UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDED FORM 10-KSB
Annual report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the fiscal year ended March 31, 1997
0-21337
(Commission File Number)
GOLF VENTURES, INC.
(Name of Small Business Issuer in Its Charter)
UTAH 87-0403864
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
345 North 2450 East, St. George, Utah 84790
(Address of Principal Executive Offices) (Zip Code)
(435) 628-8142
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended March 31, 1997 were $274,000.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 30, 1997 was $ .
The number of shares outstanding of the issuer's common equity, as of
September 30, 1997 was 2,925,066 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
<PAGE>
PART I
Item 1. Business.
General Information About the Company
Golf Ventures, Inc. ("GVIM" or "the Company") is a Utah
corporation formed in 1983, although it first began its current business plan
under its current name in 1993. GVIM is primarily engaged in developing certain
residential and recreational real estate projects.
Until August, 1997, GVIM's principal corporate offices were
located at 102 West 500 South, Suite 400, Salt Lake City, Utah 84101, space that
the Company shared with its current principal shareholder, American Resource and
Development Company, Inc. ("ARDCO"). During this period of time, the Company was
under the day to day direction and control of the President of ARDCO, as would
be the case with many companies which, like the Company, are a majority
controlled subsidiary. Improper actions were taken by ARDCO in connection with
the Company, and legal proceedings have been brought against the former
President of ARDCO, which are described later in this report (See LEGAL
PROCEEDINGS). During calendar 1997, current management of the Company, together
with new outside legal counsel, have been engaged in efforts to rehabilitate the
Company, to distance the Company from ARDCO to the extent legally possible, and
to negotiate a strategic reorganization of the Company to bring in a more
experienced and deeper management team and to bring additional assets and
opportunities to the Company to allow it move forward in a new and healthy
direction. As a step in this process, in August 1997, the Company moved its
principal corporate office to 345 North 2450 East, St. George, Utah 84790 to
more closely monitor development of the Company's real estate development
projects, all of which are presently located in the St. George area, to reduce
overhead costs, and to physically separate the Company from ARDCO.
The Company's new telephone number is (435) 628-8142.
As another step in the above process, in August, 1997 the
Company signed a reorganization agreement with U.S. Golf Communities, Inc., ("US
Golf") of Orlando, Florida. The reorganization calls for the Company to issue
approximately 26,000,000 new shares of its common stock, which will represent
81% of the issued and outstanding common stock of the Company immediately
following closing of this transaction, currently scheduled for November, 1997.
The Company will acquire 100% of the outstanding common stock of US Golf, and
will thereby acquire all of US Golf's golf courses and related residential
communities in the eastern United States. This change in control of the Company,
which is a known result of the US Golf transaction, will result in the current
shareholders and management of US Golf taking effective control of the Company,
with the Company's current shareholders retaining 19% of the resulting larger,
combined company. Duane H. Marchant, the Company's President, will take a
subordinate management position with the larger, combined company.
2
<PAGE>
The Shareholders of the Company will be asked to approve an
increase in the number of authorized common shares at the Company's annual
shareholders meeting in 1997. (A more detailed discussion of the US Golf
transaction and concerning US Golf itself will be contained in the Company's
Proxy Statement issued in connection with the 1997 Shareholders Meeting.) This
increase in authorized common shares is needed to fulfill the Company's
obligation under the US Golf reorganization agreement. If the Shareholders fail
to approve the increase in authorized common shares, the Company may conclude to
renegotiate the US Golf reorganization agreement to allow the Company to utilize
other consideration to consummate the transactions, including, for example,
voting preferred stock.
There is no assurance that the Shareholders will approve this
increase in authorized common stock, or that the US Golf transaction will close
and be consummated.
There is no provision in the Company's articles of
incorporation or bylaws that would impede or prohibit this, or any other, change
in control of the Company.
In February 1996, the Company reverse-split its outstanding
shares by a factor of 1 share for every 5 shares then outstanding. As of
September 30, 1997, the Company had 2,101,723 shares of its common stock issued
and outstanding, compared to 25,000,000 shares of common stock which is
authorized in the Company's Articles of Incorporation, as amended. When used in
this Report, all references to numbers of shares of the Company's common stock
in any transaction, regardless of the date of the transaction, are expressed in
post-reverse split numbers.
At the end of its fiscal year 1997, GVIM had three full time
and one part time employees. As of September 30, 1997, the Company dropped to
three full time employees.
The Company's Real Estate Development Program -- General
In 1990, ARDCO acquired a 616 acre parcel of land that was
available for development near St. George, Utah. In 1991, ARDCO purchased two
residential real estate developments in St. George for condominiums, cottages,
and single family dwelling lots known, respectively, as Cotton Manor and Cotton
Acres.
In 1992, ARDCO sold all of its undeveloped 616 acres in St.
George, and its Cotton Manor and Cotton Acres developments to the Company in
exchange for 654,746 shares of GVIM common stock, which represented
approximately 86% of the Company's total outstanding shares at the time. The
Company also assumed $4,338,319 of debt in connection with the acquired ARDCO
property. (This debt is described in more detail below.) No changes took place
in the accounting policies of GVIM as a result of this change in control of the
Company.
3
<PAGE>
In 1994, The Company named its 616 acre parcel of undeveloped
land the Red HawkTM International Golf & Country Club ("Red HawkTM"). On June 1,
1994, GVIM acquired an additional 54 acres of land adjacent to Red HawkTM for
future development.
Although the real estate market in the St. George, Utah area
is extremely competitive, the Company believes that it is well positioned in
terms of pricing and location with respect to the Cotton Manor and Cotton Acres
projects such that it can compete effectively. With respect to Red HawkTM, the
Company will require significant additional financing for development (see "RED
HAWK", below), after which management believes Red HawkTM will offer competitive
values to interested club members and residence buyers.
Other than with respect to the US Golf transaction, discussed
briefly above, the Company has no plans to acquire additional real estate
projects in the near term, and will focus energy and resources on developing and
exploiting its current projects.
The decision of the Company to reorganize with US Golf, as
discussed earlier in this Report, was made in large part to take advantage of US
Golf's greater experience and connections in developing large golf course
communities like Red HawkTM. There can be no assurance that the Company will be
able to acquire the needed financing on terms and conditions which will allow
the Company to effectively and profitably develop Red HawkTM, Cotton Manor or
Cotton Acres.
RED HAWKTM
Red HawkTM is a master-planned residential golfing and
recreational community situated on 670 acres of land that, when completed, will
include more than 945 building lots, a 27 hole golf course, tennis courts,
swimming pools, and other recreational amenities. Red HawkTM is located in
southwest Utah, three (3) miles southeast of St. George in the City of
Washington, approximately 120 miles from Las Vegas, Nevada, and within a short
drive of several national parks including Zion National Park and Bryce National
Park. Red HawkTM is situated on rolling farm land surrounded on three sides by a
horseshoe of rolling hills.
Land and Debt
As noted earlier, in 1990, the Company's current largest
shareholder, ARDCO, purchased the first 487 acres of Red HawkTM from Dr. Karl F.
Stucki and Mrs. Marcia C. Stucki, Trustees of the Karl F. and Marcia C. Stucki
Income Trust (the "Stuckis"). The purchase price of this property was
$3,000,000, which included a trust deed note (the "Stucki Note") for $2,865,000
bearing interest at 10% and secured by the land. The note called for monthly
payments until January 1994, when the Stucki Note was to be paid in full.
After acquiring this property and assuming the Stucki Note
from ARDCO, the Company renegotiated the Stucki Note in early 1994 and again in
July, 1996 to extend the balloon due date to May 15, 1998. This renegotiation
4
<PAGE>
provided for the partial release to the Company of approximately 200 acres of
the Red HawkTM property securing the Stucki Note as and when the Company pays
down the Stucki Note to the extent of $6,500 per each of these 200 acres, and
after the Company completes certain agreed development expenditures on the land.
The Company paid a lump payment of $75,000 in July 1996 and agreed to pay
$25,000 per month through May 15, 1998, after which time the entire balance of
the Stucki Note will be due and payable. As of August 31, 1997 all payments on
the Stucki note are current and a balance of approximately $2,215,000 remains
outstanding on the Stucki Note, inclusive of principal and accrued interest.
GVIM owns two additional parcels of land contiguous to the
487 acres securing the Stucki Note. The first parcel, consisting of
approximately 129 acres, was acquired by ARDCO from an unaffiliated third party
for $625,000, paid by delivery of 260,000 shares of ARDCO's common stock and a
note for the remainder of the purchase price. The Company acquired this land
from ARDCO in 1992 and assumed the purchase price note. This note has been paid
in full.
The second parcel, consisting of 54 acres, was purchased by
the Company on June 1, 1994 from an unaffiliated third party, for a purchase
price of $500,000 and 600 shares of the Company's common stock. Because of its
location, this 54 acre parcel is planned for higher density multiple unit
residence and commercial development.
The terms of the purchase were $25,000 cash down, $25,000
payable 90 days from closing, and annual payments of $100,000, with interest
accruing at a rate of 8% per annum. The first payments were timely made, but the
first annual payment of $100,000 was paid not paid when due on July 4, 1995. In
1996, the Company brought the note current and reduced the outstanding principal
balance to $359,370. However the Company missed the July 1997 payment and to
date has not had the cash to bring this note current. The Company hopes that the
US Golf transaction, discussed earlier, will provide improved access to needed
cash resources to preserve this land in the Company and to develop its profit
potential.
On June 30, 1996 GVIM borrowed $2,000,000 from Miltex
Industries of Geneva Switzerland, ("Miltex"), and secured the Company's note for
this amount with a trust deed against Red HawkTM. These funds were borrowed to
commence construction at Red HawkTM. By the end of 1996, the Company had
borrowed an additional $1,238,805 from Miltex. Miltex and the Company agreed to
include all of the current outstanding loan balance of $3,238,805 in the
original trust deed note. The Miltex Note requires monthly interest payments at
the rate of 10.5% per annum through June 10, 1999, at which time the entire
principal balance (together with accrued and unpaid interest) is due and
payable. In August, 1997 Miltex agreed to accept 28,340 shares of the Company's
Class B Preferred stock in payment of $141,700 of accrued interest for the
months of January through May, 1997. The Company failed to pay interest in June,
July, August or September 1997. Interest due and payable on the Miltex Note at
September 30, 1997 was approximately $100,000. To date Miltex has not taken any
action to declare a default or to foreclose on its trust deed against Red
HawkTM. Moreover, as of August 31, 1997 GVIM had borrowed an additional $476,660
5
<PAGE>
from Miltex on the same terms and with the same collateral security as the
$3,238,805 borrowing described above.
In May, 1994 the Company borrowed $250,000 from the Foss
Lewis Profit Sharing Plan. The loan is secured by a second trust deed on the
same acreage at Red HawkTM that is securing the Stucki Note, a trust deed
against the Company's fee simple interest in the 129-acre parcel, discussed
above, and 50,000 shares of GVIM common stock. The outstanding balance of this
loan at June 30, 1997 was $89,383. Although the Foss Lewis Note was due and
payable on May 31, 1995, the holder has verbally agreed to extend payment and
has taken no action to collect or foreclose its trust deeds. Currently there is
approximately $90,000 still due to the Foss Lewis Profit Sharing Plan. The
Company expects that the US Golf transaction, discussed above, will enable the
Company to pay off this loan and thus preserve the Company's rights in the
pledged acreage, but can make no assurances in that regard.
Current Developments and 12-Month Business Plan
The final plat for Red HawkTM will be recorded upon
installation of all improvements and/or bonding for the same for Phase I. The
Company believes that no other permits or authorization are required until after
filing of the final plat for Phase I, at which time building permits will be
obtained from Washington City. Nine (9) reservations have been taken for
residential lots in Red HawkTM to date.
In late 1996, Washington City completed construction of a
storage tank for culinary (drinking) water in close proximity to Red HawkTM,
together with a water pumping station and delivery lines which run through Red
HawkTM. As a result, the Company believes that Red HawkTM will have an adequate
supply of culinary water available. The cost to GVIM for this water line was
$130,000, which has been paid.
In July 1996 Granite Construction broke ground on Phase I at
Red HawkTM. Phase I will consist of the development and sale of 102 estate lots,
7 cottages, 5 corporate villas, and construction of the first 18 holes of the
golf course, a double driving range, irrigation, lakes and infrastructure for
utilities. By the end of November 1996, Granite had moved approximately 900,000
cubic yards of dirt, excavated eight (8) lakes, roughed in eighteen holes of the
golf course, graded the sites for the 102 residential lots, installed sewer
laterals to the lots and graded the major roads in Phase I of the project.
Granite was paid $1,981,681 for its work, and the Company called an end to
Granite's efforts in November 1996 as a result of lack of funds.
GVIM contracted with Crown Golf to do the finish grading on
the golf course. Crown has been paid $35,817 and is owed approximately $235,000
as of September 30, 1997. Crown was called off this project in February, 1997,
when the Company stopped construction at Red HawkTM until additional funding can
be obtained on terms and conditions satisfactory to the Company.
6
<PAGE>
While management looks to the US Golf transaction as a source
of improved funding capabilities for the Company at Red HawkTM, there is no
assurance that the US Golf transaction will close or that it will yield the
benefits hoped for by the Company. The Company will continue its efforts to
obtain sufficient long term financing to complete development of Phase I at Red
HawkTM, and thus to begin cash flow from sales of interests in the development.
Assuming adequate financing can be obtained on satisfactory terms and
conditions, the Company believes that Phase I construction at Red HawkTM could
be completed within six months of the start of that financing at a total cost of
approximately $5,700,000. Additionally, a sewer line will need to be brought to
the property. Washington City owns and is responsible for sewer lines, and the
Company must negotiate with Washington City with respect to the construction of
and payment for the sewer line. Construction costs are estimated to be
approximately $1,000,000 for the off-site sewer, as per independent bids
received by the Company. The Company estimates that an additional $135,000 will
be required for construction of a gas line based on preliminary estimates
received from the gas company. There is a possibility that future expenditures
for on-site electric power will be necessary, although this has not been
determined and no estimates of costs will be obtained until future demands are
assessed. There can be no assurance that additional development costs will not
be incurred or that such additional costs will not be material. The Company has
estimated the future development costs just recited based upon the prior real
estate development experience of management. This experience and business
judgment may not prove accurate as actual results invariably deviate from
estimates.
COTTON MANOR AND COTTON ACRES
In 1991, ARDCO purchased from Property Alliance, for an
aggregate purchase price of $2,592,050, two real estate developments located in
St. George, Utah consisting of approximately 80 contiguous acres, including an
existing condominium development known as Cotton Manor and a single residence
development known as Cotton Acres. At the time of the acquisition, the two
developments consisted of both developed and undeveloped property. On December
31, 1992, the Company purchased Cotton Manor and Cotton Acres from ARDCO and
assumed the related liabilities, including ARDCO's outstanding obligations to
Property Alliance.
Cotton Manor, a 19-acre development, currently includes 28
completed condominiums (one two-story building with 16 units and three one-story
four-plexes) and recreational facilities including swimming pool, tennis courts,
and a putting green. Bruce Frodsham, Company Vice President and project manager,
lives at Cotton Manor and is responsible for the maintenance and upkeep of the
Cotton Manor recreational amenities and landscaping. Cotton Manor residents pay
a monthly fee to support the maintenance. The Company maintains property and
liability insurance on the Cotton Manor project at a cost of approximately
$6,000 per year.
Cotton Acres is a 61 acre development consisting of 259 lots.
200 lots in Phases I-IX have been sold and dwelling units on such lots have been
completed. Development of Phase X, consisting of 19 lots has been completed at a
cost of approximately $165,000. The contractor making the improvements on the
7
<PAGE>
Phase X lots financed the Company's cost at 12% interest. The balance of
principal and interest due the contractor has been paid in full from the
proceeds from the first Phase X sales. All Phase X lots have been sold or
pre-sold with a deposit and should close during the first six months of 1998.
Land and Debt
ARDCO's purchase of Cotton Manor and Cotton Acres from
Property Alliance called for $23,601 cash down and the payment of several
promissory notes as follows: (i) a promissory note to a third party with an
outstanding balance of $277,304, payable $30,000 per year; (ii) a promissory
note to a third party with an outstanding balance of $101,145, which has been
paid in full; (iii) a Special Improvement District (SID) obligation estimated at
$53,000, of which $36,000 has been paid through June 30, 1997; and (iv) a trust
deed note to Property Alliance in the principal amount of $1,387,000, bearing
interest at the rate of 10% per annum, which note is secured by a trust deed
covering the two groups of properties. Principal on the trust deed note was
payable in six annual installments of $120,000 through February 1, 1997 plus a
balloon payment of the remaining principal, and interest was payable in shares
of ARDCO common stock. ARDCO was also required to pay down the principal of the
trust deed note with 75% of the proceeds from each sale units at Cotton Manor or
Cotton Acres, and with $2,000 from the sale of each Red HawkTM lot. In addition,
ARDCO issued 150,000 shares of its Series C Convertible Preferred stock (valued
at $5.00 per share or $750,000) to Property Alliance as part of the purchase of
this land.
Both ARDCO and, later, the Company failed to make timely
payments as required to and for the benefit of Property Alliance. After
negotiations, Property Alliance, ARDCO and the Company agreed in June, 1994 to
extend the due date of the first four annual payments on the trust deed note
(aggregating $480,000) until July 31, 1995, and the Company agreed to make
mandatory prepayments on the trust deed note of $5,000 (rather than $2,000) for
each Red HawkTM lot sold by GVIM. In addition, GVIM agreed to pay Property
Alliance, as a mandatory prepayment on the trust deed note, $175,000 from the
first $1,000,000 of long term financing proceeds the Company secures for
development of Red HawkTM.
As of September 30, 1997 the Company has not made the required
$120,000 annual payment for 1997 due to poor cash flow from low real estate
sales. Accrued interest, payable at the option of the Company in its common
stock, was $486,131 as of August 31, 1997. The trust deed note has a current
principal balance due of $646,502. The Company plans to use proceeds from sales
in Cotton Manor and Cotton Acres to satisfy the trust deed note, and looks to
the US Golf transaction as a source of improved financial resources to meet the
Company's obligations and to preserve the Company's rights in its real
properties, such as Cotton Manor and Cotton Acres. There can be no assurance
that the US Golf transaction will bring such funding resources to the Company,
or that the US Golf transaction will be consummated. There also can be no
assurance that sufficient closed sales from Cotton Manor and/or Cotton Acres
will occur soon enough, or at all, to enable the Company to satisfy its
obligation to Property Alliance and avoid losing these developments in
foreclosure.
8
<PAGE>
The Company's main business plan is focused on Red HawkTM, and
the loss of Cotton Manor and/or Cotton Acres, while material adverse events,
would not necessarily toll the end of the Company or its operations.
Current Developments and 12 Month Business Plan.
The Company currently intends to build an additional 102
cottages as marketing of the Cotton Manor project develops. Each cottage is part
of a single, detached planned unit development (PUD). In Phase III, two cottages
have been completed. One Phase III cottage has been sold while the other, built
and financed by the Company, is being used as a model, sales office and, since
the end of August, 1997, as the executive offices of the Company. Development of
the 19 lots in Phase IV has been completed at a cost of Approximately $11,700
per lot. Two Phase IV lots have been sold and cottages have been built. One lot
was purchased by Bruce Frodsham, Company Vice President, at the Company's offer
price of $15,000. Mr. Frodsham has built a home on the lot at his cost. The
other Phase IV lot was transferred to George Badger, the former President of
ARDCO, to enable Mr. Badger to get a loan to finance a home on the site for
entry by the Company in a home show. The Company's entry won the show award.
Currently, Mr. Badger is paying the indebtedness on the property and lives there
from time to time. The Company is seeking the cost of the lot from Mr. Badger as
part of the settlements with Mr. Badger and ARDCO discussed elsewhere in this
Report.
GVIM is actively marketing its Cotton Manor cottages and
believes that the initial 19 cottages can be sold within approximately two
years. Building permits will be obtained from the City of St. George as needed.
Following the sale of the 19 units in Phase IV, GVIM intends to commence
developing and marketing additional Phases.
Management anticipates that the development and sale of the
lots from all of the remaining phases of Cotton Acres should be completed within
two years, although there can be no assurance that market conditions will allow
for this schedule.
Item 2. Properties.
Prior to August 1997 the Company's executive offices were located at
102 West 500 South, Suite 400, Salt Lake City, Utah 84101. This office facility
consisted of approximately 2,150 square feet, and the Company was paying $2,229
for the space on a month-by-month basis at the time it moved its executive
offices to St. George, Utah. The Company and ARDCO shared this leased space
based on an oral agreement pursuant to which the Company paid the rent and
certain related overhead charges for both companies, while ARDCO paid the salary
of some of the Company's employees, who also provided part-time services to
ARDCO. Historically, the value of the rent and overhead charges paid by the
Company attributable to ARDCO's use of the leased space have been approximately
equal to the value of the services provided by the Company's employees which
were paid by ARDCO, however no exact accounting has been maintained.
9
<PAGE>
During August 1997 the Company moved its executive offices to a
Company-owned home in the Cotton Manor development to cut costs, to bring
management closer to the Company's assets and operations, and in an effort to
distance the Company from ARDCO. The offices are now located at 345 N. 2450 E.,
St. George, Utah 84790. The Company has a mortgage on the home with a payment of
$1006.00 per month.
The Company's investment real estate holdings are comprised of the Red
HawkTM recreational and residential development consisting of approximately 670
acres near St. George, Utah, described above; and two residential developments
in St. George, Utah aggregating approximately 80 acres known as Cotton Manor and
Cotton Acres, also described above. See "Item 1. Business." for a more detailed
description of these properties.
Management believes that the Company's properties are adequately
insured given their current state of development.
Item 3. Legal Proceedings.
The Company is presently involved in the following pending
litigation:
a. On November 21, 1995, the Complaint was filed against the
Company in the Superior Court of Portland County, Georgia,
under the caption Sam Benlow, Inc. n/k/a Financial Information
Network, Inc. v. Golf Ventures, Inc. Civil Action #B-43620.
The Complaint sought payment of $21,141 allegedly due for
services rendered in an advertising campaign. The Company
negotiated a settlement whereby the matter was dismissed in
exchange for the issuance of 4,000 shares of the Company's
common shares, which would be covered by an S-8 registration
statement. To date, such shares have not been delivered and
the foregoing S-8 registration statement has not been filed.
The Company anticipates that this matter will be finally
resolved in the near future.
b. On October 10, 1996, a criminal complaint was filed in the
Southern District of New York against George Badger, then the
President of ARDCO, and thus a "control person" of the
Company. Mr. Badger was indicted on a number of charges and
was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. It is the
understanding of the Company that the indictment related to
alleged unlawful and undisclosed compensation to securities
brokers and promoters to induce them to cause customers to
purchase securities issued by ARDCO and the Company. The
Company has learned that Mr. Badger has pleaded guilty to
counts of: (i) conspiracy to commit securities fraud; (ii)
securities fraud; (iii) criminal contempt; and (vi) perjury.
On August 7, 1997, the Commission issued another subpoena
duces tecum, to GVIM requesting that GVIM produce all minutes
and other documents relating to meetings of the Company's
Board of Directors held during the period of January 1, 1993
10
<PAGE>
through that date. The Company intends to continue to
cooperate fully with the Commission in its investigation.
c. On March 12, 1997, the Company received a subpoena duces tecum
from the Commission to produce certain original documents and
to testify in the Commission's investigation regarding Trading
in Certain Over-the-Counter Securities ("NY-6375") pursuant to
a formal order issued by the Commission under Section 20(a)
under the Securities Act of 1933 and Section 21(a) of the
Securities Exchange Act of 1934. The requested documents
related to the Company's loans or other forms of financing or
credit obtained or sought by the Company and all
correspondence between the Company and the various funding
entities. On July 25, 1997, the Company President and its
Secretary received subpoenas duces tecum from the Commission,
and on August 7 and 8, such officers testified before the
Commission in New York.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended March 31, 1997.
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter
market on the NASDAQ Electronic Bulletin Board under the symbol "GVIM." The
Company intends to apply to have its common stock listed for trading on the main
National Association of Securities Dealers Automated Quotation System (NASDAQ)
as soon as it meets the requirements for such listing, although there is no
assurance that such listing will be obtained.
The following table represents the range of high and low bid quotations
for the calendar quarters indicated since the first quarter of 1995. Please note
that these prices have all be adjusted for the 1-for-5 reverse stock split
effected February 1, 1996.
Calendar Quarters High Bid Low Bid
1995
1st Quarter 4.75 3.00
2nd Quarter 4.50 2.50
3rd Quarter 3.50 1.50
4th Quarter 2.50 1.00
11
<PAGE>
1996
1st Quarter 6.00 3.75
2nd Quarter 7.25 2.50
3rd Quarter 7.00 5.00
4th Quarter 5.50 2.00
1997
1st Quarter 2.75 1.50
2nd Quarter 2.00 1.25
3rd Quarter 3.75 1.125
The foregoing quotations were obtained from broker-dealers and market
makers who provide daily reports of the NASD Electronic Bulletin Board. The
above quotes reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
As of September 30, 1997, the Company had 2,101,723 shares of its
common stock issued and outstanding, and there were 797 shareholders of record,
which figures do not take into consideration those shareholders whose
certificates are held in "street name" in their brokerage accounts.
As of the date hereof, the Company has not paid or declared any cash
dividends. The Company can give no assurance that it will generate future
earnings from which cash dividends can be paid. Future payment of dividends by
the Company, if any, is at the discretion of the Board of Directors and will
depend, among other criteria, upon the Company's earnings, capital requirements,
and its financial condition as well as other relative factors. Management has
followed the policy of retaining any and all earnings to finance the development
of its business. Such a policy is likely to be maintained as long as necessary
to provide working capital for the Company's operations.
Recent Sales of Unregistered Securities
The following are brief descriptions of sales of securities by the
Company for services, property or cash to support and advance the Company's
business plan. To enable interested persons to better understand these
transactions and their impact on the Company, the Company has elected to report
transactions beginning in 1993 through the current time. Please note that all
numbers of shares have all been adjusted for the 1-for-5 reverse stock split
effected February 1, 1996.
- On January 1, 1993, the Company issued 130,949 shares of common stock to
ARDCO in connection with the Company's purchase of part of the Red HawkTM
acreage known as the Stucki parcel. Based on the knowledge, experience and
economic strength of ARDCO, the Company believes this transaction was exempt
12
<PAGE>
from registration with the Commission under Section 4(2) of the Securities Act
of 1933.
-On May 5, 1994, the Company repaid a $325,819 indebtedness owed to Olympus
Investments by issuing 10,426 shares of common stock. The shares were exempt
from registration under the Securities Act pursuant to Rule 903(c) of Regulation
S promulgated thereunder.
-On May 5, 1994, the Company repaid a $100,000 indebtedness owed to LaJuana
Badger, the wife of George Badger, at that time President of ARDCO, by issuing
3226 shares of its common stock to Ms. Badger. Based on the knowledge,
experience and economic strength of Mrs. Badger, as advised by her husband, the
Company believes this transaction was exempt from registration with the
Commission under Section 4(2) of the Securities Act of 1933.
-On May 5, 1994, the Company repaid a $215,639 indebtedness owed to ARDCO
by issuing 6932 shares of its common stock. Based on the knowledge, experience
and economic strength of ARDCO, the Company believes this transaction was exempt
from registration with the Commission under Section 4(2) of the Securities Act
of 1933.
-On May 5, 1994, the law firm of Harringan, Ruff, Rider & Spardellati
accepted 65 shares of the Company's common stock as full payment for their
outstanding invoices totalling $2,100.00. Based on the knowledge, experience and
economic strength of Harringan, Ruff, Rider & Spardellati, the Company believes
this transaction was exempt from registration with the Commission under Section
4(2) of the Securities Act of 1933.
-On May 5, 1994, Williamsen & Associates, a corporate publicity firm
accepted 800 shares of the Company's common stock as full payment for a then
outstanding $30,000 bill for services rendered to the Company. Based on the
knowledge, experience and economic strength of Williamsen & Associates, the
Company believes this transaction was exempt from registration with the
Commission under Section 4(2) of the Securities Act of 1933.
-On June 24, 1994 the Stucki family agreed to accept 2,000 shares of the
Company's common stock in payment of the then outstanding unpaid interest on the
Stucki Note in connection with Red HawkTM. Based on the knowledge, experience
and economic strength of the Stucki family and their advisors, the Company
believes this transaction was exempt from registration with the Commission under
Section 4(2) of the Securities Act of 1933.
-On June 1, 1994, the Company issued 120 shares of its common stock to
Daniel C. Watson as part of the purchase consideration for a 50 acre plot of
land. Cash in the amount of $500,000 was also paid. Based on the knowledge,
experience and economic strength of Mr. Watson, the Company believes this
transaction was exempt from registration with the Commission under Section 4(2)
of the Securities Act of 1933.
13
<PAGE>
-On June 29, 1994, the Company issued 16,389 shares of its common stock to
Banque SCS Alliance SA to repay a $286,799 indebtedness owed to Banque SCS. The
shares were exempt from registration under Rule 903(c), Securities Act of 1933.
-On March 28, 1995, the Company sold 65,694 shares of its Series B
Preferred Stock for to Banque SCS for $328,401.00. These shares were exempt from
registration under the Securities Act pursuant to Rule 903(c) of Regulation S.
-On June 30, 1995, the Company sold 33,676 shares of its Series B Preferred
stock to Olympus Investments Corp. for $168,382. The shares were exempt from
registration under the Securities Act pursuant to Rule 903(c) of Regulation S
promulgated thereunder.
-On January 23, 1996, the Company issued 567,400 shares of the Company's
common stock to Banque SCS as payment for financial advisory and referral
services provided to the Company. The shares were exempt from registration under
the Securities Act pursuant to Rule 903(c) of Regulation S promulgated
thereunder.
-On January 31, 1996, The Company issued 70,000 shares of its common stock
to Corporate Relations Group, Inc. as payment for promotional, advertising and
market maker services to the Company valued at $350,000. Based on the knowledge,
experience and economic strength of Corporate Relations Group, the Company
believes this transaction was exempt from registration with the Commission under
Section 4(2) of the Securities Act of 1933.
-On March 29, 1996, the Company sold 160,057 shares of its Series B
Preferred Stock to Banque SCS for $800,284. The shares were exempt from
registration under the Securities Act pursuant to Rule 903(c) of Regulation S
promulgated thereunder.
-On June 4, 1996, the Company sold 200,000 shares of its common stock
for cash to investors. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Rule 504 of Regulation D promulgated
thereunder. Net proceeds from the offering were $879,424.
-On July 29, 1996, the Company issued 10,000 shares of its common stock
to Banque SCS to repay a $17,261 indebtedness. The shares were exempt from
registration under the Securities Act pursuant to Rule 903 of Regulation S
promulgated thereunder.
-On September 11, 1996, the Company issued 2,000 shares each to Mark
Qualey and Cambridge Consultants for promotional and advertising services valued
at $12,000. Based on the knowledge, experience and economic strength of these
persons, the Company believes this transaction was exempt from registration with
the Commission under Section 4(2) of the Securities Act of 1933.
14
<PAGE>
-On September 30, 1996, the Company issued 10,000 shares of its common
stock to Banque SCS to repay a $17,260 indebtedness. The shares were exempt from
registration under the Securities Act pursuant to Rule 903 of Regulation S
promulgated thereunder.
-On December 10, 1996, the Company issued 1,804 shares of its Series A
Preferred Stock to George Dalton to satisfy indebtedness of $9,021 owed to Mr.
Dalton. Based on the knowledge, experience and economic strength of Mr. Dalton,
the Company believes this transaction was exempt from registration with the
Commission under Section 4(2) of the Securities Act of 1933.
-On December 30, 1996, the Company issued 27,637 shares of its common
stock to Banque SCS to repay a $138,185 indebtedness owed to Banque SCS. The
shares were exempt from registration under the Securities Act pursuant to Rule
903 of Regulation S promulgated thereunder.
-On August 22, 1997 the Company issued a total of 250,000 shares of its
common stock, in the aggregate, to its officers and to an officer of ARDCO as a
bonus for services rendered and to be rendered to the Company during the
critical period of June-December 1997. Mr. Marchant received 150,000 shares, Mr.
Spencer received 35,000 shares, Mr. Frodsham received 30,000 shares and Karl F.
Badger received 35,000 shares. (The shares of Messrs. Marchant, Spencer and
Frodsham are listed in the table on page 23) The issuance of these shares was
exempt from registration under the Securities Act pursuant to Section 4(2).
Item 6. Management's Discussion & Analysis of Financial Condition &
Results of Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words anticipates, believes, expects, intends, future, and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance or future events or trends. Reliance should not
be place on forward-looking statements because they involve known and unknown
risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
15
<PAGE>
RESULTS OF OPERATIONS
For the Year Ended March 31, 1997, Compared to the Year Ended March 31, 1996.
At March 31, 1997, the Company had total assets of $12,639,500 and
total stockholders equity of $3,747,042 compared with total assets of $6,912,148
and total stockholders equity of $3,341,453 at March 31, 1996. The $5,727,352,
or 83% increase in total assets year-to-year is due primarily to (i) recording
$2,266,104 of the Red HawkTM land as an asset that was not booked as such in
1996, (ii) the capitalization of $2,200,000 in construction costs on Red HawkTM
that were not capitalized in 1996, and (iii) the capitalization of $1,200,000 of
development related interest related to Red HawkTM. Total liabilities at March
31, 1997 increased $5,321,763, or 149%, from $3,570,695 at year end 1996 to
$8,892,458 at year end 1997. The increase is due to (i) recording $2,266,104 of
Red HawkTM debt corresponding to the booking of the Red HawkTM asset, discussed
above, (ii) the loans from Miltex Industries totaling $3,238,805 for
construction and overhead obtained in 1997, and (iii) an increase in current
liabilities of $375,964, explained below.
Total revenue for the fiscal year ended March 31, 1997 ("fiscal 1997")
decreased $460,675, or 63%, to $274,000, compared with $734,675 for the fiscal
year ended March 31, 1996 ("fiscal 1996"). All fiscal 1997 revenue was generated
from the sale of lots at Cotton Acres and condominiums at Cotton Manor. During
fiscal 1997, 9 lots were sold at an average price of $30,400 and no condominiums
were sold. During the comparable prior year period, 20 lots were sold at an
average price of $24,000 and 3 condominium units were sold at an average price
of $84,700. Sales volume is dependent upon the number of completed lots and
condominiums in inventory, as well as demand for the location and type of real
estate being offered. These factors vary from period to period.
During fiscal 1997 the Company's available development capital was used
to preserve and develop Red HawkTM, and no funds were made available to Cotton
Manor or Cotton Acres for development. Therefore no new inventory was available
for sale and sales decreased.
Cost of sales decreased by $354,462, or 69%, to $158,066 for the fiscal
year ended March 31, 1997 from $512,528 for fiscal 1996. As a percentage of
total revenue, cost of sales decreased to 58% in the current year from 70% in
the prior year. This was caused by higher sales prices for existing inventory.
Gross profit decreased $106,213, or 48%, to $115,934 during fiscal 1997 from
$222,147 during fiscal 1996. Gross profit as a percentage of total revenue
increased to 42% from 30% in fiscal 1996, again reflecting lower expenditures on
development.
General and administrative expenses decreased $3,075,561, or 78%, to
$860,289 during fiscal 1997 from $3,935,850 during fiscal 1996. The decrease was
principally attributable to $2,835,000 in financial advisory and referral
expenses incurred in 1996, paid to Banque SCS Alliance SA and others in the form
of shares of the Company's common stock valued at $5.00 per share. These
expenses brought financing sources to the Company and enabled the Company to
raise needed investment capital in Europe. In 1996 the Company also incurred
16
<PAGE>
$350,000 for advertising and promotional services, which was also settled in
shares of common stock valued at $5.00 per share. The stock price used to value
the shares used to pay these two large expenses was determined by the market
value of the Company's stock at the time. These are not expected to be recurring
expenses, their absence in 1997 was the primary difference in expenses for the
two years. The year to year expense decrease was offset somewhat by an increase
in legal fees of $101,687 in 1997, which was a 202% increase in this expense
category. This increase in legal costs was associated with efforts by the
Company to file a Form 10 registration statement with the Commission and efforts
which led to the US Golf transaction, described earlier in Item 1.
The Company had other income of $58,438 during fiscal 1997 compared
with $107,412 during fiscal 1996, a decrease of $48,974, or 46%. The expenditure
of cash caused bank accounts to decline and interest income to also decline.
The Company experienced a net loss of $685,917 in fiscal 1997 compared
with a net loss of $3,606,291 in fiscal 1996. The explanations given for the
lower expenses and revenues also explain the larger loss in 1996.
The Company from time to time has agreed to take one half of the
purchase price of a lot and a note for second half, which is payable upon
completion and/or sale of the home built on the lot, if the Company found such
arrangements to be in the best interests of completing a sale and getting
marketing momentum in the development. There is no policy or rules covering
these arrangements, and these sales are made on an ad hoc basis in the
discretion of the President of the Company. The Company has accounted for these
sales as taking place at the time of the first closing, with income recognized
for the full purchase price with a corresponding receivable entered on the
balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Between 1992 and December 31, 1996, the Company was controlled as a
majority-owned subsidiary of ARDCO. In this connection, ARDCO provided
investment capital to the Company in return for equity shares, both to and from
ARDCO itself and to and from other investors referred to the Company by ARDCO,
including Banque SCS Alliance SA. At the direction of the former president of
ARDCO, who acted during this period as chief executive officer of the Company,
cash from the Company was distributed to ARDCO from time to time as such cash
was available in the Company and as it was needed by ARDCO. The policy imposed
on the Company during this time period was to account for these distributions as
return of capital transactions, and not to provide equivalent distributions to
other shareholders. In 1995, approximately $512,000 was distributed to ARDCO,
and in 1996 approximately $195,000 was distributed. These distributions deprived
the Company of cash that would otherwise be available for debt service on its
properties and the development of the same.
17
<PAGE>
There is a present dispute between the Company, its accountants, and
ARDCO as to the amounts of these distributions to ARDCO over this period of
time, compared to the investments and advances from ARDCO during this same
period of time. In an effort to compromise and cut off this dispute and to clear
the way for the US Golf transaction, the Company has agreed with ARDCO to issue
650,000 restricted common shares in full and complete settlement of claims by
ARDCO against the Company and its officers and directors. In this same
connection, the Company has agreed to issue 250,000 restricted common shares to
the former president of ARDCO as a finder's fee in connection with the US Golf
transaction.
As of March 31, 1997, the Company had total current assets of $961,474
and total current liabilities of $2,536,127 which results in a current ratio of
0.38:1, compared to a current ratio of 0.75:1 as of March 31, 1996. The current
ratio decrease was due to a drop in year end cash of $755,817, or 96%: from
$784,380 at year end 1996 to $28,563 at March 31, 1997. The decrease in cash
reflects the slow down in real estate sales and the decrease in borrowings
during the fourth quarter of 1997. The decrease in cash was offset somewhat by
the increase in real estate inventories from $748,010 to $932,439, due primarily
to the completion of an additional town home in the Cotton Manor development and
the development of an additional 19 lots in Phase X of Cotton Acres.
Current liabilities at March 31, 1997 increased $375,964, or 17% over
the prior year due to a $388,953 increase in accounts payable and a $200,040
increase in accrued expenses related to the ongoing interest accruals on real
estate debt.
The Company has historically satisfied its cash needs through the sale
of real estate in Cotton Manor and Cotton Acres, private placements of
securities and secured borrowings. During 1997, the Company sold $274,000 of
real estate in Cotton Manor and Cotton Acres. This figure is substantially lower
than prior years due to the inability to raise sufficient funds to complete lot
development in Cotton Manor and Cotton Acres, and, in turn, to make sales.
During 1997, the Company borrowed $3,238,805 from Miltex Industries of Geneva,
Switzerland (Miltex). Approximately $2,000,000 of these funds were used to pay
Granite Construction Co. to start the rough grading on the golf course and the
first phase of residential lots at Red HawkTM. Additionally, the Miltex loans
were used to keep the Stucki Note out of default and to pay Company overhead
expenses, including general and administrative expenses. The construction at Red
HawkTM has now stopped until further development money is raised.
The amounts due to Property Alliance have not been paid for several
months, and Property Alliance could declare the Company in default and foreclose
on the acreage securing the repayment of these amounts, described earlier in
this report. Because of the personal relationship between Mr. Marchant and the
management of Property Alliance, forbearance on any declaration of default has
been obtained, largely on the expectations from the US Golf transaction,
described earlier in this report.
18
<PAGE>
Completion of Phase I at Red HawkTM and the sale of Phase I lots will
depend largely on the Company's ability to raise additional funds, preferably
long term financing on acceptable terms and conditions. The Company is pursuing
development loans for Red HawkTM in the $10,000,000 to $14,000,000 range. GVIM
will also continue to develop and sell lots and town homes in the Cotton
Manor/Cotton Acres developments as financing for development there becomes
available. However even if financing were available for Cotton Acres and Cotton
Manor, sales at these projects will not yield enough earnings and free cash to
financially support the Company's overhead and the development or keeping of Red
HawkTM.
The Company's ongoing overhead and land debt obligations are
approximately $75,000 per month. Additionally, GVIM has approximately $900,000
of long-term debt due during fiscal 1998. As noted in Item 1, above, the
development of Phase I at Red HawkTM could be completed within six months of the
receipt of approximately $5,700,000 in development funds. Further Development at
Cotton Acres, in Phases XI and XII, will required approximately $490,000. If the
Company does not receive sufficient long term financing, either through the US
Golf transactions or through other avenues, the Company intends to meet its
obligations at a subsistence level through offerings of common and/or preferred
stock for cash and, and through additional investment-type borrowings. There is
no assurance that these financing sources will be available to the Company in
sufficient amounts or at all.
No assurance can be given that the Company will succeed in obtaining
the significant financing needed for Red HawkTM or for the Cotton Manor or
Cotton Acres developments. As noted elsewhere in this report, the Company is
looking to the US Golf transaction as a means to bring the needed development
capital into the Company to preserve the Company's valuable assets in Red
HawkTM, Cotton Manor and Cotton Acres. No assurance can be given, however, that
the U. S. Golf transaction can be consummated or that the U. S. Golf transaction
will provide access to enough development capital so as to enable the Company to
hold its current development assets and develop the same profitably.
Item 7. Financial Statements and Supplementary Data.
The Following financial statements and documents are filed herewith on
the immediately following pages listed below, as part of Part II, Item 7 of this
report.
Document....................................................................Page
1. Financial Statements and Accounts Report:
Independent Auditor's Report..................................F-1
Consolidated Financial Statements:
Consolidated Balance Sheet...................................F-2-3
Consolidated Statements of Operations and Accumulated Deficit
for the Years Ended March 31, 1997 and 1996...................F-4
19
<PAGE>
Statement of Stockholders' Equity at
March 31, 1997 and 1996......................................F-5-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997 and 1996......................................F-7-8
Notes to Consolidated Financial Statements
Notes 1 through 12............................................F-9
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts............F-16
Schedule X - Supplementary Income Statement Information......F-17
Schedule XI - Real Estate and Accumulated Depreciation.......F-18
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
This item is not applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Golf Ventures, Inc.
We have audited the accompanying balance sheets of Golf Ventures, Inc., as of
March 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for the years ended March 31, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Golf Ventures, Inc., as of
March 31, 1997 and the results of its operations and its cash flows for the
years ended March 31, 1997 and 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has incurred significant losses since
inception, has a substantial working capital deficit, and has debt significantly
in excess of stockholders' equity, all of which raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 7. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules on pages 18 and 19 are
presented for purposes of additional analysis and are not a required part of the
basic consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
Jones, Jensen & Company
Salt Lake City, Utah
June 16, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Balance Sheet
ASSETS
March 31,
1997
CURRENT ASSETS ----------------
<S> <C>
Cash $ 28,563
Real estate inventory 932,439
Current portion of contract receivable 472
----------------
Total Current Assets 961,474
----------------
PROPERTY AND EQUIPMENT
Model home 133,954
Furniture and fixtures 13,106
Computer equipment 2,350
----------------
Total depreciable assets 149,410
Less: accumulated depreciation (2,393)
----------------
Net Property and Equipment 147,017
----------------
OTHER ASSETS
Land held for development (Note 2) 11,475,016
Long-term portion of contract receivable 55,993
----------------
Total Other Assets 11,531,009
----------------
TOTAL ASSETS $ 12,639,500
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
1997
CURRENT LIABILITIES ----------------
<S> <C>
Accounts payable $ 953,072
Accrued expenses and other liabilities 659,735
Current portion of long-term debt (Note 3) 923,320
----------------
Total Current Liabilities 2,536,127
----------------
LONG-TERM DEBT (Note 3) 6,356,331
----------------
Total Liabilities 8,892,458
----------------
STOCKHOLDERS' EQUITY
Preferred stock (10,000,000 shares authorized
at par value of $.001) 24,304 class "A" and 287,064
class "B" shares issued and outstanding (Note 4) 311
Common stock (25,000,000 shares authorized
at par value of $.001) 1,852,828 shares issued
and 1,839,837 shares outstanding (Note 5) 1,853
Additional paid-in capital 8,264,828
Accumulated deficit (4,519,950)
----------------
Total Stockholders' Equity 3,747,042
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,639,500
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Statements of Operations
For the Years Ended
March 31,
1997 1996
INCOME
<S> <C> <C>
Real estate sales $ 274,000 $ 734,675
Cost of real estate sales 158,066 512,528
---------------- ---------------
Gross Profit on Real Estate Sales 115,934 222,147
---------------- ---------------
EXPENSES
Investment banking and financing
services (Note 5) - 3,260,000
Depreciation 2,393 -
General and administrative expenses 857,896 675,850
---------------- ---------------
Total Expenses 860,289 3,935,850
---------------- ---------------
LOSS FROM OPERATIONS (744,355) (3,713,703)
---------------- ---------------
OTHER INCOME (EXPENSES)
Other revenue 29,931 101,877
Interest income 38,649 5,535
Interest expense (10,142) -
---------------- ---------------
Total Other Income (Expenses) 58,438 107,412
---------------- ---------------
NET LOSS BEFORE INCOME TAXES (685,917) (3,606,291)
INCOME TAXES - -
---------------- ---------------
NET LOSS $ (685,917) $ (3,606,291)
================ ===============
NET LOSS PER COMMON SHARE $ (0.38) $ (2.59)
================ ===============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,799,633 1,393,386
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Statements of Stockholders' Equity
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1995 92,694 $ 93 1,532,607 $ 1,533 $ 3,140,391 $ (227,742)
Class "A" preferred stock
converted to common
stock (Note 4) (2,000) (2) 1,221 1 1 -
Class "B" preferred stock
issued for cash (Note 4) 193,733 193 - - 968,473 -
Common stock issued for
services (Note 5) - - 95,000 95 424,905 -
Common stock issued for
services rendered
(Note 5) - - - - 2,835,000 -
Distribution to parent
company - - - - (195,197) -
Loss for the year ended
March 31, 1996 - - - - - (3,606,291)
------------ --------- ------------- ----------- -------------- --------------
Balance,
March 31, 1996 284,427 $ 284 1,628,828 $ 1,629 $ 7,173,573 $ (3,834,033)
------------ --------- ------------- ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Statements of Stockholders' Equity (Continued)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance forward
March 31, 1996 284,427 $ 284 1,628,828 $ 1,629 $ 7,173,573 $ (3,834,033)
Common stock issued
for cash at $5.00
per share - - 200,000 200 999,800 -
Offering costs for sale of
common stock for cash - - - - (120,576) -
Common stock issued for
payment of interest - - 20,000 20 34,502 -
Common stock issued
for services rendered - - 4,000 4 11,996 -
Repurchase shares of
class "A" preferred stock (2,500) (3) - - (12,497) -
Class "A" preferred stock
issued for payment of
interest 1,804 2 - - 9,018 -
Class "B" preferred stock
issued for payment of
interest 27,637 28 - - 138,157 -
Contributions of capital
by parent company - - - - 356,054 -
Distributions to parent
company - - - - (325,199) -
Loss for the year ended
March 31, 1997 - - - - - (685,917)
------------ --------- ------------- ----------- -------------- --------------
Balance, March 31, 1997 311,368 $ 311 1,852,828 $ 1,853 $ 8,264,828 $ (4,519,950)
============ ========= ============= =========== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Statements of Cash Flows
For the Years Ended
March 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (685,917) $ (3,606,291)
Items not requiring cash flow
during the current period:
Depreciation 2,393 -
Common stock issued for services 12,000 3,260,000
Changes in assets and liabilities:
(Increase) decrease accounts receivable 35,375 2,955
(Increase) decrease inventory 5,936 416,782
(Increase) decrease in contract receivable 313 62
Increase (decrease) accounts
payable and accrued expenses 580,993 397,146
----------------- -----------------
Net Cash Provided (Used) by
Operating Activities (48,907) 470,654
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (32,610) -
Land held for development (3,614,959) (708,276)
----------------- -----------------
Net Cash (Used) in Investing Activities (3,647,569) (708,276)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 3,085,805 355,000
Principal payments on long-term debt (1,042,925) (126,558)
Contributions from parent company 356,054 -
Distribution to parent company (325,199) (195,197)
Sale of common stock for cash 1,000,000 -
Payment of stock offering costs (120,576) -
Sale of preferred stock for cash - 968,666
Retirement of preferred stock (12,500) -
----------------- -----------------
Net Cash Provided by Financing Activities 2,940,659 1,001,911
----------------- -----------------
INCREASE (DECREASE) IN CASH (755,817) 764,289
CASH AT BEGINNING OF YEAR 784,380 20,091
----------------- -----------------
CASH AT END OF YEAR $ 28,563 $ 784,380
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Statements of Cash Flows
For the Years Ended
March 31,
1997 1996
---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
<S> <C> <C>
Cash Paid For:
Interest $ 367,817 $ -
Income taxes - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ 12,000 $ 3,260,000
Debt incurred for acquisition of inventory $ 190,365 $ -
Debt recorded for acquisition of land held
for development $ 2,390,725 $ -
Debt incurred for acquisition of property
and equipment $ 116,800 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Golf Ventures, Inc. (the Company) was incorporated in the State
of Utah on March 2, 1983 under the name of Gold-Water, Inc. for
the purpose of acquiring and developing mining properties. The
Company's name was subsequently changed to Sierra Tech, Inc. on
September 27, 1989. The Company discontinued its mining
operations in 1992. On December 28, 1992, at a meeting of the
shareholders, the name of the Company was changed to Gold
Ventures, Inc. Also, the Company's common stock was reverse stock
split on the basis of one share for every ten shares of the
Company's outstanding common stock. On February 1, 1996, the
Company reverse split its common stock again on a one share for
every five shares basis. The financial statements reflect the
reverse stock splits on an retroactive basis.
The Company has acquired real estate in St. George, Utah and is
engaged in the business of real estate development, primarily
golf courses, with surrounding residential real estate.
The following is a summary of the more significant of its
accounting policies:
a. Significant Shareholder and Distributions
The Company is a subsidiary of American Resources and Development
Company (ARDCO), formerly Leasing Technology Incorporated. ARDCO
has common directors and management with the Company. The Company
made distributions to ARDCO of $325,199 and $195,197 for the
years ended March 31, 1997 and 1996, respectively, and received
contributions of capital totaling $356,054 from ARDCO during the
year ended March 31, 1997. These contributions and distributions
have been treated as adjustments of additional paid-in capital in
the accompanying financial statements.
b. Income Taxes
The Company has adopted SFAS 109, Accounting for Income Taxes. No
provision has been made for federal income taxes due to net
operating loss carryforwards, sufficient to offset any current
tax liabilities. No deferred tax asset is being recognized
currently based on the Company's past operating performance. The
net operating losses are expected to expire as summarized below.
Year ended
to expire Amount
------------------ ----------------
2007 $ 16,000
2008 114,000
2009 97,000
2010 3,623,000
2011 686,000
----------------
Total $ 4,436,000
================
The Company has elected a March 31 fiscal year end for book and tax purposes.
F-9
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
c. Net Loss Per Share of Common Stock
The computation of net loss per share of common stock is based on
the weighted average number of shares outstanding during each
period. The common stock equivalents are anti-dilutive and
accordingly not used in the net loss per common share
computation.
d. Profit Recognition and Capitalization of Costs Related to Real
Estate
Income on real estate is recognized in accordance with the
provisions of FASB-66. Revenue and profits from the sale of land
and other real estate have been recognized using the full accrual
method for all periods presented. As such, each sale has been
determined to have been consummated, with the buyers initial and
continuing investment determined to show adequate demonstration
of commitment to pay. In addition, all outstanding remaining
receivables related to these transactions are not subject to
future subordination and the Company no longer has a substantial
continuing involvement with the property with the buyer
substantially assuming the usual risks and rewards of ownership
of the property.
Costs associated with real estate are accounted for in accordance
with the provisions of FASB- 67. Accordingly, acquisition,
development and construction costs, including property taxes and
interest on associated debt and selling costs, are capitalized.
Such costs are specifically allocated to the related opponents
or, if relating to multiple components, allocated on an pro rata
basis as appropriate. Estimates are reviewed periodically and
revised as needed. The respective real estate projects are also
periodically reviewed to determine the that carrying amount does
not exceed the net realizable value. To date, no allowance has
had to be provided for estimated impairments of value based on
evaluation of the projects.
e. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times,
may exceed federally insured limits.
The Company builds and develops real property in Southern Utah.
In the normal course of business the Company extends secured
credit to its customers.
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
The changes in operating assets and liabilities are shown net of
non cash transactions.
g. Inventory
The Company carries in inventory the cost of the developed lots,
condominiums and homes it has available for sale. The inventory
is recorded at the lower of cost or market.
F-10
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Accounts Receivable
The Company's notes receivable are from the sale of lots and
condos in its Cotton Manor and Cotton Acres projects. The Company
has recorded an allowance for doubtful accounts of $5,000. The
Company holds a trust deed on the properties sold and the Company
expects that its sales backlog would allow it to immediately
resell any property which it foreclosed upon.
i. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation on equipment is provided using the
straight-line method over an expected useful lives of the assets
(usually three years).
j. Construction Loans Payable
An officer and director of the Company has arranged for short
term loans to finance the construction of homes held in inventory
for resale. The loans are secured by the homes and accrue
interest at variable rates. During the year ended March 31, 1997,
this obligation was converted into long-term debt.
k. Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of commitments
and contingencies, and the reported revenues and expenses.
NOTE 2 - LAND HELD FOR DEVELOPMENT
On December 28, 1992 the Company purchased the Red Hawk real
estate development and the Cotton Manor/Cotton Acres real estate
development. The land was purchased for 654,746 shares of common
stock and the assumption of debt. The Red Hawk land is
undeveloped and in order for the Company to realize its
investment it will need to obtain adequate financing. The land
was acquired from a company which ended up with control of the
Company as a result of the transaction, therefore the land was
recorded at predecessor cost.
For the year ended March 31, 1997, the Company capitalized
$1,093,468 in construction period interest costs. The cost of the
land is less than the estimated net realizable value of the land.
F-11
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
<TABLE>
<CAPTION>
NOTE 3 - LONG-TERM DEBT
Long-term debt of the Company is as follows: March 31,
1997
----
<S> <C>
Promissory note secured by land. Interest accrued at 10% per
annum, payable in shares of the Company's common stock. $120,000
principal plus a percentage of the proceeds of lot sales payable
annually beginning on February 1, 1991 through February 1, 1997
at which time the balance will be due as a balloon payment.
Additionally, the Company is obligated to pay $5,000 from each
lot sale to the note holder and $175,000 from the first
$1,000,000 received in long term financing. The note is in
technical default, but the note holder has taken no collection
action. $ 646,502
Promissory note secured by land. Annual payments through August
15, 2016 at $30,524 per year including interest at 10% per annum. 201,890
Trust deed note, secured by land and 50,000 shares of the Company's
common stock. Interest accrued at 15% per annum. Principal and
interest were due May 31, 1995. However, the note holder has not
demanded full payment and is accepting partial payments. 80,575
Trust deed note payable, secured by land. Interest accrued at 8%
per annum. Payable $100,000 per year plus the accrued interest
for that year. 355,890
Promissory note secured by land, bearing interest at 10.5%.
Interest payable monthly with principal and any accrued interest
payable in full on June 10, 1999. 3,440,805
Purchase contract and note secured by land, bearing interest at
10%. Monthly installments of $25,000 due through May 15, 1998
with
remaining principal and accrued interest due in full. 2,246,823
Mortgage note payable secured by real estate bearing interest at
11.5%. Due in monthly installments of $911. 90,915
-------------------
Balance forward $ 7,063,400
-------------------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 3 - LONG-TERM DEBT (Continued) March 31,
1997
----
<S> <C>
Balance forward $ 7,063,400
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of
$919. 116,800
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of
$879. 99,451
-------------------
Subtotal 7,279,651
Less Current Portion (923,320)
Long-Term Portion $ 6,356,331
===================
Maturities on long-term debt are as follows:
1998 $ 923,320
1999 2,282,797
2000 3,557,065
2001 73,718
2002 19,559
Thereafter 423,192
-------------------
$ 7,279,651
===================
</TABLE>
NOTE 4 - PREFERRED STOCK
The Company has issued 27,000 shares of its class "A" cumulative
convertible preferred stock through a private placement at $5 per
share. The preferred stock pays a cumulative dividend at the rate
of 10% per annum and a one time 6% of investment bonus from the
first profits of the Company. The preferred stock is convertible
into common stock on, or before March 1, 1998 on the basis of an
exchange price of 60% of the average bid price of the common
stock for the 90 days immediately prior to conversion. For
illustration purposes only, if the 1,804 Series A preferred
shares issued during 1997 were to be converted at this time, such
shares would be converted into 4,956 shares of common stock,
based upon an average bid during the relevant period of $3.03.
The preferred stock also has certain preferences in liquidation.
During the year ended March 31, 1996, 2,000 shares were converted
into 1,221 shares of common stock. An additional 2,500 shares of
class "A" preferred stock were repurchased from the holder for
$12,500 during the year ended March 31, 1997. Also, 1,804 of the
class "A" preferred shares were issued during the year end March
31, 1997 as payment of interest on long-term debt. Accrued
expenses include unpaid dividends at March 31, 1997 of $42,321.
The Company has also issued 259,427 shares of class "B" preferred
stock. The class "B" preferred stock has a preference upon
liquidation of $5.00 per share, plus all accrued and unpaid
dividends, whether or not earned or declared. The preference is
secondary to the liquidation preference of the class "A" stock.
The class "B" preferred stock is convertible at anytime before
March 31, 1998 at the rate of 1 share of common stock to be
valued at 40% of the low bid price for free trading shares at my
time during the eighteen months preceding the conversion.
F-13
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 4 - PREFERRED STOCK (CONTINUED)
For illustration purposes only, if 1,000 class "B" preferred
shares (disregarding accrued interest) were to be converted at
this time, such shares would be converted into 10,638 shares of
common stock, based upon a low bid during the relevant period of
$1.18. The Company may redeem the class "B" preferred stock on or
before March 31, 1998 at $5.00 per share plus dividends accrued
at 10% per annum. Of the total shares of class "B" preferred
stock outstanding, 193,733 shares were issued during the year
ended March 31, 1996 at a price of $5.00 per share, 160,057 of
which were issued to a shareholder of the Company (see Note 7).
During the year ended March 31, 1997, the Company issued 27, 637
shares of class "B" preferred stock as payment for interest on
long-term debt.
NOTE 5 - COMMON STOCK
In January 1996, the Company issued 70,000 shares of unregistered
and restricted common stock to an investment banking firm as
payment of a $350,000 retainer fee for providing investment
banking services to obtain additional debt and equity financing.
The number of shares issued was based on the market value of the
shares on the date of issuance. These fees were expensed in the
accompanying statement of operations for the year ended March 31,
1997.
The Company issued 25,000 shares of unregistered and restricted
common stock in February 1996 to a European bank as compensation
for promotional services provided to the Company in securing
additional debt and equity financing. These shares have been
valued at $75,000 representing the market value of the shares at
the date of issuance. These fees were also explained in the
accompanying statement of operations for the year ended March 31,
1997.
The Company completed a placement of its common stock during the
year ended March 31, 1997, realizing proceeds of $1,000,000 for
which the Company issued 200,000 shares. Offering costs
associated with this transaction totaled $120,576 which has
reduced additional paid-in capital as reflected in the
accompanying financial statements.
An additional 20,000 shares of common stock were issued during
the year ended March 31, 1997 as payments for $34,522 of accrued
interest or long-term debt. 4,000 shares of common stock were
also issued during the year ended March 31, 1997 as payment for
$12,000 of services rendered to the Company.
The Company has issued 12,991 shares which have been offered to
creditors in settlement of accrued expenses. However, the
creditors have not yet accepted the shares. These shares are
considered issued but not outstanding for financial statement
purposes.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the year ended March 31, 1996, the Company issued 160,057
shares of class "B" preferred stock to a shareholder for cash of
$800,285 (see Note 4).
F-14
<PAGE>
GOLF VENTURES, INC.
Notes to Financial Statements
March 31, 1997 and 1996
NOTE 7 - GOING CONCERN
The Company's financial statements have been prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has incurred significant losses since inception, has a
substantial working capital deficit and has debt significantly in
excess of stockholders' equity. During the year ended March 31,
1997, the Company was able to raise working capital through the
private placement of its common stock. However, cash flow
projections show that the Company's reserves are not adequate to
cover its needs for the near future. Management of the Company
plans to raise additional capital through a private placement or
additional debt financing and the Company anticipates generating
additional revenue from increased sales.
NOTE 8 - SUBSEQUENT EVENT
GVI has entered into discussions with an unrelated company
regarding a possible business reorganization that would combine
the two companies. The unrelated company is extensively involved
in golf course construction and management.
F-15
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Supplemental Schedules
March 31, 1997 and 1996
Schedule VIII - Valuation and qualifying accounts
Allowance for returns and bad debts:
Balance at Balance at
Beginning End of
of Year Additions Deductions Year
------- --------- ---------- ----
<S> <C> <C> <C> <C>
March 31, 1997 $ 5,000 $ - $ - $ 5,000
March 31, 1996 5,000 - - 5,000
</TABLE>
F-16
<PAGE>
Schedule X - Supplementary income statement information
<TABLE>
<CAPTION>
For the Years Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Maintenance and repair $ 35,749 $ 16,571
Depreciation and amortization 2,393 -
Taxes, other than payroll and income taxes 6,743 32,668
Royalties - -
Advertising 17,323 1,002
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
GOLF VENTURES, INC.
Supplemental Schedules
March 31, 1997 and 1996
Schedule XI - Real Estate and Accumulated Depreciation
Life on
which
Costs Gross depreciation
capitalized amount in latest
(Disposals) at which Accumu- income
Initial subsequent carried lated Date of statements
cost to to at close deprec- construc- Date is
Description Encumbrances Company acquisition of period iation tion acquired computed
- --------------------------- -------------- ----------- ----------- ----------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Red Hawk Development
St. George, Utah
Undeveloped Land
Convertible subordinated
Debentures $ 185,000
Foss Lewis Construction,
Trust Deed Note 80,575
Miltex Industries, Ltd.
Promissory Note 3,440,805
Daniel C. Watson
Trust Deed Note 355,890
Stucki income trust,
Trust Deed Note 2,246,823
$ 6,309,093 $ 4,135,000 $ 6,242,166 $ 10,377,166 $ N/A 7-8-96 3-30-90 N/A
============ ============ =========== ============ ======= =========== ========= ==========
Cotton Manor/Cotton
Acres Dev.
St. George, Utah
Improved residential
Blaine Harmon Family
Trust, Promissory Note $ 201,890
Property Alliance, Inc.
Promissory Note 646,502
$ 848,392 $ 1,902,130 $ (804,280) $ 1,097,850 $ N/A 9-1-91 9-1-91 N/A
============ ============ =========== ============ ======= =========== ========= ==========
</TABLE>
F-18
<PAGE>
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons
All Directors of the Company serve a term of one (1) year until the next
Annual Shareholders Meeting or until their death, resignation, retirement,
removal, disqualification, or until their successors have been elected and
qualified. Vacancies in an existing board of directors are to be filled by a
majority vote of the remaining Directors. Officers of the Company serve at the
will of the Board of Directors.
The following table sets forth the name and age of each Director and
Executive Officer of the Company as of September 30, 1997, followed by a brief
resume of each named individual. Information is also provided about the former
president of ARDCO, a person who played a significant role in the development of
the Company up to December 31, 1996, but who is no longer affiliated with the
Company.
20
<PAGE>
NAME AGE POSITION HELD
Duane H. Marchant 58 President, Chief Executive Officer, Treasurer and
Director
Bruce E. Frodsham 32 Vice President, Secretary and Director
Stephen B. Spencer 41 Director
DUANE H. MARCHANT, President, Chief Executive Officer, Treasurer and
Director of the Company, earned a B.S. Degree in business management from
Brigham Young University in 1956 and an M.B.A. Degree from Utah State University
in 1967. Mr. Marchant is a registered real estate broker in the State of Utah
and has over 25 years of experience in real estate development and marketing.
From 1990 until August 1995, he served as a director and executive officer of
ARDCO, which is a publicly held company involved in real estate development and
franchising and which is currently the largest stockholder in the Company. Mr.
Marchant has been a Director of the Company since 1992, and is the father-in-law
of Mr. Frodsham.
BRUCE E. FRODSHAM, Vice President, Secretary and a Director of the
Company is also the Sales Manager of Cotton Acres and Cotton Manor. Mr. Frodsham
earned a B.S. Degree in Ornamental Horticulture from Brigham Young University in
1988, and was Vice President of Frodsham Better Lawns from 1985 to 1991. He is a
specialist in professional grass management, weed control, ornamental design and
landscaping. Mr. Frodsham was a main- frame computer operator for Brigham Young
University for three years and is a free-lance computer operator and consultant.
Mr. Frodsham became a Director of the Company in 1992, and is the son-in-law of
Mr. Marchant.
STEPHEN B. SPENCER, a Director of the Company, is a Certified Public
Accountant and was the Secretary/Treasurer, and a director of ARDCO since 1990,
and Secretary/Treasurer and a Director of the Company from 1992 until August
1997, when he resigned as an officer of the Company to take a position overseas.
From 1988 to 1990, he worked for Mrs. Fields, Inc. as an Assistant Financial
Controller and then Controller, and from 1985 to 1988, he was the Director of
Operations for the Salt Lake Convention and Visitors Bureau.
GEORGE H. BADGER, resigned as President and a Director of ARDCO (a
significant shareholder in GVIM) on December 31, 1996. As President of ARDCO,
Mr. Badger was a "control person" of the Company between 1992 and the end of
1996. Mr. Badger was indicted on a number of charges and was arraigned in the
U.S. Federal District Court for the Southern District of New York on October 9,
1996. It is the understanding of the Company that the indictment related to
alleged unlawful and undisclosed compensation to securities brokers and
promoters to induce them to cause customers to purchase securities issued by
21
<PAGE>
ARDCO and the Company. The Company has learned that Mr. Badger has pleaded
guilty to counts of: (i) conspiracy to commit securities fraud; (ii) securities
fraud; (iii) criminal contempt; and (iv) perjury. The Company has no further
ongoing dealings with Mr. Badger, other than as required to reach settlements
with Mr. Badger and ARDCO with respect to a separation of the Company from the
control of these persons.
Executive and Director Compensation
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
The following table sets forth a summary of cash and non-cash
compensation for each of the last three fiscal periods ended March 31, 1997,
1996, and 1995, with respect to the Company's Chief Executive Officer. No
executive officer of the Company has earned a salary greater than $100,000
annually for any of the periods depicted.
Summary Compensation Table
Name & Principal Position Year Salary
Duane H. Marchant 1997 $72,000
President & CEO 1996 $72,000
1995 $72,000
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of
the Company, as of September 30, 1997, with respect to the beneficial ownership
of the Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each Director of the Company; and (iii) all current Directors and Executive
Officers as a group.
22
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF OF COMMON STOCK OF OF SERIES B OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS PREFERRED STOCK1 CLASS
BENEFICIALLY OWNED
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banque SCS Alliance SA 659,189(2) 31.36% 315,404(3) 100%
P.O. Box 880
12111 Geneva 3, Switzerland
- -----------------------------------------------------------------------------------------------------------------------------------
American Resources and 532,246(4) 25.32% 0 0
Development Co.
102 West 500 South,
Suite 400
Salt Lake City, UT 84101
- -----------------------------------------------------------------------------------------------------------------------------------
Miltex Industries 0 0 28,340(3) 8.24%
c/o Camille Froidevaux
Budinet & Associates
20 Rue Senebier, P.B. 166
1211 Geneva, Switzerland
- -----------------------------------------------------------------------------------------------------------------------------------
Duane H. Marchant 156,989 7.46% 0 0
345 North 2450 East
St. George, UT 84790
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen B. Spencer 35,000 1.66% 0 0
102 West 500 South
Suite 400
Salt Lake City, UT 84101
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce E. Frodsham 30,000 1.43% 0 0
345 North 2450 East
St. George, UT 84790
- -----------------------------------------------------------------------------------------------------------------------------------
All Officers and Directors of 221,989 10.55% 0 0
the Company as a Group
(3 persons)
===================================================================================================================================
</TABLE>
- --------
1 Series B Preferred Shares, in the aggregate, are able to cast
approximately 3,355,362 votes, which calculation is based on the market price of
GVIM Common Stock into which the Series B Preferred Stock is convertible. This
voting power was calculated based on the September 30 low bid price of $1.18 per
share.
2 Banque SCS Alliance SA owns 51.5% of the outstanding common stock of
ARDCO. ARDCO's shares in the Company are attributed to Banque SCS as a
beneficial owner and "affiliate" of ARDCO.
3 Banque SCS Alliance SA has appointed ARDCO as proxy to vote its
Series B Preferred Shares. Giving effect to its proxy over the Series B
Preferred Stock, ARDCO has the current right to 3,887,608 votes at meetings of
the Company's stockholders. If Banque SCS were to cancel their voting proxy,
then shareholder control of the Company would change from ARDCO to Banque SCS
Alliance SA. (See Note 4 of the Financial Statements for further disclosure.
4 The Company has agreed with ARDCO to settle outstanding disputes over
cost advances made to the Company by ARDCO over the years by issuing 650,000
shares of restricted common stock to ARDCO in return for a release. These shares
are expected to be issued at or about the time of the US Golf transaction. The
Company has agreed with George Badger, formerly the President of ARDCO and a
control person of the Company, to pay Mr. Badger a finder's fee in connection
with the US Golf transaction of 250,000 restricted common shares of the Company.
These shares will be issued and delivered in connection with the closing of the
US Golf transaction.
23
<PAGE>
Item 12. Certain Relationships and Related Transactions.
ARDCO is the largest shareholder of the Company at the present time.
The Company and ARDCO shared office space through August, 1997. Under this
arrangement, the Company paid the rental expense for both companies, and ARDCO
paid the salary and benefits of two shared employees.
Duane H. Marchant, President of the Company, was the President of
Property Alliance at the time of ARDCO's purchase of Cotton manor and Cotton
Acres from Property Alliance. Mr. Marchant resigned as president of Property
Alliance at the time of the purchase. Mr. Marchant was an officer of ARDCO at
the time of the sale of Red HawkTM, Cotton Manor and Cotton Acres to the
Company. Shortly after the sale, Mr. Marchant resigned as an officer of ARDCO
and remained as President of the Company. (See Item I, above, for a fuller
discussion of the indebtedness and dealings between Property Alliance and the
Company.)
Bruce E. Frodsham, Vice President of the Company, is the son-in-law of
Duane H. Marchant, President of the Company.
On January 23, 1996, the Company issued 567,400 shares of the
Company's common stock to Banque SCS Alliance SA as payment for financial
advisory and referral services provided to the Company. The shares were exempt
from registration under the Securities Act pursuant to Rule 903(c) of Regulation
S promulgated thereunder. Banque SCS was instrumental in referring Miltex
Industries to the Company for a loan transaction, and also Banque SCS provided
needed investment capital to the Company later in 1996. The number of shares
paid to Banque SCS was negotiated and agreed with the Bank.
On July 5, 1996 the Company, ARDCO and the Stucki family entered into
a modification of the Stucki Note and related agreements, in connection with Red
HawkTM, which states: "The parties acknowledge that Golf Ventures, Inc. had been
assigned the rights of [ARDCO] by assignment of even date, and Golf Ventures,
Inc. is therefore the buying party to the transaction". This effectively takes
ARDCO out of the Stucki transaction and makes GVIM the sole direct purchaser of
the Stucki portion of Red HawkTM. (See more detailed disclosure under Item 1,
above.)
During 1996, the Company borrowed a total of $3,238,805 from Banque SCS
Alliance SA, a shareholder of both the Company and of ARDCO. The loan is secured
by a trust deed against Red HawkTM. (See an expanded description under "Red
HawkTM" in Part I, Item 1, above.)
On March 29, 1996 the Company sold 160,057 shares of its Series B
Preferred stock to Banque SCS Alliance SA, an existing shareholder, for
$800,284.
On December 31, 1996 the Company sold 27,637 shares of its Series B
Preferred stock to Banque SCS Alliance SA, an existing shareholder, for
$138,185.
As of September 30, 1997, the Company agreed with ARDCO to settle all
outstanding claims by ARDCO for repayment of advances and services to the
Company over the period of time the Company was operated as a closely controlled
24
<PAGE>
subsidiary of ARDCO. In return for a release of all claims by ARDCO, the Company
will issue and deliver to ARDCO 650,000 shares of restricted common stock at or
about the time of closing on the US Golf transaction.
As of September 30, 1997, the Company and George Badger, the former
President of ARDCO and control person of the Company, agreed to settle all
outstanding claims for finder's fee payments to Mr. Badger in connection with
his referral of the US Golf transaction to the Company. In return for a release,
the Company will issue and deliver to Mr. Badger 250,000 shares of the Company's
restricted common stock at or about the time of closing of the US Golf
transaction.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Securities and Exchange
Commission. The Company shall furnish copies of exhibits for a reasonable fee
(covering the expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
3.1 Certificate of Incorporation, as amended*
3.2 The Company's ByLaws, as amended *
10.1 Option contract (Stucki)*
10.2 Extension to Option Contract (Stucki)*
10.3 Further Amendment to Option Contract (Stucki)*
10.4 Modification Agreement (Stucki)*
10.5 Further Modification Agreement (Stucki)*
10.6 Sales Agreement (Property Alliance)*
10.7 Addendum to Sales Agreement (Property Alliance)*
10.8 Acquisition Agreement (ARDCO)*
10.9 Agreement (Bear River Contractors)*
10.10 Reorganization Agreement with U.S. Golf Communities, Inc.
23.1 Consent of Independent Auditor
* Incorporated by reference to the Company's Form 10-SB Registration
Statement filed with the Commission September 6, 1996,
File No. 0-21337.
25
<PAGE>
(b) The following reports on Form 8-K were filed by the Company during the
fiscal year ended March 31, 1997:
August 12, 1997 The Company filed a report on Form 8-K for the purpose
of correcting a previous press release issued by the
Company on October 18, 1996 concerning the charges
filed October 10, 1996 against Mr. George Badger.
September 8, 1997 The Company filed a report Form 8-K concerning its
issuance under Regulation S promulgated under the
Securities Act of 28,340 shares of Series B Preferred
Stock to Miltex Industries, Inc.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this Amended Annual Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLF VENTURES, INC.
(Registrant)
Dated: October 20, 1997 BY:/s/ Duane H. Marchant
-----------------------
Duane H. Marchant, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amended Report on Form 10-KSB has been signed below by the following
persons, being a majority of the board of directors of the registrant, on behalf
of the registrant and in the capacities and on the date indicated.
Signature Position Date
/s/ Duane H. Marchant
- ----------------------
Duane H. Marchant Director, Chief Executive Officer October 20, 1997
and Chief Financial Officer
/s/ Bruce E. Frodsham
- ---------------------
Bruce E. Frodsham Director, Vice President October 20, 1997
and Secretary
- ----------------------
Steven B. Spencer Director
26
August _______, 1997
AGREEMENT AND PLAN OF REORGANIZATION
between
GOLF VENTURES, INC.
and
U.S. GOLF COMMUNITIES, INC.
<PAGE>
TABLE OF CONTENTS
PREMISES OF AGREEMENT...................................................... 1
TERMS OF AGREEMENT......................................................... 3
1. Ownership of USGCD Securities............................ 3
2. Plan of Reorganization................................... 3
3. Delivery of the USGCD Securities......................... 4
4. Tax-Free Exchange........................................ 4
5. Representations and Warranties of the Affiliated
Shareholders............................................. 5
(a) Clear Ownership................................. 5
(b) Power to Perform Freely......................... 5
(c) Shares Validly Issued Without Assessment
or Liabilities.................................. 6
(d) Statement Not Misleading........................ 6
(e) USGCD Financials Not Misleading................. 6
(f) No Adverse Facts as to USGCD and its Securities. 6
(g) USGCD Statements True........................... 7
(h) Agreement and GVI Shares Accepted............... 7
(i) Affiliated Shareholder Loans.................... 7
(j) Dissenter's Appraisal Rights Waived............. 7
(k) No USGCD Merger Action Before Closing........... 8
(l) Status of Non-Affiliated Shareholders........... 8
(m) Certain Actions Not to Be Taken Before Closing.. 9
(i) No Debt or Securities.................. 9
(ii) No Encumbrances........................ 9
(iii) No Contracts or Modifications.......... 9
(iv) No Capital Expenditures................ 10
(v) No Disposition of Assets............... 10
(vi) No Stock Distributions or Redemptions.. 10
(vii) No Business or Stock Acquisitions...... 10
(viii) No Option or Commitments............... 10
(ix) No Management Payments................. 10
(x) No Misuse of Assets.................... 10
(xi) No Change in Charter or Bylaws......... 11
(xii) No Banking Changes..................... 11
6. Representations, Warranties and Covenants of USGCD....... 11
(a) Exchange Securities Unencumbered; Sole
Equity; Corporate Power......................... 11
(b) Corporate Existence and Power................... 12
(c) Agreement is Lawful and Not a Breach of Law
or Contracts.................................... 12
(d) Limitation on Issuance of Stock................. 12
(e) No Stock Commitments; No Change of
Conversion Ratios............................... 12
i
<PAGE>
(f) Capitalization.................................. 12
(g) Legal Compliance................................ 13
(h) No Litigation................................... 13
(i) USGCD Financial Statements Not Misleading....... 13
(j) No Material Adverse Changes..................... 13
(k) No Extraordinary Liabilities, Payments or
Transfers....................................... 14
(l) No Control Persons Distributions or Advances.... 14
(m) All Taxes Current............................... 14
(n) Assets Unencumbered............................. 15
(o) No Material Breaches by USGCD or Third Parties.. 15
(p) Employee Benefit Plans.......................... 15
(q) Employment Agreements........................... 15
(r) No Undisclosed Liabilities...................... 16
(s) No Misleading Statements........................ 16
(t) Shares Validly Issued without Assessment or
Liabilities..................................... 16
(u) No Outstanding Rights to USGCD Equity........... 16
(v) Dissenter's Appraisal Rights Waived............. 17
(w) No Unpaid Dividends............................. 17
(x) No USGCD Merger Action Before Closing........... 17
(y) Certain Actions Not to Be Taken Before Closing.. 17
(i) No Indebtedness........................ 17
(ii) No Encumbrances........................ 17
(iii) No Contracts or Modifications.......... 18
(iv) No Capital Expenditures................ 18
(v) No Disposition of Assets............... 18
(vi) Dividends.............................. 18
(vii) No Issuances of Securities............. 18
(viii) No Option Grants or Commitments........ 18
(ix) No Control Person Payments or Advances. 19
(x) No Misuse of Assets.................... 19
(xi) No Change in Charter or Bylaws......... 19
(xii) No Banking Changes..................... 19
(z) Corporate Authorization and Power; No Breach
of any Contracts or Order; No Filing or
Public Approval................................. 19
(aa) Belief as to Sufficiency of Information
Received........................................ 20
(bb) USGCD Bank Accounts............................. 20
(cc) Environmental Matters........................... 20
(dd) Material Contracts Not Disclosed in this
Agreement....................................... 20
(ee) Representations True on Closing Date............ 20
(ff) Permitted Activities............................ 21
(i) Indebtedness in Ordinary Course........ 21
(ii) Golf Interests Acquisitions............ 21
7. Representations and Warranties of GVI.................... 21
(a) Corporate Existence and Power................... 21
ii
<PAGE>
(b) Due Authorization; Corporate Authorization and
Power; No Breach of Contract or Order; No
Filing or Public Approval....................... 21
(c) No Material Adverse Changes..................... 22
(d) Lack of Conflicts............................... 23
(e) Capitalization.................................. 23
(f) Outstanding Options............................. 24
(g) Corporate Approval of Transactions and Legal
Compliance...................................... 24
(h) No Litigation................................... 25
(i) Charter Documents............................... 25
(j) All Taxes Current............................... 25
(k) Assets Encumbrances............................. 25
(l) No Material Breaches............................ 26
(m) Employee Benefit Plans.......................... 26
(n) Employment Agreements........................... 26
(o) Inspection of Records........................... 26
(p) Existing Insurance Policies..................... 27
(q) GVI Financial Statements........................ 27
(r) Shares Validly Issued without Assessment or
Liabilities..................................... 27
(s) Accuracy of Representations..................... 28
(t) Issuance of Additional Shares................... 28
(u) Accuracy of Financial Statements................ 28
(i) Management Stock....................... 29
(ii) ARDCO Stock............................ 29
(iii) Series B Preferred..................... 29
(iv) All Liabilities Disclosed on GVI's
Financial Statements................... 29
(v) No Mergers Prior to Closing..................... 29
(w) No New GVI Equity or Debt Securities............ 30
(x) Actions Not to be Taken Prior to Closing........ 30
(i) No Indebtedness........................ 30
(ii) No Encumbrances........................ 30
(iii) No Contracts or Modifications.......... 30
(iv) No Capital Expenditures................ 30
(v) No Disposition of Assets............... 31
(vi) No Dividends or Redemptions............ 31
(vii) No Issuance of Securities.............. 31
(viii) No Options............................. 31
(ix) No Management Payments................. 31
(x) No Improper Use of Assets.............. 31
(xi) No Change in Charter or Bylaws......... 32
(xii) No Banking Change...................... 32
(y) No Undisclosed Liabilities...................... 32
(z) Material Contracts.............................. 32
(aa) Environmental Matters........................... 33
(bb) Continuing Accuracy............................. 33
iii
<PAGE>
8. Covenants of USGCD and the Affiliated Shareholders...... 33
(a) Subscription Agreements........................ 33
(b) Certificates................................... 33
(c) Golf Interests Acquisition..................... 33
(i) Acquisition of Interests.............. 33
(ii) European Indebtedness................. 34
(d) Underwriting Agreement......................... 35
(e) Legal Opinion.................................. 35
(f) Lock-up Agreement.............................. 35
(g) Access to Records.............................. 36
(h) Insurance Policies............................. 36
(i) Corporate Documents............................ 36
(j) Furnishing of Audited Financial Statements..... 37
(k) Employment Arrangements........................ 37
(l) Observance of Terms of Material Contracts...... 37
9. Covenants of GVI........................................ 38
(a) Resignation of Directors and Officers.......... 38
(b) Legal Opinion.................................. 39
(c) Secondary Trading.............................. 39
(d) Securities Law Compliance...................... 39
(e) Proxy Matters.................................. 39
(f) Amendment of SEC Filings....................... 40
(g) Officers' Resignations......................... 40
10. Registration Rights..................................... 40
(a) "Piggy-back Rights."........................... 40
(i) Notice................................ 41
(ii) Inclusion of Shares................... 41
(b) Underwriting Agreement.................................. 41
(c) Exclusion of Shares............................ 42
(d) Withdrawal..................................... 42
(e) "Blackout Period."............................. 42
(f) Selling Expenses............................... 43
(g) Registration Information....................... 44
(i) Effective Status...................... 44
(ii) Prospectus Delivery................... 44
(h) Completion of Information...................... 44
(i) Expiration of Rights........................... 45
(j) Insider Limitations............................ 45
11. Conditions Precedent to Closing......................... 46
(a) GVI's Conditions Precedent..................... 46
(i) Stock Certificates.................... 46
(ii) Officer's Certificates................ 46
(iii) Resolutions........................... 46
(iv) Affiliated Shareholder Certificates... 46
iv
<PAGE>
(v) Financial Statements.................. 47
(vi) Good Standing......................... 47
(vii) Tax Certification..................... 47
(viii) Employment Agreement.................. 47
(ix) Investment Letters.................... 47
(x) Legal Opinions........................ 47
(xi) Cold Comfort Letter................... 47
(xii) Lock Up Agreement..................... 48
(xiii) Satisfaction of Covenants............. 48
(b) Conditions Precedent of USGCD.................. 48
(i) Stock Certificates.................... 48
(ii) Officer's Certificates................ 49
(iii) Resolutions........................... 49
(iv) Legal Opinions........................ 49
(v) Cold Comfort Letter................... 49
(vi) Board Composition..................... 49
(vii) Satisfaction of SEC Requirements...... 49
(viii) Satisfaction of Covenants............. 50
(ix) Good Standing......................... 50
(x) Tax Certificate....................... 50
(xi) Shareholder Matters................... 50
12. Indemnification by GVI, USGCD and the Affiliated
Shareholders............................................ 51
13. The USGCD Securityholders' Investment Intent............ 51
(a) Private Issuances.............................. 51
(i) Investment Purposes................... 52
(ii) Present Intent........................ 52
(b) Restrictive Legend............................. 52
14. Access and Information.................................. 52
15. Expenses................................................ 53
16. Closing Date............................................ 53
17. Termination............................................. 54
(a) Termination By Either Party.................... 54
(i) Failure to Close...................... 54
(ii) Failure to Comply with
Representations, Warranties or
Covenants............................. 54
(iii) Governmental Action................... 54
(b) Mutual Consent................................. 55
18. Effect on Termination................................... 55
19. Exclusive Negotiation Period............................ 55
20. Meaning of "Material.".................................. 57
21. Amendment............................................... 57
22. Waiver.................................................. 57
23. Broker and Investment Banking Fees...................... 57
24. Binding Effect.......................................... 58
v
<PAGE>
25. Entire Agreement........................................ 58
26. Governing Law........................................... 58
27. Arbitration............................................. 58
28. Originals............................................... 59
29. Notices................................................. 59
30. Release of Information.................................. 60
31. Separability............................................ 60
32. Captions................................................ 61
vi
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PREMISES OF AGREEMENT.
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of the ______ day
of August, 1997 (this "Agreement," which term includes the Exhibits and
Schedules hereto, now or hereafter furnished), is by and among (a) GOLF
VENTURES, INC., a Utah corporation with principal offices at 102 West 500 South,
Suite 400, Salt Lake City, Utah 84101 ("GVI," which term includes its
consolidated and unconsolidated subsidiaries, if any); (b) U.S. GOLF
COMMUNITIES, INC., a Delaware corporation with principal offices at 255 South
Orange Avenue, Suite 1515, Orlando, Florida 32801 ("USGCD," which term includes
its consolidated and unconsolidated subsidiaries, if any); (c) the intended
holders of the USGCD Common Shares (defined below) whose signatures, names and
addresses are to appear on EXHIBIT 1 annexed hereto and made a part hereof (such
shareholders are hereinafter collectively referred to as the "Affiliated
Shareholders"); (d) the intended holders of the USGCD Common Shares whose names,
addresses and signatures are to appear on EXHIBIT 2 annexed hereto and made a
part hereof (such shareholders are hereinafter collectively referred to as the
"Nonaffiliated Shareholders"); and (e) the intended holders of options (the
"USGCD Options") under the USGCD Equity Incentive Option Plan and the USGCD
Incentive Compensation Plan, whose signatures, names and addresses appear are to
on EXHIBIT 3 annexed hereto and made a part hereof (such holders of options are
hereinafter collectively referred to as the "Option Holders"; the Affiliated
Shareholders, the Non-Affiliated Shareholders and the Option Holders shall
sometimes be collectively referred to below as the "USGCD Securityholders" and
1
<PAGE>
certain of their signatures may be affixed pursuant to powers of attorney,
copies of which shall be presented to GVI's counsel for reasonable approval as
to form and substance).
WITNESSETH:
A. WHEREAS, GVI desires, pursuant to this Agreement, to exchange an
aggregate of 26,690,319 heretofore authorized but unissued shares of its common
stock, $.001 par value per share (the "Common Stock") solely for all of USGCD's
intended to be issued and outstanding shares of common stock, (the "USGCD Common
Shares") and to reserve additional shares of the GVI Common Stock for issuance
to the Option Holders pursuant to outstanding and issuable USGCD Options. (The
USGCD Common Shares and the outstanding USGCD Options are sometimes collectively
referred to below as the "USGCD Securities").
B. WHEREAS, the USGCD Securityholders desire, pursuant to this
Agreement, to exchange all of the USGCD Securities for Common Stock or for GVI
options entitling the holder thereof to acquire Common Stock, upon the terms and
conditions hereinafter set forth and for the purpose of carrying out a tax-free
exchange within the meaning of Section 368 of the Internal Revenue Code of 1986,
as amended (the "Code").
C. WHEREAS, in order to carry out the foregoing intents, GVI, USGCD and
the USGCD Securityholders desire to enter into and adopt this Agreement.
NOW, THEREFORE, in consideration for the exchange of securities herein
enumerated, and the above Premises of Agreement incorporated herein, the parties
hereby agree as follows:
2
<PAGE>
TERMS OF AGREEMENT.
1. Ownership of USGCD Securities. The Affiliated Shareholders and the
Nonaffiliated Shareholders (the "Common Shareholders") at Closing shall own all
of the USGCD Common Shares as set forth on EXHIBITS 1 and 2, respectively. The
Option Holders at Closing shall hold the USGCD Options shown on EXHIBIT 3.
2. Plan of Reorganization. By virtue of their respective execution of
this Agreement, GVI and the USGCD Securityholders hereby agree and consent that,
subject to the satisfaction by USGCD and the Affiliated Shareholders on the one
hand, and by GVI on the other hand, of the covenants and conditions precedent
described in this Agreement in Sections 8 and 11, respectively, on the one hand,
and in Sections 9 and 11, respectively, on the other hand, on the Closing Date
(as hereinafter defined) all of the USGCD Securities shall be exchanged with GVI
for the Common Stock or, in the case of the Option Holders, for GVI options
entitling the holder thereof to acquire Common Stock. The Common Stock is, or
shall be, comprised of authorized but unissued shares of the Common Stock of GVI
and shall be exchanged on the following basis: 4.26 shares of Common Stock for
each one (1) USGCD Common Share(s) tendered and exchanged therefor (the
"Conversion Ratio"). It is the intent of the parties hereto that the
pre-Reorganization, as defined herein, shareholders of GVI shall retain
approximately 19% of the Common Stock following the consummation of this
transaction (the "Reorganization"). In the event that either USGCD or GVI should
issue additional equity or rescind any currently outstanding equity prior to the
Closing Date, as defined herein, the Conversion Ratio shall be adjusted
proportionately to preserve the foregoing expectation. Fractional shares shall
be rounded up to the nearest whole share.
3
<PAGE>
Prior to such exchange, GVI also shall establish as its own stock option plans,
plans identical to the USGCD Equity Incentive Option Plan and the USGCD
Incentive Compensation Plans, and shall reserve 3,000,000 (post-Reorganization)
additional shares of GVI Common Stock for issuance thereunder. The Option
Holders shall be entitled to exercise their respective USGCD Options with
respect to their pro rata portion of such reserved shares. GVI hereby agrees to
issue to the USGCD Securityholders and the USGCD Securityholders hereby accept,
in exchange for the USGCD Securities, an aggregate of 26,690,319 shares of
Common Stock and the GVI options as described above. The shares of Common Stock
shall be issued to the USGCD Securityholders based upon the number of USGCD
Common Shares held as indicated on EXHIBITS 1 AND 2.
3. Delivery of the USGCD Securities. On the Closing Date, the USGCD
Common Shareholders will deliver to the transfer agent of GVI, Atlas Stock
Transfer Corporation in Salt Lake City, Utah (the "Transfer Agent"), in exchange
for the Common Stock as hereinabove provided, certificates representing all of
the issued and outstanding USGCD Common Shares duly endorsed in blank with
signature guaranteed or with executed stock powers attached thereto with
signature guaranteed and in transferrable form with any required documentary or
transfer tax stamps affixed at the USGCD Common Shareholders' sole and exclusive
expense so as to make GVI the sole owner thereof, free and clear of any and all
liens, claims and encumbrances, of any nature whether accrued, absolute,
contingent or otherwise.
4. Tax-Free Exchange. Each party hereto intends that the transaction
embodied by this Agreement shall be and shall qualify as a reorganization and a
tax-free exchange under Section 368(a)(1)(B) of the Code; and in furtherance
4
<PAGE>
thereof, each party hereby agrees not to take any action which would impair the
treatment of the exchange as a tax-free reorganization for tax purposes.
5. Representations and Warranties of the Affiliated Shareholders. By
virtue of their respective execution of this Agreement, and except for any
expressly contrary information herein or set forth on any and all Schedules or
Exhibits annexed to this Agreement and incorporated herein by reference (any
information on one shall be deemed to be included on all), the Affiliated
Shareholders hereby jointly and severally (except as to Sections 5(a), (b) and
(d), which are several, not joint, representations and warranties) represent and
warrant to GVI as follows:
(a) Clear Ownership. They each are the sole record and
beneficial owner of the USGCD Common Shares set forth opposite their respective
names on EXHIBIT 1 hereof, have the sole and undisputed power, right and
authority to sell, transfer, option, pledge or hypothecate the same and own said
USGCD Common Shares free and clear of any and all liens, suits, proceedings,
claims and encumbrances of any kind, nature or description whether accrued,
absolute, contingent or otherwise.
(b) Power to Perform Freely. They each have the power, right
and authority to execute and perform this Agreement and the execution, delivery
and performance of this Agreement, in the time and manner herein specified, will
not conflict with, result in a breach of, or constitute a default under any
provisions of law, trust or any existing agreement, indenture or other
instrument to which they are a party or by which the USGCD Common Shares owned
by them may be bound or affected.
5
<PAGE>
(c) Shares Validly Issued Without Assessment or Liabilities.
To the best of their individual knowledge and belief, the USGCD Common Shares
owned by each USGCD Securityholder are duly and validly issued, fully paid and
non-assessable with no personal liability attaching to the ownership thereof.
(d) Statement Not Misleading. The information given and every
representation, warranty and statement made or furnished by the Affiliated
Shareholders herein is true, correct and does not contain a misstatement of a
material fact or omit to state any material fact required in order to make the
statements and representations, in light of the circumstances under which they
were made, not misleading.
(e) USGCD Financials Not Misleading. SCHEDULE 5(e) hereto
contains the unaudited balance sheet, statement of operations, statement of cash
flows of USGCD for the twelve (12) months ended December 31, 1996, giving effect
to the Golf Interests Acquisition, as defined herein below, and the six (6)
month period ended June 30, 1997, also giving effect to the Golf Interests
Acquisition (the "USGCD Unaudited Financial Statements"). The USGCD Unaudited
Financial Statements fairly and accurately present the financial condition and
retained deficit as of the dates and during the periods indicated therein
subject to the absence of notes and year-end adjustments and respective values
of USGCD's properties, and to the best of their knowledge, the USGCD Unaudited
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated.
(f) No Adverse Facts as to USGCD and its Securities. Except as
disclosed on SCHEDULE 5(f) hereof, the Affiliated Shareholders have no knowledge
6
<PAGE>
of any material fact or facts other than disclosed herein or in the Exhibits or
Schedules annexed hereto which will adversely affect the business or financial
condition of USGCD or the title of GVI to the USGCD Common Shares to be
exchanged with GVI hereunder, and each of the Affiliated Shareholders agrees
that they will notify GVI of any such facts if they acquire knowledge of the
same prior to the Closing Date.
(g) USGCD Statements True. To the best of each Affiliated
Shareholders' knowledge and belief, each of the representations and warranties
of USGCD in Section 6 herein are true and correct.
(h) Agreement and GVI Shares Accepted. Each Affiliated
Shareholder has read and understands both this Agreement and the nature and
parameters of the transaction underlying the same, accepts and agrees to the
consummation of the transaction enumerated herein and accepts the distribution
of the shares of GVI Common Stock (subject to the holding period and resale
restrictions attendant thereupon) together with the representations, warranties
and covenants made herein as the sole and exclusive consideration for the
transfer and exchange of the entire issued and outstanding equity interest in
USGCD represented by the USGCD Common Shares owned by them.
(i) Affiliated Shareholder Loans. Except for the loans
reflected on the USGCD Unaudited Financial Statements or on SCHEDULE 5(i)
hereto, USGCD is not indebted to any Affiliated Shareholders pursuant to any
promissory note, instrument or document not reflected in the USGCD Unaudited
Financial Statements.
(j) Dissenter's Appraisal Rights Waived. No Affiliated
Shareholder has any right of appraisal or similar right to dissent from the
7
<PAGE>
transaction made the subject of this Agreement and to demand payment for USGCD
shares which right will not be waived prior to the Closing Date and all such
rights are hereby waived and released.
(k) No USGCD Merger Action Before Closing. Prior to the
Closing Date, the Affiliated Shareholders will not vote for or authorize the
reorganization, recapitalization, merger, consolidation, stock split or other
similar corporate action on behalf of USGCD except as may be required to
effectuate the terms and conditions of this Agreement.
(l) Status of Non-Affiliated Shareholders. To the best
knowledge of the Affiliated Shareholders, each Non-Affiliated Shareholder set
forth on EXHIBIT 2 of this Agreement (i) is the sole record and beneficial owner
of the USGCD Common Shares, (ii) has the sole and undisputed power, right and
authority to sell, transfer, option, pledge or hypothecate the same and owns
such USGCD Common Shares free and clear of any and all liens, suits,
proceedings, claims and encumbrances of any kind, nature or description, whether
accrued, absolute, contingent or otherwise; (iii) has the power, right and
authority to execute and perform under this Agreement and the execution,
delivery and performance of this Agreement, in the time and manner herein
specified, will not conflict with, result in a breach of, or constitute a
default under any provisions of law, trust, or any existing Agreement, indenture
or other instrument to which such person is a party; (iv) the USGCD Common
Shares owned by each Non-Affiliated Shareholder are duly and validly issued,
fully paid and non-assessable with no personal liability attaching to the
ownership thereof; and (v) each Non-Affiliated Shareholder has read and
indicated his understanding both of this Agreement and the nature and parameters
of the transaction, and accepts and agrees to the consummation of the
Reorganization enumerated herein, and accepts the distribution of the shares of
8
<PAGE>
Common Stock or other securities entitling the Holder thereof to acquire Common
Stock (subject to the holding period and resale restrictions attended thereupon)
as the sole and exclusive consideration for the transfer and exchange of the
entire issued and outstanding equity interest in USGCD represented by the USGCD
Common Shares held by such Non-Affiliated Shareholder.
(m) Certain Actions Not to Be Taken Before Closing. Prior to
the Closing Date, the Affiliated Shareholders will not, without the prior
written consent of GVI, cause or authorize USGCD to:
(i) No Debt or Securities. Except as set forth
on SCHEDULE 5(m)(i), create or incur any indebtedness, whether funded or not,
except unsecured current liabilities incurred in the ordinary course of business
or the refinancing of existing debt; or assume, guarantee, endorse or otherwise
become responsible for the obligation of any other person, entity, firm or
corporation; any of which will result in a material increase in the obligations
assumed by GVI as a result of this transaction;
(ii) No Encumbrances. Create or incur any
mortgage, lien, charge or encumbrance of any kind, nature or description with
respect to any of USGCD's properties or assets, except in the ordinary course of
business;
(iii) No Contracts or Modifications. Make or
become a party to any material contract or commitment, or renew, extend, amend,
terminate or modify any contract or commitment, except in the ordinary course of
business;
9
<PAGE>
(iv) No Capital Expenditures. Make any material
capital expenditure or capital addition or betterment except as may be involved
in ordinary repairs, maintenance and replacements and minor plant and equipment
additions;
(v) No Disposition of Assets. Except as
disclosed on SCHEDULE 5(m)(i), sell or otherwise dispose of any of its assets
except sales in the ordinary course of business;
(vi) No Stock Distributions or Redemptions.
Declare or pay any dividend on, or make any other distribution upon or in
respect of, or purchase, retire or redeem any shares of its capital stock
without effecting a proportionate adjustment in the Conversion Ratio as provided
for in Section 2 of this Agreement;
(vii) No Business or Stock Acquisitions. Acquire
any stock of any corporation or any interest in any business enterprise except
as may be required to effectuate the terms and conditions of this Agreement;
(viii) No Option or Commitments. Grant any option
or make any commitment relating to the authorized or issued capital stock of
USGCD other than as set forth on EXHIBIT 3;
(ix) No Management Payments. Pay or agree to pay,
conditionally or otherwise, any pension or severance pay to any director,
officer, Affiliated Shareholder, or make any advances to or increase the
compensation of, any director, officer or Affiliated Shareholder;
(x) No Misuse of Assets. Use any assets or
properties, except for proper corporate purposes in the ordinary course of
business;
10
<PAGE>
(xi) No Change in Charter or Bylaws. Make any
change in USGCD's Certificate of Incorporation or Bylaws; and
(xii) No Banking Changes. Change any of USGCD's
banking or safe deposit arrangements or open any new bank accounts or safe
deposit boxes, other than in the normal course of business.
6. Representations, Warranties and Covenants of USGCD. By virtue of its
execution of this Agreement, USGCD hereby represents, warrants and covenants to
GVI as follows:
(a) Exchange Securities Unencumbered; Sole Equity; Corporate
Power. The USGCD Common Shares to be transferred to GVI on the Closing Date, and
the USGCD Options, will constitute all of the issued and outstanding equity
securities of USGCD as of the Closing Date (and as of the Closing, there shall
be no debt securities of USGCD not previously disclosed to GVI). The USGCD
Securities will be transferred free and clear of any and all options, contracts,
calls, commitments or demands of any character and there will be no outstanding
options, contracts, calls, liens or demands of any character relating to such
equity interest in USGCD; that is, the USGCD Securities to be transferred to GVI
on the Closing Date will constitute the complete ownership, legal and equitable,
record and beneficial, of the equity of USGCD on the Closing Date. As of the
Closing Date, and except as described herein or disclosed on SCHEDULE 6(a),
USGCD shall not own any equity interest in any other corporation, partnership,
joint venture or proprietorship; and shall have on the Closing Date full
corporate power and authority to carry on its business as the same shall be
conducted between the date hereof and the Closing Date.
11
<PAGE>
(b) Corporate Existence and Power. USGCD, at the Closing Date,
will be a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and authorized to do business in the
states of Texas, North Carolina, Florida and Michigan with full power and
authority to conduct its business as the same is presently being conducted.
(c) Agreement is Lawful and Not a Breach of Law or Contracts.
The execution and performance of this Agreement in the time and manner
contemplated will not conflict with, result in a breach of or constitute a
default under any provision of law, the Certificate of Incorporation or Bylaws
of USGCD or of any existing agreement, indenture or other instrument to which
USGCD is a party or to which any of its businesses, assets or properties may be
bound or affected.
(d) Limitation on Issuance of Stock. Prior to the Closing
Date, USGCD will not cause the original issuance of any of its authorized but
unissued shares of common stock without effecting a proportionate adjustment in
the Conversion Ratio set forth in Section 2 of this Agreement.
(e) No Stock Commitments; No Change of Conversion Ratios.
There are not, and will not be at any time prior to the Closing Date, any
outstanding options, warrants, rights, contracts, calls, demands or commitments
of any type, kind or character relating to the capital stock of USGCD, except
for USGCD Options set forth in EXHIBIT 3.
(f) Capitalization. The capitalization of USGCD, immediately
prior to the Closing, will be as follows:
12
<PAGE>
Authorized Type of Security Issued and Outstanding
1,000,000 Common Stock 1,000,000
- 0 - Options on Common Stock 3,000,000+1
(g) Legal Compliance. USGCD has complied in all material
respects and at all times until the Closing Date will comply in all material
respects with all applicable state, federal and local laws, regulations and
ordinances. USGCD has not been notified, as of the date of this Agreement, that
it has failed to so comply with any such requirements.
(h) No Litigation. There is no litigation or governmental
proceeding or investigation pending or, to the knowledge of USGCD, threatened or
in prospect against USGCD, any of its officers, directors or Affiliated
Shareholders or their properties or relating to its capital stock. USGCD will
notify GVI promptly of any such initiated or threatened proceedings or
litigation which may arise or be instituted at any time prior to the Closing
Date.
(i) USGCD Financial Statements Not Misleading. The USGCD
Unaudited Financial Statements attached hereto as SCHEDULE 5(e) are true and
correct in all material aspects, and do not omit to state any material fact
required or necessary to make such statements, in light of the circumstances in
which they are made, not misleading.
(j) No Material Adverse Changes. To the best knowledge and
belief of USGCD, except as set forth on SCHEDULE 6(j), there has been no
material adverse change in the financial condition of USGCD since the date of
the USGCD's Unaudited Financial Statements.
- --------
1To be converted into shares of Common Stock of GVI.
13
<PAGE>
(k) No Extraordinary Liabilities, Payments or Transfers.
Except as reflected on the USGCD Unaudited Financial Statements set forth on
SCHEDULE 5(e), USGCD: (i) has not incurred any liability or made any payments
except as set forth on SCHEDULE 6(k), other than in the regular and normal
course of its business and between the date of this Agreement and the Closing
Date, and (ii) has not transferred any property for less than a fair and
adequate consideration.
(l) No Control Persons Distributions or Advances. USGCD has
not declared or paid since the date of the USGCD Unaudited Financial Statements,
and will not declare or pay prior to the Closing Date, any dividends or make any
distribution, directly or indirectly, of any of its assets to Affiliated
Shareholders, officers or directors, except for previously authorized management
fees and salaries or distributions in accordance with historical practice as set
forth on SCHEDULE 6(l), and normal expense reimbursements, nor has it made,
since the date of the USGCD Unaudited Financial Statements nor will it make
prior to the Closing Date, any loans, advances or distributions to them except
for those disclosed on SCHEDULE 6(1).
(m) All Taxes Current. To the best knowledge and belief of
USGCD and except as set forth on SCHEDULE 6(m) annexed hereto, any and all taxes
accrued or asserted against USGCD have been paid, or USGCD has established
adequate reserves therefor. All tax returns for USGCD required to be filed have
been or will be filed for all periods ending on or before the Closing Date; no
extensions of the applicable statutes of limitations have been, or will be,
prior to the Closing Date, applied for by USGCD. Any and all additional taxes
arising from the operation of USGCD for any period up to and including the
14
<PAGE>
Closing Date and not provided for on the books and records of USGCD are and
shall be the sole liability of USGCD. Copies of the most recently filed federal,
state and local tax returns shall be furnished to GVI and its counsel prior to
the Closing Date.
(n) Assets Unencumbered. Except as set forth in the USGCD
Unaudited Financial Statements set forth on SCHEDULE 5(e) hereto or on SCHEDULE
6(n) annexed hereto, USGCD has clear and unencumbered title to all of the assets
and property owned by it and to the extent reflected in the USGCD Unaudited
Financial Statements and USGCD has no material assets that are not reflected in
the USGCD Unaudited Financial Statements.
(o) No Material Breaches by USGCD or Third Parties. To the
best knowledge and belief of USGCD, USGCD is not in material default under any
material contract or obligation, except as previously disclosed and set forth on
SCHEDULE 6(o), and all third parties with whom USGCD has contractual
arrangements are in material compliance therewith and are not in material
default thereunder.
(p) Employee Benefit Plans. Except as set forth on SCHEDULE
6(p) hereto, USGCD has not adopted, and, without the written consent of GVI,
will not prior to the Closing Date adopt, any life insurance, hospitalization
insurance, profit sharing, stock option plans, pension or retirement benefit
plans or arrangements or deferred compensation agreements whether or not legally
binding, nor is USGCD presently paying any pension or retirement allowance.
(q) Employment Agreements. USGCD has not adopted, and, without
written consent of GVI, will not adopt prior to the Closing Date, any employment
15
<PAGE>
or collective bargaining agreements, except as previously disclosed and set
forth on SCHEDULE 6(q).
(r) No Undisclosed Liabilities. To the best of the knowledge
and belief of USGCD, there are no material liabilities, either fixed or
contingent, not reflected in the USGCD Unaudited Financial Statements or on
SCHEDULE 6(r) annexed hereto, except that there may be contracts or obligations
incurred in the usual course of business not reflected therein which, if
disclosed, would not materially adversely affect the financial condition of
USGCD as reflected in such statements.
(s) No Misleading Statements. No representation or warranty
made by USGCD in this Agreement and any Schedule hereto furnished or to be
furnished to GVI contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required or necessary to
make the statements and representations herein or therein made, in light of the
circumstances under which they were made, not misleading.
(t) Shares Validly Issued without Assessment or Liabilities.
On the Closing Date, USGCD shall have authorized, issued and outstanding the
securities set forth in clause (f) of this Section 6, except for those
securities for which a proportionate adjustment in the Conversion Ratio shall
have been made as provided for in Section 2 of this Agreement and all USGCD
Common Shares indicated as being issued and outstanding on the Closing Date
shall be duly and validly issued and outstanding, fully paid and non-assessable
with no personal liability attached to the ownership thereof.
(u) No Outstanding Rights to USGCD Equity. Except as disclosed
in this Agreement and in the Exhibits and Schedules attached hereto, there are
16
<PAGE>
no outstanding rights to subscribe to shares of stock of USGCD and none will be
so authorized subsequent to the execution of this Agreement without the prior
written consent of GVI except as contemplated in connection with the Golf
Interests Acquisition, as defined below in Section 8(c).
(v) Dissenter's Appraisal Rights Waived. No USGCD
Securityholder has any right of appraisal or similar right to dissent from the
transaction made the subject of this Agreement and to demand payment for his
shares which right will not be waived prior to the Closing Date and all such
rights are hereby waived and released.
(w) No Unpaid Dividends. USGCD has no unpaid dividends.
(x) No USGCD Merger Action Before Closing. Prior to the
Closing Date, USGCD will not authorize a reorganization, recapitalization,
merger, consolidation, stock split or take other similar corporate action except
as may be required to effectuate the terms and conditions of this Agreement.
(y) Certain Actions Not to Be Taken Before Closing. Prior to
the Closing Date, and except as contemplated in connection with the Golf
Interests Acquisition, USGCD will not, without the prior written consent of GVI:
(i) No Indebtedness. Except as set forth on
SCHEDULE 5(m)(i), create or incur any indebtedness, whether funded or not,
except unsecured current liabilities incurred in the ordinary course of
business; or assume, guarantee, endorse or otherwise become responsible for the
obligation of any other person, entity, firm or corporation;
(ii) No Encumbrances. Create or incur any
mortgage, lien, charge or encumbrance of any kind, nature or description with
respect to any of USGCD's properties or assets, except in the ordinary course of
business;
17
<PAGE>
(iii) No Contracts or Modifications. Without the
prior written consent of GVI which shall not be unreasonably withheld, make or
become a party to any contract or commitment, or renew, extend, amend, terminate
or modify any contract or commitment, except in the ordinary course of business;
(iv) No Capital Expenditures. Without the prior
written consent of GVI which shall not be unreasonably withheld, make any
material capital expenditure or capital addition or betterment except as may be
involved in ordinary repairs, maintenance and replacements and minor plant and
equipment additions;
(v) No Disposition of Assets. Without the prior
written consent 01 GVI which shall not be unreasonably withheld, except as
disclosed on SCHEDULE 5(m)(i), sell or otherwise dispose of any of its assets
except sales in the ordinary course of business;
(vi) Dividends. Declare or pay any dividend on,
or make any other distribution upon or in respect of, or purchase, retire or
redeem any shares of its capital stock, except as may be required by the terms
thereof without effecting a proportionate adjustment in the Conversion Ratio as
required by Section 2 of this Agreement;
(vii) No Issuances of Securities. Issue or sell
any additional shares of capital stock, whether or not such shares have been
previously authorized for issuance, or acquire any stock of any corporation or
any interest in any business enterprise without effecting the proportionate
adjustment in the Conversion Ratio required by Section 2 of this Agreement;
(viii) No Option Grants or Commitments. Grant any
option or make any commitment relating to the authorized or issued capital stock
of USGCD;
18
<PAGE>
(ix) No Control Person Payments or Advances. Pay
or agree to pay, conditionally or otherwise, any pension or severance pay to any
director, officer, or make any advances to or increase the compensation of, any
officers or employees;
(x) No Misuse of Assets. Use any assets or
properties except for proper corporate purposes;
(xi) No Change in Charter or Bylaws. Without the
prior written consent of GVI which shall not be unreasonably withheld, make any
change in its Certificate of Incorporation or By-Laws;
(xii) No Banking Changes. Change any of USGCD's
banking or safe deposit arrangements or open any new bank accounts or safe
deposit boxes, other than in the normal course of business.
(z) Corporate Authorization and Power; No Breach of any
Contracts or Order; No Filing or Public Approval. USGCD has the power to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been or will be prior to Closing Date duly authorized
by USGCD's Board of Directors, and USGCD shall furnish GVI with true copies of
any and all documentation evidencing such action. USGCD is not subject to or
obligated under any contract provision or any license, franchise or permit, or
subject to any order or decree, which would be breached or violated by USGCD's
execution and performance of this Agreement in the time and manner contemplated
herein. Except as required by applicable securities laws or as set forth on
SCHEDULE 6(z), no filing or registration with, or authorization, consent or
19
<PAGE>
approval of any public body or authority is necessary to execute or perform this
Agreement and the consummation by USGCD of the transactions contemplated hereby.
(aa) Belief as to Sufficiency of Information Received. By
virtue of its execution of this Agreement, USGCD hereby acknowledges and accepts
that it has been furnished with all information concerning the business and
financial condition and corporate status of GVI which USGCD's management deemed
necessary to its decision to proceed with the transactions as described herein.
(bb) USGCD Bank Accounts. Other than as set forth on SCHEDULE
6(bb) annexed hereto, USGCD maintains no deposit, checking, or other accounts,
however described or wherever located.
(cc) Environmental Matters. To the best knowledge of USGCD,
none of the properties held by the entities listed in Section 8(c) are or may be
impaired by or subject to claims or restrictions resulting from the deposit of
toxic or other hazardous materials on or near such properties. Further, to the
best knowledge of USGCD, none of the properties held by the entities listed in
Section 8(c) are or may be the subject of any violation or restriction of any
state or federal law, rule or regulation relating to the protection of the
environment.
(dd) Material Contracts Not Disclosed in this Agreement.
SCHEDULE 6(cc) annexed hereto sets forth a complete list of all material
contracts to which USGCD is a party or to which USGCD is subject and that are
not otherwise disclosed pursuant to this Agreement. USGCD has provided GVI with
true and correct copies of all such agreements.
(ee) Representations True on Closing Date. Each of the
representations in this Section 6 shall be true and correct at the Closing Date.
20
<PAGE>
(ff) Permitted Activities. Notwithstanding anything to the
contrary elsewhere in this Agreement, USGCD shall be permitted prior to the
consummation of the Reorganization to do either of the following:
(i) Indebtedness in Ordinary Course. Incur
indebtedness on an unsecured basis for the purpose of funding its continuing
operations (in a manner consistent with the terms of this Agreement); or
(ii) Golf Interests Acquisitions. Issue, in
connection with the Golf Interests Acquisition, 1,000,000 shares of its Common
Stock.
7. Representations and Warranties of GVI. By virtue of its execution of
this Agreement, GVI hereby represents and warrants to USGCD and the USGCD
Securityholders as follows:
(a) Corporate Existence and Power. GVI is and on the Closing
Date will be a corporation duly organized, validly existing and in good standing
under the laws of the State of Utah with full power and authority to conduct its
business as the same is presently being conducted.
(b) Due Authorization; Corporate Authorization and Power; No
Breach of Contract or Order; No Filing or Public Approval. GVI has the corporate
power to enter into this Agreement and carry out its obligations hereunder. By
the Closing Date, the execution and delivery of this Agreement, the performance
of its obligations hereunder, and the consummation of the transactions
contemplated hereby will have been duly authorized by GVI's Board of Directors
and shareholders and no other corporate action or proceeding on the part of GVI
21
<PAGE>
will be necessary to authorize this Agreement and the consummation
of transactions contemplated hereby. Prior to the Closing Date, GVI will provide
USGCD's attorneys with resolutions of the Board of Directors of GVI which duly
authorize the officers of GVI to effectuate and consummate the transaction which
is the subject of this Agreement, and further GVI will furnish USGCD with
documentation which constitutes and comprises all consents, approvals, waivers,
filings, registrations and other actions required of or to be made with other
persons or governmental authorities in connection with the transaction
contemplated herein under the laws of the State of Utah and any other applicable
states and evidencing compliance with or an applicable exemption from the
registration provisions of (i) Section 5 of the Securities Act of 1933 (the
"Securities Act") and (ii) applicable state securities laws. Except for matters
disclosed to USGCD, GVI is not subject to or obligated under any charter,
by-laws or contract or any license, franchise or permit, or subject to any order
or decree, which would be breached or violated by the execution, delivery and
performance of this Agreement by GVI in the time and manner contemplated herein.
Other than as referred to herein or in connection, or in compliance with the
provisions of the Securities Act, and the securities ("blue sky") laws of the
various states, no filing or registration with or authorization, consent or
approval of, any public body or authority is necessary for the consummation by
GVI of the transaction contemplated by this Agreement.
(c) No Material Adverse Changes. Except for the actions set
forth and disclosed on SCHEDULE 7(c), since the March 31, 1997 date of the
Audited Financial Statements, there has not been and will not be without the
consent of USGCD: (i) any material adverse change in the financial condition of
GVI; (ii) any material change in the corporate status of GVI; (iii) any unpaid
22
<PAGE>
dividends, declaration, setting aside or payment of any dividend (whether in
cash, stock or property) with respect to the capital stock of GVI; (iv) any
collective bargaining agreement, labor dispute, other than routine matters, none
of which is material to GVI; (v) any entry into any lease, material contracts,
services or advisory contracts, consulting arrangements or employment
agreements, commitments or transactions (including without limitation any
borrowing or capital expenditure); (vi) the execution or issuance of any note,
bond, mortgage or other obligation; or (vii) any other event or condition of any
character materially and adversely affecting the financial condition of GVI.
(d) Lack of Conflicts. The execution and performance of this
Agreement in the time and manner contemplated will not conflict with, result in
a breach of or constitute a default under any provision of law, the Articles of
Incorporation or By-Laws of GVI or of any existing agreement, indenture or other
instrument to which GVI is a party or to which it may be bound or affected.
(e) Capitalization. The capitalization of GVI as of the
Closing Date will be substantially as follows:
Authorized Issued and Outstanding
100,000,000 shares of Common Stock 6,260,6922
- --------
2Includes shares presently issued and outstanding plus: (a) up to 225,700 shares
to be converted from Class A Preferred; and (b) 3,942,550 authorized for
issuance on July 25, 1997 to convert GVI Class B Preferred to be issued prior to
the Closing Date. The parties acknowledge that the Board of Directors of GVI has
recently rescinded 823,343 shares of Common Stock previously issued to American
Resources and Development Co., a Utah corporation ("ARDCO") and is evaluating if
any such shares should be reissued. In the event additional shares of Common
Stock are issued to ARDCO, an appropriate adjustment will be made in the
Conversion Ratio as provided for by Section 2 of this Agreement.
23
<PAGE>
All shares of Common Stock and Preferred Stock issued and outstanding are duly
authorized, validly issued, fully paid and nonassessable. The shares of GVI
Common Stock issued under this Agreement to the USGCD Securityholders who
received USGCD Common Shares in connection with the Golf Interests Acquisition
(defined below) shall, in the aggregate, constitute not less than eighty-one
percent (81%) of the total issued and outstanding shares of GVI's Common Stock
immediately following such issuance. GVI has reserved, or will reserve, for
issuance such number of shares of Common Stock necessary for the potential
exchange or conversion of its outstanding Preferred Stock and exercise of the
USGCD Options and consummation of the Reorganization as contemplated herein.
(f) Outstanding Options. There are not, except as disclosed
herein, and will not be at any time prior to the Closing Date, any outstanding
subscription rights, options, contracts, calls, demands or commitments of any
type, kind or character relating to the capital stock of GVI.
(g) Corporate Approval of Transactions and Legal Compliance.
All corporate action required of GVI has been or will be taken prior to the
Closing Date and all tax reports and returns required to be filed by GVI have
been or will be timely filed prior thereto. GVI has complied, and at all times
until the Closing Date will comply, with all applicable state, Federal or local
laws, including Federal and State securities laws, regulations or ordinances and
will notify USGCD, immediately upon receiving any violation claim. GVI has not
been notified, as of the date of this Agreement, that it has failed to so comply
with any such requirements.
24
<PAGE>
(h) No Litigation. Except as disclosed and set forth on
SCHEDULE 7(h), there is no litigation or governmental proceeding or
investigation pending or, to the knowledge of GVI's officers or directors,
threatened or in prospect against GVI, any of its officers, directors or
principal shareholders or relating to its capital stock. GVI will notify USGCD
promptly upon receipt of any such notification of any such initiated or
threatened proceedings or litigation which may arise or be instituted at any
time prior to the Closing Date.
(i) Charter Documents. Copies of GVI's Articles of
Incorporation, all amendments thereof, By-Laws and all minutes of GVI are
contained in the minute books which will be furnished to USGCD and its counsel
as soon as practicable, but prior to the Closing Date; all additional minutes
and other corporate documents of GVI adopted or executed subsequent to this
Agreement, but prior to the Closing Date, will be furnished promptly to USGCD
and its counsel.
(j) All Taxes Current. Except as disclosed on SCHEDULE 7(i),
all Federal and state tax returns required to be filed for all fiscal years
ended on or before December 31, 1996, if any, have been filed and the tax
disclosed therein, if any, has been or will be paid prior to the Closing Date.
No extensions of the applicable statutes of limitations have been, or will be,
prior to the Closing Date, applied for or consented to by GVI without
consultation with the officers or agents of USGCD.
(k) Assets Encumbrances. Except as previously disclosed and as
set forth on SCHEDULES 7(k) and 7(aa), GVI has clear and unencumbered title to
all of its properties. Prior to the Closing Date and except in the ordinary
25
<PAGE>
course of its business, GVI will not dispose of or encumber any of its property
without the prior written consent of USGCD.
(l) No Material Breaches. Except as disclosed on SCHEDULE
7(1), GVI is not in material default under any material contract or obligation;
and all third parties with whom GVI has contractual arrangements are in material
compliance therewith and are not in material default thereunder.
(m) Employee Benefit Plans. Except as set forth in SCHEDULE
7(m), GVI does not have and, without the written consent of USGCD, will not
prior to the Closing Date, adopt, any stock option or incentive or bonus or
similar stock plans, life insurance, hospitalization insurance, profit sharing,
pension or retirement benefit plans or arrangements or deferred compensation
agreements whether or not legally binding, nor is GVI presently paying any
pension or retirement allowance.
(n) Employment Agreements. GVI has not adopted and, except as
provided for within this Agreement or without written consent of USGCD, will not
prior to the Closing Date, adopt any employment or collective bargaining
agreements in addition to those disclosed on SCHEDULE 7(n).
(o) Inspection of Records. At all times prior to the Closing
Date, USGCD may inspect, copy and reproduce any tax returns, accounting and
other records of GVI relating to its property and capitalization. GVI will
afford to the officers and authorized representatives of USGCD access to the
properties, books and records of GVI and furnish such information as USGCD and
its counsel may from time to time reasonably request.
26
<PAGE>
(p) Existing Insurance Policies. Except as disclosed and set
forth on SCHEDULE 7(p), GVI does not carry any policies of fire, liability and
other insurance as of the date of this Agreement. Prior to the Closing Date, GVI
will maintain all existing polices in full effect.
(q) GVI Financial Statements. To the best knowledge of GVI,
the audited balance sheet of GVI for the fiscal year ended March 31, 1997 and
the related statements of operations stockholders' equity and cash flows for the
years ended March 31, 1997 and 1996, and the statements of income and notes
thereto (collectively, the "GVI Financial Statements") and the unaudited interim
financial statements attached hereto as SCHEDULE 7(q) accurately present the
financial condition and the results of operations of GVI as of the dates thereof
and were prepared in accordance with generally accepted accounting principles
consistently applied. There are no material liabilities, either fixed or
contingent, not reflected in such financial statements. GVI intends to shortly
amend the GVI Financial Statements to reflect subsequent events occurring prior
to Closing, including the Company's treatment of any ARDCO indebtedness for
which there were issued (and later rescinded) 823,343 shares of GVI Common Stock
and to make other corrections which GVI's management deems appropriate. USGCD
will be provided with copies of all such amendments to the GVI Financial
Statements.
(r) Shares Validly Issued without Assessment or Liabilities.
All of the shares of Common Stock as and when delivered as required pursuant to
this Agreement will be duly and validly issued, fully paid and non-assessable
with no personal liability attaching to the ownership thereof and will convey to
27
<PAGE>
the USGCD Securityholders good and valid title to such securities, free and
clear of any liens, encumbrances or claims of any nature, contingent or
otherwise, and will entitle the USGCD Securityholders to all the rights of
holders of such securities, subject in each case to the restrictions on
transferability imposed by the Securities Act and the rules and regulations of
the United States Securities and Exchange Commission (the "SEC") promulgated
thereunder.
(s) Accuracy of Representations. The information given and
every representation, warranty and statement made or furnished by GVI hereunder
is true and correct and does not contain a misstatement of a material fact or
omit to state a material fact required in order to make such statements and
representations, in light of the circumstances under which they are made, not
misleading.
(t) Issuance of Additional Shares. Prior to the Closing Date,
GVI will not cause or permit or agree to the original issuance of any class of
equity or debt securities; provided, however, that notwithstanding this
subsection 7(t), GVI may, prior to the Closing Date, issue up to 225,700 shares
of its Common Stock to convert all of the issued and outstanding shares of GVI's
Class A Preferred Stock to Common Stock.
(u) Accuracy of Financial Statements. The GVI Financial
Statements provided pursuant to this Agreement, are, to the best knowledge of
GVI, true and correct in all material aspects, and do not omit to state any
material fact required or necessary to make such statements, in light of the
circumstances in which they are made, not misleading; provided, however, that
the fact that said financial statements do not reflect the issuance of the
following additional shares of Common Stock, or the issuance of any shares of
28
<PAGE>
Common Stock pursuant to the agreement referred to in subsection 7(t), shall not
be construed as rendering such financial statements misleading:
(i) Management Stock. GVI's issuance of 250,000
shares of its Common Stock to GVI management personnel on July 8, 1997, as
authorized by GVI's Board on June 23, 1997;
(ii) ARDCO Stock. GVI's issuance of 823,343 shares
of its Common Stock to ARDCO in exchange for cancellation of GVI's debt to ARDCO
on July 8, 1997, as authorized by GVI's Board on June 23, 1997 (which share
issuance was rescinded for further review by the Board of Directors of GVI on
August 22, 1997); and
(iii) Series B Preferred. The issuance prior to the
Closing Date of 3,942,550 shares of its Common Stock to convert all of the
issued and outstanding shares of GVI's Class B Preferred Stock to Common Stock
as authorized by GVI's Board on July 25, 1997.
(iv) All Liabilities Disclosed on GVI's Financial
Statements. To the best knowledge, information and belief of GVI's management,
there are no material liabilities, either fixed or contingent, not reflected in
the GVI Financial Statements or disclosed on the Schedules attached hereto,
except that there may be contracts or obligations incurred in the usual course
of business not reflected therein which, if disclosed, would not materially
adversely affect the financial condition of GVI as reflected in such statements.
(v) No Mergers Prior to Closing. Prior to the Closing Date,
GVI's Board of Directors will not vote for or authorize the reorganization,
recapitalization, merger, consolidation, stock split or other similar corporate
29
<PAGE>
action on behalf of GVI except as may be required to effectuate the terms and
conditions of this Agreement.
(w) No New GVI Equity or Debt Securities. Prior to the Closing
Date, GVI's Board of Directors will not vote for or authorize the creation of
any other class of equity or debt security of GVI.
(x) Actions Not to be Taken Prior to Closing. Prior to the
Closing Date, GVI will not, without the prior written consent of USGCD, do or
agree to do any of the following:
(i) No Indebtedness. Create or incur
any indebtedness, whether funded or not, except unsecured current liabilities
incurred in the ordinary course of business; or assume, guarantee, endorse or
otherwise become responsible for the obligation of any other person, entity,
firm or corporation;
(ii) No Encumbrances. Create or incur
any mortgage, lien, charge or encumbrance of any kind, nature or description
with respect to any of GVI's properties or assets except in the ordinary course
of business or as required by the terms and conditions of its capital stock;
(iii) No Contracts or Modifications.
Without the prior written consent of USGCD, which shall not be unreasonably
withheld, make or become a party to any contract or commitment, or renew,
extend, amend, terminate or modify any contract or commitment, except in the
ordinary course of business;
(iv) No Capital Expenditures. Without the
prior written consent of USGCD, which shall not be unreasonably withheld, make
any material investment, acquisition, or any capital expenditure or capital
30
<PAGE>
addition or betterment except as may be involved in ordinary repairs,
maintenance and replacements and minor plant and equipment additions;
(v) No Disposition of Assets. Without
the prior written consent of USGCD, which shall not be unreasonably withheld,
sell or otherwise dispose of any of its assets except sales in the ordinary
course of business;
(vi) No Dividends or Redemptions. Declare
or pay any dividend on, or make any other distribution upon or in respect of, or
purchase, retire or redeem any shares of its capital stock;
(vii) No Issuance of Securities. Except as
permitted by subsection 7(t), issue or sell any additional shares of capital
stock, whether or not such shares have been previously authorized for issuance,
or acquire any stock of any corporation or any interest in any business
enterprise;
(viii) No Options. Grant any option or make
any commitment relating to the authorized or issued capital stock of GVI;
(ix) No Management Payments. Pay or
agree to pay, conditionally or otherwise, any pension or severance pay to any
director, officer, agent or employee, or make any extraordinary advances to or
increase the compensation of, any officers or employees;
(x) No Improper Use of Assets. Use any
assets or properties except for proper corporate purposes;
31
<PAGE>
(xi) No Change in Charter or Bylaws.
Without the prior written consent of USGCD, which shall not be unreasonably
withheld, make any change in the Articles of Incorporation or By-Laws or
effectuate any merger, reorganization, consolidation or other change affecting
the GVI corporate structure, capitalization or existence except as permitted by
subsections 7(t) and 7(u);
(xii) No Banking Change. Change any of
GVI's banking or safe deposit arrangements or open any new bank accounts or safe
deposit boxes, other than in the normal course of business;
(y) No Undisclosed Liabilities. Except as otherwise disclosed
in writing to USGCD, GVI has no liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) which are required to be reflected
or reserved against in its balance sheet in accordance with generally accepted
accounting principles consistently applied, except for liabilities and
obligations fully reflected or reserved against in the GVI Financial Statements
or incurred in the ordinary course of business and consistent with past practice
since the date of the GVI Financial Statements;
(z) Material Contracts. SCHEDULE 7(aa) sets forth a complete
list of all material contracts to which GVI is a party or to which GVI is
subject that are not otherwise disclosed in this Agreement. GVI has provided
USGCD with true and correct copies of all such agreements. To the best knowledge
and belief of GVI, there are no significant oral agreements or arrangements and
GVI is not in material default under any material contract or obligation and all
third parties with whom GVI has contractual arrangements are in material
compliance therewith and are not in material default thereunder;
32
<PAGE>
(aa) Environmental Matters. To the best knowledge of GVI, none
of the properties none of GVI's properties are or may be impaired by or subject
to claims or restrictions resulting from the deposit of toxic or other hazardous
materials on or near such properties. Further, to the best knowledge of GVI,
none of its properties are or may be subject of any violation or restriction of
any state or federal law, rule or regulation relating to the protection of the
environment.
(bb) Continuing Accuracy. Each of the representations in
this Section 7 shall be true and correct at the Closing Date.
8. Covenants of USGCD and the Affiliated Shareholders. By virtue of its
and their respective execution of this Agreement, USGCD and the Affiliated
Shareholders hereby jointly and severally covenant and agree with GVI as
follows:
(a) Subscription Agreements. On the Closing Date, each
Affiliated Shareholder will deliver an executed subscription agreement and
investment letter to GVI in the form annexed hereto as SCHEDULE 8(a) (the
"Investment Letters") and will use its best efforts to cause each Option Holder
and owner of the USGCD Securities to deliver an executed Investment Letter to
GVI.
(b) Certificates. Each Affiliated Shareholder agrees and
covenants to execute the certificate identified in Section 1 l(a)(iv) below.
(c) Golf Interests Acquisition. Prior to the Closing
Date the Affiliated Shareholders will:
(i) Acquisition of Interests. Cause USGCD
(through one or mare subsidiaries if it so elects) to acquire, pursuant to an
offering or private placement memorandum that complies, in all material
33
<PAGE>
respects, with all applicable state and federal securities laws, through the
issuance USGCD Common Shares in a number sufficient to constitute (after the
issuance of such Common Shares and when aggregated with any USGCD Common Shares
issued to retire the debt to the European Investors, defined below), not less
than eighty-one percent (81 %) of all of the then issued and outstanding shares
of each and every class of USGCD stock and holding not less than eighty-one
percent (81%) of the total combined voting power of all issued and outstanding
USGCD voting stock, the following interests (which are herein referred to as the
"Golf Interests"):
(A) either substantially all of the
assets or, all of the issued and outstanding equity interests, in (i) NorthShore
U.S. Golf, Inc., a Texas corporation, (ii) U.S. Golf (Plantation), Inc., a
Florida corporation, (iii) U.S. Golf (Cutter Sound), Inc., a Florida
corporation, (iv) U.S. Golf (Wedgefield), Inc., a Florida corporation, and (v)
U.S. Golf (LP), Inc., a Florida corporation.
(B) all of the general and limited
partner interests in (i) NorthShore Golf Partners, Ltd., a Texas limited
partnership, (ii) NorthShore Development, Ltd., a Texas limited partnership,
(iii) Monteverde Property, Ltd., a Florida limited partnership, (iv) U.S. Golf
Pinehurst Plantation, Ltd., a Florida limited partnership, (v) Cutter Sound
Development, Ltd., a Florida limited partnership, (vi) Wedgefield Limited
Partnership, a Michigan limited partnership, and (vii) FSD Golf Club, Ltd., a
Florida limited partnership.
(ii) European Indebtedness. Cause all the issued
and outstanding indebtedness of USGCD and payable to any European lenders or
investors in the Golf Interests (or to a trustee for the benefit of such lenders
34
<PAGE>
and investors) (the "European Investors"), whether or not evidenced by
promissory notes issued by USGCD, as more particularly described on SCHEDULE
8(c) attached to this Agreement (the "European Debt"), in the aggregate
principal sum of not less than $12,000,000 to be either converted into USGCD
Common Shares or, if requested by a holder thereof, to be canceled upon payment
of the underlying obligation and will use their best efforts to convert up to
$18,000,000 of the European Debt.
For purposes of this Agreement, the acquisition of the Golf
Interests and the conversion of the European Debt into USGCD Common Shares
described in this Section 8(c) shall be referred to as the "Golf Interests
Acquisition."
(d) Underwriting Agreement. USGCD and the Affiliated
Shareholders shall use their best efforts to obtain, and prior to Closing, USGCD
shall use its best efforts to have entered into, an engagement agreement with
Oppenheimer & Co., Inc., in the form attached hereto as SCHEDULE 8(d).
(e) Legal Opinion. On the Closing Date, USGCD will furnish GVI
with an opinion of securities counsel and corporate counsel in form and
substance reasonably acceptable to GVI and GVI's securities counsel.
(f) Lock-up Agreement. On the Closing Date, all of the
Affiliated Shareholders of USGCD will furnish GVI with an executed copy of the
agreement annexed hereto as SCHEDULE 8(f) (the "Lock-Up Agreement") wherein and
whereby each listed Affiliated Shareholder and each Nonaffiliated Shareholder
owning, directly or indirectly, more than five percent (5 %) of the USGCD Common
Shares agrees to a voluntary restriction against the sale, pledge, gift and/or
35
<PAGE>
other hypothecation and lock-up of his/its shares of Common Stock for a period
of six (6) months from the Closing Date (the "Lock-Up Period") and on certain
restrictions affecting disposition of such shares following the Lock-Up Period,
on the terms and subject to the conditions set forth in the Lock-Up Agreement.
(g) Access to Records. At all times prior to the Closing Date,
GVI through its duly authorized representatives, may inspect, copy and reproduce
any tax returns, accounting and other records of USGCD relating to its property,
assets or business. USGCD will afford to the officers and authorized
representatives of GVI access to the properties, books and records and furnish
such information as GVI and its counsel may from time to time reasonably
request.
(h) Insurance Policies. If requested by GVI, USGCD will
deliver to GVI an accurate and complete list and brief description of all
policies of fire, liability, errors and omissions and other insurance carried by
USGCD as of the date of this Agreement. USGCD will take all steps necessary to
keep such policies in full force and effect through the Closing Date and will
inform GVI of any changes in coverage or additional policies prior to the
entering into such policies.
(i) Corporate Documents. Copies of USGCD's Certificate of
Incorporation, all amendments thereto, By-Laws, and all minutes of USGCD are
contained in the minute books which will be furnished to GVI and its counsel
prior to the Closing Date; and all additional minutes and other corporate
documents of USGCD adopted or executed subsequent to this Agreement, but prior
36
<PAGE>
to the Closing Date (none of which will diminish or dilute the rights of GVI
hereunder), will be furnished to GVI and its counsel prior to the Closing Date.
(j) Furnishing of Audited Financial Statements. Prior to the
Closing Date, USGCD shall cause an audited balance sheet, statements of
operations and retained deficit, statements of cash flows and notes to financial
statements for the twelve (12) months ended December 31, 1996 (the "USGCD
Audited Financial Statements") which reflect the consummation of the Golf
Interests Acquisitions as if such transaction had occurred as of such date and
which accurately reflect the status of the business and assets of USGCD as of
the date thereof. Upon the delivery of the USGCD Audited Financial Statements,
the warranties and representations made by the Affiliated Shareholders and USGCD
with regard to the USGCD Unaudited Financial Statements within this Agreement
shall be deemed to apply with equal force and effect to the USGCD Audited
Financial Statements.
(k) Employment Arrangements. Subject to Section 9(g) hereof,
prior to the Closing Date, USGCD shall negotiate and execute a mutually
satisfactory employment agreement for a term ending on December 31, 1998 with
Duane H. Marchant pursuant to which Mr. Marchant, as Vice President-Western
Region of GVI, will receive a salary of $72,000 per year and shall also be
entitled to such equal participation in GVI's bonus, benefit and stock option
plans as is afforded other officers of equal standing in GVI. The agreement
shall be voidable at UGCD's option if Mr. Marchant should be notified that he
has become the subject of an SEC investigation.
(l) Observance of Terms of Material Contracts. Following the
Closing Date, the Affiliated Shareholders covenant that they will cause GVI to
comply with the requirements of all mortgages applicable to the properties of
37
<PAGE>
GVI as existing prior to the Closing Date. Prior to the Closing Date, the
Affiliated Shareholders and USGCD covenant that they shall use their best
efforts to cause U.S. Golf Communities, Inc. or USGD to advance such sums as are
reasonably necessary to maintain such material contracts according to the terms
thereof and to preserve the properties of GVI according to a mutually
satisfactory budget to be prepared by the officers of GVI in consultation with
USGCD and the Affiliated Shareholders. It is contemplated that GVI will provide
USGCD a security interest in GVI's Washington County, Utah properties to secure
USGCD's advances and will execute all documentation necessary thereto to perfect
such interest.
9. Covenants of GVI. By virtue of its execution of this Agreement, GVI
hereby covenants and agrees with USGCD and the USGCD Securityholders as follows:
(a) Resignation of Directors and Officers. Effective as of the
Closing Date, Bruce E. Frodsham shall resign from the GVI Board and the Board of
Directors of GVI shall vote: (i) to nominate Warren Stanchina and Wolfgang Duren
(the "USGCD Directors") to serve until the next annual meeting of stockholders
of GVI; and (ii) in the event required by NASDAQ or any other exchange on which
GVI seeks listing or if any underwriter should require the election of at least
two (2) independent directors on GVI's Board, to expand the Board from three (3)
members to at least five (5) members. GVI further agrees to include Warren
Stanchina, Wolfgang Duren, and Duane H. Marchant in its proxy solicitation
material to be submitted to GVI's stockholders in connection with GVI's next
succeeding Annual Meeting of Stockholders unless any of the foregoing
individuals shall have resigned as directors prior to such date. Mr. Marchant
38
<PAGE>
shall execute as part of his employment agreement, and separately at Closing, a
resignation voiding his contract at UGCD's option if he becomes the subject of
an SEC investigation.
(b) Legal Opinion. On the Closing Date, GVI will furnish USGCD
with an opinion of securities counsel in a form reasonably acceptable to USGCD
and its counsel.
(c) Secondary Trading. As soon as practicable after the
Closing Date, GVI shall (i) take all steps necessary to facilitate the secondary
trading of the Common Stock in the United States; (ii) file a registration
statement with the SEC pursuant to Section 12 of the Securities Exchange Act of
1934, as amended; and (iii) apply for listing on NASDAQ or such other exchange
deemed appropriate by the board of directors of GVI.
(d) Securities Law Compliance. GVI hereby covenants and agrees
that at all times prior to the Closing Date, it will use its best efforts to
insure that GVI shall at all times be in full compliance with the United States
securities laws and the securities laws of such states in which GVI's securities
are listed for secondary trading.
(e) Proxy Matters. GVI hereby covenants and agrees that prior
to the Closing Date, it shall prepare and file a proxy statement in compliance
with all applicable SEC regulations and hold a meeting of stockholders for the
purposes (i) altering its capital structure to accommodate the Conversion Ratio;
(ii) adopting stock option plans substantially in the form of USGCD's Equity
Incentives Options and USGCD Incentive Compensation Plans; and (iii) approving
the Board composition and the Reorganization, if required by state law, provided
for herein effective at Closing. GVI expressly covenants that no options under
the foregoing stock option plans shall be issued prior to the Closing Date and
39
<PAGE>
that it shall consult with USGCD and its counsel as to the form and content of
the foregoing proxy statement.
(f) Amendment of SEC Filings. GVI hereby covenants and agrees
to promptly take such actions as are required to comply with any outstanding SEC
comments to its Form 10-SB, filed September 11, 1996, and to promptly amend that
certain Form 10-KSB, filed on July 15, 1997, in compliance with all applicable
securities laws. It is expressly covenanted and agreed by GVI that the foregoing
amendments to its Form 10-KSB shall include an amendment to its financial
statements as filed therewith to take into account any subsequent issuances or
rescissions of securities by GVI and any tax effects relating thereto.
(g) Officers' Resignations. GVI hereby covenants and agrees
that in the event that prior to, or following the Closing Date, Duane H.
Marchant should be formally notified that he is the subject of an investigation
by the SEC or any other agency of the United States Government, such individual
will promptly resign as an officer and/or director of GVI.
10. Registration Rights.
(a) "Piggy-back Rights." If at any time, or from time to time,
GVI proposes to file a registration statement on any appropriate form (a
"Registration Statement") (other than in connection with an exchange offer or a
registration statement on Form S4 or S-8 or at the demand of, or on behalf of,
any shareholder of GVI) under the Securities Act with respect to any Common
Stock for sale to the public for its own account which would permit registration
40
<PAGE>
of Common Stock held (for the purposes of this Section 10 "Registrable
Securities"), or to be received upon the exercise of any option, by the USGCD
Securityholders, Banque SCS, Olympus Investments and Miltex Industries
(collectively for the purposes of this Section 10, the "Holder(s)"), GVI shall:
(i) Notice. Promptly give to the Holders notice
thereof (which shall include a list of the jurisdictions in which GVI intends to
attempt to qualify the Registerable Securities under the applicable blue sky or
other state securities law); and
(ii) Inclusion of Shares. Include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities held, or to be received upon the exercise of any option by the
Holders specified in a written request or requests by the Holders made within 20
days after receipt of such notice from GVI.
(b) Underwriting Agreement. If the registration of which GVI
gives notice is for a registered public offering involving an underwriting, GVI
shall so advise the Holders as a part of the notice given pursuant to Section
10(a)(i). In such event, the right of the Holders to registration pursuant to
this Section 10 shall be conditioned upon the Holders' participation in such
underwriting and the inclusion of the Holders in the underwriting to the extent
provided herein. The Holders shall (together with GVI and the other Holders of
Registrable Securities distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriters
selected for such underwriting by GVI. Each Holder shall not be required to make
any representations or warranties to GVI or the underwriters other than those
relating to such Holder, his/its Registrable Securities then held, or those to
41
<PAGE>
be received upon the exercise of any options and the intended method of
distribution and information about the Holder provided by such Holder for use in
the Registration Statement.
(c) Exclusion of Shares. Notwithstanding any other provision
of this Section 10, if the registration is an underwritten primary registration
on behalf of GVI and the managing underwriters of such offering determine in
good faith that the aggregate amount of Common Stock which the Holders, GVI and
any other holders of registration rights propose to include in such Registration
Statement exceeds the maximum amount of Common Stock that could practicably be
included therein, GVI will include in such registration, first, the Common Stock
which GVI proposes to sell, second, the Common Stock to be sold for the account
of any holders entitled to demand registration, and third, the Registrable
Securities held, or those to be received upon the exercise of any options, by
the Holders and the Common Stock of any holders of other piggyback registration
rights, if any, which can practicably be included therein, pro rata among all
such holders, taken together, on the basis of the relative amount of Common
Stock owned by the Holders exercising registration rights pursuant to this
Section 10 and such other holders who have requested that Common Stock owned by
them be included.
(d) Withdrawal. GVI may withdraw any Registration Statement at
any time before it becomes effective, or postpone the offering of Common Stock,
without obligation or liability to the Holders.
(e) "Blackout Period." The Holders agree, if requested by the
managing underwriters in an underwritten offering of which any of their
Registrable Securities are a part, not to effect any public sale or distribution
of Registrable Securities, including a sale pursuant to Rule 144 under the
42
<PAGE>
Securities Act (except as part of such underwritten registration), during the
10-day period prior to, and during the 120-day period beginning on, the
effective date of each underwritten offering made pursuant to such Registration
Statement, to the extent timely notified in writing by GVI or the managing
underwriters; provided, however, that all officers and directors of GVI and all
other persons with registration rights (whether or not pursuant to this Section
10) enter into similar agreements. In order to enforce the foregoing covenant,
GVI may impose stop-transfer instructions with respect to the Registrable
Securities held, or to be received upon the exercise of any options by the
Holders until the end of such period.
(f) Selling Expenses. All Registration Expenses (as defined
below) incurred in connection with any registration, qualification or compliance
pursuant to this Section 10 shall be borne by GVI. All Selling Expenses (as
defined below) incurred in connection with any registrations hereunder shall be
borne by the Holders of the Registrable Securities so registered pro rata on the
basis of the number of shares so registered. For purposes of this Section 10(f)
"Registration Expenses" shall mean all expenses incurred by GVI in complying
with this Section 10 including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for GVI, reasonable
fees and disbursements of a single special counsel for the registering Holders
and all other holders of Common Stock to be registered, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of GVI's regular employees
43
<PAGE>
which shall be paid in any event by GVI) and (ii) "Selling Expenses" shall mean
all underwriting discounts and selling commissions applicable to the sale.
(g) Registration Information. In the case of each
registration, qualification or compliance effected by GVI pursuant to this
Section 10, GVI will keep the registering Holders advised in writing as to the
qualification and compliance and as to the completion thereof. At its expense
GVI will:
(i) Effective Status. Keep such Registration
Statement in effect and maintain compliance with each Federal and State law or
regulation for a period of one hundred and twenty (120) days or until the
Holders have completed the distribution described in the Registration Statement
relating thereto, whichever occurs first; and
(ii) Prospectus Delivery. Furnish such number of
prospectuses and other documents incident thereto as the Holders from time to
time may reasonably request.
(h) Completion of Information. No Holder may participate in
any underwritten registration hereunder unless such Holder (i) agrees to sell
such Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements and (iii) furnishes to GVI such information regarding
such person and the distribution proposed by such person as GVI may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 10.
44
<PAGE>
(i) Expiration of Rights. All rights and duties provided for
in this Section 10 shall terminate on the date two years from the closing date
of the initial underwritten public offering of Common Stock. In addition, the
right of any Holder to request inclusion in any registration pursuant to this
Section 10 shall terminate on the closing of the first GVI initiated registered
public offering of Common Stock if all shares of Registrable Securities held, or
to be received upon the exercise of options, by such Holder may immediately be
sold under Rule 144 during any ninety (90) day period, or on such date after the
closing of the first such GVI initiated registered public offering of Common
Stock all GVI shares may immediately be sold under Rule 144 during any ninety
(90) day period. Notwithstanding the foregoing, in the event that any Holder was
previously excluded from including Registrable Securities on any Registration
Statement pursuant to Section 10(c), such shares as have been previously
excluded shall be eligible for inclusion under this Section 10.
(j) Insider Limitations. Notwithstanding the above provisions
of this Section 10, any registration rights which are conferred by this Section
10 on any Affiliated Shareholders will be subject to the provisions of the
Lock-up Agreement and such Affiliated Shareholders will not be entitled to
enforce their registration rights during the Lock-up Period. Furthermore,
following the expiration of the Lock-up Period, an Affiliated Shareholder who is
also a USGCD Securityholder, ARDCO, or any GVI officer, director or over five
percent (5%) shareholder of GVI (determined after the issuance of Common Stock
in exchange for USGCD Common Shares pursuant to this Agreement) shall not be
entitled to register more than twenty percent (20%) of the Registrable
45
<PAGE>
Securities held by him/it, or to be received by him/it upon the exercise of any
warrant or option, during any given calendar year.
11. Conditions Precedent to Closing.
(a) GVI's Conditions Precedent. All of the obligations of GVI
under and pursuant to this Agreement are and shall be subject to the
representations and warranties of USGCD and USGCD Securityholders being true and
correct in all material respects on the Closing Date except for such
representation and warranties that are expressly given as of a specific date or
as of the date hereof and the delivery to GVI, prior to or on the Closing Date
of each of the following:
(i) Stock Certificates. Certificates
representing all of the USGCD Common Shares in proper transferable form,
endorsed in blank, with signatures guaranteed and with all necessary documentary
transfer tax stamps affixed;
(ii) Officer's Certificates. A certificate
signed by the President and Secretary of USGCD, dated as of the Closing Date, to
effect that (a) the representations and warranties of USGCD set forth in Section
6 hereof, and elsewhere in this Agreement are true and correct in all material
respects except for such representations and warranties that are expressly given
as of a specific date or as of the date hereof; (b) that all of the conditions
set forth in Sections 8(c) and 8(d) have been satisfied;
(iii) Resolutions. A certified copy of the
resolution of USGCD's Board of Directors authorizing the execution, delivery and
performance of this Agreement;
(iv) Affiliated Shareholder Certificates. A
certificate signed by the Affiliated Shareholders, dated the Closing Date, to
the effect its representations and warranties, set forth in Section 5 and
46
<PAGE>
elsewhere in the Agreement are true and correct except for such representations
and warranties that are expressly given as of a specific date or as of the date
hereof;
(v) Financial Statements. The USGCD Audited
Financial Statements reflecting a minimum net book value of USGCD's properties
of twelve million dollars ($12,000,000) and containing an unqualified opinion of
USGCD's independent accountant together with the USGCD Unaudited Financial
Statements (which shall contain no material change in the financial condition of
USGCD since the date of the Audited Financial Statements, other than authorized
by or reflected within this Agreement);
(vi) Good Standing. A Certificate of Good
Standing of USGCD from the Delaware Secretary of State dated within ten (10)
days of the Closing Date;
(vii) Tax Certification. A certificate from the
Delaware equivalent of the Department of Taxation and Finance evidencing payment
of all outstanding taxes due to the State of Delaware;
(viii) Employment Agreement. An executed copy of
the Employment Agreement with Mr. Duane H. Marchant as provided for within this
Agreement;
(ix) Investment Letters. Each executed copy of
the Investment Letters from each Holder of the USGCD Securities;
(x) Legal Opinions. Opinions of corporate and
securities counsel, to USGCD, in form and substance reasonably satisfactory to
GVI and its counsel;
(xi) Cold Comfort Letter. A "Cold Comfort"
Letter from USGCD's independent certified public accountants to the effect that
between the date of the latest unaudited financial statement of USGCD and the
47
<PAGE>
Closing Date, there has been no material adverse change in the financial
condition of USGCD, results from operations or the stockholders equity of USGCD;
(xii) Lock Up Agreement. An executed copy of the
Lock-Up Agreement from each of the Affiliated Shareholders in form and substance
satisfactory to GVI;
(xiii) Satisfaction of Covenants. Satisfaction of
any and all other covenants of USGCD and the Affiliated Shareholders to be
satisfied on or before the Closing, as contained in Sections 5, 6 and 8 above.
(b) Conditions Precedent of USGCD. All of the obligations of
USGCD and the USGCD Securityholders under and pursuant to this Agreement are and
shall be subject to the representations and warranties of GVI being true and
correct at the Closing Date except for such representations and warranties that
are expressly given as of a specific date or as of the date hereof and the
fulfillment prior to or on the Closing Date of each of the following:
(i) Stock Certificates. Certificates for the
shares of Common Stock in such names and in such denominations as the USGCD
Securityholders shall have indicated to GVI in writing or else in the names
shown, and in approximately ten (10) blocks of approximately 10% each of the
amounts shown for each USGCD Securityholder set forth on EXHIBITS 1 AND 2 but
rounded off to 1,000 share blocks and/or 100 share round lots to the greatest
extent practicable.
48
<PAGE>
(ii) Officer's Certificates. A certificate by
the President and Secretary of GVI, dated the Closing Date, to the effect that
the representations and warranties of GVI set forth in Section 7 and elsewhere
in this Agreement are true and correct except for such representations and
warranties that are expressly given as of a specific date or as of the date
hereof;
(iii) Resolutions. Certified copies of minutes or
written consent of the Board of Directors of GVI authorizing the execution,
delivery and performance of this Agreement and the consummation of this
transaction;
(iv) Legal Opinions. Delivery to USGCD of
opinions of corporate and securities counsel of GVI, in form and substance
reasonably satisfactory to USGCD and its counsel:
(v) Cold Comfort Letter. Delivery to USGCD of a
"Cold Comfort" Letter from GVI's independent certified public accountants to the
effect that between the date of the GVI Audited Financial Statements and the
Closing Date, there has been no material adverse change in the financial
condition of GVI, results from operations or the stockholders equity of GVI;
(vi) Board Composition. A certificate of the
President and Corporate Secretary of GVI certifying that, effective as of the
Closing, the Board of Directors of GVI shall consist of the following
individuals: Warren Stanchina (Chairman), Wolfgang Duren and Duane H. Marchant;
(vii) Satisfaction of SEC Requirements. GVI (A)
shall have complied with all outstanding comments of the SEC regarding its Form
10-SB, (B) shall have amended its Form 10-SB (to the extent and/or including the
49
<PAGE>
requirement that its Financial Statements be amended to reflect as an subsequent
event note the securities issuance and rescissions made prior to Closing), (C)
shall have conducted, on SEC approved proxy materials, a stockholder's meeting
(i) entitling it to modify its capital structure to enable it to effect the
Reorganization, (ii) adopting stock option plans as outlined before in Section
9(e) of this Agreement; and (iii) approving the Board composition and
Reorganization, to the extent required by applicable state law, provided for
herein effective as of the Closing, and (D) shall have issued Press Releases
and/or filed any required Forms 3 and 4 and Reports on Form 8-K and Schedules
14D, or Schedules 13D, to reflect changes in management and/or control which
occurred or, if reportable, which were agreed upon prior to Closing.
(viii) Satisfaction of Covenants. Satisfaction of
any and all other covenants of GVI to be satisfied on or before Closing, as
contained in Sections 7 and 9 above.
(ix) Good Standing. A certificate of Good
Standing of GVI from the Utah Department of Commerce, Division of Corporations
and Commercial Code, dated within ten (10) days of the Closing.
(x) Tax Certificate. A certificate of the Utah
Department of Taxation and Finance evidencing payment of all outstanding taxes
due to the State of Utah.
(xi) Shareholder Matters. An executed agreement,
effective upon Closing, reasonably satisfactory to USGCD and its counsel with
any alleged "control persons" of GVI and the furnishing of documentary evidence
50
<PAGE>
reasonably satisfactory to USGCD and its counsel that no pre-Reorganization
shareholder of GVI will beneficially own or control a greater than 4.9% interest
in GVI post-Reorganization.
12. Indemnification by GVI, USGCD and the Affiliated Shareholders. GVI,
USGCD and the Affiliated Shareholders hereby jointly and severally agree to hold
each other harmless from any and all loss, cost, expense, liability or damage,
including reasonable attorney's fees, resulting from any inaccurate
representation made, respectively, by any such party in this Agreement, breach
of any warranty herein made and breach or default in performance of any of the
covenants which the parties are to perform hereunder; provided, however, no
claim may be made under this Agreement for breach of warranty or covenant, or
seek any indemnification with regard thereto until such time as there has been
an aggregate of Twenty-Five Thousand ($25,000) damages incurred by the claiming
party. All claims made hereunder must be made within thirty-six (36) months of
the Closing hereunder or they shall be deemed waived.
13. The USGCD Securityholders' Investment Intent. The Affiliated
Shareholders have been advised, and by the execution of this Agreement, hereby
agree, accept and acknowledge:
(a) Private Issuances. That none of the shares of Common Stock
to be delivered hereunder shall have been registered under the Securities Act or
under state securities law, and that both GVI and its present management are
relying upon an exemption from registration based upon the investment and other
representations of the Affiliated Shareholders. In this regard, the USGCD
Securityholders hereby and represent, covenant and warrant severally, not
jointly, that:
51
<PAGE>
(i) Investment Purposes. They are acquiring the
shares of Common Stock issuable hereunder for investment purposes and without
any view to the transfer or resale thereof and that such shares shall not be
sold, transferred, assigned, pledged or hypothecated in any violation of the
Securities Act, or the applicable securities laws of any state; and
(ii) Present Intent. They have no present reason
to anticipate any change in their circumstances or any other particular occasion
or event which would cause them to sell the shares of Common Stock, subject,
however, to the disposition of such property at all time being within its
exclusive control.
(b) Restrictive Legend. The USGCD Securityholders further
covenant and agree that the certificates representing all of the shares of
Common Stock to be delivered pursuant to this Agreement, shall bear a
restrictive legend in substantially the following form:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933 as amended. They
may not be sold, assigned or transferred in the absence of an
effective registration statement for the Shares under the said
Securities Act, receipt of a 'no action' letter from the
Securities and Exchange Commission or an opinion of counsel
satisfactory to the Corporation that registration is not
required under said Securities Act."
14. Access and Information. Each party hereto shall afford to other
party's accountants, counsel and other duly authorized representatives access,
during normal business hours and on reasonable advance notice, during the period
after execution of this Agreement and prior to the Closing Date, the right to
make copies of all properties, books, contracts, commitments and records
52
<PAGE>
(including but not limited to tax returns). In addition, each party shall
furnish promptly to the other party: a copy of each report, Schedule and other
document file received by it pursuant to the requirements of Federal or state
securities laws; a copy of any summons, complaint, petition, notice of hearing
or notice of the commencement of any governmental or administrative
investigation; and all other information concerning its business, properties and
personnel as may reasonably be requested; provided, however, that no
investigation pursuant to this Section 14 shall affect any representations or
warranties or the conditions to the obligations of the parties to consummate a
transaction referenced herein. In the event of a termination of this Agreement
whether in accordance with the provisions of Section 17 or otherwise, each party
shall return to the party furnishing information all documents, work papers and
other material obtained by or on its behalf as a result of this Agreement or in
connection herewith whether obtained before or after the execution hereof, and
the party receiving such information from the party furnishing same shall hold
such information in confidence until such time as such information is otherwise
publicly available.
15. Expenses. Regardless of whether or not the transaction contemplated
herein is consummated, each party shall promptly pay, shall be responsible for,
and account for on its respective financial statements all costs and expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
16. Closing Date. The closing of the transaction contemplated herein
(the "Closing") shall take place in person, by mail or otherwise and be
consummated as soon as practicable after the execution of this Agreement but in
no event later than seventy-five (75) calendar days after execution of this
Agreement by all parties or any earlier date which is ten (10) days following a
53
<PAGE>
favorable GVI Shareholder's vote on the Reorganization, if required by
applicable state law, (the "Closing Date"). In the event the Closing does not
occur on or before the foregoing date and unless extended by mutual consent,
GVI, USGCD and the USGCD Securityholders shall return all information and
documentation exchanged or delivered hereunder to the party or parties
furnishing the same and this Agreement shall thereafter be and be deemed to be
null and void and of no further force or effect.
17. Termination.
(a) Termination By Either Party. This Agreement may be
terminated by either party hereto if:
(i) Failure to Close. The Closing referred to in
Section 16 hereof shall not have occurred on or prior to the date specified
therein;
(ii) Failure to Comply with Representations,
Warranties or Covenants. The representations, warranties, and agreements,
conditions or covenants to be complied with or performed by any party hereto, on
or before the Closing Date, shall not, in any material respect, been complied
with or performed and such material non-compliance or nonperformance shall not
have been waived by the party giving notice of termination or shall not have
been cured by the defaulting party nor cure thereof commenced and diligently
prosecuted thereafter by such party after ten (10) days after written notice of
such material non-compliance or non-performance is given by the non-defaulting
party; or
(iii) Governmental Action. If any governmental
action is commenced which prohibits the consummation of the Reorganization or
the consummation of any transaction necessary to the completion of such
Reorganization.
54
<PAGE>
(b) Mutual Consent. This Agreement may be terminated at any
time prior to the Closing Date by the mutual consent of the Board of Directors
of both GVI and USGCD.
18. Effect on Termination. In the event of termination of this
Agreement as provided in Section 17, this Agreement shall forthwith become null
and void and there shall be no further liability on the part of GVI or USGCD or
its respective officers or directors. Termination of this Agreement by either
GVI or USGCD as a result of the breach of the terms and conditions hereof by the
other shall not relieve any party of any liability for a breach of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any such
breach or misrepresentation.
19. Exclusive Negotiation Period. Recognizing that each of the parties
will incur substantial expenses in connection with the negotiation and
consummation of the transactions contemplated by this Agreement, prior to the
Closing Date, GVI and USGCD and the Affiliated Shareholders all agree to
negotiate exclusively with the other party to this Agreement concerning the
matters contemplated by this Agreement (including all related matters that would
materially affect either party's ability to enter into and close the
transactions contemplated by this Agreement) (the "Exclusive Negotiation
Period"). Without limiting the generality of the foregoing, GVI, USGCD or the
Affiliated Shareholders will not, during the Exclusive Negotiation Period, make
an offer to, or accept, solicit or recommend an offer from, any other party
concerning the sale or other transfer of a controlling interest in its equity
55
<PAGE>
interests, any merger or consolidation or other form of business combination, or
the sale or assignment of all or substantially all of its assets. In addition,
USGCD and the Affiliated Shareholders agree that they will cause the entities
which comprise the Golf Interests (as defined above) to comply with the
restrictions imposed by this Section 19.
The covenants set forth in this Section 19 are separate and independent
from the covenants and agreements set forth elsewhere in this Agreement and
restate a binding obligation of the parties as agreed to in the letter of intent
dated June 24, 1997 and the invalidity or unenforceability of one or more of the
provisions or covenants of this Section 19 shall not affect the validity or
enforceability of the remainder of this Agreement. Each party agrees that the
other will or would suffer irreparable injury if it were to violate any of the
provisions of this Section 19, and that in the event of a breach by either party
of any of the provisions of this Section 19, the other shall (in addition to all
other rights and remedies available to it, including, without limitation,
recovery of damages) be entitled to an injunction restraining such breach
without necessity or requirement of the posting of bond in connection therewith.
If any party breaches its obligations under this paragraph, such party shall
reimburse the other on demand for all reasonable out-of-pocket costs and
expenses incurred in connection with the transaction, including attorney fees
and any costs and expenses incurred in enforcing its rights under this
paragraph, together with interest on all reimbursable costs and expenses, from
the date when incurred until the date when reimbursed, at the annual rate
provided by Delaware law for the payment of interest on judgments.
56
<PAGE>
20. Meaning of "Material." As used herein, the term "material" shall be
construed in its generally accepted Federal securities law context.
21. Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
22. Waiver. At any time prior to the Closing Date each of, the parties
hereto, by action taken by its respective Boards of Directors and accepted in
writing by the other parties, may: (i) extend the time for the performance of
any party; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party
and accepted in writing by the other parties. The failure of any party to insist
upon strict performance of any of the provisions of this Agreement shall not be
construed as a waiver of any subsequent default of the same or similar nature or
of any of provision, term, condition, warranty, representation or guaranty
contained herein.
23. Broker and Investment Banking Fees. GVI, USGCD and the Affiliated
Shareholders represent and warrant that they have not engaged the services of
any broker, finder or other person of similar kind who might be due compensation
as a result of the transactions contemplated herein except as set forth on
SCHEDULE 23, attached hereto and made a part hereof. Except for the compensation
stated and the party responsible to pay same as indicated in SCHEDULE 23, the
payment of which shall be the sole and complete responsibility of the party so
57
<PAGE>
indicated, GVI, USGCD and the Affiliated Shareholders agree to hold and
indemnify each other harmless from and against claims by any third party due
compensation as a finder.
24. Binding Effect. All of the terms and provisions of the Agreement
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, representatives, executors, administrators,
successors and assigns of the parties hereto. This Agreement shall not be
assignable under any circumstances.
25. Entire Agreement. Each of the parties hereto, covenants that this
Agreement is intended to and does contain and embody herein all of the
understandings and agreements, both written and oral, of the parties hereby with
respect to the subject matter of this Agreement and that there exists no oral
agreement or understanding express or implied, whereby the absolute, final and
unconditional character and nature of this Agreement shall be in any way
invalidated, impaired or affected. There are no representations and warranties
other than those set forth herein.
26. Governing Law. This Agreement shall be governed by and interpreted
under and construed in all respects in accordance with the laws of the State of
Delaware, irrespective of the place of domicile or residence of any party.
27. Arbitration. The parties agree that in the event of a controversy
arising out of the interpretation, construction, performance or breach of the
Agreement, any and all claims arising out of or relating to this Agreement shall
be settled by arbitration according to the Commercial Arbitration Rules of the
American Arbitration Association located within Orlando, Florida before a single
arbitrator, except as provided below. The decision of the arbitrator(s) will be
enforceable in any court of competent jurisdiction. The parties hereby agree and
58
<PAGE>
consent that service of process outside Orlando, Florida in any such arbitration
proceeding outside Orlando, Florida shall be tantamount to service in person
within the State of Florida and shall confer personal jurisdiction on the
American Arbitration Association. In any dispute where a party seeks Fifty
Thousand Dollars ($50,000.00) or more in damages, three (3) arbitrators will be
employed. In resolving all disputes between the parties, the arbitrators will
apply the law of the State of Delaware, except as may be modified by this
Agreement. The arbitrators are, by this Agreement, directed to conduct the
arbitration hearing no later than three (3) months from the service of the
statement of claim and demand for arbitration unless good cause is shown
establishing that the hearing cannot fairly and practically be so convened. The
arbitrators will resolve any discovery or other non trial disputes by such
prehearing conferences as may be needed. All parties agree that the arbitrators
and any counsel of record to the proceeding will have the power of subpoena
process as provided by law. Notwithstanding the foregoing, if a dispute arises
out of or related to this Agreement, or the breach thereof, before resorting to
arbitration the parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association.
28. Originals. This Agreement may be executed in counterparts each of
which so executed shall be deemed an original and constitute one and the same
agreement.
29. Notices. Any notice hereunder shall be given, and any instrument
delivered, four days after being mailed or registered certified mail, postage
prepaid, or 24 hours after such notice has been sent by straight telegram,
telex, facsimile or other means of instantaneous transmission, charges pre-paid
as follows:
59
<PAGE>
NAME ADDRESS
If to GVI Attn: Duane H. Marchant
102 West 500 South, Suite 400
Salt Lake City, Utah 84101
801-363-8486
801-363-8487 facsimile
with a simultaneous copy to: Lorin E. Patterson, Esq.
Suitter Axland, P.C.
175 South West Temple, Suite 700
Salt Lake City, Utah 84101
801-532-7300
801-532-7355 facsimile
If to USGCD and the USGCD Attn: Mr. Warren Stanchina
Security Holders within 255 South Orange Ave. Suite 1515
twelve (12) months following Orlando, Florida 32801
the Closing: 407-245-7557
407-245-7585 facsimile
with a simultaneous copy to: James R. Leone, Esq.
1275 Lake Heathrow Lane
Heathrow Florida 32746
407-805-9200
407-805-9030 facsimile
30. Release of Information. In light of the nature and extent of the
conditions precedent to the parties' obligations hereunder, the parties hereby
agree that any and all releases of public information concerning this
transaction shall be made only with the mutual consent in writing of both USGCD
and GVI as to form, content and kind. It is contemplated by the parties hereto
that the parties shall issue a press release promptly following the execution of
this Agreement.
31. Separability. If any term or provision of this Agreement, including
Exhibits or Schedules hereto, or the application thereof to any person, property
or circumstances, shall to any extent be invalid or unenforceable, such
provision shall be invalid or unenforceable only to the extent of such
60
<PAGE>
invalidity or unenforceability and the parties to this Agreement shall promptly
consult and attempt in good faith to agree on a legally acceptable modification
that gives effect to the commercial objectives of the invalid or unenforceable
provision. The remainder of this Agreement, including the Exhibits and
Schedules, or the application of any unenforceable or invalid term or provisions
to persons, property or circumstances, other than those as to which it is
invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement and the Exhibits and Schedules shall be valid and
enforced to the fullest extent permissible by law.
32. Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed a part of the
context, nor affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GOLF VENTURES, INC.
By:
-----------------------------
Duane H. Marchant, President
U.S. GOLF COMMUNITIES, INC.
By:
------------------------------------
Warren J. Stanchina, President
61
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT 1 -- Affiliated Shareholders
EXHIBIT 2 -- Nonaffiliated Shareholders
EXHIBIT 3 -- Option Holders
SCHEDULES
SCHEDULE 5(e) UGCD Unaudited Financial Statements
SCHEDULE 5(f) Material Adverse Facts
SCHEDULE 5(i) Affiliated Shareholder Loans
SCHEDULE 5(m)(i) Indebtedness by GCA
SCHEDULE 6(a) GCA's Equity Interest in any Other Entity
SCHEDULE 6(j) No Material Adverse Changes
SCHEDULE 6(k) Out of Ordinary Course Payments by GCA
SCHEDULE 6(1) Control Persons Distributions
SCHEDULE 6(m) Unpaid Taxes of GCA
SCHEDULE 6(n) Encumbrances on GCA's Assets
SCHEDULE 6(o) Material Breaches
SCHEDULE 6(p) Life Insurance and Benefit Plans of GCA
SCHEDULE 6(q) Employment Agreements
SCHEDULE 6(r) Undisclosed Material Liabilities of GCA
SCHEDULE 6(z) Necessary Governmental Approval
SCHEDULE 6(bb) UGCD Bank Accounts
SCHEDULE 6(cc) Material Contracts
SCHEDULE 7(c) Material Adverse Change, etc.
SCHEDULE 7(h) Litigation
SCHEDULE 7(j) GVI Unpaid Taxes
SCHEDULE 7(k) GVI Encumbrances
SCHEDULE 7(1) Material Defaults
SCHEDULE 7(m) Employee Benefit Plans
SCHEDULE 7(n) Employment and Collective Bargaining Agreements
SCHEDULE 7(p) Existing Insurance Policies
SCHEDULE 7(q) GVI Financial Statements
SCHEDULE 7(aa) GVI Material Contracts
SCHEDULE 8(a) Investment Letters
SCHEDULE 8(c) European Debt
SCHEDULE 8(d) Underwriting Agreement
SCHEDULE 8(f) Lock-Up Agreement
SCHEDULE 23 Brokers Fees
62
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT 1 -- Affiliated Shareholders
EXHIBIT 2 -- Nonaffiliated Shareholders
EXHIBIT 3 -- Option Holders
SCHEDULES
SCHEDULE 5(e) GCA Unaudited Financial Statements
SCHEDULE 5(f) Material Adverse Facts
SCHEDULE 5(i) Affiliated Shareholder Loans
SCHEDULE 5(m)(i) Indebtedness by GCA
SCHEDULE 6(a) GCA's Equity Interest in any Other Entity
SCHEDULE 6(j) No Material Adverse Changes
SCHEDULE 6(k) Out of Ordinary Course Payments by GCA
SCHEDULE 6(1) Control Persons Distributions
SCHEDULE 6(m) Unpaid Taxes of GCA
SCHEDULE 6(n) Encumbrances on GCA's Assets
SCHEDULE 6(o) Material Breaches
SCHEDULE 6(p) Life Insurance and Benefit Plans of GCA
SCHEDULE 6(q) Employment Agreements
SCHEDULE 6(r) Undisclosed Material Liabilities of GCA
SCHEDULE 6(z) Necessary Governmental Approval
SCHEDULE 6(bb) GCA Bank Accounts
SCHEDULE 6(cc) Material Contracts
SCHEDULE 7(c) Material Adverse Change, etc.
SCHEDULE 7(h) Litigation
SCHEDULE 7(j) GVI Unpaid Taxes
SCHEDULE 7(k) GVI Encumbrances
SCHEDULE 7(1) Material Defaults
SCHEDULE 7(m) Employee Benefit Plans
SCHEDULE 7(n) Employment and Collective Bargaining Agreements
SCHEDULE 7(p) Existing Insurance Policies
SCHEDULE 7(q) GVI Financial Statements
SCHEDULE 7(aa) GVI Material Contracts
SCHEDULE 8(a) Investment Letters
SCHEDULE 8(c) European Debt
SCHEDULE 8(d) Underwriting Agreement
SCHEDULE 8(f) Lock-Up Agreement
SCHEDULE 23 Brokers Fees
63
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Golf Ventures, Inc.
102 West 500 South, Suite 400
Salt Lake City, Utah 84101
We consent to the use in this Annual Report of Golf Ventures, Inc. as amended on
Form 10-KSB, of our report dated June 16, 1997 of Golf Ventures, Inc for the
year ended March 31, 1997, which is part of this Annual Report, and to all
references to our firm included in this Annual Report.
Jones, Jensen & Company
/s/ Jones, Jensen & Company
Salt Lake City, Utah
July 9, 1997
