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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION Ln C)

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IN RE GOLDEN BEAR SECURITIES LITIGATION

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CONSOLIDATED CASE 98-8520-CIV-HURLEY

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PLAINTIFFS' FIRST CONSOLIDATED CLASS ACTION COMPLAINT

Plaintiffs, by their undersigned attorneys, for their Consolidated Class Action Complaint, make the following allegations upon information and belief (except as to the allegations specifically pertaining to the named plaintiffs and their counsel), based upon the facts alleged below, which are predicated upon, inter alia, a review of relevant filings made with the Securities and Exchange Commission ("SEC") , press releases, news and analyst reports, and an investigation undertaken by plaintiffs' counsel. Plaintiffs believe that further substantial evidentiary support will exist for the allegations set forth below after a reasonable opportunity for discovery. NATURE OF THE ACTION

1.

This is a class action on behalf of a class (the

"Class") consisting of all persons other than defendants who purchased the common stock of Golden Bear Golf, Inc. ("Golden Bear" or the "Company") from April 30, 1997 through July 27, 1998, inclusive (the "Class Period"). 2.

On or about July 27, 1998, the last day of the Class

Period, Golden Bear announced that it had completed an internal review of its construction subsidiary, Paragon Construction

,in

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International ("Paragon"). As a result of the internal investigation, the Company disclosed that during fiscal 1997 and 1998, Paragon's management had "deliberately falsified records, misrepresented the status of construction projects and made false statements about Paragon's revenues, costs, and profits . . . Golden Bear also disclosed that Paragon had deliberately underbid for new construction projects, in order to obtain new projects and revenues in an attempt to mask the losses on Paragon's existing projects. 3.

The Company was forced to restate its loss for the

year ended December 31, 1997 to $24.7 million, or $4.49 per share. Previously, the Company had falsely represented that its loss was only $2.9 million for fiscal 1997, or $0.53 per share. Golden Bear's restatement resulted in a reduction of Paragon's revenues from $39.75 million to $21.89 million, wiping out approximately 45% of the construction unit's revenues for fiscal 1997. Moreover, Golden Bear announced that it was restating its financial results for the first quarter of fiscal 1998, recognizing a net loss $7.3 million. Previously, the Company had falsely represented that its loss during the first quarter of 1998 was only $778,290. 4.

Upon the announcement of the restatement, the

price of Golden Bear's stock fell to as low as $0.50 per share. During the Class Period, Golden Bear common stock had traded as high as $15.00 per share. 5.

Ultimately, Golden Bear common stock was delisted

from the NASDAQ National Market System as the Company was no longer 2

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able to meet the net tangible asset requirements for listing. In October of 1998, the Company disclosed that the SEC had commenced a private investigation to determine whether the Company and certain of its officers and/or directors had engaged in conduct in violation of the Securities and Exchange Act of 1934. In November of 1998, Golden Bear disclosed that its Board of Directors had approved the discontinuance of Paragon as of October 26, 1998. 6.

By the use of fraudulent accounting, defendants

materially overstated Golden Bear's revenues, results of operations, and earnings per share and made materially false or misleading statements concerning the Company's financial health and activities. As a result of the defendants' material misstatements and omissions, Golden Bear's common stock traded at artificially inflated prices throughout the Class Period. 7.

Plaintiffs and the other members of the Class each

purchased shares of Golden Bear common stock in the open market without knowledge of defendants' materially false or misleading statements and without knowledge that the price of Golden Bear common stock was artificially inflated during the Class Period, and have suffered damages as a result.

JURISDICTION AND VENUE

8.

The claims asserted herein arise under and pursuant

to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. SS 78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R. § 240.10b-5].

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9.

This Court has jurisdiction over the claims asserted

in this Complaint pursuant to § 27 of the Exchange Act as amended [15 U.S.C. § 78aa], 28 U.S.C. SS 1331 and 1337. 10.

Venue is properly laid in this judicial district

pursuant to § 27 of the Exchange Act. Certain acts and conduct complained of herein, including the dissemination of materially false and misleading information to the investing public, occurred in the Southern District of Florida, where Golden Bear maintains its corporate headquarters and principal place of business and did so at all relevant times. 11.

In connection with the acts and conduct alleged in

this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the NASDAQ National Market System, a national securities exchange. PARTIES Lead Plaintiffs

12.

Plaintiffs Joseph Bazinet, John Dominick, Indeco,

Inc., Charles Leyman, Ronald Murphy, Joaquin Rionda, and David Selby (collectively referred to herein as the "Lead Plaintiffs") purchased Golden Bear common stock during the Class Period as set forth in the schedules attached hereto as Exhibit 1, and were damaged thereby. These individuals were each duly appointed to serve as Lead Plaintiffs herein pursuant to an Order of this Court dated November 9, 1998. 4

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Additional Plaintiffs 13. Plaintiffs Don Aggers, Nasir Albarim, Daniel S. Allmacher, Beverly B. Andrews, Lynn Asquith, Todd Atwell, Barry P. Baker, John Barnhart, Charles M. Barresi, Gary E. Battenberg, Barbara L. Beal, Patrick Bodkin, Robert E. Bosland, James Brosious, Marvin Browne, Brian Bury, Chris Butchikas, Bill Chadbourne, Christopher B. Colby, Michael Colello, Les Crooks, Daryl Crow, Thomas Cummings, Anthony Cutillo, William F. Davis, Jeraldine Diamond, David Eichelberger and Sherri Eichelberger, Robert Erskine, Dan Farley, Bodo Fickler, Jay Flanders, Janet N. Foley, Joseph F. Freeman, Jr., Mark D. Frink, Bianca Gallo, Dale Ganser, Joseph Gerlach, Louis Giglio, Christopher Gregory, Robert Hart, Jody Hechtman, Michael W. Hill, Gary Horning, James Howard, Ronald Hurst, Yvonne Hyatt, Joseph Joyce, Allan Kiser, Charles Kleman, Doug Koht, William R. Kolb, Jr., Ralph R. Krepfle, Raymond J. Krepfle, William Lan, Peter Lansbury, David M. LeMieux, Adam Leonard, Neil McCarty, Patrick McGrew, David Mahfet, Walter Mello, Larry Mitchell, Tyson Moeller, Brian Moore, Gregory Moore, Herbert Moore, Kirk Neal, Lee Nelson, Todd Nims, Donna Oglesby, Richard Olson, Teresa N. Owens, Stacey Parker, Larry Post, Mark Pottinger, Mark E. Preston, Allen Prinstine, Sam Quinn, David Reiners, Ruth Rich, James Rike, Bob Romzek, Jess Rosenberg, John Salaris and Barbara Salaris, Robert Sarver, Philip and Doris Schwartz, Ronald Schwartz, John Shaull, Gregory Shoemake, Peter Joseph Short and Mary Jean Short, Wayne Sicz, Gerald Simpson, Mary Jane Sullivan Smith, Susan Smithson, Richard G. Snell, Steven Soboksky, Lauri 5

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Bomstein Sokoloff, Sander Sokoloff, Richard Starbird, Robert Stieha, Gregory L. Stoner, Jim Sullivan, Richard Thayne, Christopher Tighe, Louis J. Tirreno, James D. Weeks, Barbara S. Wise, Joe Wise, and George Yorks (collectively referred to herein as the "Additional Plaintiffs") purchased Golden Bear common stock during the Class Period and were damaged thereby. Certifications reflecting the Additional Plaintiffs' transactions are available upon request. Collectively, the Additional Plaintiffs and Lead Plaintiffs will be referred to herein as "plaintiffs." Defendants 14. Defendant Golden Bear purports to be a diversified, international brand name golf products and services company engaged in the development, marketing, and management of golf-related businesses including the licensing, ownership, and operation of golf practice and instruction facilities, the operation of golf instructional schools, and the licensing, distribution and sale of golf-related consumer products. Golden Bear maintains its principal executive offices at 11780 U.S. Highway One, Palm Beach, Florida. The Company began publicly trading its stock on or about August 1, 1996, selling approximately 2.48 million shares in an initial public offering (the "IPO"). a.

At the start of the Class Period, Golden Bear

was comprised of three divisions: the Golf Division, the Construction Division, and the Marketing Division. The Company's Golf Division licensed, owned and operated golf practice and

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instruction facilities under the Jack Nicklaus Golf Center, Jack Nicklaus Academy of Golf, and Golden Bear Golf Center brand names. b. The Company's Construction Division consisted of its wholly-owned subsidiary Paragon. Paragon was incorporated in 1992, but its predecessor had been in business since 1983 as part of Jack Nicklaus's family of companies. Paragon was a full service construction organization which provided comprehensive project management and golf course construction services to resort, residential and commercial golf developments around the world. Paragon was discontinued as of October 1998. C.

Golden Bear's Marketing Division licensed

Nicklaus, Jack Nicklaus, and Golden Bear branded consumer products and operated Nicklaus/Flick Golf Schools. 15. Defendant Jack W. Nicklaus ("Nicklaus") is and was Chairman of the Board and an employee of Golden Bear at all relevant times during the Class Period. Nicklaus founded Golden Bear International, Inc., the predecessor of the Company, in 1970 and has served as the Chairman of the Board since its inception. a.

As of June 16, 1997, Nicklaus beneficially

owned approximately 240,000 shares of the Company's Class A common stock and approximately 2,760,000 shares of the Company's Class B common stock. Nicklaus' holdings constitute approximately 91% of the total voting power of Golden Bear's outstanding common stock. b.

Nicklaus was a signatory to Golden Bear's 1997

Form 10-K filed with the SEC on or about March 31, 1998 (the "1997 Form 10-K"). 7

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C.

From the outset, the Company's strategy was to

capitalize on Nicklaus' reputation, image, and accomplishments. The Nicklaus, Jack Nicklaus, and Golden Bear names and symbols and the image and reputation of Nicklaus were utilized in order to raise capital from investors and to distinguish the Company and its activities from competitors. As such, Nicklaus owed investors a high degree of care and loyalty with respect to the Company's operations. d.

Throughout the Class Period, defendant Nicklaus

maintained a close relationship with Paragon. For example, at the time of Golden Bear's IPO, Nicklaus was the primary guarantor of Paragon's $1 million credit line. Moreover, Nicklaus has over 25 years experience as a golf course designer, having designed 138 courses in 23 countries. Since 1983, Paragon and its predecessor provided construction services throughout the world in the development of approximately 39 golf courses, most of which were designed by Nicklaus. Thus, Nicklaus has special expertise with regard to golf course construction and design.

16. Defendant Richard P. Bellinger ("Bellinger") was President, Chief Executive Officer, and a director of Golden Bear at all relevant times during the Class Period. Bellinger was a signatory to Golden Bear's 1997 Form 10-K and all amendments thereto. In addition, Bellinger was a signatory to all of Golden Bear's Form 10-Qs filed with the SEC during the Class Period. Throughout the Class Period, defendant John Boyd, President of 8

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Paragon, reported directly to Bellinger. On or about October 19, 1998, Bellinger resigned from his positions with the Company, having served over 19 years with Nicklaus-related companies. 17.

Defendant Jack P. Bates ("Bates") was Chief

Financial Officer, Secretary, and a Senior Vice President of Golden Bear up until his resignation on or about October 22, 1997. As the Company's principal financial and accounting officer, Bates was responsible for Golden Bear's financial, treasury, and accounting functions. In such capacity, Bates was a signatory to the Company's Form 10-Qs filed with the SEC for the first two quarters of fiscal 1997. 18.

Defendant Stephen S. Winslett ("Winslett") is Chief

Financial Officer and a Senior Vice President of Golden Bear and has held those positions since October 22, 1997. As the Company's principal financial and accounting officer, Winslett was responsible for Golden Bear's financial, treasury, and accounting functions. Winslett was a signatory to the Company's 1997 Form 10K and all amendments thereto. In addition, Winslett was a signatory to the Company's Form 10-Qs filed with the SEC for the third quarter of fiscal 1997, and the first and second quarters of fiscal 1998. 19.

Defendant John Boyd ("Boyd") served as President of

Paragon from the beginning of 1997 through approximately April 27, 1998, when he was dismissed by defendant Bellinger. Throughout the Class Period, Boyd reported directly to defendant Bellinger concerning Paragon's financial performance and activities. At the

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end of the Class Period, Golden Bear admitted that executives at Paragon had "deliberately falsified records, misrepresented the status of construction projects and made false statements about Paragon's revenue, costs, and profits," during fiscal 1997 and fiscal 1998. 20.

Defendants Nicklaus, Bellinger, Bates, Winslett and

Boyd are herein collectively referred to as the "Individual Defendants." 21.

Each of the Individual Defendants, by virtue of

their management or directorship positions, had the duty to exercise due care and diligence and the duty of full and candid disclosure of all material facts related thereto. The Individual Defendants were required to exercise reasonable care and prudent supervision over the dissemination of information concerning the business, operations and financial reporting of Golden Bear. By virtue of such duties, these officers and directors were required to supervise the preparation of Golden Bear's SEC filings and approve any reports concerning the financial condition and results of operations of Golden Bear. 22.

All of the Individual Defendants were control

persons of Golden Bear within the meaning of Section 20(a) of the Exchange Act by reason of their own involvement in the daily business of Golden Bear and Paragon and by reason of their positions as senior executives of Golden Bear and/or Paragon. The Individual Defendants, at the time they held positions with the Company, were able to, and did, exercise substantial control over 10

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the operations of Golden Bear, including control of the materially false or misleading statements, omissions and course of conduct complained of herein. 23.

It is appropriate to treat the Individual Defendants

as a group for pleading purposes and to presume that the false or misleading information conveyed in Golden Bear's public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. 24.

As officers, directors and/or controlling persons of

a publicly held company and under the federal securities laws, the Individual Defendants had a duty: (a) to disseminate promptly complete, accurate and truthful information with respect to Golden Bear; (b) to correct any previously issued statements from any source that had become materially misleading or untrue; and (c) to disclose any trends that would materially affect earnings and the present and future operating results of Golden Bear, so that the market price of Golden Bear's publicly traded securities would be based upon truthful and accurate information. 25.

Defendant Arthur Andersen ("Arthur Andersen") is an

international accounting firm with its headquarters located in Chicago, Illinois. Before and throughout the Class Period, Arthur Andersen was engaged by Golden Bear to provide independent auditing, and accounting services. Arthur Andersen audited Golden Bear's publicly filed year-end financial statements and reviewed Golden Bear's publicly filed quarterly financial statements issued 11

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during the Class Period. During the Class Period, Arthur Andersen falsely opined that the Company's financial statements were issued in accordance with generally accepted accounting principles ("GAAP"). 26. The undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, rules of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed to the investing public. This information is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed. For example: a.

Under Item 303 of Regulation S-K, promulgated

by the SEC under the Exchange Act, there is a duty to disclose in periodic reports filed with the SEC "known trends or any known demands, commitments, events or uncertainties" that are reasonably likely to have a material impact on a company's sales revenues, income or liquidity, or cause previously reported financial information not to be indicative of future operating results. 17 C.F.R. § 229.303 (a) (l)-3(3) and Instruction 3. In addition to the periodic reports required under the Exchange Act, management of a public company has a duty "to make full and prompt announcements of material facts regarding the company's financial condition." SEC Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH) ¶ 23,120A, at 17,095, 17 C.F.R. § 241.8995 (October 15, 1970). The SEC regulates companies "that can reasonably be expected to reach investors and 12

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the trading markets, whoever the intended primary audience." SEC Release No. 33-6504, 3 Fed. Sec. L. Rep. (CCH) ¶ 23,120, at 17,095-3, 17 C.F.R. § 241.20560 (January 13, 1984). The SEC has emphasized that "[i]nvestors have legitimate expectations that public companies are making, and will continue to make, prompt disclosure of significant corporate developments." SEC Release No. 18271, [1981-1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 83,049, at 84,618 (November 19, 1981). 27.

The market for Golden Bear common stock was open,

well-developed and efficient at all relevant times. As a result of the materially false and misleading statements and failures to disclose the full truth about Golden Bear, its business and future prospects, Golden Bear common stock traded at artificially inflated prices throughout the Class Period. Plaintiffs and other members of the Class purchased or otherwise acquired Golden Bear common stock relying upon the integrity of the market price of Golden Bear common stock and market information relating to Golden Bear or, in the alternative, upon defendants' materially false and misleading statements, and in ignorance of the adverse, material undisclosed information and false financial statements known to defendants and have been damaged thereby. PLAINTIFFS' CLASS ACTION ALLEGATIONS

28.

Plaintiffs bring this lawsuit pursuant to Rule 23(a)

and (b) (3) of the Federal Rules of Civil Procedure on behalf of all persons who purchased Golden Bear common stock from April 30, 1997 through July 27, 1998, inclusive (the "Class"). Excluded from the 13

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Class are defendants herein, members of the immediate family of each of the defendants, any person, firm, trust, corporation, officer, director or other individual or entity in which any defendant has a controlling interest or which is related to or affiliated with any of the defendants, and the legal representatives, agents, affiliates, heirs, successors-in-interest or assigns of any such excluded party. This suit seeks, inter alia, damages, and expressly does not seek any recovery for personal injuries. 29. This action is properly maintainable as a class action for the following reasons: a.

The Class is so numerous that joinder of all

Class members is impracticable. During the Class Period, over 2.7 million shares of Golden Bear Class A common stock were outstanding. The members of the Class for whose benefit this action is brought are dispersed throughout the United States. Upon information and belief, there are hundreds, if not thousands, of Class members. b.

There are questions of law and fact which are

common to members of the Class which predominate over any questions affecting only individual members of the Class. The common questions include, inter alia, the following: (1)

Whether defendants' acts as alleged herein

violated the federal securities laws; (2)

Whether defendants participated in and

pursued the common course of conduct complained of herein; 14

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(3)

Whether documents, press releases and

other statements disseminated to the investing public and Golden Bear's shareholders during the Class Period misrepresented material facts about the business, management, revenues, transactions, markets, financial condition, risk and business prospects of Golden Bear; (4)

Whether statements made by defendants to

the investing public during the Class Period misrepresented material facts about the business and finances of Golden Bear; (5)

Whether the market price of Golden Bear's

common stock during the Class Period was artificially inflated due to the material misrepresentations and defendants' failure to correct the material misrepresentations complained of herein; (6)

Whether Golden Bear's financial statements

filed with the SEC throughout the Class Period were prepared in compliance with GAAP; (7)

Whether defendant Arthur Andersen's audit

of Golden Bear for fiscal year 1997 was performed in compliance with Generally Accepted Auditing Standards ("GAAS"); and (8)

To what extent each member of the Class

has sustained damages and the proper measure of damages for each member. C.

The claims of plaintiffs are typical of the

claims of other members of the Class and plaintiffs have no interests that are adverse or antagonistic to the interests of the Class. 15

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d.

Plaintiffs are committed to the vigorous

prosecution of this action and have retained competent counsel experienced in litigation of this nature. Plaintiffs' selection of counsel was approved by Order of the Court dated November 9, 1998. Accordingly, plaintiffs are adequate representatives and will fairly and adequately protect the interests of the Class. e.

Plaintiffs do not anticipate any difficulty in

the management of this case as a class action. 30.

For the reasons stated herein, a class action is

superior to other available methods for the fair and efficient adjudication of this action and the claims asserted herein. Because of the size of the claims of individual members of the Class, few, if any, members of the Class could afford to seek legal redress individually for the wrongs complained of herein. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

31.

At all relevant times, the market for Golden Bear

common stock was an efficient market for the following reasons, among others: a.

Golden Bear common stock was listed and

actively traded on the NASDAQ National Market System, a highly efficient and automated market; b.

As a regulated issuer, Golden Bear filed

periodic public reports with the SEC; and C.

Golden Bear regularly communicated with the

investing public through the dissemination of various reports, participated in meetings and conferences with investors and 16

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securities analysts and engaged in other customary means of communicating such as use of major newswire services for the dissemination of press releases and providing information and interviews about the Company to the business media. 32.

As a result, the market for Golden Bear common stock

promptly reflected current information regarding the Company from all publicly available sources and reflected such information in Golden Bear's stock price. Under these circumstances, all purchasers of Golden Bear shares during the Class Period suffered similar injury through their purchase of shares at artificially inflated prices and a presumption of reliance applies.

SUBSTANTIVE ALLEGATIONS Background

33.

On or about June 7, 1996, Golden Bear filed a

preliminary Form S-1 Registration Statement and Prospectus with the SEC for the sale of 1.8 million shares of Golden Bear common stock. The Registration Statement and Prospectus was amended several times and became effective on or about July 31, 1996. 34.

The effective Form S-i Registration Statement and

Prospectus (collectively the "IPO Prospectus") described Golden Bear's business as follows: Golden Bear, Inc. is a diversified, international brand name golf products and services company engaged in the development, marketing and management of golf-related businesses, including the licensing, ownership and operation of golf practice and instruction facilities, the construction and renovation of golf courses, the marketing of golf course design services and the licensing, distribution and sale of golf-related consumer 17

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products. Through its three divisions, the Golf Division, the Construction Division, and the Marketing Division, the Company provides high quality products and services in over 40 countries . (IPO Prospectus at 3). 35.

The IPO Prospectus described Paragon, Golden Bear's

construction division, as follows: The Company provides comprehensive golf course construction services. These services include project management, shaping, renovation and golf course construction. (IPO Prospectus at 36). 36.

On or about August 1, 1996, pursuant to the IPO

Prospectus, Golden Bear sold approximately 2.48 million shares of common stock at $16.00 per share, generating over $34.5 million. Golden Bear common stock began trading on the NASDAQ National Market System, closing at $18.50 per share on August 1, 1996. 37.

Beginning in the fourth quarter of 1996 and

continuing into the first quarter of 1997, Golden Bear substantially restructured its Paragon subsidiary. Defendant Boyd was appointed President of the construction unit and several other members of senior management were replaced. 38.

On or about February 28, 1997, Golden Bear issued a

press release announcing its financial results for the fourth quarter of fiscal 1996. Defendant Bellinger commented: Growth in all three divisions led to our strong revenue performance . . . . Paragon Golf Construction completed a successful restructuring, and is competing effectively on new project awards . . . . (Emphasis added) 39.

On or about April 10, 1997, in an article reported

in Dow Jones Online News, Golden Bear reported that its first18

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quarter results would be hurt by delays and senior management changes. The Company stated that it would take a charge of $570,000 in the first quarter to cover severance costs as a result of personnel changes. Golden Bear announced that it had hired defendant Boyd as the President of Paragon. The Company added that Paragon had a lower volume of business in the first quarter, but said it has "implemented improved processes and controls." Defendants' Materially False And Misleading Statements During The Class Period

40.

On or about April 30, 1997, Golden Bear issued a

press release announcing its results for the first quarter of fiscal 1997 ended March 31, 1997. The Company reported revenues of $6.8 million, a 58% increase over the $4.3 million in revenues reported for the first quarter of 1996. Golden Bear, however, reported a loss for the quarter of $1.6 million, or $0.29 per share. The Company explained that the loss was due, in part, to the previously announced severance charge and the restructuring at Paragon which had now been completed. Golden Bear touted the "improvements" at Paragon as follows: The restructuring of Paragon, which began in the fourth quarter of 1996, continued into the first quarter of 1997. This decision led to a lower volume of active business in the first quarter, but has resulted in improved processes and controls. The company received prolect awards in excess of $35 million in the first quarter and work on these prolects is currently underway. (Emphasis added). 41.

On or about May 15, 1997, Golden Bear filed with the

SEC a Form lO-Q for the first quarter of fiscal 1997 ended March 31, 1997. The quarterly report, signed by defendants Bellinger and 19

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Bates, reiterated Golden Bear's financial results announced in the April 30, 1997 press release. Moreover, the quarterly report represented: The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In the opinion of management, all adjustments considered necessary for a fair presentation have been included. 42. Golden Bear's press release and Form lO-Q for the first quarter of fiscal 1997 were materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

contrary to the Company's assurances, Golden

Bear had not established "improved processes and controls" and lacked sufficient internal controls to monitor the financial performance and activities of Paragon; b.

Paragon was falsifying records and

misrepresenting the status of its construction projects; C.

Paragon was materially understating expenses,

including construction and shaping costs;

go

Paragon was overstating revenues;

e.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and f.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's 20

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financial statements were not prepared in accordance with GAAP as detailed below. 43.

On or about June 18, 1997, in an article published

in the Daily Business Review (Miami, Florida), the Company stated, "future profitability and growth is assured by the executive and organizational changes that have already been implemented [at Paragon]." (Emphasis added). This statement was materially false and misleading because, as the Golden Bear defendants knew or recklessly disregarded, the Company lacked adequate internal controls to monitor the

financial performance of Paragon.

Moreover, the Golden Bear defendants knew or recklessly disregarded that, as a result of inaccurate financial reporting at Paragon, Golden Bear's revenues,

earnings per share, and results of

operations were materially overstated in direct violation of GAAP. 44.

On or about July 24, 1997, Golden Bear announced

that Paragon had recently increased its services to include project management and design/build services for all golf-related developments. By expanding its services, Paragon was said to be able to provide clients with turnkey solutions for an entire project. Defendant Boyd stated: Having built a strong reputation for constructing quality golf courses, we felt it was time to expand our level of expertise into new areas of development. We have assembled an exceptional team of professionals with a wide variety of planning and construction specializations. (Emphasis added). 45.

Defendant Boyd's statements on July 24, 1997 were

materially false or misleading at the time they were made because, as the Golden Bear defendants knew or recklessly disregarded on 21

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July 24, 1997, the Company lacked sufficient internal controls to monitor the financial performance and activities of Paragon, and Paragon was misusing percentage-of-completion accounting to artificially inflate its net income through improper revenue recognition and the understatement of costs in violation of GAAP. 46.

On or about July 31, 1997, Golden Bear issued a

press release announcing its financial results for the second quarter of fiscal 1997 ended June 30, 1997. The Company reported break-even net income on revenues of $22.3 million, representing a 164% increase over revenue reported for the same period in 1996. The Company also reported that revenues for Paragon increased 153% over revenues for the second quarter of 1996. The press release further stated: Paragon Construction continued to win substantial project awards, including letters of intent, as a result of its focus on expanded service offerings, bringing total awards through June 30, 1997 to more than $90 million. Paragon is currently developing more than 20 projects in the U.S., Mexico, Europe, and Asia, including a number of projects which reflect the division's expansion into project management and design/build services for golfrelated developments. 47.

On or about August 14, 1997, Golden Bear filed its

quarterly report on Form 10-Q for the second quarter of fiscal 1997 ended June 30 1 1997.

The quarterly report, signed by defendants

Bellinger and Bates, reiterated the Company's financial results announced in the July 31, 1997 press release. Moreover, the quarterly report represented: The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In 22

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the opinion of management, all adjustments considered necessary for a fair presentation have been included. 48. Golden Bear's press release and Form 10-Q announcing its second quarter fiscal 1997 financial results were materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

the Company lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; b.

Paragon was falsifying records and

misrepresenting the status of construction projects; C.

Paragon was materially understating expenses,

including construction and shaping costs; d.

Paragon was overstating revenues;

e.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and f.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 49. On or about September 29, 1997, in an article published in the Engineering News-Record entitled "Golf Boom Puts Paragon's Sales on a Sharp Upward Trajectory," Paragon projected revenue of $65 million in 1997, a substantial improvement over the 23

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$20.4 million reported for 1996. Defendant Boyd stated that Paragon's backlog had bulged to $100 million and that Paragon had taken advantage of the golf boom through aggressive marketing and an expanded range of services. 50. Defendant Boyd's comments in the September 29, 1997 Engineering News-Record article were materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

Paragon was falsifying records and

misrepresenting the status of its construction projects; b.

Paragon was materially understating expenses,

including construction and shaping costs; C.

Paragon was overstating revenues in direct

violation of GAAP; and d.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share. 51. On or about October 7, 1997, Golden Bear announced the completion of a definitive credit agreement with SunTrust Bank for a $10 million revolving credit facility. Defendants were motivated, in part, to misrepresent the Company's financial condition in an effort to secure this line of credit. Defendant Bellinger was quoted as saying: "[W]e are pleased to have arranged working capital financing, especially for our rapidly growing 24

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Paragon Construction division, which through June of this year has won contract awards in excess of $90 million . . . ." 52. Defendant Bellinger's comments in the October 7, 1997 press release were materially false and misleading at the time they were made because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

Paragon was falsifying records and

misrepresenting the status of its construction projects; b.

Paragon was materially understating expenses,

including construction and shaping costs; C.

Paragon was overstating revenues in direct

violation of GAAP; and d.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share. 53. On or about October 30, 1997, Golden Bear issued a press release announcing its financial results for the third quarter of 1997 ended September 30, 1997. The Company reported revenues of $17.7 million, representing a 79% increase over revenues of $9.9 million reported for the third quarter of 1996. Net earnings for the quarter were $364,000, or $0.07 per share, up from the $268,000 reportedly earned in the third quarter of 1996. Golden Bear reported that Paragon's revenues increased 50% over revenues from the third quarter of 1996. Defendant Bellinger 25

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commented, "Paragon . . . continued to win substantial project awards, and is currently developing nearly 30 projects around the world. Total backlog . . . now exceeds $100 million." 54.

On or about November 14, 1997, Golden Bear filed its

Form lO-Q for the third quarter of fiscal 1997 ended September 30, 1997. The quarterly report, signed by defendants Bellinger and Winslett, reiterated the financial results announced by Golden Bear in its October 30, 1997 press release. Moreover, the quarterly report represented: The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In the opinion of management, all adjustments considered necessary for a fair presentation have been included. 55.

Golden Bear's October 30, 1997 press release and

third quarter fiscal 1997 Form 10-Q were materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

the Company lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; b.

Paragon was falsifying records and

misrepresenting the status of construction projects; C.

Paragon was materially understating expenses,

including construction and shaping costs; d.

Paragon was overstating revenues;

e.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that 26

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were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and f.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 56.

On or about January 15, 1998, Golden Bear issued a

press release announcing that it had again reorganized, this time streamlining its organization into two operating units: Paragon and a new Customer Products Division. Defendant Bellinger stated, "We expect to see benefits from this streamlined and more balanced organizational structure." 57.

On or about February 27, 1998, Golden Bear issued a

press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 1997. Revenues for the fourth quarter were reported as $21.0 million, representing a 93% increase over revenues from the fourth quarter of 1996. Paragon's revenues reportedly increased 133% from the corresponding quarter in 1996. 58.

For fiscal year 1997, the press release reported

consolidated revenues of $67.7 million, a 102% increase over 1996 revenues. The net loss for the year was reported as $2.9 million, or $0.53 per share, an improvement over the net loss of $0.57 per share recorded for fiscal 1996. Defendant Bellinger was quoted in the press release: 27

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Paragon . . . generated record revenues and profits this year. We are very pleased with the results of our restructuring of Paragon, which is poised for substantial growth in 1998 . . 59. Golden Bear's February 27, 1998 press release was materially false and misleading because of the following undisclosed material information, all of which defendants knew or recklessly disregarded: a.

contrary to the Company's fraudulent

representations, Golden Bear had suffered a net loss of $24.7 million for fiscal 1997 on revenues of only $34.8 million, as the Company admitted in its restatement at the end of the Class Period; b.

Golden Bear lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; C.

Paragon was falsifying records and

misrepresenting the status of construction projects; d.

Paragon was materially understating expenses,

including construction and shaping costs; e.

Paragon was overstating revenues;

f.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and g.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 28

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60.

On or about March 31, 1998, Golden Bear filed its

1997 Form 10-K. The annual report repeated the financial results announced in the Company's February 27, 1998 press release. In addition, the annual report stated: The level of construction service [provided by Paragon] during the fourth quarter of 1996 and the first quarter of 1997 was limited based on management's decision to curtail such activities pending the implementation of new systems and the integration of new staff. The Company believes that the improved processes and controls that have been put into place will facilitate the future growth of its Construction Division. During 1997, the Company continued to receive significant new project awards, bringing Paragon's total backlog as of December 31, 1997 to over $170 million, compared to a backlog of less than $10 million at December 31, 1996. (Emphasis added). 61.

Golden Bear's 1997 Form 10-K also contained the

following report by defendant Arthur Andersen: REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Golden Bear Golf, Inc.: We have audited the accompanying consolidated balance sheets of Golden Bear Golf, Inc. and subsidiaries as of December 31, 1997, anc 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for ea Dh of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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. 29

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We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Golden Bear Golf, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. (Emphasis added). 62. Golden Bear's 1997 Form 10-1< was materially false and misleading at the time it was filed because of the following undisclosed material information, all of which defendants knew or recklessly disregarded: a.

contrary to the Company's fraudulent

representations, Golden Bear suffered a net loss of $24.7 million for fiscal 1997 on revenues of only $34.8 million, as the Company admitted in its restatement at the end of the Class Period; b.

Golden Bear lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; C.

Paragon was falsifying records and

misrepresenting the status of construction projects; d.

Paragon was materially understating expenses,

including construction and shaping costs; e.

Paragon was overstating revenues;

f.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share;

30

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g.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below; h.

Golden Bear's financial statements did not

fairly present the true financial position of the Company; i.

Golden Bear's financial statements were not

prepared in accordance with GAAP; and j.

Arthur Andersen's audit of the Company was not

performed in accordance with GAAS. 63.

on or about April 23, 1998, Golden Bear issued a

press release announcing its financial results for the first quarter of fiscal 1998 ended March 31, 1998. The Company reported revenues of $22.5 million, "more than triple the $6.8 million in revenues recorded for the first quarter of fiscal 1997." (Emphasis added). Paragon's revenues were reported as $16.0 million, compared to revenues of only $1.3 million in the year ago quarter. For the quarter, Golden Bear reported a net loss of only $778,290. 64.

Golden Bear's April 23, 1998 press release was

materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

contrary to the Company's fraudulent

representations, Golden Bear suffered a net loss of $7.3 million for the first quarter of fiscal 1998 on revenues of only $11.3 31

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million, as the Company admitted in its restatement at the end of the Class Period; b.

Golden Bear lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; C.

Paragon was falsifying records and

misrepresenting the status of construction projects; d.

Paragon was materially understating expenses,

including construction and shaping costs; e.

Paragon was overstating revenues;

f.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and g.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 65.

On or about April 29, 1998, without any prior

warning, Golden Bear issued a press release announcing that defendant Boyd was "no longer with the Company." Golden Bear also stated that Paragon management would now report directly to defendant Bellinger. 66.

On or about May 5, 1998, Golden Bear issued a press

release announcing that the Company had commenced an internal review of the activities at Paragon. The Company stated: 32

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The review will focus on the status of construction projects, cost requirements associated with the completion of the projects and the anticipated profitability of the projects. Specific attention will be given to contract requirements, including amendments and change orders, and the related estimated anticipated costs of fulfilling those requirements. From the information currently available to the Company, the Company believes it may be necessary to recognize losses associated with the projects. ***** The Company is in the process of hiring a new President at Paragon and, in the interim, has hired Donald W. Dreusike . . . to serve as acting President of Paragon. 67.

On or about May 8, 1998, in an article published in

The Palm Beach Post, Golden Bear announced that, in addition to defendant Boyd, three other unnamed executives had also departed from Paragon. In connection with the Company's commencement of the internal review, defendant Bellinger commented, "We've been able to identify the potential for potential losses . .

. but we don't

know that to be fact." 68.

Golden Bear's statements concerning defendant Boyd's

dismissal and the Company's commencement of an internal investigation were materially misleading at the time they were made because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

Paragon was falsifying records and

misrepresenting the status of construction projects; b.

Paragon was materially understating expenses,

including construction and shaping costs; C.

Paragon was overstating revenues; and

33

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d. as a result of Paragon's fraudulent financial reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated for fiscal 1997 and the first quarter of fiscal 1998 and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 69.

On or about May 15, 1998, Golden Bear filed with the

SEC a Form lO-Q for the first quarter of fiscal 1998 ended March 31, 1998. The Form lO-Q, signed by defendants Bellinger and Winslett, reiterated the Company's financial results announced in the April 23, 1998 press release. Moreover, the quarterly report represented: The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles . . . . In the opinion of management, all adjustments considered necessary for a fair presentation have been included. 70.

The Company's Form 10-Q for the first quarter of

fiscal 1998 was materially false and misleading at the time it was filed because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

contrary to the Company's fraudulent

representations, Golden Bear suffered a net loss of $7.3 million for the first quarter of fiscal 1998 on revenues of only $11.3 million, as the Company admitted in its restatement at the end of the Class Period;

34

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b.

Golden Bear lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; C.

Paragon was falsifying records and

misrepresenting the status of construction projects; d.

Paragon was materially understating expenses,

including construction and shaping costs; e.

Paragon was overstating revenues;

f.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share; and g.

as a result of Paragon's fraudulent financial

reporting, Golden Bear's revenues, results of operations, and earnings per share were materially overstated and the Company's financial statements were not prepared in accordance with GAAP as detailed below. 71. On or about May 25, 1998, an article in The Columbus Dispatch reported that Bellinger "expects the company to make a profit this year, with revenue poised to increase 20%." It was further reported that the golf construction business was "booming, with $170 million worth of work on the boards at the beginning of the year -- compared with $10 million a year ago." Discussing the stock's recent decline in price, defendant Bellinger stated: Are we disappointed our stock hasn't done well since the initial public offering? Absolutely. Are we panicking? Rubbing our hands? No. Because we understand why it has happened.

35

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72. Defendant Bellinger's comments in the May 25, 1998 article were materially false and misleading because of the following undisclosed material information, all of which the Golden Bear defendants knew or recklessly disregarded: a.

Golden Bear lacked sufficient internal controls

to monitor the financial performance and activities of Paragon; b.

Paragon was falsifying records and

misrepresenting the status of construction projects; C.

Paragon was materially understating expenses,

including construction and shaping costs; d.

Paragon was overstating revenues; and

e.

the growth at Paragon was materially overstated

because the Company was obtaining contracts based upon bids that were unprofitable and would inevitably lead to increased losses in net income and earnings per share. 73. In response to the Company's partial disclosure of Paragon's problems, the price of Golden Bear common stock began to decline as rumors concerning a restatement began to surface. From May 5, 1998 to July 27, 1998, the common stock price of Golden Bear fell from $8.625 per share to $4.00 per share. 74. On or about July 25, 1998, in an article published by the Wall Street Journal, Donald Trump stated that he was thrilled when Paragon had agreed to build a golf course at Trump International Golf Club for $7 million, which was less than half what he would have had to pay anyone else. Paragon was awarded the bid in early 1998, but after Boyd's departure and Golden Bear's 36

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announcement of its internal investigation, Donald Trump released Paragon from its contract, as the Company would have lost millions if it had to complete the job under the contract's terms. The fact that Paragon's bid was less than one-half than that of other bidders indicates that the defendants were well aware, or at least recklessly disregarded, the fraudulent financial activities occurring at Paragon. 75. On or about July 27, 1998, NASDAQ halted trading of Golden Bear shares upon learning the Company was going to issue an announcement regarding its internal investigation. Later that same day, Golden Bear issued a press release announcing the completion of its internal review of construction projects at Paragon. The press release stated as follows: Golden Bear Golf, Inc. announced today that it has completed its internal review of construction projects at its subsidiary, Paragon Construction International, for the year ended December 31, 1997, and, as a result, the Company will report a restated loss of $24.7 million or a loss of $4.49 per share for the year ended December 31, 1997, compared to a loss of $2.9 million or $.53 per share as originally reported. The Company expects to complete its review for 1998 prior to August 15, 1998, and expects to recognize losses for the six months ended June 30, 1998, of up to $17 million attributable to ongoing Paragon construction projects and the operations of Golden Bear Golf Centers prior to their sale. Restated financial statements will be filed with the Securities & Exchange Commission. Accordingly, the previously filed financial statements for the periods ended December 31, 1997, and March 31, 1998, and the report of Arthur Andersen LLP on the December 31, 1997, financial statements should not be relied upon. As previously announced, the Company has undertaken an extensive review of its construction projects at Paragon, focusing on the status of such projects, along with the costs required to fully complete the jobs and anticipated profitability. This review was conducted with the 37

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assistance of its outside legal counsel Fleming, Haile & Shaw P.A., Arthur Andersen LLP, and PriceWaterhouse Coopers LLP. As a result of this review, the Company has found clear and compelling evidence that former management of Paragon deliberately falsified records, misrepresented the status of construction projects and made false statements about Paragon's revenues, costs, and profits . . . (Emphasis added). 76.

The following day, July 28, 1998, NASDAQ announced

that trading in Golden Bear common stock would remain halted until the Company fully satisfied NASDAQ's request for additional information. Post Class Period News and Admissions

77.

On or about August 14, 1998, Golden Bear issued a

press release announcing that the Company would be delisted from the NASDAQ National Market on August 18, 1998 because it no longer was able to meet the net tangible asset requirements for listing. 78.

On or about August 21, 1998, Golden Bear began

trading over the counter on the OTC Bulletin Board at a price as low as $0.50 per share. During the Class Period, as a result of defendants' materially false or misleading statements, Golden Bear common stock traded as high as $15.00 per share. 79.

On or about October 19, 1998, Golden Bear issued a

press release announcing that it had filed an amended Form 10-K for the year ended December 31, 1997, an amended Form 10-Q for the first quarter ended March 31, 1998, and a Form 10-Q for the second quarter ended June 30, 1998. The Company also announced that defendant Bellinger had resigned as President and CEO.

38

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80. In Golden Bear's amendment to its 1997 Form 10-K, filed on or about October 19, 1998, the Company disclosed: In connection with the departure of certain members of Paragon's senior management during 1998, the Company conducted comprehensive review of Paragon's construction projects, focusing on the status of the projects, the costs required to fully complete the jobs and the anticipated profitability or losses of such projects In the review, the Company found evidence that former management of Paragon falsified records, underbid construction projects, and made false statements about Paragon's revenues, costs and profits .

The Securities and Exchange Commission is conducting a private investigation to determine whether the Company or certain of its current or former officers, directors and employees have engaged in conduct in violation of certain provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder. The Company believes that such investigation is focused principally on the recognition of additional costs and losses associated with the review of Paragon's construction projects and the Company's public statements and accounting systems with respect thereto. (Emphasis added). 81.

On or about November 25, 1998, Golden Bear issued a

press release announcing its financial results for the third quarter ended September 30, 1998. The Company disclosed that its Board of Directors had approved the discontinuance of its Paragon construction division as of October 26, 1998. Defendant Winslett stated that the Company would, however, attempt to continue its involvement in golf course construction through an alliance with the Weitz Company, Inc. DEFENDANTS' FAILURE TO COMPLY WITH GAAP

82.

Under ARB 45, the accounting pronouncement governing

accounting for long term construction contracts, the percentage of completion method may only be used when estimates of costs to

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complete and extent of progress toward completion of long term contracts are reasonably dependable. ARB 45.15. If the percentage of completion method is used however "when the current estimate of a total contract costs indicate a loss, in most circumstances provisions should be made for the loss on the entire contract." ARB 45.6. (Emphasis added). 83.

With respect to percentage-of-completion accounting,

Golden Bear's financial statements were not prepared in accordance with GAAP as the Company: (1) utilized the percentage of completion method even though defendants knew or recklessly disregarded that there were insufficient controls and systems to allow for the calculation of reasonably dependable estimates of costs to complete and extent of progress toward completion of the contracts; and (2) failed to make timely provisions for losses on the construction contracts even though there were indications of a loss. 84.

The foregoing materially false and misleading Golden

Bear financial statements, which were filed with the SEC and disseminated to the investing public throughout the Class Period, also violated at least the following principles of GAAP: (a)

The principle that financial reporting should

provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions (FASB Statement of Concepts No. 1, ¶ 34); (b)

The principle that financial reporting should

provide information about the economic resources of an enterprise, 40

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the claims to those resources, and the effects of transactions, events and circumstances that change resources and claims to those resources (FASB Statement of Concepts No. 1, ¶ 40); (c)

The principle that financial reporting should

provide information about an enterprise's financial performance during a period. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶ 42); (d)

The principle that financial reporting should

be reliable in that it represents what it purports to represent. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, 11 58-59) ; (e)

The principle of completeness, which means that

nothing is left out of the information that may be necessary to ensure that it validly represents underlying events and conditions, (FASB Statement of Concepts No. 2, ¶ 79); and (f)

The principle that conservatism be used as a

prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered. The best way to avoid injury to investors is to try to

41

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ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, ST 95, 97). ARTHUR ANDERSEN'S FAILURE TO COMPLY WITH GAAS

85. Arthur Andersen's audit of Golden Bear and its representation that Golden Bear's financial statements complied with GAAP violated at least the following standards of GAAS adopted by the American Institute of Certified Public Accountants and set forth in the Professional Standards at § AU 150.02: a.

Due professional care is to be exercised in the

performance of the audit and the preparation of the report; b.

A sufficient understanding of internal control

is to be obtained to plan the audit and determine the nature, timing, and extent of tests to be performed; and C.

Sufficient competent evidential matter is to be

obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. 86. With respect to the aforementioned standards, Arthur Andersen did not exercise due professional care in its audit of the revenue cycle and its audit of the percentage-of-completion accounting for Paragon. Arthur Andersen failed to obtain sufficient competent evidential matter to corroborate management's "estimates" of the status of individual construction projects, which resulted in the Company reporting overstated revenues and results of operations. Furthermore, Arthur Andersen knew or was reckless in not knowing that Paragon's system of internal controls 42

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relating to its percentage-of-completion accounting was inadequate. Had Arthur Andersen done the aforementioned, it would have known that the reported results of operation were materially overstated. 87.

Arthur Andersen falsely opined that Golden Bear's

reported financial results for 1997 fairly presented the Company's results of operations for the year in conformity with GAAP and that their audit of the Company's financial statements was executed in conformity with GAAS. As described in Paragraphs 82 through 84, Golden Bear's financial statements were not prepared in accordance with GAAP. Additionally, as described in the preceding paragraph, Arthur Andersen's audit was not performed in accordance with GA-AS. 88.

Arthur Andersen was obligated to perform a diligent

investigation and apply a heightened level of scrutiny into Golden Bear's internal controls as Arthur Andersen's audit for 1997 was its initial audit after Paragon had undergone substantial restructuring in the early part of 1997. ADDITIONAL SCIENTER ALLEGATIONS

89.

As alleged herein defendants acted with scienter as

they knew or recklessly disregarded that the public documents and statements issued or disseminated in the name of Golden Bear were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly or recklessly substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violators of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of 43

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their receipt of information reflecting the true facts regarding Golden Bear, their control over, and/or receipt and/or modification of Golden Bear's allegedly materially misleading misstatements and/or their associations with Golden Bear which made them privy to confidential proprietary information concerning Golden Bear, participated in the fraudulent scheme alleged herein. Defendants knew and/or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public. 90. Defendants knew or recklessly disregarded the truth concerning Paragon's financial activities and condition, as evidenced by the following: a.

Paragon was obtaining its construction

contracts based upon bids that were substantially below the bids submitted by its competitors. For example, Donald Trump stated that Paragon's contract bid for a Trump International Golf Club project was "less than half" of what was bid by Paragon's competitors; b.

Paragon's revenues reportedly grew 156% in the

second quarter of fiscal 1997, 50% in the third quarter of fiscal 1997, and 133% for the fourth quarter of fiscal 1997. For the first quarter of fiscal 1998, Paragon's reported revenues grew by over 1100%. This alarming growth rate was clearly a red flag for defendants to further monitor and investigate the growth and financial activities of Paragon; and

44

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C.

Golden Bear's fiscal 1997 restatement resulted

in a reduction of Paragon's revenues from $39.75 million to $21.89 million, wiping out approximately 45% of the construction unit's revenues. Such an outrageous overstatement of revenues and fraud of this magnitude could hardly have gone unnoticed or undetected by the Golden Bear defendants absent actual knowledge or recklessness during the Class Period NONAPPLICABILITY OF SAFE HARBOR 91.

The statutory safe harbor provided for forward-

looking statements ("FLS") does not apply to the false FLS pleaded. The safe harbor does not apply to Golden Bear's allegedly false financial statements. The FLS pleaded herein were not specifically identified as "forward-looking statements" when made nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the FLS accompany those FLS. COUNT I [Violations of Section 10(b) of the Exchange Act and Rule lOb-5 Promulgated Thereunder Against All Defendants I 92.

Plaintiffs repeat and reallege the allegations set

forth above as though fully set forth herein. 93.

This count is brought by plaintiffs pursuant to

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by the SEC against all of the defendants. 94.

Defendants knew, or were reckless in failing to

know, of the material omissions and misrepresentations contained in 45

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the statements as set forth above. Because of their board membership and/or their executive and managerial positions with Golden Bear and Paragon, or other relationships with Golden Bear, defendants: (a) knew or had access to information concerning the adverse non-public information concerning Golden Bear's financial outlook, which information was not disclosed; and (b) drafted, reviewed, and/or approved the misleading statements, releases, reports, and other public representations of and about Golden Bear. 95.

Throughout the Class Period, defendants, with

knowledge or reckless disregard for the truth, disseminated or approved releases, statements and reports, referred to above, which were materially false and misleading in that they contained misrepresentations and failed to disclose facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 96.

During the Class Period, defendants, individually

and in concert, directly and indirectly, engaged and participated in a continuous course of conduct and conspiracy to conceal adverse material information regarding the financial activities and condition of Paragon as specified herein. Defendants employed devices, schemes, and artifices to defraud and engaged in acts, practices, and a course of conduct as alleged herein to commit a fraud on the integrity of the market for the Company's stock and to maintain artificially high market prices for the common stock of Golden Bear. This included the formulation, making of and/or participation in the making of, untrue statements of material facts 46

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and the omission to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and engaging in acts, practices and a course of conduct which operated as a fraud and deceit upon plaintiffs and the Class, all of the above in connection with the purchase of Golden Bear common stock by plaintiffs and members of the Class. 97.

By reason of the conduct alleged herein, defendants

knowingly or recklessly have violated § 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of Golden Bear's stock in connection with their purchases of Golden Bear stock during the Class Period. 98.

Plaintiffs and the Class have suffered substantial

damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Golden Bear common stock as a result of defendants' violations of §10(b) of the Exchange Act and SEC Rule 10b-5. Plaintiffs and the Class would not have purchased Golden Bear common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' materially false and misleading statements and concealments. At the time of the purchases by plaintiffs and the Class of Golden Bear common stock, 47

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the fair market value of said common stock was substantially less than the prices paid by them. 99.

By virtue of the foregoing, all of the defendants

have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. COUNT II [Violation of Section 20(a) of the Exchange Act Against the Individual Defendants] 100. Plaintiffs repeat and reallege the allegations set forth above as if set forth fully herein. This claim is asserted by plaintiffs against the Individual Defendants. 101. The Individual Defendants acted as controlling persons of Golden Bear within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, substantial stock holdings, participation in and/or awareness of the Company's operations and/or intimate knowledge of the Company's internal financial condition, business practices, products and the actual progress of its development and marketing efforts, these defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of Golden Bear, including the content and dissemination of the various statements which plaintiffs contend are false and misleading. Each of the Individual Defendants was provided with or had unlimited access to copies of Golden Bear's internal reports, press releases, public filings and other statements alleged by plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to 48

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prevent the issuance of the statements or cause the statements to be corrected. 102. In particular, each of the Individual Defendants had direct involvement in or intimate knowledge of the day-to-day operations of Golden Bear and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same. 103. As set forth above, the Individual Defendants each violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the Exchange Act. 104. As a direct and proximate result of the wrongful conduct of these defendants, plaintiffs and other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period. PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on behalf of themselves and the Class, pray for judgment as follows: A.

declaring this action to be a plaintiff class action properly maintained pursuant to Rule 23 of the Federal Rules of Civil Procedure;

B.

awarding plaintiffs and other members of the Class damages together with interest thereon;

49

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C.

awarding plaintiffs and other members of the Class their costs and expenses of this litigation, including reasonable attorneys' fees, accountants' fees and experts' fees and other costs and disbursements; and

D.

awarding plaintiffs and other members of the Class such other and further relief as may be just and proper under the circumstances.

50

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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: December 24, 1998 BURT & PUCILLO, LLP

BY: Michal J. ücillo Florida Ballo. ' 261033 Wendy H. Zoberman Florida Bar. No. 434670 Esperanté 222 Lakeview Avenue Suite 300 East West Palm Beach, Florida 33401 Phone: (561) 835-9400 Fax: (561) 835-0322 Plaintiffs' Co-Lead Counsel and Liaison Counsel

SCHIFFRIN CRAIG & BARROWAY, LLP Andrew L. Barroway Marc A. Topaz Gregory M. Castaldo Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 Phone: (610) 667-7706 (610) 667-7056 Fax: Plaintiffs' Co-Lead Counsel

ABBEY, GARDY & SQUITIERI, LLP Lee Squitieri, Esq. James S. Notis, Esq. 212 East 39th Street New York, NY 10016 (212) 889-3700

51

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BERMAN, DEVALERIO & PEASE LLP Peter A. Pease, Esq. One Liberty Square Boston, MA 02109 (617) 542-8300 LAW OFFICE OF LEO W. DESMOND Leo W. Desmond, Esq. 2161 Palm Beach Lake Blvd. Suite 204 West Palm Beach, FL 33409 (561) 712-8000 ROBERT C. GILBERT, P.A. Robert C. Gilbert, Esq. 133 Sevilla Coral Gables, FL 33134 (305) 529-9100 LAW OFFICES OF DENNIS J. JOHNSON Dennis J. Johnson, Esq. Jacob B. Perkinson, Esq. 1690 Williston Road South Burlington, VT 05403 (802) 862-0030 LAW OFFICES OF RICHARD D. KRANICH Richard D. Kranich, Esq. 120 Broadway Suite 1016 New York, NY 10271 (212) 608-8965 LEESFIELD LEIGHTON RUBIO & MAHFOOD, P.A. George G. Mahfood, Esq. 2350 South Dixie Highway Miami, FL 33133 (305) 854-4900 LEVY AND LEVY Stephen Levy, Esq. 445 Northern Blvd. Great Neck, NY 11021 (516) 829-4500

52

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MILBERG WEISS BERSHAD HYNES & LERACH LLP Steven G. Schulman, Esq. Samuel H. Rudman, Esq. Michael A. Swick, Esq. One Pennsylvania Plaza 49th Floor New York, NY 10119-0165 (212) 594-5300 RABIN & PECKEL LLP Marvin L. Frank, Esq. 275 Madison Avenue New York, NY 10016 (212) 682-1818 REINHARDT & ANDERSON Randall Steinmeyer, Esq. E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101 (651) 227-9990 STULL, STULL & BRODY Jules Brody, Esq. 6 East 45th Street New York, NY 10017 (212) 687-7230 WEISS & YOURNAN Joseph H. Weiss, Esq. 551 5th Avenue New York, NY 10176 (212) 682-3025

53

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WOLF POPPER, LLP Marian P. Rosner, Esq. Paul 0, Paradis, Esq. Carl L. Stifle, Esq. 845 Third Avenue New York, NY 10022 (212) 759-4600 LAW OFFICES OF ALFRED C. YATES, JR. Alfred G. Yates, Jr., Esq. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PA 15219 (412) 391-5164

Attorneys for Plaintiffs CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and accurate copy of the foregoing has been furnished via U.S. Mail this

24th day of

December, 1998, to all counsel on the attached Service List.

~ 3 V L' U ~ ~\ 0, -

-

Mich el Jycillo H: \Judy\28052\Amcomp. htm

54

Case 9:98-cv-08520-DTKH Document 30 Entered on FLSD Docket 12/30/1998 Page 55 of 56

Michael J. Pucillo Burt & Pucillo, LLP 222 Lakeview Avenue Suite 300 East West Palm Beach, FL 33401

Stephen Levy Levy and Levy 445 Northern Blvd. Great Neck, NY 11021

Dennis J. Johnson Jacob B. Perkinson Law Offices of Dennis J. Johnson 1690 Williston Road South Burlington, VT 05403

Robert C. Gilbert Robert C. Gilbert, P.A. 133 Sevilla Coral Gables, FL 33134

Peter A. Pease Berman DeValerio & Pease LLP One Liberty Square Boston, MA 02109

Marian P. Rosner Paul 0. Paradis Carl L. Stine Wolf Popper LLP 845 Third Avenue New York, NY 10022

Andrew L. Barroway Schiffrin Craig & Barroway, LLP Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004

Leo W. Desmond Law Offices of Leo W. Desmond 2161 Palm Beach Lakes Blvd. Suite 204 West Palm Beach, FL 33409

Marvin L. Frank Rabin & Peckel 275 Madison Avenue New York, NY 10016

George Mah food Leesfield Leighton Rubio & Mahfood 2350 S. Dixie Hwy. Miami, FL 33133

Case 9:98-cv-08520-DTKH Document 30 Entered on FLSD Docket 12/30/1998 Page 56 of 56

Alfred G. Yates, Jr. Law Offices of Alfred G. Yates, Jr. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PF 15219

Richard D. Kranich Law Offices of Richard D. Kranich 120 Broadway Suite 1016 New York, NY 10271

Lee Squitieri James S. Notis Abbey, Gardy & Squitieri, LLP 212 East 39th Street New York, NY 10016

Steven G. Schulman, Esq. Samuel H. Rudman, Esq. Michael A. Swick, Esq. Milberg Weiss Bershad Hynes & Lerach LLP One Pennsylvania Plaza, 49th Floor New York, NY 10119-0165

Jules Brody, Esq. Stull, Stull & Brody 6 East 45th Street New York, NY 10017

Joseph H. Weiss, Esq. Weiss & Yourman 551 5th Avenue New York, NY 10176

Randall Steinmeyer, Esq. Reinhardt & Anderson E-1000 First National Bank Building 332 Minnesota Street St. Paul, MN 55101

Eugene E. Stearns, Esq. Richard Jackson, Esq. Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. 150 West Flagler Street Suite 2200, Museum Tower Miami, FL 33130

Gerald F. Richman, Esq. Gary S. Betensky, Esq. Joseph F. Hession, Esq. Richman Greer Weil Brumbaugh Mirabito & Christensen, P.A. 777 S. Flagler Dr., Ste. 1100- East Tower West Palm Beach, FL 33401