SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
For the fiscal year ended September 30, 1997
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO
FEE REQUIRED]
For the Transition period from________to__________
Commission File Number 0-10176
DOMINION RESOURCES, INC.
(Exact name of small business issuer as specified
in its charter)
Delaware 22-2306487
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
355 Madison Avenue, Morristown, New Jersey 07960
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code
(201) 538-4177
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark 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 12 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 ___ No X
Indicate by 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 the issuer's knowledge, in
definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-KSB or in any amendment to this Form 10-
KSB.
[ ]
For the year ended September 30, 1997, the
issuer's revenues were $3,711,129.
On February 28, 1998, the aggregate market value
of the voting stock of Dominion Resources Inc.
(consisting of Common Stock, $.01 par value) held
by non-affiliates of the Issuer was approximately
$2,372,000 based upon the high bid price for such
Common Stock on said date in the over-the-
counter market as reported by the National
Quotation Bureau. On such date, there were
$5,158,354 shares of Common Stock of the Issuer
outstanding.
Transitional Small Business Disclosure Format
Yes ___ No X
PART I
Item 1. Business
Introduction
Dominion Resources, Inc. ("Resources") was
principally engaged through a wholly owned
subsidiary formed in 1991, Dominion Cellular, Inc.
("DCI") in the operation of a nonwireline cellular
radio telephone system servicing a six county area
in central Alabama with a population of
approximately 150,000 located between Montgomery
and Birmingham, Alabama. In fiscal 1995 and 1996,
the Company formed and/or acquired four wholly
owned subsidiaries - Diamond Leasing and
Management Corp. ("Diamond Leasing"), Diamond
World Funding Corp., Star II Leasing Corporation
("Star II") and Resort Club, Inc. ("Resort
Club"). As of September 30, 1997, Diamond
Leasing had extended loans and provided equity to
Resort Club in the aggregate amount of
$10,637,311. In connection with these loans,
pursuant to a pledge agreement, Diamond Leasing
acquired during fiscal 1996 100% of the
outstanding common stock of Resort Club.
Resort Club is in the business of offering
membership interests to the general public which
allows its members to vacation in Resort
Condominiums. In addition, Diamond
Leasing purchased mortgages on 29 residential
properties with the intention of restructuring the
loans or commencing foreclosure proceedings in
order to realize a return. During fiscal 1996,
Star II purchased an amusement ride known as the
Space Shot which it concurrently leased to
Vernon Valley Recreation Association, Inc.
("Vernon Valley"). Through September 30, 1997,
Diamond World Funding Corp. had no material
operations or investments. During
fiscal 1997, the Company entered into an agreement
to purchase Stonehill Recreation Corporation
("Stonehill Recreation") which owns and operates
the Spa at Great Gorge ("the Spa") located in
the Great Gorge Village, Vernon, New
Jersey. As used herein, the term (the
"Company") shall refer to Resources as well as
to Resources and its wholly owned subsidiaries
unless the context otherwise requires.
Resources was incorporated under the laws of the
State of Delaware on October 11, 1979 to engage in
the business of milling non-ferrous metals in the
Mohave County region of Arizona. Management
subsequently concluded, based upon
declining non-ferrous metal prices, that a mill
project in such region was not feasible. In
August 1989, Resources was awarded a permit by the
Federal Communications Commission ("FCC") pursuant
to a lottery process, to provide nonwireline
cellular radio telephone service in the Bibb,
Alabama RSA and in June 1990, the FCC granted
Resources' application to construct a cellular
system in the Bibb, Alabama RSA. Construction
commenced in the last quarter of fiscal 1991 after
receipt of required construction permits
and the arrangement of financing with Motorola,
Inc. The cellular system commenced operations in
November 1991. In fiscal 1994 management of the
Company determined that the cellular telephone
system had been developed to a point where it
represented an attractive acquisition for
potential acquirers. On November 7, 1995, the
Company completed the sale of its cellular
telephone system to PriCellular Corporation. On
February 1, 1996 the Company, through its
wholly owned subsidiary, Diamond Leasing, pursuant
to a pledge agreement acquired 100% of the
outstanding common stock of Resort Club. As of
September 30, 1997, the Company's primary business
operations are in connection with the sale of
membership interests through Resort Club.
Resort Club
Resort Club is engaged in the business of offering
membership interests to the general public. The
membership entitles the member to the use of
certain accommodations for a defined period of
time each year of the membership term and the
right to utilize certain amenities such as skiing,
admission to a summer participation theme park
known as Mountain Creek (previously known as
Action Park), a health club and other forms of
outdoor recreation on certain leased lands. The
accommodations are provided in the form of
condominiums.
The entity presently providing Resort Club members
with admission to its summer participation theme
park and skiing facilities is Great Gorge Resorts,
Inc. ("Resorts"), a subsidiary of Intrawest
Corporation ("Intrawest"), which owns and
operates the summer participation theme park and a
winter recreational ski area in Vernon Township,
Sussex County, New Jersey. The summer
participation theme park and skiing facilities is
hereinafter referred to as "the Great
Gorge Resort". Resorts completed the purchase of
the Great Gorge Resort on February 17, 1998 from
Angel Projects, L.L.C. ("Angel"). Angel, an
affiliate of Praedium Phoenix, L.L.C.
("Praedium"), purchased the Great Gorge Resort
pursuant to a section 363 sale under the Federal
Bankruptcy Rules whereby the summer participation
theme park and ski area were purchased "free and
clear" of all liens from Great American
Recreation, Inc. ("Great American").
On March 29, 1996, but effective as of June 1,
1993, Resort Club entered into amended and
restated agreements with Vernon Valley, Great
Gorge and Great Valley Real Estate Corp. ("Great
Valley"), all subsidiaries of Great American
whereby in consideration for an aggregate payment
of 10% of the gross sales price of each Resort
Club membership, these entities were to provide
amenities and access to certain
properties for the benefit of Resort Club members.
The amenities provided by Great American include
admission passes to the Vernon Valley and Great
Gorge ski facilities, admission passes to the
summer participation theme park and admission
passes to the Mountain Top Recreation Center, all
for a period of 35 years. As of September 30,
1997, Resort Club had an unpaid balance of
$540,795 for these amenities. As a result of the
continued uncertainty resulting from the
Great American bankruptcy referred to below,
Resort Club stopped offering these amenities to
members who purchased membership interests after
January, 1997. Also on March 29, 1996, Resort
Club entered into an amended and restated
agreement with Stonehill Recreation, the entity
which owns and operates the Spa on terms similar
to those that were entered into with Great
American, except that the consideration payable to
Stonehill Recreation from Resort Club represents
$25,000 for each condominium controlled by
Resort Club in the Great Gorge Village. As of
September 30, 1997, Resort Club had an unpaid
balance of $738,178 due to Stonehill Recreation
for amenities. During fiscal 1997, the
Company advanced funds on behalf of Stonehill
Recreation in connection with a settlement in the
Great American bankruptcy. In consideration for
these advances, ownership of Stonehill Recreation
transferred to the Company on the
effective date of the Great American plan of
reorganization, which was October 16, 1997.
On February 14, 1996, an involuntary bankruptcy
petition was filed against Great American by three
creditors in the United States Bankruptcy Court,
Newark, New Jersey. On April 2, 1996, Great
American and its wholly owned subsidiaries, Vernon
Valley, Great Valley, Great Gorge, Great Heritage,
Inc., TAV, Inc., Stonehill Management Corp.,
Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc. and Vernon Valley
Sewer, Inc. filed voluntary petitions with the
United States Bankruptcy Court for the District of
New Jersey seeking reorganization under
Chapter 11 of the United States Bankruptcy Code.
Resort Club (Continued):
The Company provides financing to the purchasers
of its membership interests. Through fiscal 1997,
the Company advanced approximately $10,637,000 to
Resort Club primarily for working capital
purposes. This financing is generally
evidenced by non-recourse installment sales
contracts. The down payment received by the
Company for such sales is at least 10% of the
sales price. The down payment is often
less than the direct expense of commissions and
selling expenses and the difference is financed
either by borrowings by the Company or by the
Company's internally generated funds. In order to
ensure the collectability of the advances
made to Resort Club and maintain the viability of
Resort Club's future business operations,
management determined that it has been in the best
interest of the Company to assist Great American
and its affiliated entities for the reason that
the majority of the Resort Club amenity package
was owned and operated by Great American and
affiliated entities. Management believes that in
order for the Resort Club to maintain its operations,
the Great American assets must emerge
from bankruptcy.
On July 10, 1997 Resources and its wholly owned
subsidiaries, Resort Club and Diamond Leasing
entered into a Memorandum of Understanding (the
"MOU") which outlined a settlement agreement in
connection with the Great American bankruptcy
between Great American, Praedium and Mr. Gene
Mulvihill and entities affiliated with Mr. Gene
Mulvihill including the Company. Pursuant to the
terms of the MOU, Resources and its affiliates
were required to make certain contributions and
received certain benefits which are outlined
below:
Contributions by the Company
A. The full settlement and satisfaction of the
claims, liens and security interests of
Summit Bank ("Summit"), Lakeview Savings
Bank ("Lakeview") and Public Loan Company
in a manner that permitted the
assets of the Great American entities
contemplated by the MOU to be sold in a
Section 363 Sale and the proceeds of such
sale to be free and clear of all
liens, claims and encumbrances. See Item 12
herein and Notes 3 and 10 of the Notes to the
Consolidated Financial Statements.
B. Payment of $1.8 million in cash which
included $100,000 allocated for costs in
connection with soliciting the plan.
C. Resort Club agreed to allocate 100% of its
net cash flow to pay the notes of
professionals, indenture trustees, Richard
Wright and Matt Harrison, both
restructuring officers of Great American
("Resort Club Notes"), and a $7.5 million
unsecured creditors' note (the "Resort Club
Unsecured Creditors' Note").
Similarly, any proceeds dividended to
reorganized Great American from Stonehill
Recreation will be used to pay the Resort
Club Notes and the Resort Club
Unsecured Creditors' Note. Such net cash
flow and dividends will be allocated and
distributed as follows: The first $1,000,000
of such net cash flow will be allocated and
distributed to pay the Resort Club Notes in
partial satisfaction of unpaid allowed
professional fees and expenses and unpaid
allowed indenture trustee administrative
claims, and unpaid claims of Richard Wright
and Matt Harrison. After distribution of
the first $1,000,000 of net cash flow,
50% of net cash flow thereafter will
be paid pro rata under the Resort Club
Notes and 50% of such net cash
flow will be paid in satisfaction of the
Resort Club Unsecured Creditors' Note; and
provided further, that the amount and the
terms of the Resort Club Notes and
Resort Club Unsecured Creditors' Note shall
be reasonably satisfactory to the holders
of such notes and be limited in a matter so
as not to materially impair the operation of
the business of the Resort Club.
Resort Club (Continued):
D. Transfer, release or otherwise convey all
right, title and interest in and to the
Piston Bullies previously leased to Vernon
Valley by Diamond Leasing and 54
building lots owned by the Company (the
"Lots") to Great American, free and clear
of all liens, claims and encumbrances prior
to the commencement of the Section 363 Sale.
Praedium, the successful purchaser,
has the right to develop the lots in its
discretion, in whole or in part, and the
Company will reasonably cooperate with
Praedium with respect to the
development of the lots and or any other
property acquired from Great American,
including, without limitation, to affect the
transfer of any and all rights, easements or
other interests necessary for the
successful purchaser to exercise its
development rights; provided however, that
such cooperation will be reasonably limited
to acts which do not interfere materially
with the operation of the Mulvihill
interests' businesses. See Item 12 herein
and Note 3 of the Notes to the Consolidated
Financial Statements.
E. Promptly after the execution of the MOU, the
Mulvihill interests and Public Loan Company
agreed to enter into appropriate agreements
with respect to the granting or
the conveyance of all water rights, sewer
rights, other access rights and rights
appurtenant to the land on which Great
American operates its businesses, and
the Mulvihill entities and Public Loan
Company will receive reciprocal rights with
respect to the land on which the Mulvihill
interests and Public Loan Company operate
their business; provided, however, that (i)
such transfers and grants by the Mulvihill
interests and Public Loan Company are not
conditional upon the consummation of the
Section 363 Sale or the Plan, (ii)
the rights granted to the Mulvihill interests
and Public Loan Company will be reasonably
limited in a manner so as not to interfere
materially with Praedium's operation of its
business, as determined in Praedium's
reasonable discretion.
F. Reorganized Great American received (i) 35%
of the common equity of Resort Club and 35%
of the common equity of Stonehill Recreation
and (ii) a $7.5 million note from the Resort
Club (i.e., the Resort Club Unsecured
Creditors Note ), as more fully described
below. Great American, Stonehill Recreation
and the Company entered into a shareholders
agreement covering the permissible
expenditures which Stonehill Recreation may
make on a going-forward basis to the
effect that the 35% equity interest in
Stonehill Recreation granted to Reorganized
Great American under the Plan, and the
amounts to be dividended on account
of such 35% equity interest, shall not be
diluted by any insider, affiliate or non-
ordinary course transaction. Reorganized
Great American has been granted appropriate
representation on the boards of both
Stonehill Recreation and Resort Club in
connection with its 35% interest in each.
Reorganized Great American received customary
anti-dilution rights in respect of such
equity interests.
G. The Company entered into an amended and
restated lease with respect to the Space Shot
with Praedium on mutually acceptable terms.
See Item 12 herein and Note 3 of the Notes
to the Consolidated Financial Statements.
Resort Club (Continued):
Resort Club Operating Agreements
A. Resort Club will receive 275 excess capacity
passes per day (the "Excess Passes") for
use at the Great Gorge Resort. The Excess
Passes are non-transferable and utilizable
only by actual Resort Club members.
Daily usage of the Excess Passes are limited,
in the reasonable discretion of the operator
of the Great Gorge Resort, to such number of
Excess Passes that will not interfere with
the usage (based upon full utilization of all
lifts, rides, attractions and other
amenities) of the Great Gorge Resort land and
amenities by resulting in greater than
capacity usage of the Great Gorge Resort.
The capacity of the Great Gorge Resort is
defined as follows: (i) as to the ski
resort facilities, 4,000 day pass skiers per
day and (ii) as to the summer participation
theme park, 10,000 patrons per day.
B. Resort Club will be permitted to purchase
additional passes over and above the
available Excess Passes. Excess Passes shall
not, under any circumstances, be
used to solicit new Resort Club members.
C. Resort Club was granted (i) a 25 year license
to use six of the existing cabins and four
lots on the Evergreen Campground and (ii) a
lease of the Evergreen Campground for a
nominal price for an initial term of
one (1) year, with twenty-four (24) automatic
one year extensions.
D. Resort Club was granted one-time five year
leases to operate winter time-share sales
offices at two specified locations and a
summer time-share sales office at one
specified location. Each of the three
leases shall be at a rental of $100 per
month.
E. Resort Club will be granted a ten (10) year
lease to operate a time-share "closing
house" at a rental of $500 per month.
F. All Resort Club promotional materials and
agreements shall specify that Resort Club is
not affiliated with the ownership of the
summer participation theme park
and winter recreational ski area. Resort
Club will affect notice of this matter to all
existing Resort Club members.
G. Resort Club will assume the defense of, and
assume and pay the liabilities associated
with, post-petition personal injury claims
arising out of the post-petition operation of
Great American's businesses to the date of
the consummation of the Section 363 Sale;
provided, however, that to the extent
possible, payment of such liabilities shall
first be made from a $300,000 amusement bond
held by Great American.
Resort Club (Continued):
Stonehill Recreation
A. Praedium received a first priority $3.2
million mortgage lien on the assets of
Stonehill Recreation, including, but not
limited to, the Spa (the "Spa Mortgage")
B. Praedium granted to the Mulvihill entities
(excluding Stonehill Recreation) an option
(the "Option") to purchase the Spa Mortgage
for $1 million (the "Option
Price"). The Option must be exercised, and
fully paid for, within 18 months of the
consummation of the Section 363 Sale. The
Option Price may be paid in 18
monthly installments, at an interest rate of
ten (10%) percent per annum.
C. Great American transferred, without
representation or warranty, all of its right,
title and interest in and to the 9-hole
executive golf course and clubhouse
adjacent to the Spa; provided, however, that
Stonehill Recreation will grant reasonable
rights of usage of such golf course and
clubhouse to Praedium with respect to not
less than 20% of all tee times at a 20%
discount to the customary charges paid by the
public for the use of such amenities.
Management believes that the contributions made by
the Company in connection with the MOU hereinafter
referred to as the "Great American Settlement
Assets" are realizable as of September 30, 1997.
Management believes that the Great American
Settlement Assets are realizable primarily through
the forgiveness of indebtedness as of September
30, 1997 owed to Great American related entities
and Stonehill Recreation for the use of amenities
by Resort Club members, its participation in the
option to purchase the $3.2 million first mortgage
on the Spa from Praedium, and the 65% equity
interest in the Spa. In addition, management
believes that the entry of Intrawest provides
significantly greater value to Resort Club members
which will increase the collectability of
membership receivables and increase membership
referrals. In connection with Resort Club's
obligation under the MOU with respect to the
issuance of the Resort Club Notes and Resort Club
Unsecured Creditors' Note, Resort Club is
obligated to record in the first quarter of
fiscal 1998 approximately $5.0 million
of indebtedness which represents the approximate
discounted value of these obligations.
In February, 1998, Intrawest, the number one
mountain resort developer in North America,
purchased the Great Gorge Resort and plans a
massive expansion that will include a village,
rental cabins, resort homes, a mountain top golf
course and a major facelift of the ski area and
Action Park. Intrawest has a history turning ski
resorts around throughout North America. Since
purchasing Whistler/Blackcomb in the Canadian
Rockies in 1987, Intrawest has transformed it into
the #1 ski resort in North America, bigger and
better than Vail or Aspen. Just five years ago
they purchased Mont Tremblant, a near bankrupt ski
area in Quebec two hours north of Montreal. With
$500 million in investment it has become the best
ski resort in the East. At Mont Tremblant
Intrawest created an incredible European style
village with 20 restaurants and 50 shops.
Intrawest developed over 1,000 vacation homes and
vastly improved the ski mountain.
Management believes that the entry of Intrawest
into the Great Gorge Resort will significantly
increase the existing members' satisfaction which
will increase member referrals. In addition,
since Resort Club is a multi-site, points based
vacation club, Resort Club can sell inventory in
South Carolina or Brigantine, New Jersey and
continue to utilize the Intrawest draw in Vernon.
However, Management believes that there is enough
available inventory in the Vernon area
such as Seasons Hotel, Hidden Valley ski area and
neighboring facilities to fulfill its
long-term operational objectives.
During fiscal 1997 sales prices ranged from $8,510
to $16,288 per membership. Annual fulfillment
assessments for operating costs ranged from
$178.25 to $444.80 during fiscal 1997.
Resort Club (Continued):
For the fiscal years ended September 30, 1997,
1996, 1995, Resort Club's gross revenue from sales
of membership interests was $6,389,292,
$6,666,979, and $4,858,022, respectively.
The following table illustrates certain statistics
regarding membership activities:
<TABLE>
<S> <C> <C> <C>
Fiscal Fiscal Fiscal
1997 1996 1995
Maximum number of membership
interests available 2,069 1,453 735
Net number of membership
interests sold 1,970 1,403 685
Percentage sold 95% 97% 93%
Net number of membership interests
sold during fiscal period 567 718 526
Gross sales of membership
interests during fiscal
period $6,389,292 $6,666,979 $4,858,022
Annual fulfillment
assessments per membership
interests $426,171 $329,555 $168,930
</TABLE>
Resort Club membership allows its members to
vacation in Resort Condominiums at a significant
savings. The accommodation usage is administrated
through a "points" based system, the latest
evolution of timesharing embraced by such industry
leaders as Fairfield, RDI, and Disney. Each
member is sold a certain number of points which
are spent on accommodations. Members use a menu
or point chart with a variety of seasons, unit
styles and unit sizes to choose from with varying
costs in points. The menu is broken down with a
value established for each day of the year. The
attractiveness of this program is it allows for
the ultimate in flexibility for the member. In
particular, due to the Great Gorge Resort's close
proximity to members' homes, a number of short-
term getaways of one, two, or three nights versus
a full week, is a useful value. Resort Club is an
affiliate of Interval International, a world-wide
international exchange network. Resort Club has
received a Five Star rating given to only the
highest quality resorts within the Interval
International network. This rating gives Resort
Club members a higher trading power to obtain
exchanges to other high quality Resorts such as
Marriott or Disney properties. As part of the
purchase price, Resort Club offers the first
year's membership to Interval International as
well as one year's membership to Interval
International's benefit package known as World
Card Preferred to each of its members. World Card
members obtain discounts on car rentals, hotel
stays, prescriptions, auto purchase plans and much
more.
Resort Club membership also includes access to the
Spa, at no charge when staying within the Great
Gorge Village. Access may be obtained for a fee
when not in residency. Members receive
complimentary and discounted greens fees at the
Spa Golf Course and members receive complimentary
access to the Mountain Top Recreation Center.
Members who purchased memberships prior to
January, 1997 also receive complimentary skiing
and access to the summer participation theme park
at the Great Gorge Resort.
Resort Club (Continued):
As a multi-site points based vacation club, Resort
Club believes it offers its members better value
and more flexibility than a traditional deeded
fixed week timeshare project. Resort Club's
initial focus is to provide the New York
metropolitan market with affordable drive-to
vacation spots in the Northeast and Mid-Atlantic
states including New Jersey, Vermont and South
Carolina. Emerging social and economic trends see
American families taking more frequent but shorter
vacations. With both spouses working it is often
difficult for them to schedule the time off for
the traditional two week vacation. A series of
shorter getaways to nearby drive-to destinations
is a growing trend. Resort Club's program is
designed to meet these needs.
Vernon, New Jersey is both the selling
headquarters for Resort Club and its first resort
location. Vernon is located within the Great Gorge
Resort area of New Jersey. This area possesses a
wide variety of very appealing four season
amenities, including: The Vernon Valley/Great
Gorge Ski Area with 3 inter-connecting mountains,
2 lodges, 52 trails, 15 lifts with one of the
world's largest snowmaking systems, and a 1,000
plus foot vertical drop; Hidden Valley Ski Area
with 1 mountain and 1 lodge, 12 trails, 3 lifts
and a vertical drop of 620 feet; Action Park
Entertainment Center with 75 rides, shows and
attractions, including one of the world's largest
water parks; The Spa Country Club and Conference
Center, a health and fitness club with restaurant,
banquet and conference facilities; The Spa Golf
Course, a Robert Trent Jones executive golf course
with club pavilion; The Great Gorge Golf Course,
a 27-hole golf course, clubhouse and driving
range; Black Bear Golf Course, a championship 18
hole golf course and David Glenz Golf Academy and
clubhouse; Crystal Springs Golf Course, an 18
hole, Van Hagge designed course and David Glenz
Golf Academy and clubhouse; Bally Owen Golf
Course, an 18 hole, Ruliwitz designed course and
clubhouse; The Mountain Top Recreation Center, a
1,000 plus acre wilderness park with miles of
trails, 8 lakes with beaches, boating, fishing,
and a children's fort, Seasons Resort and
Conference Center, a 600 suite hotel nestled in
the Vernon Valley mountains with state-of-the-art
conference facilities; and The Mountain Top Cabins
and Tents, all pine Finnish cabins and platform
tents located on lakes and ski trails with
spectacular valley views.
Many of Resort Club's units are located either on
the slopes of the Great Gorge Ski Area or the
fairways of the Spa Golf Course. As of September
30, 1997, Resort Club has 35 units in Vernon, New
Jersey, 3 units in Brigantine, New Jersey and one
unit in Palmas Del Mar, Puerto Rico and is looking
into purchasing additional units in Brigantine as
well as Killington, Vermont.
Management has determined that in order to
adequately secure the members' interest in
accommodations, title to certain of the Company's
resort properties will be held in trust by
trustees. Trustees will administer the collection
of certain of the Company's notes receivable and
annual maintenance assessments from membership
owners and retain funds for the payment of
insurance, taxes and capital improvements. The
trustees will pay the balance of the collections
over to the Company on a regular basis, after
deducting certain impounds, provided that annual
maintenance assessments have been disbursed by the
Company according to a budget submitted by the
Company. Under the trust and management
agreements, the Company will have the exclusive
rights to the control and management of the
facilities held in trust.
Competition
Competitors to Resort Club include timeshare
operations in the Poconos and Catskills. They
include Shawnee, Tree Tops and Split Rock in the
Poconos, and Villa Roma in the Catskills.
Atlantic City, a three hour drive away, has one
very successful project known as the Flagship.
Seasonality
Sales of membership interests are primarily
seasonal which correlates with the summer and
winter seasons of Great Gorge Resort's summer
participation theme park and winter ski
operations, respectively. For the last three
fiscal years ended September 30, 1997, quarterly
sales as a percentage of annual sales, for each of
the fiscal quarters averaged: quarters ended
December 31 - 15%, quarters ended March 31 - 27%,
quarters ended June 30 - 18%, and quarters ended
September 30 - 40%. The Company is not dependent
upon a limited number of customers whose loss
would have a materially adverse effect on the
Company.
Employees
Throughout the year, primarily in connection with
the operation of its membership program, the
Company employs as many as 119 persons, the
substantial majority of which are employed on a
part-time basis. The Company believes it enjoys a
satisfactory relationship with its employees. As
of September 30, 1997, the Company had
approximately 37 year-round employees.
During January and February 1998, the Company
significantly downsized its sales and marketing
operations and has entered into sales and
marketing arrangements with two entities owned and
controlled by former employees of Resort Club,
one of which is owned and controlled by Mr. Robert
Harris, Resort Club's former president. The
agreements provide for a commission equal to 50%.
Management believes that the current arrangement
is advantageous to the Company for the reason that
the Company is not burdened with a fixed overhead.
At a point when Intrawest defines its operational
and strategic game plan, management may operate
its sales and marketing program internally.
Real Estate Investment Activities
Resort Club Accommodation Inventory Held in Trust.
Management has determined that in order to
adequately secure the members' interest in
accommodations, title to certain of the Company's
resort properties will be held in trust by
trustees. Trustees will administer the collection
of certain of the Company's notes receivable and
the annual maintenance assessments from membership
owners and retain funds for the payment of
insurance, taxes and capital improvements. The
trustees will pay the balance of the collections
over to the Company on a regular basis, after
deducting certain impounds, provided that annual
maintenance assessments have been disbursed by the
Company according to a budget submitted by the
Company. Under the trust and management
agreements, the Company will have the exclusive
rights to the control and management of the
facilities held in trust.
As of September 30, 1997, the Company has sold
277,209 membership points. Based on the number of
membership points sold, the Company is required to
purchase a minimum inventory of 39 condominium
units. Currently, the Company owns 8 condominium
units free and clear, and has purchased 26
condominium units which are subject to mortgages
in the principal amount of $1,485,779 as of
September 30, 1997. In addition, the Company is
in negotiations to purchase the remaining 5
condominium units for a purchase price of
approximately $430,500.
Real Estate Investment Activities (continued)
Ouray, Colorado Property and Mill. The Company is
the owner of 10 acres of land in Ouray, Colorado,
with the "Silver Shield" Mill located thereon.
The mill, designed to mill silver, has not been
operated for more than 50 years. The Company paid
the balance of the purchase price for this
property early in fiscal 1992 and listed the
property for sale at a price of $239,000 based
upon a listing of comparable neighboring property.
Although the listing expired in October 1993, the
Company did not renew the listing because of an
ongoing reconstruction project in the vicinity
which management believes may enhance the value of
the Company's property. It is management's belief
that this property will be sold for an amount at
least equal to the Company's $218,975 carrying
value, although no assurances can be given that
such will be the case.
Other Investments. See Item 12 herein and Notes
3, 4, 6, 7, and 14 of the Notes to the
Consolidated Financial Statements as to
investments made by the Company with entities
affiliated with three directors, one of which is
also the principal stockholder of the Company.
Item 2. Properties
The Company currently leases its office building
located in Selma, Alabama on a month-to-month
basis.
The Company's executive offices are at 355 Madison
Avenue, Morristown, New Jersey. The Company
entered into a lease agreement with St. Marks
Associates, a real estate partnership owned 50% by
Mr. Gene Mulvihill. The lease provides for a
lease term of 5 years commencing December 1, 1995
with a base rent of $1,558 per month and a monthly
payment of approximately $519 for the Company's
proportionate share of impositions and operating
expenses. The lease provides for rental
adjustments for changes in the Consumer Price
Index.
During fiscal 1997, the Company entered into an
agreement to purchase Stonehill Recreation, which
owns and operates the Spa, a health and fitness
club with restaurant, banquet and conference
facilities as well as a Robert Trent Jones
executive golf course with club pavilion. The
purchase of Stonehill Recreation was completed in
the first quarter of fiscal 1998. See Note 14 of
the Notes to the Consolidated Financial
Statements.
Item 3. Legal Proceedings
The Company is not a party to any pending legal
proceedings which it regards as material in
nature.
Item 4. Submission of Matters to a Vote of
Security Holders
No matter was submitted to a vote of security
holders during the quarter ended September 30,
1997.
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
Resources' Common Stock is traded in the over-the-
counter market. The following table sets forth
the range of high and low bid and asked quotations
for the Common Stock during the past two fiscal
years as derived from reports furnished by the
National Quotation Bureau.
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Bid (1) Asked (1)
High Low High Low
December 31, 1995 $ .875 $ .71875 $1.0625 $ .875
March 31, 1996 1.625 .8125 1.875 1.00
June 30, 1996 1.125 1.00 1.4375 1.25
September 30, 1996 .750 .75 1.00 1.00
December 31, 1996 .750 .625 1.00 .75
March 31, 1997 .625 .625 .813 .813
June 30, 1997 .750 .50 1.00 .813
September 30, 1997 1.031 .75 1.125 .875
</TABLE>
____________
(1) The above quotations represent prices
between dealers and do not include retail mark-
ups, mark-downs or commissions. They do not
necessarily represent actual transactions.
As of December 31, 1997, the number of record
holders of Resources' Common Stock was 2,604.
Resources has never paid a cash dividend on its
Common Stock and anticipated capital requirements
make it unlikely that any cash dividends will be
paid on the Common Stock in the foreseeable
future.
Item 6. Management's Discussion and Analysis or
Plan of Operation
Introduction
The following discussions and analysis of
financial condition and results of operations
should be read in conjunction with the
consolidated financial statements and accompanying
notes.
Results of Operations
Fiscal Year 1997 compared with Fiscal Year 1996
The net loss from continuing operations applicable
to common shareholders for fiscal 1997 was
$432,795 ($0.10 per share) as compared to a net
loss from continuing operations applicable to
common shareholders of $7,164,908 ($1.56 per
share) in the comparable prior year period.
Sales of membership interests are recognized and
included in Revenues after certain "down
payment" and other "continuing investment"
criteria are met. The agreement for sale
generally provides for a down payment and a note
payable to the Company in monthly installments,
including interest, over a period of up to 7
years. Revenue is recognized after the requisite
rescission period has expired and at such time as
the purchaser has paid at least 10% of the sales
price for sales of membership interests and the
condominium is placed in service free and clear of
all encumbrances. The sales price, less a
provision for cancellation, is recorded as revenue
and the cost related to such net revenue of the
membership interest is charged against income in
the year that revenue is recognized. If a
purchaser defaults under the terms of the
contract, after all rescission and inspection
periods have expired, payments are generally
retained by the Company. During fiscal 1997, the
Company recognized approximately $2,933,000 in
membership revenue as compared to $2,479,000 in
fiscal 1996.
Costs incurred in connection with preparing
membership interests for sale are capitalized and
include all costs of acquisition, renovation and
furnishings of condominiums as well as operating,
marketing and selling expenses. Deferred
Membership Interests Held for Sale are valued at
the lower of cost or net realizable value in
accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 67,
"Accounting for Costs and Initial Rental
Operations of Real Estate Projects". During
fiscal 1997, the Company had adjusted Deferred
Membership Interests Held for Sale for items over
budget in the aggregate amount of approximately,
$2,936,000 as compared to $6,248,000 in fiscal
1996. Management believes that the 1997
overbudget was primarily due to the deteriorating
conditions of the Great Gorge Resort during the
summer of 1997 and the winter of 1997/1998
which has had a devastating impact on Resort Club's
ability to sell membership interests.
Membership Expense primarily included Operating
Expenses of $234,654 in fiscal 1997 compared to
$193,100 in fiscal 1996 resulting in an increase
of $41,554 (21.52%); Marketing and Selling
Expenses of $1,173,270 in fiscal 1997 compared to
$998,837 in fiscal 1996 resulting in an increase of
$174,433 (17.46%); and Product Costs of
$557,303 in fiscal 1997 compared to $471,528 in
fiscal 1996 resulting in an increase of $85,775
(17.94%). The increased expenses in fiscal 1997
compared to fiscal 1996 are a direct result of the
increased Membership Revenue of approximately
$2,933,000 in fiscal 1997 compared to $2,479,000
in fiscal 1996.
In connection with the purchase of a Resort Club
membership, a member is obligated to pay annual
membership dues. Annual membership dues have been
established to cover each club member's pro rata
share of the estimated annual maintenance and
operating expenses, including reserves, for all of
the units, facilities, and amenities with the
present Resort Club program. The initial annual
membership dues may be increased by Resort Club as
of each fiscal year by a percentage not to exceed
the percentage increase, if any, in the Consumer
Price Index ("CPI"). The annual membership dues
may be increased by an amount greater than the CPI
if the increase is put to a vote of all Resort
Club members and approved by a majority of the
points voted.
Fiscal Year 1997 compared with Fiscal Year 1996
(continued)
As of September 30, 1997, management has
determined that based on the average per point
assessment, a deficit of $0.93 per point exists.
Based on an aggregate of 277,209 points sold
through September 30, 1997, a $258,209 per year
deficit exists which is the obligation of Resort
Club. Management has calculated the net present
value of this obligation to be $3,300,778. As
September 30, 1996, Management calculated the per
point deficit to be $1.41. The $0.48 decrease is
primarily attributed to lower administration,
management fees and replacement reserves than were
originally budgeted. Accordingly, the Company
adjusted the fulfillment deficit by approximately
$861,750 during fiscal 1997.
Membership Annual Fee Revenue was $476,792 in
fiscal 1997 compared to $379,447 in fiscal 1996.
The increase of $97,345 (25.65%) in Membership
Annual Fee Revenue is a result of the number of
membership interests increasing from 1,453 in
fiscal 1996 to 2,069 in fiscal 1997.
Ski Rental Shop Revenue and Other Revenue was
$301,163 in fiscal 1997 compared to $1,142,069 in
fiscal 1996 and Ski Rental Shop and Other Expenses
was $77,104 in fiscal 1997 compared to $1,095,596
in fiscal 1996. These decreases are a direct
result of the Company not operating the Vernon
Valley/Great Gorge Ski Rental Shop (see Item 12
herein and Note 3 of the Notes to the Consolidated
Financial Statements).
Depreciation and amortization was $192,702 in
fiscal 1997 compared to $107,979 in fiscal 1996
resulting in an increase of $84,723 (78.46%).
This increase is a direct result of the Company
recording a full year's depreciation on its
Space Shot ride purchased in fiscal 1996.
In fiscal 1997, the Company recorded a gain on the
sale of marketable securities of $2,341,508
primarily resulting from a gain on the sale of
PriCellular Stock of $1.4 million and a gain on
the sale of Food Extrusion, Inc. of approximately
$1.1 million as compared to a gain on the sale of
marketable securities in fiscal 1996 of $3,811,938
primarily resulting from a gain on the sale of
PriCellular Stock of approximately $3.6 million
(see Notes 4 and 7 of the Notes to the
Consolidated Financial Statements).
During fiscal 1997, the Company recorded a loss on
Sale of Real Estate and RTC Mortgages of $511,105.
During fiscal 1997, the Company recorded a loss in
connection with the sale of its Clanton, Alabama
office building of approximately $93,000 with the
remaining balance relating to the sale of certain
of its RTC Mortgages.
During fiscal 1997, the Company recorded
amortization of deferred financing costs of
$55,216 primarily relating to costs associated
with obtaining its loan with Binghamton
Savings Bank (see Note 10 of the Notes to the
Consolidated Financial Statements).
During fiscal 1997, Interest income was $445,384
as compared to $449,292 in fiscal 1996. In
addition, interest expense was $328,140 in fiscal
1997 as compared to $527,055 in fiscal 1996.
The net income from discontinued operations
applicable to common shareholders for fiscal 1997
was $-0- ($0.00 per share) as compared to net
income from discontinued operations applicable to
common shareholders of $10,030,998 ($2.19 per
share) in the comparable prior year period. The
net income from discontinued operations was
primarily a result of the sale of the Company's
former cellular telephone system.
Fiscal Year 1996 compared with Fiscal Year 1995
The net loss from continuing operations applicable
to common shareholders for the twelve months of
fiscal 1996 was $7,164,908 ($1.56 per share) as
compared to a net loss from continuing operations
applicable to common shareholders of $703,039
($0.13 per share) in the comparable prior year
period.
The net loss from continuing operations in fiscal
1996 was primarily a result of the write-off of
certain deferred membership expenses of Resort
Club in the aggregate amount of $6,247,862. In
accordance with FASB No. 67, the Company reduced
the carrying amount of deferred membership
expenses to net realizable value. In addition,
during fiscal 1996, the Company recorded a
provision of $3,818,371 which represents the net
present value of the estimated annual maintenance
and operating expenses, including reserves, for
all the units, facilities and amenities with the
present Resort Club program in excess of the
annual membership dues collected by Resort Club.
In fiscal 1996, the Company recorded membership
revenue of approximately $2,479,000 and
corresponding membership expenses of approximately
$2,060,000, excluding the write-off of over
budgeted expenses described above. Membership
expense primarily includes Operating Expenses of
$193,100, Marketing and Selling Expenses of
$988,837 and Product Costs of $471,528. In
addition, the Company had other income of
approximately $1,142,000 primarily from ski
rental operations offset by $1,095,596 in expenses
which primarily consisted of $1,025,000 in rent
expense to Vernon Valley. (See Item 12 and Note 3
of the Notes to the Consolidated Financial
Statements)
Also, the Company recorded a gain on sale of
marketable securities of $3,811,938, primarily
resulting from the sale of its PriCellular stock
received as part of the proceeds from the sale of
the cellular telephone system.
Net income from discontinued operations applicable
to common shareholders for the twelve months of
fiscal 1996 was $10,030,998 ($2.19 per share) as
compared to net income from discontinued
operations applicable to common shareholders of
$1,354,515 ($0.25 per share) in the comparable
prior year period. The net income from
discontinued operations was primarily a result of
the sale of the Company's cellular phone system.
(See Note 2 of the Notes to the
Consolidated Financial Statements.)
Liquidity and Capital Resources
Fiscal Year 1997
During fiscal 1997, the Company had a net loss
from continuing operations of approximately
$432,800. Included in the net loss from
continuing operations is depreciation of
approximately $192,700 and amortization of
deferred financing costs of approximately $55,200,
which are non-cash expenses. After reflecting the
net change in assets and liabilities which
primarily include the utilization of cash from
increased membership receivables of approximately
$1,461,000, decreased accounts payable and accrued
liabilities of approximately $1,169,000 and
increased deferred membership expenses of
approximately $1,417,000 offset by a source of
cash resulting from decreased deferred membership
revenue of approximately $2,406,000, net cash used
by operations was approximately $2,608,000.
Investing activities used net cash of
approximately $3,555,000 and includes primarily
investments in the Great American settlement
assets of approximately $4,494,000 which includes
a cash contribution of $1.8 million, additional
investments in Lakeview/Summit Notes of
approximately $1,858,000 and an investment in
Public Loan Notes of $770,000. Net cash used by
investing activities also included capital
expenditures of approximately $138,000 offset by
the sale of certain RTC mortgages and the sale of
Marketable Securities. Financing activities provided
net cash of approximately $4,985,700
which resulted from proceeds of additional loans
of approximately $5,900,300 offset by the
repayment of borrowings of approximately $896,800
and the purchase of treasury stock of $17,828.
Accordingly, during fiscal 1997, the Company's
cash decreased by approximately $1,177,000.
Fiscal Year 1996
During fiscal 1996, the Company had a loss from
continuing operations of $7,164,908. Included in
the loss from continuing operations is
depreciation of approximately $108,000, which is a
non-cash expense. After reflecting the net change
in assets and liabilities, net cash used by
continuing operations was $4,034,413. In
addition, income from discontinued operations
provided net cash of approximately $8,210,000 as a
result of the sale of the Company's cellular
telephone system. Investing activities provided
net cash of $2,118,839 and primarily includes
investments in mortgages of $1,523,585,
investments in a mutual fund and other marketable
securities of approximately $382,000, investments
in real estate and real estate related activities
of $1,018,740, an amusement ride for $1,229,000,
and a loan to Food Extrusion, Inc. of $1,750,000
offset by the sale of PriCellular Stock which
generated cash proceeds of approximately $7.4
million. Financing activities used net cash of
approximately $5,657,000 which resulted from the
repayment of borrowings of approximately
$5,148,000, and purchase of treasury stock of
$1,396,591 offset by the proceeds of additional
loans of approximately $887.000. Accordingly,
during fiscal 1996, the Company's cash increased
by approximately $637,000.
Future Business Plans
As of September 30, 1997, the Company's primary
business operations are in connection with the
sale of membership interests through Resort Club.
In addition, management presently intends to apply
the bulk of the Company's resources in some or all
of the following real estate development
activities: residential, commercial and resort
development. Some of such activities may be
conducted with entities affiliated with
management. The Company's involvement may be as a
sole principal, a partner, a joint venturer or in
some other form.
As of September 30, 1997, the Company had engaged
in various transactions with certain of its
officers, directors, principal stockholders and
certain of their affiliated entities (see Item 12
and Note 3 of the Notes to the Consolidated
Financial Statements). In addition, as of
September 30, 1997, the Company had made an
investment in Food Extrusion, Inc. (see Note 7 of
the Notes to the Consolidated Financial
Statements) and purchased mortgages from the
Resolution Trust Company (see Note 6 of the Notes
to the Consolidated Financial Statements).
The Company may also seek to pursue real estate
development activities on its "Silver Shield"
Mill property in Colorado. Despite the foregoing,
management reserves the right to apply the
Company's resources in other businesses as
opportunities present themselves.
Item 7. Financial Statements
Financial statements are attached hereto.
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers,
Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the
Company are as follows:
<TABLE>
<S> <C> <C> <C>
Name Age Principal Director
Occupation Since
Gene W. Mulvihill* (+) 63 Director; Chief
Executive Officer 1981
Joseph R. Bellantoni* 35 Treasurer;
Chief Financial Officer
and Director 1995
Paul J. Donahue (+) 64 Director 1995
Thomas Conlin (+) 63 Director 1996
Christina Riker 31 Chief Financial Officer,
Resort Club ----
Andrew Mulvihill 34 Executive Officer,
Resort Club ----
</TABLE>
__________
(*) Member of the Executive Committee. The
Executive Committee is responsible for oversight
with respect to executive decisions.
(+) Member of the Audit Committee.
Mr. Gene W. Mulvihill became CEO of the Company on
November 7, 1995. Gene W. Mulvihill is a private
investor, involved in venture capital, golf course
and real estate development. Mr. Mulvihill was
one of the founders, in 1983, of American Cellular
Network Corporation (Amcell), a public owner and
operator of cellular telephone systems in the
Northeast corridor between New York City and
Washington D.C., and was active in assisting in
the development and financing of Amcell until its
acquisition in 1987. Mr. Mulvihill was founder,
Chairman of the Board and the major stockholder of
Ribi ImmunoChem Research, Inc. involved in the
biotechnology industry from 1981 to 1985. Mr.
Mulvihill was founder of NMR of America, Inc., a
public company involved in magnetic resonance
imaging and was a primary shareholder from 1985 to
1986. Mr. Mulvihill was Chairman of the Board of
Great American and a principal stockholder from
1981 to January 1991 and a Director from 1981 to
1994. Great American was involved in the
recreation industry.
Item 9. Directors and Executive Officers,
Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
(continued)
Mr. Bellantoni had been a Director and Treasurer
of the Company from April 1995 through March 19,
1996. He subsequently rejoined the Company as a
Director and Treasurer in October 1996. Mr.
Bellantoni was previously employed by Great
American through October 1996. He had been
employed by Great American since February 1989,
where he became Vice President of Administration
in 1993 and Chief Financial Officer in June 1994.
On February 14, 1996, an involuntary bankruptcy
petition was filed against Great American by three
creditors in the United States Bankruptcy Court,
Newark, New Jersey. Mr. Bellantoni is currently a
director and Chief Financial Officer of
reorganized Great American, GAR, Inc. From May
1987 to February 1989, he was employed by Jaymont
Properties, Inc., an owner, developer, and manager
of commercial real estate as a Project Analyst.
Prior to working with Jaymont, Mr. Bellantoni was
employed by KPMG Peat Marwick from November 1983
through May 1987.
Mr. Donahue is currently employed by Crystal
Springs Golf Club as a Pro Shop Manager. Prior to
working at Crystal Springs, Mr. Donahue was
employed as a Bank Examiner with the State of
Florida in 1994 and from 1990 through 1993, he was
employed by Midlantic Bank as a Vice President.
Mr. Conlin became a Director of the Company in
November 1996. He has been engaged in the
business of real estate sales for more than the
past five years. Prior to his involvement in real
estate, Mr. Conlin was a member of the New York Stock Exchange.
Ms. Riker became Chief Financial Officer of Resort
Club in September 1996. She was previously
employed by BFI (Browning-Ferris Industries) as a
controller for New Jersey operations from May 1992
to September 1996. Prior to working for BFI, Ms.
Riker was employed by Electro-Alloys Corporation
as Controller of East coast operations.
On or about March 1, 1993, Mountain Resort
Properties, Inc. ("MRP"), a corporation wholly
owned and controlled by Andrew Mulvihill, the son
of Gene Mulvihill, entered into an agreement with
Resort Club, whereby in return for compensation of
3% of the gross sales of Resort Club, MRP is
responsible for providing the following services
to Resort Club: 1) develop a club membership
program; 2) develop accommodation inventory; 3)
develop and construct the Mountain Top Recreation
Area and all inclusive amenities; 4) acquire and
renovate condominium inventory for Resort Club; 5)
recruit and manage a sales, marketing,
administrative, and fulfillment team; 6) develop
and implement a business plan; and 7) manage
collections. In furtherance of discharging the
aforementioned obligations, Andrew Mulvihill works
with and otherwise directs the efforts of
Christina Riker, the Chief Financial Officer of
Resort Club. In this capacity, Andrew Mulvihill
will make a significant contribution to the
business of Resort Club and the establishment and
the implementation of Resort Club policy
decisions. Andrew Mulvihill may be deemed to be
an executive officer of Resort Club, as that term
is defined under the Securities Exchange Act of
1934. Andrew Mulvihill is currently the President
and Owner of MRP, a New Jersey licensed real
estate brokerage firm in Vernon, New Jersey.
Andrew Mulvihill is also the manager of Crystal
Springs Builders, L.L.C. formed in June of 1995,
which is a New Jersey licensed builder who
designs, develops, and constructs single family
homes, commercial buildings, golf courses and
other related facilities. Prior to managing
Crystal Springs Builders, Andrew Mulvihill was the
developer/builder for the Great Gorge Village
condominium complex which consists of 1,400 units.
Andrew Mulvihill is a graduate of Stanford
University.
Item 9. Directors and Executive Officers,
Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
(continued)
No Director is a director of any other company
with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934
or subject to the requirements of Section 15(d) of
that Act or any company registered as an
investment company under the Investment Company
Act of 1940 with the exception of Joseph R.
Bellantoni who is also a director of GAR, Inc..
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 and any
amendments thereto furnished to the Company
pursuant to Rule 16a-3(e) under the Securities
Exchange Act of 1934, or representations that no
Forms 5 were required, the Company believes that
with respect to fiscal 1997, all Section 16(a)
filing requirements applicable to its officers,
directors and beneficial owners of more than 10%
of its equity securities were timely complied with
in fiscal 1997.
Item 10. Executive Compensation
The following table sets forth all cash
compensation paid or accrued by the Company during
the three years ended September 30, 1997 to its
Chief Executive Officer and any other executive
officer who received compensation in excess of
$100,000 in any such fiscal year. The Company's
group life, health and hospitalization plans do
not discriminate in favor of the executive
officers and directors of the Company and are
generally available to all salaried employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation
Name and Other Restricted LTIP All
Principal Fiscal Annual Options Stock Payouts Other
Position Year Salary Bonus Compensation SARs Awards Compensation
Andrew
Mulvihill
Exec. Officer,
Resort Club 1997 $-0- $-0- $184,431 -0- -0- $-0- $-0-
Gene W.
Mulvihill
Chief
Executive
Officer 1997 $-0- $-0- $-0- -0- -0- $-0- $-0-
Robert Harris
President,
Resort Club 1997 $119,287 $30,000 $-0- -0- -0- $-0- $-0-
William
McManus II
President 1997 $-0- $-0- $172,000 -0- -0- $-0- $-0-
Joseph R.
Bellantoni
Chief
Financial
Officer 1997 $108,185 $-0- $-0- -0- -0- $-0- $-0-
Andrew
Mulvihill,
Exec. Officer,
Resort Club 1996 $-0- $-0- $200,009 -0- -0- $-0- $-0-
Gene W.
Mulvihill,
Chief Executive
Officer 1996 $-0- $-0- $-0- -0- -0- $-0- $-0-
Debra Evers-
Tierney,
President 1996 $112,333 $-0- $-0- -0- -0- $-0- $-0-
</TABLE>
______________________
On January 23, 1998, Mr. Harris resigned as
President of Resort Club.
On August 31, 1997, Mr. McManus resigned as a
Director and President of the Company.
Employment Agreements
On or about March 1, 1993, MRP, a corporation
wholly owned and controlled by Andrew Mulvihill,
the son of Gene Mulvihill, entered into an
agreement with Resort Club, whereby in return for
compensation of 3% of the gross sales of Resort
Club, MRP is responsible for providing the
following services to Resort Club: 1) develop a
club membership program; 2) develop accommodation
inventory; 3) develop and construct the Mountain
Top Recreation Area and all inclusive amenities;
4) acquire and renovate condominium inventory for
Resort Club; 5) recruit and manage a sales,
marketing, administrative, and fulfillment team;
6) develop and implement a business plan; and 7)
manage collections. In furtherance of discharging
the aforementioned obligations, Andrew Mulvihill
works with and otherwise directs the efforts of
Christina Riker, the Chief Financial Officer of
Resort Club. In this capacity, Andrew Mulvihill
will make a significant contribution to the
business of Resort Club and the establishment and
the implementation of Resort Club policy
decisions. Andrew Mulvihill may be deemed to be
an executive officer of Resort Club, as that term
is defined under the Securities Exchange Act of
1934. During fiscal years ended September 30, 1997
and 1996, MRP has earned approximately $184,400
and $200,000 respectively pursuant to its
agreement with Resort Club, of which approximately
$11,363 was unpaid at September 30, 1997.
Stock Options Granted in Fiscal 1997
No options were granted during fiscal 1997.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of December 31,
1997, information with respect to each person
(including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of
1934) who is known to the Company to be the
beneficial owner of more than five percent of
Resources' Common Stock as well as the number of
shares of Common Stock beneficially owned by all
Directors of Resources and all Directors and
officers of Resources as a group. The percentages
have been calculated on the basis of treating as
outstanding for a particular holder, all shares of
Resources' Common Stock outstanding on said date
and all shares issuable to such holder in the
event of exercise of outstanding options owned by
such holder at said date.
<TABLE>
<S> <C> <C>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Directors:
Gene W. Mulvihill 2,396,300(1) 43%
Joseph R. Bellantoni -0- -0-
Paul J. Donahue -0- -0-
Thomas Conlin -0- -0-
Christina Riker -0- -0-
Andrew Mulvihill -0- -0-
All Officers and
Directors as a Group 2,396,300(1) 43%
(seven persons)
Public Loan Company,
Inc. 300,000 6%
</TABLE>
______________
(1) Includes 625,000 shares owned by Blue
Horizon Corporation as well as 400,000 shares
issuable upon exercise of outstanding Warrants.
Blue Horizon Corporation is owned by members of
Mr. Mulvihill's immediate family.
Item 12. Certain Relationships and Related
Transactions
During the period of October 1, 1995 through
September 30, 1997, the Company engaged in various
transactions with certain of its officers,
directors, principal stockholders and certain of
their affiliated entities. Specifically, the
Company has entered into transactions Great
American, Stonehill Recreation, and Great Mountain
Development Corporation ("GMD") of which the
Company's Directors and Officers are either
principal shareholders and/or Officers and
Directors. In this regard, Mr. Bellantoni, the
Secretary, Treasurer and Director of the
Company was Vice President and Chief Financial
Officer of Great American and is currently the
Treasurer and a Director of reorganized Great
American; Gene Mulvihill, the Chairman of the
Board and Chief Executive Officer of the Company
is a principal shareholder and former Officer of
GMD and former Chairman of the Board and Chief
Executive Officer of Great American and his
daughter was a Director, and the former President
and Chief Operating Officer of such corporation.
Mr. Gene Mulvihill's son, Andrew Mulvihill is an
Executive Officer of Resort club and a former
officer of GMD.
The entity presently providing Resort Club members
with admission to its summer participation theme
park and skiing facilities is Resorts, a
subsidiary of Intrawest, which owns and operates
the summer participation theme park and a winter
recreational ski area in Vernon Township, Sussex
County, New Jersey. Resorts completed the purchase
of the ski area and summer participation theme
park on February 17, 1998 from Angel. Angel
purchased the summer participation theme park and
skiing facilities pursuant to a section 363 sale
under the Federal Bankruptcy Rules whereby the
summer participation theme park and ski area were
purchased "free and clear" of all liens from
Great American.
On March 29, 1996, but effective as of June 1,
1993, Resort Club entered into amended and
restated agreements with Vernon Valley, Great
Gorge and Great Valley, all subsidiaries of Great
American, whereby in consideration for an
aggregate payment of 10% of the gross sales price
of each Resort Club membership, these entities
were to provide amenities and access to certain
properties for the benefit of Resort Club members.
The amenities provided by Great American include
admission passes to the Vernon Valley and Great
Gorge ski facilities, admission passes to the
summer participation theme park and admission
passes to the Mountain Top Recreation Center, all
for a period of 35 years. As of September 30,
1997, Resort Club had an unpaid balance of
$540,795 for these amenities. Also on March 29,
1996, Resort Club entered into an amended and
restated agreement with Stonehill Recreation, the
entity which owns and operates the Spa on terms
similar to those that were entered into with Great
American, except that the consideration payable to
Stonehill Recreation from Resort Club represents
$25,000 for each condominium controlled by Resort
Club in the Great Gorge Village. As of September
30, 1997, Resort Club had an unpaid balance of
$738,178 due to Stonehill Recreation for
amenities. Andrew J. Mulvihill, an Executive
Officer of Resort Club and the son of Gene
Mulvihill, and Christopher Mulvihill, the son of
Gene Mulvihill, were each previously the
beneficial owner of 33.3% of Stonehill Recreation.
During fiscal 1997, the Company advanced funds on
behalf of Stonehill Recreation in connection with
a settlement in the Great American bankruptcy. In
consideration for these advances, ownership of
Stonehill Recreation transferred to the Company on
the effective date of the Great American plan of
reorganization, which was October 16, 1997.
Item 12. Certain Relationships and Related
Transactions (Continued)
On February 14, 1996, an involuntary bankruptcy
petition was filed against Great American by three
creditors in the United States Bankruptcy Court,
Newark, New Jersey. On April 2, 1996, Great
American and its wholly owned subsidiaries, Vernon
Valley, Great Valley, Great Gorge, Great Heritage,
Inc., TAV, Inc., Stonehill Management Corp.,
Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc. and Vernon Valley
Sewer, Inc. filed voluntary petitions with the
United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11
of the United States Bankruptcy Code.
The Company provides financing to the purchasers
of its membership interests. Through fiscal 1997,
the Company advanced approximately $10,637,000 to
Resort Club primarily for working capital
purposes. This financing is generally evidenced
by non-recourse installment sales contracts. The
down payment received by the Company for such
sales is at least 10% of the sales price. The
down payment is often less than the direct expense
of commissions and selling and the difference is
financed either by borrowings by the Company or by
the Company's internally generated funds. In order
to ensure the collectability of the advances made
to Resort Club and maintain the viability of
Resort Club's future business operations,
management determined that it has been in the best
interest of the Company to assist Great American
and its affiliated entities for the reason that
the majority of the Resort Club amenity package
was owned and operated by Great American and
affiliated entities. Management also determined
that in order for Resort Club to maintain its
operations, the Great American assets
must not only emerge from bankruptcy but operate
competitively with nearby Resort facilities.
On July 10, 1997 Resources and its wholly owned
subsidiaries Resort Club and Diamond entered into
a Memorandum of Understanding which outlined a
settlement agreement in connection with the Great
American bankruptcy between Great American,
Praedium, and Mr. Gene Mulvihill and entities
affiliated with Mr. Gene Mulvihill including the
Company. Pursuant to the terms of the MOU,
Resources and its affiliates were required to make
certain contributions and received certain
benefits. See Item 1 herein and Note 3 to the
Consolidated Financial Statements.
On November 10, 1995, the Company entered into an
assumption agreement with Mr. Gene Mulvihill,
whereby the Company assumed indebtedness of
$750,000 for a loan previously advanced to Mr.
Mulvihill by his two partners in St. Marks
Associates, the Company's current landlord, on or
about May 19, 1995. The Company assumed the said
indebtedness in exchange for an equal amount of
Resort Club receivables. The loan was
paid in full on February 15, 1996 together with
interest at 15%.
On March 31, 1996, the Company entered into an
agreement to purchase 9 condominiums from Mr. Gene
Mulvihill which are used by Resort Club for an
aggregate purchase price of $878,500 which
management believes approximated fair market
value. Of the condominiums purchased, eight are
located in the Great Gorge Resort and one is
located in the Resort of Palmas Del Mar, Puerto
Rico. As of September 30, 1997, the Company has a
remaining balance due on the purchase of
approximately $328,000 which is evidenced by a
promissory note bearing interest at an effective
rate of 10.25%.
Item 12. Certain Relationships and Related
Transactions (Continued)
Subsequent to the sale of the Company's former
Cellular Phone System (see Note 2 of the Notes to
the Consolidated Financial Statements), the
Company transferred its executive offices to 355
Madison Avenue, Morristown, New Jersey. In
connection with this move, the Company entered
into a lease agreement with St. Marks Associates,
a real estate partnership owned 50% by Mr. Gene
Mulvihill. The lease provides for a lease term of
5 years commencing December 1, 1995 with a base
rent of $1,558 per month and a monthly payment of
approximately $519 for the Company's proportionate
share of impositions and operating expenses which
management believes approximates fair market
value. The lease provides for rental adjustments
for changes in the Consumer Price Index.
On December 1, 1995, Diamond Leasing entered into
a lease agreement with Vernon Valley. The lease
term commenced on December 15, 1995 and expired on
March 15, 1996. Pursuant to the lease, Diamond
Leasing leased the Vernon Valley/Great Gorge Ski
Area Rental Shops and all fixtures located thereon
as well as the ski rental equipment. In
consideration for this lease, Diamond Leasing
agreed to: 1) pay a base rent of $950,000;
2) pay additional rent of $75,000 which
represented an unallocated payment for services
provided by Vernon Valley, including but not
limited to security, maintenance of the leased
premises, and general administrative services; and
3) pay a percentage of gross revenue equal to 50%
of gross revenues in excess of $1,000,000. The
Lease provided for a cap limitation equal to a 28%
rate of return to Diamond Leasing. Proceeds
received in excess of a 28% rate of return were
required to be remitted to Vernon Valley. The
Lease also provided Diamond Leasing with the
absolute right of renewal for three additional
consecutive December 15 - March 15 lease terms.
Through September 30, 1996, Diamond Leasing
received net proceeds of approximately $984,000
(excluding the $75,000 additional rent which was
paid directly to Vernon Valley from ski rental
receipts) on this transaction and owes no further
obligation to Vernon Valley, and consequently had
a net gain on the transaction.
Diamond Leasing entered into a capital lease for
two Piston Bullies with Bombardier Capital, Inc.
("Bombardier") commencing January 1, 1996 for a
term of 18 months ending September 1, 1997.
Piston Bullies are snow grooming machines used for
grooming ski trails. The lease provided for 11
payments with aggregate rental payments of
approximately $165,700 and has a $10,901 purchase
option at the end of the lease term. Concurrent
with entering into the lease agreement with
Bombardier, Diamond Leasing entered into a
sublease agreement with Vernon Valley on similar
terms with Diamond Leasing's lease agreement with
Bombardier except that the rental payment had been
adjusted to reflect a rate of return to the
Company of 28%. In connection with the lease
agreement, Bombardier filed financing statements
to protect its security interest. In addition,
the Company pledged 10,000 shares of its
PriCellular Class A Common Stock with Bombardier
as additional collateral. As of September 30,
1997, the remaining balance due Bombardier along
with the purchase option was paid in full. In
connection with the settlement agreement relating
to the Great American bankruptcy, the Company
transferred the Piston Bullies to Great American
free and clear of all liens. See Item 1 herein
and Note 3 of the Notes to the Consolidated
Financial Statements.
Item 12. Certain Relationships and Related
Transactions (Continued)
On January 26, 1996, Diamond Leasing entered into
a loan agreement and advanced $269,500 to Great
American in connection with a loss suffered by
Great American resulting from a flood that
occurred on January 12, 1996. As collateral for
the $269,500 loan, Great American assigned to
Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with
interest at 9% per annum. As further
consideration, Diamond Leasing and Vernon Valley
amended the ski rental shop lease to provide that
prior to any "additional rent" being paid to
Vernon Valley pursuant to the lease agreement
funds will be paid to Diamond Leasing until the
principal amount of the loan is fully paid with
accrued interest. As of September 30, 1997,
Diamond Leasing received payments of $172,366 on
this loan pursuant to the assignment and
"additional rent" described above with a
remaining balance of $97,134 outstanding as of
September 30, 1997. In connection with the
settlement agreement relating to the Great
American Bankruptcy, the Company agreed to accept
$46,000 as payment in full for the outstanding
balance. See Item 1 herein and Note 3 of the
Notes to the Consolidated Financial Statements.
On March 19, 1996, Diamond Leasing agreed to
purchase 92 condominium lots from GMD, at a price
of $1,820,000 payable as follows: (i) $270,500
on or before April 1, 1996, (ii) the assumption
of any and all filed liens affecting the Property;
and (iii) the balance from the net cash flow
realized from the development of the Property.
Each of the parties agreed to seek Bankruptcy
Court approval for this transaction. The closing
occurred on April 1, 1996 with Diamond Leasing
acquiring good and marketable title to the
property insurable at regular rates and with
customary adjustments made at the
closing. Finally, Diamond Leasing offered GMD the
Option to participate in the development of the
Property. In connection with the settlement
agreement relating to the Great American
bankruptcy, the Company transferred 54
condominiums to Great American in consideration
for $145,000. See Item 1 herein and Note 3 of the
Notes to the Consolidated Financial Statements.
On April 5, 1996, the Company, through a wholly
owned subsidiary, Star II, agreed to purchase an
attraction known as the Space Shot from S & S
Sports Power, Inc. for the sum of $1,250,000.
Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to
$300,000 for a term of four (4) years subject,
however, to Vernon Valley achieving a certain
level of revenues, failing which no payment will
be made to the Company, but will accrue and be due
and payable to the Company in the subsequent years
of the said Lease Agreement. An entity controlled by the
immediate family of Mr. Gene Mulvihill, an officer and
director of the Company, is a 50% owner of S & S
Sports Power, Inc. In connection with the
acquisition of this ride, this entity has
agreed to forfeit all allocated profits and direct
same to the Company. No payments were made in
fiscal 1996 pursuant to this lease agreement. In
connection with the settlement agreement relating
to the Great American bankruptcy, Praedium agreed
to purchase the Space Shot for $900,000. See Item
I herein and Note 3 of the Notes to the
Consolidated Financial Statements.
As of September 30, 1997, the Company, through
Diamond Leasing, advanced $2,739,782 to Summit and
Lakeview in connection with a limited forbearance
agreement entered into between Summit, Lakeview,
Mr. Gene Mulvihill and Robert and Stanley Holuba.
Item 12. Certain Relationships and Related
Transactions (Continued)
On March 1, 1994, loans made by Summit and
Lakeview to Vernon Valley had matured and were
immediately due and payable. Vernon Valley failed
to fully pay the loan obligations which
constituted a material default under the Vernon
Valley loan documents, and together with the
filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the
Vernon Valley loan documents.
As part of the original loan transactions, Mr.
Mulvihill and Mr. Stanley and Robert Holuba (the
"guarantors") guaranteed the Summit and Lakeview
loans. The payments made by the Company to Summit
and Lakeview were made in connection with a
limited forbearance agreement for which the banks
agreed to forebear from exercising their
respective rights and remedies under the Vernon
Valley loan documents.
In connection with the settlement relating to the
Great American bankruptcy, the Company satisfied
the full settlement of the claims, liens and
security interests of Summit and Lakeview in a
manner that permitted the assets of the Great
American entities contemplated by the MOU to be
sold in a Section 363 sale and the proceeds of
such sale to be free and clear of all liens,
claims and encumbrances. See Item 1 herein and
Note 3 of the Notes to the Consolidated Financial
Statements.
Parent of the Company
Gene W. Mulvihill, the Chief Executive Officer and
a Director of the Company and beneficial owner of
approximately 43% of the outstanding Common Stock
may be deemed the "parent" or controlling person
of the Company as that term is defined in the
Regulations promulgated under the Securities Act
of 1933.
PART IV
Item 13. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
Page
(a) (1) Financial Statements.
Independent Auditors' Report S-1
Consolidated Balance Sheet -
September 30, 1997 S-2-3
Consolidated Statements of Operations -
years ended September 30, 1997
and 1996 S-4
Consolidated Statements of
Stockholders'Equity - years ended
September 30, 1997 and 1996 S-5
Consolidated Statements of Cash
Flows -years ended September 30,
1997 and 1996 S-6-7
Notes to Consolidated Financial
Statements S-8-34
(2) Financial Statement Exhibits - None
(b) Reports on Form 8-K. The Company did not
file any reports on Form 8-K during the quarter
ended September 30, 1997.
(c) Exhibits:
3(a) Certificate of
Incorporation of Registrant and Amendment No.1
thereto(1)
(b) Certificate of Amendment
dated June 24, 1992 to Certificate of Incorpor-
ation reducing the authorized shares of Common
Stock to 25,000,000, increasing the par value to
$.01 per share and effecting a one-for-four
reverse stock split(2)
(c) By-laws of Registrant(1)
4(d) Specimen Common Stock
Certificate, $.01 par value(2)
10(h) Consulting Agreement and
First Amendment to the Consulting Agreement dated
November 11, 1989 between the Registrant and Gene
W. Mulvihill(3)
10(i) Employment Agreement dated as
of October 1, 1990 between the Registrant and
Debra Evers-Tierney(4)
10(j) Contract for Sale of Vernon
Valley Brewery Incorporated dated March 21, 1990
(but effected in June, 1990) between Empire State
Brewing Company Inc. as Buyer and the Stockholders
of the Brewery including the Registrant as Sellers
including $400,000 Promissory Note issued by the
Buyer to the Registrant(4)
10(k) Cellular System Purchase
Agreement dated as of June 28, 1991 between
Resources and Motorola and assignment by Resources
on September 3, 1991 to DCI(5)
10(l) Cellular System Financing
Agreement dated June 27, 1991 between DCI and
Motorola(5)
10(m) Building Lease as of
September 1, 1991 between Resources and DCI as
amended effective September 1, 1992(2)
Item 13. Exhibits, Financial Statement
Schedules and Reports on Form 8-K (Continued)
10(n) Cell Site and Tower Lease as
of September 1, 1991 between Resources and DCI as
amended effective September 1, 1992(2)
10(o) Form of 5% Promissory Note
and Warrant sold in the Registrant's October 1993
private placement
____________
(1) Filed as an exhibit to the Registration
Statement on Form S-1 (File No. 2-66471) of the
Registrant and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's
annual report on Form 10-KSB for the year ended
September 30, 1992 and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's
annual report on Form 10-K for the year ended
September 30, 1989 and incorporated herein by
reference.
(4) Filed as an exhibit to the Registrant's
annual report on Form 10-K for the year ended
September 30, 1990 and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's
current report on Form 8-K for October 9, 1991 and
incorporated herein by reference.
22. Subsidiaries of Registrant:
<TABLE>
<S> <C>
Name State of Incorporation
Dominion Cellular, Inc. New Jersey
Diamond Leasing and
Management Corp. Delaware
Diamond World Funding Corp. New Jersey
Resort Club, Inc. New Jersey
Star II Leasing Corporation New Jersey
Stonehill Recreation Corporation New Jersey
</TABLE>
(d) Financial statements omitted
from annual report to shareholders filed herewith
- - None.
Signatures
Pursuant to the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto
duly authorized.
DOMINION RESOURCES, INC.
Dated: March 31, 1998 By:/s/ Gene Mulvihill
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has
been signed below by the following persons on
behalf of the Registrant and in the capacities and
on the date indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Gene Mulvihill Chief Executive March 31, 1998
Gene Mulvihill Officer and Director
/s/ Joseph R. Bellantoni Treasurer; Chief March 31, 1998
Joseph R. Bellantoni Financial Officer
and Director
/s/Paul J. Donahue Director March 31, 1998
Paul J. Donahue
/s/Thomas Conlin Director March 31, 1998
Thomas Conlin
/s/Christina Riker Chief Financial March 31, 1998
Christina Riker Officer, Resort Club
/s/Andrew Mulvihill Executive Officer, March 31, 1998
Andrew Mulvihill Resort Club
</TABLE>
INDEPENDENT AUDITORS' REPORT
Dominion Resources, Inc. and Subsidiaries
Morristown, New Jersey
We have audited the accompanying consolidated
balance sheet of Dominion Resources, Inc. and
Subsidiaries as of September 30, 1997, and the
related consolidated statements of operations,
stockholders' equity and cash flows for each of
the two fiscal years ended September 30, 1997.
These consolidated financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on
these consolidated financial statements based
on our audit.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting
the amounts and disclosures in the financial
statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all
material respects, the financial position of
Dominion Resources, Inc. and Subsidiaries as of
September 30, 1997, and the results of its
operations and its cash flows for the two
fiscal years ended September 30, 1997, in
conformity with generally accepted accounting
principles.
Liebman, Goldberg, Broder & Drogin, L.L.P.
December 23, 1997
S-1
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 126,368
Investment in mutual fund and
other marketable securities
(Notes 1 and 4) 327,403
Membership Receivables, net
(including allowance for doubtful
accounts of $362,377 at September
30, 1997 (Note 1) 1,570,991
Accrued interest and other
receivables (including receivables
to related parties of $245,055
at September 30, 1997) 988,807
Prepaid expenses and other assets 644,197
Deferred Membership Interests
Held for Sale (Note 1) 8,603,925
Total current assets 12,261,691
Property, equipment, furniture,
and fixtures, net of accumulated
depreciation and amortization of
$129,813 at September 30, 1997 (Note 1) 258,927
Other assets:
Membership Receivables, net
(including allowance for doubtful
accounts of $1,348,296 at September
30, 1997 (Note 1) 5,845,195
Great American Settlement
Assets (Note 3) 6,764,684
Mortgages receivables (Note 6) 309,790
Note Receivable and accrued
interest - Food Extrusion,
Inc. (Note 7) 1,515,295
Investment in Food Extrusion,
Inc. (Note 7) 164,125
Real estate and real estate
related activities (Notes 3 and 5) 745,504
Total other assets 15,344,593
Total assets $ 27,865,211
</TABLE>
See accompanying notes
S-2
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and
accrued liabilities (Note 8) $ 5,781,453
Secured Debt, current portion (Note 10) 2,170,844
Unsecured notes payable, (Note 10) 380,000
Deferred Membership Revenue (Note 1) 11,732,701
Total current liabilities 20,064,998
Long-term liabilities:
Secured Debt, net of current
maturities (Note 10) 3,951,683
Unsecured Notes Payable,
net of current maturities (Note 10) 227,732
Total long-term liabilities 4,179,415
Stockholders' equity:
Common stock, $0.01 par value;
Authorized - 25,000,000 shares;
issued and outstanding - 5,158,354
shares at September 30, 1997 51,584
Additional paid-in capital 5,429,206
Accumulated deficit (459,079)
Less: 1,350,646 shares held in
treasury (Note 12) (1,400,913)
Total stockholders' equity 3,620,798
Total liabilities and stockholders' equity $ 27,865,211
</TABLE>
See accompanying notes
S-3
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
Revenues
Membership revenue $ 2,933,175 $ 2,479,294
Membership annual fee revenue 476,792 379,447
Ski rental shop revenue
and other revenue 301,162 1,142,069
Total revenues 3,711,129 4,000,810
Expenses:
Ski rental shop and
other operations 77,104 1,095,596
Membership operations 2,639,025 4,904,595
Membership maintenance 23,633 4,235,001
Marketing and selling 2,638,563 3,424,185
General and administrative
expenses 708,779 1,132,537
Depreciation and amortization 192,702 107,979
Total expenses 6,279,806 14,899,893
Loss from operations (2,568,677) (10,899,083)
Other income (expenses):
Interest income 445,384 449,292
Interest expense (328,140) (527,055)
Amortization of deferred
financing costs (55,216) 0
Gain on Sale of marketable
securities (Notes 4 and 7) 2,341,508 3,811,938
Loss on Sale of real
estate and RTC Mortgages (511,105) 0
Total other income (expenses) 1,892,431 3,734,175
Loss from continuing operations before
income taxes (676,246) (7,164,908)
Income taxes (Note 9) 243,451 0
Loss from continuing operations (432,795) (7,164,908)
Discontinued operations (Note 2):
Gain (loss) from
operations of Cellular Telephone
System (less applicable
income tax (benefit)
of $24,294 on September 30, 1996 0 (36,442)
Gain on Sale of Cellular Telephone
System (less applicable
income taxes of $728,294
on September 30, 1996 0 10,067,440
Income from discontinued operations 0 10,030,998
Net income (loss) $ (432,795) $ 2,866,090
Net income (loss) from
continuing operations per common share $ (0.10) $ (1.56)
Net income from
discontinued operations
per common share $ 0.00 $ 2.19
Net Income (Loss) per common share $ (0.10) $ 0.63
Weighted average number
of share used in computing
net income per share 4,293,206 4,588,939
</TABLE>
See accompanying notes
S-4
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 and 1996
<TABLE>
<S><C> <C> <C> <C> <C> <C>
Retained
Capital Earnings/
Common Par in Excess Accum. Treasury
Stock Value of Par Deficit Stock Total
Balance - September 30, 1995:
5,559,000 $ 55,590 $5,058,706 $(2,892,374) $ 0 $2,221,922
Purchase of 1,329,646 shares of Treasury stock (including
943,411 shares purchased from the Company's former President):
(1,329,646) (13,296) 0 0 (1,383,295) (1,396,591)
Net Income
0 0 0 2,866,090 0 2,866,090
Balance - September 30, 1996:
4,229,354 $42,294 $5,058,706 $(26,284) $(1,383,295) $3,691,421
Issuance of 800,000 shares in connection with financing (Note 12):
800,000 8,000 312,000 0 0 320,000
Issuance of 150,000 shares in connection with financing (Note 12):
150,000 1,500 58,500 0 0 60,000
Purchase of Treasury Stock:
(21,000) (210) 0 0 (17,618) (17,618)
Net Loss:
0 0 0 (432,795) 0 (432,795)
Balance - September 30, 1997:
5,158,354 $51,584 $5,429,206 $459,079 ) $(1,400,913) $3,620,798
</TABLE>
See accompanying notes
S-5
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
Cash flows provided by (used in) continuing
operating activities:
Net (loss) $ (432,795) $ (7,164,908)
Adjustments to reconcile net income to net cash provided
by continuing operating activities:
Depreciation and amortization 192,702 107,979
Amortization of
deferred financing costs 55,216 0
Changes in assets and liabilities:
Membership receivables (1,460,958) (2,948,449)
Accrued interest and
other receivables (548,917) (110,491)
Prepaid expenses and other assets (233,024) (86,389)
Deferred member expenses (1,417,214) (2,589,268)
Accounts payable and
accrued expenses (1,168,718) 3,963,029
Deferred membership revenue 2,405,835 4,794,084
Net cash used in continuing
operations (2,607,873) (4,034,413)
Cash flows provided by discontinued operating activities:
Net (loss) 0 (36,442)
Adjustments to reconcile net (loss) to net cash provided by
discontinued operating activities:
Depreciation and amortization 0 109,601
Utilization of tax benefit 0 (24,294)
Changes in assets and liabilities:
Trade receivables 0 3,986
Inventories 0 (892)
Prepaid expenses and other assets 0 31,216
Accounts payable and accrued expenses 0 154,460
Gain on Sale of Cellular Assets 0 7,972,155
Net cash provided by
discontinued operations 0 8,209,790
Cash flows from investing activities:
Sale of Food Extrusion Stock 197,816 0
Sale of PriCellular Stock 106,815 7,384,850
Sale of Other Marketable Securities 59,718 0
Convert related party receivable
to equity investment 0 1,019,467
Note Receivable - Related Party (500,165) 0
Note Receivable - Food Extrusion 0 (1,750,000)
Note Receivable - Great Gorge 0 (97,135)
GAR Settlement (1,855,000) 0
Investment in real estate and
real estate related activities (127,246) (136,650)
Investment - Lakeview/Summit Notes (1,857,692) (882,090)
Investment - Public Loan Notes (770,000) 0
Purchase of Amusement Ride 0 (1,229,010)
Purchase of Piston Bullies (10,900) (165,700)
Investment in mutual fund and
other marketable securities 0 (381,723)
Investment in mortgages receivables 1,213,792 (1,523,585)
Sale of Clanton Office Building 125,743 0
Capital expenditures (137,989) (119,585)
Net cash provided by
(used in) investing activities (3,555,108) 2,118,839
Cash flows from financing activities:
Proceeds from borrowings 5,900,300 887,337
Repayment of borrowings (896,782) (5,148,000)
Purchase of treasury stock (17,828) (1,396,591)
Net cash provided by
(used in) financing activities 4,985,690 (5,657,254)
Increase (Decrease) in cash (1,177,291) 636,962
Cash balance, beginning of year 1,303,659 666,697
Cash balance, September 30, 1997 $ 126,368 $ 1,303,659
</TABLE>
See accompanying notes
S-6
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
Investment in PriCellular $ -0- $ 7,497,063
Retained Earnings -0- (7,497,063)
Resort Club assets acquired -0- 7,523,132
Resort Club liabilities assumed -0- (7,523,132)
Deferred Financing Costs 380,000 -0-
Issuance of Common Stock (380,000) -0-
Total Non-Cash Operating,
Investing and Financing
Activities $ -0- $ -0-
</TABLE>
See accompanying notes.
S-7
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying Consolidated Financial Statements
include the accounts of Dominion Resources, Inc.
and the accounts of all majority-owned
subsidiaries, hereinafter referred to as the
"Company". The consolidated balance sheet is a
classified presentation which distinguishes between
current and noncurrent assets and liabilities. The
Company believes that a classified balance sheet
provides a more meaningful presentation consistent
with the business cycles of the Company's
operations. All significant inter-company accounts
and transactions have been eliminated in
consolidation.
Property, Furniture, and Fixtures
Property, furniture, and fixtures are stated at
cost. Depreciation is computed using the
straight-line method over the estimated useful
lives of seven years for furniture, fixtures and
equipment, and thirty years for buildings and
improvements.
Property, furniture, and fixtures consisted of the
following at September 30, 1997:
Buildings and improvements $ 127,502
Furniture, fixtures and equipment 261,238
Subtotal 388,740
Less: Accumulated depreciation
and amortization 129,813
Net property, furniture,
fixtures and equipment $ 258,927
Income Per Common Share
Income per share of common stock was computed by
dividing income for the period by the weighted
average number of shares of common stock and
common stock equivalents outstanding for each
year. Common stock equivalents are not included
where the effect would be anti-dilutive. In
computing the weighted average number of shares of
common stock and common stock equivalents
outstanding for the respective years, shares
issuable upon exercise of warrants and options
have been reduced by shares of common stock
assumed to be purchased with the proceeds from the
exercise at the average market price of the
Company's common stock during the year.
S-8
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant Accounting Policies
(Continued)
Real Estate Investment Activities
Resort Club Accommodation Inventory Held in Trust.
Management has determined that in order to
adequately secure the members' interest in
accommodations, title to certain of the Company's
resort properties will be held in trust by
trustees. Trustees will administer the collection
of certain of the Company's notes receivable and
the annual maintenance assessments from membership
owners and retain funds for the payment of
insurance, taxes and capital improvements. The
trustees will pay the balance of the collections
over to the Company on a regular basis, after
deducting certain impounds, provided that annual
maintenance assessments have been disbursed by the
Company according to a budget submitted by the
Company. Under the trust and management
agreements, the Company will have the exclusive
rights to the control and management of the
facilities held in trust.
As of September 30, 1997, the Company has sold
277,209 membership points. Based on the number of
membership points sold, the Company is required to
purchase a minimum inventory of 39 condominium
units. Currently, the Company owns 8 condominium
units free and clear, and has purchased 26
condominium units which are subject to mortgages
in the principal amount of $1,485,779 as of
September 30, 1997. In addition, the Company is
in negotiations to purchase the remaining 5
condominium units for a purchase price of
approximately $430,500.
Ouray, Colorado Property and Mill. The Company is
the owner of 10 acres of land in Ouray, Colorado,
with the "Silver Shield" Mill located thereon.
The mill, designed to mill silver, has not been
operated for more than 50 years. The Company paid
the balance of the purchase price for this
property early in fiscal 1992 and listed the
property for sale at a price of $239,000 based
upon a listing of comparable neighboring property.
Although the listing expired in October 1993, the
Company did not renew the listing because of an
ongoing reconstruction project in the vicinity
which management believes may enhance the value of
the Company's property. It is management's belief
that this property will be sold for an amount at
least equal to the Company's $218,975 carrying
value, although no assurances can be given that
such will be the case.
Membership Interests Held for Sale
Costs incurred in connection with preparing
membership interests for sale are capitalized and
include all costs of acquisition, renovation and
furnishings of condominiums as well as operating,
marketing and selling expenses. Membership
interests held for sale are valued at the lower of
cost or net realizable value in accordance with
the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 67,
"Accounting for Costs and Initial Rental
Operations of Real Estate Projects". During
fiscal 1997 and 1996, the Company had adjusted
Deferred Membership Interest Held for Sale over
budget in the aggregate amount of approximately,
$2,936,000 and $6,248,000, respectively.
S-9
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant Accounting Policies
(Continued)
Revenue and Profit Recognition
Sales of membership interests are recognized and
included in Revenues after certain "down
payment" and other "continuing investment"
criteria are met. Revenue recognition is in
accordance with the provisions of SFAS No. 66
"Accounting for Sales of Real Estate". The
agreement for sale generally provides for a down
payment and a note payable to the Company in
monthly installments, including interest, over a
period of up to 7 years. Revenue is recognized
after the requisite rescission period has expired
and at such time as the purchaser has paid at
least 10% of the sales price for sales of
membership interests and the condominium is placed
in service free and clear of all encumbrances.
The sales price, less a provision for
cancellation, is recorded as revenue and the cost
related to such net revenue of the membership
interest is charged against income in the year
that revenue is recognized. If a purchaser
defaults under the terms of the contract, after
all rescission and inspection periods have
expired, payments are generally retained by the
Company. During fiscal 1997 and 1996, the Company
recognized approximately $2,930,000 and $2,479,000
in membership revenue, respectively.
Notes receivable with payment delinquencies of 90
days or more have been considered in determining
the Allowance for cancellation. Cancellations
occur when the note receivable is determined to be
uncollectible and related collateral, if any, has
been recovered.
Cash Equivalents
For purposes of the statement of cash flows, the
Company considers all highly liquid investments
purchased with an original maturity of three
months or less to be cash equivalents.
Concentration of Credit Risk
The Company currently maintains cash accounts with
financial institutions which exceed the maximum
insured by the Federal Depository Insurance
Corporation.
Investments
Marketable equity securities are recorded at the
lower of aggregate cost or market. The cost of
marketable securities sold is based on the
earliest acquisition cost of each security held at
the time of sale.
Accounting 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 the disclosure of
contingent assets and liabilities at the date of
the financial statements as well as the reported
amounts of revenues and expenses during the
reporting periods. Actual results could differ
from those estimates.
S-10
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
2. Discontinued Operations
On November 16, 1994, the Company announced that
Dominion Cellular, Inc. ("DCI") had retained an
independent broker on an exclusive basis to
attempt to find a potential purchaser for DCI's
cellular telephone system (also referred herein as
the "System") or a possible merger partner with
DCI. Management of the Company determined to seek
a purchaser because it believed that DCI's
cellular telephone system had been developed to a
point where it represented an attractive
acquisition for potential acquirers in the
cellular industry at a price, based on current
market conditions, substantially in excess of
DCI's costs in developing the System.
On May 8, 1996, the Company and DCI executed an
Asset Purchase Agreement (Subsequently amended on
August 14, 1995 and December 14, 1995) with two
unaffiliated entities, PriCellular Corporation
("PriCellular") and PriCellular's wholly-owned
Northland subsidiary, providing for the sale to
Northland of the System operated by DCI in the
Bibb, Alabama RSA (the "AL-4 RSA"). The System
was substantially the Company's only source of
revenues. Immediately after completion of the
sale of the System, the Company had no significant
operations.
The sale of the System was contingent upon
obtaining the consent of the Federal
Communications Commission ("FCC") to the
assignment by DCI of the licenses to operate the
System to Northland (which consent was obtained on
June 9, 1995) and upon obtaining the approval of
the sale from holders of a majority of the
outstanding shares of the Company's Common Stock
(which approval was obtained on November 6, 1995).
The Assets sold (subject to certain liabilities
related to the System and being assumed by the
Purchaser) included the FCC nonwireline license
for the AL-4 RSA, the cellular sites, towers and
related equipment used by the System, the real
property on which the cellular sites are located,
and the bulk of DCI's current assets.
The parties also agreed that effective August 1,
1995, PriCellular would become the manager of the
System pursuant to a management agreement
providing for a management fee to be paid to
PriCellular equal to 7% of the gross revenues of
the System during the term of the management
agreement. Through November 7, 1995, the Company
accrued $114,600 in connection with the management
agreement.
The original purchase price of the system was
$19,900,000 (after a $100,000 reduction for the
amount by which certain liabilities assumed by the
purchaser at the closing exceeded DCI's current
assets) payable as follows: (a) $6,000,000 in
cash, payable at the Closing which occurred on
November 7, 1995, (b) $3,900,000 in cash payable
30 days following the Closing, and (c) $10,000,000
by delivery at the Closing of PriCellular's five-
year, 4% Convertible Subordinated Note in the
principal amount of $10,000,000 (also referred
herein as the "PriCellular Note"). The
PriCellular Note was convertible into shares of
PriCellular Class A Common Stock at $8.51 per
share(i) at the option of the holder and (ii) at
the option of PriCellular if the closing price
for PriCellular Class A Common Stock when trading
on the American Stock Exchange (or such other
exchange which at such time may be the principal
exchange where such stock is traded) was $10.60 or
higher for ten consecutive trading days.
S-11
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
2. Discontinued Operations (Continued)
At the closing, the initial $6,000,000 cash
portion of the purchase price was reduced to the
extent required to repay DCI's outstanding debt to
Motorola, Inc. (approximately $2,864,000) incurred
to finance construction of the System, and to
repay an 8%, $2,000,000 loan extended to DCI by
PriCellular on April 7, 1995 in anticipation of
the execution of the Asset Purchase Agreement. At
the second closing, the $4,000,000 cash portion of
the purchase price was decreased by $100,000 the
amount by which assumed current liabilities
exceeded DCI's current assets. At the second
closing, $400,000 of the $3,900,000 balance of the
purchase price was required to be held in escrow
for a one year period following the closing, to
ensure the accuracy of the Company's
representations and warranties.
Also at the closing, PriCellular elected to force
conversion of its five-year, 4%, $10,000,000
Convertible Subordinated Note to DCI into
1,175,088 shares of its Class A Common Stock. The
high and low sales prices for PriCellular Class A
Common Stock, as traded on The American Stock
Exchange on November 7, 1995, were $13.125 and
$12.75, respectively. As a result, the Company
recorded the 1,175,088 converted shares at a value
of $7,497,061 an amount which reflected a 50%
discount of the closing sales price of PriCellular
Class A Common Stock on November 7, 1995 of
$12.75. The Company recorded a 50% discount
because of the trading restrictions placed on the
stock.
As part of the second closing, the Company entered
into a second amendment to the Asset Purchase
Agreement dated December 14, 1995 whereby the
Company and PriCellular resolved certain disputes
with respect to the adjusted purchase price of the
cellular telephone system. As amended, the
Company received $3,500,000 at the second
closing, with the $400,000 balance being held in
escrow. As part of the second amendment, the
Company retained ownership of certain accounts
receivable deemed to be uncollectible as of August
1, 1995 in the aggregate principal amount of
approximately $124,000. In addition, the Company
reserved the right to the proceeds of any
insurance claim arising from a loss that took
place in the month of August 1995.
Use of Proceeds from the System Sale
In addition to receipt of the PriCellular Class A
Common Stock, the Company received an aggregate of
approximately $9,900,000 (less closing costs and
associated expenses) in cash payments from
PriCellular at the initial closing and at the
Second Payment Date (of which $400,000 was held in
escrow for a one year period as previously
described). The cash payments were applied
substantially as follows:
S-12
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
2. Discontinued Operations (Continued)
The cash payments and the proceeds from the Sale
of PriCellular Stock received by the Company
during fiscal 1996 were applied substantially as
follows:
a) Repayment of Motorola debt
and accrued interest incurred
to finance construction
of the System. $ 2,864,226
b) Closing costs 747,955
c) Escrow account deposit 400,000
d) Advances to Resort Club 6,225,442
e) Investment in mutual fund and
other marketable securities 381,723
f) Investment in RTC mortgages 1,600,000
g) Prepaid lease (ski rental shop) 950,000
h) Investment in Food Extrusion 1,750,000
i) Purchase of the Company's
common stock from former President 1,664,450
j) Purchase of the Company's
common stock from unrelated parties 562,343
k) Investments in real estate and
real estate related activities 1,018,740
l) Investment in Space Shot and
Piston Bullies 1,394,710
Total: $19,559,589
Proceeds from the System Sale to Former
President
In lieu of a severance payment and in appreciation
for her services in developing the System, the
Board of Directors had agreed in principle with
Ms. Evers-Tierney that in the event of
consummation of the sale of the System, the
Company will repurchase all of the shares of the
Company's Common Stock owned by Ms. Evers-Tierney,
her son and her husband, at a price equal to the
"book value" of such shares computed as of the
first business day after the Closing. The
determination of "book value" would be made by the
Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and
taxes to be incurred in connection with the sale,
but without deducting any severance payment
obligations to Ms. Evers-Tierney (which will be
waived) or the stock repurchase obligation to Ms.
Evers-Tierney and her family. Pro rata payment
was made to Ms. Evers-Tierney and her family. Ms.
Evers-Tierney and her family had the right to
obtain part of such payments in PriCellular notes.
During fiscal 1996, the Company purchased an
aggregate of 943,411 shares of the Company's
Common Stock from Ms. Evers-Tierney and her family
at a purchase price equal to approximately
$500,000 in cash and 182,500 shares of PriCellular
Common Stock of which 50% was allocated to the
purchase of Treasury stock and 50% as a cost in
connection with the sale of the System. With the
exception of the described payments to the
Company's former president and members of her
family, no portion of the sale proceeds were
distributed directly to the Company's
shareholders.
S-13
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
2. Discontinued Operations (Continued)
Summary results of the Company's former cellular
telephone operation's prior to its sale, which
have been classified separately, were as follows:
Years Ended September 30
1996 1995
Revenue $ 574,741 $ 4,816,690
Expenses 611,183 3,462,175
Net Income (loss) $ (36,442) $ 1,354,515
3. Related Party Transactions
During the period of October 1, 1995 through
September 30, 1997, the Company engaged in various
transactions with certain of its officers,
directors, principal stockholders and certain of
their affiliated entities. Specifically, the
Company has entered into transactions Great
American, Stonehill Recreation Corporation
("Stonehill Recreation"), and Great Mountain
Development Corporation ("GMD") of which the
Company's Directors and Officers are either
principal shareholders and/or Officers and
Directors. In this regard, Mr. Bellantoni, the
Secretary, Treasurer and Director of the Company
was Vice President and Chief Financial Officer of
Great American and is currently Treasurer and a
Director of reorganized Great American; Mr. Gene
Mulvihill, the Chairman of the Board and Chief
Executive Officer of the Company is a principal
shareholder and former Officer of GMD and former
Chairman of the Board and Chief Executive Officer
of Great American and his daughter was a Director,
and the former President and Chief Operating
Officer of such corporation. Mr. Gene Mulvihill's
son, Andrew Mulvihill is an Executive Officer of
Resort Club and a former officer of GMD.
S-14
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
On March 29, 1996, but effective as of June 1,
1993, Resort Club, Inc. ("Resort Club"), a
subsidiary of the Company, entered into amended
and restated agreements with Vernon Valley, Great
Gorge and Great Valley Real Estate Corp. ("Great
Valley"), all subsidiaries of Great American
whereby in consideration for an aggregate payment
of 10% of the gross sales price of each Resort
Club membership, these entities were to provide
amenities and access to certain properties for the
benefit of Resort Club members. The amenities
provided by Great American include admission
passes to the Vernon Valley and Great Gorge ski
facilities, admission passes to the summer
participation theme park and admission passes to
the Mountain Top Recreation Center, all for a
period of 35 years. As of September 30, 1997,
Resort Club had an unpaid balance of $540,795 for
these amenities. Also on March 29, 1996, Resort
Club entered into an amended and restated
agreement with Stonehill Recreation, the entity
which owns and operates the Spa at Great Gorge
(the "Spa") on terms similar to those that were
entered into with Great American, except that the
consideration payable to Stonehill Recreation from
Resort Club represents $25,000 for each
condominium controlled by Resort Club in the Great
Gorge Village. As of September 30, 1997, Resort
Club had an unpaid balance of $738,178 due to
Stonehill Recreation for amenities. During fiscal
1997, the Company advanced funds on behalf of
Stonehill Recreation in connection with a
settlement in the Great American bankruptcy. In
consideration for these advances, ownership of
Stonehill Recreation transferred to the Company on
the effective date of confirmation of the Great
American plan of reorganization, which was October
16, 1997.
On February 14, 1996, an involuntary bankruptcy
petition was filed against Great American by three
creditors in the United States Bankruptcy Court,
Newark, New Jersey. On April 2, 1996, Great
American and its wholly owned subsidiaries, Vernon
Valley, Great Valley, Great Gorge, Great Heritage,
Inc., TAV, Inc., Stonehill Management Corp.,
Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc. and Vernon Valley
Sewer, Inc. filed voluntary petitions with the
United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11
of the United States Bankruptcy Code.
The Company provides financing to the purchasers
of its membership interests. Through fiscal 1997,
the Company advanced approximately $10,637,000 to
Resort Club primarily for working capital
purposes. This financing is generally evidenced
by non-recourse installment sales contracts. The
down payment received by the Company for such
sales is at least 10% of the sales price. The
down payment is often less than the direct expense
of commissions and selling and the difference is
financed either by borrowings by the Company or by
the Company's internally generated funds. In
order to ensure the collectability of the advances
made to Resort Club and maintain the viability of
Resort Club's future business operations,
management determined that it has been in the best
interest of the Company to assist Great American
and its affiliated entities for the reason that
the majority of the Resort Club amenity package
was owned and operated by Great American and
affiliated entities. Management also determined
that in order for Resort Club to maintain its
operations, the Great American
assets must not only emerge from bankruptcy
but operate competitively with nearby Resort
facilities.
S-15
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
On July 10, 1997 the Company and its wholly owned
subsidiaries Resort Club and Diamond Leasing
entered into a Memorandum of Understanding (the
"MOU") which outlined a settlement agreement in
connection with the Great American bankruptcy
between Great American, Praedium and Mr. Gene
Mulvihill and entities affiliated with Mr. Gene
Mulvihill including the Company. Pursuant to the
terms of the MOU, the Company and its affiliates
were required to make certain contributions and
received certain benefits which are outlined
below:
Contributions by the Company
A. The full settlement and satisfaction of
the claims, liens and security interests
of Summit Bank ("Summit"), Lakeview
Savings Bank ("Lakeview") and Public
Loan Company in a manner that permitted
the assets of the Great American entities
contemplated by the MOU to be sold in a
Section 363 Sale and the proceeds of such
sale to be free and clear of all liens,
claims and encumbrances.
B. Payment of $1.8 million in cash which
included $100,000 allocated for costs in
connection with soliciting the plan.
C. Resort Club agreed to allocate 100% of its
net cash flow to pay the notes of
professionals, indenture trustees, Richard
Wright and Matt Harrison, both
restructuring officers of Great American
("Resort Club Notes") and a $7.5 million
unsecured creditors' note (the "Resort
Club Unsecured Creditors' Note").
Similarly, any proceeds dividended to
reorganized Great American from Stonehill
Recreation will be used to pay the Resort
Club Notes and the Resort Club Unsecured
Creditors' Note. Such net cash flow and
dividends will be allocated and
distributed as follows: The first
$1,000,000 of such net cash flow will be
allocated and distributed to pay the
Resort Club Notes in partial satisfaction
of unpaid allowed professional fees and
expenses and unpaid allowed indenture
trustee administrative claims, and unpaid
claims of Richard Wright and Matt Harrison.
After distribution of the first
$1,000,000 of net cash flow, 50% of net
cash flow thereafter will be paid pro rata
under the Resort Club Notes and 50% of
such net cash flow will be paid in
satisfaction of the Resort Club Unsecured
Creditors' Note; and provided further,
that the amount and the terms of the
Resort Club Notes and Resort Club
Unsecured Creditors' Note shall be
reasonably satisfactory to the holders of
such notes and be limited in a matter so
as not to materially impair the operation
of the business of the Resort Club.
D. Transfer, release or otherwise convey all
right, title and interest in and to the
Piston Bullies previously leased to Vernon
Valley by the Company, and 54 building
lots owned by the Company (the "Lots")
to Great American, free and clear of all
liens, claims and encumbrances prior to
the commencement of the Section 363 Sale.
Praedium, the successful purchaser, has
the right to develop the lots in its
discretion, in whole or in part, and the
Company will reasonably cooperate with
Praedium with respect to the development
of the lots and or any other property
acquired from Great American, including,
without limitation, to affect the transfer
of any and all rights, easements or other
interests necessary for the successful
purchaser to exercise its development
rights; provided however, that such
cooperation will be reasonably limited to
acts which do not interfere materially
with the operation of the Mulvihill
interests' businesses.
S-16
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
E. Promptly after the execution of the MOU,
the Mulvihill interests and Public Loan
Company agreed to enter into appropriate
agreements with respect to the granting or
the conveyance of all water rights, sewer
rights, other access rights and rights
appurtenant to the land on which Great
American operates its businesses, and the
Mulvihill entities and Public Loan Company
will receive reciprocal rights with
respect to the land on which the Mulvihill
interests and Public Loan Company operate
their business; provided, however, that
(i) such transfers and grants by the
Mulvihill interests and Public Loan
Company are not conditional upon the
consummation of the Section 363 Sale or
the Plan, (ii) the rights granted to the
Mulvihill interests and Public Loan will
be reasonably limited in a manner so as
not to interfere materially with
Praedium's operation of its business, as
determined in Praedium's reasonable
discretion.
F. Reorganized Great American received (i)
35% of the common equity of Resort Club
and 35% of the common equity of Stonehill
Recreation and (ii) a $7.5 million note
from the Resort Club (i.e., the Resort
Club Unsecured Creditors Note ), as more
fully described below. Great American,
Stonehill Recreation and the Company
entered into a shareholders agreement
covering the permissible expenditures
which Stonehill Recreation may make on a
going-forward basis to the effect that the
35% equity interest in Stonehill
Recreation granted to Reorganized Great
American under the Plan, and the amounts
to be dividended on account of such 35%
equity interest, shall not be diluted by
any insider, affiliate or non-ordinary
course transaction. Reorganized Great
American has been granted appropriate
representation on the boards of both
Stonehill Recreation and Resort Club in
connection with its 35% interest in each.
Reorganized Great American received
customary anti-dilution rights in respect
of such equity interests.
G. The Company entered into an amended and
restated lease with respect to the Space
Shot with the Praedium on mutually
acceptable terms.
Resort Club Operating Agreements
A. Resort Club will receive 275 excess
capacity passes per day (the "Excess
Passes") for use at the Great Gorge
Resort. The Excess Passes are non-
transferable and utilizable only by actual
Resort Club members. Daily usage of the
Excess Passes are limited, in the
reasonable discretion of the operator of
the Great Gorge Resort, to such number of
Excess Passes that will not interfere with
the usage (based upon full utilization of
all lifts, rides, attractions and other
amenities) of the Great Gorge Resort land
and amenities by resulting in greater than
capacity usage of the Great Gorge Resort.
The capacity of the Great Gorge Resort is
defined as follows: (i) as to the ski
resort facilities, 4,000 day pass skiers
per day and (ii) as to the summer
participation theme park, 10,000 patrons
per day.
B. Resort Club will be permitted to purchase
additional passes over and above the
available Excess Passes. Excess Passes
shall not, under any circumstances, be
used to solicit new Resort Club members.
S-17
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
C. Resort Club was granted (i) a 25 year
license to use six of the existing cabins
and four lots on the Evergreen Campground
and (ii) a lease of the Evergreen
Campground for a nominal price for an
initial term of one (1) year, with twenty-
four (24) automatic one year extensions.
D. Resort Club was granted one-time five year
leases to operate winter time-share sales
offices at two specified locations and a
summer time-share sales office at one
specified location. Each of the three
leases shall be at a rental of $100 per
month.
E. Resort Club will be granted a ten (10)
year lease to operate a time-share
"closing house" at a rental of $500 per
month.
F. All Resort Club promotional materials and
agreements shall specify that Resort Club
is not affiliated with the ownership of
the summer participation theme park and
winter recreational ski area. Resort Club
will affect notice of this matter to all
existing Resort Club members.
G. Resort Club will assume the defense of,
and assume and pay the liabilities
associated with, post-petition personal
injury claims arising out of the post-
petition operation of Great American's
businesses to the date of the consummation
of the Section 363 Sale; provided,
however, that to the extent possible,
payment of such liabilities shall first be
made from the $300,000 amusement bond held
by Great American.
Stonehill Recreation
A. Praedium received a first priority $3.2
million mortgage lien on the assets of
Stonehill Recreation, including, but not
limited to, the Spa (the "Spa
Mortgage").
B. Praedium granted to the Mulvihill entities
(excluding Stonehill Recreation) an option
(the "Option") to purchase the Spa
Mortgage for $1 million (the "Option
Price"). The Option must be exercised,
and fully paid for, within 18 months of
the consummation of the Section 363 Sale.
The Option Price may be paid in 18 monthly
installments, at an interest rate of ten
(10%) percent per annum.
C. Great American transferred, without
representation or warranty, all of its
right, title and interest in and to the 9-
hole executive golf course and clubhouse
adjacent to the Spa; provided, however,
that Stonehill Recreation will grant
reasonable rights of usage of such golf
course and clubhouse to Praedium with
respect to not less than 20% of all tee
times at a 20% discount to the customary
charges paid by the public for the use of
such amenities.
S-18
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
Management believes that the contributions made by
the Company in connection with the MOU hereinafter
referred to as the "Great American Settlement
Assets" are realizable as of September 30, 1997.
Management believes that the Great American
Settlement Assets are realizable primarily through
the forgiveness of indebtedness as of September
30, 1997 owed to Great American related entities
and Stonehill Recreation for the use of amenities
by Resort Club members, its participation in the
option to purchase the $3.2 million first mortgage
in the Spa from Praedium, and the 65% equity
interest in the Spa. In addition, management
believes that the entry of Intrawest will provide
significantly greater value to Resort Club members
which will increase the collectability of
membership receivables and increase membership
referrals (see Note 14). In connection with
Resort Club's obligation under the MOU with
respect to the issuance of the Resort Club Notes
and Resort Club Unsecured Creditors' Note,
Resort Club is obligated to record in the first
quarter of fiscal 1998 approximately $5.0
million of indebtedness which represents the
approximate discounted value of these obligations.
On November 10, 1995, the Company entered into an
assumption agreement with Mr. Gene Mulvihill,
whereby the Company assumed indebtedness of
$750,000 for a loan previously advanced to Mr.
Mulvihill by his two partners in St. Marks
Associates, the Company's current landlord, on or
about May 19, 1995. The Company assumed the said
indebtedness in exchange for an equal amount of
Resort Club receivables. The loan was
paid in full on February 15, 1996 together with
interest at 15%.
On March 31, 1996, the Company entered into an
agreement to purchase 9 condominiums which are
used by Resort Club from Mr. Gene Mulvihill for an
aggregate purchase price of $878,500 which
management believes approximates fair market
value. Of the condominiums purchased, eight
condominiums are located in the Great Gorge Resort
and one is located in the Resort of Palmas Del
Mar, Puerto Rico. As of September 30, 1997, the
Company has a remaining balance due on the
purchase of approximately $328,000 which is
evidenced by a promissory note bearing interest at
an effective rate of 10.25%.
Subsequent to the sale of the System, the Company
transferred its executive offices to 355 Madison
Avenue, Morristown, New Jersey. In connection
with this move, the Company entered into a lease
agreement with St. Marks Associates, a real estate
partnership owned 50% by Mr. Gene Mulvihill. The
lease provides for a lease term of 5 years
commencing December 1, 1995 with a base rent of
$1,558 per month and a monthly payment of
approximately $519 for the Company's proportionate
share of impositions and operating expenses which
management believes approximates fair market
value. The lease provides for rental adjustments
for changes in the Consumer Price Index.
S-19
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions (Continued)
On December 1, 1995, Diamond Leasing entered into
a lease agreement with Vernon Valley. The lease
term commenced on December 15, 1995 and expired on
March 15, 1996. Pursuant to the lease, Diamond
Leasing leased the Vernon Valley/Great Gorge Ski
Area Rental Shops and all fixtures located thereon
as well as the ski rental equipment. In
consideration for this lease, Diamond Leasing
agreed to: 1) pay a base rent of $950,000;
2) pay additional rent of $75,000 which
represented an unallocated payment for services
provided by Vernon Valley, including but not
limited to security, maintenance of the leased
premises, and general administrative services; and
3) pay a percentage of gross revenue equal to 50%
of gross revenues in excess of $1,000,000. The
Lease provided for a cap limitation equal to a 28%
rate of return to Diamond Leasing. Proceeds
received in excess of a 28% rate of return were
required to be remitted to Vernon Valley. The
Lease also provided Diamond Leasing with the
absolute right of renewal for three additional
consecutive December 15 - March 15 lease terms.
Through September 30, 1996, Diamond Leasing
received net proceeds of approximately $984,000
(excluding the $75,000 additional rent which was
paid directly to Vernon Valley from ski rental
receipts) on this transaction and owes no further
obligation to Vernon Valley, and consequently had
a net gain on the transaction.
Diamond Leasing entered into a capital lease for
two Piston Bullies with Bombardier Capital, Inc.
("Bombardier") commencing January 1, 1996 for a
term of 18 months ending September 1, 1997.
Piston Bullies are snow grooming machines used for
grooming ski trails. The lease provided for 11
payments with aggregate rental payments of
approximately $165,700 and has a $10,901 purchase
option at the end of the lease term. Concurrent
with entering into the lease agreement with
Bombardier, Diamond Leasing entered into a
sublease agreement with Vernon Valley on similar
terms with Diamond Leasing's lease agreement with
Bombardier except that the rental payment had been
adjusted to reflect a rate of return to the
Company of 28%. In connection with the lease
agreement, Bombardier filed financing statements
to protect its security interest. In addition,
the Company pledged 10,000 shares of its
PriCellular Class A Common Stock with Bombardier
as additional collateral. As of September 30,
1997, the remaining balance due Bombardier along
with the purchase option was paid in full and the
additional collateral was returned to the Company.
In connection with the settlement agreement to the
Great American bankruptcy, the Company transferred
the Piston Bullies to Great American free and
clear of all liens.
On January 26, 1996, Diamond Leasing entered into
a loan agreement and advanced $269,500 to Great
American in connection with a loss suffered by
Great American resulting from a flood that
occurred on January 12, 1996. As collateral for
the $269,500 loan, Great American assigned to
Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with
interest at 9% per annum. As further
consideration, Diamond Leasing and Vernon Valley
amended the ski rental shop lease to provide that
prior to any "additional rent" being paid to
Vernon Valley pursuant to the lease agreement
funds will be paid to Diamond Leasing until the
principal amount of the loan is fully paid with
accrued interest. As of September 30, 1997,
Diamond Leasing received payments of $172,366 on
this loan pursuant to the assignment and
"additional rent" described above with a
remaining balance of $97,134 outstanding as of
September 30, 1997. In connection with the
settlement agreement relating to the Great
American bankruptcy, the Company agreed to accept
$46,000 as payment in full for the outstanding
balance.
S-20
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
3. Related Party Transactions (Continued)
On March 19, 1996, Diamond Leasing agreed to
purchase 92 condominium lots from GMD, at a price
of $1,820,000 payable as follows: (i) $270,500
on or before April 1, 1996, (ii) the assumption
of any and all filed liens affecting the property;
and (iii) the balance from the net cash flow
realized from the development of the property.
Each of the parties agreed to seek Bankruptcy
Court approval for this transaction. The closing
occurred on April 1, 1996 with Diamond Leasing
acquiring good and marketable title to the
property insurable at regular rates and with
customary adjustments made at the closing.
Finally, Diamond Leasing offered GMD the Option to
participate in the development of the property.
In connection with the settlement agreement
relating to the Great American bankruptcy, the
Company transferred 54 condominiums to Great
American in consideration for $145,000.
On April 5, 1996, the Company, through a wholly
owned subsidiary, Star II Leasing Corporation,
agreed to purchase an attraction known as the
Space Shot from S & S Sports Power, Inc. for the
sum of $1,250,000. Concurrently, Diamond agreed
to lease the Space Shot to Vernon Valley at an
annual rental equal to $300,000 for a term of four
(4) years subject, however, to Vernon Valley
achieving a certain level of revenues, failing
which no payment will be made to the Company, but
will accrue and be due and payable to the Company
in the subsequent years of the said Lease
Agreement. An entity controlled by the immediate
family of Mr. Gene Mulvihill, an officer and
director of the Company, is a 50% owner of S & S
Sports Power, Inc. In connection with the
acquisition of this ride, this entity has agreed
to forfeit all allocated profits and direct same
to the Company. No payments were made in fiscal
1996 pursuant to this lease agreement. In
connection with the settlement agreement relating
to the Great American bankruptcy, Praedium agreed
to purchase the Space Shot for $900,000.
As of September 30, 1997, the Company, through
Diamond Leasing, advanced $2,739,782 to Summit and
Lakeview in connection with a limited forbearance
agreement entered into between Summit, Lakeview,
Mr. Gene Mulvihill and Messrs. Robert and Stanley
Holuba.
On March 1, 1994, loans made by Summit and
Lakeview to Vernon Valley had matured and were
immediately due and payable. Vernon Valley failed
to fully pay the loan obligations which
constituted a material default under the Vernon
Valley loan documents, and together with the
filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the
Vernon Valley loan documents.
As part of the original loan transactions, Mr.
Mulvihill and Mr. Stanley and Robert Holuba (the
"guarantors") guaranteed the Summit and Lakeview
loans. The payments made by the Company to Summit
and Lakeview were made in connection with a
limited forbearance agreement for which the banks
agreed to forebear from exercising their
respective rights and remedies under the Vernon
Valley loan documents
In connection with the settlement relating to the
Great American bankruptcy, the Company satisfied
the full settlement of the claims, liens and
security interests of Summit and Lakeview in a
manner that permitted the assets of the Great
American entities contemplated by the MOU to be
sold in a Section 363 sale and the proceeds of
such sale to be free and clear of all liens,
claims and encumbrances.
S-21
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
4. Investment in PriCellular Corporation
At the November 7, 1995 closing of the System (see
Note 2), PriCellular elected to force conversion of
its five-year, 4%, $10,000,000 Convertible
Subordinated Note to DCI into 1,175,088 shares of
its Class A Common Stock. The high and low sales
prices for PriCellular Class A Common Stock, as
traded on the American Stock Exchange on November
7, 1995, were $13.125 and $12.75, respectively.
As a result, the Company recorded the 1,175,088
converted shares at a value of $7,497,063 an
amount which reflected a 50% discount of the
closing sales price of PriCellular Class A Common
Stock on November 7, 1995 of $12.75. The Company
recorded a 50% discount because of the trading
restrictions placed on the stock.
On January 30, 1996, DCI entered into an agreement
with PriCellular whereby DCI agreed to sell to
PriCellular 600,000 shares of its PriCellular
Class A Common Stock for $10.50 per share. The
closing of this transaction occurred on February
9, 1996. At the closing, DCI entered into an
agreement pursuant to which the demand
registration rights of the holders of the
Company's PriCellular registerable securities were
waived.
On August 5, 1996, DCI consummated the sale of an
additional 450,000 shares of Class A Common Stock
of PriCellular in an underwritten public offering
pursuant to a Registration Statement on Form S-3
(File No. 333-03737) declared effective by the
Securities and Exchange Commission on July 30,
1996. Of the 450,000 shares sold, 75,000 shares
were sold on behalf of the Company's former
President. As of September 30, 1996, an
additional 107,500 shares were issued to Ms.
Evers-Tierney pursuant to her agreement (see Note
2). The shares were sold at a price of $10.00 per
share less a $.55 per share underwriting discount
for a net price of $9.45 per share or $4,252,500
in the aggregate to an underwriting group
comprised of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Paine Webber Incorporated, Nat West
Securities Limited and Wasserstein Perella
Securities, Inc.
During fiscal 1996 the Company sold 955,000 shares
of its PriCellular Class A Stock and recorded an
approximately $3,602,600 gain on the transactions.
During fiscal 1997 the Company sold 186,000 shares
of its PriCellular Class A Common Stock and
recorded an approximately $1,437,800 gain on the
transactions. As of September 30, 1997, the
Company was the beneficial owner of 15,700 shares
of PriCellular Class A Common Stock.
5. Investment in Silver Shield Mill
The Company is the owner of 10 acres of land in
Ouray, Colorado, with the "Silver Shield" Mill
located thereon. The Mill, designed to mill
silver, has not been operated for more than 50
years. The Company paid the balance of the
purchase price for this property early in fiscal
1992 and listed the property for sale at a price
of $239,000 based upon a listing of comparable
neighboring property. Although the listing
expired in October 1993, the Company did not renew
the listing because of an ongoing reconstruction
project in the vicinity which management believes
may enhance the value of the Company's property.
It is management's belief that the Company will
realize the carrying value of this property of
$218,975 at September 30, 1997 when the property
is sold.
S-22
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
6. Mortgages Receivable
On December 13, 1995, the Company entered into a
purchase agreement with the Resolution Trust
Corporation for the purchase of 28 mortgages in
New Jersey and one mortgage in Florida. The
purchase price of $1,600,000 represented
approximately 51% of the principal amount of
indebtedness on single family residential
properties. On March 18, 1997, the Company
completed the sale of $1,778,751 principal amount
of mortgages to an unaffiliated entity for a
purchase price equal to 42% of the principal
amount of indebtedness or $747,075. Accordingly,
the Company recorded a $207,165 loss on the
transaction. As of September 30, 1997, the
Company holds 4 mortgages with a book value of
approximately $310,000. It is management's belief
that the Company will realize the carrying value
of these mortgages when they are sold.
7. Extrusion Note
On March 21, 1996, the Company loaned $1.75
million to Food Extrusion, Inc., a non-affiliated
nutriceutical corporation engaged in a
revolutionary stabilization process which converts
rice bran (one of the world's largest wasted food
resources) into a highly nutritious food with
cholesterol-lowering properties. On July 30,
1996, the Company restructured the Extrusion Note.
The Extrusion Note, as restructured, bears
interest at 5% per annum, with principal and
interest due on November 21, 1999 and is secured
by a first lien on certain food processing assets
and related contract rights. As additional
consideration, the Company received 578,000 shares
of Common Stock which represents less than 3.5% of
the issued and outstanding shares of common stock
of Food Extrusion, Inc. At the issuance, the 5%
stated interest rate on the Extrusion Note was
considered a below market interest rate.
Accordingly, a valuation discount of $361,941 was
applied to the Extrusion Note to be amortized over
the life of its term so that the effective yield
of the Notes would be 12%. The difference between
the face value of the Extrusion Notes and its
discounted value is referred to as an original
issue discount. The value of the original issue
discount has been assigned to the 578,000 shares
of Food Extrusion, Inc. common stock.
During fiscal 1997, the Company sold 315,400
shares of Food Extrusion for an aggregate purchase
price of approximately $1.1 million and recorded a
gain of approximately $923,600 on the
transactions. As of September 30, 1997, the
Company holds 262,600 shares of Food Extrusion.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at
September 30, 1997 consist of the following:
Accounts Payable $ 384,764
Accrued payroll and payroll taxes 109,979
Accrued condo purchase (Note 11) 430,500
Accrued income taxes (Note 9) 204,000
Accrued amenity usage (Note 11) 1,278,973
Accrued fulfillment deficit (Note 11) 3,300,778
Accrued other 72,459
$ 5,781,453
S-23
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
9. Income Taxes
Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". This
statement adopts a balance sheet approach to
accounting for income taxes and requires, among
other things, that deferred assets and liabilities
be adjusted to reflect the rate at which the
applicable timing items will reverse based on
current enacted law. The principal effect of
adopting this statement for the fiscal year ended
September 30, 1996, is that utilization of net
operating loss carryforwards is reflected as a
reduction of the tax provision rather than an
extraordinary item.
As of September 30, 1996, the Company had
available for federal income tax purposes
approximately $1,690,000 of net operating loss
carryforwards, which would have expired in fiscal
1997 to 2007 and investment tax credit
carryforwards of approximately $8,000 which would
have expired in fiscal 1996 to 2000. As a result
of the gain on the sale of the Company's Cellular
Phone System (see Note 2), the Company utilized
the tax benefit of $676,000 from the prior period
net operating loss carryforwards as a reduction in
the tax provision.
As of September 30, 1997, the Company had
available for federal income tax purposes a net
operating loss carryback of approximately
$676,200. Accordingly, the Company recorded a tax
benefit of approximately $243,450 in connection
with the utilization of the net operating loss
carryback.
10. Debt
Secured Debt
On March 31, 1996, the Company entered into an
agreement to purchase 9 condominiums from Mr. Gene
Mulvihill for an aggregate purchase price of
$878,500. Of the condominiums purchased, eight
condominiums are located in the Great Gorge Resort
and one is located in the Resort of Palmas Del
Mar, Puerto Rico. As of September 30, 1997, the
Company has a remaining balance due on the
purchase of approximately $328,000, which is
evidenced by a note payable bearing interest at
10.25%.
On June 10, 1994, Resort Club entered into a loan
agreement with an unaffiliated party in the
principal amount of $1,000,000. Pursuant to the
loan agreement, the amount owed from Resort Club
to the lender is collateralized by membership
Promissory Notes. In the event an individual
Promissory Note goes into default, Resort Club is
obligated to replace the Promissory Note with a
performing Promissory Note similar in amount. The
loan bears interest at 15% and was due and payable
on June 10, 1997. On May 13, 1997, the Resort
Club entered into a second amendment whereby the
maturity date has been extended to June 10, 2000
in consideration of a $100,000 renewal fee as well
as Resort Club's continuing obligation to provide
collateral in the aggregate amount of $1.1
million.
During fiscal 1996 and 1997 the Company purchased
condominiums in the Great Gorge Village, Vernon,
New Jersey, from unrelated individuals. The
condominiums are used as accommodation inventory
in connection with the sale of membership
interests through Resort Club. The purchase of
the condominiums typically required a down payment
with the balance payable through a purchase money
mortgage. The terms of the mortgages varied with
interest ranging from 8% to 10.25%. As of
September 30, 1997, the aggregate remaining
balance on these mortgages was
approximately $1,157,500.
S-24
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
10. Debt (Continued):
Secured Debt (Continued)
On September 22, 1997, the Company entered into a
loan agreement with an unaffiliated party in the
principal amount of $700,000. Pursuant to the
loan agreement, the amount owed by the Company is
collateralized by a second mortgage on
substantially all of the Company's assets. The
loan bears interest at 12.25% and is due and
payable on February 19, 1998. As additional
consideration, the Company issued 150,000 shares
of its common stock to the lender.
On May 18, 1997 the Company entered into a loan
agreement with Binghamton Savings Bank
("Binghamton"), the Company's primary lender in
the principal amount of $2,000,000. Pursuant to
the loan agreement, the amount owed from the
Company is collateralized by a first mortgage on
substantially all of the Company's assets. The
loan bears interest at 12.25% and is due and
payable as follows:
17 consecutive monthly interest
payments, beginning June 13, 1997, with
interest calculated on the unpaid
principal balance at an interest rate of
12.25% per annum 6 consecutive monthly
principal payments of $50,000.00 each,
beginning June 13, 1997, with interest
calculated on the unpaid principal
balance at an interest rate of 12.25%
per annum; 6 consecutive monthly
principal payments of $75,000.00 each,
beginning December 13, 1997, with
interest calculated on the unpaid
principal balance at an interest rate
of 12.25% per annum; 5 consecutive
monthly principal payments of
$100,000.00 each, beginning June 12,
1998, with interest calculated on the
unpaid principal balance at an interest
rate of 12.25% per annum; and 1
principal and interest payment of
$757,911.46 on November 13, 1998, with
interest calculated on the unpaid
principal balance at an interest rate
of 12.25% per annum.
On August 6, 1997, the Company entered into a
second loan agreement with Binghamton in the
principal amount of $1,500,000. The loan bears
interest at 12.25%
Simultaneously with the closing of the second loan
agreement, the Company entered into a Mortgage
Modification and Consolidation Agreement, whereby
the first mortgage and the second mortgage were
combined, consolidated, and made equal and
coordinate in lien on the collateral without
priority of one over another, so that together
they are one first mortgage. As of August 6,
1997, the balance due and owing on this loan was
$3,025,000 payable as follows:
The principal sum of $100,000.00 plus
accrued interest on the 13th day of each
month commencing September 13, 1997 and
on the 13th day of each month thereafter
until March 13, 2000, when the entire
unpaid principal balance plus accrued
interest is due and payable.
As of September 30, 1997, the principal balance
outstanding on this loan was $2,850,000.
S-25
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
10. Debt (Continued):
Secured Debt as of September 30, 1997 is
summarized as follows:
Building and land purchased, August 1992 9%,
principal and interest of $901 payable
monthly to August 1998, balloon payment of
$84,508 at September 1, 1998 $ 86,748
Condominiums purchased, December 1995 through
September 1997 with interest ranging from
8.00% to 10.25%, monthly principal and
interest payments ranging from $484 to $2,055
payable monthly to December 2000 1,485,779
Loan Agreement dated June 6,1994, 15%
interest due monthly, balloon payment
of $1,000,000 on June 10, 2000 1,000,000
Loan Agreement dated September 22, 1997, 12.25%
interest due monthly, balloon payment of
$700,000 on February 18, 1998 700,000
Loan Agreements dated May 18, 1997 and August
6, 1997, 12.25% interest due monthly with
monthly principal payments of $100,000,
balance due March 31, 2000 2,850,000
Total mortgages $ 6,122,527
Less total current portion 2,170,844
Total noncurrent portion $ 3,951,683
Unsecured Notes Payable
On July 30, 1997, the Company entered into an
agreement to purchase and accept by assignment
from an unaffiliated entity ("Public Loan
Company"), Public Loan Company's entire right,
title and interest in a loan in the principal
amount of $1,668,300 and accrued and unpaid
interest of $1,302,717. The loan is
collateralized by certain land on top of the
Vernon Valley/Great Gorge ski areas. The purchase
price of the loan was comprised of 800,000 shares
of the Company's common stock and an interest free
note in the principal amount of $540,000 payable
in 36 equal monthly installments of $15,000
commencing June 15, 1997. The loan was discounted
to $450,000 and yields an effective interest rate
of 12.25%.
Other Information
Aggregate principal reductions of debt as of
September 30, 1997 are summarized as follows
(000's omitted):
Unsecured
Secured Notes
Fiscal Year Debt Payable Total
1998 $ 2,170,844 $ 380,000 $ 2,550,844
1999 1,399,505 180,000 1,579,505
2000 and 2,552,178 47,732 2,599,910
thereafter $ 6,122,527 $ 607,732 $ 6,730,259
S-26
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
11. Commitments and Contingencies
In lieu of a severance payment and in appreciation
for her services in developing the System, the
Board of Directors had agreed in principle with
Ms. Evers-Tierney that in the event of
consummation of the sale of the System, the
Company would repurchase all of the shares of the
Company's Common Stock owned by Ms. Evers-Tierney,
her son and her husband, at a price equal to the
"book value" of such shares computed as of the
first business day after the Closing (see Note 2).
Subsequent to the sale of the Company's former
Cellular Phone System (see Note 2), the Company
transferred its executive offices to 355 Madison
Avenue, Morristown, New Jersey. In connection
with this move, the Company entered into a lease
agreement with St. Marks Associates, a real estate
partnership owned 50% by Mr. Gene Mulvihill. The
lease provides for a lease term of 5 years
commencing December 1, 1995 with a base rent of
$1,558 per month and a monthly payment of
approximately $519 for the Company's proportionate
share of impositions and operating expenses which
management believes approximates fair market
value. The lease provides for rental adjustments
for changes in the Consumer Price Index.
As of September 30, 1997, the Company has sold
277,209 membership points. Based on the number of
membership points sold, the Company is required to
purchase a minimum inventory of 39 condominium
units. Currently, the Company owns 8 condominium
units free and clear, and has purchased 26
condominium units which are subject to mortgages
in the principal amount of $1,485,779. In
addition, the Company is in negotiations to
purchase the remaining 5 condominium units for a
purchase price of approximately $430,500.
The entity presently providing Resort Club members
with admission to its summer participation theme
park and skiing facilities is Resorts a subsidiary
of Intrawest Corporation, which owns and operates
the summer participation theme park and a winter
recreational ski area in Vernon Township, Sussex
County, New Jersey. Resorts completed the purchase
of the ski area and the summer participation theme
park on February 17, 1998 from Angel. Angel
purchased the assets pursuant to a section 363
sale under the Federal Bankruptcy Rules whereby
the summer participation theme park and ski area
was purchased "free and clear" of all liens from
Great American.
S-27
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
11. Commitments and Contingencies (Continued)
On March 29, 1996, but effective as of June 1,
1993, Resort Club entered into amended and
restated agreements with Vernon Valley, Great
Gorge and Great Valley, all subsidiaries of Great
American, whereby in consideration for an
aggregate payment of 10% of the gross sales price
of each Resort Club membership, these entities
will provide amenities and access to certain
properties for the benefit of Resort Club members.
The amenities provided by Great American include
admission passes to the Vernon Valley and Great
Gorge ski facilities, admission passes to the
summer participation theme park and admission
passes to the Mountain Top Recreation Center, all
for a period of 35 years. As of September 30,
1997, Resort Club had an unpaid balance of
$540,795 for these amenities. Also on March 29,
1996, Resort Club entered into an amended and
restated agreement with Stonehill Recreation, the
entity which owns and operates the Spa on terms
similar to those that were entered into with Great
American, except that the consideration payable to
Stonehill Recreation from Resort Club represents
$25,000 for each condominium controlled by Resort
Club in the Great Gorge Village. As of September
30, 1997, Resort Club had an unpaid balance of
$738,178 due to Stonehill Recreation. During
fiscal 1997, the Company advanced funds on behalf
of Stonehill Recreation in connection with a
settlement in the Great American bankruptcy. In
consideration for these advances, ownership of
Stonehill Recreation transferred to the Company on
the effective date of confirmation the Great
American plan of reorganization, which was October
17, 1997.
On February 14, 1996, an involuntary bankruptcy
petition was filed against Great American by three
creditors in the United States Bankruptcy Court,
Newark, New Jersey. On April 2, 1996, Great
American and its wholly owned subsidiaries, Vernon
Valley, Great Valley, Great Gorge, Great Heritage,
Inc., TAV, Inc., Stonehill Management Corp.,
Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc. and Vernon Valley
Sewer, Inc. filed voluntary petitions with the
United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11
of the United States Bankruptcy Code. There can
be no assurance that Great American will be
successful in its efforts to be reorganized under
Chapter 11 of the United States Bankruptcy Code
and that it may not be forced to liquidate its
assets and distribute the proceeds to its
creditors.
On July 10, 1997 Resources and its wholly owned
subsidiaries Resort Club and Diamond entered into
a Memorandum of Understanding which outlined a
settlement agreement in connection with the Great
American bankruptcy between Great American,
Praedium, and Mr. Gene Mulvihill and entities
affiliated with Mr. Gene Mulvihill including the
Company. Pursuant to the terms of the MOU,
Resources and its affiliates were required to make
certain contributions and received certain
benefits (see Note 3).
S-28
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
11. Commitments and Contingencies (Continued)
In connection with the purchase of a Resort Club
membership, a member is obligated to pay annual
membership dues. Annual membership dues have been
established to cover each club member's pro rata
share of the estimated annual maintenance and
operating expenses, including reserves, for all of
the units, facilities, and amenities with the
present Resort Club program. Each Resort Club
member's pro rata share of the annual expenses is
based on the ratio of Resort Club member's total
contract points to the total contract points in
Resort Club program. The initial annual
membership dues may be increased by Resort Club as
of each fiscal year by a percentage not to exceed
the percentage increase, if any, in the Consumer
Price Index ("CPI"). The annual membership dues
may be increased by an amount greater than the CPI
if the increase is put to a vote of all Resort
Club members and approved by a majority of the
points voted.
As of September 30, 1997, management has
determined that based on the average per point
assessment as of September 30, 1997, a deficit of
$0.93 per point exists. Based on an aggregate of
277,209 points sold through September 30, 1997, a
$258,209 per year deficit exists which is the
obligation of Resort Club. Management has
calculated the net present value of this
obligation to be approximately $3,301,000.
Diamond Leasing entered into a capital lease for
two Piston Bullies with Bombardier commencing
January 1, 1996 for a term of 18 months ending
September 1, 1997. Piston Bullies are snow
grooming machines used for grooming ski trails.
The lease provides for 11 payments with aggregate
rental payments of approximately $165,700 and has
a $10,901 purchase option at the end of the lease
term. Concurrent with entering into the lease
agreement with Bombardier, Diamond Leasing entered
into a sublease agreement with Vernon Valley on
similar terms with Diamond Leasing's lease
agreement with Bombardier except that the rental
payment had been adjusted to reflect a rate of
return to the Company of 28%. In connection with
the lease agreement, Bombardier filed financing
statements to protect its security interest. In
addition, the Company pledged 10,000 shares of its
PriCellular Class A Common Stock with Bombardier
as additional collateral. As of September 30,
1997, the remaining balance due Bombardier along
with the purchase option was paid in full and the
additional collateral was returned to the Company.
In connection with the settlement agreement
relating to the Great American bankruptcy
settlement, the Company transferred the Piston
Bullies to Great American free and clear (see Note
3).
On January 26, 1996, Diamond Leasing entered into
a loan agreement and advanced $269,500 to Great
American in connection with a loss suffered by
Great American resulting from a flood that
occurred on January 12, 1996. As collateral for
the $269,500 loan, Great American assigned to
Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with
interest at 9% per annum. As further
consideration, Diamond Leasing and Vernon Valley
amended the ski rental shop lease to provide that
prior to any "additional rent" being paid to
Vernon Valley pursuant to the lease agreement
funds will be paid to Diamond Leasing until the
principal amount of the loan is fully paid with
accrued interest. As of September 30, 1997,
Diamond Leasing received payments of $172,366 on
this loan pursuant to the assignment and
"additional rent" described above with a
remaining balance of $97,134 outstanding as of
September 30, 1997. In connection with the
settlement agreement relating to the Great
American bankruptcy, the Company agreed to accept
$46,000 as payment in full for the outstanding
balance (see Note 3).
S-29
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
11. Commitments and Contingencies (Continued)
On March 19, 1996, Diamond Leasing agreed to
purchase 92 condominium lots from the real estate
development corporation, GMD at a price of
$1,820,000 payable as follows: (i) $270,500 on or
before April 1, 1996, (ii) the assumption of any
and all filed liens affecting the property; and
(iii) the balance from the net cash flow realized
from the development of the property. Each of the
parties agreed to seek Bankruptcy Court approval
for this transaction. The closing occurred on
April 1, 1996 with Diamond Leasing acquiring good
and marketable title to the property insurable at
regular rates and with customary adjustments made
at the closing. Finally, Diamond Leasing offered
GMD the Option to participate in the development
of the property. A director and officer of the
Company is a principal shareholder and officer of
GMD; in addition, a director and officer of the
Company is an officer of GMD. In connection with
the settlement agreement relating to the Great
American bankruptcy, the Company transferred 54
condominiums to Great American in consideration
for $145,000 (see Note 3).
On April 5, 1996, the Company, through a wholly
owned subsidiary, Star II, agreed to purchase an
attraction known as the Space Shot from S & S
Sports Power, Inc. for the sum of $1,250,000.
Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to
$300,000 for a term of four (4) years subject,
however, to Vernon Valley achieving a certain
level of revenues, failing which no payment will
be made to the Company, but will accrue and be due
and payable to the Company in the subsequent years
of the said Lease Agreement. No payments were made
in fiscal 1996 pursuant to this lease agreement.
In connection with the settlement agreement
relating to the Great American bankruptcy,
Praedium agreed to purchase the Space Shot for
$900,000 (see Note 3).
As of September 30, 1997, the Company, through
Diamond Leasing, advanced $2,739,782 to Summit and
Lakeview in connection with a limited forbearance
agreement entered into between Summit, Lakeview,
Mr. Gene Mulvihill and Robert and Stanley Holuba.
On March 1, 1994, loans made by Summit and
Lakeview to Vernon Valley had matured and were
immediately due and payable. Vernon Valley failed
to fully pay the loan obligations which
constituted a material default under the Vernon
Valley loan documents, and together with the
filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the
Vernon Valley loan documents.
As part of the original loan transactions, Mr.
Mulvihill and Mr. Stanley and Robert Holuba (the
"guarantors") guaranteed the Summit and Lakeview
loans. The payments made by the Company to Summit
and Lakeview were made in connection with a
limited forbearance agreement for which the banks
agreed to forebear from exercising their
respective rights and remedies under the Vernon
Valley loan documents.
In connection with the settlement relating to the
Great American bankruptcy, the Company satisfied
the full settlement of the claims, liens
and security interests of Summit and Lakeview in a
manner that permitted the assets of the Great
American entities contemplated by the MOU to be
sold in a Section 363 sale and the proceeds of
such sale to be free and clear of all liens,
claims and encumbrances.
S-30
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
12. Common Stock
In November, 1995, the Company's Board of
Directors authorized the purchase of up to
2,000,000 shares of its' Common Stock by the
Company with established limits. The shares
acquired will be held as treasury shares. During
the fiscal years ended September 30, 1997 and
1996, the Company repurchased (excluding the
943,411 shares repurchased from Ms. Evers-Tierney
described below) 407,235 shares of its Common
Stock at an average price of $1.43 per share.
On July 30, 1997, the Company entered into an
agreement to purchase and accept by assignment
from Public Loan Company, Public Loan Company's
entire right, title and interest in a loan in the
principal amount of $1,668,300 and accrued and
unpaid interest of $1,302,717. The loan is
collateralized by certain land on top of the
Vernon Valley/Great Gorge ski areas. The purchase
price of the loan was comprised of 800,000 shares
of the Company's common stock and an interest free
note in the principal amount of $540,000 payable
in 36 equal monthly installments of $15,000
commencing June 15, 1997. The loan was discounted
to $450,000 and yields an effective interest rate
of 12.25%. In connection with the issuance of the
800,000 shares, the Company has agreed to
repurchase 500,000 shares in the event Public Loan
Company is unable to sell 500,000 shares at $3.00
per share over a twelve month period following the
full execution of the agreement or the delivery of
the shares to Public Loan Company, whichever is
earlier, then in that event, the Public Loan
Company shall have an option over the following
twelve months to require the Company to repurchase
the 500,000 shares from Public Loan Company at
$3.00 per share over a two year period commencing
on the date Public Loan Company exercises this
option in such amounts as Public Loan Company and
the Company mutually agree, provided, however,
such shares are fully repurchased within the said
subsequent two year period and Public Loan Company
repurchases such number of shares on a monthly
basis such that the proceeds payable to Public
Loan Company by the Company are not less than the
sum of $62,500.00 per month, thereby resulting in
Public Loan Company receiving the sum of
$1,500,000 from the Company.
On September 22, 1997, the Company entered into a
loan agreement with an unaffiliated party in the
principal amount of $700,000. Pursuant to the
loan agreement, the amount owed by the Company is
collateralized by a second mortgage on
substantially all of the Company's assets. The
loan bears interest at 12.25% and is due and
payable on February 19, 1998. As additional
consideration, the Company issued 150,000 shares
of its common stock to the lender.
In lieu of a severance payment and in appreciation
for her services in developing the System, the
Board of Directors had agreed in principle with
Ms. Evers-Tierney that in the event of
consummation of the proposed sale of the System,
the Company would repurchase all of the shares of
the Company's Common Stock owned by Ms. Evers-
Tierney, her son and her husband, at a price equal
to the "book value" of such shares computed as of
the first business day after the Closing. The
determination of "book value" would be made by the
Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and
taxes incurred in connection with the sale, but
without deducting any severance payment
obligations to Ms. Evers-Tierney (which were
waived) or the stock repurchase obligation to Ms.
Evers-Tierney and her family. As a result, pro
rata payment was made to Ms. Evers-Tierney and her
family. Ms. Evers-Tierney and her family had the
right to obtain part of such payments in
PriCellular notes. During fiscal 1996, the Company
purchased an aggregate of 943,411 shares of the
Company's Common Stock from Ms. Evers-Tierney and
her family at a purchase price equal to
approximately $500,000 in cash and 182,500 shares
of PriCellular Common Stock of which 50% was
allocated to the purchase of Treasury stock and
50% as a cost in connection with the sale of the
System. With the exception of the above described
payments to the Company's former president and
members of her family, no portion of the sale
proceeds were distributed directly to the
Company's shareholders.
S-31
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
12. Common Stock (continued)
Non-qualified Stock Option Plan and Option to
Purchase Common Stock
The Company has adopted a non-qualified stock
option plan and reserved 125,000 shares for
issuance pursuant thereto. Options are non-
transferable; expire if not exercised after five
years; may not be exercised until after the
completion of one year of service with the Company
by the employee; are exercisable at the rate of
one-fifth of the shares optioned per year and are
issuable to employees in such amounts and at such
prices as determined by the Board of Directors,
provided that no single employee may be granted
options to purchase more than 7,500 shares and
persons owning more than 10% of the Company's
outstanding shares are excluded from participation
in the plan. Options are protected against
dilution resulting from stock recapitalization.
As of September 30, 1997, no options had been
issued under the plan.
13. Business Acquisition
On February 1, 1996, the Company, through its
wholly owned subsidiary, Diamond Leasing, pursuant
to a pledge agreement, acquired 100% of the
outstanding common stock of Resort Club. The
acquisition has been accounted for as a purchase,
and, accordingly, the net assets and results of
operations are included in the Consolidated
Financial Statements, for financial reporting
purposes, beginning in February, 1996. Resort
Club is engaged in the business of offering
membership interests in the Great Gorge Resort to
the general public. The membership entitles the
member to the use of certain amenities such as
skiing, admission to a summer participation theme
park known as "Participation theme park", a
health club and other forms of outdoor recreation
on certain leased lands. The accommodations are
provided in the form of condominiums.
In connection with the $2,000,000 loan extended by
PriCellular to DCI on April 7, 1995 in
anticipation of the execution of the Asset
Purchase Agreement (See Note 2), an aggregate
$1,417,598 of the loan proceeds were applied by
the Company through its wholly owned subsidiary
Diamond Leasing to the extension of a loan to
Resort Club. The Resort Club loan was repayable
on April 20, 1996, together with interest thereon
at an annual rate of 18% and payable quarterly
(said loan was extended for a period of one year
to April 20, 1997 and again extended for an
additional one year term to April 20, 1998).
On October 16, 1995, the Company entered into a
second loan agreement with Resort Club whereby the
Company through its wholly owned subsidiary,
Diamond Leasing, provided an additional loan
facility of $2,300,000 on terms substantially
similar to the previous loan agreement with Resort
Club. The loan was due and payable on October 16,
1996 (said loan was extended for a period of one
year to October 16, 1997 and further extended to
October 16, 1998).
On February 1, 1996, Diamond Leasing entered into
a third loan agreement with Resort Club, whereby
it provided an additional loan facility of
$4,000,000 on terms substantially similar to the
previous loan agreements with Resort Club. The
loan is due and payable on February 1, 1997 (said
loan was extended for a period of one year to
February 1, 1998).
S-32
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
13. Business Acquisition (Continued):
As additional consideration in connection with the
above financing, Diamond Leasing acquired certain
interests in Resort Club, subject to the
satisfaction of certain conditions. In this
regard, on February 1, 1996, the Company, through
its wholly owned subsidiary, Diamond Leasing,
pursuant to a pledge agreement, acquired 100% of
the outstanding common stock of Resort Club. As
of September 30, 1997, the Company's primary
business operations are in connection with the
sale of membership interests through Resort Club.
Diamond Leasing acquired all of the common stock
of Resort Club from Whitehorse Enterprises, Inc.,
a non-affiliated entity.
14. Subsequent Events (Unaudited) Not Covered By
Independent Auditor's Report
On September 22, 1997, the Company entered into a
loan agreement with an unaffiliated party in the
principal amount of $700,000. Pursuant to the
agreement (see Note 10), the loan was due and payable
on February 19, 1998. The loan was paid in full on
February 19, 1998.
On July 10, 1997, the Company and its wholly owned
subsidiaries Resort Club and Diamond Leasing
entered into an agreement which outlined a
settlement agreement between Great American,
Praedium and Mr. Gene Mulvihill and entities
affiliated with Mr. Gene Mulvihill including and
Company in connection with the Great American
bankruptcy. Pursuant to the terms of the
agreement, the Company and its affiliates were
required to make certain contributions and
received certain benefits. The effective date of
confirmation of the Great American plan of
reorganization was October 16, 1997 (see Note 3).
In connection with Resort Club's obligation under
the MOU with respect to the issuance of the Resort
Club Notes and Resort Club Unsecured Creditors'
Note, Resort Club recorded approximately $5.0
million of indebtedness in the first
quarter of fiscal 1998 which represented the
approximate discounted value of these obligations.
The entity presently providing Resort Club members
with admission to its summer participation theme
park and skiing facilities is Great Gorge Resorts,
Inc. ("Resorts"), a subsidiary of Intrawest
Corporation ("Intrawest"), which owns and
operates the summer participation theme park and a
winter recreational ski area in Vernon Township,
Sussex County, New Jersey. Resorts completed the
purchase of the ski area and the summer
participation theme park on February 17, 1998 from
Angel. Angel, an affiliate of Praedium, purchased
the summer participation theme park and skiing
facilities pursuant to a section 363 sale under
the Federal Bankruptcy Rules whereby the summer
participation theme park and ski area were
purchased "free and clear" of all liens from
Great American.
On February 19, 1998, the Company, along with
certain entities affiliated with Mr. Gene
Mulvihill, completed the sale of certain assets to
Intrawest pursuant to an Asset Purchase Agreement
dated December 31, 1997 and subsequently amended
on February 5, 1998. Pursuant to the agreement,
the Company agreed to enter into a non-compete
agreement whereby it agreed to stop selling
membership interests within a designated vicinity,
specifically Great Gorge Village. Management
believes that there is sufficient condominium
inventory in the Great Gorge Resort Area such as
Seasons Hotel, Hidden Valley ski area and
neighboring facilities to fulfill its long-term
operational objectives.
S-33
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
14. Subsequent Events (Unaudited) Not Covered By
Independent Auditor's Report (continued)
Management believes that the entry of Intrawest
into the Great Gorge Resort will
significantly increase the existing members'
satisfaction which will increase member referrals.
In addition, since Resort Club is a multi-site,
points based vacation club, Resort Club can sell
inventory in South Carolina or Brigantine, New
Jersey and continue to utilize the Intrawest draw
in Vernon.
Management also believes that due to the
deteriorating conditions of the Great Gorge Resort
during the summer of 1997 and the winter of 1997/1998
has had a devastating impact on Resort
Club's ability to sell membership interests, it
was necessary that a professional and experienced
operator take over the operations of the Great
Gorge Resort. Management believes that unless a
professional and experienced operator managed the
Great Gorge Resort, Resort Club would have been in
jeopardy of maintaining its operations.
On or about March 13, 1998, three Indenture
Trustees representing bondholders in the Great
American bankruptcy filed a complaint to revoke
the order of confirmation entered September 16,
1997. The complaint was filed against certain
parties involved with the Great American
Reorganization. Although management believes
there is no merit to the claims made by the
Indenture Trustees, the cloud over the Resort
Club, which this complaint has created, has caused
severe harm to the Resort Club and may have a
material impact on the Resort Club and Stonehill
Recreation's operations. As a result, the Company may
restructure or divest its interests in these entities.
S-34
78
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1997
FORM 10KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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