<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1997.
REGISTRATION NO. 333-20037
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SONOMA INTERNATIONAL
(Name of Small Business Issuer in its Charter)
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<S> <C> <C>
NEVADA 4493 94-0880052
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3000 LEXINGTON FINANCIAL CENTER
LEXINGTON, KENTUCKY 40507
(606) 281-0000
(Address and telephone number of registrant's principal executive offices)
JAMES L. FRYE
SONOMA INTERNATIONAL
3000 LEXINGTON FINANCIAL CENTER
LEXINGTON, KENTUCKY 40507
(606) 281-0000
(Name, address and telephone number of agent for service)
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Copies to:
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<S> <C>
RICHARD F. DAHLSON
CRAIG G. ONGLEY ALAN I. ANNEX
JACKSON WALKER, L.L.P. CAMHY KARLINSKY & STEIN LLP
901 MAIN STREET, SUITE 6000 1740 BROADWAY, 16TH FL.
DALLAS, TX 75202 NEW YORK, N.Y. 10019-4315
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.001 par value........... 3,450,000 shares $6.00 $20,700,000 $6,273.00
- --------------------------------------------------------------------------------------------------------------------------
Representative's Warrants to purchase
Common Stock.......................... 300,000 $.0001 $30.00 (2)
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Common Stock underlying Representative's
Warrants(3)........................... 300,000 shares $7.20 $2,160,000 $655.00
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Total............................................................................. $22,860,030 $6,928.00
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the
"Securities Act") and includes shares subject to the exercise of the
Over-Allotment Option.
(2) No fee is required pursuant to Rule 457(g) under the Securities Act.
(3) Issuable upon the exercise of the Representative's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 17, 1997
3,000,000 SHARES
SONOMA INTERNATIONAL
COMMON STOCK
All of the shares of common stock, $.001 par value, (the "Common Stock")
offered hereby (the "Offering") are being issued and sold by SONOMA
INTERNATIONAL (the "Company"). Although the Company is a public reporting
company through a prior registration, prior to the Offering, there has been no
material public trading market for the Common Stock and there can be no
assurance that such a market will develop after completion of the Offering or,
if developed, that it will be maintained. It is currently anticipated that the
initial public offering price will be $6.00 per share. For information regarding
the factors considered in determining the public offering price of the Common
Stock, see "Underwriting."
The Company intends to apply to have the Common Stock quoted on the Nasdaq
National Market under the proposed symbol "SNMA" and on the American Stock
Exchange under the proposed symbol "SNM."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE ENTIRE
LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 4 AND "DILUTION"
AT PAGE 9.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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==============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share................................ $ $ $
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Total(3)................................. $ $ $
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(1) Does not include additional compensation payable to National Securities
Corporation, the Representative (the "Representative") of the several
Underwriters (as defined herein), in the form of a non-accountable expense
allowance or the value of the Representative's Warrants granted to
Representative to purchase up to 300,000 shares of Common Stock and which
were sold to Representative at a nominal price. In addition, see
"Underwriting" for information concerning indemnification and contribution
arrangements with the Underwriters and other compensation payable to the
Representative.
(2) Before deducting expenses estimated to be $1,500,000 payable by the Company
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriters an option (the "Over-Allotment
Option"), exercisable within 45 days from the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock upon the same
terms and conditions as set forth above solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by their Counsel and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify this Offering and to reject any order in whole or in part. It is
expected that the delivery of the shares will be made at the offices of National
Securities Corporation in Seattle, Washington on or about , 1997.
NATIONAL SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus assumes no exercise of
the Over-Allotment Option or the Representative's Warrants (as defined).
Potential investors should carefully consider the information set forth under
"Risk Factors."
THE COMPANY
Sonoma International (the "Company" or "Sonoma") was formed as a Nevada
corporation in 1940 and had no material operations from 1988 until its
acquisition of Jamestown Resort & Marina Ltd., Jamestown Resort & Marina, Inc.
and Key West Conch Harbor, Inc. in December 1996. As a result of the
acquisitions, Sonoma now operates and manages leisure oriented real estate
properties. It currently controls two facilities, the Jamestown Resort & Marina
and the Key West Conch Harbor. The Jamestown Resort & Marina ("Jamestown"),
located on Lake Cumberland in South Central Kentucky, comprises approximately
291 acres of land and water leased from the U.S. Army Corps of Engineers.
Jamestown's facilities include: (i) a marina consisting of 805 slips, 645 of
which are annual rentals to the public and the remaining 160 of which are used
for transient rentals and to house the Company's Jamestown rental watercraft
fleet; (ii) the ship's store (which sells groceries, sundries and gifts); (iii)
a restaurant; (iv) a fuel depot; (v) yacht club and snack bar; (vi) lodging
rentals consisting of 18 individual cabins and 40 suites in a hotel setting
called the "Lodge" and (vii) boat rentals comprising 19 pontoon boats, 30 house
boats and the Jamestown Queen, a 140 passenger paddle-wheel boat used primarily
for sight seeing and dinner cruises. The percentage of total Company gross
revenues from Jamestown operations, assuming Key West Conch Harbor was acquired
effective January 1, 1995, were 86%, and 71% for the twelve month period ended
December 31, 1995 and 1996 respectively. During the twelve months ending
December 31, 1996, marina slip rentals accounted for 31% of the Jamestown gross
revenues and boat rentals, lodging and fuel sales comprised 16.7%, 17% and
13.7%, respectively, with the restaurant, ship's store and miscellaneous sales
responsible for the remainder.
Key West Conch Harbor ("Key West") is located on approximately two acres of
land, owned by the Company, in Key West Florida's "Old Town" preservation
district and has approximately 251 feet of frontage on a city street on one end
and 221 feet of water front on the opposite end. Key West is primarily a
commercial dock and fueling facility which currently consists of a 450 foot
newly constructed dock with two 100 foot finger piers, a Texaco Star Port(R)
fueling dock and a two story building housing marina operations and a small
convenience store with lavatory facilities. Also planned is a restaurant and
beverage facility and several retail shops, which the Company intends to lease
to third parties. The percentage of total Company gross revenues from Key West,
operations assuming Key West Conch Harbor was acquired effective January 1,
1995, were 14% and 29% for the twelve month period ending December 31, 1995 and
1996 respectively. Substantially all Key West's gross revenues are from fuel
sales and slip rentals.
The Company experienced a net loss before extraordinary items, of $611,060
in 1995 and $141,482 in 1996 and a reduction in its accumulated deficit from
$4,048,932 in 1995 to $1,671,928 in 1996. Prior to this Offering the Company
primarily relied upon indebtedness to fund its improvements as the 1996
historical and pro forma percentage of total capitalization represented by such
indebtedness was 102% and 39.7% respectively. However, as a result of the
completed acquisitions and the reduction in debt to be accomplished with the
proceeds of this Offering, the Company expects to break even or make a small
profit in 1997. However, there can be no assurance that the Company will achieve
such results. See "Business".
Sonoma's business strategy is to utilize the Jamestown and Key West
facilities as cornerstone properties to provide a base from which to expand its
operations through future development and acquisition of leisure oriented real
estate properties including hotels, resorts, spas, marinas and other commercial
real property. The objective of the strategy is to attempt to balance out uneven
cash flow caused by seasonality of the resort and marina business by acquiring
properties whose "off " seasons are opposite of each other, and to utilize
economies of scale including reducing management personnel, and obtaining
quantity discounts for goods the Company resells and supplies the Company uses
in its day to day operations.
1
<PAGE> 5
Through continuing acquisitions, the Company believes that it may develop
additional synergies and cost savings which could provide the Company a greater
opportunity to earn a profit. See "Business."
Unless the context otherwise requires, all references to the Company or
Sonoma contained in this Prospectus shall be deemed to refer to the Company and
its subsidiaries, Key West and Jamestown. The Company's principal executive
offices are located at 3000 Lexington Financial Center, Lexington, Kentucky
40507, and its telephone number is (606) 281-0000.
THE OFFERING
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Offering Price..................................... $6.00 per share
Common Stock offered by the Company................ 3,000,000 shares
Common Stock to be outstanding after the
Offering(1)...................................... 5,300,000 shares
Use of proceeds by the Company..................... For general corporate purposes, including
$5,280,855 for the retirement of debt and
payment of accrued interest ($3,912,577 of which
is owed to insiders or affiliates of the
Company) and the balance of such net proceeds to
finance the expansion of the Company, primarily
through acquisition of similar businesses and
for working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq symbol............................. "SNMA"
Proposed American Stock Exchange symbol............ "SNM"
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(1) Does not give effect to shares of Common Stock issuable upon exercise of the
Over-Allotment Option, exercise of the Representative's Warrants, or to the
350,000 shares of Common Stock reserved by the Company which may be issued
pursuant to the 1996 Long-Term Incentive Plan adopted by the Company. See
"Underwriting" and "Management -- Employee Benefit Plans."
RISK FACTORS AND DILUTION
Investment in the Common Stock offered hereby involves a high degree of
risk and immediate dilution. Investors should carefully consider the information
presented under the caption "Risk Factors" and "Dilution" in this Prospectus,
including risks related to the Company's limited operating history, future
business expansion and the risks inherent with the Company's business, among
others.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
of the Company and is qualified in its entirety by the more detailed
consolidated financial statements contained elsewhere in this Prospectus. The
summary consolidated financial data contained in the following table is derived
from and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related notes thereto appearing elsewhere in this Prospectus. Pro
forma data is presented as if certain events occurred on the date(s) stated.
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TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------
HISTORICAL PROFORMA(1)(2)
----------------------- --------------
1995 1996 1996
---------- ---------- --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................... $4,020,022 $4,157,734 $5,580,661
Costs and expenses
Cost of revenues................................ 1,876,491 1,765,250 2,574,541
Selling, general and administrative............. 1,278,390 1,331,226 1,550,889
Amortization of goodwill........................ 30,252 84,423 97,823
Depreciation and amortization................... 578,603 546,093 611,891
---------- ---------- ----------
Total costs and expenses................... 3,763,736 3,726,992 4,835,144
Interest expense................................... 867,346 1,025,784 915,485
Income taxes....................................... -- 453,560 453,560
---------- ---------- ----------
Net income (loss) before extraordinary item........ (611,060) (141,482) 283,592
Gain on reduction of obligations................... -- 2,518,486 --
---------- ---------- ----------
Net income (loss).................................. $ (611,060) $2,377,004 $ 283,592
========== ========== ==========
Net income (loss) per share before extraordinary
item............................................ $ (0.45) $ (0.10) $ 0.06
Net income (loss) per share........................ $ (0.45) $ 1.67 $ 0.06
Weight-average shares outstanding.................. 1,369,025 1,425,917 4,989,251
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
PROFORMA
HISTORICAL AS ADJUSTED(3)
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1995 1996 1996
----------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 9,628 $ 104,353 $ 9,860,130
Current assets.................................... 240,009 377,572 10,133,349
Total assets...................................... 10,764,526 16,085,643 25,504,788
Current liabilities............................... 6,973,217 6,099,139 1,731,761
Long term debt.................................... 7,838,872 10,263,786 9,350,309
Stockholders' equity (deficit).................... (4,047,563) (277,282) 14,422,718
</TABLE>
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(1) The pro forma income statement data includes a $453,560 deferred income tax
benefit which results from the effective change of tax status of Jamestown
arising from the acquisition transactions as described in Note A to the
consolidated financial statements.
(2) Adjustment to reflect the full year of operations of Key West and 1996
activity of Sonoma. Also, reflects the $444,454 reduction of interest
expense resulting from the pay down of debt in accordance with the use of
proceeds. Further, reflects $11,339 of Key West goodwill amortization,
assuming the Company had acquired Key West at January 1, 1996.
(3) Adjusted to reflect the sale of the 3,000,000 shares of Common Stock offered
hereby, deduction of underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds
therefrom (assuming an initial public offering price of $6.00 per share).
See "Capitalization" and "Use of Proceeds."
Unless otherwise indicated, all information in this Prospectus assumes that
there is no exercise of the Over-Allotment Option or the Representative's
Warrants and does not give effect to the 350,000 shares of Common Stock
which are reserved by the Company and may be issued pursuant to the 1996
Long-Term Incentive Plan. See "Underwriting" and "Management -- Employee
Benefit Plans."
3
<PAGE> 7
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK, INCLUDING THE RISKS DESCRIBED BELOW. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS RELATING TO THE BUSINESS OF THE COMPANY AND THE
OFFERING TOGETHER WITH ALL THE INFORMATION AND FINANCIAL DATA SET FORTH IN THIS
PROSPECTUS. COMMON STOCK SHOULD BE PURCHASED ONLY BY INVESTORS WHOSE FINANCIAL
POSITION AND RESOURCES ARE SUFFICIENT TO ENABLE THEM TO ASSUME SUCH RISKS OF
LOSS.
FINANCIAL CONDITION; EARLY STAGES OF DEVELOPMENT
The Company recently acquired Jamestown and Key West and intends to
continue to acquire primarily leisure oriented properties. As a result, the
Company is in the early stages of the implementation of its business plan and
there can be no assurance that the Company's will be able to acquire other
properties consistant with its plan. In addition, Key West is currently under
continuing development with its commercial dock and fueling facilities completed
in 1996. Accordingly, it is anticipated that, even upon repayment of certain
debt and the corresponding decrease in the interest expense, the Company expects
only to break even or make a small profit in 1997. Consequently, there can be no
assurance that the Company's strategies or business plan will be successful in
the future and that the Company will ever generate sufficient revenues to meet
its operating expenses, to permit projected expansion or to operate profitably.
See "Business", "Financial Statements", and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
HISTORY OF LOSSES; ACCUMULATED DEFICIT; RELIANCE ON DEBT
The Company incurred a net loss (before extraordinary items) of $611,060
for the year ended December 31, 1995 and a net loss of $141,482 for the year
ended December 31, 1996. The accumulated deficit has been reduced from
$4,048,932 as of December 31, 1995 to $1,671,928 as of December 31, 1996 as the
result of an extraordinary gain in 1996. The Company has primarily relied upon
indebtedness to fund its improvements as the 1996 historical and pro forma
percentage of total capitalization represented by such indebtedness was 102% and
39.7% respectively. There can be no assurance that the Company will ever achieve
or be able to sustain profitability. See "Financial Statements."
LIMITED CAPITAL; NEED FOR SIGNIFICANT ADDITIONAL FINANCING; FUTURE DILUTION
The Company has met its capital and operating requirements to date through
private sales of equity, through borrowings from affiliates and unaffiliated
third parties and from operational cash flow. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Liquidity and
Capital Resources." Based upon the Company's business strategy, management
believes that the proceeds from the Offering will be sufficient to meet the
Company's cash requirements for at least twelve months following completion of
the Offering. See "Use of Proceeds." The Company's business strategy is to
continually grow through acquisitions however, any expansion plans after the
Company's expenditure of the proceeds of this Offering, as a result of the
Company's limited capital will depend upon revenues, if any, from operations and
the availability of future private or public equity offerings or debt financing
in sufficient sums to fund any such expansion. Any future equity offerings could
result in substantial dilution of the holdings of existing stockholders.
Although the Company has met a significant portion of its Capital and operating
requirements in the past through borrowings from affiliates (currently
$3,912,577) there can be no assurance that the Company may rely on such
affiliates for loans in the future. The Company has no commitments for
additional financing and there can be no assurance that the Company will have
sufficient revenues or be able to obtain additional financing on satisfactory
terms or that it will be able to maintain profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business -- Business Strategy" and "Financial Statements."
4
<PAGE> 8
ENVIRONMENTAL REGULATIONS AND LIABILITY
The industry in which Sonoma operates is subject to numerous environmental
laws and regulations at federal, state and local government levels. Primary
among these are those which affect (i) the Company's fuel storage and retail
fueling operations and (ii) the Company's ability to develop additional
facilities, including increasing dockage may require permits or approval due to
the environmental impact on inland or coastal waterways. Key West has been
designated by the State of Florida as a potentially contaminated site; however
no remedial action has been required. Should remedial action be required in the
future, Key West has been contractually indemnified by Chevron USA, Inc. for all
costs of such remedial action. However, there can be no assurance that no
remedial action will be required or that Chevron will be capable of honoring its
indemnification obligation to Key West. The Company's profitability and business
strategy are dependent upon the Company's ability to maintain its operations
within the confines of numerous environmental rules and regulations, including
any future changes in such rules and regulations. Should the Company be liable
for any significant fuel spill, fuel tank leakage or other environmental hazard
which in turn would require the Company to expend significant financial
resources to clean up or rectify such a problem or pay damages or substantial
fines, such expenditures could materially adversely affect the Company's
financial condition to the point that the Company could no longer continue to be
solvent. See "Government Regulations."
IMMEDIATE SUBSTANTIAL DILUTION; DISPROPORTIONATE RISK OF LOSS; CONTROL BY
INSIDERS
Upon the completion of the Offering, there will be an immediate dilution to
public investors in that the net tangible book value of the Common Stock will be
approximately $2.47 per share, $3.53 per share less than the public offering
price of $6.00 per share. Accordingly, the public investors will bear the
preponderant part of the financial risk associated with the Company's business.
The Company's management and principal stockholders will control 28.4% of the
Common Stock upon completion of this Offering and will have significant
influence as to the direction and management of the Company. See "Dilution",
"Description of Capital Stock," "Capitalization," and "Principal Stockholders."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to grow primarily from strategic acquisitions. There
can be no assurance that the Company will be able to identify, acquire or
profitably manage acquired companies or successfully integrate such operations
into the Company without substantial costs, delays or other problems. In
addition, there can be no assurance that companies acquired in the future will
be profitable at the time of their acquisition or will achieve levels of
profitability that justify the investment therein. Acquisitions may involve a
number of special risks, including adverse short-term effects on the Company's
reported operating results, diversion of management's attention, dependence on
retaining, hiring and training key personnel, and risks associated with
unanticipated problems or legal liabilities, some or all of which could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Business Strategy."
BROAD DISCRETION OVER APPLICATION OF PROCEEDS
The Company intends to use approximately $9,419,000 million or 64% of the
net proceeds of the Offering for working capital and future
acquisitions/expansion of the Company, however, there is no specific amount
allocated to these purposes as the Company has not identified any specific
acquisitions to acquire in the near future. Consequently, management of the
Company will have broad discretion in determining the manner in which a
substantial portion of the net proceeds of the Offering are used or applied.
LEGAL LIABILITY AND ADEQUACY OF INSURANCE
The Company's ownership, operation and management of all or a portion of
its resort and marina facilities including the Jamestown Queen paddle-wheel
excursion boat, its dock, fueling station and rental watercraft expose the
Company to potential third-party claims or litigation by the users of the
facilities for personal injury or other damages arising from their use of the
Company leased or owned facilities including possible damage to user owned
watercraft from the negligence of the Company's employees, agents or
5
<PAGE> 9
contractors. The Company presently maintains in effect the types of insurance
customary to the leisure/marine industry including coverage for personal injury,
bodily injury, death or property damage to a third party where the Company is
found negligent and for property and casualty risks. The Company believes that
it is adequately insured given its analysis of the risks inherent with its
operations and its historical claims of loss. There can be no assurance,
however, that the Company's insurance will be adequate to cover all potential
third party claims, all property or casualty losses, can be maintained
economically or will be adequate to cover all potential liabilities which the
Company may experience. To the extent the Company's insurance should prove to be
inadequate, any short fall would have a negative impact upon the Company's
financial condition and results of operations. See "Business."
ECONOMIC AND SEASONAL CONDITIONS
The Company's business is seasonal in nature and is also subject to
economic fluctuations. Use of the Company's facilities and purchase of its
products and services is leisure oriented and thus discretionary and is likely
to decline during recessionary periods when disposable income is lower. Any
significant declines in general economic conditions or uncertainties regarding
future economic prospects affecting consumer spending habits could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Use of the Company's services declines during certain times of the year
depending upon weather conditions. The Company's operations at Jamestown
normally decline in the winter, while use of the Company's Key West facilities
normally declines slightly in the summer months. Such seasonal variations can
materially affect the Company's ability to sell its services, resulting in
uneven operational cash flow among fiscal quarters. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WEATHER RISKS
The Company's current facilities are located on or near large bodies of
water which makes them subject to a substantial risk of damage due to adverse
weather, including storms. Key West is located in a geographical area which has
a significant history of hurricanes.
The potential damage to the Company from such adverse weather is both
physical and economic. The physical damage could consist of damage to a number
of the Company's properties and their improvements including but not limited to
docks, Company owned watercraft, guest accommodations, fuel pumps and storage
tanks. Economic damage would include lost revenues due to (i) damaged facilities
not being available for use and (ii) cancellation of accommodations, boat
reservations, and a decreased use of other facilities by customers in response
to the threat of bad weather or as a result of adverse weather. Such lost
revenues may adversely affect the Company's financial condition. Although the
Company is required by the terms of its major indebtedness to have adequate
casualty insurance and currently maintains such insurance, there can be no
assurance that the Company will maintain such insurance in the future, that such
insurance will be available or that such insurance will have sufficient limits
to adequately cover the Company's cost and expenses to repair or replace damaged
improvements or personal property. Any significant damage over and above the
Company's insurance policy limits, if any, and any resultant reduction in
revenues from such damage whether covered by insurance or not, may have a
substantial negative impact on the Company's profitability or cause the Company
to cease as a going concern. See "Business."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no active public market for the
Common Stock. There can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. If no active
market in the Common Stock develops, it may be difficult for investors to resell
their Common Stock. The initial public offering price has been determined by
negotiations between the Company and the Representative, and may bear no
relationship to the market price for the Common Stock after the Offering. Prices
for the Common Stock will be determined by the market and may be influenced by a
number of factors,
6
<PAGE> 10
including the depth and liquidity of the market for the Company's Common Stock,
investor perceptions of the Company and general economic and other conditions.
See "Underwriting."
POTENTIAL CONFLICTS OF INTEREST
R. Dudley Webb, Chairman of the Board of the Company, is the principal
shareholder, Chairman and Chief Executive Officer of the Webb Companies, a real
estate concern located in Lexington, Kentucky which develops, manages and owns
portions of a number of commercial real estate projects. Although the Company
and the Webb Companies have separate real estate objectives, there can be no
assurance that there may be a property or opportunity in which both companies
may be interested. In addition, there may be opportunities which the Company and
the Webb Companies may be jointly involved in and from which both companies will
expect to make a profit. Consequently, in recognition of the fiduciary duty owed
to the Company and its stockholders, should a conflict result or a joint
opportunity occur, Mr. Webb has orally agreed in statements to the Board of
Directors of the Company, that the Webb Companies will not pursue any
conflicting property or opportunity and he will abstain from any voting by the
Board of Directors concerning such opportunities or properties. However, there
can be no assurance that other conflicts of interest involving Mr. Webb or
entities in which Mr. Webb owns a substantial interest may not arise. See
"Certain Transactions."
COMPETITION
The Company competes primarily on the basis of the quality and range of
services offered, desirability of its facilities, location to its customers, its
experience in managing its facilities and its ability to offer an economic value
to its customers. In any given market, the Company may have several direct
competitors offering similar services to those of the Company. Some of these
competitors may have greater financial, operating or management resources than
the Company. See "Competition."
SHARES ELIGIBLE FOR FUTURE SALE
An aggregate of 1,546,273 shares of Common Stock owned by the principal
stockholders of the Company and an aggregate of 453,727 shares of Common Stock
owned by a group of 26 stockholders are restricted securities and will be
eligible for sale in the public market pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act") in December, 1997.
An additional 207,893 shares are held by numerous stockholders and are
restricted shares currently eligible for sale in the public market pursuant to
Rule 144 of the Securities Act. Although the principal stockholders have advised
the Company that they have no present intention of disposing of any shares of
Common Stock, the principal stockholders may (either individually or as a group)
in the future seek to dispose of all or a portion of such shares through a
registered public offering or otherwise. The directors, officers and certain
other holders of the Common Stock (totaling 1,546,273 shares) have entered into
lock-up agreements whereby they have agreed not to, directly or indirectly,
agree or offer to sell, sell, transfer, assign, distribute, grant an option for
purchase or sale of, pledge, hypothecate or otherwise encumber or dispose of any
beneficial interest in such Common Stock for a period of 12 months following the
date of this Prospectus without the prior written consent of the Representative.
See "Shares Eligible for Future Sale." A decision by a significant number of
principal stockholders to effect a disposition of their shares could adversely
affect the prevailing market price of the Common Stock as well as impair the
Company's ability to raise capital through the issuance of additional equity or
debt securities. See "Principal Stockholders."
In addition, the Company has reserved 350,000 shares of Common Stock for
future issuance under the Company's 1996 Long-Term Incentive Plan. Sales of a
substantial number of shares issued under the Company's 1996 Long-Term Incentive
Plan could adversely affect the prevailing market price of the Common Stock and
cause further dilution. See "Management -- Compensation of Directors",
"Management -- Employee Benefit Plans" and "Dilution."
7
<PAGE> 11
POSSIBLE VOLATILITY OF COMMON STOCK
From time to time after the Offering, there may be significant volatility
in the market place of the Common Stock. If the Company is unable to operate its
facilities profitably or develop facilities at a pace that reflects the
expectations of the market, investors could sell shares of the Common Stock at
or after the time that it becomes apparent that such expectations may not be
realized, resulting in a decrease in the market price of the Common Stock. In
addition to the operating results of the Company, changes in earnings estimated
by analysts, changes in general conditions in the economy or the financial
markets or other developments affecting the Company could cause the market price
of the Common Stock to fluctuate substantially. In recent years, the stock
market has experienced extreme price and volume fluctuations. This volatility
has had a significant effect on the market prices of securities issued by many
companies for reasons unrelated to their operating performance. See "Business."
NO DIVIDENDS ANTICIPATED
The Company has never paid any cash dividends on its Common Stock. The
Company anticipates that in the future, earnings, if any, will be retained for
use in the business and that cash dividends with respect to the Common Stock
will not be paid. See "Dividend Policy."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS
This Prospectus contains forward-looking statements regarding the plans and
objectives of management for future operations including plans and objectives
relating to the acquisition of additional real property for the business. When
used in this Prospectus the words "anticipate", "believe", "estimate", "expect"
and "projected" and similar expressions as they relate to the Company or
management of the Company are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including, but not limited to, the risk factors described in this Prospectus.
Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove to be incorrect, actual results may vary materially
from those described herein. The Company does not intend to update these
forward-looking statements.
8
<PAGE> 12
USE OF PROCEEDS
The net proceeds to be received by the Company from the sales of shares of
Common Stock offered hereby, after deducting the underwriting discount and the
estimated expenses of the Offering are expected to be approximately $14,700,000
($17,049,000 if the Over-allotment Option is exercised in full), assuming a
public offering price of $6.00 per share.
The Company anticipates that the proceeds of the Offering will be used as
follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
APPLICATION OF NET PROCEEDS(1) AMOUNT PERCENT
------------------------------ ----------- -----------
<S> <C> <C>
Repayment of Long Term Debt(2).............................. $5,167,981 35%
Repayment of accrued interest on Long Term Debt............. 112,874 1
Expansion of Company's Business including Acquisitions and
Working Capital........................................... 9,419,145 64
</TABLE>
- ---------------
(1) The application of net proceeds entries listed above are in order of
priority and reflect the Company's principal reasons for this Offering: to
reduce debt and to fund growth of the Company through acquisitions. Any
additional net proceeds realized from the exercise of the Over-allotment
Option will be added to the Company's working capital.
(2) The following table details the debt to be repaid from the net proceeds of
the Offering as of December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT TO
DESCRIPTION MATURITY DATE INTEREST RATE BE REPAID
----------- ------------- ------------- ----------
<S> <C> <C> <C>
Jamestown:
Webb Family Trust............. On Demand 1 1/2% over prime $1,852,777
Bank of Mt. Vernon............ April 30, 2000 2% over prime 170,318
Webb Family Trust............. On Demand 11% 200,000
Jamestown former Limited
Partners................... On Demand 1% over prime 360,000
Caterpillar Financial......... October 22, 2001 7.4% 800,332
Webb Family Trust............. On Demand 10.0% 707,500
----------
4,090,927
Key West:
Marla Collins Webb............ On Demand 0% 517,300
Joseph H. Roth................ January 5, 2004 10.0% 140,201
Community Bank of
1 3/4% over the banks base
Homestead..................... February 3, 1999 rate 144,553
A. Frederick Skomp............ On Demand 0% 175,000
A. Frederick Skomp............ On Demand 1% over prime 100,000
----------
1,077,054
----------
TOTAL................. $5,167,981
==========
</TABLE>
The Company estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering will have a weighted average interest rate of
approximately 8.2% and a weighted average maturity of approximately 1.1 years as
of December 31, 1996. The amount of the above indebtedness due to affiliates and
insiders is $3,912,577 including the Webb Family Trust, Jamestown former Limited
Partners, Marla Collins Webb and A. Frederick Skomp. See "Certain Transactions."
Assuming the Over-allotment Option and Representative's Warrants are not
exercised, the Company intends to use approximately $5,167,981 of the proceeds
from the Offering to repay outstanding long term debt of the Company, $9,419,145
to finance expansion of the Company's business through additional development of
current properties or acquisition of additional facilities and properties and
for general working capital. The amount of the net proceeds to be used for
additional development of facilities is currently unknown as no actual building
plans from which estimates of such expenses could be calculated have been made
and may also
9
<PAGE> 13
be subject to negotiations with third parties who may be willing to pay a
portion or all the development cost. The Company, as part of its expansion
plans, may take advantage of future acquisition opportunities, although the
Company has not identified any specific businesses that it will seek to acquire
and has not entered into substantial negotiations with respect to any
acquisition. See "Business -- Business Strategy."
Until utilized for the above purposes the net proceeds from the Offering
will be invested in short-term investment grade securities.
DIVIDEND POLICY
The Company currently plans to retain all available earnings, if any,
generated by its operations for the future development and growth of its
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to dividend policy will be made at the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including future earnings, capital requirements, cash availability,
financial condition, loan covenants and future prospects of the Company and such
other factors as the Board of Directors deems relevant.
DILUTION
As of December 31, 1996, the pro forma net tangible book value of the
Common Stock was $(0.84) per share. Net tangible book value per share is equal
to the Company's total tangible assets less liabilities, divided by the number
of outstanding shares of Common Stock. After giving effect to the sale by the
Company of the 3,000,000 shares of Common Stock offered hereby at the estimated
public offering price of $6.00 per share and the application of the net proceeds
as set forth under "Use of Proceeds", the pro forma net tangible book value of
the Common Stock at December 31, 1996 would have been $13,093,550 or $2.47 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.31 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $3.53 per share to persons purchasing
shares at the public offering price in the Offering ("New Stockholders"). The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $6.00
Pro forma net tangible book value per share before the
Offering............................................... $(0.84)
Increase in net tangible book value per share attributable
to New Stockholders.................................... $ 3.31
Pro forma net tangible book value per share after the
Offering.................................................. $2.47
-----
Dilution per share to New Stockholders(1)................... $3.53
=====
</TABLE>
- ---------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share, after giving effect to the Offering, from the assumed initial
offering price per share.
Assuming the Over-allotment Option is exercised in full, such pro forma net
tangible book value after the Offering would be $2.75 per share, the immediate
increase in pro forma net tangible book value of shares owned by the existing
stockholders would be $3.59 per share and the immediate dilution to the New
Stockholders would be $3.25 per share.
10
<PAGE> 14
The following table summarizes on a pro forma basis as of December 31,
1996, the difference between the existing stockholders and the New Stockholders
with respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT(S) PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 2,300,000 43.4% $ 7,398,855(1) 33.5% $3.22
New Stockholders................. 3,000,000 56.6% $14,700,000 66.5% $6.00(2)
--------- ------ ----------- ------
Total.................. 5,300,000 100.0% $22,098,855 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Includes original capital contribution to Jamestown ($2,000,000), and the
full paid-in capital of Sonoma ($4,744,153) and Key West ($654,702).
(2) Assuming a public offering price of $6.00 per share and no exercise of the
over-allotment option or exercise of the Representative's Warrants.
CAPITALIZATION
The following table sets forth the long-term debt and capitalization of the
Company as of December 31, 1996 on a historical basis and on a pro forma basis,
as adjusted to give effect to the sale of the 3,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net proceeds
therefrom.
The table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
Long Term Debt including current maturities:
Notes Payable............................................. $10,747,150 $ 9,491,746
Stockholder Notes......................................... 3,912,577 --
----------- -----------
Total Long-Term Debt.............................. 14,659,727 9,491,746
----------- -----------
Stockholders' Equity (Deficit)
Common Stock, par value $.001 per share; 20,000,000 shares
authorized
2,300,000 shares issued and outstanding; 5,300,000
pro forma as adjusted(2)............................... 2,300 5,300
Additional paid-in capital.................................. 1,392,346 16,089,346
Accumulated deficit......................................... (1,671,928) (1,671,928)
----------- -----------
Total Stockholders' Equity (Deficit).............. (277,282) 14,422,718
----------- -----------
Total Capitalization.............................. $14,382,445 $23,914,464
=========== ===========
</TABLE>
- ---------------
(1) Includes effect of the sale of the 3,000,000 shares offered hereby and the
application of the net proceeds therefrom (assuming public offering price of
$6.00 per share). See "Use of Proceeds."
(2) Excludes 350,000 shares of Common Stock to be reserved for issuance pursuant
to the Company's 1996 Long-Term Incentive Plan which the Company plans to
implement after completion of the Offering. See "Management -- Compensation
of Directors" and "Employee Benefit Plans."
11
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
Selected consolidated financial data shown below for the twelve months
ended December 31, 1995 and 1996 were derived from the audited consolidated
financial statements of the Company. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
----------------------------
1995 1996
------------ ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................. $4,020,022 $4,157,734
Costs and expenses
Cost of revenues....................................... 1,876,491 1,765,250
Selling, general and administrative.................... 1,278,390 1,331,226
Amortization of goodwill............................... 30,252 84,423
Depreciation and amortization.......................... 578,603 546,093
---------- ----------
Total costs and expenses.......................... 3,763,736 3,726,992
Interest expense.......................................... 867,346 1,025,784
---------- ----------
Net loss before income taxes and extraordinary items...... (611,060) (595,042)
Income taxes.............................................. -- 453,560
---------- ----------
Net income (loss) before extraordinary item............... (611,060) (141,482)
Gain on reduction of obligations.......................... -- 2,518,486
---------- ----------
Net income (loss)......................................... $ (611,060) $2,377,004
========== ==========
Net income (loss) per share before extraordinary item..... $ (0.45) $ (0.10)
Net income (loss) per share............................... $ (0.45) $ 1.67
Weighted-average shares outstanding....................... 1,369,025 1,425,917
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 9,628 $ 104,353
Current assets............................................ 240,009 377,572
Total assets.............................................. 10,764,526 16,085,643
Current liabilities....................................... 6,973,217 6,099,139
Long term debt............................................ 7,838,872 10,263,786
Stockholders' equity (deficit)............................ (4,047,563) (277,282)
</TABLE>
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the years ended December 31, 1995 and
1996. This discussion should be read in conjunction with the consolidated
financial statements of the Company, and the separate financial statements of
Sonoma, and Key West and the related notes thereto appearing elsewhere in this
registration statement. In addition, this discussion contains forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including, but not limited to, the risk factors described in this
Prospectus. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove to be incorrect, actual results may vary
materially from those described herein.
OVERVIEW
Although the Company was formed in 1940, it has not had material operations
since 1988. Between 1988 and 1994 the Company's directors restructured the
Company with the purpose of making the Company attractive to potential merger or
acquisition candidates. In 1994 the Company began in earnest to search for
acquisition or merger candidates which would restore Sonoma to an operating
entity and in September 1996 entered into an agreement with the general partner
of Jamestown Resort & Marina, Ltd. to acquire all the capital stock of Jamestown
Resort & Marina, Inc. and a similar agreement with the limited partners to
acquire all of the limited partnership units in return for Common Stock. The
Company also entered into a similar agreement with stockholders of Key West
Conch Harbor, Inc. in October 1996 to acquire all of the outstanding common
stock of Key West in return for Common Stock. Both the Jamestown and Key West
acquisition transactions were closed on December 9, 1996.
For accounting purposes, as the Jamestown Limited Partners and its General
Partner end up with the majority of Sonoma's stock, the acquisition by Sonoma of
all of the limited partnership interests and general partnership interest was
accounted for as a recapitalization of Jamestown with Jamestown as the acquirer
(a reverse acquisition). Accordingly, the financial statements prior to the
acquisition of Sonoma and Key West included herein are those of Jamestown. The
transaction with Key West was accounted for using the purchase method. The
results of operations of Key West and Sonoma have been included in the
consolidated statements of operations from the acquisition dates.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1996
REVENUES
Revenues for the year ended December 31, 1996 increased $137,712 or 3% from
the same period in 1995. On December 9, 1996, Sonoma acquired Key West and
accordingly revenues include one month of Key West operations totaling $147,636.
If Key West revenue is excluded, Jamestown revenues are essentially the same for
1995 and 1996.
Slip rental fees increased by 3 1/2% for the 1997 calendar year at
Jamestown. Additional revenues are expected in 1997 due to a change in
management's marketing strategy by focusing on attracting tour groups and
conventions during the off boating season. The largest impact of this marketing
focus will be to increase lodging rentals and paddle boat revenues.
Revenue increases resulting from the acquisition of Key West are expected
to be approximately $1,836,000 during calendar 1997.
COST OF REVENUES
During the year ended December 31, 1996, cost of revenues decreased
$111,241 ($204,105 excluding the Key West costs of revenues of $92,864).
Excluding the effect of Key West, the decrease in cost of revenues was 11%. The
primary reason for the decline in 1996 cost of revenues was a decrease of
$102,321 due to major
13
<PAGE> 17
repairs and maintenance in the rental boat department incurred in 1995. Cost of
revenues as a percentage of revenues declined from 47% for the year ended
December 31, 1995 to 42% compared to the same period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $52,836 or 4% over
1995 to $1,331,224. Included in this increase are $21,410 attributed to Key West
operations for December 1996. The costs of Jamestown utilities and lease expense
resulted in $50,247 of the increase. The increase was due to increased
consumption, higher rates and fewer recoveries from slip rentals. In addition
property taxes increased $11,597 due to increases in the tax base of certain
assets. These increases were off set by decreases in various fees totaling
$16,450 which are no longer payable after the consummation of the acquisition
transactions discussed previously.
As a result of Sonoma now providing management services to its
subsidiaries, Jamestown will not incur certain management fees in the future,
which amounted to approximately $194,000 in 1996. This reduction at Jamestown
will be off set by an increase in management and administrative salaries of
approximately the same amount at Sonoma.
INTEREST EXPENSE
Interest expense increased from $867,346 for the year ended December 31,
1995 to $1,025,784 for the year ended December 31, 1996. The increase of
$158,438 was due to an increase of $30,036 related to the Key West acquisition
with the majority of the remaining difference due to increases in interest rates
resulting from the refinancing of certain debt in January 1996. Interest expense
is expected to decrease to approximately $915,000 in 1997 after paying off
approximately $5,168,000 of debt with the proceeds from the Offering.
GAIN ON REDUCTION OF OBLIGATIONS
In January 1996 the Company refinanced its primary debt resulting in an
extraordinary gain of $2,518,486 (net of income taxes of zero).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased $21,661 or 4% to $630,516
from 1995 to 1996, including the amortization of goodwill which increased
$54,171 in 1996. This increase was primarily due to an increase in the
amortization of deferred costs related to the loan refinancing in January, 1996.
The increase was partially offset by a decrease in depreciation of fixed assets
which are fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
The Company refinanced Jamestown's primary debt in January 1996 which
resulted in a reduction of indebtedness of approximately $2,518,000. The Company
believes this reduction and related decrease in interest payments will increase
cash available for operations and debt servicing.
Negative working capital at December 31, 1995 was $6,733,208 as compared to
negative working capital at December 31, 1996 of $5,721,567. The Company
believes that the net proceeds form the Offering will provide $14,700,000 in
funds. Of these proceeds approximately $4,090,000 and $1,077,000 will reduce the
secondary debt of Jamestown and Key West, respectively. The reduction of this
debt will further decrease interest payments and will increase cash available
for operations. The remaining funds will be used to satisfy the Company's
capital expansion, working capital requirements and future acquisitions. The
Company believes that the net proceeds from the Offering and cash provided by
operating activities will be sufficient to fund its operations through 1998.
During early 1997 the construction of additional slips and other minor dock
improvements were completed by Key West at the cost of approximately $500,000.
The source of funds for these improvements was the remaining loan authority
available on Key West's mortgage.
14
<PAGE> 18
The Company has a mortgage note amounting to $6,220,691 at December 31,
1996 on the Jamestown property with an interest rate of 4 1/4% over the
commercial paper lending rate. The mortgage matures on February 1, 2001 and
requires monthly payments of approximately $72,000 until maturity. These
payments include $8,000 per month for deposit into a property tax and capital
improvement escrow account. The Company has a mortgage note amounting to
$3,224,185 on the Key West property with an interest rate of 9%. The mortgage
matures on April 1, 2016 and requires monthly payments of approximately $30,000
during 1997. The Company has a note payable of $1,852,777 with a related party
with an interest rate of 1 1/2% over the prime lending rate, which is due on
demand, and is expected to be paid off from the offering proceeds.
The Company currently does not have a line of credit.
Cash flows provided by operations were $524,745 in 1995, compared to
$125,583 in 1996. This decrease was due to a number of factors, but was
significantly affected by deferral of payment of accrued interest and management
fees in 1996, which was offset by a combination of a number of other items. Cash
used in investing activities of $603,820 in 1995 and $32,224 in 1996 was
primarily used to purchase property and equipment. The decrease in 1996 was due
to major purchases and improvements being performed in 1995 at the Jamestown
facility. Cash provided by financing activities was $85,119 in 1995 and $1,366
in 1996. During 1995, the Company borrowed $1,250,700 from and repaid $844,175
to various entities. Borrowings from and repayments to affiliates in 1995
amounted to $1,197,500 and $17,293, respectively. In addition, the Company
repaid $202,601 of obligations under capital leases and incurred $118,805 in
refinancing costs. During 1996, the Company borrowed $7,183,976 from and repaid
$6,329,077 to various entities. Borrowings from and repayments to affiliates in
1996 amounted to $200,000 and $490,000, respectively. Included in this amount
was a refinancing amount totaling $6,300,000 related to the Jamestown debt
refinancing in January 1996. In addition, the Company repaid $616,029 of
obligations under capital leases and incurred $237,332 in refinancing costs.
Management believes that the current facilities at Jamestown and Key West
are in excellent condition and will not require substantial capital renovations
in the near term.
The Company has identified some potential acquisition candidates but has
not entered into any negotiations, nor does it currently have plans to make any
specific acquisitions. It is the intention of management to seek viable
acquisitions and in the event a candidate is identified, the Company would,
depending on the size of the target company and other factors, consider using
the proceeds from the Offering or bank borrowings.
There can be no assurance that the Offering will be successful or that the
Company's operations will ever be profitable, nor can there be any assurance
that the Company will not require additional equity or debt financing in the
near future, and if needed, it will be available on terms satisfactory to the
Company or at all.
SEASONALITY
Jamestown's business is seasonal in nature with the peak boating season
falling in June, July and August. These months historically have accounted for
approximately 57.5% of the yearly revenue. The impact on liquidity and capital
resources of this seasonality is reduced by incentives offered to slip customers
to pre-pay their annual fees during the fall and winter seasons when the suites,
cabins and pontoon boats are not materially used. In addition, management
believes the seasonal nature of Jamestown will be positively impacted by the
increased marketing efforts to provide off season tours and conventions.
Key West operations are impacted slightly by seasonality since boating
activity increases during the winter months due to winter vacations. However,
the majority of the business is commercial fuel sales which is not seasonal.
15
<PAGE> 19
BUSINESS
DEVELOPMENT OF THE COMPANY
Sonoma is a Nevada corporation formed in 1940 which principally engaged in
the quicksilver (mercury) mining business until the mid 1970s when its
operations ceased. Thereafter, the Company undertook several other operations
that did not materialize as anticipated. Since 1994, the Company primarily
focused on locating merger candidates or assets that could be acquired to allow
the Company to restart operations.
During 1996, the Company entered into an agreement with Clear Creek
Investments, L.L.C. to acquire all of the limited partnership interests of
Jamestown Resort & Marina, Ltd. and all the common stock of Jamestown Resort &
Marina, Inc. in return for 1,369,025 shares of Common Stock of the Company. In
addition and as a condition to the acquisition, pre-acquisition debt obligations
of Jamestown in the amount of $1,213,837 were relieved through the issuance of
330,975 shares of Common Stock of the Company. The creditors released their
Notes either through letter releases or by marking their obligations paid in
full. In October 1996, the Company also entered into an agreement with the
stockholders of Key West to acquire all of the capital stock of Key West. In
return for all the capital stock of Key West, the Key West stockholders received
300,000 shares of Common Stock and a demand note for $175,000. Both transactions
closed on December 9, 1996, with Jamestown and Key West becoming wholly owned
subsidiaries of the Company.
CURRENT BUSINESS
JAMESTOWN
Jamestown is located on the north shore of Lake Cumberland approximately
three miles east of Jamestown, Kentucky on 299 acres of land and water leased
from the U.S. Army Corps of Engineers (the "Corps"). Lake Cumberland is a 53,000
acre, 101 mile long lake situated in southern Kentucky with the Jamestown
facilities located within a two hour drive of the metropolitan areas of
Lexington and Louisville, Kentucky and Nashville, Tennessee.
Jamestown acquired the original lease comprising minimal facilities in
February 1988 with the original term of the lease ending in December 2012. The
lease was later amended by mutual agreement to allow the lease to be renewable
for an additional 25 year term subject to (i) Jamestown's satisfactory
compliance with all lease conditions during its original term and (ii) approval
by the U.S. Government. Since obtaining the lease, Jamestown has been under
development with a number of facilities and improvements being completed in 1988
and the 40 unit all-suite lodge being completed in 1989.
A portion of Jamestown is centered on an island around which the marina was
constructed. The island is connected to the mainland by a $2,000,000 causeway
built by the Commonwealth of Kentucky (the "Commonwealth") after Jamestown
entered into a development agreement with the Commonwealth in June 1988 whereby
Jamestown agreed to construct certain resort improvements and to pay the
Commonwealth 1% of its gross revenues annually.
Jamestown's facilities include:
MARINA
Jamestown has 805 total wet slips, 645 of which are subject to annual
rental, many of which are covered, and range in size from 22 feet by 70 feet to
10 feet by 20 feet. Most of the slips have separately metered water,
electricity, cable television and telephone connections. The remaining 160 slips
are used for temporary overnight ship rentals and Jamestown's rental fleet. The
marina is "U" shaped and is built around the island to maximize the use of the
available water acreage and is constructed using a floating dock system which
allows the facility to operate at all levels of the lake, which fluctuates as
much as 80 feet during the year. The average slip rents for $2,235 annually and
the marina is currently 90% occupied.
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SHIP'S STORE, RESTAURANT AND FUEL
The 8,000 square foot Ship's Store is part of the head boat facility which
is the main building on the floating dock, and is centered immediately off the
island. The ship's store derives its revenues principally from the sale of
groceries, marine supplies, clothing and gifts. The full service restaurant has
a 120 seat capacity and operates daily during the boating season. There are five
fueling slips which are located adjacent to the ship's store and are 20 feet by
60 feet in size and in aggregate contain eight fuel pump stations and a sanitary
sewer pump-out facility. Three fiberglass fuel tanks, two 12,000 gallon tanks
and one 6,000 gallon tank are installed in the ground on the island. The Company
operates each of these facilities.
YACHT CLUB AND SNACK BAR
Jamestown's Yacht Club facility, which is located near the ship's store,
has 2,500 square feet with an additional 900 square feet of covered patio for
outdoor dining and special events. The snack bar and ice cream store has 720
square feet and has open patio type seating.
GUEST ACCOMMODATIONS
Jamestown rents 40 suites in the all-suite Lodge and 18 individual cabins.
It also manages and currently has for sale, a two-story model condominium.
Currently the average nightly rental for the suites is $122.00 and for the
Cabins is $87.50. Occupancy rate in 1996 for both types of accommodations during
the season of June through August was 72%. The accommodations are not materially
used during the remainder of the year, September through May. The Corps has
approved a development plan for 52 privately owned condominiums which will be
financed and built by a third party contractor on land adjacent to Jamestown.
The contractor has agreed to allow Jamestown to sell and manage the condominiums
in return for a fee equal to a net 40% of the revenues from the condominium
rentals. The condominium project is projected to be completed within the next
five to ten years, depending on marketing conditions.
BOAT RENTALS
The Jamestown rental fleet consists of 19 pontoon boats and 30 houseboats,
with 27 of the houseboats being considered "luxurious" having amenities such as
air conditioning, complete kitchens and full service bathrooms and are operated
by the renters. The houseboat rental is $226.50 per night and were occupied
63.3% of the time during the normal summer season in 1996. The Jamestown Queen
is a 140 passenger stern paddle wheel boat which is chartered for sight seeing,
dinner and party cruises. The "Queen" is equipped for dining, dancing and is
marketed toward catered social events for groups rather than scheduled service
for the general public.
OTHER SERVICES
Jamestown also derives revenues from the maintenance and repair of boats,
boat brokering services, telephone service and miniature golf. Jamestown employs
20 full time employees throughout the year and augments its work force during
the most active seasons with approximately 30 additional employees on staff
during fall and spring and a total of 150 employees on staff during the summer
months (Memorial Day to Labor Day).
KEY WEST CONCH HARBOR MARINA
The Key West Conch Harbor Marina is located on the northwest corner of
Caroline and Grinnell Streets in the "Old Town" preservation district located in
Key West, Florida. The approximately two acre or 82,000 square foot site has an
estimated 251 feet of frontage on Caroline Street and 221 feet of shore line
along a waterway known as the Key West Bight.
Development of Key West began in May 1995 with construction of the dock and
the fueling facility including double wall fuel lines, the on-shore fuel
containment area and the new Texaco Star Port(R) fueling
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dock. The Marina has a new 450 foot dock with two 100 foot finger piers. The
fueling facility is located at the end of a "T"-dock.
In August 1995, Key West entered into an agreement with the City of Key
West whereby Key West granted the City an easement to allow the proposed
"Harborwalk" (a pedestrian boardwalk encircling the Key West Bight) to proceed
without interruption across Key West's property. The Company believes that the
Harborwalk will enhance the marina property by providing customer access to and
from the marina and other sections of "Old Town" Key West.
Fueling operations began in February 1996, and marina rental operations
began in July 1996. Unlike Jamestown, which is primarily designated to service
personal watercraft, Key West was designed as a commercial dock servicing
commercial watercraft such as the Dixie Duck Gambling Boat, which rents
approximately 200 feet of dock space, and commercial day rate deep water fishing
boats. Key West's revenues result primarily from its fuel operations and
commercial slip rentals. The average slip rental for all leased slips is $747.00
per day and for all transit slips is $820.00 per day. The 1996 occupancy rate
for the Marina was 99% during the peak season of December to June.
A portion of the dock has been designated for "transient" slips which are
available at a day rental rate and cater to the non-commercial pleasure boat
customer. Key West recently completed construction of an 800 sq. ft. two story
building to be used for marina operations, restroom facility and a small
convenience store, which Key West operates. The project is still in development
with food and beverage service (restaurant), and small retail shops planned for
the future, however no specific construction plans or costs estimates have been
completed.
Key West employs six full time employees.
BUSINESS STRATEGY
The Company's business strategy is designed to achieve revenue and profit
growth by first completing development of Key West and by acquiring additional
leisure properties and commercial real estate which the Company will acquire
primarily for the income produced by such properties.
Key West has recently completed construction of (i) office space for marina
operations, (ii) restroom facilities and (iii) a small convenience store. Key
West plans future development of a restaurant and retail shop space however no
building plans have been drawn or costs estimated at this time. It is
anticipated that Key West will lease the restaurant and retail shop space to
third parties for a monthly rental plus a percentage of the lessee's gross
business. Other than the aforementioned restaurant and retail shop space the
development at Key West and Jamestown is essentially completed. Jamestown's
future development will be minimal and primarily center on its management of
condominium units to be built on land not constituting part of Jamestown (which
will be financed and built by a third party contractor but will be sold and
managed by Jamestown and for which Jamestown anticipates it will receive a net
40% of the revenues from the condominium rentals in return for its services),
and marketing the Jamestown facilities for year around use by corporate and
convention business.
Further, Company growth, if any, will primarily come from the continued
acquisition of leisure properties and commercial real estate by the Company.
Although the Company has not yet entered into any agreements with specific
targets, the Company feels confident that it will be able to acquire properties
that meet its strategy in the future. The Company's growth will be financed from
the proceeds of the Offering, cash from operations (if the Company is
profitable), possible future offerings of debt or equity securities and possible
future lines of secured or unsecured credit. There can be no assurance that such
funding will be available to the Company or, if available, will be at
competitive rates. To the extent such funds are not available or are too
expensive for the Company to utilize, the Company's growth plans will not
materialize.
If the Company is successful in its growth strategy such success could
result in the issuance of additional Common Stock either for sale to finance
acquisitions or to be used in exchange for stock or assets of the acquired
companies. In either event, the then existing stockholders of the Company will
experience a dilution
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of their holdings in the Company with the extent of the dilution dependent upon
the number of shares sold or exchanged.
FACILITIES AND LOCATION
The Company leases approximately 299 acres three miles east of Jamestown,
Kentucky, including water and land on which the Jamestown Resort is located,
from the Corps. The original term of the lease expires on December 31, 2012,
however, the original term may be renewed upon certain conditions for an
additional 25 year term. The Company may terminate the lease at any lease year
upon six months notice, and the Corps may terminate the lease if the Company
violates the lease and continues to do so for 60 days after notice of the
violation in writing.
Rent on the Jamestown lease is calculated based upon an assumed break even
point. The Company must pay 0.75% of all sales and 2.25% of all rents and
services below the assumed break even point. Gross income between the assumed
break even point and twice the assumed break even point requires the payment of
2.25% of sales and 6.75% of rents and services. Gross revenues in excess of
twice such break even point requires the payment of 3.00% of sales and 7.00% of
rents and services. For the calendar years ended December 31, 1995 and 1996, the
Company paid $70,000 and $68,000 in rent, respectively. The lease prohibits
gambling on the premises. The Company pays a one percent annual revenue fee to
the Commonwealth in exchange for improvements to the island and causeway, which
fee was $40,000 in both 1995 and 1996. The improvements to Jamestown are subject
to a first mortgage in a total amount $6,220,619 owed to NationsCredit
Commercial Corporation, with a variable rate equal to the commercial paper rate
plus 4.25% and which matures in 2001, and a second mortgage in the principal
amount of $1,852,777 with a interest rate of 1 1/2% over the variable prime
lending rate which is due on demand owed to the Webb Family Trust.
The Company owns approximately two acres of land in Key West, Florida where
the Key West facility is located. The Company purchased this land and original
improvements in 1994 and owns the land in fee simple subject to the
restrictions, easements and encumbrances of record. The Key West property is
subject to a first mortgage totalling $3,224,185 with a variable interest rate
of 1% over TIB Bank of the Keys N.A.'s index rate, (currently the interest rate
is 9.0%). The mortgage matures in April 2016.
The Company leases its corporate executive offices located in Lexington,
Kentucky on an annual basis and its current lease expires June 30, 1997 with
lease payments of $500.00 per month.
Management believes that the properties described above are adequately
insured.
COMPETITION
The Company has numerous competitors for both its marina properties.
Competition comes from direct competitors offering similar accommodations and
recreational opportunities located with in a short distance of the Company's
facilities and in the form of competitors who are located across the country who
offer either similar or alternative forms of recreation and compete for the same
vacation users.
With its direct competitors, the Company competes primarily on the basis of
quality and range of services offered, desirability of its facilities, ease of
access to the public, its experience and its ability to offer an economic value
to its customers. Some of the Company's competitors may have greater financial,
operating or management resources than the Company.
LEGAL PROCEEDINGS
The Company has no material legal proceedings pending, except that with the
acquisition of Jamestown Resort & Marina, Ltd., the Company became a defendant
in two lawsuits; one involving former employees and one liability claim.
Management believes that an adverse resolution of these lawsuits will not have a
material impact on the financial condition of the Company as almost all the
potential loss from said lawsuits is covered by insurance.
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GOVERNMENT REGULATIONS
The Company's operations are subject to significant federal, state and
local government environmental regulations. By far the Company's most
significant regulated activities involve the permitting by the states of
Kentucky and Florida for its fueling facilities, license tags for watercraft and
health certificates for its food and beverage facilities, although numerous
other parts of its facilities and operations are also regulated by a number of
other governmental entities such as sales tax permits by the respective state
revenue departments. The Company currently has all necessary permits and
licenses to operate its facilities and watercraft.
Of special concern are the various federal, state and local laws and
regulations relating to the environment, especially those dealing with the
storage and dispensing of motor fuels. Violation of any of these statutes,
regulations or orders issued thereunder could result in civil or criminal
enforcement actions including the closure of the fueling facilities. Closure of
the fueling facilities at either Jamestown or Key West would have a
significantly negative impact on the Company's revenues which most likely would
result in the insolvency of the Company.
In addition, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, provides for cleanup of geographical
locations upon which there has been a release or threatened release of hazardous
substances and authorizes the Environmental Protection Agency (EPA) to take any
necessary response including requiring potentially responsible parties to take
or pay for such actions.
The Company is not aware of any potentially material environmental
liability relating to any property in which the Company has an interest other
than the Key West real property being designated as a potentially contaminated
site by the State of Florida. Key West has not been required to take any
remedial action and if remedial action were required, Key West has been
indemnified for all costs of any remedial action by the property's former
owners, Chevron USA, Inc. However there can be no assurance that no remedial
action will be required in the future or that Chevron will be able to indemnify
the Company now or in the future. Currently, costs to the Company for
environmental compliance are not material; however, there can be no assurance
that this situation will continue in the future.
The Company is also subject to the regulations of the U.S. Coast Guard for
some of its facilities and operations but especially in its ownership and
operation of the Jamestown Queen, the 140-passenger paddle-wheel boat that is
rented by customers of the Company for sightseeing, dinner and party cruises. In
addition, the Company's food and beverage operations are subject to normal state
and local health and sanitation regulations. Failure of the Company to properly
observe such regulations could result in the offending facilities or operations
being shut down until such time as they are brought into proper compliance.
Should any significant delay occur, the revenues of the Company would be
adversely impacted.
Management believes that the Company's current facilities and operations
meet or exceed the requirements of all material federal, state or local statutes
and regulations and that all required licences or permits have been obtained.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Set forth below are the names, ages and positions of the executive
officers, key employees and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Dudley Webb........................... 53 Director and Chairman of the Board
Martha Layne Collins..................... 60 Director and Vice Chairman
Dr. Barrett Bernard, M.D................. 47 Director
Charles W. Henne......................... 58 Director
Dr. Edwin Nighbert, M.D.................. 56 Director
Irvin Stumler............................ 61 Director
James L. Frye............................ 37 Director, President and Chief Executive
Officer
Fred Skomp............................... 53 Director and Vice
President -- Development
Peter Sackmann........................... 55 Treasurer and Chief Financial Officer
Glenn Hoskins............................ 42 Director and Secretary
</TABLE>
The principal occupations and positions for the past five years of each of
the Directors and Executive Officers of the Company are as follows:
R. DUDLEY WEBB became a Director and Chairman of the Board on December 9,
1996. Mr. Webb has been a partner in the law firm of Webb, Hoskins, Glover &
Stafford, P.S.C. since 1972, which was the same year he, along with his brother,
Donald, founded a number of real estate ventures which eventually became The
Webb Companies, a consolidation of a number of real estate, construction and
commercial property management companies. Mr. Webb currently serves as Chairman
of the Board of The Webb Companies, a position which he has held since 1982, and
Chairman of the Board and Chief Executive Officer of Jamestown Resort & Marina,
Inc. In 1992 Mr. Webb became involved in several lawsuits and involved in a
controversy with the Rehabilitator/Liquidator of Kentucky Central Life Insurance
Company, which resulted in the reorganizational bankruptcy filings of several
real estate ventures which Mr. Webb was involved in with Kentucky Central in the
United States Bankruptcy District Court for the Eastern District of Kentucky.
The bankruptcies have since been dismissed although related non-bankruptcy
litigation continues. Mr. Webb holds a B.A. Degree from Georgetown College and a
J.D. Degree from the University of Kentucky College of Law.
MARTHA LAYNE COLLINS began serving as a Director and Vice-Chairman of the
Board on December 9, 1996. Ms. Collins is currently the Director of the
International Business & Management Center, University of Kentucky, a position
which she has held since July 1996, and beginning in January 1988 has served as
President of Martha Layne Collins & Associates, a consulting firm. Prior to her
current position at the University of Kentucky, she was the President of St.
Catherine College, Springfield, Kentucky from July 1990 to June 1996, and
Governor of the Commonwealth of Kentucky from December 1983 to December 1987.
Ms. Collins is currently serving as a director for Eastman Kodak Company,
Incorporated, R.R. Donnelley and Sons Company, Incorporated and the Bank of
Louisville, Louisville, Kentucky. She is also an Advisory Board Director for the
Norfolk Southern Corporation. She is a graduate of the University of Kentucky.
L. BARRETT BERNARD, M.D. joined the Company as a Director on December 9,
1996. Dr. Bernard is currently the Medical Director-Emergency Services,
Greenview Regional Hospital, Bowling Green, Kentucky and has held this position
since 1989. He holds a B.S. Degree from Western Kentucky University and received
his Doctorate of Medicine from the University of Louisville School of Medicine,
Louisville, Kentucky.
CHARLES W. HENNE has been a Director and served as interim President of the
Company since October 9, 1996. As of December 9, 1996, Mr. Henne resigned as
President but remains a Director of the Company. He is currently President of
C.W. Henne Companies, Inc., a real estate management and venture firm which has
had a direct involvement in a wide range of development projects including
office, industrial, shopping and
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residential properties since 1973. Mr. Henne is a graduate of the University of
Louisville where he received his B.S. Degree.
EDWIN NIGHBERT, M.D., a Director of the Company since December 9, 1996, has
been a surgeon with Surgical Associates of Lexington, P.S.C. for the last 23
years. Dr. Nighbert was a director of Surgical Care Affiliates, Inc. from 1984
until its acquisition by Health South, Inc. in 1996 and a director of Healthwise
America, Inc. from 1993 until its acquisition by United Health Corporation in
1996. He received his Doctorate of Medicine from the University of Kentucky in
1966.
IRVIN STUMLER became a Director on December 9, 1996. He is currently a
Director and President of Eurotax Systems, Inc., positions he has held since
1994 and is also currently a Director and President of Profit Concepts, Inc., a
company which he has been with since 1983. Mr. Stumler holds a B.A. from
Bellarmine College which he received in 1962 and a J.D. degree from the
University of Louisville School of Law.
JAMES L. FRYE became a Director, Chief Executive Officer and President of
the Company on December 9, 1996. Prior to joining the Company Mr. Frye was Area
Vice President for the Southeast Region of Westrec Marina Management, Inc., a
position he has held since 1989. While with Westrec, Mr. Frye had responsibility
for marina properties located in Florida, Georgia, Alabama and Mississippi
including eight million dollars in development projects. The properties
generated twenty three million dollars in 1995 sales. Prior to joining Westrec,
Mr. Frye was employed by O'Connell Management Company as the Managing Director
of Marina Bay Yacht Basin in North Quincy, Massachusetts, a 440 acre facility
with 675 boat slips, residential and commercial retail space. Mr. Frye holds a
B.S. degree from the University of Massachusetts at Amherst.
A. FREDERICK SKOMP is a Director and Vice President of Development for the
Company. He began his current positions with the Company on December 9, 1996.
Since 1989 Mr. Skomp has been the owner/broker of Southernmost Real Estate,
Inc., a commercial real estate brokerage in Key West, Florida and has been the
President of Key West Conch Harbor, Inc. since December, 1993.
PETER SACKMANN serves as the Company Treasurer and Chief Financial Officer.
Mr. Sackmann was employed as Chief Financial Officer of The Webb Companies from
1990 until December, 1996 and as Vice President, Treasurer and CFO of The
Stearns Company, a real estate investment and development company, a position he
held from 1981 to 1990. Mr. Sackmann is a Certified Public Accountant receiving
his B.S. and M.B.A. from Florida State University. Mr. Sackmann has been with
the Company since December 9, 1996.
GLENN HOSKINS has been a Director and the Company's Secretary since
December 9, 1996. During the last five years Mr. Hoskins has been a lawyer in
private practice in Lexington, Kentucky and a Director and Secretary of
Lexington Building & Supply Co., Inc., positions he has held since 1978. He also
holds directorships in several other privately held companies located in
Kentucky. Mr. Hoskins has a B.S. degree from Vanderbilt University and a J.D.
degree from the University of Kentucky College of Law.
RELATIONSHIPS
None of the aforementioned directors and officers are related by blood,
however, Martha Lane Collins is the mother-in-law of R. Dudley Webb.
EMPLOYMENT CONTRACT
The Company has entered into an employment agreement with its President and
Chief Executive Officer, James L. Frye. The agreement provides for a two year
term ending December 31, 1998 with an annual salary of $100,000, medical and
health insurance and fringe benefits consistent with his position. He will be
eligible to receive additional incentives through the Company's 1996 Long-Term
Incentive Plan. The agreement also provides that he will serve as a director of
the Company.
The Company, as of the date of the Offering, does not intend to enter into
any employment agreements with any of its other officers and has not entered
into any similar agreements with its employees. The Company has no labor
contracts or agreements covering any of its work force.
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INDEMNIFICATION ARRANGEMENTS
The Company's Bylaws provide for the indemnification of, and the
advancement of expenses to, the directors and officers of the Company in
connection with proceedings and claims arising out of their status as such to
the fullest extent permitted by the laws of the State of Nevada. In addition,
the Bylaws contain certain provisions intended to facilitate receipt of such
benefits. The Company also intends to purchase customary directors' and
officers' liability insurance policies for its directors and officers, if such
insurance is available at a cost that the Board of Directors deems prudent.
EXECUTIVE COMPENSATION
The Company has had no significant or material operations since 1985 and
consequently since that time has not compensated any employees or officers.
Sonoma intends to initially compensate its President and Chief Executive
Officer, James L. Frye and Treasurer and Chief Financial Officer, Peter
Sackmann, at an annual salary of $100,000 and $50,000 respectively. No other
compensation has been decided upon for any of the Company's other executive
officers by the Company's Board of Directors although it is anticipated that
other executive salaries will be added should the Company be successful in its
expansion plans.
COMPENSATION OF DIRECTORS
Directors of the Company do not currently receive compensation for their
services as directors, although they are reimbursed for travel and lodging
expenses in connection with their attendance at board meetings. The Company
expects to pay an annual fee in the amount of $1,000 and meeting fees of $500
per meeting plus reasonable travel expenses, to its directors who are not
employees or affiliates of the Company.
EMPLOYEE BENEFIT PLANS
1996 LONG-TERM INCENTIVE PLAN
As a performance incentive and in order to encourage ownership of Common
Stock, the Company adopted its 1996 Long-Term Incentive Plan ("Plan") as of
December 9, 1996. An aggregate of 350,000 shares of Common Stock has been
authorized and reserved for issuance under the Plan pursuant to the exercise of
options or the grant of restricted stock awards. The Plan is intended to qualify
for favorable treatment under Section 16 of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), pursuant to Rule 16b-3 promulgated thereunder
("Rule 16B-3").
The Plan provides for the grant of "incentive stock options," as defined in
Section 442 of the Internal Revenue Code of 1986, as amended ("Code"),
nonqualified stock options, restricted stock awards and stock appreciation
rights (collectively referred to as "Awards"). The Plan will be administered by
a committee of the Board of Directors ("Committee"), which committee will
consist of two or more directors who are deemed "disinterested" within the
meaning of Rule 16b-3. The Committee has, subject to the terms of the Plan, the
sole authority to grant Awards under the Plan, to construe and interpret the
Plan and to make all other determinations and take any and all actions necessary
or advisable or the administration of the Plan.
All of the Company's employees, independent directors and advisors are
eligible to receive Awards under the Plan, but only employees of the Company are
eligible to receive incentive stock options. Options will be exercisable during
the period specified in each option agreement and will generally be exercisable
in installments pursuant to a vesting schedule to be designated by the
Committee. Restricted stock awards will give the recipient the right to receive
a specified number of shares of Common Stock contingent upon remaining a Company
employee for a specified period, as determined by the Committee. Notwithstanding
the provisions of any option agreement or restricted stock agreement, options
will become immediately exercisable and all restrictions will immediately lapse
with respect to any award of restricted stock in the event of a change or
threatened change in control of the Company and in the event of certain mergers
and reorganizations of the Company. No option will remain exercisable later than
ten years after the date of grant. In addition, options may be subject to early
termination within a designated period following the optionee's cessation of
service with the Company.
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The aggregate fair market value of Common Stock with respect to which
incentive stock options are exercisable for the first time by any individual
during any calendar year may not exceed $100,000. The exercise price for
incentive stock options granted under the Plan may be no less than the fair
market value of the Common Stock on the date of grant (or 110% in the case of
incentive stock options granted to employees owning more than 10% of the Common
Stock). The exercise price for nonqualified options granted under the Plan will
be in the discretion of the Committee.
The Plan provides for automatic grants of nonqualified options to purchase
1,000 shares of Common Stock to independent directors upon each such director's
initial election to the Board of Directors and nonqualified options to purchase
1,000 shares of Common Stock annually thereafter. Each such option (i) entitles
the director to purchase shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant, (ii) is
exercisable in three installments beginning on the first anniversary from the
date of grant and (iii) terminates on the tenth anniversary of the date of
grant.
CERTAIN TRANSACTIONS
PRE-ACQUISITION STOCKHOLDERS
Affiliates of Mr. Gary V. Sutley, the Company's sole director prior to May
1995, were issued an aggregate of 91,937 shares of Common Stock, and Mr. Sutley
directed the issuance of an additional 75,000 shares of Common Stock to
unaffiliated individuals or entities, in connection with approximately $310,000
in consulting services rendered to the Company. These shares were included in
the 1 for 200 reverse split and thus are a part of the 300,000 shares of Common
Stock being retained by the pre-acquisition Sonoma stockholders.
POST-ACQUISITION STOCKHOLDERS
As a result of the acquisition of Jamestown and Key West, the Company
issued (i) a total of 1,700,000 post split common shares to the holders of all
the limited partnership interests of Jamestown Resort & Marina, Ltd., the
members of Clear Creek Investments LLC and certain creditors of Jamestown in
return for those interests and (ii) 300,000 post split common shares to the
stockholders of Key West Conch Harbor, Inc. for all the outstanding and issued
common shares of that corporation.
CONFLICTS OF INTEREST
R. Dudley Webb, Chairman of the Board, is the principal shareholder,
Chairman and Chief Executive Officer of The Webb Companies, a real estate
concern located in Lexington, Kentucky which develops, manages and owns portions
of a number of commercial real estate projects. Although the Company and The
Webb Companies have separate real estate investment objectives with the
Company's objective being leisure oriented properties and The Webb Companies'
primarily being office buildings, there can be no assurance that there may be a
property or investment opportunity in which both companies may be interested. In
addition, there may be opportunities which the Company and the Webb Companies
may wish to be jointly involved in and from which both companies expect to make
a profit. Consequently, should either event occur, Mr. Webb, in recognition of
the fiduciary duty owed to the Company and its stockholders, has orally agreed
in statements to the Board of Directors of the Company that The Webb Companies
will not pursue any conflicting property or opportunity and that he will abstain
from any voting by the Board of Directors concerning such opportunities or
properties.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
The Company does not currently engage in any transactions affiliated with
any of the directors or officers of the Company except the loans described below
and the Company's lease of space in an office building in which R. Dudley Webb,
the Company's Chairman of the Board, has an investment interest and which is
managed by the Webb Companies (a company owned by R. Dudley Webb). The Company
believes that all transactions involving The Webb Companies or their affiliates
are on terms substantially equivalent to those that could be obtained from
unaffiliated third parties.
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The Company is obligated to repay indebtedness (i) to the Webb Family Trust
in the form of several notes in an approximate aggregate amount of $2,760,277
which are due on demand and are subject to varying interest rates with the
largest note bearing an interest rate of 1 1/2% over the prime lending rate and
is collateralized by a second mortgage on the Jamestown property improvements
and (ii) to Mr. A. Frederick Skomp in the approximate amount of $100,000,
payable upon demand at a variable interest rate of 1% over prime and a second
note in the principal of $175,000 payable on demand at no interest. Both
obligations are to be repaid with proceeds of the Offering. See "Use of
Proceeds."
FUTURE TRANSACTIONS
All future transactions and loans between the Company and officers,
directors or 5% or more stockholders will be on terms no less favorable than
could be obtained from independent third paries and will be approved by a
majority of the independent, disinterested directors of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, and
after giving effect to the Offering, certain information regarding the
beneficial ownership of the Common Stock by (i) each person who is known to the
Company to beneficially own more than 5% of the Common Stock, (ii) each of the
directors and executive officers of the Company individually and (iii) by the
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING
NAME OF BENEFICIAL ---------------------------- ------------------------
OWNER OR GROUP(1) NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
The Webb Family Trust(2)..................... 915,197 39.8% 915,197 17.3%
Dawn Irrevocable Trust(2).................... 201,800 8.8% 201,800 3.8%
Frederick Skomp.............................. 117,300 5.1% 117,300 2.2%
L. Barrett Bernard........................... 91,081 4.0% 91,081 1.7%
Edwin Nighbert............................... 20,679 0.1% 20,679 0%
Irvin Stumler................................ 10,339 0.05% 10,339 0%
Glenn Hoskins................................ 9,977 0.04% 9,977 0%
Marla Collins Webb(2)........................ 182,700 7.9% 182,700 3.4%
Directors/Executive Officers as a Group (11
persons)................................... 1,546,273 67.2% 1,546,273 28.4%
</TABLE>
- ---------------
(1) The address for all the persons or entities named above is 3000 Lexington
Financial Center, Lexington, Kentucky 40507.
(2) Dawn Irrevocable Trust is a Cook Island Trust for which Marla Collins Webb,
spouse of R. Dudley Webb, Chairman of the Board, is the trustee and is
likely to vote its shares in a beneficial manner to R. Dudley Webb. The Webb
Family Trust, even though it is administered by an independent trustee, is
likely to vote its shares in a manner beneficial to R. Dudley Webb. Marla
Collins Webb is also the daughter of Martha Layne Collins, Vice Chairman of
the Company.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.001 per share. Upon completion of the Offering
5,300,000 shares of common stock (without giving effect to the Over-Allotment
Option or exercise of the Representative's Warrants) will be outstanding.
COMMON STOCK
The holders of Common Stock of the Company are entitled to one vote per
share on all matters submitted to a vote of the stockholders. Cumulative voting
of shares of Common Stock is prohibited and there
25
<PAGE> 29
are no pre-emptive rights. The holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefore. Subject to the
prior rights of creditors, all shares of Common Stock are entitled in the event
of liquidation to participate ratably in the distribution of all remaining
assets of the Company.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Articles of Incorporation and Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent provided by
Nevada law. In addition, the Articles of Incorporation contain a provision
limiting a director's and officer's liability for monetary damages to the
fullest extent permitted by Nevada law.
Furthermore, Section 78.751 of the Nevada General Corporation Law (the
"NGCL") contains provisions relating to indemnification of officers and
directors. Section 78.751(1) provides that a corporation may indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except for an action by or in right of the corporation by reason of the fact
that he was a director, officer, employee or agent of the corporation. In order
to indemnify, it must be shown that he acted in good faith and in a manner he
reasonably believed to be in the best interest of the corporation. Generally, no
indemnification may be made where the person has been determined to be negligent
or guilty of misconduct in the performance of his duty to the corporation.
Section 78.751(2) of the NGCL further allows the corporation to indemnify
any person who was or is a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, including amounts paid in settlement and attorneys' fees if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter to which a court of competent jurisdiction
has adjudged an officer or director liable to the corporation, unless and only
to the extent that a court of competent jurisdiction determines that in view of
the circumstances of the case, the person is fairly and reasonably entitled to
indemnify for such expenses.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding discussed in the preceding paragraphs, Section 78.751(3) of the NGCL
provides that he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense.
Except when indemnification is required by a court of competent
jurisdiction, Section 78.751(4) of the NGCL states that the corporation shall
only indemnify upon a determination of (i) the shareholders; (ii) majority vote
of the board that were not parties to the action; (iii) if ordered by a majority
vote of a quorum of directors who were not parties to the action, suit or
proceeding, by independent legal counsel in a written opinion; or (iv) by
independent legal counsel in a written opinion if no quorum of directors who
were not parties to the action may be obtained.
Unless ordered by a court of competent jurisdiction, indemnification may
not be made to or on behalf of any officer or director if a final adjudication
establishes that his acts or omissions involved intentional misconduct, fraud or
a knowing violation of the law and were material to the cause of action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
as is therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,300,000 shares of
Common Stock outstanding. Of these shares, the 3,000,000 shares sold in the
Offering and a small number, approximately 92,207 from the Company's original
public offering will be freely tradable without restriction or further
26
<PAGE> 30
registration under the Securities Act, except for any shares purchased at any
time by an "affiliate" of the Company (as that term is defined in the rules and
regulations under the Securities Act). All of the remaining shares of Common
Stock outstanding (2,207,893) are held by existing stockholders and were sold
without registration under the Securities Act in reliance upon an exemption from
registration and will be "restricted" securities within the meaning of Rule 144,
2,000,000 of which will be eligible for sale in December of 1997, and the
remainder are currently eligible for sale. The directors and officers of the
Company, and certain other stockholders who in the aggregate own 1,546,273
shares of restricted Common Stock, have agreed with the Underwriters not to
offer, sell or otherwise dispose of any shares of Common Stock beneficially
owned or controlled by them (including subsequently acquired shares) for a
period of one year from the date of this Prospectus without the prior written
consent of the Representative.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares for
at least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Common Stock (53,000 shares immediately after the Offering) or the average
weekly trading volume in the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner of sale provision, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to be an "affiliate" of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned "restricted" shares for at least two years, would be entitled
to sell such shares under Rule 144 without regard to the volume or manner of
sale limitations referred to above.
The Company can make no predictions as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices.
The Company has not yet issued options to purchase shares of Common Stock
under its 1996 Long-Term Incentive Plan. However, 350,000 shares of Common Stock
are reserved by the Company for issuance under the Plan. See
"Management -- Employee Benefit Plans." The Company intends to file a
registration statement on Form S-8 covering sales of shares issued upon any
securities issued under the Plan.
The Company, as of the date of this Prospectus, has approximately 800
stockholders of record.
Although the Company is a reporting company pursuant the Securities Act,
its Common Stock is not actively traded and there does not currently exist any
market makers for the Common Stock of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, New York, New York.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective September 12, 1996, the Company, by act of its board of
directors, engaged King Griffin & Adamson P.C. as its principal accountant to
audit the Company's financial statements, replacing Skeehan & Company in that
capacity. This decision was made in conjunction with the execution of certain
acquisition agreements and the acquisition by the Company of Jamestown and Key
West. The Company had not consulted with the newly engaged independent
accountant on accounting matters prior to its engagement.
27
<PAGE> 31
UNDERWRITING
The underwriters named below, (the "Underwriters") for whom National
Securities Corporation is acting as representative (in such capacity the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement, to purchase from the Company and the Company has
agreed to sell to the Underwriters on a firm commitment basis the respective
number of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
National Securities Corporation.............................
Total............................................. 3,000,000
</TABLE>
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any such securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Common Stock to the public at the initial
offering price set forth on the cover page of this Prospectus and to certain
dealers at such prices less a concession of not in excess of $ per share of
Common Stock. Such dealers may re-allow a concession not in excess of
$ per share of Common Stock to certain other dealers. After the
commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make. The Company has also
agreed to pay the Representative an expense allowance on a nonaccountable basis
equal to 3.0% of the gross proceeds derived from the sale of the Common Stock
underwritten, of which $33,000 has been paid to date.
The Company has granted the Underwriters an Over-Allotment Option,
exercisable within 45 days of the date of this Prospectus to purchase up to an
additional 450,000 shares of Common Stock at the public offering price per share
of Common Stock, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering overallotments, if any, incurred in the sale of the Common
Stock offered hereby. To the extent such option is exercised, in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.
In connection with the Offering the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 300,000 shares of Common Stock (the "Representatives Warrants"). The
Representative's Warrants are initially exercisable at a price of $7.20 per
share (120% of the initial offering price per share of Common Stock) for a
four-year period commencing on the first anniversary of the issuance of such
warrants. The Representative's Warrants may not be sold, transferred, assigned
or hypothecated for a period of one year following the date of this Prospectus,
except to officers of the Representative, Underwriters or members of the selling
group. The Representative's Warrants provide for adjustments in the number of
shares of Common Stock issuable upon the exercise thereof and in the exercise
price of the Representative's Warrants as a result of certain events, including
subdivisions and combinations of the Common Stock. The Representative's Warrants
grant to the holders thereof certain rights of registration for the Common Stock
issuable upon exercise of the Representative's Warrants.
All officers, directors and certain stockholders of the Company have agreed
not to, directly or indirectly, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge or
otherwise dispose of any beneficial interest in the Common Stock for a period of
12 months following the
28
<PAGE> 32
date of this Prospectus without the prior written consent of the Representative.
An appropriate legend shall be marked on the face of certificates representing
all such securities.
The Company has agreed not to, without the prior written consent of the
Representative, issue, sell, agree or offer to sell, grant an option for the
purchase or sale of, or otherwise transfer or dispose of any of its securities
for a period of 12 months following the effective date of the Registration
Statement of which this Prospectus is a part.
Prior to the Offering, there has been no active public market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiation between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth, and other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
include the history of and the prospects for the industry in which the Company
competes, an assessment of the Company's management and the prospects of the
Company, the Company's capital structure and certain other factors as were
deemed relevant.
In connection with this Offering certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position by exercising the Over-allotment Option
referred to above. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriters, the selling concession
with respect to Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
The foregoing is a summary of all the material terms of the agreement
described above but does not purport to be complete in all respects. Reference
is made to a copy of each such agreement which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
LEGAL MATTERS
The validity of the issuance of certain of the shares of Common Stock
offered hereby and certain other legal matters will be passed upon for the
Company by Jackson Walker, L.L.P., Dallas, Texas. Certain legal matters in
connection with the Offering with respect to Nevada law will be passed upon for
the Company by Marshall, Hill, Cassas & deLipkau, Reno, Nevada. Camhy Karlinsky
& Stein LLP, New York, New York has acted as counsel for the Underwriters in
connection with this Offering.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the years in the two-year period ended December
31, 1996, have been included herein and in the registration statement in
reliance upon the reports, included herein, of King Griffin & Adamson P.C.,
independent public accountants, and upon the authority of said firm as experts
in accounting and auditing.
29
<PAGE> 33
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of these materials can also be obtained from the Commission at
prescribed rates by writing to the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement may
also be accessed on the World Wide Web through the Commission's Internet address
at "http://www.sec.gov".
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein or in the Registration
Statement by reference (other than exhibits and schedules thereto, unless such
exhibits or schedules are specifically incorporated by reference into the
information that this Prospectus incorporates). Written or telephonic requests
for copies should be directed to the Company's principal office: 3000 Lexington
Financial Center Lexington, Kentucky 40507 (606) 281-0000.
30
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Consolidated Financial Statements
Consolidated Balance Sheet................................ F-3
Consolidated Statement of Operations...................... F-4
Consolidated Financial Statements
Report of Independent Certified Public Accountants........ F-5
Consolidated Balance Sheets............................... F-6
Consolidated Statements of Operations..................... F-7
Consolidated Statements of Changes in Stockholders'
Deficit................................................ F-8
Consolidated Statements of Cash Flows..................... F-9
Notes to Consolidated Financial Statements................ F-10
Sonoma International
Report of Independent Certified Public Accountants........ F-20
Balance Sheets............................................ F-21
Statements of Operations.................................. F-22
Statements of Changes in Stockholders' Deficit............ F-23
Statements of Cash Flows.................................. F-24
Notes to Financial Statements............................. F-25
Key West Conch Harbor, Inc.
Report of Independent Certified Public Accountants........ F-29
Balance Sheets............................................ F-30
Statements of Operations.................................. F-31
Statements of Changes in Stockholders' Deficit............ F-32
Statements of Cash Flows.................................. F-33
Notes to Financial Statements............................. F-34
</TABLE>
F-1
<PAGE> 35
SONOMA INTERNATIONAL AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Effective December 9, 1996, Jamestown Resort and Marina Ltd., ("Jamestown")
completed a reverse acquisition of Sonoma International ("Sonoma") and an
acquisition of Key West Conch Harbor, Inc. ("Key West"). The historical
financial statements prior to the acquisition transactions are those of
Jamestown. Sonoma was a public company which has had no operations since 1988.
For accounting purposes, the acquisition between Sonoma and Jamestown is
regarded as an acquisition by Jamestown of substantially all of the outstanding
stock of Sonoma and is accounted for as a recapitalization of Jamestown with
Jamestown as the acquirer (a reverse acquisition). The subsequent transaction
with Key West is accounted for using the purchase method of accounting. See Note
A to the consolidated financial statements that includes a more complete
discussion of these transactions.
The pro forma unaudited consolidated balance sheet at December 31, 1996
gives effect to the sale of common stock per the offering and the application of
net proceeds therefrom, effective December 31, 1996. This includes the effect on
interest expense resulting from the pay down of debt as it relates to the pro
forma unaudited consolidated statement of operations for the year ended December
31, 1996.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1996 also reflects the Key West and Sonoma transactions
described above as if they occurred on January 1, 1996.
The unaudited pro forma consolidated financial information is not
necessarily indicative of the results of operations that would have been
reported had such events occurred on the dates specified, nor is it necessarily
indicative of the future results of the consolidated entities. The unaudited
consolidated pro forma financial statements should be read in conjunction with
the historical financial statements of the Company.
F-2
<PAGE> 36
SONOMA INTERNATIONAL AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
HISTORICAL PRO FORMA YEAR ENDED
1996 ADJUSTMENTS DECEMBER 31, 1996
----------- ----------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash.................................. $ 104,353(a)(b) $9,755,777 $ 9,860,130
Escrow funds.......................... 88,400 -- 88,400
Receivables:
Trade, net.......................... 54,492 -- 54,492
Other............................... 27,008 -- 27,008
Inventory............................. 85,668 -- 85,668
Prepaid expenses and other............ 17,651 -- 17,651
----------- ----------- -----------
Total current assets............ 377,572 9,755,777 10,133,349
PROPERTY AND EQUIPMENT
Buildings and improvements............ 2,599,885 -- 2,599,885
Land.................................. 3,150,000 -- 3,150,000
Land improvements..................... 293,831 -- 293,831
Docks and floating buildings.......... 8,220,250 -- 8,220,250
Boats and improvements................ 2,116,453 -- 2,116,453
Furniture, fixtures and equipment..... 1,692,566 -- 1,692,566
Boats under capital lease............. -- -- --
Computer equipment.................... 193,171 -- 193,171
Fuel tanks and containment building... 151,132 -- 151,132
Vehicles.............................. 22,482 -- 22,482
Construction in progress.............. 140,178 -- 140,178
----------- ----------- -----------
18,579,948 -- 18,579,948
Less accumulated depreciation and
amortization........................ 4,537,677 -- 4,537,677
----------- ----------- -----------
Net property and equipment.............. 14,042,271 -- 14,042,271
OTHER ASSETS
Deferred loan fees, net............... 322,858 -- 322,858
Deferred offering costs............... 336,632(b) (336,632) --
Goodwill, net......................... 1,006,310 -- 1,006,310
----------- ----------- -----------
Total other assets.............. 1,665,800 (336,632) 1,329,168
----------- ----------- -----------
TOTAL ASSETS............................ $16,085,643 $9,419,145 $25,504,788
=========== =========== ===========
CURRENT LIABILITIES
Current portion of long-term debt..... $ 4,395,941(a) $(4,254,504) $ 141,437
Accounts payable...................... 453,522 -- 453,522
Accrued interest...................... 150,733(a) (112,874) 37,859
Accrued liabilities................... 299,802 -- 299,802
Security deposits..................... 49,319 -- 49,319
Payable to related party.............. 53,200 -- 53,200
Deferred revenue...................... 696,622 -- 696,622
----------- ----------- -----------
Total current liabilities....... 6,099,139 (4,367,378) 1,731,761
LONG-TERM LIABILITIES
Long term debt........................ 10,263,786(a) (913,477) 9,350,309
----------- ----------- -----------
Total long term liabilities..... 10,263,786 (913,477) 9,350,309
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock.......................... 2,300 3,000 5,300
Additional paid-in capital............ 1,392,346(a)(b) 14,697,000 16,089,346
Accumulated equity (deficit).......... (1,671,928) -- (1,671,928)
----------- ----------- -----------
Total stockholders' equity
(deficit)..................... (277,282) 14,700,000 14,422,718
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)...................... $16,085,643 $9,419,145 $25,504,788
=========== =========== ===========
</TABLE>
- ---------------
(a) To reflect the sale of 3,000,000 shares of common stock and the use of the
proceeds (to pay down debt) from the offering net of discounts to
underwriter, commissions and expenses of the offering.
(b) To net the deferred offering costs against the proceeds from the offering.
F-3
<PAGE> 37
SONOMA INTERNATIONAL AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
(d)
ACQUIRED
OPERATIONS FOR THE
ELEVEN MONTHS
HISTORICAL ENDED PRO FORMA PRO FORMA
1996 NOVEMBER 30, 1996 ADJUSTMENTS 1996
---------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Annual slip fees...................... 1,272,986 $ 292,108 $ -- $1,565,094
Boat rental........................... 667,750 -- -- 667,750
Lodge................................. 683,045 -- -- 683,045
Fuel.................................. 666,182 1,075,388 -- 1,741,570
Convenience store and merchandise..... 355,446 -- -- 355,446
Restaurant............................ 357,523 -- -- 357,523
Other................................. 154,802 55,431 -- 210,233
---------- ---------- --------- ----------
Total revenues................ 4,157,734 1,422,927 -- 5,580,661
COST OF REVENUES
Annual slip........................... 135,413 22,018 -- 157,431
Boat rental........................... 203,767 -- -- 203,767
Lodge................................. 224,243 -- -- 224,243
Fuel.................................. 467,323 787,273 -- 1,254,596
Convenience store and merchandise..... 284,986 -- -- 284,986
Restaurant............................ 287,856 -- -- 287,856
Other................................. 161,662 -- -- 161,662
---------- ---------- --------- ----------
Total cost of revenues........ 1,765,250 809,291 -- 2,574,541
---------- ---------- --------- ----------
GROSS PROFIT............................ 2,392,484 613,636 -- 3,006,120
SELLING, GENERAL AND ADMINISTRATIVE..... 1,331,224 219,665 1,550,889
GAIN ON REDUCTION OF OBLIGATIONS........ -- -- -- --
DEPRECIATION AND AMORTIZATION........... 630,518 67,857(c) 11,339 709,714
---------- ---------- --------- ----------
INCOME (LOSS) FROM OPERATIONS........... 430,742 326,114 (11,339) 745,517
INTEREST EXPENSE........................ 1,025,784 334,155(e) (444,454) 915,485
---------- ---------- --------- ----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS AND INCOME
TAXES.............................. (595,042) (8,041) 433,115 (169,968)
---------- ---------- --------- ----------
INCOME TAXES............................ 453,560 -- -- 453,560
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS................................. $ (141,482) $ (8,041) $ 433,115 $ 283,592
========== ========== ========= ==========
NET INCOME (LOSS) PER COMMON SHARE
BEFORE EXTRAORDINARY ITEMS............ $ (0.10) $ 0.06
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING..... 1,425,917 4,989,251
========== ==========
</TABLE>
- ---------------
(c) To reflect the amortization of goodwill of Key West, assuming the Company
had acquired Key West at January 1, 1996.
(d) To reflect the full year of operations of Key West and any activity in
Sonoma.
(e) To reflect the reduction in interest expense resulting from the pay down of
debt in accordance with the use of proceeds.
F-4
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Sonoma International
We have audited the accompanying consolidated balance sheets of Sonoma
International and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of Sonoma
International and subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
March 7, 1997
F-5
<PAGE> 39
SONOMA INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 9,628 $ 104,353
Escrow funds.............................................. 26,673 88,400
Receivables:
Trade (net of allowance for doubtful accounts of $3,876
for each year)......................................... 47,653 54,492
Other................................................... 34,199 27,008
Inventory................................................. 75,400 85,668
Prepaid expenses.......................................... 46,456 17,651
----------- -----------
Total current assets................................ 240,009 377,572
----------- -----------
PROPERTY AND EQUIPMENT
Buildings and improvements................................ 2,352,561 2,599,885
Land...................................................... -- 3,150,000
Land improvements......................................... 79,737 293,831
Docks and floating buildings.............................. 7,180,728 8,220,250
Boats and improvements.................................... 782,105 2,116,453
Furnishings, fixtures and equipment....................... 1,640,722 1,692,566
Houseboats and pontoons under capital lease............... 1,373,649 --
Computers under capital lease............................. 161,734 193,171
Fuel tanks and containment buildings...................... -- 151,132
Vehicles.................................................. 22,482 22,482
Construction in progress.................................. 240,931 140,178
----------- -----------
13,834,649 18,579,948
Less accumulated depreciation and amortization.............. 3,987,745 4,537,677
----------- -----------
Net property and equipment.................................. 9,846,904 14,042,271
----------- -----------
OTHER ASSETS
Deferred loan fees, net of accumulated amortization of
$11,827 and $77,593..................................... 106,438 322,858
Goodwill, net of accumulated amortization of $165,825 and
$184,250................................................ 571,175 1,006,310
Deferred offering costs................................... -- 336,632
----------- -----------
Total other assets.................................. 677,613 1,665,800
----------- -----------
TOTAL ASSETS................................................ $10,764,526 $16,085,643
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of long-term debt (including $3,410,277
and $4,052,778 to related parties)...................... $ 3,819,067 $ 4,395,941
Current portion of obligations under capital leases....... 198,391 --
Accounts payable.......................................... 188,555 453,522
Accrued interest (including $272,272 and $57,240 to
related parties)........................................ 1,246,452 150,733
Accrued liabilities....................................... 141,387 299,802
Security deposits......................................... 29,074 49,319
Deferred revenue.......................................... 633,190 696,622
Payable to related party.................................. -- 53,200
Accrued management fees -- related party.................. 581,301 --
Accrued guarantee fees -- related party................... 60,000 --
Deferred gain on sale leaseback........................... 75,800 --
----------- -----------
Total current liabilities........................... 6,973,217 6,099,139
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, less current maturities (including
$114,830 in 1996 due to related parties)................ 7,421,234 10,263,786
Obligations under capital leases, less current
obligations............................................. 417,638 --
----------- -----------
Total long-term liabilities......................... 7,838,872 10,263,786
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes D, E, F, G, H, I and M)
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; authorized 20,000,000;
issued and outstanding shares 1,369,025 and 2,300,000... 1,369 2,300
Additional paid-in capital................................ -- 1,392,346
Accumulated deficit....................................... (4,048,932) (1,671,928)
----------- -----------
Total stockholders' deficit......................... (4,047,563) (277,282)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $10,764,526 $16,085,643
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 40
SONOMA INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
REVENUES
Slip fees................................................. $ 1,168,041 $ 1,272,986
Boat rental............................................... 748,941 667,750
Lodge..................................................... 683,251 683,045
Fuel...................................................... 531,120 666,182
Convenience store and merchandise......................... 381,123 355,446
Restaurant................................................ 372,473 357,523
Other..................................................... 135,073 154,802
----------- -----------
Total revenues.................................... 4,020,022 4,157,734
----------- -----------
COST OF REVENUES
Slip...................................................... 165,634 135,413
Boat rental............................................... 396,916 203,767
Lodge..................................................... 235,082 224,243
Fuel...................................................... 351,029 467,323
Convenience store and merchandise......................... 288,498 284,986
Restaurant................................................ 329,982 287,856
Other..................................................... 109,350 161,662
----------- -----------
Total cost of revenues............................ 1,876,491 1,765,250
----------- -----------
GROSS PROFIT................................................ 2,143,531 2,392,484
SELLING, GENERAL AND ADMINISTRATIVE (including related
party amounts for management and guarantee fees of
$220,540 and $210,482)................................. 1,278,390 1,331,226
AMORTIZATION OF GOODWILL.................................... 30,252 84,423
DEPRECIATION AND AMORTIZATION............................... 578,603 546,093
----------- -----------
INCOME FROM OPERATIONS...................................... 256,286 430,742
INTEREST EXPENSE (including interest to related parties of
$260,716 and $293,430)................................. 867,346 1,025,784
----------- -----------
NET LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS........ (611,060) (595,042)
Income taxes........................................... -- 453,560
----------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEMS......................... (611,060) (141,482)
EXTRAORDINARY ITEMS
Gain on extinguishment of debt, net of income tax of $0... -- 2,518,486
----------- -----------
NET INCOME (LOSS)........................................... $ (611,060) $ 2,377,004
=========== ===========
Net income (loss) per common share before extraordinary
items..................................................... $ (0.45) $ (0.10)
=========== ===========
Net income (loss) per common share.......................... $ (0.45) $ 1.67
=========== ===========
Weighted average shares outstanding......................... 1,369,025 1,425,917
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 41
SONOMA INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Deficit at January 1, 1995......... 1,369,025 $1,369 $ -- $(3,437,872) $(3,436,503)
Net loss for the year ended
December 31, 1995................ -- -- -- (611,060) (611,060)
--------- ------ ---------- ----------- -----------
Deficit at December 31, 1995....... 1,369,025 1,369 -- (4,048,932) (4,047,563)
Acquisition transactions
Fair value of assets and
liabilities at date of
acquisition................... 600,000 600 178,840 -- 179,440
Issuance of stock to relieve
obligations...................... 330,975 331 1,213,506 -- 1,213,837
Net income for the year ended
December 31, 1996................ -- -- -- 2,377,004 2,377,004
--------- ------ ---------- ----------- -----------
Deficit at December 31, 1996....... 2,300,000 $2,300 $1,392,346 $(1,671,928) $ (277,282)
========= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 42
SONOMA INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (611,060) $ 2,377,004
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of fixed assets.......... 578,603 546,093
Amortization of goodwill............................... 30,252 84,425
Deferred income taxes.................................. -- (453,560)
Amortization of deferred gain on sale leaseback........ (6,105) (75,800)
Gain on debt extinguishment............................ -- (2,518,486)
Non cash issuance of stock to the employee incentive
plan.................................................. -- 100,000
Non cash portion of guarantee and management fees...... -- 41,529
Changes in assets and liabilities (net of
acquisitions):
Decrease (increase) in escrow funds.................. 16,589 (61,727)
Decrease (increase) in trade receivables............. (854) 2,287
Decrease (increase) in other receivables............. (11,088) 7,191
Decrease (increase) in inventory..................... 6,911 25,906
Decrease (increase) in prepaid expenses.............. 25,463 58,205
Decrease (increase) in other assets.................. -- (90,864)
Increase (decrease) in accounts payable.............. (86,235) 99,432
Increase (decrease) in accrued interest.............. 450,506 19,625
Increase (decrease) in accrued liabilities........... (107,927) (26,491)
Increase (decrease) in security deposits............. (5,384) 20,245
Increase (decrease) in related party loan............ -- (53,242)
Increase (decrease) in deferred revenue.............. 101,779 23,811
Increase (decrease) in accrued guarantee fees........ 20,000 --
Increase (decrease) in accrued management fees....... 123,295 --
----------- -----------
Net cash provided by operating activities......... 524,745 125,583
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (603,820) (104,708)
Proceeds from the sale of property and equipment.......... -- 49,159
Balance of cash in Key West and Sonoma when acquired...... -- 23,325
----------- -----------
Net cash used by investing activities............. (603,820) (32,224)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank and related party loans................ 1,250,700 7,183,976
Repayments of borrowings.................................. (844,175) (6,329,077)
Repayments of obligation under capital lease.............. (202,601) (616,029)
Organization and loan costs Jamestown..................... (118,805) (237,504)
----------- -----------
Net cash provided by financing activities......... 85,119 1,366
----------- -----------
NET INCREASE IN CASH........................................ 6,044 94,725
Cash at beginning of the year............................. 3,584 9,628
----------- -----------
Cash at end of the year................................... $ 9,628 $ 104,353
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest.................. $ 430,908 $ 948,689
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of debt in connection with the acquisition of Key
West................................................... $ -- $ 175,000
=========== ===========
Stock issued to satisfy Jamestown obligations............. $ -- $ 1,213,837
=========== ===========
Stock issued to acquire Key West and Sonoma............... $ -- $ 178,840
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 43
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE A -- ORGANIZATION
Sonoma Quicksilver Mines, Inc., a public company, was incorporated under
the laws of the State of Nevada on June 10, 1940. The name was subsequently
changed to Sonoma International ("Sonoma"). Sonoma had several failed business
operations and since 1988 its only activity had been to search for a company or
assets to acquire.
September 12, 1996, Sonoma entered into an agreement (the "Agreement") with
Clear Creek Investments, LLC, a Kentucky Limited Liability Company ("Clear
Creek") and owner of the general partner of Jamestown Resort & Marina, LTD
("Jamestown"), and holders of the limited partnership interests in Jamestown.
The Agreement required the transfer and assignment to Sonoma of Jamestown's
general partner and all limited partnership interests. The Agreement, effective
on December 9, 1996, incorporates the payment of the preference payments due
(Note I) through the issuance of shares of Sonoma. In addition, the Agreement
required that Sonoma effect a one for two hundred reverse split (and increase
authorized shares to 20,000,000 (post split)), leaving 300,000 shares issued and
outstanding, and issue 1,700,000 shares to Clear Creek and affiliated and
related entities or individuals for the acquisition of Jamestown. The
consolidated financial statements including all references to the number of
shares of common stock and all per share information have been adjusted to
reflect the common stock reverse split and the revised authorized number of
shares on a retroactive basis.
October 31, 1996, Key West Conch Harbor, Inc. ("Key West"), by consent of
its shareholders, entered into an agreement (the "Agreement") with Sonoma. The
Agreement required the transfer and assignment to Sonoma of all of the common
stock of Key West in exchange for 300,000 shares of common stock of Sonoma and a
demand note for $175,000. The transaction was completed effective December 9,
1996.
For accounting purposes, as the Jamestown Limited partners and general
partner end up with the majority of Sonoma's stock, the acquisition by Sonoma of
all of the Jamestown limited partnership interests and general partnership
interest was accounted for as a recapitalization of Jamestown with Jamestown as
the acquirer (a reverse acquisition). Accordingly, the financial statements
prior to the acquisition of Sonoma and Key West included herein are those of
Jamestown. The transaction with Key West was accounted for using the purchase
method. The results of operations of Key West and Sonoma have been included in
the consolidated statements of operations from the acquisition dates.
Jamestown was formed as a limited partnership organized under the laws of
the State of Kentucky by Jamestown Resort & Marina, Inc., the general partner,
on November 1, 1987. It owns a resort and marina facility near Jamestown,
Kentucky on Lake Cumberland.
Key West was incorporated in the State of Florida on December 23, 1993 for
the purposes of acquiring, developing, and operating a marina facility in Key
West, Florida.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Sonoma
International and its subsidiaries ("the Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments with
original maturities of 3 months or less when purchased.
F-10
<PAGE> 44
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
Inventory
Inventory is stated at the lower of cost or market and consists of food,
beverages, clothing, fuel and boat parts. Cost is determined on the first-in,
first-out ("FIFO") method of accounting.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation on the straight-line method over the estimated useful lives of the
related assets. Assets held under capital leases are amortized using the
straight-line method over the estimated useful lives of the related assets.
Major classes of property and equipment and their related lives are as follows:
<TABLE>
<CAPTION>
MAJOR CLASS LIFE IN YEARS
----------- -------------
<S> <C>
Docks, floating buildings and buildings on land............. 20 - 31.5
Houseboats and pontoons..................................... 20
Land improvements........................................... 15 - 20
Signage..................................................... 10
Furniture, fixtures and equipment........................... 7
Computers................................................... 5
</TABLE>
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
Goodwill
Goodwill relates to the original purchase in 1988 of the Jamestown marina
and the U.S. Army Corps of Engineers lease and the purchase of Key West
effective December 9, 1996 (see Note A) and represents the excess of cost over
fair value of net assets acquired and is being amortized using the straight-line
method over 40 years. Management reviews recoverability, the valuation and
amortization of goodwill on an on-going basis. As part of this review,
management considers the undiscounted projected future net earnings in
evaluating the value of goodwill. If the undiscounted projected future net
earnings were less than the stated value, the goodwill would be written down to
its fair value.
Deferred Loan Fees
Loan fees are capitalized and amortized over the life of the loan using the
straight-line method.
Deferred offering costs
Deferred offering costs are capitalized and will be recorded as a reduction
to stockholders equity upon completion of the Company's public offering or
expensed if the offering is unsuccessful (Note D).
Revenue Recognition
Annual or seasonal slip rentals received are recognized as deferred revenue
and amortized into income over the life of the rental contract using the
straight-line method. All other revenues are recognized at the time the rental
occurs or the delivery of the product or service takes place.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of
F-11
<PAGE> 45
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses. Actual results could vary from
the estimates that were used.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Income (loss) per share
(Income) loss per share of common stock is based upon the weighted average
number of outstanding common shares for all periods presented after giving
retroactive effect to a one for two hundred reverse split of the Company's
common stock (See Note A).
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE C -- ACQUISITIONS
As discussed in Note A, Sonoma and Key West were acquired effective
December 9, 1996. The public company's stock is not considered to be actively
trading, therefore the assets and liabilities of Sonoma and Key West were valued
at fair market value.
A summary of the fair value of assets acquired and liabilities assumed is
as follows:
<TABLE>
<S> <C>
Current assets including cash of $23,325.................... $ 68,626
Land, docks and improvements and other fixed assets......... 4,675,905
Other assets................................................ 319,964
Goodwill.................................................... 453,560
Current liabilities......................................... (550,881)
Deferred tax liability...................................... (453,560)
Debt........................................................ (4,159,774)
-----------
353,840
Less note issued in connection with acquisitions............ (175,000)
-----------
Estimated fair value of common stock issued................. $ 178,840
===========
</TABLE>
Unaudited pro forma financial information for the years ended December 31,
1995 and 1996 as though the acquisitions had occurred on January 1, 1995 is as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenues.................................................... $4,674,000 $5,580,000
Net loss before extraordinary item.......................... (829,000) (159,000)
Net income (loss)........................................... (411,000) 2,464,000
Net loss per share before extraordinary item................ (0.42) (0.08)
Net income (loss) per share................................. (0.21) 1.24
</TABLE>
F-12
<PAGE> 46
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE D -- SUBORDINATION OF RELATED PARTY DEBT AND PUBLIC OFFERING
As reflected in the consolidated statements of operations, the Company
incurred net losses before extraordinary items of approximately $611,000 and
$141,000 in 1995 and 1996, respectively. At December 31, 1996 current
liabilities exceed current assets by approximately $5,722,000. During 1995 and
1996 respectively, the Company generated positive cash from operating activities
of approximately $525,000 and $126,000 and an overall increase in cash of
approximately $6,000 and $95,000. Net income (loss) before extraordinary items
and depreciation and amortization was approximately a loss of $2,000 for 1995
and $489,000 (including deferred tax benefit of 454,000) of income for 1996. In
addition, the Company has entered into an agreement with the holders of
$3,277,577 (all current obligations) of the notes payable to defer payments of
principal and interest if necessary for the Company to meet other obligations.
The acquisition of Key West in December, 1996 and operational charges at
Jamestown, as well as economies of scale realized by the combined operations of
Jamestown and Key West is also expected to improve operating cash flows.
In addition, in January, 1997, the Company filed a registration statement
with the Securities and Exchange commission to raise $16,500,000 (not including
underwriters discounts and warrants) through a public offering, a portion of the
proceeds of which will be used to pay down debt and provide additional liquidity
to fund operations and growth.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts or classification of liabilities which may result from the possible
inability of the Company to meet its obligations.
NOTE E -- DEVELOPMENT AGREEMENT WITH THE TRANSPORTATION CABINET OF THE
COMMONWEALTH OF KENTUCKY
The Company and the Transportation Cabinet of the Commonwealth of Kentucky
("Transportation Cabinet") are parties to an agreement for development of the
Jamestown marina facilities. Jamestown agreed to construct a new resort and
marina and the Transportation Cabinet agreed to construct an extension of
Kentucky Highway 92 to the island upon which the Partnership constructed its
lodge.
Jamestown agreed to pay the Transportation Cabinet one percent of the gross
revenues received by the Jamestown resort and marina facilities in perpetuity.
The fees under the agreement totaled $40,000 in 1995 and 1996.
NOTE F -- LEASE RIGHTS
The Company leases approximately 299 acres of land and water from the U.S.
Army Corps of Engineers. The lease has a 25-year term beginning January 1, 1988
with the original term of the lease ending in December 2012. In August 1988 the
Company entered into a supplemental agreement renewing the lease for an
additional 25-years without interruption. The renewal is subjected to the
satisfactory compliance with all lease conditions during the original term and
approval by the Government. Rental amounts due under the lease are contingent
upon a variety of factors, primarily gross revenues. Rent expense was
approximately $70,000 in 1995 and $68,000 in 1996.
F-13
<PAGE> 47
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
NOTE G -- NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Mortgage one................................................ $ 7,194,005 $ --
Note payable one............................................ -- 6,220,691
Mortgage two................................................ -- 3,224,185
Demand note -- related party................................ 1,852,777 1,852,777
Note payable three.......................................... -- 800,332
Former General Partner note................................. 1,197,500 707,500
Former Limited Partner notes................................ 360,000 360,000
Paddleboat notes............................................ 209,736 170,318
Yacht Club note -- related party............................ 223,624 200,000
Executive Boats note........................................ 159,671 --
Generators note............................................. 42,988 --
Note payable two............................................ -- 144,553
First note payable to stockholder........................... -- 175,000
Second notes payable to stockholder......................... -- 100,000
Third note payable to former stockholder.................... -- 140,201
Fourth note payable to stockholder.......................... -- 517,300
Other....................................................... -- 46,869
----------- -----------
Total............................................. 11,240,301 14,659,727
Less current maturities..................................... (3,819,069) (4,395,941)
----------- -----------
Long-term portion........................................... $ 7,421,234 $10,263,786
=========== ===========
</TABLE>
Mortgage one and note payable one. On December 31, 1988 Jamestown entered
into two notes with banks to finance the resort and marina project. The first
note was for $5,625,000 maturing on January 1, 1995. The note required monthly
payments of principal in the amount of $53,568 and interest at a rate of 11%,
adjusted to 3% above the weekly auction average rate of T-Securities, with a 3
year maturity on November 1. The second note was for $2,375,000 maturing on
January 1, 1995. The note required monthly payments of principal in the amount
of $6,000 and interest at a rate of 1% over the Base Lending rate as defined.
Both notes were secured by Jamestown property. Thereafter, the Company defaulted
on the notes, and the bank became insolvent. The loan was subsequently assumed
by the Resolution Trust Corporation ("RTC"). The note was consolidated with
several other notes and sold to a second bank in March, 1993.
On January 29, 1996, the Company refinanced the mortgage one note by
entering into a loan agreement for $6,300,000 maturing on February 1, 2001. The
agreement requires monthly payments of principal and interest at a variable rate
equal to the commercial paper rate plus 4.25%. The sum of $5,800,000 under the
$6,300,000 note plus additional short term borrowings were used to settle the
mortgage one debt, other notes payable, and related loan origination fees. On
March 28, 1996 the remaining $500,000 was drawn on the $6,300,000 note. The
lender requires the Company to maintain an escrow cash account to pay for
improvements and property taxes. The Company recognized a $2,518,000 gain (net
of income taxes of $0) on debt extinguishment as a result of the mortgage one
note payable refinancing discussed above. The extraordinary gain consisted
primarily of forgiveness of $1,844,000 in outstanding principal and $748,000 of
accrued interest.
Mortgage Two. The note payable to a financial institution was assumed in
connection with the acquisition of Key West. The note requires monthly interest
payments only until May 1, 1998 at which time thirty-six principal plus interest
payments are due totaling $30,208 per month with interest at 9% for these 36
payments and at 1% over prime thereafter with monthly payments increasing to
$30,624 until maturity on April 1, 2016.
F-14
<PAGE> 48
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
Demand Notes -- related party. Jamestown originally entered into a note
agreement with a bank for $2,000,000 on November 16, 1989, at 1 1/2% over the
prime lending rate which was collateralized by a second mortgage on the assets
of the marina and by certain items of the Webb Family Trust, an entity related
to the former general partner. A 1% guarantee amount based on the outstanding
balance was payable to the Webb Family Trust as compensation for pledging its
collateral (See Note I). The Company defaulted on the note several times and on
January 15, 1993 the note was converted to a demand note. In March 1994, the
Company again defaulted under the terms of the note and the Webb Family Trust
collateral was liquidated by the bank to satisfy the note. The Company
subsequently became obligated to the Webb Family Trust under the same terms as
the demand note. The Webb Family Trust has waived all defaults on this note.
Note payable three. On January 29, 1996, Jamestown assumed a 7.39% note to
a financial institution to satisfy obligations arising from funds provided to
the Company to cover differences in the mortgage refinancing discussed
previously. Interest expense was $54,558 during 1996 and accrued interest was
$24,286 at December 31, 1996. The note matures on October 22, 2001.
Former General Partner Note. The Webb Family Trust loaned the Company
$477,500 at various dates in 1995 and $750,000 in September 1995 at 10% under a
promissory note entered into on August 10, 1995. The note matured on May 1, 1996
and is due on demand. The Webb Family Trust has waived all defaults on this
note.
Former Limited Partner Notes. On March 6, 1992, loans totaling $360,000
were made by the original limited partners in Jamestown at 1% plus prime for
operating shortfalls and capital improvements. The notes are payable on demand.
The notes may be extended each year for a fee of 1% of the note balance.
Paddleboat Notes. Webb Cruise Lines, Inc. (WCL), an entity controlled by
the former general partner of Jamestown, originally purchased the Jamestown
Queen, a paddleboat, by obtaining financing from two banks. On April 21, 1989
WCL entered into the first note with a bank for $325,000. On October 30, 1994
the note was renewed for $251,303 at 2% plus prime maturing on April 30, 2000.
The note requires monthly payments of $5,309 of principal and interest. The loan
was collateralized by five (5.6%) of the limited Partnership units, the
Paddleboat and guaranteed by the Webb Family Trust. On May 8, 1989, WCL entered
into a 13.5% variable note with a second bank amounting to $75,000 with interest
and principal due on June 22, 1995. Jamestown assumed both notes and title to
the boat from WCL in May 1994 for the balance of both notes of $282,346 which
approximated the fair value of the Paddleboat.
Yacht Club Note -- related party. Webb Lexington Ventures, Inc., an entity
controlled by the former general partner of Jamestown, entered into a 11%
mortgage note with a bank for $278,000 to purchase the Yacht Club. The Yacht
Club was acquired by Jamestown by assuming the note, which approximated the fair
market value of the Yacht Club. The note was collateralized by property of the
former general partner and matured on July 1, 1996. The former general partner
of Jamestown funded the pay off of the note and assumed the obligation from the
Company. All defaults on this note have been waived.
Executive Boats Note. On February 8, 1990, Jamestown entered into a note
with a bank to finance its executive boats. The note is collateralized by the
two houseboats. The note was renewed on October 30, 1995 and provided for
monthly principal payments of $4,000, interest at 11%. The note was paid off in
connection with the refinancing discussed previously.
Generators Note. On May 26, 1995, Jamestown entered into a note with a bank
for $53,200 at a fixed rate of 10.5% maturing on October 1, 1997. The note was
collateralized by 12 boat generators. Interest and principal of $3,000 were paid
monthly beginning on July 1, 1995 through October 1, 1995. The note was paid off
on January 29, 1996 in connection with the refinancing of the mortgage note
discussed previously.
F-15
<PAGE> 49
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
Note payable two. This $200,000 promissory note with a financial
institution was assumed in connection with the purchase of Key West and matures
on February 3, 1999, with a variable interest rate of 1 3/4% above the financial
institutions base rate. Monthly interest payments are required. Accrued interest
at December 31, 1996 was $1,348.
First Note payable to stockholder. The Company issued a $175,000 note
payable, which is due on demand and bears no interest, and 300,000 shares to
former owners of Key West to acquire all of the stock of Key West (Note A).
Second Notes Payable to stockholder. In connection with the acquisition of
Key West, the Company assumed a $100,000 note payable to a stockholder which
matured December 31, 1996 and is now due on demand, and bears interest at a
variable rate of 1% over prime. Accrued interest at December 31, 1996 was
$7,883.
Third note payable to former stockholder. In connection with the
acquisition of Key West, the Company assumed a note payable of $500,000 and a
note payable of $150,000. The $500,000 note payable which was due to a former
stockholder was paid off in October, 1996. The $150,000 note matures in August,
2001 and bears interest at 10%.
Fourth note payable to stockholder. In connection with the acquisition of
Key West, the Company assumed a note payable to a stockholder. The note was for
$900,000, is due on demand, and bears no interest. The note payable was reduced
by payments of $382,700 in 1996. Accrued interest at December 31, 1996 was
$29,250.
Aggregate maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................ $ 4,395,941
1998............................................ 493,403
1999............................................ 507,874
2000............................................ 446,047
2001............................................ 5,906,549
Thereafter...................................... 2,909,913
-----------
Total...................................... $14,659,727
===========
</TABLE>
NOTE H -- OBLIGATIONS UNDER CAPITAL LEASES
Jamestown leased certain boats and computer equipment under capital leases.
In 1991, Jamestown sold 25 houseboats and 20 pontoon boats for $1,374,000 to a
bank and subsequently leased back the boats under a capital lease. In connection
with this sale and lease-back transaction, the Company recorded a deferred gain
of $104,000. This gain was being amortized as a offset to amortization expense
over the term of the lease. On January 29, 1996, the Company settled the boat
lease obligation and took title of the boats. See Note G. The remaining deferred
gain of $75,800 was credited to income. Amortization expense was $65,000 and
$5,700 for 1995 and 1996, respectively.
NOTE I -- RELATED PARTY TRANSACTIONS
On December 9, 1996, in connection with the reverse acquisition transaction
with Sonoma, the Company issued 304,285 (included within the 330,975 shares
issued to relieve obligations in the accompanying consolidated statement of
changes in Stockholders' deficit) shares of Sonoma common stock to the Jamestown
former general and limited partners and various other related parties to satisfy
accrued guarantee fees of $70,000, accrued management fees of $622,355 and
accrued interest of $421,482. The average effective
F-16
<PAGE> 50
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
share price for the 304,285 common shares ranged from $3.57 to $3.78. After
December 9, 1996, no additional guarantee and management fees will be accrued or
paid. Additional interest of $20,107 on shareholder loans was accrued after
December 9, 1996 and will be paid using cash.
The former general partner of Jamestown had a management agreement with the
Partnership to provide management services to the Partnership for a fee equal to
5% of the annual gross revenues. Such fee was payable to the general partner at
a rate $4,000 per month, plus direct costs and expenses associated with its
management of the former Partnership. The remainder of the fee was accrued.
Accrued management fees at December 31, 1995 and 1996 were $581,000 and $0,
respectively. Management fees paid in 1995 and 1996 were $48,000 and management
fee expense was $201,000 and $195,636, respectively.
The former general partner of Jamestown guaranteed the Demand Note (Note G)
and prior to the acquisitions (See Note A) received as compensation a fee of 1%
of the outstanding note balance annually. Such fee amounted to $20,000 and
$10,000 during 1995 and 1996, respectively. The accrued guarantee fee was
$60,000 and $0 at December 31, 1995 and 1996, respectively. Subsequent to the
acquisitions, this fee is no longer payable.
Accrued interest due to the former partners of Jamestown was $272,000 and
$0 at December 31, 1995 and 1996, respectively. Interest expense to related
parties was $261,000 and $285,550 during 1995 and 1996, respectively.
Accrued interest due to the Key West stockholders was $37,133 at December
31, 1996. Interest expense in connection with notes subsequent to the
acquisition due to stockholders was $7,880.
Also see Note G.
NOTE J -- INCOME TAXES
Prior to the acquisition transactions described in Note A, Jamestown, a
limited partnership, and Key West, an S Corporation for Federal income tax
purposes, were not subject to income taxes at the entity level. Subsequent to
the acquisitions through December 31, 1996, the Company generated operating
losses for financial reporting and income tax reporting purposes. Any existing
available net operating losses of Sonoma were limited upon consummation of the
acquisition transactions described in Note A.
The components of the income tax benefit for the year ended December 31,
1996 are as follows:
<TABLE>
<S> <C>
Federal
Current tax expense (benefit)............................. $ --
Deferred tax (benefit).................................... (453,560)
---------
$ 453,560
---------
</TABLE>
F-17
<PAGE> 51
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
The Company's income tax benefit for the year ended December 31, 1996
differed from the statutory Federal rate of 34% as follows:
<TABLE>
<S> <C>
Statutory rate applied to net loss before income taxes and
extraordinary items....................................... $(202,314)
Increase in income tax benefit resulting from change in tax
status of Jamestown (Note A).............................. (476,000)
Decrease in income tax benefit resulting from net losses
generated prior to acquisition transactions which losses
are not deductible........................................ 161,846
Increase in valuation allowance............................. 52,109
Other....................................................... 10,799
---------
$(453,560)
=========
</TABLE>
Deferred tax assets and liabilities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Current deferred tax asset.................................. $ --
Current deferred tax liability.............................. --
--------
--
--------
Non-current deferred tax asset.............................. $505,669
Non-current deferred tax liability.......................... 453,560
Valuation allowance......................................... (52,109)
--------
Net non-current deferred taxes............................ $ --
========
</TABLE>
The non-current deferred tax asset consists primarily of the temporary
difference arising from the effective change of tax status of Jamestown upon
consummation of the transaction with Sonoma (see Note A) which results in
Jamestown being included in the Sonoma consolidated Federal income tax return
beginning December 9, 1996. This amount (net of a small valuation allowance) was
recorded as a benefit to deferred income taxes in the accompanying statement of
operations. The deferred tax asset also includes an insignificant amount of
net-operating losses. The non-current deferred tax liability consists
principally of differences for financial reporting and income tax reporting
purposes of assets and liabilities acquired of Key West. (see Note A).
NOTE K -- PARTNERSHIP AGREEMENT -- JAMESTOWN
The net loss for Jamestown for the year ended December 31, 1995 and for the
period in 1996 prior to the acquisition transaction described in Note A, was
allocated in accordance with the Partnership Agreement. No loss is allocated to
the special limited partners because of their nil capital account balances. In
accordance with the Partnership agreement, limited partners are allocated 80% of
net losses to the extent that they have positive capital account balances, and
the general partner is allocated the remaining loss.
NOTE L -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. Cash
and escrow funds, accounts receivable, accounts payable and other liabilities
are carried at amounts that reasonably approximate their fair values.
F-18
<PAGE> 52
SONOMA INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
The carrying amount and fair value of notes payable and long-term debt are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Variable rate debt................................ $10,577,048 $10,577,048
Demand notes...................................... 3,120,277 3,120,277
Fixed rate debt................................... 962,402 744,460
</TABLE>
The fair values of the Company's fixed rate debt have been estimated based
upon relative changes in the Company's variable borrowing rates since
origination of the fixed rate debt. Fair values of variable rate debt and demand
notes are deemed to approximate the carrying amount.
NOTE M -- CONTINGENT LIABILITIES
In the normal course of its business, the Companies are subject to
litigation. Management of the Company, based on discussions with its outside
legal counsel, does not believe any claims, individually or in the aggregate,
will have a material adverse impact on the Company's financial position, results
of operations or cash flows.
NOTE N -- LONG-TERM INCENTIVE PLAN
The Company adopted its 1996 Long-Term Incentive Plan ("Plan") as of
December 9, 1996. An aggregate of 350,000 shares of Common Stock has been
authorized and reserved for issuance under the Plan pursuant to the exercise of
options or the grant of restricted stock awards. The Plan is intended to qualify
for favorable treatment under Section 16 of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), pursuant to Rule 16b-3 promulgated thereunder
("Rule 16B-3").
The Plan provides for the grant of "incentive stock options," as defined in
Section 442 of the Internal Revenue Code of 1986, as amended ("Code"),
nonqualified stock options, restricted stock awards and stock appreciation
rights (collectively referred to as "Awards").
All of the Company's employees, independent directors and advisors are
eligible to receive Awards under the Plan, but only employees of the Company are
eligible to receive incentive stock options. Options will be exercisable during
the period specified in each option agreement and will generally be exercisable
in installments pursuant to a vesting schedule to be designated by the
Committee. Restricted stock awards will give the recipient the right to receive
a specified number of shares of Common Stock contingent upon remaining a Company
employee for a specified period, as determined by the Committee. Notwithstanding
the provisions of any option agreement or restricted stock agreement, options
will become immediately exercisable and all restrictions will immediately lapse
with respect to any award of restricted stock in the event of a change or
threatened change in control of the Company and in the event of certain mergers
and reorganization of the Company. No option will remain exercisable later than
ten years after the date of grant. In addition, options may be subject to early
termination within a designated period following the optionee's cessation of
service with the Company.
F-19
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Sonoma International
We have audited the accompanying balance sheets of Sonoma International as
of December 31, 1994 and 1995, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Sonoma International as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note C to the financial statements,
the Company has no assets to pay its obligations and has been inactive for a
number of years. These factors raise substantial doubt as to the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note C. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KING, GRIFFIN & ADAMSON P.C.
Dallas, Texas
September 6, 1996, except as to
Note H, which is as of December 9, 1996
F-20
<PAGE> 54
SONOMA INTERNATIONAL
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
TOTAL ASSETS................................................ $ -- $ --
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accrued liabilities....................................... $ 45,395 $ 5,633
Accrued interest.......................................... 224,031 252,435
Notes payable............................................. 674,336 262,391
----------- -----------
Total current liabilities......................... 943,762 520,459
----------- -----------
Total liabilities................................. 943,762 520,459
----------- -----------
Commitments and contingencies (Notes C and E)
Stockholders' deficit
Common stock, $.001 par value, 20,000,000 authorized,
127,899 and 300,000 issued and outstanding shares...... 128 300
Additional paid-in capital................................ 4,277,568 4,781,378
Accumulated deficit....................................... (5,221,458) (5,302,137)
----------- -----------
Total Stockholders' Deficit....................... (943,762) (520,459)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT....... $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 55
SONOMA INTERNATIONAL
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Revenue..................................................... $ -- $ --
--------- ---------
Expenses
Professional fees......................................... -- 13,975
Consulting fees........................................... 75,000 37,500
Interest.................................................. 34,200 28,404
State taxes............................................... 1,600 800
--------- ---------
Total expenses.................................... 110,800 80,679
--------- ---------
Net income (loss)........................................... $(110,800) $ (80,679)
========= =========
Net income (loss) per common share.......................... $ (0.86) $ (0.58)
========= =========
Weighted average shares outstanding......................... 127,899 138,442
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 56
SONOMA INTERNATIONAL
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994........... 127,899 $128 $4,277,568 $(5,110,658) $(832,962)
Net loss............................. -- -- -- (110,800) (110,800)
------- ---- ---------- ----------- ---------
Balance at December 31, 1994......... 127,899 128 4,277,568 (5,221,458) (943,762)
Stock issued for debt and other
obligations........................ 172,101 172 481,310 -- 481,482
Capital contributions resulting from
obligations settled by shareholders
on behalf of the Company........... -- -- 22,500 -- 22,500
Net loss............................. -- -- -- (80,679) (80,679)
------- ---- ---------- ----------- ---------
Balance at December 31, 1995......... 300,000 300 4,781,378 (5,302,137) (520,459)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 57
SONOMA INTERNATIONAL
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(110,800) $(80,679)
Expenses paid through contributions of additional paid-in
capital................................................ 34,200 13,975
Increase (decrease) in accounts payable and taxes......... 1,600 800
Increase (decrease) in accrued interest................... -- 28,404
Increase in stockholder advances.......................... 75,000 37,500
--------- --------
Net cash provided by operations................... -- --
Cash at beginning of period....................... -- --
--------- --------
Cash at end of period............................. $ -- $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 58
SONOMA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
NOTE A -- ORGANIZATION
Sonoma Quicksilver Mines, Inc. was incorporated under the laws of the State
of Nevada on June 10, 1940. The name was subsequently changed to Sonoma
International (the "Company" or "Sonoma"). The Company had several failed
business operations and since 1988 its only activity has been to search for a
company or assets to acquire.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Income (loss) per share
Income (loss) per share of common stock is based upon the weighted average
number of common shares outstanding for all periods presented after giving
retroactive effect to a one for two hundred reverse split of the Company's
common stock (See Note H).
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Accounting Standards Not Yet Adopted
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation expense
in the income statement, or the pro forma effect on net income and earnings per
share of such compensation expense to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's 1996 fiscal year.
The Company expects to adopt SFAS 123 on a disclosure basis only. As such,
implementation of SFAS 123 is not expected to impact the Company's balance sheet
or statement of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE C -- GOING CONCERN UNCERTAINTY
Sonoma has been inactive for a number of years and its continued existence
is in doubt. The Company has no assets to pay its current obligations or
additional obligations arising from incidental administrative expenses and
interest expenses.
F-25
<PAGE> 59
SONOMA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
The Company plans to reduce its liabilities and acquire income producing
assets through the issuance of additional stock and a merger with an operating
partnership (Note H). The ability of the Company to continue in existence is
dependent on the success of these plans.
NOTE D -- NOTES PAYABLE
Notes payable consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Note payable dated June 12, 1991, due on demand to an
individual bearing interest at 15% per annum; unsecured.
Interest of $44,316 has been accrued through the
settlement date. On September 27, 1995 a conditional
settlement agreement was reached relieving Sonoma of the
principal and accrued interest in exchange for 4,000 (post
reverse split, see Note H) common shares of Sonoma. This
settlement agreement is contingent upon Sonoma stock
obtaining a market value and that the stock can be
liquidated................................................ $ 60,974 $ 60,974
Note payable to two individuals, due on demand and
unsecured. Interest of $15,861 has been accrued through
the settlement date. On July 25, 1995, a conditional
settlement agreement was reached releasing Sonoma of
principal and accrued interest in exchange for 1,000 (post
reverse split, see Note H) shares of the Company. This
settlement agreement is contingent upon Sonoma stock
obtaining a market value and that the stock can be
liquidated................................................ 45,861 45,861
Note payable to an individual settled in September, 1995.... 5,000 --
Note payable to Sunwest Bank, due on demand with interest
accruing at 10.5%; unsecured. Interest of $42,557 has been
accrued through the settlement date. On September 7, 1995,
a conditional settlement agreement was reached relieving
Sonoma of the outstanding principal and accrued interest
in exchange for a nominal cash amount and the issuance of
1,000 (post reverse split, see Note H) shares of Sonoma
common stock. This settlement is conditioned upon Sonoma
common stock being listed on the National Bulletin Board
and having a market value and that the stock can be
liquidated................................................ 43,556 43,556
Stockholders loans (see Notes E and F)...................... 406,945 --
Note payable to Garfield Bank, due on demand with interest
accruing at 16%; unsecured. Interest of $164,997 has been
accrued through the settlement date. On September 8, 1995,
a conditional settlement agreement had been reached
relieving Sonoma of the principal amount owed and all
accrued interest thereon conditioned on 4,250 (post
reverse split, see Note H) shares of Sonoma common stock
being transferred into the name of Garfield Bank (from
other shareholders) and Sonoma common stock having a
market value that can be liquidated....................... 112,000 112,000
-------- --------
Total notes payable......................................... $674,336 $262,391
======== ========
</TABLE>
NOTE E -- STOCKHOLDERS DEFICIT
In 1995, the Company entered into numerous conditional settlement
agreements with various creditors in an attempt to settle all long term debt of
Sonoma. Many of the settlement agreements are in the form of debt relief in
exchange for common stock of the Company and conditioned upon the Company's
common stock being listed on the National Bulletin Board and having a market
value so that the stock can be liquidated. The
F-26
<PAGE> 60
SONOMA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
conditional settlement amounts are still pending. The following other
settlements which have no conditional elements have been concluded.
On July 18, 1995, a settlement agreement was reached related to the
unsecured 6% note payable that was in default with a former officer relieving
Sonoma of the principal amount owed of $5,000 with $2,700 accrued interest,
accounts payable of $22,000 with $7,335 of accrued interest by issuing 1,138
(post reverse split, see Note H) shares of Sonoma common stock, and was
accounted for as a contribution to additional paid-in capital.
During the year ended December 31, 1995 Sonoma reached agreements with two
shareholders who were prior officers of the Company to settle amounts due to
them approximating $444,445 through the issuance of 166,738 (post reverse split,
see Note H) shares of the Company's common stock, and was accounted for as a
contribution to additional paid-in capital.
During the year ended December 31, 1995, Sonoma reached agreements with two
individuals to settle amounts due to them approximating $8,800 through the
transfer of 200 (post reverse split, see Note H) of the Company's common stock
(transferred from other shareholders) and was accounted for as a contribution to
additional paid-in capital.
On September 27, 1995 Sonoma issued 4,000 (post reverse split, see Note H)
shares of Sonoma common stock to satisfy a note payable of $60,974 and related
accrued interest of $44,316.
Professional fees of $13,700 were paid on behalf of Sonoma by certain
shareholders. These expenses paid on behalf of the Company were accounted for as
contributions to additional paid-in capital.
NOTE F -- RELATED PARTY TRANSACTIONS
From 1989 through December 31, 1995, officers of the Company paid expenses
and/or liabilities of Sonoma. Additionally, officers of Sonoma were owed
consulting fees from the Company for current and past services rendered. During
the year ended December 31, 1995, Sonoma and the officers have agreed to settle
the outstanding amounts owed to them of $444,445 through the issuance of common
stock. See Note E.
NOTE G -- INCOME TAXES
The Company generated negligible taxable income and/or net operating losses
during the years ended December 31, 1994 and 1995. Any existing available net
operating losses at December 31, 1995 would be lost upon consummation of the
acquisition transaction described in Note H. At December 31, 1995, the Company
has a deferred tax asset of approximately $86,000 relating to amounts deducted
for financial reporting losses not deducted for income tax reporting purposes.
This asset has a valuation allowance recorded against it due to the uncertainty
of generating future taxable income. There was no significant change in the
valuation allowance from 1994.
NOTE H -- SUBSEQUENT EVENT
As of September 12, 1996, the Company entered into an agreement (the
"Agreement") with Clear Creek Investments, LLC, a Kentucky Limited Liability
Company ("Clear Creek"), and holders of the limited partnership interests in
Jamestown Resort & Marina, Ltd, a Kentucky limited partnership ("JRML"). JRML
owns a resort and marina located on the Cumberland Lake in south central
Kentucky.
The Agreement requires the transfer and assignment to Sonoma of JRML's
general partner and all limited partnership interests. There are several
conditions to closing including the delivery to the Company of an appraisal
which states that the assets of JRML as of the date of the appraisal have a fair
market value of not less than $10,000,000. That appraisal has been delivered to
the Company. In addition, the Agreement
F-27
<PAGE> 61
SONOMA INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
requires that the Company effect a one for two hundred reverse split, leaving
300,000 shares issued and outstanding, and issue 1,700,000 shares to Clear Creek
and affiliated and related entities or individuals for the acquisition of JRML.
The financial statements, including all references to the number of shares of
common stock and all per share information, have been adjusted to reflect the
common stock reverse split and the revised authorized number of common shares on
a retroactive basis.
On December 9, 1996, the transaction described above was consummated as
described.
F-28
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Key West Conch Harbor, Inc.
We have audited the accompanying balance sheets of Key West Conch Harbor,
Inc. as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Key West Conch Harbor, Inc.
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note C to the financial statements,
the Company has incurred losses since its inception and at December 31, 1995,
its current liabilities exceeded current assets by approximately $2,107,802.
These factors raise substantial doubt as to the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KING GRIFFIN & ADAMSON
Dallas, Texas
October 18, 1996
F-29
<PAGE> 63
KEY WEST CONCH HARBOR, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 3,657 $ 20,899 $ 440,533
Receivables............................................... 8,859 6,452 10,465
Inventory................................................. -- 8,716 24,264
Prepaid expenses and other................................ 500 13,859 30,370
---------- ---------- -----------
Total current assets............................... 13,016 49,926 505,632
---------- ---------- -----------
PROPERTY AND EQUIPMENT
Land...................................................... 1,786,640 1,810,818 1,816,298
Land improvements......................................... 101,265 121,805 187,740
Docks..................................................... 443,711 788,016 1,105,557
Fuel Tanks................................................ -- 72,609 155,994
Furniture, fixtures and equipment......................... 550 20,178 48,837
Construction in progress.................................. -- 171,233 3,210
---------- ---------- -----------
2,332,166 2,984,659 3,317,636
Less accumulated depreciation and amortization.............. 29,719 70,717 114,885
---------- ---------- -----------
Net property and equipment.................................. 2,302,447 2,913,942 3,202,751
---------- ---------- -----------
OTHER ASSETS
Deferred loan fees, net of accumulated amortization of
$1,002, $5,761
and $10,673............................................. 13,545 16,712 58,948
---------- ---------- -----------
Total other assets................................. 13,545 16,712 58,948
---------- ---------- -----------
TOTAL ASSETS....................................... $2,329,008 $2,980,580 $ 3,767,331
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of long-term debt (including $148,700,
$378,584 and $596,041 to related parties)............... $1,248,700 $1,928,584 $ 699,041
Accounts payable.......................................... 71,792 23,897 2,423
Accrued interest (including $71,798, $110,405 and $46,241
to related parties)..................................... 71,798 137,354 162,467
Accrued liabilities....................................... 55,293 48,633 39,329
Security deposits......................................... 10,000 -- 29,500
Deferred revenue.......................................... -- 19,260 17,665
---------- ---------- -----------
Total current liabilities.......................... 1,457,583 2,157,728 950,425
---------- ---------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current maturities (including
$990,800, $908,711 and $673,959 to related parties)....... 990,800 1,108,711 3,845,695
---------- ---------- -----------
Total long-term liabilities........................ 990,800 1,108,711 3,845,695
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES (Notes C, D, G and H)
STOCKHOLDERS' DEFICIT
Common stock; $10 par value; 100 shares authorized, issued
and outstanding......................................... 1,000 1,000 1,000
Additional paid-in capital................................ -- -- (680,000)
Accumulated deficit....................................... (120,375) (286,859) (349,789)
---------- ---------- -----------
Total stockholders' deficit........................ (119,375) (285,859) (1,028,789)
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT........ $2,329,008 $2,980,580 $ 3,767,331
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 64
KEY WEST CONCH HARBOR, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Slip fees.............................................. $ 73,715 $ 143,442 $ 226,824
Lease income from related party........................ 92,675 -- --
Fuel................................................... -- 507,914 893,209
Other.................................................. -- 2,557 27,668
--------- --------- ----------
Total revenues................................. 166,390 653,913 1,147,701
--------- --------- ----------
COST OF REVENUES
Slip................................................... 11,091 10,981 9,288
Fuel................................................... -- 372,660 744,515
--------- --------- ----------
Total cost of revenues......................... 11,091 383,641 753,803
--------- --------- ----------
GROSS PROFIT............................................. 155,299 270,272 393,898
SELLING, GENERAL AND ADMINISTRATIVE...................... 60,478 152,007 144,382
DEPRECIATION AND AMORTIZATION............................ 30,721 45,757 70,203
--------- --------- ----------
INCOME FROM OPERATIONS................................... 64,100 72,508 179,313
INTEREST EXPENSE (including interest to related parties
of $91,800, $94,350 and $66,014)....................... 184,475 238,992 242,243
--------- --------- ----------
NET INCOME (LOSS)........................................ $(120,375) $(166,484) $ (62,930)
========= ========= ==========
Net loss per common share................................ $ (1,204) $ (1,665) $ (629)
========= ========= ==========
Weighted average shares outstanding...................... 100 100 100
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 65
KEY WEST CONCH HARBOR, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ ------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.... 100 $1,000 $ -- $ -- $ -- $ 1,000
Net loss for the year ended
December 31, 1994........... -- -- -- (120,375) -- (120,375)
--- ------ -------- --------- --------- -----------
Balance at December 31,
1994........................ 100 1,000 -- (120,375) -- (119,375)
Net loss for the year ended
December 31, 1995........... -- -- -- (166,484) -- (166,484)
--- ------ -------- --------- --------- -----------
Balance at December 31,
1995........................ 100 1,000 -- (286,859) -- (285,859)
Purchase of 73.625 shares..... -- -- -- -- (830,000) (830,000)
Sale of 73.625 shares......... -- -- (680,000) -- 830,000 150,000
Net loss for the nine months
ended September 30, 1996
(unaudited)................. -- -- -- (62,930) -- (62,930)
Balance at September 30, 1996
(unaudited)................. 100 $1,000 (680,000) $(349,789) $ -- $(1,028,789)
=== ====== ======== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 66
KEY WEST CONCH HARBOR, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ---------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................... $ (120,375) $(166,484) $(62,930)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization...................... 29,719 40,998 65,291
Amortization of deferred loan fees................. 1,002 4,759 4,912
Changes in assets and liabilities:
Receivables........................................ (8,859) 2,407 (4,013)
Inventory.......................................... -- (8,716) (15,548)
Prepaid expenses and other......................... (500) (13,359) (16,511)
Accounts payable................................... 71,792 (47,895) (21,474)
Accrued interest................................... 71,798 65,556 25,113
Accrued liabilities................................ 55,293 (6,660) (9,304)
Security deposits.................................. 10,000 (10,000) 29,500
Deferred revenue................................... -- 19,260 (1,595)
----------- --------- --------
Net cash provided (used) by operating
activities............................... 109,870 (120,134) (6,559)
----------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment................ (2,332,166) (652,493) (332,977)
----------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank and related party loans......... 2,239,500 797,795 2,066,392
Repayments of borrowings........................... -- -- (580,074)
Organization and loan costs........................ (14,547) (7,926) (47,148)
Purchase of treasury stock......................... -- -- (830,000)
Sale of treasury stock............................. -- -- 150,000
Proceeds from issuance of common stock............. 1,000 -- --
----------- --------- --------
Net cash provided by financing
activities............................... 2,225,953 789,869 759,170
----------- --------- --------
NET INCREASE IN CASH................................. 3,657 17,242 419,634
Cash at beginning of the period...................... -- 3,657 20,899
----------- --------- --------
Cash at end of the period............................ $ 3,657 $ 20,899 $440,533
=========== ========= ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest............. $ 112,674 $ 248,141 $217,130
=========== ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Assumption of debt in connection with the purchase of
property and equipment............................. $ 2,332,166 $ 652,493 $332,977
=========== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 67
KEY WEST CONCH HARBOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
NOTE A -- ORGANIZATION
General
Key West Conch Harbor, Inc. (the "Company") is a S-Corporation,
incorporated in the State of Florida on December 23, 1993 for the purposes of
acquiring, developing, and operating a marina facility in Key West, Florida.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of 3 months or less when purchased.
Inventory
Inventory is stated at the lower of cost or market and consists of fuel.
Cost is determined on the first-in, first-out ("FIFO") method of accounting.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation on the straight-line method over the estimated useful lives of the
related assets. Major classes of property and equipment and their related useful
lives are as follows:
<TABLE>
<CAPTION>
LIFE IN
MAJOR CLASS YEARS
----------- -------
<S> <C>
Land improvements........................................... 20
Docks....................................................... 20
Furniture, fixtures and equipment........................... 7
Computer equipment.......................................... 5
</TABLE>
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
Deferred Loan Fees
Loan fees are capitalized and amortized over the life of the loan using the
straight-line method.
Revenue Recognition
Annual or seasonal slip rentals received are recognized as deferred revenue
and amortized into income over the life of the rental contract using the
straight-line method. All other revenues are recognized at the time the rental
occurs or the delivery of the product or service takes place.
Lease income
During 1994 all fuel operations where leased to a related party who made
lease payments of all interest on the first mortgage. Income recorded in 1994
from these payments was $92,675.
F-34
<PAGE> 68
KEY WEST CONCH HARBOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
Loss per share
Loss per share of common stock is based upon the weighted average number of
common shares outstanding. There is no effect on loss per share after giving
effect to proforma income taxes as if the Company was taxed as a C-Corporation.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Income Taxes
Taxable income or loss of the S-Corporation is allocated to the
shareholders in accordance with the provisions of the Stockholders agreement.
The Company qualifies as a S-Corporation and as such, Federal income taxes
accrue to the shareholders rather than to the Company. Accordingly, the
accompanying statements of operations of the Company include no provision for
Federal income taxes.
Unaudited Period
The financial information as of September 30, 1996 and for the nine months
ended September 30, 1996 is unaudited. In the opinion of management, such
information contains all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results for such period.
The results of operations for the interim period is not necessarily indicative
of the results of operations for the full fiscal year.
NOTE C -- GOING CONCERN UNCERTAINTY
As reflected in the statements of operations, the Company incurred net
losses of $120,375 and $166,484 in 1994 and 1995, respectively. At December 31,
1995, current liabilities exceed current assets by $2,107,802. These factors,
among others, raise substantial doubt as to the Company's ability to continue as
a going concern.
Management has been successful in the past in negotiating delays in the
payment of the Company's loans and was successful in refinancing the mortgage
debt (Notes D and H) subsequent to December 31, 1995. Management is also
negotiating to transfer ownership and control of the Company to a public company
(Note H). The public company has plans to raise additional capital in the public
market after the acquisition.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts or classification of liabilities which may result from the possible
inability of the Company to continue as a going concern.
F-35
<PAGE> 69
KEY WEST CONCH HARBOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
NOTE D -- NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
First mortgage.............................................. $1,100,000 $1,550,000
Second mortgage -- stockholder.............................. 500,000 500,000
Third mortgage -- related party............................. 200,000 200,000
First note -- stockholder................................... 245,000 245,000
Second note -- stockholder.................................. 125,000 125,000
Working capital note -- stockholder......................... 69,500 57,295
First note payable.......................................... -- 200,000
Second note payable -- stockholders......................... -- 160,000
---------- ----------
2,239,500 3,037,295
Less current maturities..................................... 1,248,700 1,928,584
---------- ----------
Long-term portion........................................... $ 990,800 $1,108,711
========== ==========
</TABLE>
First Mortgage. On December 29, 1993 the Company entered into a note
payable for $1,100,000 with a financial institution to purchase the marina. The
note is collateralized by the property. The mortgage is at a variable rate of
1 1/2% above the banks prime rate and matures on June 29, 2010. Payments of
interest were required from January 29, 1994 through July 29, 1995, thereafter
monthly payment of principal and interest were required to fully amortize the
note through the maturity date.
On March 27, 1995 the Company renegotiated the variable rate note with the
financial institution for $1,550,000 (which included unpaid interest). This note
matures with all the principal due on October 1, 1996 and requires monthly
interest payments beginning on May 1, 1995, at a rate of 1% over the banks
index. (See Note H).
Prepaid interest on this note was $13,359 at December 31, 1995.
Second Mortgage. On December 28, 1993 the Company entered into a $500,000
promissory note with a stockholder, at a fixed rate of 8%, collateralized by a
second mortgage on the property. Annual payments are required for principal and
interest totaling $50,000 commencing on January 5, 1995 and continuing until the
maturity date of January 5, 2004. Principal and interest payments due on January
5, 1995, were deferred. Accrued interest was $40,000 and $44,257 at December 31,
1994 and 1995, respectfully.
Third Mortgage. As part of the original purchase the Company entered into a
$200,000 promissory note with a related party. This note had a fixed rate of 10%
and matures on March 15, 1997. (See Note H).
On January 13, 1995 the Company renewed the $200,000 promissory note,
subordinate to the first and second mortgage, with a stockholder, at a fixed
rate of 10%. The note matures on January 13, 1997 and requires monthly interest
payments.
First Note to Stockholder. On December 28, 1993 the Company entered into a
$245,000 promissory note with a stockholder, at a fixed rate of 8%. Annual
payments are required of $50,000 (principal and interest) commencing January 5,
1995 and continuing until the maturity date of January 5, 2004. Principal and
interest payments due on January 5, 1995, were deferred. At December 31, 1994
and 1995 accrued interest was $19,600 and $39,200, respectively. (See Note H).
Second Note to Stockholder. On December 28, 1993 the Company entered into a
$125,000 promissory note with a stockholder, at a fixed rate of 8% with a
maturity date in July 2001. Annual interest payments are required commencing on
January 5, 1995 and continuing until the maturity date in July 2001. Interest
due on
F-36
<PAGE> 70
KEY WEST CONCH HARBOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
January 5, 1995 was deferred. At December 31, 1994 and 1995 accrued interest was
$10,000 and $20,000, respectively. (See Note H).
Working Capital Note to Stockholder. During 1994, working capital of
$69,500 was provided to the Company by a stockholder at a fixed rate of 8%. The
timing of the repayment of the note payable is at the discretion of the Company
and is classified as current maturities in the accompanying balance sheets. The
balance outstanding at December 31, 1994 and 1995 was $69,500 and $57,295,
respectively. At December 31, 1994 and 1995 accrued interest was $2,198 and
$6,948, respectively.
First Note Payable. On August 3, 1995 the Company entered into a $200,000
promissory note with a financial institution maturing on February 3, 1999, at a
variable rate of 1 3/4% above the financial institutions base rate. Monthly
interest payments are required.
Second Note Payable. The following two notes were entered into by
stockholders of the Company to provide operating funds.
On October 2, 1995 the stockholders entered into a note payable for
$100,000 with the principal maturing on October 2, 1996, at a variable rate of
1% over prime. Monthly interest payments commencing on November 2, 1995 are
required.
On December 27, 1995 the stockholders entered into a second note payable
for $100,000 with the principal maturing on November 27, 1996, at a variable
rate of 2% over prime. Monthly interest payments commencing on January 27, 1995
are required. At December 31, 1995 $60,000 had been drawn and is outstanding
under this note payable.
Aggregate maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................. $1,928,584
1997............................................. 284,752
1998............................................. 87,636
1999............................................. 290,760
2000............................................. 94,143
Thereafter....................................... 351,420
----------
Total.................................. $3,037,295
==========
</TABLE>
NOTE E -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. Cash,
accounts receivable, accounts payable and other liabilities are carried at
amounts that reasonably approximate their fair values.
The carrying amount and fair value of notes payable and long-term debt are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Variable rate debt.................................. $1,910,000 $1,910,000
Fixed rate debt..................................... 1,070,000 1,151,250
Demand note......................................... 57,296 57,296
</TABLE>
F-37
<PAGE> 71
KEY WEST CONCH HARBOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
The fair value of the Company's fixed rate debt have been estimated based
upon relative changes in the Company's variable borrowing rates since
origination of the fixed rate debt. Fair values of variable rate debt and demand
notes are deemed to approximate carrying amount.
NOTE F -- RELATED PARTY TRANSACTIONS
The Company has a $9,381 payable to a stockholder related to commissions
earned in conjunction with the purchase of the marina on December 28, 1993. In
addition, the Company has a $30,000 payable to a stockholder for a finders fee
in conjunction with the purchase of the marina.
During 1994 and 1995, the Company entered into various notes payable with
stockholders of the Company. See Note D.
Accrued interest due to the stockholders was $71,798 and $110,405 at
December 31, 1994 and 1995, respectively. Interest expense in connection with
notes due to stockholders was $91,800 and $94,350 during 1994 and 1995,
respectively.
Upon formation of the S Corporation, the Company purchased the Key West
facility for approximately $2,300,000 from a stockholder. This purchase price
approximated the fair market value of the property.
NOTE G -- CONTINGENT LIABILITIES
In the normal course of its business, the Company is subject to litigation.
Management of the Company, based on discussions with its outside legal counsel,
does not believe any claims, individually or in the aggregate, will have a
material adverse impact on the Company's financial position, results of
operations or cash flows.
NOTE H -- SUBSEQUENT EVENTS
On July 25, 1996 the majority stockholder sold 73.625 shares to a third
party which resulted in a change in control of the Company in exchange for
$1,700,000.
On April 8, 1996, the Company entered into a loan agreement for $2,724,185
maturing on April 1, 2016. This agreement renewed and consolidated the first
mortgage of $1,550,000 with an additional amount of $1,174,185 which was used to
pay off the third mortgage, the second note payable, to provide operating funds
and to fund expansion of the fuel system. The agreement requires twenty-four
monthly interest payments beginning May 1, 1996 at a rate of 9% and two hundred
and sixteen monthly principal and interest payments of $25,510 beginning May 1,
1998 at a rate of 9% during the first 36 payments and 1% over prime thereafter.
Effective of October 31, 1996, the Company, by consent of the stockholders,
entered into an agreement (the "Agreement") with Sonoma International
("Sonoma"), a public company. The Agreement requires the transfer and assignment
to Sonoma of all of the common stock of the Company in exchange for 300,000
shares of common stock of Sonoma.
NOTE I -- EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT AUDITOR
(unaudited)
On December 9, 1996, the transaction described in Note H was consummated as
described.
F-38
<PAGE> 72
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 9
Dividend Policy....................... 10
Dilution.............................. 10
Capitalization........................ 11
Selected Consolidated Financial
Information......................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 16
Management............................ 21
Certain Transactions.................. 24
Principal Stockholders................ 25
Description of Capital Stock.......... 25
Underwriting.......................... 28
Legal Matters......................... 29
Experts............................... 29
Additional Information................ 30
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,000,000 SHARES
SONOMA
INTERNATIONAL
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
NATIONAL SECURITIES CORPORATION
, 1997
======================================================
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent provided by
Nevada law. In addition, the Articles of Incorporation contain a provision
limiting a director's and officer's liability for monetary damages to the
fullest extent permitted by Nevada law.
Furthermore, Section 78.751 of the Nevada General Corporation Law (the
"NGCL") contains provisions relating to indemnification of officers and
directors. Section 78.751(1) provides that a corporation may indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except for an action by or in right of the corporation by reason of the fact
that he was a director, officer, employee or agent of the corporation. In order
to indemnify, it must be shown that he acted in good faith and in a manner he
reasonably believed to be in the best interest of the corporation. Generally, no
indemnification may be made where the person has been determined to be negligent
or guilty of misconduct in the performance of his duty to the corporation.
Section 78.751(2) of the NGCL further allows the corporation to indemnify
any person who was or is a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation, including amounts paid in settlement and attorneys' fees if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter to which a court of competent jurisdiction
has adjudged an officer or director liable to the corporation, unless and only
to the extent that a court of competent jurisdiction determines that in view of
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding discussed in the preceding paragraphs, Section 78.751(3) of the NGCL
provides that he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense.
Except when indemnification is required by a court of competent
jurisdiction, Section 78.751(4) of the NGCL states that the corporation shall
only indemnify upon a determination of (i) the shareholders; (ii) majority vote
of the board that were not parties to the action; (iii) if ordered by a majority
vote of a quorum of directors who were not parties to the action, suit or
proceeding, by independent legal counsel in a written opinion; or (iv) by
independent legal counsel in a written opinion if no quorum of directors who
were not parties to the action may be obtained.
Unless ordered by a court of competent jurisdiction, indemnification may
not be made to or on behalf of any officer or director if a final adjudication
establishes that his acts or omissions involved intentional misconduct, fraud or
a knowing violation of the law and were material to the cause of action.
II-1
<PAGE> 74
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the issuance and
distribution of the Common Stock covered by this Registration Statement, all of
which will be paid by the Company are as follows:
<TABLE>
<S> <C>
Registration Fees........................................... $ 6,928.00
Accounting Fees and Expenses................................ 150,000.00
Printing Expenses........................................... 150,000.00
Legal Fees and Expenses..................................... 300,000.00
Miscellaneous............................................... $325,000.00
-----------
Total............................................. $931,928.00
===========
</TABLE>
ITEM 26. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
As a result of the closing of the acquisition of Jamestown and Key West, a
total of 2,000,000 shares of Common Stock were issued on December 9, 1996. The
Company issued 1,700,000 of the aforementioned shares to the holders of all the
limited partnership interests of Jamestown Resort & Marina, Ltd. in exchange for
those limited partnership interests and all the outstanding shares of Jamestown
Resort & Marina, Inc. A total of 300,000 of the above described shares were
issued to the stockholders of Key West Conch Harbor, Inc. in exchange for all
the issued and outstanding shares of common stock in Key West. In September 1995
a total of 172,101 shares of Common Stock were issued to Gary V. Sutley for
management services rendered to the Company and in lieu of salary. The
securities issued above were not registered and the Company is relying upon Rule
145 for an exemption therefrom as the Common Stock was issued and acquired as a
result of a merger or acquisition.
ITEM 27. INDEX TO EXHIBITS.
The following is a list of all exhibits filed as a part of this
Registration Statement on Form SB-2, including those incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Underwriting Agreement
1.2 -- Representative's Warrant Agreement
3.1 -- Articles of Incorporation of the Company, as amended to
date.
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock Certificate.
5.1 -- Opinion re: legality.**
10.1 -- Jamestown Lease with Corps including amendments.
10.2 -- Texaco Star Port Franchise Agreement.
10.3 -- Jamestown/Commonwealth of Kentucky Development Agreement.
10.4 -- NationsCredit Promissory Note.
10.5 -- James Frye Employment Agreement.
10.6 -- Purchase and Sale Agreement between Key West and Chevron
U.S.A. Inc.
10.7 -- Special Warranty Deed -- Key West.
10.8 -- Quit Claim Deed -- Key West.
10.9 -- Promissory Note TIB Bank of the Keys.
10.10 -- Securities Exchange Agreement between Sonoma and Key West
Conch Harbor, Inc.
10.11 -- Securities Exchange Agreement between Sonoma and
Jamestown Harbor & Resort.
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
11.1 -- Statement Regarding Computation of Pro Forma Per Share
Data*
21.1 -- Subsidiaries
23.1 -- Consent of Jackson Walker, L.L.P.**
23.2 -- Consent of Camhy Karlinsky & Stein LLP.**
23.3 -- Consent of King Griffin & Adamson P.C.*
23.4 --Consent of Marshall, Hill, Cassas & deLipkau**
24.1 -- Power of Attorney (Included on II-5 and II-6).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 76
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lexington, State of Kentucky, on January 17, 1997.
SONOMA INTERNATIONAL
By: /s/ JAMES L. FRYE
----------------------------------
James L. Frye,
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form SB-2 has been signed below by the following
persons on behalf of the Registrant in the capacities indicated on January 17,
1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JAMES L. FRYE President and Chief Executive Office and
- -------------------------------------------- Director (Principal Executive Officer)
James L. Frye
/s/ PETER SACKMANN Chief Financial Officer (Principal Financial
- -------------------------------------------- and Accounting Officer)
Peter Sackmann
/s/ R. DUDLEY WEBB Director, Chairman of Board
- --------------------------------------------
R. Dudley Webb
/s/ MARTHA LAYNE COLLINS Director, Vice Chairman of Board
- --------------------------------------------
Martha Layne Collins
/s/ DR. BARRETT BERNARD, M.D. Director
- --------------------------------------------
Dr. Barrett Bernard, M.D.
/s/ CHARLES W. HENNE Director
- --------------------------------------------
Charles W. Henne
/s/ GLENN HOSKINS Director, Secretary
- --------------------------------------------
Glenn Hoskins
/s/ DR. EDWIN NIGHBERT, M.D. Director
- --------------------------------------------
Dr. Edwin Nighbert, M.D.
/s/ FRED SKOMP Director, Vice President -- Development
- --------------------------------------------
Fred Skomp
/s/ IRVIN STUMLER Director
- --------------------------------------------
Irvin Stumler
</TABLE>
II-4
<PAGE> 77
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Officers and
Directors of Sonoma International (the "Company") hereby constitutes and
appoints James L. Frye or Peter Sackmann (with full power to act alone), his
true and lawful attorney-in-fact and agent, with full power of substitution, for
him and on his behalf and in his name, place and stead, in any and all
capacities, to sign, execute, and file any and all documents relating to this
Registration Statement, including any and all amendments, exhibits and
supplements thereto, with any regulatory authority, granting unto said attorney
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on January 17, 1997.
SONOMA INTERNATIONAL
By: /s/ JAMES L. FRYE
----------------------------------
James L. Frye
President and Chief Executive
Officer
By: /s/ PETER SACKMANN
----------------------------------
Peter Sackmann
Chief Financial Officer (Principal
Financial and Accounting
Officer)
By: /s/ R. DUDLEY WEBB
----------------------------------
R. Dudley Webb
Director, Chairman of Board
By: /s/ MARTHA LAYNE COLLINS
----------------------------------
Martha Layne Collins
Director, Vice Chairman of Board
By: /s/ DR. BARNETT BERNARD, M.D.
----------------------------------
Dr. Barnett Bernard, M.D.
Director
By: /s/ CHARLES W. HENNE
----------------------------------
Charles W. Henne
Director
II-5
<PAGE> 78
By: /s/ GLENN HOSKINS
--------------------------------
Glenn Hoskins
Director, Secretary
By: /s/ DR. EDWIN NIGHBERT, M.D.
----------------------------------
Dr. Edwin Nighbert, M.D.
Director
By: /s/ FRED SKOMP
----------------------------------
Fred Skomp
Director, Vice
President -- Development
By: /s/ IRVIN STUMLER
----------------------------------
Irvin Stumler
Director
II-6
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Underwriting Agreement
1.2 -- Representative's Warrant Agreement
3.1 -- Articles of Incorporation of the Company, as amended to
date.
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock Certificate.
5.1 -- Opinion re: legality.**
10.1 -- Jamestown Lease with Corps including amendments.
10.2 -- Texaco Star Port Franchise Agreement.
10.3 -- Jamestown/Commonwealth of Kentucky Development Agreement.
10.4 -- NationsCredit Promissory Note.
10.5 -- James Frye Employment Agreement.
10.6 -- Purchase and Sale Agreement between Key West and Chevron
U.S.A. Inc.
10.7 -- Special Warranty Deed -- Key West.
10.8 -- Quit Claim Deed -- Key West.
10.9 -- Promissory Note TIB Bank of the Keys.
10.10 -- Securities Exchange Agreement between Sonoma and Key West
Conch Harbor, Inc.
10.11 -- Securities Exchange Agreement between Sonoma and
Jamestown Harbor & Resort.
11.1 -- Statement Regarding Computation of Pro Forma Per Share
Data*
21.1 -- Subsidiaries
23.1 -- Consent of Jackson Walker, L.L.P.**
23.2 -- Consent of Camhy Karlinsky & Stein LLP.**
23.3 -- Consent of King Griffin & Adamson P.C.*
23.4 -- Consent of Marshall, Hill, Cassas & deLipkau**
24.1 -- Power of Attorney (Included on II-5 and II-6).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by Amendment.
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PRO FORMA PER SHARE DATA
<TABLE>
<S> <C>
Historical shares outstanding at January 1, 1996............ 1,369,025
Issuance of 600,000 shares to acquire Sonoma and Key West on
December 9, 1996(1)....................................... 600,000
Issuance of 330,975 shares to relieve Jamestown obligations
on December 9, 1996(2).................................... 20,226
Issuance of 3,000,000 shares to the public(3)............... 3,000,000
---------
4,989,251
=========
</TABLE>
- ---------------
(1) Assumed to be outstanding since January 1, 1996.
(2) To reflect 330,975 shares outstanding for the period from December 9, 1996
through December 31, 1996.
(3) To reflect the sale of 3,000,000 shares of common stock assumed to be
outstanding since January 1, 1996.
Note -- there are no common stock equivalents or dilutive securities.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
(File No. 333-20037) of our report dated March 7, 1997, on our audits of the
financial statements of Sonoma International and Subsidiaries, our report dated
September 6, 1996, except as to Note H, which is as of December 9, 1996 on our
audits of the financial statements of Sonoma International and our report dated
October 18, 1996 on our audits of the financial statements of Key West Conch
Harbor, Inc. We also consent to the reference to our firm under the caption
"Experts."
King Griffin & Adamson P.C.
Dallas, Texas
April 16, 1997
