comprehensive income:
- --------------------
The Company adapted Statement of Financial Accounting
Standards Board (SFAS) No. 130, "Reporting Comprehensive
Income." Comprehensive income includes net income and all
changes in an enterprise's other comprehensive income
including, among other things, foreign currency translation
adjustments and unrealized gains and losses on certain
investments in debt equity securities. Comprehensive income
and its components would be displayed in the consolidated
statement of shareholders deficit. There were no
differences between net (loss) and comprehensive income
(loss) for each year.
Segment reporting:
- -----------------
The Company adapted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This
Statement establishes standards for reporting information
about operating segments in annual financial statements, and
requires that an enterprise report selected information
about operating segments. The Company does not expect the
adoption of this statement to have a material impact on its
financial condition or results of operations.
Accounting Pronouncements:
- -------------------------
The Financial Accounting Standards Board (FASB) has issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting
standards for derivative financial instruments and hedging
activities and requires Companies to recognize all
derivatives as either assets or liabilities on the balance
sheet and measure them at fair value. The SFAS has no
impact on the consolidated financial statements of the
Company.
The American Institute of Certified Public Accountants
(AICPA) has issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" which provides guidance on
accounting for the costs of developing computer software
intended for internal use. The adoption is not expected to
have a material impact on the Company's consolidated results
of operations or financial position.
The AICPA issued SOP 98-5. "Reporting on the Costs of Start-
Up Activities," which requires that costs incurred for start-
up activities be expensed as incurred. The adoption not
expected to have a material impact on the Company's
consolidated financial statements.
The AICPA issued SOP 98-9, Modifications of SOP 97-2,
Software Revenue Recognition, With Respect to Certain
Transaction" which amends SOP 97-2 and supersedes SOP 98-4.
SOP 98-9 requires recognition of revenue using the "residual
method" in a multiple-element software arrangement when fair
value does not exist for one or more of the delivered
elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred
and recognized in accordance with SOP 97-2, The adoption is
not expected to have a material on the Company's
consolidated financial statements.
Reclassification:
- ----------------
In order to facilitate the comparison of financial data,
certain amounts reported in the prior periods have been
reclassified to conform with the current year's reporting
format.
SUNVEST RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Organization and business:
-------------------------
SunVest Resorts, Inc. (SunVest Delaware) was incorporated in
the State of Delaware on March 5, 1985. Prior to August 2,
1996, SunVest Delaware had no active business operations.
On July 16, 1996, SunVest Delaware's shareholders approved a
proposal to acquire two Florida corporations, Colony Plaza
Development, Inc. (Colony) and Cove Development, Inc.
(Cove), in exchange for shares of SunVest Delaware's common
stock. The shareholders also approved the change in
corporate name to Sunvest Resorts, Inc. and authorized
capitalization to consist of 25,000,000 shares of common
stock, $.02 par value per share.
SunVest Resorts, Inc. a Florida corporation was organized on
August 2, 1996 under the laws of the State of Florida.
SunVest and subsidiaries (the Company) purchases and
converts hotel properties in or near tourist destinations
and resort areas (resort properties) to condominiums. In
addition, the Company develops, markets, operates and
finances whole ownership interests (condominiums) and
vacation ownership interests (timeshares) in condominiums in
Company-owned resort properties. Condominiums are generally
purchased as a second home or vacation getaway; whereas,
timeshare units provide buyers with the exclusive right to
use a condominium unit, typically for a one-week period of
time each year.
SunVest Delaware issued 8,000,000 shares of its common
stock, $.02 par value in exchange for all the outstanding
common stock of Colony and Cove. On August 2, 1996, a
wholly owned Florida subsidiary also named SunVest Resorts,
Inc. was created and a merger was effected in order to
change the Company's corporate domicile to Florida.
The Company's subsidiaries and percentage owned are as
follows:
Percentage State Date of
Company Owned Organized Organization Ownership
- ------------------------- ---------- --------- ------------ ---------
Colony Plaza Development, Inc. 100% Florida April 11, 1995 Direct
Cove Development, Inc. 100% Florida July 20, 1995 Direct
Holiday Vacation Ventures, G.P. 66% Florida April 26, 1996 Indirect
Cove Vacation Ventures, G.P. 100% Florida April 26, 1996 Indirect
Lakeshore Club Development, L.C. 100% Florida June 21, 1999 Direct
The Company presently owns two resort properties, Colony
Plaza Resort Condominium in Ocoee, Florida (302 units) which
is owned by Colony, and Pirates Cove Resort Condominium in
Daytona Beach Shores, Florida (174 units) which is owned by
Cove. Each of the resort properties has been converted from
a hotel into a resort condominium in which the Company sells
condominium units. The Company and its assignees maintain
an easement to the condominium property to facilitate hotel
operations.
In June 1996, Colony sold ninety-four (94) whole interest
condominium units to Holiday Vacation Ventures (HVV), a
general partnership in which Colony had a 50% interest and
subsequently increased to 66% (related party). HVV has
since renovated and combined twenty-five (25) of the
condominium units into thirteen (13) condominium units for
sale as six hundred seventy-six (676) timeshare units and is
actively marketing them. Through 1998, HVV sold back 47 of
the remaining sixty-nine (69) condominium units to Colony
leaving a balance of 22 units which may be sold as whole
interests or renovated in the future into units for sale as
timeshare units.
The Company, through Lakeshore Club Development, L.C.
(Lakeshore LC) acquired Lakeshore Club Villas, a 500-unit
110-acre rental complex plus 420 acres of undeveloped
adjoining land. The plan is to convert and market the units
as a residential community and /or rental property. The
undeveloped land (the Lightsey Parcel) has a development
capacity for additional units and a golf course. (Read Note
2 of notes to consolidated financial statements).
Certain portions of the resort properties have been retained
by the Company and are not being conveyed to the buyers of
either whole interests or timeshare units or to the
condominium associations. Retained portions consist of the
resort property's recreational and commonly used facilities
such as pools, parking areas, lobbies and restaurants which
are contiguous to the condominium units. Owners and their
guests will have rights of access and use of such facilities
subject to certain terms and conditions. The condominium
associations will be responsible for all costs associated
with the maintenance and operations of such facilities.
Cove has two parcels of land held for future development.
The cost of the property less amounts allocated to the
various components of the property acquired are based in
part upon appraisals by independent property appraisers at
the time of purchase.
2. Financial results, liquidity and strategic planning:
---------------------------------------------------
The Company has incurred a net loss of $2,224,000 and
deficit cash flows from operations of $995,500 for the year
ended December 31, 1999. From inception, the Company has
reported net losses of $1,731,600, deficit cash flows from
operations of $6,959,900 and as of December 31, 1999 has
deficit equity of $2,943,400. To date, operating losses and
cash flow deficits have been funded through borrowings (net
of repayments) of approximately $14,299,600, of which
approximately $4,544,400 have been from the principal
shareholders and other related parties. Since, January 2000
the Company's management team has been developing a broad
operational and financial restructuring plan. The plan is
designed to sell income-producing properties, land held for
future development and certain other assets in addition to
the restructuring of operating costs and divestiture.
Despite its negative cash flow, the Company has been able to
secure financing to support the operations of its
subsidiaries to date based on credit support from the
majority shareholders. Between December 31, 1999 and March
31, 2000 the Company has obtained additional financing for
its subsidiaries through its principal shareholders and
other related parties. In addition to the related party
borrowings, the subsidiaries have drawn down all funds
available from third party sources.
Going forward, significant amounts of additional cash will
be needed to pay for the proposed business plan and to fund
losses until the Company has reached profitable operations.
Based on management's proposed plan, the Company estimates
that at least $1,500,000 would be required to fund the
Company's operations through the end of 2000. In order to
meet these shortfalls, in addition to the funding generated
by the related parties the Company subsequently sold
developer retained property and investment in land for
approximately $1,450,000 resulting in a gain of
approximately $1,055,000, both to an unrelated third party
(both through Colony). Proceeds from the sales amounted to
$275,000, were utilized to reduce bank debt ($100,000) and
shareholders advances ($175,000). The balances due the
Company of $1,175,000 bear interest at 7%, payable in full
with accrued interest on the anniversary dates ranging
between February and March 2001. The notes are
collateralized by the property sold. In the opinion of
management, the outstanding principle balance and the
related interest will be fully collectible.
On March 24, 2000, the seller-mortgagee of the Lightsey
Parcel informed Lakeshore LC its intention to foreclose on
the Lightsey Parcel that is land held for future
development. Management has yet to decide what action to
take regarding the notice of foreclosure with respect to
this non-recourse mortgage. If management determined that
it is in the Company's best interest to convey the land back
to the original seller then the mortgage note for $1,350,000
and land with a related cost basis of $1,350,000 will be
eliminated. There will be no gain or loss as a result of
the foreclosure.
In addition to the sales and foreclosure previously
discussed, management has also placed on the market
Lakeshore Club property itself, with an original cost of
$5,408,000 and a basis of $10,037,600 with improvements and
other capitalized costs. The Company had the property
appraised on July 8, 1999. The appraisal report valued the
property "as is" condition, in bulk to a single buyer at
$8,000,000. The market value in "as renovated" condition,
in bulk to a single buyer was $18,000,000. Debt on this
property as of December 31, 1999 is approximately $6,566,000
to an unrelated party and an additional $2,900,000 to
related parties. The debt does not include accrued interest
of $43,500 as of December 31, 1999. Management has an
asking price ranging between $10,000,000 to $15,000,000.
The Company has had discussions with two (2) potential
purchasers, one of whom has turned down the project after
its due diligence. Management is still in preliminary
discussions with the second party. No assurance can be
given that the property can be sold to an independent third
party.
No assurances can be given that management's business plans
will be executed as discussed or that the funding
requirements would continue from the shareholders, related
parties or other sources. The Company is continuing to seek
other methods to support its turnaround efforts. It is
management's opinion that its current credit arrangements is
sufficient to meet the cash flow requirements for the
current year. It is management's opinion that it has under
development a business plan that if successfully funded and
executed, can significantly improve the financial condition
of the Company. Read Note 3 of notes to consolidated
financial statements that discusses a potential merger, spin-
offs and new business.
3. Proposed merger and divestiture:
-------------------------------
In March 2000, the Company entered into an Agreement and
Plan of Merger with US Data Authority, Inc. (USDA), a
privately held Florida corporation which was organized on
January 15, 1999. USDA provides a range of bandwidth
("Internet") services and network management, primarily to
business customers. USDA provides Internet access, co-
location access and remote access on a high-speed digital
network. USDA will also provide computer and network
support services. USDA will act as a bridge between
national and local providers and plans to offer
competitively priced access across the whole nation at
prices ranging 40% to 50% below the national average. USDA
together with a national company, will offer routers and
processor based servers which USDA has determined to be far
easier to install and troubleshoot than other industry
leaders.
Under the terms of the proposed merger, the Company will
effect a 3.6:1 reverse stock split, which will reduce the
outstanding shares of the Company from 9,000,000 shares to
2,500,000. The Company will also divest itself of its three
(3) direct operating subsidiaries (Cove, Colony and
Lakeshore LC) by distributing their shares to the Company
shareholders as a dividend. Then, under the Merger
Agreement USDA would merge into the Company, with the USDA
shareholders receiving 90% of the post merger equity of the
Company. The transaction will be accounted for by the
purchase method. Accordingly the purchase price will be
allocated to the net assets acquired based on their
estimated fair values. Should the merger occur, the Company
would change its line of business to an internet service
provider. The Company has filed an information statement in
accordance with Rule 14F-1 of the Securities Act of 1934
pertaining to the anticipated designation of persons to the
Board of Directors as a result of this Agreement and Plan of
Merger. The Company expects the partial year earnings
impact in the year 2000 to be neutral.
Unaudited financial information as of December 31,1999 and
from inception (January 15, 1999) to December 31, 1999 of
USDA as provided to management is summarized as follows:
US Data Authority , Inc.
Condensed Balance Sheet - December 31, 1999
(Unaudited)
(000 Omitted)
Assets Liabilities and Equity
Current Assets: Current Liabilities
Cash and equivalents $ 16 Accounts payable $ 25
Accounts receivable 101 Current and deferred
Due from officers 46 Income taxes 38
---- ----
Total current assets 163 Total current
liabilities 63
Furniture and equipment 50 Shareholder's equity:
Common stock 5
Other assets 10 Retained earnings $155 160
---- ---
$223 $223
US Data Authority, Inc.
Condensed Statement of Operations
From Inception (January 15, 1999) to December 31, 1999
(Unaudited)
(000 Omitted)
Sales $ 429
Cost of Sales 147
------
282
Operating expenses
Selling, general and administrative 89
------
Income before provision for income taxes 193
Provision for income taxes, current and deferrerd 38
------
Net income $ 155
======
Management of USDA does not consider its Company to be in
the development stage, since it has commenced meaningful
operations.
As indicated above, if the merger with USDA occurs, the
Company will cause a divestiture (spin-off) of its
subsidiaries (Cove, Colony and Lakeshore LC) as a dividend
to its shareholders on a one for one basis, subject to
approval of the Board of Directors. A spin off is the
separation of one corporation into two or more corporations
with the same shareholders owning the separate corporations
directly. As a result of the spin-offs, the Company would
reduce its net deficit to approximately $221,700 and
effectively have no assets or liabilities. If the
divestiture occurs, the consolidated financial results of
the Company would be restated to reflect the divestitures.
The following pro forma information is provided to reflect
the effect on shareholders deficit of the divestiture of the
subsidiaries as if it had occurred on January 1, 2000:
As Pro Forma Pro Forma
originally Adjustments January 1, 2000
Reported
----------------------- ---------------
Shareholders' equity
(deficit $ 180,000 $ - $ 180,000
Common stock
Capital in excess of par 699,600 - 699,600
Accumulated deficit (3,823,000 2,721,700 (1,101,300)
----------- --------- ------------
$(2,943,400) 2,721,700 $ (221,700)
=========== ========= ============
No assurances can be given that the management's plan of
merger and divestiture would occur as planned.
4. Concentration of credit risk:
----------------------------
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash
and equivalents, mortgage notes receivable and amounts due
from related parties. During the year, the Company had
deposits with financial institutions, which exceeded
federally insured limits covered by the Federal Deposit
Insurance Corporation and other agencies. Management
regularly monitors their balances and attempts to keep this
potential risk to a minimum by maintaining their accounts
with financial institutions that they believe are of good
quality.
The Company may have a concentration of credit risk with
respect to mortgage notes receivable and amounts due from
related parties. The Company has a large number of
geographically dispersed customers on which it performs
ongoing credit evaluations and has not experienced
significant losses. The Company maintains an allowance for
loan losses based upon the expected collectibility of all
receivables. Therefore, no additional credit risk beyond
amounts provided for collection losses is believed inherent
in the Company's mortgage notes and accounts receivable and
to date have been within management's expectations.
5. Mortgage notes receivable:
-------------------------
The Company provides mortgage financing to its customers in
connection with the sale of condominium and timeshare units.
Such mortgages, which are collateralized by the unit or
interest sold, bear interest at rates ranging from 9.50% to
18% a year and are payable in monthly installments over
periods ranging from 2 to 15 years. Substantially all
mortgage notes receivable are collateralized to the
Company's borrowings of approximately $311,300. The Company
reflects its mortgage notes receivable less an allowance for
loan losses, discounts and deferred profit on installment
sales.
During 1999, the Company sold, without recourse, mortgage
notes receivable for approximately $591,400 after giving
effect to a discount of $28,500. The discount on the sale
of the mortgages was charged to operations. The Company
utilized the proceeds from the sale of the mortgages to pay
down financing notes of $510,300 and the balance ($52,600)
was utilized as working capital.
Collections of mortgage notes receivable subsequent to
December 31, 1999 after giving effect to the subsequent sale
of mortgage notes are as follows:
Years Ending
December 31, Amount
------------ --------
2000 $140,100
2001 147,700
2002 160,400
2003 158,800
2004 97,400
Thereafter 83,000
--------
787,400
Less allowance for loan losses and discount 184,000
----------
$ 603,400
==========
6. Details of financial statement components:
-----------------------------------------
Condominium units held for sale:
1999
----------------------------------
Condominum Timeshare
Total Units Units
--------- ----------- ----------
Land $83,300 $81,200 $2,100
Buildings,
improvements,
furniture and 811,800 791,100 20,700
equipment
Development costs 1,946,500 1,792,100 154,400
---------- ---------- --------
$2,841,600 $2,664,400 $177,200
========== ========== ========
1998
----------------------------------
Condominium Timeshare
Total Units Units
--------- ------------ -----------
Land $83,900 $48,000 $35,900
Buildings,
improvements,
furniture and 762,700 416,700 346,000
equipment
Development costs 755,600 472,300 283,300
---------- -------- --------
$1,602,200 $937,000 $665,200
========== ======== ========
All condominium units held for sale are collateralized to
mortgage notes payable.
Condominium units under development:
1999 1998
---------- ----------
Land $73,100 $231,400
Buildings, improvements, furniture 749,700 2,372,200
and equipment
Development costs 631,400 354,600
---------- ----------
$1,454,200 $2,958,200
========== ==========
Income producing property:
1999 1998
---------- ----------
Land $681,300 $578,500
Building 3,939,700 2,684,200
Land improvements 87,800 64,700
Building improvements 827,800 461,100
Furniture and fixtures 247,600 43,700
--------- ---------
5,784,200 3,832,200
Less accumulated depreciation 286,200 84,400
---------- ----------
$5,498,000 $3,747,800
========== ==========
All income producing property is collateralized to mortgage notes payable.
Deferred costs:
Loan costs $402,300 $458,000
Conversion costs 23,400 40,600
Leasing costs 17,100 52,800
Organizational costs 900 900
------- -------
443,700 552,300
Less accumulated amortization 240,800 239,300
-------- --------
$202,900 $313,000
======== ========
Other:
Interest, mortgage receivable $12,400 $31,600
Other receivables 21,200 93,100
Prepaids and other assets 13,500 30,200
------- --------
$47,100 $154,900
======= ========
7. Notes and mortgages payable:
---------------------------
1999 1998
Mortgage note, bank, interest at 2% above
the bank's prime lending rate (8.5%)
payable monthly, revolving principal
balance, matures June 3, 2000,
collateralized by real property and
assignment of Cove's rents, leases and
guaranteed by the Company's officers and
their spouses. $295,000 $317,200
Second mortgage note, related party,
controlled by the Company's principal
shareholders, interest at 18% until May
1, 1998, 12% after that date,
collateralized by real property. - 200,000
Financing note, bank, under a $1,000,000
revolving loan. Outstanding balance at
December 31, 1998 aggregates $204,000;
interest at 1% above the bank's prime
rate (8.5%); collateralzed by certain
mortgages receivable; principal is
payable from collections of specific
mortgages serviced by the bank at 80% of
the reduction of such mortgages; paid in
full January 4, 1999, from proceeds
derived from sales of mortgages. - 204,000
Financing note, bank, under a $1,200,000
credit facility to the Company and
certain affiliates, maturing June 2003,
interest at 8.75% payable monthly; joint
and several liability with affiliates and
collateralized by the Company's income
producing property and property of
certain affiliates. Outstanding
principal at December 31, 1999,
aggregates $1,137,500 (which includes
affiliates). 599,200 621,600
Construction loan, bank, under a
$6,900,000 facility, interest at 1.5%
above bank's prime rate (1999, 8.5%;
1998,) 7.75%) payable monthly, matures
October 2001, collateralized by Lakeshore
property and guaranteed by the Company's
officers and their spouses; the loan is
evidenced by two notes (i) a $4,800,000
acquisition note and (ii) a $2,100,000
revolving construction loan; principal
reductions prior to maturity are payable
based upon sale of units 6,566,000 4,800,000
Mortgage note, interest at 8% starting
April, 1999, payable monthly, thereafter
principal and interest of $27,400
starting May 2004. Collateralized by
Lakeshore (Lightsey Parcel) unimproved 1,350,000 1,350,000
land.
Mortgage note, related party, interest at
18% payable monthly, principal due at
maturity, July 2001; collateralized by land. 400,000 -
Second mortgage note, related party,
interest at 18% payable monthly, principal due
October 2001; collateralized by real property.
2,500,000 2,500,000
Credit facility, financial institution
providing $2,500,000 to HVV to acquire certain
condominium units from Colony; $715,000
revolving loan to convert and renovate
condominium units for sale as timeshare
units and up to $7,500,000 for a
revolving credit loan to finance
receivables generated by the sale of
timeshare units. Outstanding balances at
December 31, 1999 and 1998 amount to
$233,700 and $835,400 respectively, under
the acquisition loan and $311,300 and
$470,000, respectively, under the
receivable loan. Interest at the greater
of 10.75% a year or the prime rate (8.5%)
plus 3%. Interest payable monthly, for
the revolving credit loan portion is
based on collections of the specific
mortgages generated through the sale of
timeshare units. The outstanding principal on
the acquisition and renovation portion of
the facility is due on demand. The
maturity date of the revolving credit
loan is June 30, 2000.
545,000 1,305,400
----------- -----------
$12,255,200 $11,298,200
=========== ===========
All outstanding mortgage notes and the acquisition portion
of the credit facility are collateralized by real estate.
Lines of credit and receivable loans are collateralized by
specific mortgage receivable collateralized by real estate.
Substantially all borrowings are guaranteed by certain
principal shareholders and officers of the Company and their
spouses. Certain principals of Colony's venture partner
also guarantee the credit facility loan.
During 1999 and 1998, the Company incurred interest costs of
$1,473,300 and $829,300, respectively, of which $229,700 and
$84,300, respectively, were capitalized.
Principal payments due on the notes and mortgages payable
for the five years subsequent to December 31, 1999 are as
follows:
Years
Ending
December 31, Amount
----------- -------
2000 $ 528,700
2001 10,150,700
2002 -
2003 225,800
2004 150,500
Thereafter 1,199,500
------------
$ 12,255,200
============
8. Income taxes:
------------
Components of the net deferred tax asset as reflected on the Compan y's
consolidated balance sheets are as follows:
1999 1998
-------------- --------------
Deferred tax assets:
Loan losses $ 51,200 $ 168,000
Net operating loss 1,061,200 343,700
carryforwards -------------- -------------
1,112,400 511,700
Less valuation allowance 1,112,400 280,200
-------------- -------------
Deferred tax asset - 231,500
Deferred tax liabilities, - -
-------------- -------------
Deferred taxes, Net $ - $ 231,500
============== =============
The components of the provision for income tax expense (benefit)
for the years ended December 31, 1999 and 1998 are as follows:
1999 1998
------------- ------------
Deferred:
Federal $ 198,500 $ (122,600)
State 33,000 (18,100)
------------- ------------
$ 231,500 $ (140,700)
============= ============
Income taxes (benefit) for the years ended December 31, 1999
and 1998 differ from that which would result from applying
statutory tax rates primarily due to certain operating
expenses, which are not tax deductible. The provision for
income taxes is reconciled to the amount obtained by
applying the federal statutory income tax rate to income
before provision for income taxes as follows:
1999 1998
---------- ----------
Provision at statuatory rate $ (697,400) $ (121,000)
State taxes, net of federal (71,200) (12,000)
benefits
Valuation allowance 1,034,900 -
Graduated tax rates and others (34,800) (7,700)
--------- ----------
$ 231,500 $ (140,700)
========= ==========
At December 31, 1999, the Company had available federal net
operating loss carryforwards of approximately $2,579,000,
which will generally expire between 2010 and 2014. If the
divestiture, which was discussed in Note 2 of notes to
consolidated financial statements, occurs then the net
operating losses would inure to the benefit of the
subsidiary companies. If that were to occur, the net
operating loss carryforward of the Company would be
approximately $1,101,300. The balance of the net operating
loss carryforward is represented by the original unused
carryforward of SunVest prior to 1995 ($696,800) and
subsequent losses of $404,500. This net operating loss
carryfoward expires in varying years to 2014. Prior
management had provided a valuation allowance equal to any
benefits since it is more likely than not that the benefits
would not be realized.
Available evidence suggests that it is more likely than not
that substantially all deferred tax assets will not be
realized and accordingly a valuation allowance has been
recorded to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Management has
established a valuation allowance equal to net deferred tax
assets on the net operating loss carryforward. Future
changes in such a valuation would be included in the
provision for deferred income taxes in the period of change.
9. Transactions with related parties, commitments and contingencies:
---------------------------------------------------------------------
In 1998, the Company made net advances amounting to
approximately $74,800 to companies owned and controlled by
the Company's principal shareholders and officers
("affiliated companies"). During 1999 the Company received
net advances of $551,500. Advances made and received were
unsecured. Interest of 12% per annum was charged on inter-
company advances. Interest incurred by the Company on
advances from affiliated companies amounted to approximately
$90,700 and $135,800 for the years ended December 31, 1999
and 1998, respectively.
The Company incurred interest expense of approximately
$486,000 and $112,500 during 1999 and 1998, respectively, on
mortgages held by limited partnerships in which the general
partner is an affiliated company. The outstanding balances
due under these second mortgages aggregated $2,900,000 and
$2,500,000 at December 31, 1999 and 1998, respectively.
The Company received unsecured net advances from
shareholders aggregating $1,237,800 through 1999. The
outstanding balance of such advances approximated $774,100
and $967,700 at December 31, 1999 and 1998. Interest of 12%
per annum is charged on shareholder advances and during 1999
and 1998 the Company incurred interest expense of
approximately $98,400 and $127,600, respectively, on such
advances.
In 1999 and 1998, general and administrative expenses
include approximately $143,000 and $229,000 respectively of
overhead charged by an affiliated company. The affiliated
company provided, among other services, the overall
management, purchasing, accounting and record keeping
functions for the Company, as well as its corporate office
premises. During 1999 and 1998, centralized payroll and
personnel services were provided to Colony, Cove and
Lakeshore by another affiliated company. Management
determines overhead charges.
A summary of transactions and/or balances with related
parties is as follows:
1999 1998
---------- ----------
Advances from shareholders $ 774,100 $ 967,700
Due from related parties 59,500 335,000
Due to related parties 1,329,800 1,053,800
Mortgage payable 400,000 -
Second mortgage payable 2,500,000 2,500,000
Interest expense 576,700 423,400
General, administrative and
marketing 142,500 322,000
---------- ----------
$5,782,600 $5,601,900
========== ==========
In the opinion of management, the realization and payment of
related party amounts would occur in the normal course of
business.
Colony and Cove have each entered fifteen-year lease
agreements with unrelated parties for management
("management companies") of their hotel and restaurant
operations. The Colony agreement was entered on February
28, 1996 and the Cove agreement was entered on September 29,
1995. The management companies operate rental programs,
which allow participating owners of whole interests to rent
their condominium units to hotel guests. Additionally, the
Company's unsold condominium and timeshare units are rented
to transients by the management companies on a rotational
basis. The lease agreements for Colony and Cove extend
through February, 2011 and September 2010, respectively. The
lease agreements provide that the Company will receive three
percent of the management companies' revenue from hotel
operations and five percent of restaurant revenues (as
defined). Additionally, the management companies remit to
the Company a percentage of the gross rental revenues earned
on Company owned units (Colony-45% and Cove-50%). Read Note
2 of notes to consolidated financial statements related to
subsequent sale of Colony's rental and restaurant
operations.
Colony and Cove have recorded the Declarations of
Condominium ("Declaration") with respect to the 302 units
and 174 units converted to condominium effective March 4,
1996 and February 7, 1996, respectively. Cove pays its
prorata share of the condominium associations' estimated
operating budget on its unsold units in the same manner as
other unit owners. The associations' shortfalls, together
with maintenance assessments accrued on HVV's unsold
timeshare units, aggregating approximately $714,000 for
1998, have been capitalized as a cost of condominium units
held for sale. The Company estimates that no additional
shortfall will be funded by Colony and that rental income
will offset any additional maintenance assessments incurred
by HVV.
At December 31, 1998, property improvement and development
costs include amounts accrued for developer funded converter
reserves (1998, $165,400), capitalized interest and taxes
during the development stage (1998, $552,300) and the
condominium associations' shortfalls (1998, $681,000). The
Company has received approximately $22,500 of deposits on
sales contracts for five (5) of the whole interest units
representing an aggregate sales price of approximately
$170,000. At December 31, 1999, HVV has received
approximately $59,600 of deposits on 47 timeshare units of
which 31 are non-cancelable sales contracts representing an
aggregate sales price of approximately $111,000.
10. Selected quarterly information (unaudited):
------------------------------------------
Sunvest Resorts, Inc. common stock is traded on the OTC
Bulletin Board under the symbol SUNE. The following table
sets forth the quarterly high and low sales prices for the
periods indicated. The prices shown represent actual sales
prices without retail markups, markdowns or commissions.
Sale price of common stock:
1999 1998
----------------- ----------------
High Low High Low
--------- ------- -------- ------
First quarter, March 31, $ 2.50 $ .50 $ 2.00 $ 1.00
Second quarter, Jnen 30, $ 3.00 $ 1.50 $ 3.625 $ 2.50
Third quarter, Sept. 30, $ 2.875 $ 1.875 $ 2.00 $ 1.00
Fourth quarter, Dec. 31, $ 1.50 $ 0.625 $ 4.25 $ 1.25
Exhibit 10.5
Agreement and Plan of Merger by and among SunVest Resorts,
Inc., US Data Authority, Inc. et al. Dated effective March
15, 2000.
AGREEMENT AND PLAN OF MERGER
by and among
SUNVEST RESORTS, INC.,
a Florida corporation,
and
SUNVEST SHAREHOLDERS
(as hereinafter defined),
and
US DATA AUTHORITY, INC.
and
USDA Shareholders
(as hereinafter defined)
and
Patricia Siegel
and
Windspire Venture Capital LLC
TABLE OF CONTENTS
ARTICLE 1 THE MERGER...................................1
1.1 The Merger...................................1
1.2 Effective Time...............................1
1.3 Conversion of Shares.........................1
1.4 Articles of Incorporation....................2
1.5 Bylaws.......................................2
1.6 Approval by Shareholders.....................2
1.7 Closing......................................2
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF
USDA AND THE USDA SHAREHOLDERS...............2
2.1 Organization; Authority; Due Authorization...3
2.2 No Conflict; No Required Consents............3
2.3 Capitalization; Subsidiaries.................3
2.4 Compliance with Laws; No Litigation..........3
2.5 Licenses and Permits.........................3
2.6 Intellectual Property........................3
2.7 Financial Information........................4
2.8 Tangible Personal Property...................4
2.9 Real Property................................4
2.10 Tax Returns and Payments.....................4
2.11 Contracts....................................5
2.12 Insurance....................................5
2.13 Environmental Matters........................5
2.14 Employee Relations...........................6
2.15 Absence of Questionable Payments.............6
2.16 Disclosure Statement.........................6
2.17 Benefit Plans and ERISA......................7
2.18 Customers and Vendors; Distributors and
Representatives..............................7
2.19 Brokers' Fees and Expenses...................8
2.20 Absence of Material Changes..................8
2.21 Certain Arrangements.........................9
2.22 Year 2000 Compliance.........................9
2.23 Full Disclosure..............................9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF
SUNVEST AND SUNVEST SHAREHOLDERS.............9
3.1 Organization; Authority; Due Authorization...9
3.2 No Conflict; No Required Consents...........10
3.3 Capitalization; Subsidiaries; Other Assets
and Liabilities.............................10
3.4 Compliance with Laws; No Litigation.........10
3.5 Licenses and Permits........................10
3.6 Intellectual Property.......................11
3.7 Financial Information.......................11
3.8 Tangible Personal Property..................11
3.9 Real Property...............................11
3.10 Tax Returns and Payments....................11
3.11 Contracts...................................12
3.12 Insurance...................................13
3.13 Environmental Matters.......................13
3.14 Employee Relations..........................13
3.15 Absence of Questionable Payments............14
3.16 Benefit Plans...............................14
3.17 Shares to be Delivered......................14
3.18 Brokers' Fees and Expenses..................14
3.19 Absence of Material Changes.................14
3.20 Certain Arrangements........................15
3.21 Year 2000 Compliance........................15
3.22 Full Disclosure.............................15
3.23 No Liability for Subsidiaries...............16
ARTICLE 4 COVENANTS OF USDA...........................16
4.1 Conduct of Business Pending Merger..........17
4.2 Access......................................17
4.3 Press Releases..............................17
4.4 USDA Business Plan and AT&T Contract........18
4.5 Investment by Siegel and Windspire..........18
ARTICLE 5 COVENANTS OF SUNVEST........................18
5.1 Conduct of Business Pending Merger..........18
5.2 Access......................................20
5.3 Specific Actions Before and at Closing......20
5.4 Press Releases..............................20
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATION OF
SUNVEST TO CLOSE............................20
6.1 Representations and Warranties True at
Closing.....................................20
6.2 Obligations Performed.......................20
6.3 Closing Deliveries..........................21
6.4 No Challenge................................21
6.5 No Material Adverse Change..................21
ARTICLE 7 CONDITIONS PRECEDENT TO
USDA'S OBLIGATIONS TO CLOSE.................21
7.1 Representations and Warranties True at
Closing.....................................21
7.2 Obligations Performed.......................22
7.3 Closing Deliveries..........................22
7.4 No Challenge................................22
7.5 No Material Adverse Change..................22
ARTICLE 8 TERMINATION.................................22
8.1 Termination.................................22
8.2 Effects of Termination......................22
ARTICLE 9 MISCELLANEOUS PROVISIONS....................23
9.1 Survival....................................23
9.2 Severability................................23
9.3 Modification................................23
9.4 Survival; Binding Agreement.................23
9.5 Counterparts................................23
9.6 Notices.....................................23
9.7 Entire Agreement; No Third Party
Beneficiaries...............................24
9.8 Further Assurances..........................24
9.9 Waivers.....................................24
9.10 Assignment..................................24
9.11 Headings....................................24
9.12 Expenses....................................24
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement")
dated as of March 15, 2000, is entered into by and among
SunVest Resorts, Inc., a Florida corporation ("SunVest" or
the "Surviving Corporation"), the holders of capital stock
of SunVest whose names appear on the signature pages hereof
(collectively the "SunVest Shareholders"), US Data
Authority, Inc., a Florida corporation ("USDA"), the holders
of the capital stock of USDA whose names appear on the
signature page hereof (collectively the "USDA
Shareholders"), Patricia Siegel, an individual resident of
the State of New Jersey ("Siegel") and Windspire Venture
Capital LLC, a New Jersey limited liability company
("Windspire").
WITNESSETH:
WHEREAS, the boards of directors of SunVest and USDA,
respectively, and the USDA Shareholders, deem it in their
best interests for USDA to merge with and into SunVest
pursuant to the plan of merger contained herein (the
"Merger"); and
WHEREAS, the Merger is intended to qualify as a tax-
free reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties hereto desire to set forth certain
representations, warranties and covenants made by each to
the others as an inducement to the consummation of the
Merger and certain additional agreements related to the
Merger; and
WHEREAS, Siegel and Windspire have agreed to make an
investment in USDA before and after the merger.
NOW, THEREFORE, in consideration of the mutual
representations, warranties and covenants herein contained
and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as
hereinafter defined), USDA shall be merged with and into
SunVest in accordance with the applicable provisions of
Florida law and the separate existence of USDA shall
thereupon cease, and SunVest, as the surviving corporation
in the Merger, shall continue its corporate existence in
accordance with the Florida Business Corporation Act
("Florida Act").
1.2 Effective Time. At the Closing (as hereinafter
defined), SunVest shall cause the Merger to be consummated
by filing with the Secretary of State of Florida appropriate
articles of merger duly executed in accordance with this
Agreement and the relevant law. The date and time at which
such Articles of Merger are filed is referred to herein as
the "Effective Time."
1.3 Conversion of Shares. At the Effective Time,
by virtue of the Merger and without any action on the part
of the holder of any securities of SunVest or of USDA:
(a) Each share of the capital stock of USDA,
and all rights with respect thereto, shall be converted into
shares of Common Stock, $.02 par value, of SunVest (the
"SunVest Shares") as follows:
Total number of USDA shares capital stock issued and
outstanding: 4,500
Number of SunVest Shares for each share of USDA's
capital stock: 4,500
Total number of SunVest Shares issued in the Merger:
20,250,000
(b) Each SunVest Share, if any, held in
SunVest's treasury shall be canceled and retired without
payment of any consideration therefor and shall cease to
exist.
(c) The total of 2,500,000 of SunVest Shares
issued and outstanding immediately before the Closing Date
shall remain issued, outstanding and unchanged after the
Effective Time.
(d) Certificates representing the SunVest
Shares issued in the Merger shall bear the following legend:
The shares represented by this certificate have
not been registered under the Securities Act of 1933, as
amended, (the "Act") or any state securities laws (the
"State Acts"), and are restricted securities. The
restricted securities have been acquired for the holder's
own account and not with a view to distribute them.
Restricted securities must be held indefinitely and may not
be sold or otherwise transferred unless they are
subsequently registered under said Act and any applicable
State Acts or an exemption from such registration is
available.
1.4 Articles of Incorporation. The Articles of
Incorporation of SunVest as in effect on the date hereof
shall be in effect on the Closing Date and shall continue in
full force and effect until further changed, altered or
amended in the manner prescribed by the provisions of
Florida law.
1.5 Bylaws. The Amended and Restated Bylaws of
SunVest as in effect on the date hereof shall be in effect
on the Closing Date and shall continue in full force and
effect until further changed, altered or amended in the
manner prescribed by the applicable provisions of Florida
law.
1.6 Approval by Shareholders. The Merger has
already been approved by the shareholders of USDA and is not
subject to approval by the shareholders of SunVest under the
provisions of the Florida Act.
1.7 Closing. The closing of the transactions
contemplated herein (the "Closing") shall take place on or
before the fifth (5th) business day after the satisfaction
of all of the conditions and contingencies contained herein,
or on such other date as is mutually agreed upon by the
parties hereto (such date to be herein referred to as the
"Closing Date"). All computations, adjustments, and
transfers for the purposes hereof shall be effective as of
the close of business on the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
USDA AND THE USDA SHAREHOLDERS
USDA and the USDA Shareholders, jointly and severally,
hereby represent and warrant to SunVest as follows, which
representations and warranties shall be true and correct
upon the date hereof and on the Closing Date:
2.1 Organization; Authority; Due Authorization.
USDA is a corporation duly organized and validly existing
under the laws of the State of Florida and has all necessary
corporate power and authority to own, lease and operate its
properties and conduct its business as it is currently being
conducted. USDA is duly qualified as a foreign corporation
in all jurisdictions in which the conduct of its business or
the ownership of its properties requires such qualification
and the failure to qualify would be materially harmful to
the business or financial condition thereof. USDA has full
corporate power and authority to execute and deliver this
Agreement and each of the other documents and instruments
referenced in this Agreement to be executed and delivered by
USDA (the "USDA Merger Documents") and to consummate the
transactions contemplated hereby and thereby. This
Agreement has been approved by the board of directors of
USDA and by the shareholders of USDA. This Agreement and
each of the USDA Merger Documents will constitute, when
executed and delivered by USDA, a valid and binding
obligation of USDA, in each case enforceable against USDA in
accordance with its terms.
2.2 No Conflict; No Required Consents. Except as
shown on Schedule 2.2 attached hereto, the execution and
delivery by USDA of this Agreement and the USDA Merger
Documents and the consummation by USDA of the transactions
contemplated hereby and thereby do not and will not (a)
require the consent, approval or action of, or any filing or
notice to, any corporation, firm, person or other entity or
any public, governmental or judicial authority; (b) violate
the terms of its Articles of Incorporation or Bylaws or the
terms of any instrument, document or agreement to which USDA
is a party, or by which USDA or the property of USDA is
bound, or be in conflict with, result in a breach of or
constitute (upon the giving of notice or lapse of time, or
both) a default under any such instrument, document or
agreement, or result in the creation of any lien upon any of
the property or assets of USDA; or (c) violate any order,
writ, injunction, decree, judgment, ruling, law or
regulation of any federal, state, county, municipal, or
foreign court or governmental authority applicable to USDA
or the business or assets of USDA.
2.3 Capitalization; Subsidiaries. The authorized
capital of USDA consists of 7,500 shares of common stock,
par value $1.00 per share, of which 4.500 are issued and
outstanding. All of the issued and outstanding shares are
validly issued, fully paid and non-assessable and were
issued in compliance with the Securities Act of 1933. Except
as shown on Schedule 2.3 attached hereto and Windspire's
right to acquire 500 shares of USDA common stock pursuant to
the arrangement described in Section 4.5 hereof, USDA has no
convertible securities, options, warrants, or other
contracts, commitments, agreements, understandings,
arrangements or restrictions by which it is bound to issue
any additional shares of common stock or other securities
except as provided in this Agreement and its shareholders do
not have preemptive rights. Schedule 2.3 also sets forth the
names of all corporations, partnerships, joint ventures,
limited liability companies or other entities in which USDA
owns, directly or indirectly, any equity interest
(individually, a "USDA Subsidiary," and collectively, the
"USDA Subsidiaries") and sets forth the amount of such
equity interest.
2.4 Compliance with Laws; No Litigation. USDA is
in compliance with all applicable laws, orders, rules and
regulations of all governmental bodies and agencies. Except
as set forth on Schedule 2.4 attached hereto, there is no
action, proceeding or investigation pending or, to USDA's or
the USDA Shareholders' knowledge, threatened against or
involving or relating to USDA's assets or the operation of
its business, nor is there any action or proceeding pending
or threatened before any court, tribunal or governmental
body seeking to restrain or prohibit or to obtain damages or
other relief in connection with the consummation of the
transactions contemplated by this Agreement and the USDA
Merger Documents, or which might materially and adversely
affect USDA's business, assets, or ability to consummate the
transactions contemplated by this Agreement and the USDA
Merger Documents. USDA is not subject to any judgment, order
or decree entered in any lawsuit or proceeding relating to
any of its assets or the operation of its business.
2.5 Licenses and Permits. Except as listed on
Schedule 2.5 attached hereto, USDA does not hold any
license, permit, concession, grant, franchise, approval,
certificate, accreditation or authorization (collectively
"Licenses and Permits"). None of such Licenses and Permits
is subject to any restriction or condition which would limit
the full operation of business by the Surviving Corporation
after the Merger. USDA has not received notice of any
violations in respect of any such License and Permit and no
proceeding is pending or, to its or the USDA Shareholders'
knowledge, is threatened, which seeks revocation or
limitation of any such License and Permit.
2.6 Intellectual Property. Except as listed on
Schedule 2.6 attached hereto, USDA does not use any
trademark, service mark, trade name, copyright, proprietary
software or other material intangible property (collectively
"Intellectual Property"). No claims have been asserted and
no claims are pending or, to its or the USDA Shareholders'
knowledge, threatened by any person or entity, to the use of
any such Intellectual Property or challenging or questioning
the validity or effectiveness of any state or federal
registration of the Intellectual Property and neither USDA
nor the USDA Shareholders knows of any basis for such claim.
2.7 Financial Information.
(a) USDA shall have delivered to SunVest a
copy of an audited balance sheet and income statement for
the period ending December 31, 1999, and shall have
delivered its unaudited balance sheet and income statement
for the period ending February 29, 2000 (the "USDA
Financials").
(b) The USDA Financials (including any related
schedules and/or notes), have been prepared in accordance
with generally accepted accounting principles consistently
applied throughout the periods involved, show all
liabilities, direct and contingent, required at the time of
preparation to be shown in accordance with such principles
and fairly present the financial position and results of
operations of USDA as of the date thereof and for the period
indicated.
(c) Except as set forth on Schedule 2.7
attached hereto, USDA has no liability or obligation
(absolute, accrued, contingent or otherwise), including any
guaranty with respect to any obligation, except (i) such
liabilities or obligations as are fully reflected or
reserved against in the USDA Financials; (ii) such
liabilities or obligations which are disclosed in any
schedule to this Agreement or otherwise in writing to the
other parties hereto or which are not material or otherwise
are not required to be so disclosed, and (iii) such
liabilities or obligations as have been incurred in the
ordinary course of business, consistent with past practice
since December 31, 1999.
2.8 Tangible Personal Property. Except as listed
on Schedule 2.8 attached hereto, USDA does not own or lease
any tangible personal property. As of the Closing Date, all
of USDA's tangible personal property will be free and clear
of any liens, pledges, encumbrances, claims or similar
rights of third parties. All of the tangible personal
property owned by USDA and all of the leased tangible
personal property listed in Schedule 2.8 is in good
operating condition, subject to ordinary wear and tear.
2.9 Real Property.
(a) Except as listed on Schedule 2.9(a)
attached hereto, USDA does not own or lease, has not agreed
to lease or has an obligation to lease any real property
(including any improvements thereon) (hereinafter referred
to as "USDA's Real Property").
(b) On the Closing Date the USDA Real Property
will be free and clear of any and all liens, pledges,
encumbrances, claims, leases, licenses, occupants or tenants
or similar rights of third parties, except as set forth on
Schedule 2.9(b) attached hereto. There are no pending or, to
USDA's or the USDA Shareholders' knowledge, threatened
condemnation, eminent domain or similar proceedings or
litigation or other proceedings affecting the USDA Real
Property or any portion or portions thereof. To the
knowledge of USDA or the USDA Shareholders, there are no
pending or threatened requests, applications or proceedings
to alter or restrict any zoning or other use restrictions
applicable to the USDA Real Property that would interfere
with the conduct of the business of USDA or the use of its
assets consistent with past practice, which interference
would have a material adverse effect on its business.
2.10 Tax Returns and Payments. All federal, state
and local income, franchise, sales, use, payroll, excise,
business and license tax returns of USDA required by law
(after taking into account lawful extensions) to be filed on
or before the Closing Date have been or will be timely filed
and USDA has paid or will pay all taxes, including federal,
state or local income, franchise, sales, use, payroll,
excise, business and license taxes and any penalties and
interest or other charges applicable thereto ("Taxes") as
shown on such returns and which were due prior to the
Closing Date. No audit of the taxes of USDA is currently in
progress or has, to USDA's or the USDA Shareholders'
knowledge, been scheduled. Also (except as disclosed in
Schedule 2.10):
(a) No property of USDA is property that it is
or will be required to treat as owned for tax purposes by
another person, or is "tax-exempt use property" as defined
in Code section 168(h);
(b) USDA has not agreed to or been required to
make any adjustment pursuant to Code section 481(a) by
reason of any change in accounting method initiated by it;
the Internal Revenue Service has not proposed any such
adjustment or change in accounting method; and USDA does not
have any application pending with any taxing authority
requesting permission for any change in accounting method.
(c) USDA has not been a United States real
property holding corporation as defined in Code section
897(c)(2) during the applicable period specified in Code
section 897(c)(1)(A)(ii);
(d) USDA has not made any payments, is
obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under Code
section 280G;
(e) USDA has not filed any consent under Code
section 341(f);
(f) USDA has never been (i) a member of an
affiliated, consolidated, unitary or combined group filing a
consolidated, unitary or combined tax return or (ii) a party
to any tax allocation, sharing or reimbursement agreement or
arrangement;
(g) USDA has no liability for the taxes of any
persons under Treas. Reg. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee
or successor, by contract or otherwise;
(h) USDA is not an obligor on, and none of its
assets has been financed directly or indirectly by, any tax-
exempt bonds;
(i) USDA has not executed, become subject to,
or entered into any closing agreement pursuant to Code
section 7121 or any predecessor provision thereof or any
similar provision of state, local or foreign law;
(j) USDA does not have pending any ruling
requests with any taxing authority; and
(k) USDA has disclosed on its federal income
tax returns all positions taken therein that, to the
knowledge of USDA or the USDA Shareholders could give rise
to a substantial understatement of federal income tax within
the meaning of Code section 6662.
2.11 Contracts. Schedule 2.11 attached hereto sets
forth a true and complete list of all contracts to which
USDA is a party or to which USDA's assets are subject or
bound which contemplate an annual payment of at least
$10,000. Except as shown on Schedule 2.11, all such
contracts are valid, legally binding and enforceable against
the parties thereto and neither USDA nor any other party to
any of the contracts is in breach of, or in default under,
any of the contracts and, to the knowledge of USDA or the
USDA Shareholders, no event has occurred which, with the
notice or lapse of time, or both, would constitute a default
by USDA or any other party to any of the contracts.
2.12 Insurance. Schedule 2.12 lists all of the
insurance policies maintained by USDA, which schedule
includes the name of the insurance company, the policy
number, a description of the type of insurance covered by
such policy, the dollar limit of the policy, and the annual
premiums for such policy. USDA will maintain or cause to be
maintained such insurance policies in full force and effect
through the Closing Date.
2.13 Environmental Matters.
(a) To USDA's or the USDA Shareholders'
knowledge, except as disclosed on Schedule 2.13, there is no
Hazardous Material within, under, originating from or
relating to any of USDA's Real Property.
(b) Neither USDA nor any of its predecessors
in interest has received any notice, or request for
information issued, promulgated, approved or entered under
any Environmental Law.
(c) USDA possesses and is in compliance in all
material respects with all permits, licenses, certificates,
franchises and other authorizations relating to the
Environmental Laws necessary to conduct it business or
required by environmental regulations.
(d) USDA has not, during the past five years,
been subject to any civil, criminal or administrative
action, suit, claim, hearing, notice of violation,
investigation, inquiry or proceeding for failure to comply
with, or received notice of any violation or potential
liability under the Environmental Laws, nor are USDA or USDA
Shareholders aware of any information, whether or not
confirmed or reported, which could give rise to any such
potential liability.
(e) No real property, site or facility (as
defined in CERCLA, 42 U.S.C. 9601(9)) owned or operated by
USDA is, to the knowledge of USDA or the USDA Shareholders,
(i) listed or proposed for listing on the National Priority
List or (ii) listed on CERCLIS promulgated pursuant to
CERCLA, or any comparable list maintained by any foreign,
state or local government authority.
(f) There are and were no underground storage
tanks owned or operated by USDA.
(g) To the knowledge of USDA or the USDA
Shareholders, there are and were no PCBs in or at any USDA's
Real Property or, to the knowledge of USDA or the USDA
Shareholders, their prior use, handling, storage, transport
or disposal of PCBs has been in compliance with all
Environmental Laws.
(h) To the knowledge of USDA or the USDA
Shareholders, there is no friable asbestos or asbestos
containing materials on or in any of USDA's Real Property
and to USDA's or the USDA Shareholders' knowledge, such USDA
Real Property complies with the Environmental Laws including
but not limited to, Occupational Safety and Health Act
regulations with respect to ambient air exposure to
asbestos.
(i) USDA has not, by contract, agreed to
assume the liability of any other person or entity pursuant
to any of the Environmental Laws.
2.14 Employee Relations. Except as set forth on
Schedule 2.14 attached hereto to the best knowledge of USDA
and the USDA Shareholders, (a) USDA is in compliance in all
material respects with all applicable laws respecting
employment and employment practices and terms and conditions
of employment and wages and hours, including but not limited
to those respecting wrongful termination or harassment; and
(b) there is no unfair labor practice charge or complaint
against or threatened against USDA .
2.15 Absence of Questionable Payments. To the
knowledge of USDA or the USDA Shareholders, neither USDA nor
any director, officer, agent, employee or other person
acting on any of its behalf has (i) used any corporate or
other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or
established or maintained any unlawful or unrecorded funds
in violation of Section 30A of the Exchange Act of 1934, as
amended, or any other applicable foreign, federal or state
law; or (ii) accepted or received any unlawful
contributions, payments, expenditures or gifts.
2.16 Disclosure Statement. The information
concerning USDA and the USDA Subsidiaries contained in the
SunVest Disclosure Statement referred to in Section 5.3(b)
hereof shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained
therein, in light of the circumstances under which they were
made, not misleading.
2.17 Benefit Plans and ERISA.
(a) Schedule 2.7 attached hereto sets forth a
true and complete list of each "employee benefit plan" (as
defined by Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and any other
bonus, profit sharing, pension, compensation, deferred
compensation, stock option, stock purchase, fringe benefit,
severance, post-retirement, scholarship, disability, sick
leave, vacation, individual employment, commission, bonus,
or other plan, agreement, policy, trust fund or arrangement
(each such plan, agreement, policy, trust fund or
arrangement is referred to herein as an "Employee Benefit
Plan," and collectively, the "Employee Benefit Plans") that
is currently in effect for USDA. USDA has delivered to
SunVest, with respect to each Employee Benefit Plan, true
and complete copies of the documents embodying and relating
to the Employee Benefit Plan, annual reports for the last
three years for the Employee Benefit Plan and any related
trust, actuarial valuation reports and financial statements
for the last three years and each communication involving
the Employee Benefit Plan or any related trust to or from
the Internal Revenue Service ("IRS"), Department of Labor
("DOL"), Pension Benefit Guaranty Corporation ("PBGC") or
any other governmental authority.
(b) With respect to each Employee Benefit
Plan, to the knowledge of USDA and the USDA Shareholders,
and except as otherwise set forth on Schedule 2.17:
(i) all payments required by the Employee
Benefit Plan with respect to all periods through the date
hereof have been made;
(ii) there are no violations of or
failures to comply with ERISA and the Code with respect to
the filing of applicable reports, documents and notices;
(iii) no claim, lawsuit, arbitration or
other action has been asserted or instituted or threatened
in writing against the Employee Benefit Plan or any trustee
or fiduciary thereof;
(iv) the Employee Benefit Plan is not
under an audit or investigation by the IRS or the DOL or any
other governmental authority and no such completed audit, if
any, has resulted in the imposition of any tax, interest or
penalty; and
(v) the Employee Benefit Plan may be
unilaterally amended or terminated on no more than 90 days
notice.
2.18 Customers and Vendors; Distributors and
Representatives.
(a) Schedule 2.18(a) attached hereto sets
forth a list of the 10 largest (by dollar volume) customers
and vendors of USDA during the most recent 12-month period,
indicating the existing contractual arrangements, if any,
with each such customer or vendor. Except as set forth in
Schedule 2.18(a) there are no outstanding disputes with any
customer or vendor listed thereon and no customer or vendor
listed thereof has ceased to do business with USDA or has
stated its intention to cease to do business with USDA.
(b) Schedule 2.18(b) attached hereto sets
forth a correct and complete list of the 20 largest (by
dollar volume) distributors, representatives and agents for
the sale of the products of USDA during the most recent 12-
month period and all distributors, representatives and
agents to whom USDA has given any exclusive rights with
respect to territories or products. Except as set forth in
Schedule 2.18(b), there has been no termination of any such
distributor, representative or agent nor, to the knowledge
of USDA, has any such distributor, representative or agent
stated any intention to terminate or materially change the
terms of its relationship with USDA.
(c) Except as disclosed in Schedule 2.18(c),
none of the officers, directors or shareholders of USDA or
members of their immediate families residing in the same
household owns, directly or indirectly, individually or
collectively, any interest in any corporation, partnership,
proprietorship, limited liability company, firm or
association which (i) is a competitor or potential
competitor of USDA, or (ii) is a customer or supplier of
USDA, provided that this paragraph shall not apply to
ownership of less than five percent of a company whose
shares are publicly traded.
2.19 Brokers' Fees and Expenses. Neither USDA nor
the USDA Shareholders has retained or utilized the services
of any broker, finder, or intermediary, or paid or agreed to
pay any fee or commission to any other person or entity for
or on account of the transactions contemplated hereby, or
had any communications with any person or entity that would
obligate SunVest or USDA to pay any such fees or
commissions.
2.20 Absence of Material Changes. Except as set
forth in Schedule 2.20 attached hereto, from December 31,
1999, to the date of this Agreement:
(a) there has not been any material adverse
change in the condition (financial or otherwise) of the
business, the liabilities or the assets of USDA;
(b) there has been no material adverse change
in USDA's relations with, nor has USDA lost (or received
notice that it is about to lose) any customers, distributors
or suppliers with which USDA has significant business
relations;
(c) USDA has operated its business in the
ordinary course and has not sold, assigned, or transferred
any of its assets, except in the ordinary course of its
business consistent with past practice;
(d) USDA has not made any material changes in
the customary methods of operation of its business,
including practices and policies relating to purchasing,
marketing or selling; and
(e) USDA did not:
(i) incur any indebtedness or other
liabilities (whether absolute, accrued, contingent or
otherwise) or guarantee any such indebtedness, except in the
usual and ordinary course of its business, consistent with
past practice;
(ii) suffer any damage, destruction or
loss of tangible assets, whether or not covered by
insurance, in excess of $50,000;
(iii) pay, discharge or satisfy any
claims, liabilities or obligations (whether absolute,
accrued, contingent or otherwise) except in each case in the
ordinary course of business;
(iv) cancel any debts or waive any claims
or rights of substantial value, except in each case in the
ordinary course of business;
(v) permit any material insurance policy
to be canceled or terminated;
(vi) pledge or permit the imposition of
any lien on or sell, assign, transfer or otherwise dispose
of any of their tangible assets, except the sale of
inventory in the ordinary course of business;
(vii) sell, assign or otherwise transfer
any Intellectual Property;
(viii) make any change in any method of
accounting or principle of practice;
(ix) write up or down the value of
inventory or determine as collectible any notes or accounts
receivable that were previously considered to be
uncollectible, except for write-ups or write-downs and other
determinations in the ordinary course of business and
consistent with past practice;
(x) grant any general increase in the
compensation payable or to become payable to its officers or
employees (including any such increase pursuant to any
Employee Benefit Plan) or any special increase in the
compensation payable or to become payable to any officer or
employee, except for (A) normal merit and cost of living
increases in the ordinary course of business and in
accordance with past practice and (B) increases pursuant to
collective bargaining agreements;
(xi) make any loans which in the
aggregate exceed $5,000 to any employee or make any loans
to any shareholder, officer or director; or
(xii) make any commitments for capital
expenditures in excess of $10,000 in the aggregate.
2.21 Certain Arrangements. Except as set forth in
Schedule 2.21 attached hereto, there are no material
transactions between USDA and any shareholder, director,
officer, employee, or other affiliate of USDA which are in
effect as of the date of this Agreement or that will
continue beyond the Closing Date.
2.22 Year 2000 Compliance. Except as set forth on
Schedule 2.22 attached hereto, the USDA proprietary software
and accompanying documentation is Year 2000 Compliant in all
material respects. The term "Year 2000 Compliant" shall
mean:
(a) the functions, calculations and other
computer processes (collectively, "Processes") of USDA's
proprietary software perform on or after January 1, 2000, in
a manner substantially the same as the manner in which such
Processes performed prior to January 1, 2000, regardless of
the date in time on which the Processes are actually
performed and regardless of the date of input to USDA's
proprietary software, whether before, on or after January 1,
2000, and whether or not the dates are affected by leap
years;
(b) USDA's proprietary software accepts,
calculates, compares, sorts, extracts, sequences and
otherwise processes data inputs and date values, returns and
displays date values in a consistent manner regardless of
the dates used, whether before, on or after January 1, 2000;
(c) USDA's proprietary software will accept
and respond to year data input in a manner that resolves any
ambiguities as to the century in a defined, predetermined
and appropriate manner; and
(d) USDA's proprietary software stores and
displays data information in ways that are unambiguous as to
the determination of the century.
2.23 Full Disclosure. The statements,
representations and warranties made by USDA or the USDA
Shareholders in this Agreement and in the Schedules attached
hereto do not contain any untrue statement of a material
fact or omit to state a material fact known to USDA or the
USDA Shareholders necessary to make the statements contained
herein or therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SUNVEST AND SUNVEST SHAREHOLDERS
SunVest and the SunVest Shareholders, jointly and
severally, hereby represent and warrant to USDA as follows,
which representations and warranties shall be true and
correct upon the date hereof and on the Closing Date:
3.1 Organization; Authority; Due Authorization.
SunVest is a corporation duly organized and validly existing
under the laws of the State of Florida and has all necessary
corporate power and authority to own, lease and operate its
properties and conduct its business as it is currently being
conducted. SunVest is duly qualified as a foreign
corporation in all jurisdictions in which the conduct of its
business or the ownership of its properties requires such
qualification and the failure to qualify would be materially
harmful to the business or financial condition thereof.
SunVest has full corporate power and authority to execute
and deliver this Agreement and each of the other documents
and instruments referenced in this Agreement to be executed
and delivered by SunVest (the "SunVest Merger Documents")
and to consummate the transactions contemplated hereby and
thereby. This Agreement has been approved by the board of
directors of SunVest. This Agreement and each of the
SunVest Merger Documents will constitute, when executed and
delivered by SunVest, a valid and binding obligation of
SunVest, in each case enforceable against SunVest in
accordance with its terms.
3.2 No Conflict; No Required Consents. Except as
shown on Schedule 3.2 attached hereto, the execution and
delivery by SunVest of this Agreement and the SunVest Merger
Documents and the consummation by SunVest of the
transactions contemplated hereby and thereby do not and will
not (a) require the consent, approval or action of, or any
filing or notice to, any corporation, firm, person or other
entity or any public, governmental or judicial authority;
(b) violate the terms of its Articles of Incorporation or
Bylaws or the terms of any instrument, document or agreement
to which SunVest is a party, or by which SunVest or the
property of SunVest is bound, or be in conflict with, result
in a breach of or constitute (upon the giving of notice or
lapse of time, or both) a default under any such instrument,
document or agreement, or result in the creation of any lien
upon any of the property or assets of SunVest; or (c)
violate any order, writ, injunction, decree, judgment,
ruling, law or regulation of any federal, state, county,
municipal, or foreign court or governmental authority
applicable to SunVest or the business or assets of SunVest.
3.3 Capitalization; Subsidiaries; Other Assets and
Liabilities. The authorized capital of SunVest consists of
25,000,000 shares of common stock, par value $.02 per share,
of which 9,000,000 shares are issued and outstanding and all
of which are validly issued, fully paid and nonassessable
and were issued in compliance with the Securities Act of
1933. Except as shown on Schedule 3.3 attached hereto,
SunVest has no convertible securities, options, warrants, or
other contracts, commitments, agreements, understandings,
arrangements or restrictions by which it is bound to issue
any additional shares of common stock or other securities
except as provided in this Agreement and its shareholders do
not have preemptive rights. Schedule 3.3 also sets forth all
known beneficial owners of more than 5% of the outstanding
SunVest Shares and all corporations, partnerships, joint
ventures, limited liability companies or other entities in
which SunVest owns, directly or indirectly, any equity
interest (individually, a "SunVest Subsidiary", and
collectively, the "SunVest Subsidiaries")and setting forth
the amount of such equity interest. Except for ownership of
the SunVest Subsidiaries, SunVest has no other assets and
liabilities and, following the distribution of the equity
interests of the SunVest Subsidiaries described in Section
5.3(b) hereof, SunVest will have no assets or liabilities.
3.4 Compliance with Laws; No Litigation. SunVest
is in compliance with all applicable laws, orders, rules and
regulations of all governmental bodies and agencies. Except
as set forth on Schedule 3.4 attached hereto, there is no
action, proceeding or investigation pending or, to SunVest's
or the SunVest Shareholders' knowledge, threatened against
or involving or relating to SunVest's assets or the
operation of its business, nor is there any action or
proceeding pending or threatened before any court, tribunal
or governmental body seeking to restrain or prohibit or to
obtain damages or other relief in connection with the
consummation of the transactions contemplated by this
Agreement and the SunVest Merger Documents, or which might
materially and adversely affect SunVest's business, assets,
or ability to consummate the transactions contemplated by
this Agreement and the SunVest Merger Documents. SunVest is
not subject to any judgment, order or decree entered in any
lawsuit or proceeding relating to any of its assets or the
operation of its business.
3.5 Licenses and Permits. Except as listed on
Schedule 3.5 attached hereto, SunVest does not hold any
Licenses and Permits. None of such Licenses and Permits is
subject to any restriction or condition which would limit
the full operation of business by the Surviving Corporation
after the Merger. SunVest has not received notice of any
violations in respect of any such License and Permit and no
proceeding is pending or, to its or the SunVest
Shareholders' knowledge, is threatened, which seeks
revocation or limitation of any such License and Permit.
3.6 Intellectual Property. Except as listed on
Schedule 3.6 attached hereto, SunVest does not use any
Intellectual Property. No claims have been asserted and no
claims are pending or, to its or the SunVest Shareholders'
knowledge, threatened by any person or entity, to the use of
any such Intellectual Property or challenging or questioning
the validity or effectiveness of any state or federal
registration of the Intellectual Property and neither
SunVest nor the SunVest Shareholders know of any basis for
such claim.
3.7 Financial Information.
(a) SunVest shall have delivered to USDA
copies of audited consolidated balance sheets as of December
31, 1998 and December 31, 1999, and consolidated statements
of income, cash flow and shareholders' equity for the fiscal
years ending December 31, 1998 and December 31, 1999, and
shall have delivered its unaudited consolidated balance
sheet and consolidated statement of income for the period
ending February 29, 2000 (the "SunVest Financials").
(b) The SunVest Financials (including any
related schedules and/or notes), have been prepared in
accordance with generally accepted accounting principles
consistently applied throughout the periods involved, show
all liabilities, direct and contingent, required at the time
of preparation to be shown in accordance with such
principles and fairly present the financial position and
results of operations of SunVest and the SunVest
Subsidiaries as of the date thereof and for the period
indicated.
(c) Except as set forth on Schedule 3.7
attached hereto, neither SunVest nor any SunVest Subsidiary
has any liability or obligation (absolute, accrued,
contingent or otherwise), including any guaranty with
respect to any obligation, except (i) such liabilities or
obligations as are fully reflected or reserved against in
the SunVest Financials; (ii) such liabilities or obligations
which are disclosed in any Schedule to this Agreement or
otherwise in writing to the other parties hereto or which
are not material or otherwise are not required to be so
disclosed, and (iii) such liabilities or obligations as have
been incurred in the ordinary course of business, consistent
with past practice since December 31, 1999.
3.8 Tangible Personal Property. Except as listed on
Schedule 3.8 attached hereto, SunVest does not own or lease
any tangible personal property. As of the Closing Date, all
of SunVest's tangible personal property will be free and
clear of any liens, pledges, encumbrances, claims or similar
rights of third parties. All of the tangible personal
property owned by SunVest and all of the leased tangible
personal property listed in Schedule 3.8 is in good
operating condition, subject to ordinary wear and tear.
3.9 Real Property.
(a) Except as listed on Schedule 3.9 attached
hereto, SunVest does not own, lease, nor has SunVest agreed
to lease or has an obligation to lease any real property
(including any improvements thereon) (hereinafter referred
to as "SunVest Real Property").
(b) On the Closing Date, the SunVest Real
Property will be free and clear of any and all liens,
pledges, encumbrances, claims, leases, licenses, occupants
or tenants or similar rights of third parties, except as set
forth on Schedule 3.9 attached hereto. There are no pending
or, or the SunVest's or the SunVest Shareholders' knowledge,
threatened condemnation, eminent domain or similar
proceedings or litigation or other proceedings affecting the
SunVest Real Property or any portion or portions thereof. To
the knowledge of SunVest or the SunVest Shareholders, there
are no pending or threatened requests, applications or
proceedings to alter or restrict any zoning or other use
restrictions applicable to the SunVest Real Property that
would interfere with the conduct of the business of SunVest
or the use of its assets consistent with past practice,
which interference would have a material adverse effect on
its business.
3.10 Tax Returns and Payments. All federal, state
and local income, franchise, sales, use, payroll, excise,
business and license tax returns of SunVest and each SunVest
Subsidiary required by law (after taking into account lawful
extensions) to be filed on or before the Closing Date have
been or will be timely filed and SunVest and each SunVest
Subsidiary has paid or will pay all taxes, including
federal, state or local income, franchise, sales, use,
payroll, excise, business and license taxes and any
penalties and interest or other charges applicable thereto
("Taxes") as shown on such returns and which were due prior
to the Closing Date. No audit of the taxes of SunVest and
each SunVest Subsidiary is currently in progress or has, to
SunVest's or the SunVest Shareholders' knowledge, been
scheduled. Also (except as disclosed in Schedule 3.10):
(a) No property of SunVest or any SunVest
Subsidiary is property that it is or will be required to
treat as owned for tax purposes by another person, or is
"tax-exempt use property" as defined in Code section 168(h);
(b) neither SunVest nor any SunVest Subsidiary
has ever agreed to or been required to make any adjustment
pursuant to Code section 481(a) by reason of any change in
accounting method initiated by it; the Internal Revenue
Service has not proposed any such adjustment or change in
accounting method; and neither SunVest nor any SunVest
Subsidiary has any application pending with any taxing
authority requesting permission for any change in accounting
method;
(c) neither SunVest nor any SunVest Subsidiary
has been a United States real property holding corporation
as defined in Code section 897(c)(2) during the applicable
period specified in Code section 897(c)(1)(A)(ii);
(d) neither SunVest nor any SunVest Subsidiary
has made any payments, is obligated to make any payments, or
is a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be
deductible under Code section 280G;
(e) neither SunVest nor any SunVest Subsidiary
has filed any consent under Code section 341(f);
(f) neither SunVest nor any SunVest Subsidiary
has ever been (i) a member of an affiliated, consolidated,
unitary or combined group filing a consolidated, unitary or
combined tax return except such a group comprised of SunVest
and the SunVest Subsidiaries or (ii) a party to any tax
allocation, sharing or reimbursement agreement or
arrangement;
(g) neither SunVest nor any SunVest Subsidiary
has any liability for the taxes of any persons under Treas.
Reg. 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or
otherwise;
(h) neither SunVest nor any SunVest Subsidiary
is an obligor on, and none of its assets has been financed
directly or indirectly by, any tax-exempt bonds;
(i) neither SunVest nor any SunVest Subsidiary
has executed, become subject to, or entered into any closing
agreement pursuant to Code section 7121 or any predecessor
provision thereof or any similar provision of state, local
or foreign law;
(j) neither SunVest nor any SunVest Subsidiary
has pending any ruling requests with any taxing authority;
and
(k) Each of SunVest and each SunVest
Subsidiary has disclosed on its federal income tax returns
all positions taken therein that, to the knowledge of
SunVest, the Controlling Shareholders or such SunVest
Subsidiary, could give rise to a substantial understatement
of federal income tax within the meaning of Code section
6662.
3.11 Contracts. Schedule 3.11 attached hereto sets
forth a true and complete list of all contracts to which
SunVest is a party or to which SunVest's assets are subject
or bound. Except as shown on Schedule 3.11, all such
contracts are valid, legally binding and enforceable against
the parties thereto and neither SunVest nor any other party
to any of the contracts is in breach of, or in default
under, any of the contracts and, to the knowledge of SunVest
or the SunVest Shareholders, no event has occurred which,
with the notice or lapse of time, or both, would constitute
a default by SunVest or any other party to any of the
contracts.
3.12 Insurance. Schedule 3.12 lists all of the
insurance policies maintained by SunVest, which schedule
includes the name of the insurance company, the policy
number, a description of the type of insurance covered by
such policy, the dollar limit of the policy, and the annual
premiums for such policy. SunVest will maintain or cause to
be maintained such insurance policies in full force and
effect through the Closing Date.
3.13 Environmental Matters.
(a) To SunVest's or the SunVest Shareholders'
knowledge, except as disclosed on Schedule 3.13, there is no
Hazardous Material within, under, originating from or
relating to any of SunVest Real Property.
(b) Neither SunVest nor any of the SunVest
Subsidiaries nor any of its predecessors in interest has
received any notice, or request for information issued,
promulgated, approved or entered under any Environmental
Law.
(c) SunVest possesses and is in compliance in
all material respects with all permits, licenses,
certificates, franchises and other authorizations relating
to the Environmental Laws necessary to conduct it business
or required by environmental regulations.
(d) SunVest has not, during the past five
years, been subject to any civil, criminal or administrative
action, suit, claim, hearing, notice of violation,
investigation, inquiry or proceeding for failure to comply
with, or received notice of any violation or potential
liability under the Environmental Laws, nor is any of them
or any SunVest Shareholder aware of any information, whether
or not confirmed or reported, which could give rise to any
such potential liability.
(e) No real property, site or facility (as
defined in CERCLA, 42 U.S.C 9601(9)) owned or operated by
SunVest is, to the knowledge of SunVest or the SunVest
Shareholders, (i) listed or proposed for listing on the
National Priority List or (ii) listed on CERCLIS promulgated
pursuant to CERCLA, or any comparable list maintained by any
foreign, state or local government authority.
(f) There are and were no underground storage
tanks owned or operated by SunVest or any SunVest Subsidiary
.
(g) To the knowledge of SunVest or the SunVest
Shareholders, there are and were no PCBs in or at any
SunVest Real Property or, to the knowledge of SunVest or the
SunVest Shareholders, their prior use, handling, storage,
transport or disposal of PCBs has been in compliance with
all Environmental Laws.
(h) To the knowledge of SunVest or the SunVest
Shareholders, there is no friable asbestos or asbestos
containing materials on or in any of SunVest's Real Property
and to SunVest's or the SunVest Shareholders' knowledge,
such SunVest Real Property complies with the Environmental
Laws including but not limited to, Occupational Safety and
Health Act regulations with respect to ambient air exposure
to asbestos.
(i) SunVest has not, by contract, agreed to
assume the liability of any other person or entity pursuant
to any of the Environmental Laws.
3.14 Employee Relations. Except as set forth on
Schedule 3.14 attached hereto, (a) SunVest is in compliance
in all material respects with all applicable laws respecting
employment and employment practices and terms and conditions
of employment and wages and hours, including but not limited
to those respecting wrongful termination or harassment; and
(b) there is no unfair labor practice charge or complaint
against SunVest or (to its or the SunVest Shareholders'
knowledge) threatened.
3.15 Absence of Questionable Payments. To the
knowledge of SunVest or the SunVest Shareholders, neither
SunVest nor any SunVest Subsidiary nor any director,
officer, agent, employee or other person acting on any of
its behalf has (i) used any corporate or other funds for
unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political
activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of
Section 30A of the Exchange Act of 1934, as amended, or any
other applicable foreign, federal or state law; or (ii)
accepted or received any unlawful contributions, payments,
expenditures or gifts.
3.16 Benefit Plans. Neither SunVest nor any of the
SunVest Subsidiaries maintains any Employee Benefit Plans.
3.17 Shares to be Delivered. All of the SunVest
Shares, when issued and delivered to the shareholders of
USDA pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable shares of
Common Stock of SunVest, free and clear of all liens,
encumbrances and claims of every kind and nature except
restrictions against transferability without compliance with
applicable federal and state securities laws.
3.18 Brokers' Fees and Expenses. Neither SunVest
nor any SunVest Shareholder has retained or utilized the
services of any broker, finder, or intermediary, or paid or
agreed to pay any fee or commission to any other person or
entity for or on account of the transactions contemplated
hereby, or had any communications with any person or entity
that would obligate SunVest or USDA to pay any such fees or
commissions.
3.19 Absence of Material Changes. Except as set
forth in Schedule 3.19 attached hereto, from December 31,
1999, to the date of this Agreement:
(a) there has not been any material adverse
change in the condition (financial or otherwise) of the
business, the liabilities or the assets of SunVest or any of
the SunVest Subsidiaries;
(b) there has been no material adverse change
in SunVest's relations with, nor has SunVest lost (or
received notice that it is about to lose) any customers,
distributors or suppliers with which SunVest has significant
business relations;
(c) SunVest has operated its business in the
ordinary course and has not sold, assigned, or transferred
any of its assets, except in the ordinary course of its
business consistent with past practice;
(d) SunVest has not made any material changes
in the customary methods of operation of its business,
including practices and policies relating to purchasing,
marketing or selling; and
(e) Neither SunVest nor any SunVest subsidiary did:
(i) incur any indebtedness or other
liabilities (whether absolute, accrued, contingent or
otherwise) or guarantee any such indebtedness, except in the
usual and ordinary course of its business, consistent with
past practice;
(ii) suffer any damage, destruction or
loss of tangible assets, whether or not covered by
insurance, in excess of $50,000;
(iii) pay, discharge or satisfy any
claims, liabilities or obligations (whether absolute,
accrued, contingent or otherwise) except in each case in the
ordinary course of business;
(iv) cancel any debts or waive any claims
or rights of substantial value, except in each case in the
ordinary course of business;
(v) permit any material insurance policy
to be canceled or terminated;
(vi) pledge or permit the imposition of
any lien on or sell, assign, transfer or otherwise dispose
of any of their tangible assets, except the sale of
inventory in the ordinary course of business;
(vii) sell, assign or otherwise transfer
any Intellectual Property;
(viii) make any change in any method of
accounting or principle of practice;
(ix) write up or down the value of
inventory or determine as collectible any notes or accounts
receivable that were previously considered to be
uncollectible, except for write-ups or write-downs and other
determinations in accordance with GAAP and in the ordinary
course of business and consistent with past practice;
(x) grant any general increase in the
compensation payable or to become payable to its officers or
employees (including any such increase pursuant to any
Employee Benefit Plan) or any special increase in the
compensation payable or to become payable to any officer or
employee, except for (A) normal merit and cost of living
increases in the ordinary course of business and in
accordance with past practice and (B) increases pursuant to
collective bargaining agreements;
(xi) make any loans which in the
aggregate exceed $5,000 to any employee or make any loans to
any shareholder, officer or director; or
(xii) make any commitments for capital
expenditures in excess of $10,000 in the aggregate.
3.20 Certain Arrangements. Except as set forth in
Schedule 3.20 attached hereto, there are no material
transactions between SunVest and any shareholder, director,
officer, employee, or other affiliate of SunVest which are
in effect as of the date of this Agreement or that will
continue beyond the Closing Date.
3.21 Year 2000 Compliance. Except as set forth on
Schedule 3.21 attached hereto, the SunVest's proprietary
software and accompanying documentation is Year 2000
Compliant in all material respects. The term "Year 2000
Compliant" shall mean:
(a) the functions, calculations and other
computer processes (collectively, "Processes") of SunVest's
proprietary software perform on or after January 1, 2000, in
a manner substantially the same as the manner in which such
Processes performed prior to January 1, 2000, regardless of
the date in time on which the Processes are actually
performed and regardless of the date of input to SunVest's
proprietary software, whether before, on or after January 1,
2000, and whether or not the dates are affected by leap
years;
(b) SunVest's proprietary software accepts,
calculates, compares, sorts, extracts, sequences and
otherwise processes data inputs and date values, returns and
displays date values in a consistent manner regardless of
the dates used, whether before, on or after January 1, 2000;
(c) SunVest's proprietary software will accept
and respond to year data input in a manner that resolves any
ambiguities as to the century in a defined, predetermined
and appropriate manner; and
(d) SunVest's proprietary software stores and
displays data information in ways that are unambiguous as to
the determination of the century.
3.22 Full Disclosure. The statements,
representations and warranties made by SunVest or the
SunVest Shareholders in this Agreement and in the Schedules
attached hereto do not contain any untrue statement of a
material fact or omit to state a material fact known to
SunVest or the SunVest Shareholders necessary to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.23 No Liability for Subsidiaries. SunVest has
acted at all times solely as a holding company with no
operating assets. All operations of the business holdings
of SunVest have been conducted solely and exclusively by and
through the SunVest Subsidiaries. To the best of SunVest's
knowledge, SunVest has not and will not have any liability
for any of the current or future obligations of any of the
SunVest Subsidiaries.
ARTICLE 4
COVENANTS OF USDA
4.1 Conduct of Business Pending Merger. USDA
covenants and agrees that, unless SunVest consents in
writing, as may be otherwise provided herein or as may be
necessary for USDA to consummate the transactions described
in Section 4.5 hereof, between the date hereof and the
Closing:
(a) it shall carry on its business in the
usual, regular and ordinary course in substantially the same
manner as heretofore conducted and shall use all reasonable
efforts to preserve intact its present business
organizations, keep available the services of its present
officers and employees and preserve its relationships with
customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the Closing
Date;
(b) it shall not amend or propose to amend its
Articles or Certificate of Incorporation or Bylaws;
(c) it shall not: (i) increase the
compensation payable or to become payable to its officers or
employees, except for cash bonuses consistent with past
practice as to the amount and category or employees,
increases in salaries and wages of employees consistent with
past practice, or grant any severance or termination pay to
or enter into any employment or severance agreement with any
of its directors, officers or other employees; (ii)
establish, adopt, enter into or make any new grants or
awards under or amend any employee benefit plan or other
arrangement, plan or policy with one or more of its
directors, officers or employees; or (iii) establish, adopt,
enter into or amend any Employee Benefit Plan;
(d) it shall not settle or compromise any
material claims or litigation or, except in the ordinary and
usual course of business, modify, amend or terminate any of
its material contracts or waive, release or assign any
material rights or claims;
(e) it shall not permit any material insurance
policy to be canceled or terminated, except in the ordinary
and usual course of business;
(f) it shall not commit a breach of, or
default under, any material contract, agreement, license or
instrument to which it is a party or to which any of its
assets may be subject, or violate any applicable law,
regulation, ordinance, order, injunction or decree or any
other requirement of any governmental body or court,
relating to its assets or business if such breach, default
or violation is reasonably likely to result in a material
adverse effect;
(g) it shall not, except in the ordinary
course of business (i) factor, discount or otherwise accept
less than full payment with regard to accounts receivable or
other amounts due; (ii) delay payment on, or otherwise alter
the payment terms of, accounts payable or pay the amounts
due thereunder later than the stated date for payment
thereof; or (iii) sell any inventory at less than fair
market value or make any bulk sale of such inventory, or
fail to maintain inventory at ordinary, customary levels;
(h) it shall not, except as expressly
permitted by this Agreement, take any action that would or
is reasonably likely to result in any of their
representations and warranties set forth in this Agreement
being untrue in any material respect, or in any of the
conditions in this Agreement set forth in Article 6 not
being satisfied;
(i) it shall not (i) authorize capital
expenditures in excess of $50,000 or make any acquisition
of, or investment in, assets or stock of any other person;
(ii) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other
business organization or division thereof; (iii) assume,
guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations or any person or
make any loans or advances; (iv) enter into any material
contract or agreement other than in the ordinary course of
business; or (v) enter into or amend in any respect any
material contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section
4.1(i);
(j) it shall not issue, sell, pledge, lease,
dispose of, encumber or authorize the issuance, sale,
pledge, lease, disposition or encumbrance of, (i) any shares
of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership
interest, or (ii) any assets that are material, alone or in
the aggregate except for the sale of products in the
ordinary course of business and consistent with past
practice;
(k) it shall not make any tax election or
settle or compromise any material federal, state, local or
foreign income tax liability;
(l) it shall not (i) declare or pay any
dividends on or make other distributions in respect of any
of its capital stock, (ii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or (iii)
repurchase or otherwise acquire any shares of its capital
stock;
(m) it shall maintain its real and personal
properties in as good a state of operating condition and
repair as they are on the date of this Agreement, except for
ordinary wear and tear or insured casualty in amounts less
than $50,000;
(n) it shall not terminate or modify any
material leases, contracts, Licenses and Permits or other
authorizations or agreements affecting its business or its
real and/or personal properties, or the operation thereof,
or enter into any additional lease or contract requiring
expenditure by it of amounts in excess of $50,000 affecting
such properties or the operation thereof;
(o) no liens, encumbrances, obligations or
liabilities relating to it, whether absolute or contingent
(including litigation claims), shall be discharged,
satisfied or paid, other than liabilities shown on USDA's
Financials and liabilities incurred after the date thereof
in the ordinary course of business, and no such discharge,
satisfaction or payment shall be effected other than in
accordance with the ordinary payment terms relating to the
liability discharged, satisfied or paid; and
(p) it shall not make any changes in
accounting methods, principles or practices.
4.2 Access. USDA, prior to the Closing Date, shall
provide SunVest with full access to, and will make available
for inspection and review, all properties, personnel, books,
records and accounts in order that SunVest may have full
opportunity to make such investigation as it shall desire to
make of the affairs of USDA, provided, however, that any
inspection or review shall be conducted by SunVest in a
manner so as to minimize interference with USDA's conduct of
its business and any information obtained as a result of
such inspection or review shall be maintained by SunVest in
confidence and not disclosed to any other person or entity
without the prior written consent of USDA. No investigation
by SunVest shall affect the representations and warranties
made herein by USDA and the USDA Shareholders.
4.3 Press Releases. USDA shall consult with
SunVest as to the form and substance of any public
disclosures related to this Agreement and will not issue any
press release in connection with this Agreement without the
prior written consent of SunVest, which shall be presumed to
have been given if no written communication is received by
USDA from SunVest within three (3) days after receipt by
SunVest of a draft press release from USDA.
4.4 USDA Business Plan and AT&T Contract. USDA
shall deliver to SunVest (a) a copy of its Business Plan
(the "USDA Business Plan"), which shall contain, inter alia,
USDA's management's best good faith estimates regarding the
prospects of the business and financial condition of USDA
for at least the next three (3) years and (b) a true and
correct copy of all agreements setting forth the current
contractual arrangement between USDA and AT&T Corp. (the
"AT&T Contract").
4.5 Investment by Siegel and Windspire. USDA shall:
(a) Simultaneously with the execution of this
Agreement, consummate a transaction whereby it shall have
sold 55.56 shares of its Common Stock to each of Siegel and
Windspire for $50,000 in cash each;
(b) Simultaneously with the execution of this
Agreement, execute and deliver the appropriate documents
pursuant to which Windspire shall have agreed to purchase,
and USDA shall have agreed to sell to Windspire, an
additional 444.44 shares of USDA common stock for $900 per
share in cash in accordance with the following schedule:
166.6 shares at the Effective Time and 111.11 shares on or
before each of the 30th and 60th day after the Effective
Time and 55.56 shares on the 90th day after the Effective
Time.
In connection with the investment by Siegel and
Windspire it is agreed and understood that (i) Siegel and
Windspire, collectively, shall be entitled to elect two out
of the five directors of USDA, (ii) Siegel and Windspire
shall have, and USDA is hereby granting Siegel and
Windspire, the typical, co-called "piggyback" registration
rights and (iii) by its execution of this Agreement, SunVest
is hereby assuming all of USDA's obligations under this
Section 4.5 and any and all documents executed and delivered
by USDA under Section 4.5(b) hereof, including, as a result,
the obligation to issue to Windspire 4,500 SunVest Shares
for each share of USDA common stock which Winsdspire is
entitled to purchase as described in Section 4.5(b) hereof
upon tender by Windspire to SunVest of the appropriate
consideration.
ARTICLE 5
COVENANTS OF SUNVEST
5.1 Conduct of Business Pending Merger. SunVest
covenants and agrees that, unless USDA consents in writing,
or as may be otherwise provided herein, between the date
hereof and the Closing:
(a) it shall carry on its business in the
usual, regular and ordinary course in substantially the same
manner as heretofore conducted and shall use all reasonable
efforts to preserve intact its present business
organization, keep available the services of its present
officers and employees and preserve its relationships with
customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the Closing
Date, except that it shall, prior to the Closing Date, make
the distribution described in Section 5.3(b) hereof;
(b) it shall not amend or propose to amend its
Articles of Incorporation or Bylaws;
(c) it shall not: (i) increase the
compensation payable or to become payable to their officers
or employees, except for cash bonuses consistent with past
practice as to the amount and category or employees,
increases in salaries and wages of employees consistent with
past practice, or grant any severance or termination pay to
or enter into any employment or severance agreement with any
of its directors, officers or other employees; (ii)
establish, adopt, enter into or make any new grants or
awards under or amend any employee benefit plan or other
arrangement, plan or policy with one or more of its
directors, officers or employees; or (iii) establish, adopt,
enter into or amend any Employee Benefit Plan;
(d) it shall not settle or compromise any
material claims or litigation or, except in the ordinary and
usual course of business, modify, amend or terminate any of
its material contracts or waive, release or assign any
material rights or claims;
(e) it shall not permit any material insurance
policy to be canceled or terminated, except in the ordinary
and usual course of business;
(f) it shall not commit a breach of, or
default under, any material contract, agreement, license or
instrument to which it is a party or to which any of its
assets may be subject, or violate any applicable law,
regulation, ordinance, order, injunction or decree or any
other requirement of any governmental body or court,
relating to its assets or business if such breach, default
or violation is reasonably likely to result in a material
adverse effect;
(g) it shall not, except in the ordinary
course of business (i) factor, discount or otherwise accept
less than full payment with regard to accounts receivable or
other amounts due; (ii) delay payment on, or otherwise alter
the payment terms of, accounts payable or pay the amounts
due thereunder later than the stated date for payment
thereof; of (iii) sell any inventory at less than fair
market value or make any bulk sale of such inventory, or
fail to maintain inventory at ordinary, customary levels;
(h) it shall not, except as expressly
permitted by this Agreement, take any action that would or
is reasonably likely to result in any of their
representations and warranties set forth in this Agreement
being untrue in any material respect, or in any of the
conditions in this Agreement set forth in Article 7 not
being satisfied;
(i) it shall not (i) authorize capital
expenditures in excess of $50,000 or make any acquisition
of, of investment in, assets or stock of any other person;
(ii) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other
business organization or division thereof; (iii) assume,
guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations or any person or
make any loans or advances; (iv) enter into any material
contract or agreement other than in the ordinary course of
business; or (v) enter into or amend in any respect any
material contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section
5.1(i);
(j) Except with respect to the issuance of any
stock upon the exercise of any stock option or warrants
outstanding on the date hereof, SunVest shall not issue,
sell, pledge, lease, dispose of, encumber or authorize the
issuance, sale, pledge, lease, disposition or encumbrance
of, (i) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of
any kind to acquire any shares of capital stock, or any
other ownership interest, or (ii) any assets that are
material, alone or in the aggregate except for the sale of
products in the ordinary course of business and consistent
with past practice and the distribution described in Section
5.3(b) hereof;
(k) it shall not make any tax election or
settle or compromise any material federal, state, local or
foreign income tax liability;
(l) it shall not (i) except as part of the
distribution described in Section 5.3(b) hereof, declare or
pay any extraordinary dividends on or make other
distributions in respect of any of its capital stock, (ii)
except as part of the reverse stock split described in
Section 5.3(a) hereof, split, combine or reclassify any of
its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or (iii)
repurchase or otherwise acquire any shares of its capital
stock;
(m) it shall maintain its real and personal
properties in as good a state of operating condition and
repair as they are on the date of this Agreement, except for
ordinary wear and tear or insured casualty in amounts less
than $50,000;
(n) it shall not terminate or modify any
material leases, contracts, Licenses and Permits or other
authorizations or agreements affecting its business or its
real and/or personal properties, or the operation thereof or
enter into any additional lease or contract requiring
expenditure by SunVest of amounts in excess of $50,000
affecting such properties or the operation thereof;
(o) No liens, encumbrances, obligations or
liabilities relating to it, whether absolute or contingent
(including litigation claims), shall be discharged,
satisfied or paid, other than liabilities shown on its
financial statements delivered hereunder and liabilities
incurred after the date thereof in the ordinary course of
business and in normal amounts, and no such discharge,
satisfaction or payment shall be effected other than in
accordance with the ordinary payment terms relating to the
liability discharged, satisfied or paid; and
(p) it shall not make any changes in
accounting methods, principles or practices.
5.2 Access. Prior to the Closing Date, SunVest
shall provide USDA with full access to, and will make
available for inspection and review, all properties,
personnel, books, records and accounts in order that USDA
may have full opportunity to make such investigation as it
shall desire to make of the affairs of SunVest and the
SunVest Subsidiaries, provided, however, that any inspection
or review shall be conducted by USDA in a manner so as to
minimize interference with SunVest's conduct of its business
and any information obtained as a result of such inspection
or review (except for information which is already public
information) shall be maintained by USDA in confidence and
not disclosed to any other person or entity without the
prior written consent of SunVest. No investigation by USDA
shall affect the representations and warranties made herein
by SunVest and the SunVest Shareholders.
5.3 Specific Actions Before and at Closing. Before
Closing, SunVest shall:
(a) effect a 3.6:1 reverse stock split of its
Common Stock;
(b) effect a distribution of the equity
interests of the SunVest Subsidiaries to the shareholders of
SunVest pro-rata, where such distribution shall have been
approved by the board of directors and shall have been
accompanied by a Disclosure Statement (herein so called)
containing summary financial information about SunVest and
USDA, SunVest's management's position regarding the income
tax consequences of the distribution and such other
information as may be necessary or appropriate to be
included in a disclosure statement of this type; and
(c) cause its present directors to duly elect
five (5) nominees of USDA as SunVest's directors, with the
present directors of SunVest resigning effective as of the
Closing Date.
5.4 Press Releases. SunVest shall consult with
USDA as to the form and substance of any public disclosures
related to this Agreement and will not issue any press
release in relation to this Agreement without the prior
written consent of USDA, which consent shall be presumed to
have been given if no written communication is received by
SunVest from USDA within three (3) days after receipt by
USDA of a draft press release from SunVest.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATION OF
SUNVEST TO CLOSE
Each and every obligation of SunVest under this
Agreement to be performed on or prior to the Closing shall
be subject to the fulfillment, on or prior to the Closing,
of each of the following conditions:
6.1 Representations and Warranties True at Closing.
The representations and warranties made by USDA and the USDA
Shareholders in or pursuant to this Agreement or given on
their behalf hereunder shall be true and correct on and as
of the Closing Date with the same effect as though such
representations and warranties had been made or given on and
as of the Closing Date.
6.2 Obligations Performed. (a) The transactions
described in Section 4.5 hereof shall have been effected in
accordance with their terms and (b) USDA shall have
performed and complied with all other covenants, agreements,
obligations and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
6.3 Closing Deliveries. USDA shall have delivered
to SunVest each of the following, together with any
additional items which SunVest may reasonably request to
effect the transactions contemplated herein:
(a) the Articles of Merger duly executed by USDA;
(b) a certified copy of the resolutions of the
board of directors of USDA and resolutions of the
shareholders of USDA authorizing and approving the Merger
and the execution, delivery and performance of this
Agreement and the USDA Merger Documents, together with an
incumbency certificate with respect to the officers of USDA
executing documents or instruments on behalf of USDA;
(c) a certificate of the President of USDA
certifying as to the matters set forth in Sections 6.1 and
6.2 hereof and as to the satisfaction of all other
conditions set forth in this Article 6;
(d) written consents from all parties,
including parties to all leases and Contracts, whose consent
to the Merger is required;
(e) the corporate minute book, seal and stock
transfer book of USDA and its predecessors (if any)
certified by the corporate secretary (in form and substance
acceptable to SunVest) as being true, correct and complete;
(f) stock certificates representing all of the
issued and outstanding shares of capital stock of USDA; and
(g) investment representations and
questionnaire in the form attached hereto as Schedule 6.3(g)
executed by the shareholders of USDA as required in
connection with SunVest's reliance on an exemption from
registration of the SunVest Shares to be issued to the
shareholders of USDA under the Securities Act of 1933.
6.4 No Challenge. There shall not be pending or
threatened any action, proceeding or investigation before
any court or administrative agency by any government agency
or any pending action by any other person, challenging, or
seeking material damages in connection with, the acquisition
by SunVest of USDA's assets pursuant to the Merger or the
ability of SunVest to own and operate USDA or otherwise
materially adversely affecting the business, assets,
prospects, financial condition or results of operations of
USDA.
6.5 No Material Adverse Change. Since the date of
this Agreement, there shall have been no material adverse
changes in the business, financial condition, results of
operations and/or assets (without giving effect to the
consequences of the transactions contemplated by this
Agreement) of USDA.
ARTICLE 7
CONDITIONS PRECEDENT TO
USDA'S OBLIGATIONS TO CLOSE
Each and every obligation of USDA under this Agreement
to be performed on or prior to the Closing, shall be subject
to the fulfillment, on or prior to the Closing, of each of
the following conditions:
7.1 Representations and Warranties True at Closing.
The representations and warranties made by SunVest and the
SunVest Shareholders in or pursuant to this Agreement or
given on their behalf hereunder shall be true and correct on
and as of the Closing Date with the same effect as though
such representations and warranties had been made or given
on and as of the Closing Date.
7.2 Obligations Performed. SunVest shall have
performed and complied with all of the covenants,
agreements, obligations and conditions required by this
Agreement to be performed or complied with by it prior to or
at the Closing.
7.3 Closing Deliveries. SunVest shall have
delivered to USDA each of the following, together with any
additional items which USDA may reasonably request to effect
the transactions contemplated herein:
(a) the Articles of Merger duly executed by SunVest;
(b) certified copies of the resolutions of the
board of directors of SunVest authorizing and approving the
execution, delivery and performance of this Agreement by
SunVest and the SunVest Merger Documents, together with an
incumbency certificate with respect to the officers of
SunVest executing documents or instruments on behalf of
SunVest;
(c) a certificate of the President of SunVest
certifying as to the matters set forth in Sections 7.1 and
7.2 hereof and as to the satisfaction of all other
conditions set forth in this Article 7; and
(d) written confirmation from SunVest's
transfer agent that stock certificates evidencing the
SunVest Shares have been issued in the name of the
shareholders of USDA.
7.4 No Challenge. There shall not be pending or
threatened any action, proceeding or investigation before
any court or administrative agency by any government agency
or any pending action by any other person, challenging or
seeking material damages in connection with, the acquisition
by SunVest of USDA's assets pursuant to the Merger or the
ability of SunVest to own and operate or otherwise
materially adversely affecting the business prospects,
financial condition or results of operations of SunVest.
7.5 No Material Adverse Change. Since the date of
this Agreement there shall have been no material adverse
changes in the business, financial condition, results of
operations and/or assets (without giving effect to the
consequences of the transactions contemplated by this
Agreement) of SunVest.
ARTICLE 8
TERMINATION
8.1 Termination. This Agreement may be terminated
as follows:
(a) at any time by mutual written consent of
SunVest and USDA;
(b) by either SunVest or USDA if the Closing
does not occur on or before May 31, 2000;
(c) by SunVest if (I) copies of the USDA
Business Plan, AT&T Contract and USDA Financials are not
delivered to SunVest on or before April 14, 2000, or (ii) it
delivers to USDA, on or before April 21, 2000, a written
notice that it is dissatisfied with the results of its due
diligence review of USDA, such notice containing an
explanation of the basis for such dissatisfaction; or
(d) by USDA if (I) a copy of the SunVest
Financials are not delivered to USDA on or before April 14,
2000, or (ii) it delivers to SunVest, on or before April 21,
2000, a written notice that it is dissatisfied with the
results of its due diligence review of SunVest, such notice
containing an explanation of the basis for such
dissatisfaction.
8.2 Effects of Termination. In the event this
Agreement is terminated pursuant hereto, no party hereto
shall have any obligations to any other party hereto.
Without limiting the generality of the foregoing, upon
termination of this Agreement, it is specifically agreed and
understood that any and all agreements among Siegel,
Windspire and USDA contemplated under Section 4.5 hereof to
be performed after the date of such termination, and all of
SunVest's obligations related thereto, shall automatically
become null and void. Nothing herein shall preclude,
however, any action or claim for damages to which any party
is otherwise entitled as a result of breach by another party
hereto. In the event of any termination, each of the
parties shall promptly return to the other, all documents
and other written information received from the other in
connection with the transactions contemplated by this
Agreement. All information received by any of the parties
shall be kept confidential in accordance with Sections 4.2
and 5.2 hereof.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Survival. The representations, warranties,
covenants and agreements contained in this Agreement and in
other documents delivered at the Closing shall survive the
Closing for a period ending on the first anniversary date of
the Closing and shall thereafter cease to be of any force
and effect, except for (a) claims as to which notice has
been given prior to such date and which are pending on such
date and (b) representations and warranties relating to
taxes, ERISA, and Environmental Matters, each of which shall
survive until the end of the statute of limitations
applicable to the underlying claim. Neither such survival
nor the liability of any party with respect to the party's
representations and warranties shall be reduced by any
investigation made at any time by or on behalf of any party.
9.2 Severability. If any provision of this
Agreement is prohibited by the laws of any jurisdiction as
those laws apply to this Agreement, that provision shall be
ineffective to the extent of such prohibition and/or shall
be modified to conform with such laws, without invalidating
the remaining provisions hereof.
9.3 Modification. This Agreement may not be
changed or modified except in writing specifically referring
to this Agreement and signed by each of the parties hereto.
9.4 Survival; Binding Agreement. Except as
otherwise provided herein, the terms and conditions hereof
shall survive the Closing and shall inure to the benefit of
and be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
9.5 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one
and the same instrument.
9.6 Notices. All notices, requests, demands,
claims and other communications hereunder shall be in
writing and shall be deemed duly given if personally
delivered, sent by facsimile or e-mail, sent by a recognized
overnight delivery service which guarantees next day
delivery or mailed by registered or certified mail, return
receipt requested, postage prepaid and addressed to the
intended recipient as set forth below.
If to USDA: US Data Authority, Inc.
3500 NW Boca Raton Boulevard, Suite 904
Boca Raton, FL 33431
Attn: Dominick F. Maggio
Phone: (561) 368-0032
FAX:(561) 395-5425
E-Mail: [email protected]
or [email protected]
with a copy to: Michael A. Littman, P.C.
10200 N. 44th Avenue
Wheat Ridge, CO 80033
Phone: (303) 422-8127
FAX: (303) 422-7796
E-mail: [email protected]
If to SunVest: SunVest Resorts, Inc.
307 South 21st Avenue
Hollywood, Florida 33020
Attn: Harvey Birdman
Phone: (954) 922-6070
FAX: (954) 921-5080
E-mail: [email protected]
with a copy to: Dinur & Associates, P.C.
One Lakeside Commons
990 Hammond Drive, Suite 760
Atlanta, Georgia 30328
Attn: Daniel D. Dinur
Phone: (770) 395-3170
FAX: (770) 395-3171
E-mail: [email protected]
or at such other address as any party hereto notifies the
other parties hereof in writing.
9.7 Entire Agreement; No Third Party Beneficiaries
This Agreement, together with the Schedules attached hereto,
constitutes the entire agreement and supersedes any and all
other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly
provided herein, is not intended to confer upon any person
other than SunVest and USDA, and, after the Closing Date,
the shareholders of the Surviving Corporation, any rights or
remedies hereunder.
9.8 Further Assurances. The parties to this
Agreement agree to execute and/or deliver, either before or
after Closing, any further documents or agreements
contemplated hereby and/or necessary or appropriate to
effectuate and consummate the transactions contemplated
hereby.
9.9 Waivers. Any term or condition of this
Agreement may be waived only by the party to whom the
benefit of such term or condition runs and only if that
party signs a writing to such effect. No waiver of any
provision of this Agreement shall be deemed a waiver of any
other provision, irrespective of similarity, or shall
constitute a continuing waiver unless otherwise expressly
provided. No failure or delay on the part of any party
exercising any right, power or privilege under any term or
condition of this Agreement shall operate as a waiver
thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any other right,
power or privilege.
9.10 Assignment. Neither this Agreement nor any
rights or obligations hereunder may be assigned, directly,
indirectly, voluntarily or by operation of law, by any party
to this Agreement, except with the written consent of the
other party hereto.
9.11 Headings. The headings of the articles and
sections contained in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.12 Expenses. Except as otherwise expressly
specified herein, each of the parties shall bear its own
expenses associated with the negotiation and execution of
the Agreement and the consummation of the transactions
contemplated hereby, including without limitation legal and
accounting fees and expenses.
[Signatures appear on next page]
IN WITNESS WHEREOF, this Agreement has been executed as
of the date first above written.
US Data Authority, Inc., a Florida
corporation
By: /S/ Dominick F. Maggio
----------------------------------------
Dominick F. Maggio, President
and Chief Operating Officer
"USDA Shareholders"
(as to Article 2 only)
Big Sky & Associates, LLC
By: /S/ David Applebaum
David Applebaum, Manager
SunVest Resorts, Inc., a Florida corporation
/S/ Patricia Siegel By: /S/ Harvey Birdman
- ------------------------- ----------------------------------
Patricia Siegel Harvey Birdman,
Executive Vice President
(as to Section 4.5 only)
"SunVest Shareholders"
Windspire Venture Capital LLC (as to Article 3 only)
a New Jersey limited liability
company
/S/ Herbert Hirsch
--------------------------------
By: /S/ Melvyn B. Siegel Herbert Hirsch
- ----------------------------
Melvyn B. Siegel
Managing Member /S/ Harvey Birdman
(as to Section 4.5 only) ---------------------------------
Harvey Birdman
/S/ Louis Birdman
---------------------------------
Louis Birdman
/S/ Diane Birdman
---------------------------------
Diane Birdman
/S/ Bonita Hirsch
---------------------------------
Bonita Hirsch
_____________________________________________________________________
Schedules 3.2, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10,
3.11, 3.12, 3.13, 3.14, 3.19, 3.20 and 3.21
NONE
_____________________________________________________________________
Schedule 3.3
A. Convertible Securities, Etc.
None
B. 5% or More Beneficial Owners
1. Harvey Birdman
2. Diane Birdman
3. Louis Birdman
4. Herbert Hirsch
5. Norman Berman
B. Subsidiaries.
1. Colony Plaza Development, Inc., a Florida corporation;
2. Cove Development, Inc., a Florida corporation;
3. Telshare, Inc., a New Jersey corporation - inactive since
1996; and
4. Lakeshore Club Development, L.C., a Florida limited
liability company.
Exhibit 21
Subsidiaries of Registrant
Colony Plaza Development, Inc.
Cove Development, Inc.
Exhibit 27
Financial Data Schedule
SUNVEST RESORTS, INC.
Item Number Item Description
- ----------- ----------------------------------- December 31
1999 1998
---------- ----------
5-02(1) Cash and cash items 9,200 852,800
5-02(2) Marketable securities 0 0
5-02(3)(a)(1)Notes and accounts receivable - trade 603,400 1,096,100
5-02(4) Allowances for doubtful accounts 184,000 99,000
5-02(6) Inventory 6,138,300 6,402,900
5-02(9) Total current assets 6,838,200 8,518,200
5-02(13) Property, plant and equipment 5,784,200 3,832,200
5-02(14) Accumulated depreciation 286,200 84,400
5-02(18) Total Assets 12,645,700 13,300,400
5-02(21) Total current liabilities 1,710,200 2,351,200
5-02(22) Bonds, mortgages and similar debt 12,255,200 11,298,200
5-02(28) Preferred stock - mandatory redemption 0 0
5-02(29) Preferred stock - no mandatory redemption 0 0
5-02(30) Common stock 180,000 177,500
5-02(31) Other stockholder's equity 699,600 579,600
5-02(32) Total liabilities and stockholders'
equity 12,645,700 13,300,400
5-03(b)1(a) Net sales of tangible products 994,900 2,598,000
5-03(b)1 Total revenues 2,234,100 3,189,100
5-03(b)2(a) Cost of tangible goods sold 500,200 1,712,100
5-03(b)2 Total costs and expenses applicable
to sales and revenues 2,044,600 1,288,900
5-03(b)3 Other costs and expenses 731,400 114,900
5-03(b)5 Provision for doubtful accounts
and notes 85,000 10,000
5-03(b)(8) Interest and amortization of debt
discount 1,243,600 745,000
5-03(b)(10) Income before taxes and other items
(2,058,900) (317,900)
5-03(b)(11) Income tax expense 231,500 (140,700)
5-03(b)(14) Income/loss continuing operations (2,224,000) (204,900)
5-03(b)(15) Discontinued operations 0 0
5-03(b)(17) Extraordinary items 0 0
5-03(b)(18) Cumulative effect - changes in 0 0
accounting principles 0 0
5-03(b)(19) Net income or loss (2,224,000) (204,900)
5-03(b)(20) Earnings per share - primary (0.25) (0.02)
5-03(b)(20) Earnings per share - fully diluted (0.25) (0.02)
