P R O S P E C T U S
2,160,000 SHARES
GOLDEN BEAR GOLF, INC.
CLASS A COMMON STOCK
----------
All of the 2,160,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), of Golden Bear Golf, Inc. (the "Company")
offered hereby are being offered by the Company.
Each share of Class A Common Stock entitles its holder to one vote. The
Company also has authorized and outstanding shares of Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), which are held by
Nicklaus Family Members (as hereinafter defined). Each share of Class B
Common Stock entitles the holder to ten votes. The Class A Common Stock and
the Class B Common Stock are collectively referred to herein as the "Common
Stock." After consummation of the Offering, Nicklaus Family Members will
beneficially own shares representing approximately 92.8% of the combined
voting power of the Company's Common Stock and 58.1% of the Company's
outstanding Common Stock. Each share of Class B Common Stock will
automatically convert into one share of Class A Common Stock upon the
transfer of such shares to any person other than a Nicklaus Family Member.
All of the Class B Common Stock will convert into Class A Common Stock if the
total number of shares of Class B Common Stock outstanding falls below 20% of
the aggregate number of shares of Common Stock outstanding. Except for voting
and conversion rights, the Class A Common Stock and the Class B Common Stock
are identical.
Prior to the Offering, there has been no public market for the Class A
Common Stock. See "Underwriting" for a discussion of various factors
considered in determining the initial public offering price.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "JACK."
SEE "RISK FACTORS," BEGINNING ON PAGE 8, FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A
COMMON STOCK OFFERED HEREBY.
----------
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.
==============================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------
Per Share $16.00 $1.12 $14.88
- ------------------------------------------------------------------------------
Total(3) $34,560,000 $2,419,200 $32,140,800
==============================================================================
(1) The Company and Golden Bear International, Inc. have agreed to indemnify
the several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company
estimated to be $950,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 324,000 additional shares of Class A Common Stock, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$39,744,000, $2,782,080 and $36,961,920, respectively. See
"Underwriting."
----------
The shares of Class A Common Stock are offered by the several
Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, subject to approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the shares of Class A Common
Stock will be made in New York, New York on or about August 6, 1996.
----------
MERRILL LYNCH & CO.
WILLIAM BLAIR & COMPANY
DEAN WITTER REYNOLDS INC.
----------
The date of this Prospectus is July 31, 1996.
<PAGE>
[PLEASE PROVIDE DESCRIPTION OF PHOTOS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined and reported upon, with an
opinion expressed by independent certified public accountants, and quarterly
reports containing unaudited financial information for the first three
quarters of each year.
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR are registered trademarks of
Golden Bear International, Inc., a privately held Florida corporation, which
have been licensed to the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, (I) ALL INFORMATION IN THIS PROSPECTUS GIVES RETROACTIVE
EFFECT TO A 3,000-FOR-1 STOCK SPLIT AND ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (II) ALL REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" OR "GOLDEN BEAR" REFER TO GOLDEN BEAR GOLF, INC.,
A FLORIDA CORPORATION AND ITS SUBSIDIARIES, AFTER GIVING EFFECT TO THE
REORGANIZATION, AS MORE FULLY DESCRIBED UNDER "THE COMPANY--THE
REORGANIZATION," AND TO THE TRANSFER OF THE ASSETS AND STOCK TO AND THE
ASSUMPTION OF THE RELATED LIABILITIES BY THE COMPANY IN THE REORGANIZATION,
AS IF SUCH ASSETS AND STOCK HAD BEEN TRANSFERRED TO AND OPERATED BY, AND
RELATED LIABILITIES HAD BEEN OBLIGATIONS OF, THE COMPANY FOR THE PERIODS
PRESENTED HEREIN.
THE COMPANY
Golden Bear Golf, Inc. ("Golden Bear" or the "Company") 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 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 primarily
under the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names. From 1993 to
1995, the Company realized an increase in revenues and operating income from
$11.8 million to $31.5 million and from $0.1 million to $3.3 million,
respectively.
The Company's Golf Division is involved in the licensing, ownership and
operation of golf practice and instruction facilities under the JACK NICKLAUS
GOLF CENTER, JACK NICKLAUS ACADEMY OF GOLF and GOLDEN BEAR GOLF CENTER brand
names. The Company's golf centers are designed to provide affordable golf
practice and instruction facilities to a large golfer population, to attract
new participants to the game and to create an environment for family
entertainment. The Company believes the highly fragmented golf practice and
instruction facility industry presents advantageous opportunities to acquire,
upgrade and renovate golf centers over the next five years. The Company
believes that its golf facilities are differentiated from its competitors on
the basis of the consumer's recognition of the high quality of the products
and services associated with the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR
brand names, the quality of its facilities and the availability at its
facilities of the unique and individualized golf instruction programs
designed by Jack Nicklaus and Jim Flick, a world renowned instructor.
The Company currently operates three golf practice and instruction
facilities and recently entered into letter agreements or letters of intent
regarding the proposed acquisition or lease of four additional existing
facilities and two facilities currently under development. See "The
Company--Recent Acquisitions." As part of its growth strategy to focus its
efforts on the ownership and operation of facilities, the Company has
identified approximately 60 to 70 markets within the United States which it
believes can support one or more golf practice and instruction facilities of
the type operated by the Company. Although there is no assurance that
additional facilities will be acquired, the Company's plan is to acquire or
develop a total of ten facilities during 1996 and an additional twelve
facilities by the end of 1997. In addition to the three golf practice and
instruction facilities it currently operates, the Company currently licenses
for operation by third parties 17 golf practice and instruction facilities
under the JACK NICKLAUS GOLF CENTER, JACK NICKLAUS ACADEMY OF GOLF and GOLDEN
BEAR GOLF CENTER brand names. The Company intends to continue to support its
existing licensee base.
The Company's Golf Division also is involved in the marketing of golf
course designs on behalf of designers, primarily for the golf course design
division of Golden Bear International, Inc. ("GBI"),
3
<PAGE>
Nicklaus Design. In addition, the Company provides club management and
consulting services to golf course owners, with five Nicklaus designed
courses currently under management in the United States and one under
management in Asia.
Through its Construction Division, the Company provides technical
construction services in connection with the construction and renovation of
golf courses. Since 1983, such construction services have been provided
throughout the world in the development of approximately 39 golf courses,
most of which were designed by Mr. Nicklaus through Nicklaus Design.
Through its Marketing Division, the Company licenses NICKLAUS, JACK
NICKLAUS and GOLDEN BEAR branded consumer products and operates its
Nicklaus/Flick Golf Schools. The Company believes, based upon estimated
mark-ups of wholesale prices or factory costs, that retail sales of the
Company's licensed products, including apparel and accessories, were
approximately $306 million worldwide in 1995, which generated approximately
$5.1 million of licensing revenue for the Company in 1995. The Company also
operates in its Marketing Division high-end golf schools under the
NICKLAUS/FLICK GOLF SCHOOL brand name. The Company has developed innovative
teaching methods which are offered at the Nicklaus/ Flick Golf Schools
throughout the United States and serve as the basis for instruction at the
Company's golf practice and instruction facilities worldwide. The Company has
invested approximately $1.3 million in a proprietary teaching method
including instruction books and a computer assisted video swing analysis
device. This teaching methodology is the basis for the JACK NICKLAUS COACHING
STUDIOS included within the Company's golf practice and instruction
facilities worldwide as well as teaching at the Nicklaus/Flick Golf Schools.
The Company's strategy is to increase its worldwide revenue and operating
income by capitalizing on the growth and popularity of golf and Mr. Nicklaus'
reputation, image and accomplishments as one of the greatest golfers ever to
play the game. Specific components of the Company's growth strategy include
(i) acquiring, leasing or entering into joint ventures for well-located golf
practice and instruction facilities that have the potential for improvement
under the Company's management and with improved or expanded facilities; (ii)
developing new golf practice and instruction facilities in locations where
suitable acquisition opportunities are not available; (iii) capitalizing on
the demand for the construction of new golf courses and the renovation of
existing courses; and (iv) broadening the Company's base of branded consumer
product offerings under the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand
names. The Company also believes that cross-marketing of its products and
services will provide it with opportunities to maximize its operating
performance. To this end, it is anticipated that the acquisition and
development of new golf practice and instruction facilities will provide the
Company with additional opportunities to market its Nicklaus/Flick Golf
School programs and to sell its licensed products at retail pro shops
established at such facilities. Similarly, the Company believes that the
Company's arrangement as exclusive marketer of Nicklaus Design's services
will increase the exposure of the Company's products and provide it with a
competitive advantage in obtaining golf course construction and renovation
business.
The Company and its predecessors have been controlled by Mr. Nicklaus
since their founding. Immediately after the Offering, Mr. Nicklaus will be
the Chairman of the Board of the Company and Nicklaus Family Members (as
defined) will beneficially own shares representing approximately 92.8% of the
voting power of the Company's Common Stock and 58.1% of the Company's
aggregate outstanding Common Stock.
4
<PAGE>
RECENT ACQUISITIONS
Consistent with its business strategy of increasing its ownership and
operation of golf practice and instruction facilities, the Company has
entered into purchase, lease and management agreements relating to three
existing facilities. On April 15, 1996, the Company assumed operation of a
golf practice and instruction facility located in Pittsburgh, Pennsylvania
pursuant to a long-term lease agreement with an option to purchase; on May 1,
1996, the Company assumed operation of a New Jersey facility pursuant to a
management agreement with the intent to execute a long-term lease agreement
for the property and a purchase agreement for the assets within 90 days; and
on June 17, 1996 the Company acquired and assumed operation of a second
Pittsburgh golf practice and instruction facility pursuant to a purchase and
sale agreement. Additionally, on June 11, 1996, the Company entered into
letters of intent with one of its licensees with respect to the proposed
acquisition of an existing GOLDEN BEAR GOLF CENTER located in Columbus, Ohio
and two GOLDEN BEAR GOLF CENTERS currently under development in Fort
Lauderdale, Florida and Charlotte, North Carolina; on July 16, 1996, the
Company entered into a letter of intent with another of its licensees with
respect to the proposed acquisition of two other GOLDEN BEAR GOLF CENTERS
located in Moreno Valley, California and Carrollton, Texas; and on July 16,
1996, the Company entered into a letter agreement with respect to the
proposed lease of an existing facility in the Dayton, Ohio area. Consummation
of any of the above-described pending transactions are subject to the
satisfaction of various conditions, including, the execution of definitive
agreements and the satisfactory completion of due diligence by the Company.
There is no assurance that any of the above-described pending transactions
will be consummated. While there can be no assurance that any additional
facilities will be acquired, the Company's strategy is to acquire or develop
a total of ten golf practice instruction facilities during 1996 and an
additional twelve facilities by the end of 1997. See "The Company--Recent
Acquisitions." Assuming the above-described existing facilties had been
acquired on January 1, 1995, the Company's 1995 pro forma revenues and
operating income would have been $36.6 million and $2.1 million,
respectively. The closing of the above-described transactions is not a
condition to the consummation of this Offering. The Company is actively
pursuing acquisitions and is currently having preliminary discussions
regarding acquisitions of additional facilities on terms not yet determined.
Any such acquisitions may be significant and may have a material impact on
the Company's financial condition and operating results. See "The
Company--Recent Acquisitions--Other Potential Acquisitions."
RECENT DEVELOPMENTS
For the six months ended June 30, 1996, the Company had total revenues of
$14.0 million as compared to $12.7 million for the comparable period in 1995,
an increase of 10%, and operating income of $1.3 million as compared with
$1.8 million for the six months ended June 30, 1995, a decrease of
approximately 30%. Results for the six months ended June 30, 1996 are before
a one-time expense of approximately $3.0 million associated with compensation
deemed received by executives of the Company in connection with shares
purchased by them in Golden Bear Golf Centers, Inc. prior to the
Reorganization. Pro forma income as adjusted to reflect C-Corp status, before
the above described compensation expense, was $0.4 million for the six months
ended June 30, 1996 as compared to $0.8 million for the comparable period in
1995.
While revenues in 1996 as compared to 1995 are expected to increase as a
consequence of the acquisition of golf practice and instruction facilities,
the costs associated with the acquisitions and the integration of the
operations of the acquired facilities into the Company, investment in
additional management information systems and personnel and the costs
associated with this Offering and being a public company are expected to
result in decreased earnings from operations for 1996 as compared to 1995.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered ........... 2,160,000 shares
Common Stock to be outstanding after
the Offering:
Class A Common Stock .................. 2,400,000 shares(1)
Class B Common Stock .................. 2,760,000 shares(2)
Total ................................ 5,160,000 shares
Voting Rights .......................... The Class A Common Stock and Class B Common Stock vote as a
single class on all matters, except as otherwise required by
law, with each share of Class A Common Stock entitling its holder
to one vote and each share of Class B Common Stock entitling
its holder to ten votes.
Use of Proceeds ........................ The net proceeds from the Offering will be used for working
capital and general corporate purposes, including the acquisition
and development of golf practice and instruction facilities
and to repay approximately $1.65 million of indebtedness to
Mr. Nicklaus incurred by the Company in connection with the
Acquisitions (as defined). See "The Company--The Reorganization"
and "Use of Proceeds."
Nasdaq National Market Symbol .......... JACK
</TABLE>
- ----------
(1) Does not include an aggregate of up to 384,000 shares of Class A Common
Stock reserved for issuance upon exercise of stock options which will be
outstanding upon consummation of the Offering under the Company's 1996
Stock Option Plan. See "Management--Executive Compensation."
(2) Each share of Class B Common Stock is convertible at any time into one
share of Class A Common Stock and will convert automatically into Class A
Common Stock upon a transfer to anyone other than a Nicklaus Family
Member or on the record date of any meeting of shareholders if the total
number of shares of Class B Common Stock outstanding is less than 20% of
the aggregate number of shares of Common Stock outstanding. In addition,
shares of Class B Common Stock owned by Nicklaus Family Members are
subject to certain transfer restrictions. See "Certain Relationships and
Related Transactions" and "Description of Capital Stock."
RISK FACTORS
Prospective purchasers of the Class A Common Stock offered hereby should
consider the risk factors set forth in "Risk Factors," as well as the other
information set forth in this Prospectus, before making an investment in the
Class A Common Stock.
6
<PAGE>
SUMMARY FINANCIAL DATA
The summary historical financial information presented below is derived
from the Company's Combined Financial Statements as of the date and for the
periods indicated. The combined financial and operating data include the
financial statements of Golden Bear Golf Centers, Inc. ("Golf Centers") and
Paragon Golf Construction, Inc. ("Paragon") (collectively, the "Operating
Subsidiaries"), Golden Bear Club Services, Inc. ("Club Services") and certain
divisions of GBI. The Operating Subsidiaries, Club Services and the divisions
of GBI are hereinafter sometimes collectively referred to as the "Predecessor
Companies." As a result of the Reorganization described under "The
Company--The Reorganization," the Predecessor Companies will be acquired by
the Company. The summary historical financial information should be read in
conjunction with the Company's Combined Financial Statements and the related
notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
See "The Company--The Reorganization."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Golf division ........................................ $ 1,522 $ 1,905 $ 2,298 $ 364 $ 534
Construction division ................................ 2,177 5,599 19,177 1,435 2,056
Marketing division ................................... 8,069 9,121 10,070 2,453 2,382
------- ------- ------- ------ ------
Total revenues ...................................... 11,768 16,625 31,545 4,252 4,972
Operating costs and expenses:
Construction and shaping costs ....................... 1,894 4,737 16,500 1,423 2,000
Operating expenses ................................... 6,502 7,756 8,422 1,615 1,699
Corporate overhead ................................... 2,994 3,051 3,121 714 751
Depreciation and amortization ........................ 243 199 233 53 72
------- ------- ------- ------ ------
Total costs and expenses ........................... 11,633 15,743 28,276 3,805 4,522
Operating income ...................................... 135 882 3,269 447 450
Other income (expense) ................................ 2 (10) (1) (4) 4
------- ------- ------- ------ ------
Income before income taxes and minority interest ..... 137 872 3,268 443 454
Foreign tax provision ................................. 616 699 1,010 178 96
Minority interest(a) .................................. 925 1,038 1,024 203 325
------- ------- ------- ------ ------
Income (loss) before pro forma income taxes .......... $(1,404) $ (865) $ 1,234 $ 62 $ 33
======= ======= ======= ====== ======
As Adjusted to Reflect C-Corp Status(b):
Pro forma income tax (benefit) ....................... (923) (764) (135) (84) (46)
------- ------- ------- ------ ------
Pro forma net income (loss) .......................... $ (481) $ (101) $ 1,369 $ 146 $ 79
======= ======= ======= ====== ======
Pro forma net income (loss) per share of common stock $ 0.46 $ 0.03
======= ======
Weighted average number of shares of common stock and
common stock equivalents outstanding ............... 3,000 3,000
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ---------------------------
1993 1994 1995 1996
--------- --------- -------- -----------------------------
ACTUAL AS ADJUSTED(C)
--------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit) ..................... $ 609 $ (139) $ 535 $ (664) $28,627
Total assets .................................. 3,676 4,841 8,906 7,888 55,214
Long-term debt ................................ -- 113 44 25 13,010
Shareholders' equity .......................... 1,110 256 1,030 280 32,971
INDUSTRY OVERVIEW:
Total commercial golf ranges open at year-end 1,588 1,731 1,932
Golf course openings during the year ......... 358 381 468
Golf courses under construction at year-end .. 671 769 820
Total golf courses open at year-end ........... 14,648 14,939 15,390
</TABLE>
- ----------
(a) Reflects minority interest of the Company's partner in Jack Nicklaus Apparel
International, the partnership operating the apparel licensing activities of
the Company outside the United State and Europe.
(b) See Note 1 to the Company's Combined Financial Statements.
(c) Adjusted to reflect the Acquisitions (as defined herein), the sale of
Class A Common Stock offered in the Offering and a $3.0 million charge
for compensation to be recorded in June 1996 related to deemed
compensation received by certain executives in connection with their
purchase of shares in Golf Centers.
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BEFORE INVESTING IN THE
CLASS A COMMON STOCK OFFERED HEREBY.
DEPENDENCE UPON JACK NICKLAUS AND USE OF THE NICKLAUS, JACK NICKLAUS AND
GOLDEN BEAR NAMES AND SYMBOLS
The Company's success will depend, in large part, on the continued
visibility and reputation of Mr. Nicklaus. Any diminution in Mr. Nicklaus'
involvement in or the success of Mr. Nicklaus' independent golf course design
company could materially adversely affect the opportunities available to the
Company to perform construction services with respect to Nicklaus designed
courses as well as to receive marketing fees for developing design
opportunities for Mr. Nicklaus. Further, the NICKLAUS, JACK NICKLAUS and
GOLDEN BEAR names and symbols and the image and reputation of Mr. Nicklaus
serve to distinguish the Company and its activities from its competitors. The
Company derives significant earnings from the use of such names and related
trademarks and service marks, including licensing fees paid by third parties.
Accordingly, the occurrence of any event which diminishes the reputation or
visibility of Mr. Nicklaus and the related trademarks and service marks could
materially adversely affect the Company and its prospects. Further, the
Company and GBI have granted licenses to third parties to use the NICKLAUS,
JACK NICKLAUS and GOLDEN BEAR trademarks. Any action which has an adverse
impact on the value of the trademarks could have a material adverse effect on
the Company and the value of its brand names.
DEPENDENCE ON LICENSED TRADEMARKS
Subject to certain exclusions relating to GBI's continuing businesses,
GBI, a private company controlled by Mr. Nicklaus, has, pursuant to a
thirty-year renewable license agreement (the "License Agreement"), granted
the Company an exclusive royalty-free license to utilize and sublicense all
major trademarks and service marks owned or developed by GBI, including the
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR trademarks (the "Licensed Marks"),
and the right, subject to the approval of GBI, to obtain the registration of
additional trademarks and service marks related to the Nicklaus name in
connection with the future expansion of the Company. GBI and its affiliates
have retained the exclusive right to utilize and license the NICKLAUS, JACK
NICKLAUS and GOLDEN BEAR names and symbols in connection with their
continuing businesses, which are currently limited to golf course design and
consulting, the development of residential communities and daily fee golf
courses, the manufacture and marketing of golf clubs and equipment, the
creation, production and marketing of golf and other sporting events, the
creation, development, editing and distribution of books, articles and print
media creative works and audio visual media programming and properties,
including video games and a membership club offering golf improvement tips.
GBI has agreed to give the Company an exclusive opportunity to negotiate to
acquire these businesses prior to offering the businesses to third parties.
The Company has agreed not to enter into any of these businesses without the
prior written consent of GBI.
The License Agreement imposes certain obligations on the Company with
respect to the continued use of the Licensed Marks and the quality of the
products sold and services offered which bear the Licensed Marks. The License
Agreement also provides that it may be terminated in certain events. See
"Certain Relationships and Related Transactions--Reorganization--Trademark
License." Although the License Agreement requires GBI and its other licensees
to adhere to certain quality requirements, there is no assurance that GBI or
any of its licensees will observe such quality requirements and the failure
to do so could have a material adverse effect on the Company and the value of
the Company's rights to the Nicklaus brand names. Further, there are risks
associated with the financial condition of GBI, which are beyond the control
of the Company. In the event that a case under the Federal bankruptcy laws is
commenced by or against GBI in the future, the trustee in the bankruptcy case
or GBI, as debtor-in-possession, may have the right to reject the License
Agreement. In the event of any such termination or rejection, the Company
would lose its right to use the Licensed Marks, which would have a material
adverse effect on the Company. Moreover, the trustee in bankruptcy or GBI, as
the debtor-in-possession,
8
<PAGE>
could reject the rights granted to the Company pursuant to the terms of the
License Agreement to acquire the Licensed Marks in certain circumstances. See
"The Company--The Reorganization" and "Certain Relationships and Related
Transactions--Reorganization--Trademark License."
Under the License Agreement, the Company is required to devote resources
to the registration, maintenance, and protection of the Licensed Marks. There
can be no assurance that the actions taken by the Company to establish and
protect its rights to the Licensed Marks and other proprietary rights will
prevent imitation of its products or infringement of its trademarks by
others, prevent the loss of revenue or other damages caused thereby or
prevent third parties from challenging the Licensed Marks. While the Company
may seek to expand its trademark rights for new products and in foreign
countries, there can be no assurance that such efforts will be successful or
that others will not resist such efforts or seek to block sales of the
Company's products as violative of their trademark and proprietary rights. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of the United States. See
"Business--Intellectual Property Rights."
EXPANSION STRATEGY AND ADDITIONAL FINANCING REQUIREMENTS
The Company is a newly formed entity that has never operated as a
stand-alone company. The Company's ability to increase its revenues and
operating cash flow will depend in part on (i) the development or acquisition
of additional golf practice and instruction facilities, (ii) the Company's
ability to obtain additional golf course construction contracts and (iii) the
expansion of the markets for its licensed products. There is no assurance
that opportunities will be available or that the Company will be in a
position to take advantage of such opportunities if presented. Additionally,
the Company will be required to raise additional capital in the future in
order to meet its current expansion plan through 1997. Such capital may be
raised by the issuance of additional equity or the incurrence of
indebtedness. In addition, in appropriate situations, the Company may seek
financing from other sources or may enter into joint ventures and other
collaborative or licensing arrangements for the acquisition and operation of
additional golf practice and instruction facilities. See "The Company--Recent
Acquisitions" for a description of proposed joint ventures for the future
development of facilities. The Company may not be able to obtain additional
capital in a timely manner, on favorable terms or at all. The Company's
growth and profitability will further depend on its ability to implement
expanded operating controls and information systems, hire and train
additional personnel and to integrate these employees and businesses acquired
by the Company with its existing businesses. There can be no assurance that
the Company will be able to accomplish the foregoing in a timely or
profitable manner. See "Use of Proceeds," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ACQUISITION OF ADDITIONAL GOLF CENTERS AND LIMITED HISTORY OF DIRECT
OPERATIONS
While the Company currently intends to seek to acquire or develop
approximately 19 golf practice and instruction facilities by the end of 1997,
the ability of the Company to make acquisitions or develop sites in
accordance with its business plan will be affected by the ability of the
Company to locate appropriate acquisitions or suitable sites for development
and obtain financing and may also be affected by required compliance with
zoning and environmental regulations. If the Company is unable to meet its
contemplated opening schedules and successfully integrate new centers into
its ongoing business, the Company's results of operations would be materially
adversely affected. Additionally, while the Company has been licensing golf
practice and instruction facilities under the names JACK NICKLAUS GOLF
CENTER, JACK NICKLAUS ACADEMY OF GOLF and GOLDEN BEAR GOLF CENTER for over
four years, the Company has only limited experience in the acquisition and
direct ownership and operation of golf centers. There is currently
considerable competition to acquire golf practice and instruction facilities
and the Company's competitors for such acquisitions may have greater
resources than the Company. The acquisition of facilities may become more
expensive in the future to the extent demand and competition increases. There
can be no assurance that the Company will make additional acquisitions or
locate suitable sites for development or that any golf centers acquired or
developed by the Company will operate profitably.
9
<PAGE>
COMPETITION
The Company faces intense competition in its golf operations and licensing
activities, including competition from traditional golf ranges and golf
courses, as well as other golf centers, golf course construction companies,
golf schools and licensed apparel products. The Company also faces
competition from other leisure and recreational activities and accordingly,
the Company's revenues will also be affected by the demand for golf in
general and the availability of alternative forms of recreation and changing
consumer preferences. The Company's revenues from licensed products in
particular will depend upon its licensees' ability to introduce innovative,
well-received products and there is no assurance that the Company's licensees
will be able to do so. While the Company believes that its trademarks and
brand name recognition distinguish it from its competition, the Company may
face imitation and other forms of competition. Moreover, many of the
Company's existing and potential competitors may have considerably greater
experience and financial resources than the Company. See
"Business--Competition."
DEPENDENCE ON KEY EMPLOYEES
The Company's success is dependent on the active participation of the
Company's principal executive officers and the Company's ability to continue
to attract and retain highly capable management personnel. The loss of the
services of any of the Company's current executive officers could materially
adversely affect the Company. The Company has entered into employment
agreements with terms ranging from 3 1/2 to 5 years with Mr. Nicklaus,
Chairman of the Board; Mr. Richard P. Bellinger, President and Chief
Executive Officer; Mr. Mark F. Hesemann, Senior Vice President; Mr. Thomas P.
Hislop, Senior Vice President; and Mr. Jack P. Bates, Senior Vice President
and Chief Financial Officer. See "Management--Employment Agreements."
POTENTIAL CONFLICTS OF INTEREST
Mr. Nicklaus, the Chairman of the Board of the Company, is engaged in, and
after the Offering will continue to be engaged in, activities other than
those related to the Company. In addition to his activities as a professional
golfer, Mr. Nicklaus is the principal shareholder of GBI (a private company
which is the largest shareholder of the Company), and affiliated companies
which, after the Offering, will continue to be involved in or affiliated with
the businesses of (i) golf course design and consulting, (ii) residential
community development, (iii) sponsorship, promotion and management of golf
tournaments, (iv) daily fee golf course development, (v) the manufacture and
marketing of golf clubs and equipment, (vi) the creation, production and
marketing of golf and other sporting events, (vii) the creation, development,
editing and distribution of books, articles and print media creative works
and audio visual media programming and properties, including video games and
(viii) a membership club offering golf improvements tips. The Company is
restricted from entering into these businesses without the prior consent of
GBI. GBI has agreed to give the Company an exclusive opportunity to negotiate
to acquire these businesses prior to offering the businesses to third
parties.
Mr. Richard P. Bellinger, the President and Chief Executive Officer of the
Company, and Mr. Jack P. Bates, a Senior Vice President and the Chief
Financial Officer of the Company, also perform services for GBI and other
entities controlled by Mr. Nicklaus. Accordingly, GBI may compete with the
Company for the management time of Messrs. Nicklaus, Bellinger and Bates. In
this connection, Messrs. Bellinger and Bates have agreed to devote at least
80% of their business time to the affairs of the Company. The remainder may
be spent on management of other entities controlled by Mr. Nicklaus. Pursuant
to Mr. Nicklaus' employment agreement with the Company, in addition to the
time associated with serving as Chairman of the Board, Mr. Nicklaus will only
be required to spend a maximum of 10 days performing personal services or
making appearances in connection with the Company's licensing arrangements
and marketing partnerships.
As described herein, the Company has entered into a Trademark License
Agreement, Design Services Management Agreement, Golf Equipment Marketing
Support Agreement, Sublease and
10
<PAGE>
Sharing Agreement, Office Staff and Equipment Service Agreement, and Personal
Services Management Agreement (each as defined and collectively, the
"Intercompany Agreements"). See "Certain Relationships and Related
Transactions--Reorganization." The terms of the Intercompany Agreements were
established by Mr. Nicklaus and management of GBI and are not the result of
arm's-length negotiations. There is no assurance that these agreements are on
terms as favorable as those which could have been obtained in arm's-length
transactions. Further, GBI will have the right to terminate any of the
Intercompany Agreements in the event of the breach of any such agreement by
the Company and may terminate the License Agreement in the event that the
Company elects to abandon its use of all or substantially all of the Licensed
Marks in all or substantially all of the jurisdictions in which the Company
has the right to use the Licensed Marks. As officers of both GBI (the largest
shareholder of the Company) and the Company, Messrs. Nicklaus, Bellinger and
Bates will have an inherent conflict of interest in making any determination
on behalf of GBI relative to the approval of new uses for the Licensed Marks
under the License Agreement or any decisions in connection with, or regarding
compliance with the terms of, the Intercompany Agreements. The factors and
procedures to be utilized by Messrs. Nicklaus, Bellinger and Bates in making
such decisions on behalf of GBI have not yet been determined and will be
determined by them in the future on a case-by-case basis.
Following the closing of the Offering, the Company intends to submit any
transactions between the Company and its directors or principal shareholders
and their affiliates to a committee of disinterested members of the Company's
Board of Directors or to require approval of such transactions by a majority
of the disinterested members of the Board of Directors. Additionally,
provisions of the Florida Business Corporation Act require that certain
specified transactions between the Company and holders of more than 10% of
the outstanding voting power of the Company's Common Stock will require the
approval of the disinterested shareholders of the Company, unless such
transactions are approved by a majority of the disinterested members of the
Board of Directors.
RISKS ASSOCIATED WITH ACTIVITIES OUTSIDE THE UNITED STATES; RISK OF CURRENCY
FLUCTUATION
The Company has historically derived a significant amount of revenue from
sources outside the United States. The Company's arrangements with its
customers, suppliers, manufacturers, licensees and distributors are subject
to various risks associated with conducting business outside the United
States, including political uncertainty and instability. The imposition of
additional regulations relating to imports (including quotas, duties or other
taxes or charges on imports), possible work stoppages and other factors could
have a material adverse effect on the Company's results of operations and
financial condition. Additionally, because a substantial portion of the
revenues of the Company's overseas licensees are generated in foreign
currencies, fluctuations in the values of these currencies relative to the
United States dollar could have a material adverse effect on the Company's
profitability. Royalty payments received by the Company relating to foreign
licensing arrangements are generally based on the exchange rate at the time
of payment. The Company does not currently utilize any hedging arrangements
to reduce its risks relating to currency fluctuations, but may do so in the
future. Further, since the prices of the Company's products and services are
generally denominated in United States dollars, the competitiveness of the
pricing of the Company's products and services may be affected by
fluctuations in exchange rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Currency Fluctuations."
CONSUMER SPENDING AND TRENDS
The amount spent by consumers on discretionary items, such as those
offered by the Company, has historically been dependent upon levels of
discretionary income which may be adversely affected by general economic
conditions. A decrease in consumer spending on golf-associated activities
could have a material adverse effect on the Company's financial condition and
results of operations. Additionally, the success of the Company's licensed
apparel products is substantially dependent upon the ability of the Company
and its licensees to anticipate, gauge and respond to changing consumer
demands and fashion trends in a timely manner. Failure by the Company and its
licensees to identify and respond appropriately to changing consumer demands
and fashion trends could adversely affect consumer acceptance of NICKLAUS,
JACK NICKLAUS and GOLDEN BEAR PRODUCTS.
11
<PAGE>
VARIABILITY OF QUARTERLY OPERATING RESULTS; UNCERTAINTY OF FUTURE OPERATING
RESULTS
While the Company's historical operating results have generally not been
seasonal, the Company anticipates that quarterly operating results may in the
future be subject to significant seasonal variation as a greater percentage
of its operations relate to golf practice and instruction facilities and golf
course construction activities which generally are the most active during the
second and third quarters of the year. The inherent seasonality of
participation in golf and golf-related activities and the effect of weather
conditions on the progress of golf construction projects and the opening of
new golf practice and instruction facilities are all expected to result in
greater revenues and income during the second and third quarters as compared
to the first and fourth quarters of the year. Poor weather conditions and
unforeseen natural events may have an adverse effect on the Company's ability
to complete the construction of golf courses in a timely manner and may
result in reduced utilization of the Company's golf practice and instruction
facilities. Accordingly, in the future, the Company's quarterly information
may not be indicative of the Company's ongoing performance or of future
results. Additionally, while revenues during 1996 are expected to increase as
compared to 1995 as a consequence of the contemplated acquisitions of golf
practice and instruction facilities, the costs associated with the addition
of systems and personnel to support such acquisitions and the integration of
the operations of the acquired facilities into the Company are expected to
result in decreased operating income for 1996 as compared to 1995. In
addition, during the second quarter of 1996, the Company will record a
one-time expense of approximately $3.0 million associated with compensation
deemed received by executives of the Company in connection with shares
purchased by them in Golf Centers prior to the Reorganization. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
CONSTRUCTION CONTRACTS
A significant portion of the Company's revenues and earnings are generated
through fixed price contracts for the construction of golf courses. In 1995,
the dollar amount of the Company's construction contracts ranged from
$200,000 to $8 million. Such fixed price contracts expose the Company to the
risks of cost overruns and inflation as well as credit risks associated with
the customer. The Company recognizes revenues and expenses on a
percentage-of-completion basis whereby revenue and expenses, and thereby
profit, in a given period are determined based on the Company's estimates as
to the status of and the costs remaining to complete a particular project. To
the extent that the Company underestimates the remaining cost to complete a
project, it may overstate the revenues and profit in a particular period.
Further, certain of the Company's construction contracts provide for
penalties for failure to timely complete construction or require that the
Company, at its expense, correct and remedy to the satisfaction of the golf
course owner, certain structural, aesthetic or functional defects. The
Company may enter into additional contracts containing provisions of this
type or other performance obligations in the future and there is no assurance
that expenses relating to these provisions will not have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Note 8 to the Combined Financial
Statements."
ZONING AND ENVIRONMENTAL REGULATIONS
The construction of golf courses for third parties and the development of
golf practice and instruction facilities involve compliance with land use
planning, zoning and environmental regulations, including regulations
applicable to the treatment, storage and disposal of hazardous and solid
wastes as well as to wetland development. Regulations governing the use and
development of real estate may prevent the Company from acquiring or
developing prime locations for golf facilities, substantially delay or
complicate the process of developing locations acquired by the Company for
golf facilities or constructing golf courses on locations owned by others, or
materially increase the cost thereof.
Further, the operation and management of golf practice and instruction
facilities (whether pursuant to direct ownership, lease or management
contract) involve the use and limited storage of certain hazardous materials
such as herbicides, pesticides, fertilizers, motor oil, gasoline and paint.
The Company will be required to obtain various environmental permits and
licenses in connection with its operations and activities and comply with
various health and safety regulations adopted by federal, state, local and
foreign authorities governing the use and storage of such hazardous
materials. Under various federal, state, local and foreign laws, ordinances
and regulations, various categories of persons, including owners,
12
<PAGE>
operators or managers of real property may be liable for the costs of
investigation, removal and remediation of hazardous substances that are or
have been released on or in their property even if such releases were by
former owners or occupants. In addition, the Company provides management
services in connection with the operation of a golf course constructed on the
Anaconda Smelter Superfund site in Deer Lodge County, Montana. Based on
information currently available to the Company, the Company does not believe
that it will incur any material environmental liability with respect to this
site. The Company believes that it is in substantial compliance with all
environmental laws, ordinances and regulations applicable to its properties
or operations; however, there may be potential environmental liabilities or
conditions of which the Company is not aware. See "Business--Governmental
Regulations."
CONTROL BY CURRENT SHAREHOLDERS AND ANTI-TAKEOVER EFFECT OF DUAL CLASSES OF
STOCK
Holders of the Company's Class A Common Stock are entitled to one vote per
share and holders of the Company's Class B Common Stock are entitled to ten
votes per share. Each share of Class B Common Stock is convertible at any
time into one share of Class A Common Stock. Following the completion of the
Offering, Nicklaus Family Members will beneficially own or control, directly
or indirectly, all of the outstanding shares of the Company's Class B Common
Stock and may be deemed to beneficially own an additional 240,000 shares of
Class A Common Stock which in the aggregate will represent approximately
58.1% of the outstanding shares of Common Stock and 92.8% of the combined
voting power of such stock. The Nicklaus Family Members will, therefore,
initially have the ability to elect all of the directors of the Company and
to control the outcome of all issues submitted to a vote of the shareholders
of the Company. Each of the Nicklaus Family Members and Messrs. Bellinger,
Hesemann, Hislop and Bates have assigned to Mr. Nicklaus their right to vote
all shares of Common Stock currently owned by them. See "Principal Shareholders"
and "Certain Relationships and Related Transactions--Shareholders' Agreements."
Voting control by Nicklaus Family Members may discourage certain types of
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class A Common Stock might
receive a premium for their shares over prevailing market prices.
DILUTION
Upon the completion of the Offering, investors in the Offering will
experience immediate dilution in the per share net tangible book value of
their Class A Common Stock of $10.14 from the initial public offering price
of $16 per share. See "Dilution."
ABSENCE OF PUBLIC MARKET AND VOLATILITY
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for
quotation on the Nasdaq National Market, there is no assurance that any
trading market for the shares will develop, or, if any such market develops,
that it will be sustained. Accordingly, purchasers of the Class A Common
Stock may experience difficulty selling or otherwise disposing of their
shares. The initial public offering price of the Class A Common Stock offered
hereby has been determined through negotiations among the Company and the
Underwriters and may not be indicative of the market price for the Class A
Common Stock after the Offering. Moreover, the market price for the Class A
Common Stock after the Offering may be volatile and will be affected by,
among other things, the Company's performance, industry related factors and
general market conditions. See "Underwriting" for information relating to the
method of determining the initial public offering price of the Class A Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding a
total of 2,400,000 shares of Class A Common Stock, 2,760,000 shares of Class
B Common Stock and approximately 384,000 shares of Class A Common Stock
subject to stock options granted under the Company's 1996 Stock Option Plan.
See "Management--Executive Compensation." Of such shares, the 2,160,000
shares of Class A Common Stock being sold in the Offering (together with any
shares sold upon exercise of the Underwriters' over-allotment options) and
shares issued upon exercise of stock options will be immediately eligible for
sale in the public market without restriction, except for shares purchased by
or issued to any "affiliate" of the Company (within the meaning of the
Securities Act of 1933, as amended
13
<PAGE>
(the "Securities Act")). All of the outstanding shares of Class B Common
Stock (which may be converted into Class A Common Stock at any time) will be
beneficially owned by Nicklaus Family Members. All of the currently
outstanding shares of Common Stock will be "restricted securities" as such
term is defined under Rule 144 under the Securities Act ("Rule 144") in that
such shares were issued in private transactions not involving a public
offering. See "Shares Eligible for Future Sale." Certain Nicklaus Family
Members and management have been granted registration rights with respect to
their shares of Common Stock. However, all Nicklaus Family Members and
management who are currently shareholders of the Company have agreed not to
exercise such rights or sell or otherwise dispose of any shares of Class A
Common Stock without the consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated for a period of 180 days after the date of this Prospectus. The
transfer of shares of Class B Common Stock held by Nicklaus Family members
(other than Mr. Nicklaus) and Class A Common Stock held by Messrs. Bellinger,
Hesemann, Hislop and Bates at the time of the Offering, are also subject to
restrictions contained in certain shareholder agreements. See "Certain
Relationships and Related Transactions--Shareholders' Agreement."
No information is currently available and no prediction can be made as to
the timing or amount of future sales of such shares or the effect, if any,
that future sales of shares, or the availability of shares for future sale,
will have on the market price of the Class A Common Stock prevailing from
time to time. Sales of substantial amounts of Class A Common Stock (including
shares issuable upon conversion of Class B Common Stock and upon the exercise
of stock options), or the perception that such sales could occur, could
materially adversely affect prevailing market prices for the Class A Common
Stock and the ability of the Company to raise equity capital in the future.
See "Shares Eligible for Future Sale," "Certain Relationships and Related
Transactions--Registration Rights" and "--Shareholders' Agreements."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS; PREFERRED STOCK
Certain provisions of the Company's Articles and Bylaws, such as the
Company's staggered board, the advance notice requirements for the nomination
of directors and limits on the ability of the shareholders to call a special
meeting, have anti-takeover effects and may delay, defer or prevent a
takeover of the Company. In addition, Florida has enacted legislation that
may deter or frustrate takeovers of Florida corporations. The Florida Control
Share Act generally provides that shares acquired in a "control share
acquisition" will not possess any voting rights unless such voting rights are
approved by a majority of the corporation's disinterested shareholders or
approved by resolution of the Board of Directors. A "control share
acquisition" is an acquisition, directly or indirectly, by any person or
ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding, "control shares" of a publicly-held
Florida corporation. "Control shares" are shares, which, except for the
Florida Control Share Act, would have voting power that, when added to all
other shares owned by a person or in respect of which such person may
exercise or direct the exercise of voting power, would entitle such person,
immediately after acquisition of such shares, directly or indirectly, alone
or as a part of a group, to exercise or direct the exercise of voting power
in the election of directors within any of the following ranges: (a) at least
20% but less than 33 1/3 % of all voting power; (b) at least 33 1/3 % but
less than a majority of all voting power; or (c) a majority or more of all
voting power. See "Description of Capital Stock."
The Company's Articles authorize the issuance of 20 million shares of
"blank check" preferred stock with such designation, rights and preferences
as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights that could materially adversely affect the voting
power or other rights of the holders of the Company's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change
in control of the Company. Although the Company has no present intention to
issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. The application of any such provisions
or the issuance of preferred stock could prevent shareholders from realizing
a premium upon the sale of their shares of Class A Common Stock. See
"Description of Capital Stock."
14
<PAGE>
THE COMPANY
The Company 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 third party golf course design services and
the licensing, distribution and sale of golf-related consumer products.
Through its two divisions, the Golf Division and the Marketing Division, the
Company offers high quality products and services in over 40 countries
primarily under the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names. The
Company was incorporated in 1996, its principal executive offices are located
at 11780 U.S. Highway One, North Palm Beach, Florida 33408 and its telephone
number is (407) 626-3900.
THE REORGANIZATION
The Company was organized in connection with the Offering. Prior to the
Offering, the Company's business was conducted through GBI, Club Services and
the Operating Subsidiaries. GBI has agreed, concurrent with the consummation
of the Offering, to contribute to the Company its businesses and operations
relating to its: (i) trademark licensing and marketing activities; (ii)
development and operation of golf practice and instruction facilities; (iii)
club management and consulting activities; and (iv) development and operation
of golf instruction programs, in exchange for shares of the Company's Class B
Common Stock and the assumption by the Company of the liabilities related to
such businesses and operations. Concurrent with the consummation of the
Offering, the shareholders of the Operating Subsidiaries will contribute
their shares in the Operating Subsidiaries to the Company in exchange for
shares of the Company's Class A Common Stock and Class B Common Stock, the
Operating Subsidiaries will become wholly-owned subsidiaries of the Company
and the Company will acquire all of the capital stock of Club Services from
the shareholders of Club Services for nominal consideration of ten dollars.
The foregoing transactions will be made pursuant to the terms of an Agreement
and Plan of Reorganization (the "Reorganization Agreement") among GBI, the
Company and the shareholders of the Operating Subsidiaries. Such contribution
and exchange are referred to as the "Reorganization." The Reorganization will
be accounted for on a historical cost basis. Upon the effectiveness of the
Registration Statement (of which this Prospectus is a part) the assets and
stock to be contributed to the Company in connection with the Reorganization
will be placed into escrow pending the consummation of the Offering.
GBI and Mr. Nicklaus will also grant to the Company the exclusive right to
utilize and license various trademarks and other intellectual properties
which were used by the contributed business operations and additional rights
which were formerly licensed by GBI and Mr. Nicklaus to the Operating
Subsidiaries in connection with their respective business activities. See
"Certain Relationships and Related Transactions--Reorganization--Trademark
License." Prior to the Reorganization (i) Nicklaus Family Members owned all
of the issued and outstanding capital stock of GBI and Paragon; (ii) Richard
P. Bellinger and John G. Hines owned all of the issued and outstanding
capital stock of Club Services; and (iii) Mr. Bellinger, Mark F. Hesemann,
Thomas P. Hislop, Jack P. Bates, Mr. Nicklaus and certain other Nicklaus
Family Members, owned all of the issued and outstanding capital stock of Golf
Centers. In connection with the above transactions, Nicklaus Family Members
will receive an aggregate of 2,760,000 shares of the Company's Class B Common
Stock.
The Common Stock that the Company agreed to issue in the Reorganization
and the value of the businesses and operations and capital stock interests
exchanged or contributed to the Company was determined by Nicklaus Family
Members and management of GBI without any independent third party valuation.
The value assigned to such businesses and operations and capital stock
interests may not represent and should not be deemed to be indicative of
their respective fair market values.
RECENT ACQUISITIONS
The Company has entered into the following agreements and letters of
intent pursuant to which it recently acquired two golf practice and
instruction facilities, one by purchase and the other pursuant to
15
<PAGE>
a long-term lease and proposes to acquire, subject to the satisfaction of
certain conditions, five other existing golf practice and instruction
facilities (one of which it currently manages) and two facilities currently
under development (together, the "Acquisitions"). Consummation of the
Offering is not conditioned upon consummation of any of the Acquisitions.
MCDAIN GOLF CENTER
On April 15, 1996, the Company entered into a long-term lease agreement
with McDain Golf Center of Monroeville, a Pennsylvania limited partnership,
for the lease of an existing golf practice and instruction facility in the
greater Pittsburgh area and has begun operating the facility as a GOLDEN BEAR
GOLF CENTER. The lease is for a term of twenty-nine years and calls for
annual payments of $325,000 with annual cost of living increases commencing
after the fifth year. The Company has been granted an option to purchase the
leased premises for $2,000,000 in 2001. The Company has not yet determined
whether it will acquire the leased premises pursuant to the option.
TOMS RIVER GOLF CENTER
On April 26, 1996, the Company entered into an agreement, subject to
certain conditions, with First Sports Capital Development Associates, Ltd.,
Inc. ("FSCDA") to lease certain real property and to purchase certain assets
utilized in connection with an existing golf practice and instruction
facility located in Toms River, New Jersey. The lease is for a term of 20
years and may be extended for two five-year terms. The purchase price for the
assets is $1.9 million dollars, payable in cash; provided that up to $1.4
million may be evidenced by a promissory note with a term of three years at
an interest rate equal to the prime rate of interest, plus one and one half
percent (1 1/2 %).
The Company also entered into an interim management agreement with FSCDA
to manage the facility pending closing of the above-described transaction. In
the event this transaction is not consummated, the Company has agreed to
enter into a GOLDEN BEAR GOLF CENTER franchise agreement with FSCDA with
respect to the facility. The consummation of this transaction is subject to a
number of conditions, including the satisfactory completion of due diligence
by the Company. There is no assurance that this transaction will be
consummated.
COOL SPRINGS GOLF CENTER
On June 17, 1996, the Company purchased an existing golf practice and
instruction facility on 40.833 acres of land in Pittsburgh, Pennsylvania
pursuant to purchase and sale agreements with Cool Springs, Inc. and William
T. Duckworth. The purchase price for the land and assets was $2.9 million.
EAST COAST FACILITIES
On June 11, 1996, the Company entered into letters of intent with each of
East Coast Golf Centers of Columbus, Ltd., East Coast Golf Centers of Fort
Lauderdale, Inc. and East Coast Golf Centers, Inc. ("East Coast"), providing
for the proposed purchase and/or assumption of lease of an existing GOLDEN
BEAR GOLF CENTER located in Columbus, Ohio and two GOLDEN BEAR GOLF CENTERS
currently under development in Fort Lauderdale, Florida and Charlotte, North
Carolina (collectively, the "East Coast Facilities"). The facility in Fort
Lauderdale, Florida is expected to open in August, 1996. Construction of the
facility in Charlotte, North Carolina has not yet commenced and opening of
the facility is not expected until late in the second quarter of 1997. The
purchase price for the East Coast Facilities is anticipated to be
approximately $5.8 million, of which $5.2 million will be paid in cash at the
closing and the remainder will be payable in either cash or restricted shares
of the Company's Class A Common Stock valued at the initial public offering
price set forth on the cover page hereof. It is anticipated that the Company
will acquire each of these facilities by assumption of the existing leases
for the real property and purchase of the assets relating to or utilized in
the operation or development of the facilities. The Company has also agreed
to grant to East Coast certain registration rights if restricted shares of
Class A Common Stock are issued in connection with the transaction. Pursuant
to such rights,
16
<PAGE>
during the two year period following consummation of the acquisition of the
East Coast Facilities, the Company will, subject to various restrictions and
limitations, (i) at any time after the date which is one year following
consummation of the Offering, if and when requested by East Coast, file with
the Securities and Exchange Commission (the "SEC") a registration statement
for the proposed sale from time to time by East Coast of all or any portion
of such shares of Class A Common Stock and (ii) provide East Coast with the
opportunity to participate in certain registration statements filed with the
SEC by the Company for the offering of Class A Common Stock. The rights and
obligations of each of the above parties in the above-described transactions
will be defined in and subject to the execution of definitive purchase and
sale agreements. Consummation of each of these transactions is subject to a
number of conditions, including the satisfactory completion of due diligence
by the Company. There is no assurance that the above-described transactions
will be consummated.
The Company has also entered into a letter agreement with East Coast
outlining the terms of a proposed joint venture agreement among the Company
and East Coast pursuant to which the joint venture shall enter into an
exclusive five year agreement to develop and operate GOLDEN BEAR GOLF CENTERS
in certain territories in North Carolina and South Carolina and a
non-exclusive development agreement for territories in Florida (excluding
Palm Beach County), Ohio and Long Island, New York. In connection with the
joint venture agreement, the Company expects to enter into consulting
agreements with various principals of East Coast pursuant to which it expects
to issue options to acquire up to 37,500 shares of the Company's Class A
Common Stock, exercisable at the initial public offering price set forth on
the cover page hereof. In the event the Company grants such options, the
entire purchase price for the East Coast Facilities is expected to be paid in
cash. The rights and obligations of the parties in the joint venture will be
defined in and subject to the execution of a binding definitive agreement.
There is no assurance that a definitive joint venture agreement will be
executed or, if executed, that any GOLDEN BEAR GOLF CENTER will ever be
developed or operated by the joint venture.
HIGHLANDER FACILITIES
On July 16, 1996 the Company entered into letters of intent with
Highlander Golf Corp. Ltd. ("Highlander") to acquire the GOLDEN BEAR GOLF
CENTER located in Carrollton, Texas and to lease the GOLDEN BEAR GOLF CENTER
located in Moreno Valley, California. It is anticipated that the purchase
price for the Texas facility will be $2.25 million, of which $1.5 million
will be paid at closing, with the remainder of the purchase price to be
evidenced by a promissory note. A portion of the purchase price may be paid
in restricted shares of the Company's Class A Common Stock. The note will
require payments of interest only for five years at a rate of 8% per annum,
with the entire principal amount due in five years. The Company will enter
into a ground lease for the underlying real property of the Texas facility
with an entity affiliated with Highlander. The ground lease will be for a
term of 15 years, and will be renewable for two additional 5-year terms. The
annual rent under the ground lease will equal 8% of the gross sales
attributable to the facility for years one through five and 10% of gross
sales for years six through fifteen. The minimum rent under the ground lease
will be $122,500 per year, increasing 3% per year. The Company will have a
right of first refusal with respect to proposed sales of the leased premises
throughout the term of the lease.
The lease of the facility located in California provides for a ground
lease of the real property and an operating lease of the facility. Both the
ground lease and the operating lease will be for a period of ten years,
renewable for two additional five year terms. The annual rent due under the
ground lease will be equal to 10% of the gross revenues attributable to the
facility with a minimum rent of $65,000 per year. The annual rent due under
the operating lease will be $50,000. The annual rent under the operating
lease and the minimum rent under the ground lease will increase 3% annually,
effective every fifth lease year. The rights and obligations of the parties
in this transaction will be defined in and subject to the execution of
definitive agreements. Consummation of the acquisitions of these facilities
will be subject to the satisfaction of a number of conditions, including the
satisfactory completion of due diligence by the Company. There is no
assurance that either of these transactions will be consummated.
The Company has also entered into a letter agreement with Highlander
outlining the terms of a proposed joint venture agreement between the Company
and Highlander pursuant to which the joint
17
<PAGE>
venture will enter into an exclusive five year agreement to develop and
operate GOLDEN BEAR GOLF CENTERS in certain territories in Dallas/Ft. Worth,
Texas, Orange and San Diego Counties, California and Chicago, Illinois and a
non-exclusive development agreement for certain territories in Nevada and
northern California. The rights and obligations of the parties in the joint
venture will be defined in and subject to the execution of a binding
definitive agreement. There is no assurance that the definitive joint venture
agreement will ever be executed or, if executed, that any GOLDEN BEAR GOLF
CENTER will ever be developed or operated by the joint venture.
ROLLANDIA GOLF PARK PLUS
On July 17, 1996, the Company entered into a letter agreement with Sugar
Creek Golf Course, Inc. ("Sugar Creek") outlining the terms of a proposed
long-term lease of an existing golf practice and instruction facility in the
Dayton, Ohio area. The proposed terms of the lease provide for a term of
twenty years, with an initial up-front payment of $1.1 million and annual
rental payments of $325,000 in year one, $350,000 in year two, $375,000 in
years three through thirteen, $300,000 in year fourteen and $200,000 in years
fifteen through twenty. The Company will also commit to invest at least
$750,000 in improvements to the property within the first two years of the
term of the lease. The Company will retain Sugar Creek as a consultant for a
period of one year for a fee of $60,000. The Company will be granted a right
of first refusal with respect to proposed sales of the leased premises
throughout the term of the lease. The rights and obligations of the parties
in this transaction will be defined in and subject to the execution of a
definitive lease agreement. Consummation of the lease transaction will be
subject to the satisfaction of a number of conditions, including the
satisfactory completion of due diligence by the Company and there can be no
assurance that this transaction will be consummated.
OTHER POTENTIAL ACQUISITIONS
The Company's plan is to acquire or develop a total of ten golf practice
and instruction facilities during 1996 and an additional twelve facilities by
the end of 1997. To this end, in addition to the acquisitions described
above, the Company is currently having preliminary discussions with various
owners of one or more golf practice and instruction facilities throughout the
United States. As consideration for any future acquisition, the Company may,
among other things, pay cash, contribute assets, incur indebtedness or issue
debt or equity securities. Although the Company has not, except as described
herein, entered into any acquisition agreements or letters of intent with
respect to any such facilities, the Company's goal is to enter into such
agreements as soon as possible after the date hereof and to consummate the
transactions shortly thereafter. Such acquisitions could result in material
changes in the Company's financial condition and operating results. However,
there can be no assurance that any such acquisitions will occur, and if they
occur, as to the timing of the consummation of such acquisitions.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the 2,160,000 shares of
Class A Common Stock by the Company in the Offering (after deducting
underwriting discounts and estimated offering expenses) are estimated to be
approximately $31.2 million and $36.0 million if the Underwriters'
over-allotment option is exercised in full with the Company. The Company
intends to use the net proceeds of the Offering for working capital and
general corporate purposes including the acquisition and development of golf
practice and instruction facilities, additional advertising and expansion of
the Company's product development efforts, both domestically and
internationally, and the repayment of approximately $1.65 million of
indebtedness to Mr. Nicklaus which was advanced to the Company by Mr.
Nicklaus as a bridge loan in connection with the Acquisitions. The
indebtedness to Mr. Nicklaus is payable on demand and bears interest at the
Federal Mid-Term annual interest rate in effect at the time the promissory
note evidencing the indebtedness was executed. While the Company is currently
having discussions with various parties regarding the acquisition of golf
instruction and practice facilities throughout the United States, other than
as described herein under the caption "The Company--Recent Acquisitions,"
the Company has not entered into any agreements in principle relating to any
acquisitions material to the Company. Pending utilization of the funds, the
proceeds will be invested in short term United States government securities.
DIVIDEND POLICY
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. The declaration and
payment of dividends by the Company are subject to the discretion of the
Board of Directors of the Company. The Class A Common Stock and the Class B
Common Stock will share pro rata in dividends and other distributions. Any
future determination to pay dividends will depend on the Company's results of
operations, financial condition, capital requirements, contractual
restrictions and other factors deemed relevant at the time by the Board of
Directors.
19
<PAGE>
DILUTION
The net tangible book value of the Common Stock, assuming the consummation
of the Reorganization, as of March 31, 1996 was $1.8 million, or $0.59 per
share of Common Stock. Net tangible book value per share represents the total
tangible assets of the Company, reduced by the amount of its total
liabilities and divided by the number of shares of Common Stock outstanding
(3,000,000 at March 31, 1996). After giving effect to the sale by the Company
of the 2,160,000 shares of Class A Common Stock offered in the Offering and
after deducting the estimated underwriting discounts and offering expenses,
the as adjusted net tangible book value of the Company as of March 31, 1996
would have been $30.3 million, or $5.86 per share of Common Stock. This
represents an immediate increase in net tangible book value of $5.27 per
share to existing shareholders and an immediate dilution of $10.14 per share
to new investors purchasing Class A Common Stock at the assumed initial
public offering price. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price of Class A Common Stock(1) ............. $16.00
------
Net tangible book value per share of Common Stock before the Offering $0.59
Increase in net tangible book value per share of Common Stock
attributable to new investors ...................................... 5.27
-----
As adjusted net tangible book value per share of Common Stock
after the Acquisitions and the Offering ............................ 5.86
------
Dilution in net tangible book value per share of Common Stock
to new investors(2) ................................................ $10.14
======
</TABLE>
- ----------
(1) Before deduction of estimated underwriting discounts and offering
expenses.
(2) Dilution is determined by subtracting pro forma net tangible book value
per share of Common Stock after the Offering from the initial public
offering price of the Class A Common Stock.
The following table summarizes on a pro forma basis as of March 31, 1996,
after giving effect to the sale by the Company of 2,160,000 shares of Class A
Common Stock in the Offering, the differences between existing shareholders
and new investors with respect to the number of shares of Common Stock
purchased from the Company and the total and average consideration paid per
share (without ascribing any discount to the shares purchased prior to the
Offering to reflect their relative illiquidity.)
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -----------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2) 3,000,000 58.1% $ 2,461,000 6.6% $ 0.82
New investors(3) ............ 2,160,000 41.9 $34,560,000 93.4 $16.00
--------- ----- ----------- ----- ------
Totals .................... 5,160,000 100.0% $37,021,000 100.0% $ 7.17
========= ===== =========== ===== ======
</TABLE>
- ----------
(1) As of the date of this Prospectus (and assuming consummation of the
Reorganization), there are 240,000 shares of Class A Common Stock and
2,760,000 shares of Class B Common Stock outstanding. All of the
outstanding Class B Common Stock is held of record by Nicklaus Family
Members. Shares of Class B Common Stock are convertible at any time into
Class A Common Stock and convert automatically into Class A Common Stock
upon a transfer to anyone other than a Nicklaus Family Member.
(2) Does not reflect the possible exercise of options to purchase 384,000
shares of Class A Common Stock granted under the Company's 1996 Stock
Option Plan.
(3) Assumes that the Underwriters' over-allotment option is not exercised.
Sales by the Company pursuant to the exercise by the Underwriters of the
over-allotment option will cause the total number of shares, percent of
shares held by new investors, total consideration paid by new investors,
percent of total consideration paid by new investors and average price
per share for all investors to increase to 5,484,000, 45.3%, $39,744,000,
94.2% and $7.70, respectively.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the
capitalization of the Company as if the Reorganization had occurred on such
date and certain shares of capital stock had been sold to management and
certain Nicklaus Family Members, (ii) the pro forma capitalization of the
Company as adjusted to reflect the Acquisitions and (iii) the as adjusted
capitalization of the Company as adjusted to reflect the sale of Class A
Common Stock offered in the Offering. The following table should be read in
conjunction with the combined financial statements of the Company and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA FOR
REORGANIZATION
AND SALE OF PRO FORMA FOR AS
STOCK(1) ACQUISITIONS ADJUSTED
-------------- ------------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt:
Current portion of notes payable ............................. $ 674 $ 2,324 $ 674
======= ======= =======
Long-term debt ................................................ $ 25 $13,010 $13,010
------- ------- -------
Shareholders' equity(2):
Preferred Stock, $.01 par value, 20,000,000 shares
authorized, no shares issued and outstanding ............... -- -- --
Class A Common Stock, $.01 par value, 70,000,000 shares
authorized, 240,000 shares issued and outstanding,
pro forma for the Reorganization and for the sale of
stock to certain executives and certain Nicklaus Family
Members; 2,400,000 shares issued and outstanding,
as adjusted ................................................ 2 2 24
Class B Common Stock, $.01 par value, 10,000,000 shares
authorized, 2,760,000 shares issued and outstanding,
pro forma for the Reorganization and for Acquisitions;
2,760,000 shares issued and outstanding, as adjusted ....... 28 28 28
Additional paid-in-capital ................................... 5,340 5,340 36,509
Retained earnings (accumulated deficit) ...................... (3,590) (3,590) (3,590)
------- ------- -------
Total shareholders' equity .................................. 1,780 1,780 32,971
------- ------- -------
Total capitalization ....................................... $ 2,479 $17,114 $45,981
======= ======= =======
</TABLE>
- ----------
(1) Adjusted to reflect the Reorganization and the sale of capital stock of
Golf Centers to certain executives and certain Nicklaus Family Members
for $600,000 and $900,000, respectively, and a $3.0 million charge for
compensation to be recorded in June 1996 related to deemed compensation
received by certain executives in connection with their purchase of
shares in Golf Centers.
(2) Does not include the reservation of up to 384,000 shares of Class A
Common Stock that may be issued upon the exercise of options granted
under the Company's 1996 Stock Option Plan. See "Management--Compensation
of Executive Officers."
21
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
Set forth below are the selected combined financial data of the Company
for each of the years in the five year period ended December 31, 1995 and for
the three month periods ended March 31, 1996 and 1995. The combined financial
data include the financial statements of the Predecessor Companies. The
statement of operations and balance sheet data as of and for the three months
ended March 31, 1995 and 1996 and the years ended December 31, 1991 and 1992
have been derived from the unaudited books and records of the Predecessor
Companies. The statement of operations data and balance sheet data as of and
for the years ended December 31, 1993, 1994 and 1995 have been derived from
the Combined Financial Statements of the Predecessor Companies which have
been audited by Arthur Andersen LLP as indicated in their reports included
elsewhere in this Prospectus. The selected financial data for the three
months ended March 31, 1995 and 1996 include, in the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary
to prevent fairly the financial position and results of operations of the
Predecessor Companies for such periods. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of results
for a full fiscal year. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as the Combined Financial Statements of the Predecessor
Companies and the related Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992 1993 1994 1995
--------- ----------- ----------- ---------- ------------
STATEMENT OF OPERATIONS DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Golf division ................................... $ 4,500 $ 2,764 $ 1,522 $ 1,905 $ 2,298
Construction division ........................... -- -- 2,177 5,599 19,177
Marketing division .............................. 7,197 7,232 8,069 9,121 10,070
------- ------- ------- ------- -------
Total revenues ................................. 11,697 9,996 11,768 16,625 31,545
Operating costs and expenses:
Construction and shaping costs .................. -- -- 1,894 4,737 16,500
Operating expenses .............................. 6,111 6,047 6,502 7,756 8,422
Corporate overhead .............................. 3,915 3,315 2,994 3,051 3,121
Depreciation and amortization ................... 244 265 243 199 233
------- ------- ------- ------- -------
Total costs and expenses ....................... 10,270 9,627 11,633 15,743 28,276
------- ------- ------- ------- -------
Operating income ................................. 1,427 369 135 882 3,269
Other income (expense) ........................... 84 27 2 (10) (1)
------- ------- ------- ------- -------
Income before income taxes and minority interest 1,511 396 137 872 3,268
Foreign tax provision ............................ 447 568 616 699 1,010
Minority interest(a) ............................. 951 921 925 1,038 1,024
------- ------- ------- ------- -------
Income (loss) before pro forma income taxes ..... $ 113 $(1,093) $(1,404) $ (865) $ 1,234
======= ======= ======= ======= =======
As Adjusted to Reflect C-Corp Status(b):
Pro forma income tax (benefit) .................. -- -- (923) (764) (135)
------- ------- ------- ------- -------
Pro forma net income (loss) ..................... $ 113 $(1,093) $ (481) $ (101) $ 1,369
======= ======= ======= ======= =======
Pro forma net income (loss) per share
of common stock ................................ $ 0.04 $ (0.36) $ (0.16) $ (0.03) $ 0.46
======= ======= ======= ======= =======
Weighted average number of common stock
and common stock equivalents outstanding ...... 3,000 3,000 3,000 3,000 3,000
======= ======= ======= ======= =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
-------- --------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues:
Golf division ................................... $ 364 $ 534
Construction division ........................... 1,435 2,056
Marketing division .............................. 2,453 2,382
------ ------
Total revenues ................................. 4,252 4,972
Operating costs and expenses:
Construction and shaping costs .................. 1,423 2,000
Operating expenses .............................. 1,615 1,699
Corporate overhead .............................. 714 751
Depreciation and amortization ................... 53 72
------ ------
Total costs and expenses ....................... 3,805 4,522
------ ------
Operating income ................................. 447 450
Other income (expense) ........................... (4) 4
------ ------
22
<PAGE>
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
-------- --------
STATEMENT OF OPERATIONS DATA:
Income before income taxes and minority interest 443 454
Foreign tax provision ............................ 178 96
Minority interest(a) ............................. 203 325
------ ------
Income (loss) before pro forma income taxes ..... $ 62 $ 33
====== ======
As Adjusted to Reflect C-Corp Status(b):
Pro forma income tax (benefit) .................. (84) (46)
------ ------
Pro forma net income (loss) ..................... $ 146 $ 79
====== ======
Pro forma net income (loss) per share
of common stock ................................ $ 0.05 $ 0.03
====== ======
Weighted average number of common stock
and common stock equivalents outstanding ...... 3,000 3,000
====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1991 1992 1993 1994 1995
--------- -------- -------- --------- -----------
BALANCE SHEET DATA (AT PERIOD END) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficit) ...... $1,549 $ 709 $ 609 $ (139) $ 535
Total assets .................... 2,866 2,599 3,676 4,841 8,906
Long-term debt .................. -- -- -- 113 44
Shareholders' equity ............ 1,893 1,439 1,110 256 1,030
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------
1995 1996
----------- ---------------------------
ACTUAL AS ADJUSTED(C)
----------- --------- ----------------
BALANCE SHEET DATA (AT PERIOD END)
<S> <C> <C> <C>
Working capital (deficit) ...... $(1,289) $ (664) $28,627
Total assets .................... 4,016 7,888 55,214
Long-term debt .................. 96 25 13,010
Shareholders' equity ............ (652) 280 32,971
</TABLE>
- ----------
(a) Reflects minority interest of the Company's partner in Jack Nicklaus Apparel
International, the partnership operating the apparel licensing activities of
the Company outside the United States and Europe.
(b) See Note 1 to the Company's Combined Financial Statements.
(c) Adjusted to reflect the Acquisitions, the sale of Class A Common Stock
offered in the Offering and a $3.0 million charge for compensation
to be recorded in June 1996 related to deemed compensation received
by certain executives in connection with their purchase of shares in
Golf Centers.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three month periods ended March 31, 1996
and 1995, and the years ended December 31, 1995, 1994 and 1993. This
discussion and analysis should be read in conjunction with the Selected
Historical Combined Financial Data and the audited combined financial
statements of the Company and the related notes thereto which are included
elsewhere in this Prospectus.
OVERVIEW
The Company operates its business through three principal groups: the Golf
Division, the Construction Division and the Marketing Division. The Golf
Division owns, operates and licenses the Company's golf practice and
instruction facilities under the JACK NICKLAUS GOLF CENTER, JACK NICKLAUS
ACADEMY OF GOLF and GOLDEN BEAR GOLF CENTER brand names, is involved in the
marketing of golf course design services on behalf of designers, primarily
Nicklaus Design, and provides golf course management and consulting services
throughout the world. The Construction Division provides technical
construction services in connection with the construction and renovation of
golf courses. The Marketing Division is involved primarily in the licensing
of NICKLAUS, JACK NICKLAUS AND GOLDEN BEAR branded products throughout the
world, the operation of the NICKLAUS/FLICK GOLF SCHOOLS and the generation of
marketing fees related to Jack Nicklaus' personal endorsements (which are
reflected in the Company's statement of operations under the heading related
party commissions).
The Company has achieved significant growth in revenues, operating income
and net income over the period from January 1, 1993 to December 31, 1995. The
Company's revenues increased to $31.5 million in 1995 from $11.8 million in
1993 while operating income increased to $3.3 million in 1995 from $0.1
million in 1993. Net income (after giving pro forma effect to income taxes)
increased to a profit of $1.4 million in 1995 from a net loss of $0.5 million
in 1993. Management believes that the Company's financial performance has
benefitted from an increase in golf course construction and renovation
projects worldwide, the increase in the number of golf practice and
instruction facilities licensed by the Company, the increase in the licensed
product offerings under NICKLAUS, JACK NICKLAUS AND GOLDEN BEAR Brand names
and growth in international demand for the Company's products and services.
The improvement in the Company's operating margins to 10.4% in 1995 from 1.2%
in 1993 resulted primarily as a consequence of the improved profitability of
the Company's golf course construction activities, increased marketing fees
relating to the sale of Nicklaus Design services (which are reflected in the
Company's statement of operations under the heading related party management
fees), increased licensing revenues from golf practice and instruction
facilities and a reduction in corporate overhead as a percentage of revenues.
Consistent with the Company's strategy to increase its ownership and
operation of golf practice and instruction facilities, the Company recently
entered into purchase, lease and management agreements pursuant to which it
commenced operation of three existing golf practice and instruction
facilities and has entered into letter agreements or letters of intent with
respect to the acquisition or lease of four additional existing golf practice
and instruction facilities and two facilities under development. The Company
currently operates one of the facilities pursuant to a long-term lease and
another facility pursuant to a management contract pending consummation of
the acquisition of that facility. See "The Company--Recent Acquisitions." The
Company is seeking to acquire or develop a total of ten facilities during
1996 and an additional twelve facilities by the end of 1997. While there is
no assurance that any such additional facilities will be acquired, the
Company believes that the Golf Division's revenues will continue to increase
relative to the Construction and Marketing Divisions' revenues. In addition,
the Company believes that as its currently operated and future acquired golf
practice and instruction facilities are converted to the GOLDEN BEAR brand
name, revenues and operating income from such facilities may increase based
on improved marketing and increased customer awareness, expanded facilities
and amenities offered such as pro shops, batting cages and miniature golf
courses and revenues
23
<PAGE>
associated with golf lessons. Such increases may, however, be partially
offset by initial losses from pre-opening costs and potential initial
operating losses associated with new golf practice and instruction
facilities.
Historically, the Company's revenues attributable to golf practice and
instruction facilities have been derived from license agreements with third
parties who operate such facilities under the JACK NICKLAUS GOLF CENTER, JACK
NICKLAUS ACADEMY OF GOLF AND GOLDEN BEAR GOLF CENTER brand names. While the
Company plans to continue to support its domestic and international
licensees, the Company's current domestic strategy of owning and operating
golf practice and instruction facilities directly is expected to result in
less emphasis on the licensing of domestic golf practice and instruction
facilities in the future. In implementing the Company's growth strategy, the
Company may purchase or lease land, purchase, lease or construct facilities
or enter into joint ventures for the operation of golf practice and
instruction facilities.
The Company's golf course construction, shaping and consulting services
revenues increased to $19.2 million in 1995 from $2.2 million in 1993. This
increase was primarily attributable to the increased number of, and amount of
work performed under, construction and renovation projects, the increased
demand for golf course development and construction throughout Southeast Asia
and increased construction and renovation projects in the United States. The
Company believes that domestic and international demand for new and renovated
golf courses will provide continuing growth opportunities. In addition, the
Company believes that its position as the exclusive marketing agent for
Nicklaus Design and its familiarity with Nicklaus Design golf course projects
will provide it with a competitive advantage in obtaining new construction
contracts relating to Nicklaus Design assignments as well as assist the
Company in marketing its construction services to non-Nicklaus Design
designed courses.
The Company has realized consistent growth in revenues over the past three
years from licensed products utilizing the NICKLAUS, JACK NICKLAUS AND GOLDEN
BEAR brand names, including apparel and accessories, with revenues increasing
from $4.6 million in 1993 to $5.1 million in 1995. The apparel licensing
activities of the Company outside the United States and Europe are conducted
through its subsidiary, Jack Nicklaus Apparel International ("JNAI"), a
general partnership between the Company and an affiliate of Hartmarx
Corporation. Under licensing agreements, JNAI receives royalties based on a
percentage of net sales of licensed products. JNAI'S license income increased
to $2.7 million in 1995 from $2.4 million in 1993. As part of its strategy,
the Company expects to continue to broaden its base of branded product
offerings under the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names.
While there is no assurance that the Company will achieve continued
growth, the Company believes that its growth will continue as it pursues its
business plan to acquire additional golf practice and instruction facilities
and to expand its construction and licensing operations. The Company expects
that 1996 will be a transition year as it focuses its efforts on acquiring
golf practice and instruction facilities, invests in additional management
information systems and personnel to support its growth strategy and a new
licensee commences its activities with respect to certain of the Company's
branded products. While revenues in 1996 as compared to 1995 are expected to
increase compared to 1995 as a consequence of the contemplated acquisitions
of golf practice and instruction facilities, the costs associated with the
foregoing items, the costs associated with such acquisitions and the
integration of the operations of the acquired facilities into the Company and
the costs associated with this Offering and being a public company are
expected to result in decreased operating income for 1996 as compared to
1995. For the six months ended June 30, 1996, the Company had total revenues
of $14.0 million as compared to $12.7 million for the comparable period in
1995, an increase of 10%, and operating income of $1.3 million as compared
with $1.8 million for the six months ended June 30, 1995, a decrease of
approximately 30%. Results for the six months ended June 30, 1996 are before
a one-time expense of approximately $3.0 million associated with compensation
deemed received by executives of the Company in connection with shares
purchased by them in Golf Centers prior to the Reorganization. Pro forma
income as adjusted to reflect C-Corp status, before the above described
compensation expense, was $0.4 million for the six months ended June 30, 1996
as compared to $0.8 million for the comparable period in 1995.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the operating results (as a percentage of
net revenues) for the periods indicated by each item reflected in the
Company's combined statement of operations. Pro forma income tax benefit
reflects adjustments to historical operating results for federal and state
income taxes as if the Predecessor Companies had been taxed as C corporations
rather than S corporations.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
MARCH 31,
------------------------------ ------------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Golf division ............................ 12.9% 11.4% 7.3% 8.6% 10.7%
Construction division .................... 18.5 33.7 60.8 33.7 41.4
Marketing division ....................... 68.6 54.9 31.9 57.7 47.9
----- ----- ----- ----- -----
Total revenues .......................... 100.0 100.0 100.0 100.0 100.0
Operating costs and expenses:
Construction and shaping costs ........... 16.1 28.5 52.3 33.5 40.2
Operating expenses ....................... 55.2 46.6 26.7 38.0 34.2
Corporate overhead ....................... 25.4 18.4 9.9 16.8 15.1
Depreciation and amortization ............ 2.1 1.2 0.7 1.2 1.5
----- ----- ----- ----- -----
Total costs and expenses ................ 98.8 94.7 89.6 89.5 91.0
Operating income .......................... 1.2 5.3 10.4 10.5 9.0
Other income (expense) .................... 0.0 (0.1) 0.0 (0.1) 0.1
----- ----- ----- ----- -----
Income before income taxes and
minority interest ....................... 1.2 5.2 10.4 10.4 9.1
Foreign tax provision ..................... 5.2 4.2 3.2 4.2 1.9
Minority interest expense ................. 7.9 6.2 3.3 4.8 6.5
----- ----- ----- ----- -----
Income (loss) before pro forma income
taxes ................................... (11.9) (5.2) 3.9 1.4 0.7
===== ===== ===== ===== =====
Pro forma income tax benefit .............. (7.8) (4.6) (0.4) (2.0) (0.9)
Pro forma net income (loss) ............... (4.1)% (0.6)% 4.3% 3.4% 1.6%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Total revenues increased 16.9% to approximately $5.0 million in the three
months ended March 31, 1996 from $4.3 million in the comparable period of
1995, an increase of approximately $0.7 million. The increase in total
revenues was principally the result of an increase in Construction Division
revenues to $2.1 million in the three months ended March 31, 1996 from $1.4
million in the comparable period in 1995, attributable primarily to an
increase in the number of construction and shaping projects in process. Golf
Division revenues increased to $0.5 million in the three months ended March
31, 1996 from $0.4 million in the comparable period in 1995 due to increased
revenues from golf centers and academy fees and royalties to $0.2 million in
the three months ended March 31, 1996 from $0.1 million in the comparable
period of 1995, attributable primarily to an increase in the number of
licensed facilities to sixteen during the quarter ended March 31, 1996 from
eleven during the quarter ended March 31, 1995. The Company's Marketing
Division revenues remained relatively constant at approximately $2.4 million
in 1996 and $2.5 million in 1995. Within the Marketing Division, licensing
and other revenues increased by approximately $160,000 which was offset by a
decrease in golf instruction revenues of approximately $180,000.
Operating income (after corporate overhead) remained relatively constant
at approximately $0.4 million for the three months ended March 31, 1996 and
March 31, 1995. Operating income (after
25
<PAGE>
corporate overhead) as a percentage of total revenues decreased to 9.0% in
the three months ended March 31, 1996 from 10.5% in the comparable period of
1995, primarily as a result of lower operating margins (before corporate
overhead) in the Marketing Division of 45.1% compared to 48.7%, respectively.
The decline in the Marketing Division's operating margin (before corporate
overhead) was primarily the result of decreased revenue from NICKLAUS/FLICK
GOLF SCHOOLS. The decline in the Marketing Division's operating margin
(before corporate overhead) was partially offset by the improved operating
margin (before corporate overhead) in the Construction Division of 2.7% in
the three months ended March 31, 1996 compared to 0.8% in the comparable
period of 1995. The improved operating margin (before corporate overhead) in
the Construction Division resulted primarily from the improved profitability
associated with increased construction and shaping revenues in the first
quarter of 1996. Golf Division operating margins (before corporate overhead)
also improved to 26.5% in the first quarter of 1996 from 1.9% in the
comparable period of 1995 as a result of increased revenues attributable to
golf centers and academy fees and royalties.
Corporate overhead, consisting primarily of corporate headquarters rent
and occupancy costs, as well as corporate management and employees, remained
relatively constant at approximately $0.8 million in the three months ended
March 31, 1996 compared to $0.7 million in the three months ended March 31,
1995. The Company was able to achieve improved operating efficiencies in
overhead during the first quarter of 1996 as the higher level of total
revenues were spread over relatively constant levels of corporate overhead
expense. The Company believes it has the senior management resources in place
to grow its business for the foreseeable future; however, the Company plans
to upgrade its management information systems and add additional accounting
and finance personnel in 1996 in order to support its growth strategy.
Management anticipates that corporate overhead will increase due to the
aforementioned systems upgrade and additions to personnel as well as the
increased costs associated with operating the Company as a separate public
company and the expansion of the Company's business.
The provision for foreign income taxes was $0.1 million in the three
months ended March 31, 1996 compared to $0.2 million for the comparable
period in 1995. The relatively constant foreign income tax provision resulted
from the relatively constant operating income from foreign operations of $0.8
million in the three months ended March 31, 1996 compared to $0.9 million in
the comparable period of 1995. As S corporations, the Predecessor Companies
have historically only paid foreign income taxes and have not paid United
States federal income taxes. Because the Company will be a C corporation, a
pro forma income tax benefit of $45,600 for the three months ended March 31,
1996 and $84,502 for the comparable period of 1995 has been included in the
Company's combined statements of operations for informational purposes as if
the domestic operations of the Predecessor Companies were C corporations
during the years presented. The Company expects to recognize tax credits for
foreign taxes paid against its United States income tax obligation. The pro
forma United States income taxes reflect an approximate effective rate of
39%.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Total revenues increased 89.7% to $31.5 million in 1995 from $16.6 million
in 1994. The $14.9 million increase in total revenues was principally the
result of an increase in Construction Division revenues to $19.2 million in
1995 from $5.6 million in 1994 due to an increase in the number of
construction and shaping contracts. Golf Division revenues also increased to
$2.3 million from $1.9 million. This increase was primarily attributable to
an increase in revenues from golf centers and academy fees and royalties to
$1.0 million in 1995 from $0.7 million in 1994, attributable primarily to an
increase in the number of licensed facilities. In addition, in 1995, revenues
from Montreux Golf Club Limited, an unaffiliated Paragon customer,
represented approximately 16% of the Company's total revenues. The Company
experienced an increase in Marketing Division revenues to $10.1 million in
1995 from $9.1 million in 1994, principally due to increased sales of branded
consumer products and services and increased revenues generated by the
Company's NICKLAUS/FLICK GOLF SCHOOLS.
Operating income (after corporate overhead) increased to $3.3 million in
1995 from $0.9 million in 1994. Operating income (after corporate overhead)
as a percentage of total revenues increased to 10.4%
26
<PAGE>
in 1995 from 5.3% in 1994, primarily as a result of an improved 1995
operating margin (before corporate overhead) in the Golf Division of 18.5% as
compared to 11.7% in 1994 and the achievement of operating efficiencies in
overhead in 1995 as the higher level of total revenues was spread over a
relatively stable level of corporate overhead. The improved operating margin
(before corporate overhead) in the Construction Division of 8.7% in 1995
compared to (7.5)% was associated with an increase in the number of
construction and shaping contracts. The Marketing Division's operating margin
(before corporate overhead) declined to 45.1% in 1995 from 47.5% in 1994,
primarily due to increased expenses of $0.2 million incurred in connection
with the establishment of the Jack Nicklaus International Club.
Corporate overhead, consisting primarily of corporate headquarters rent
and occupancy costs, as well as corporate management and employees, remained
constant at approximately $3.1 million in 1995 and 1994.
The provision for foreign income taxes was $1.0 million in 1995 compared
to $0.7 million in 1994. The increase in the foreign income tax provision
resulted from increased operating income from foreign operations to $4.7
million in 1995 from $3.7 million in 1994, attributable principally to
additional Far East golf course construction projects and increased foreign
licensing revenues. As S corporations, the Predecessor Companies have
historically paid only foreign income taxes and have not paid United States
federal income taxes. Because the Company will be a C corporation, a pro
forma income tax benefit of $0.1 million for 1995 and $0.8 million for 1994
has been included in the Company's combined statements of operations for
informational purposes as if the domestic operations of the Predecessor
Companies were C corporations during the years presented. The pro forma
United States income taxes reflect an approximate effective rate of 39%.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Total revenues increased 41.3% to $16.6 million in 1994 from $11.8 million
in 1993, an increase of $4.8 million. The increase in total revenues was
principally the result of an increase in Construction Division revenues to
$5.6 million in 1994 from $2.2 million in 1993. Golf Division revenues also
increased to $1.9 million from $1.5 million. This increase was primarily due
to increased revenues from golf centers and academy fees and royalties, from
$0.6 million in 1993 to $0.7 million in 1994, primarily attributable to an
increase in the number of licensed facilities. In addition, the Company
experienced an increase in Marketing Division revenues to $9.1 million in
1994 from $8.1 million in 1993, principally due to increased revenues
generated by the NICKLAUS/FLICK GOLF SCHOOLS.
Operating income (after corporate overhead) increased to $0.9 million in
1994 from $0.1 million in 1993. Operating income (after corporate overhead)
as a percentage of total revenues increased to 5.3% in 1994 from 1.2% in
1993, generally as a result of an improved 1994 operating margin (before
corporate overhead) in the Golf Division to 11.7% from (2.2)% in 1993.
Construction Division operating margins (before corporate overhead) improved
to (7.5)% in 1994 from (22.7)% in 1993. The Marketing Division's operating
margin (before corporate overhead) decreased to 47.5% in 1994 from 48.3% in
1993 due principally to increased expenses of $0.1 million incurred in
connection with the establishment of the Jack Nicklaus International Club.
Corporate overhead, consisting primarily of corporate headquarters rent
and occupancy costs, as well as corporate management and employees, remained
relatively flat at approximately $3.1 million in 1994 as compared to $3.0
million in 1993.
The provision for foreign income taxes was $0.7 million in 1994 compared
to $0.6 million in 1993. The increase in the foreign income tax provision
resulted from increased operating income from foreign operations to $3.7
million in 1994 from $2.6 million in 1993, attributable principally to
additional golf course construction projects in the Far East. As noted above,
the Predecessor Companies have historically only paid foreign income taxes
and have not paid United States federal income taxes. Because the Company
will be a C Corporation, a pro forma income tax benefit of $0.8 million for
1994
27
<PAGE>
and $0.9 million for 1993 has been included in the Company's combined
statements of operations for informational purposes as if the domestic
operations of the Predecessor Companies were C Corporations during the years
presented. The pro forma United States income taxes reflect an approximate
effective rate of 39%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company relied primarily upon internally generated funds
from operations supplemented by borrowings as needed to finance its
operations. The cash provided by operating activities totalled approximately
$0.9 million for the three months ended March 31, 1996, $1.6 million in the
year ended December 31, 1995 and $0.5 million in the year ended December 31,
1994. Cash used by the Company's investing activities totalled approximately
$0.7 million in the three months ended March 31, 1996, $1.3 million in the
year ended December 31, 1995 and $1.3 million in the year ended December 31,
1994, primarily representing distributions to minority investors related to
JNAI's licensing activities outside the United States and Europe. Cash used
in financing activities totalled $0.3 million in the three months ended March
31, 1996 and $0.4 million in the year ended December 31, 1995, principally
related to transfers to GBI. Cash provided by financing activities totalled
$0.2 million in the year ended December 31, 1994 principally related to
capital contributions to Paragon. At December 31, 1995 and March 31, 1996,
the Company had working capital (deficit) of $0.5 million and $(0.7) million,
respectively, and $0.4 million and $0.3 million, respectively in cash and
cash equivalents.
Capital expenditures totalled approximately $0.1 million in the three
months ended March 31, 1996, approximately $0.2 million in the year ended
December 31, 1995 and approximately $0.2 million in the year ended December
31, 1994. The Company currently estimates that planned capital expenditures
for 1996 will be approximately $0.5 million, including $0.2 million for an
upgraded management information system and $0.1 million for leasehold
improvements at the Company's corporate headquarters. The Company also
intends to expend approximately $15 million to $20 million in 1996 for the
acquisition of golf practice and instruction facilities. The Company plans to
finance capital expenditures and acquisitions of facilities in 1996 primarily
with net proceeds from the Offering. In addition, the Company may obtain
mortgage financing secured by the facilities acquired or enter into operating
leases or joint ventures for new facilities which may not require a
significant initial cash outlay. Actual expenditures will depend on, among
other things, the availability of funds, the availability of suitable
facilities, the location and condition of the acquired facilities (i.e.
whether significant capital improvements are necessary), whether the Company
acquires or leases the related land, competitive developments and strategic
marketing decisions.
Currently, certain assets of the Company secure a line of credit of GBI.
At or promptly after the consummation of the Offering, the lien on these
assets will be released. Paragon currently has a $1 million line of credit,
secured by its assets, which matures on April 26, 1997. As of June 30, 1996,
$603,220 was outstanding under the line. The Paragon line of credit is
presently guaranteed by Mr. Nicklaus, Barbara Nicklaus, GBI and Jack Nicklaus
Productions, Inc.
To provide for additional liquidity, the Company is seeking to obtain a
$10-$15 million line of credit from a bank or other financial institution.
Any such credit facility would likely include customary representations and
warranties and covenants with respect to the conduct of the Company's
business and require the maintenance of various financial ratios, which could
limit amounts available to be borrowed under the facility. There can be no
assurance that the Company will obtain this credit facility or as to the
amount or terms of any such facility. Consummation of the Offering is not
conditioned upon the Company obtaining a credit facility.
The Company believes that the net proceeds from the Offering, together
with cash provided by operations will be sufficient to meet its operating
needs and anticipated capital expenditure and acquisition requirements
through February 1997. If the Company obtains the line of credit financing
described in the prior paragraph, the Company believes that it would have
sufficient funds through 1997. Beyond such period, the Company will be
required to raise additional capital in order to pursue
28
<PAGE>
its planned acquisition and expansion strategy. Such capital may be raised by
the issuance of additional equity or the incurrence of additional
indebtedness. There is no assurance that the Company will be able to obtain
additional capital or to borrow funds in a timely manner on favorable terms
or at all. To the extent that the Company is not able to do so, the Company
may be required to delay or reduce its planned acquisition and expansion
strategy. See "Risk Factors--Expansion Strategy and Additional Financing
Requirements and Additional Financing Requirements" and "--Acquisition of
Additional Golf Centers and Limited History of Direct Operations." In
addition, in appropriate situations, the Company may seek financing from
other sources or may enter into joint ventures and other collaborative or
licensing arrangements for the acquisition and operation of additional golf
practice and instruction facilities. See "The Company--Recent Acquisitions"
for a description of certain joint ventures currently under consideration.
CURRENCY FLUCTUATIONS
Although substantially all of the Company's contracts are denominated in
United States dollars, fluctuations in the value of foreign currencies
relative to the United States dollar impact the Company's results of
operations. For 1995, approximately 30% of the Company's total revenues and
approximately 74% of the Company's licensing revenues were generated
overseas, primarily in Japan. A substantial portion of the revenues of the
Company's overseas licensees are generated in foreign currencies and
accordingly, fluctuations in the values of these currencies relative to the
United States dollar could have a material adverse effect on the Company's
profitability. Royalty payments received by the Company relating to foreign
licensing arrangements are generally based on the exchange rate at the time
of payment. In addition, the Company's construction contracts are also
denominated in dollars and accordingly the effective cost to customers for
construction services performed overseas will increase or decrease as foreign
currencies fluctuate relative to the United States dollar, unless the Company
changes its United States dollar prices to reflect the fluctuations in
currency. Approximately 23% of the Company's construction revenues in 1995
were pursuant to overseas contracts. The Company does not currently engage in
hedging activities with respect to such currency fluctuations, but may do so
in the future. See "Risk Factors--Risks Associated with Activities Outside
the United States."
INFLATION
The Company does not believe that the relatively moderate rates of
inflation experienced in the United States over the last three years have had
a significant effect on its revenues or profitability. Although higher rates
of inflation have been experienced in a number of foreign countries in which
the Company does business, the Company does not believe that they have had a
material effect on the Company's revenues or profitability.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding, among other things, (i) the Company's growth strategies, including
its intention to acquire or develop a total of ten golf practice and
instruction facilities during 1996 and an additional twelve facilities by the
end of 1997 and enter into new markets and product areas, (ii) anticipated
trends in the domestic and international golf industry and in the Company's
other businesses and (iii) the Company's future financing plans. These
forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, many of which are
beyond the Company's control. Actual results could differ materially from
these forward-looking statements as a result of changes in the trends in the
golf industry and the factors described in "Risk Factors" including among
others, (i) dependence on licensed trademarks, (ii) expansion strategy and
additional financing requirements, (iii) acquisition of additional golf
practice and instruction facilities and limited history of direct operations
and (iv) competition. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this
Prospectus will in fact occur.
29
<PAGE>
BUSINESS
The Company 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 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 primarily under the NICKLAUS, JACK NICKLAUS and GOLDEN
BEAR brand names. From 1993 to 1995, the Company realized an increase in
revenues and operating income from $11.8 million to $31.5 million and from
$0.1 million to $3.3 million, respectively.
The Company's Golf Division is involved in the licensing, ownership and
operation of golf practice and instruction facilities under the JACK NICKLAUS
GOLF CENTER, JACK NICKLAUS ACADEMY OF GOLF and GOLDEN BEAR GOLF CENTER brand
names. The Company's golf centers are designed to provide affordable golf
practice and instruction facilities to a large golfer population, to attract
new participants to the game and to create an environment of family
entertainment. The Company believes the highly fragmented golf practice and
instruction facility industry presents advantageous opportunities to acquire,
upgrade and renovate golf centers over the next five years. The Company
believes that its golf facilities are differentiated from its competitors on
the basis of consumers' recognition of the high quality of the products and
services associated with the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand
names, the quality of its facilities and the availability at its facilities
of the unique and individualized golf instruction programs designed by Mr.
Nicklaus and Jim Flick, a world renowned instructor.
The Company currently operates three golf practice and instruction
facilities and recently entered into letter agreements or letters of intent
regarding the proposed acquisition or lease of four additional existing
facilities and two facilities currently under development. See "The
Company--Recent Acquisitions." As part of its growth strategy to focus its
efforts on the ownership and operation of facilities, the Company has
identified approximately 60 to 70 markets within the United States which it
believes can support one or more golf practice and instruction facilities of
the type operated by the Company. Although there is no assurance that
additional facilities will be acquired, the Company's plan is to acquire or
develop a total of ten facilities during 1996 and an additional twelve
facilities by the end of 1997. In addition to the three golf practice and
instruction facilities it currently operates, the Company currently licenses
for operation by third parties 17 golf practice and instruction facilities
under the JACK NICKLAUS GOLF CENTER, JACK NICKLAUS ACADEMY OF GOLF and GOLDEN
BEAR GOLF CENTER brand names. THE Company intends to continue to support its
existing licensee base.
The Company's Golf Division also is involved in the marketing of golf
course designs on behalf of designers, primarily for the golf course design
division of GBI, Nicklaus Design. In addition, the Company provides club
management and consulting services to golf course owners, with five Nicklaus
designed courses currently under management in the United States and one
under management in Asia.
Through its Construction Division, the Company provides technical
construction services in connection with the construction and renovation of
golf courses. Since 1983, such construction services have been provided
throughout the world in the development of over 40 golf courses, most of
which were designed by Mr. Nicklaus through Nicklaus Design.
Through its Marketing Division, the Company licenses NICKLAUS, JACK
NICKLAUS and GOLDEN BEAR branded consumer products and operates its
Nicklaus/Flick Golf Schools. The Company believes, based upon estimated
mark-ups of wholesale prices or factory costs, that retail sales of the
Company's licensed products, including apparel and accessories, were
approximately $306 million world-wide in 1995, which generated approximately
$5.1 million of licensing revenue for the Company in 1995. The Company also
operates in its Marketing Division high-end golf schools under the
NICKLAUS/FLICK GOLF SCHOOL brand name. The Company has developed innovative
teaching methods which are offered at the Nicklaus/Flick Golf Schools
throughout the United States and serve as the basis for instruction at the
Company's
30
<PAGE>
golf practice and instruction facilities worldwide. The Company has invested
approximately $1.3 million in a proprietary teaching method including
instruction books and a computer assisted video swing analysis device. This
teaching methodology is the basis for the JACK NICKLAUS COACHING STUDIOS
included within the Company's golf practice and instruction facilities
worldwide as well as teaching at the Nicklaus/Flick Golf Schools.
The Company's strategy is to increase its worldwide revenue and operating
income by capitalizing on the growth and popularity of the game of golf and
Mr. Nicklaus' reputation, image and accomplishments as one of the greatest
golfers ever to play the game. Specific components of the Company's growth
strategy include (i) acquiring, leasing or entering into joint ventures for
well-located golf practice and instruction facilities that have the potential
for improvement under the Company's management and with improved or expanded
facilities; (ii) developing new golf practice and instruction facilities in
locations where suitable acquisition opportunities are not available; (iii)
capitalizing on the demand for the construction of new golf courses and the
renovation of existing courses; and (iv) broadening the Company's base of
branded consumer product offerings under the NICKLAUS, JACK NICKLAUS and
GOLDEN BEAR brand names. The Company also believes that cross-marketing of
its products and services will provide it with opportunities to maximize its
operating performance. To this end, it is anticipated that the acquisition
and development of new golf practice and instruction facilities will provide
the Company with additional opportunities to market its Nicklaus/Flick Golf
School programs and to sell its licensed products at retail pro shops
established at such facilities. Similarly, the Company believes that the
Company's arrangement as exclusive marketer of Nicklaus Design's services
will increase the exposure of the Company's products and provide it with a
competitive advantage in obtaining golf course construction and renovation
business.
INDUSTRY OVERVIEW
GENERAL
According to the National Golf Foundation ("NGF"), there were
approximately 25 million golfers (an individual age 12 or older who played at
least one round of golf during the survey year) ("Golfers") in the United
States in 1995, representing approximately 11.6% of the total United States
population age 12 or older. The average age of a Golfer in 1995 was
approximately 40 years old and the average household income of Golfers was
approximately $56,900. The Company believes that there will be an increased
demand for golf facilities and golf-related products as a result of the
increased interest in golf by the aging "baby boom" population, primarily as
a consequence of an increase in that group's disposable income and leisure
time and the appropriateness of golf as a sport for an aging population.
Total spending on golf-related equipment, merchandise, accessories,
playing fees and miscellaneous items (not including lessons) was estimated to
be approximately $16.3 billion for the twelve months ended August 1994.
Approximately 33% of such amount was for golf equipment and other golf
merchandise and approximately 67% of the amount was for club membership, cart
and greens fees. While the number of Golfers and rounds played increased only
moderately from 1986 through 1994, total spending by Golfers increased by
8.6% compounded annually over the same period.
Total spending can be analyzed further on a segment basis. The NGF
evaluates total spending by the following golfer frequency segments: AVID
GOLFER, a golfer aged 18 or older who played 25 rounds or more of golf during
the survey year; MODERATE GOLFER, a golfer aged 18 or older who played eight
through 24 rounds of golf during the survey year; and OCCASIONAL GOLFER, a
golfer aged 18 or older who played one through seven rounds of golf during
the survey year. Table 1 below provides the number of golfers, the average
age, average years played, average household income, and average rounds
played per golfer segment. Table 2 below reflects that Avid Golfers, though
comprising only 24% of the golfer population, represented 61% of all spending
on golf-related purchases by golfers. In addition, Table 2 reveals that Avid
Golfers' average annual expenditures are more than double that of Moderate
Golfers and approximately nine times greater than Occasional Golfers' average
annual expenditures. The Company believes that as the average Occasional and
Moderate Golfers age and move into the prime income producing stages of their
working lives, the number of Avid Golfers may be anticipated to increase and,
if this occurs, total expenditures on golf-related products and services
would also be anticipated to increase.
31
<PAGE>
TABLE 1
CHARACTERISTICS OF GOLFER SEGMENTS IN 1995
(AGE 18 YEARS AND OLDER)
OCCASIONAL MODERATE AVID
------------- ----------- ----------
GOLFER SEGMENTS:
Number of Golfers(000s) . 11,340 6,078 5,503
Average Age .............. 38 41 50
Average Years Played .... 13 15 21
Average Household Income $54,800 $57,400 $59,300
Average Rounds Played ... 3 14 62
- ----------
Source: NGF
TABLE 2
TOTAL SPENDING BY GOLFER FREQUENCY SEGMENT
PERCENT OF AVERAGE
PERCENT OF TOTAL ANNUAL
ALL GOLFERS SPENDING EXPENDITURES
-------------- ------------- ---------------
GOLFER SEGMENTS:
Avid ............ 24% 61% $1,710
Moderate ........ 26% 27% $ 719
Occasional ...... 50% 12% $ 183
- ----------
Source: NGF
The Company also believes that many new golf markets are developing
globally. In addition to the popularity of golf in Australia, Japan and New
Zealand, each with golfers representing approximately 10% of their respective
total populations based on Company estimates, the Company believes the Asian
and South American markets represent attractive markets for growth. As of
August 1995, the Company estimated that golfers represented less than 2% of
the total populations of China, Hong Kong, India, Korea, Malaysia, and
Thailand. The Company believes that its experience in international markets
and its brand name recognition and strong reputation will position it to
benefit from increased international demand for golf-related products and
services.
GOLF PRACTICE AND INSTRUCTION FACILITIES
The Company believes that one of the fastest growing segments of the golf
industry is the commercial golf range and golf course practice area segment.
The Company estimates that, since 1990, the number of stand-alone commercial
ranges has increased from approximately 1,200 to approximately 1,900 at the
end of 1995 in the United States. During the twelve months ended December
1994, approximately 11.1 million people used a stand-alone commercial range
in the United States. Currently, the stand-alone golf range industry is
highly fragmented; the Company estimates that over 90% of stand-alone ranges
are managed by owner-operators. The Company believes that this highly
fragmented industry presents advantageous opportunities for the Company to
acquire, upgrade and renovate golf centers and driving ranges throughout the
United States.
The Company believes that the growth in the golf practice and instruction
facilities markets has been driven by the steady inflow of new players, the
limited number of golf courses available for daily fee play, the increase in
the number of beginners to the sport who are intimidated on a golf course and
32
<PAGE>
the cost and time required to play rounds on overcrowded golf courses. In
addition, the Company believes that municipalities and real estate developers
are looking to establish affordable recreation alternatives in their
communities, and the Company believes golf practice and instruction
facilities meet their objectives by providing wholesome, family oriented,
affordable recreational and entertainment facilities.
GOLF COURSE CONSTRUCTION
As of December 31, 1995, there were approximately 15,000 golf courses in
the United States, with approximately 1,900 of such courses opening since
December 31, 1990. The construction of golf courses has trended upward since
1990. During 1995, 468 golf courses opened in the United States. Golf course
openings in 1995 increased by approximately 23% over golf course openings in
1994. From 1990 to 1995 the number of golf courses open for play increased by
approximately 10.3%. At year end 1995, 820 golf courses were under
construction, with approximately 500 of these anticipated to open in 1996. In
addition to the United States, the Company believes emerging markets like
China, India, South America and South Africa represent significant golf
course design and construction opportunities. This belief is based on the
size of the populations in these emerging markets, the receptivity of these
cultures to American exports, the fact that the climate in these areas are
generally conducive to resort activities, and the rising popularity of the
game of golf internationally.
GOLF DIVISION
The Golf Division is involved in the operation and licensing of the
Company's golf practice and instruction facilities and the provision of golf
course management and consulting services primarily to owners and operators
of Nicklaus designed golf courses. In addition, through the Golf Division,
the Company markets golf course design services for Nicklaus Design, a
division of GBI. The Golf Division had revenues of $2.3 million in 1995,
compared to $1.9 million in 1994 and $1.5 million in 1993. The Company
believes that its owned and licensed golf facilities are differentiated from
its competitors on the basis of consumers' recognition of the JACK NICKLAUS
and GOLDEN BEAR brand names, the quality of the facilities and the unique and
individualized golf instruction programs designed by Jack Nicklaus and Jim
Flick available at the facilities.
GOLF CENTERS AND ACADEMIES
The Company's golf centers and academies are golf practice and instruction
facilities designed to provide golf practice facilities, affordable golf
instruction and related recreational activities. Revenue attributable to the
Company's golf centers and academies was approximately $1.0 million in 1995,
compared to approximately $0.7 million in 1994 and approximately $0.6 million
in 1993. Domestically, the Company currently operates three golf centers and
has entered into agreements or letters of intent regarding the proposed
acquisition of four existing facilities (three of which are currently
operated by licensees of the Company) and two facilities currently under
development by a licensee of the Company. In addition to the facilties
operated by licensees which are the subject of the agreements or letters of
intent, there are presently seven other licensed GOLDEN BEAR GOLF CENTERS
being operated by licensees of the Company in the United States, with three
additional licensed facilities scheduled to open in 1996. Internationally,
the Company's licensees operate seven facilities under the name JACK NICKLAUS
GOLF CENTERS and JACK NICKLAUS ACADEMY OF GOLF which are located in the
Pacific Rim and England.
DOMESTIC OPERATIONS. The owned and licensed domestic golf centers are
generally centered around a practice range designed with target greens,
bunkers and traps to simulate golf course conditions. The ranges generally
feature both covered and uncovered hitting stations to maximize usage under
all weather conditions and are lighted to permit nighttime use. In addition
to the practice range, the golf centers typically include short game practice
areas, including putting greens and sand traps, comprehensive GOLDEN BEAR
instruction programs designed by the internationally recognized NICKLAUS/
FLICK GOLF SCHOOL, a JACK NICKLAUS COACHING STUDIO (a proprietary multimedia
video and computer
33
<PAGE>
swing analysis system) and a clubhouse facility which typically includes a
full-line retail pro shop, limited locker facilities and a restaurant or
snack bar. The domestic golf centers generally also include other
recreational amenities such as miniature golf courses and baseball batting
areas.
The Company currently operates three golf practice and instruction
facilities and recently entered into agreements or letters of intent
regarding the proposed acquisition of four additional existing facilities and
two facilities currently under development. See "The Company--Recent
Acquisitions." While there is no assurance that it will successfully do so,
the Company's goal is to acquire or develop a total of ten facilities during
1996 and an additional twelve facilities by the end of 1997. While the
Company intends to continue to support its existing licensee network, the
Company's present strategy is to focus its efforts on the direct ownership
and operation of facilities, including pursuant to joint ventures, and to
pursue new licenses and enter into additional territory development
agreements only in locations and territories where the Company does not
intend to acquire or develop its own facilities. The Company anticipates that
it will add golf centers either by acquiring or converting existing golf
centers or practice facilities or by acquiring undeveloped sites and
constructing new golf centers. The Company believes the highly fragmented
golf range industry presents advantageous opportunities for the Company to
acquire, upgrade and renovate golf centers and driving ranges over the next
five years. The Company believes that its GOLDEN BEAR branding and its
instruction programs will provide the Company with a competitive advantage
and differentiate GOLDEN BEAR GOLF CENTERS from other range operators. See
"Risk Factors--Expansion Strategy and Additional Financing Requirements" and
"--Acquisition of Additional Golf Centers and Limited History of Direct
Operations."
Currently, there are ten licensed GOLDEN BEAR GOLF CENTERS in the United
States which are operated by three owners, none of which is affiliated with
the Company. As discussed above, the Company has recently entered into
agreements or letters of intent to acquire or lease three of such facilities.
Each licensee has been provided an exclusive license in a specified territory
to operate a GOLDEN BEAR GOLF CENTER and is able to utilize certain of the
Company's trademarks, servicemarks and other rights relating to the operation
of the facility. Additionally, the Company has agreements with two licensees
which grant to the licensees the exclusive right to develop five GOLDEN BEAR
GOLF CENTERS within the Baltimore, Maryland and Fairfax, Virginia areas.
Licensees are required to operate their GOLDEN BEAR GOLF CENTERS in
compliance with the Company's methods, standards and specifications regarding
such matters as facility design, site approval, layout and design of teaching
and practice-related facilities, fixtures and furnishings, decor and signage,
merchandise type, presentation and customer service. Licensees are not
required to purchase supplies or products from the Company other than the
workbooks, software and manuals associated with the teaching studios which
must be included in each facility. Licensees pay a facility license fee of
$25,000-$35,000 for each facility opened by the licensee within the
designated territory, and pay continuing monthly royalty fees of 3 to 5% of
adjusted gross revenues, subject to a minimum guaranteed royalty of $50,000
per year. In some instances, generally for facilities in less populated
areas, in lieu of monthly revenue-based royalty fees, fixed annual fees are
paid generally ranging between $35,000 and $45,000, subject to increases
based on the consumer price index. The Company's license fees, royalties and
other similar payments from its domestic golf center licensees totalled
approximately $101,000 for the first three months of 1996 and approximately
$461,000, $198,000 and $74,000 for the years 1995, 1994 and 1993,
respectively.
The Company has recently entered into letters of intent with two of its
existing licensees, East Coast and Highlander outlining the terms of proposed
joint venture agreements providing for the development and operation of
GOLDEN BEAR GOLF CENTERS over a five year period. The letters of intent
contemplate the granting of exclusive development rights in certain
territories in North Carolina, South Carolina, Dallas/Ft. Worth, Texas,
Orange County, California and Chicago, Illinois and non-exclusive development
rights in certain territories in Florida (excluding Palm Beach County), Ohio,
Long Island, New York, northern California, Nevada and San Diego County. It
is contemplated that the joint venture would enter into license agreements
with the Company containing the same general compliance standards and methods
described above with respect to the Company's other licensees. The rights and
obligations of the parties in the joint ventures will be defined and is
subject to the execution of binding
34
<PAGE>
definitive agreements. There is no assurance that definitive joint venture
agreements will ever be executed or that, if executed, that any GOLDEN BEAR
GOLF CENTERS will ever be developed by the joint ventures.
Set forth below is a list of the Company's existing domestic licensees and
the facilities operated.
LICENSEE GROUP EXISTING FACILITIES
------------------------- -------------------
Family Golf Centers, Inc. Henrietta, NY
Farmingdale, NY
Elmsford, NY
Douglaston, NY
Liverpool, NY
Wayne, NJ
El Segundo, CA
Highlander Golf Corp. Ltd.* Moreno Valley, CA
Carrollton, TX
East Coast Golf Centers, Inc.* Columbus, OH
- ----------
* The Company recently entered into letters of intent with Highlander and
East Coast regarding the proposed purchase of the facilities operated or
under development by Highlander and East Coast. See "The Company--Recent
Acquisitions."
INTERNATIONAL OPERATIONS. The Company has entered into license
agreements for the development and operation of golf center facilities
outside of the United States under the brand names JACK NICKLAUS GOLF CENTER
AND JACK NICKLAUS ACADEMY OF GOLF. The latter generally provides more
substantial practice facilities and practice golf holes on a larger site. In
some territories, the Company has granted a master license for a country or
region which gives the master licensee the exclusive right within defined
territories to own, operate or sublicense to others the right to own and
operate golf centers and golf academies in the territory. In other cases, the
Company has granted a site specific license similar to its domestic franchise
agreements giving the site licensee the right to open a single golf center or
golf academy at a specific location. The Company has generally granted its
foreign licensees an exclusive radius around the site of each facility.
The Company's foreign licensees currently have seven facilities open and
in operation and an additional three facilities are under development with
openings anticipated by the end of 1997. The Company has an agreement with a
corporate affiliate of its British licensees to market the Company's golf
facility licensing program, contact and identify prospective licensees within
the European Economic Community, and assist the Company in negotiating
license agreements with such prospects. Outside the United States, the
Company currently intends to continue to pursue licensing agreements, rather
than direct ownership of golf centers, although there is no assurance that
the Company will be successful in its licensing efforts. The Company's
license fees, royalties and other similar payments from its international
golf center operations totalled approximately $108,000 for the first three
months of 1996 and approximately $530,000, $527,000 and $478,000 for the
years 1995, 1994 and 1993, respectively.
MARKETING OF GOLF COURSE DESIGNS
Pursuant to a Design Services Marketing Agreement with GBI, the Company
markets golf course designs worldwide for Nicklaus Design. The Company may
also in the future seek to market golf course design for other designers and
architects subject to certain limitations set forth in the agreement. The
Company will receive 10% of gross design fees received by GBI. The Company
believes the marketing of Nicklaus Design provides a competitive advantage to
the Company in obtaining construction and renovation contracts as well as
obtaining club management contracts at Nicklaus Design courses. Revenues
attributable to such design fees were approximately $1.3 million in 1995,
compared to approximately $1.2 million in 1994 and $1.0 million in 1993. See
"Certain Relationships--Reorganization--Nicklaus Design Marketing
Agreement."
35
<PAGE>
Mr. Nicklaus has been a leader in the golf course design industry for more
than 25 years, having designed, co-designed or re-designed 124 courses that
are open for play. Seventeen of Mr. Nicklaus' course designs have been ranked
by GOLF DIGEST in the United States Top 100. In GOLF MAGAZINE'S latest
rankings of the "Greatest Courses in the World," four of Mr. Nicklaus'
designs are listed: Muirfield Village (Dublin, OH), Harbour Town (Hilton
Head, SC), Cabo del Sol (Los Cabos, Mexico) and Shoal Creek (Birmingham, AL).
GOLF COURSE MANAGEMENT
In 1995, the Company began offering comprehensive golf club management
services, including services related to course maintenance and marketing of
club operations. In addition to offering comprehensive club management, the
Company is available as a consultant or independent contractor to assist
clubs in developing conceptual plans, membership programs, employee policies
and procedures, operations manuals, job descriptions, budgets and financial
systems. The Company offers its management services primarily to owners and
operators of Nicklaus designed courses throughout the world and currently
provides management services to five golf facilities in the United States and
one in Asia.
CONSTRUCTION DIVISION
The Company provides comprehensive golf course construction services.
These services include project management, shaping, renovation and golf
course construction. While the Company originally only provided services for
Nicklaus designed golf courses, the Company began offering its golf course
construction services to non-Nicklaus designed golf courses in 1995. The
Company is currently shaping two golf courses for other architects, one in
the United States and one in Korea. The Company is presently working in eight
countries, including the United States, and is currently involved in the
construction of fourteen active projects. Revenues attributable to golf
course construction services were approximately $19.2 million in 1995,
compared to approximately $5.6 million in 1994 and approximately $2.2 million
in 1993.
The Company believes that the rapid development of golf courses in the
United States has been a direct result of the increased demand for access to
golf courses. In the United States, new facilities are presently being opened
for golf course communities, private clubs, semi-private courses, and daily
fee facilities at the rate of approximately one per day. In addition, the
demand for new golf courses has also substantially increased throughout
southeast Asia. In addition to Malaysia, Korea and Indonesia, where golf
course construction has been strong, the pace of golf course construction is
also increasing steadily in China and India. The Company believes that
emerging markets like China, India, South America, and South Africa represent
significant opportunities given their vast populations, cultures that are
increasingly receptive to American exports, climates which are conducive to
resort activities, and the rising popularity of the game of golf.
In addition to new construction, golf course renovation has become
increasingly popular in the United States as established courses try to
compete with newer facilities. Over time, even the best maintained golf
courses require some renovation. Such improvements are generally necessitated
by the effects of wear and tear, the introduction of new golf equipment and
technology which render a hole design or yardage obsolete, or improvements in
technology and efficiency which require upgrades of irrigation, drainage or
course features, including greens, tees and bunkers.
36
<PAGE>
The Company and its predecessors have furnished golf construction and
renovation services on approximately 39 golf courses since 1983, 9
domestically and 30 internationally. Set forth below are the projects
undertaken and services provided by the Company since 1993:
<TABLE>
<CAPTION>
YEAR LOCATION PROJECT DESCRIPTION
---- -------- -------------------
<S> <C> <C> <C>
1993 Chung Shan Hot Springs, Zongshan, China 18 - hole shaping
Eaglebend Golf Club, Big Fork, Montana 9 - hole construction
Governors Club, Chapel Hill, North Carolina 9 - hole construction
Ishioka Country Club, Ogawa, Japan 18 - hole shaping
Le Robinie Golf Club, Solbiate, Italy 18 - hole shaping
London Golf Club, London, England 36 - hole shaping
Miramar Linkou, Taipei, Taiwan 36 - hole shaping
1994 Borneo Golf Club, Kota Kinabalu, Malaysia 18 - hole construction
English Turn, New Orleans, Louisiana 18 - hole renovation
Hammock Creek, Stuart, Florida 18 - hole construction
Jeredong Resort Golf Course, Brunei 18 - hole project
management/shaping
La Gorce Country Club, Miami, Florida 18 - hole renovation
Sanyo Golf Club, Okyama, Japan 18 - hole shaping
1995 Montreux Golf Club, Reno, Nevada 18 - hole construction
Top Of The Rock, Branson, Missouri 9 - hole construction
Indigo Run Country Club, Hilton Head, South Carolina 18 - hole construction
MacGregor Golf Course, Gumma-ken, Japan 18 - hole shaping
Suzhou Golf Course, Suzhou, China 18 - hole project
management/shaping
Oshige Country Club, Nagoya, Japan 18 - hole shaping
Rokko Kokusai, Kobe, Japan 9 - hole shaping
Borneo Golf Club, Kota Kinabalu, Malaysia 18 - hole construction
Classic Golf, New Delhi, India 18 - hole construction
Beijing Well Bond, Beijing, China 36 - hole construction
</TABLE>
The Company believes it is well-positioned to continue to grow its golf
course construction and renovation activities given its full service
organization, its strong reputation and the Company's contractual arrangement
as exclusive marketing agent for Nicklaus Design. The Company markets its
services simultaneously with its marketing of Nicklaus Design services. The
Company believes its association with Nicklaus Design provides it a
competitive advantage based on its opportunity to meet with prospective
developer clients at the earliest stage of a course's planning and the fact
that its familiarity with the Nicklaus Design philosophy enables the Company
to anticipate problems and reduce duplication of efforts. In addition, the
Company believes that the combination of Nicklaus Design with the other
services offered by the Company, provide clients with an array of
high-quality services with the convenience and advantages of "one-stop
shopping." While the relationship with Nicklaus Design may be a disadvantage
in obtaining the work of other course designers, the Company believes that
Paragon's reputation and service will attract non-Nicklaus design firms to
utilize Paragon's services. See "Certain Relationships and Related
Transactions--Reorganization--Nicklaus Design Marketing Agreement."
The Company's construction services are generally offered pursuant to
either a general construction contract or a technical services agreement. The
Company may also supply specialized golf construction services to third
parties on a subcontract or consulting basis where warranted by the needs of
the customer. The general construction contract generally offers developers
and owners comprehensive management of the entire course construction process
on a cost plus fee or a fixed price basis. Under a technical services
agreement, the Company typically provides only a technical team, which
generally consists of a project manager, shapers, finishers and foremen. This
team focuses primarily on the management of personnel and equipment and the
purchase of materials required for
37
<PAGE>
the construction of the golf course. Payments for construction services are
generally made in installments over the term of the contract based on the
stage of completion of the project.
MARKETING DIVISION
The Marketing Division is involved primarily in the licensing of NICKLAUS,
JACK NICKLAUS, and GOLDEN BEAR branded products and services throughout the
world and the operation of the Nicklaus/Flick Golf Schools. The Marketing
Division focuses its efforts on combining the marketing power associated with
the recognition and reputation of the Jack Nicklaus brand names with high
quality products and services in the markets it serves. The Company believes
that, based upon estimated mark-ups of wholesale prices or factory costs,
retail sales of the Company's licensed products were $320 million in 1995,
which generated approximately $5.1 million in licensing revenue for the
Company in 1995. The Marketing Division, as a whole, had revenues of $10.1
million in 1995 compared to $9.1 million in 1994 and $8.1 million in 1993.
MARKETING AND LICENSING
The Company manages Jack Nicklaus' brands and marketing relationships. The
Company's activities include the licensing and marketing of a wide variety of
Jack Nicklaus branded consumer products and services, primarily under the
NICKLAUS, JACK NICKLAUS, and GOLDEN BEAR brand names. These three separate
brands are targeted at distinct markets segmented by product design,
distribution channels and price. The Company believes that the continued
growth in the popularity of golf worldwide represents a strong opportunity to
grow the NICKLAUS, JACK NICKLAUS, and GOLDEN BEAR brand names. In addition,
the Company believes that the trend toward casual dress in the workplace and
the growing importance of leisure activities within its target markets should
enhance the growth potential of its brands.
The Company currently licenses the Jack Nicklaus brands to over 20
companies which distribute products in over 35 countries. The largest markets
for the Company's branded markets are currently the United States, Korea and
Japan. Licensed product categories includes men's and women's sportswear,
men's tailored clothing, neckwear, luggage, socks, headwear, belts, small
leather goods, jewelry, accessories, calendars and various forms of artwork
and commemoratives.
The Company's licensing of apparel outside of the United States and Europe
is conducted exclusively through JNAI, a joint venture with an affiliate of
Hartmarx Corporation. This joint venture has in turn entered into separate
licensing arrangements through partnerships relating to Japan (the "Japanese
Partnership") and the rest of Asia (the "Asian Partnership"). Pursuant to
such arrangements, JNAI will receive from 50% to 75% of the revenues of the
Japanese Partnership and approximately 66 2/3 % of amounts distributed by the
Asian Partnership.
The Company also has developed two types of "marketing partnerships" for
Mr. Nicklaus with selected companies worldwide. These partnerships involve
either Mr. Nicklaus' personal endorsement and use of his likeness or
strategic marketing alliances which utilize golf and the Company's marketing
capabilities to help market a partners' products or services. Such marketing
partnerships have been established with, among others, Lincoln-Mercury, a
division of Ford Motor Company, Gulfstream Aerospace Corporation, Rolex,
Textron, GOLF MAGAZINE and Griptec. Marketing partnerships are important to
the Company in that they increase the exposure and reinforce the image of Mr.
Nicklaus and his brands in the Company's target markets. The Company will
receive a percentage of all revenues received by Mr. Nicklaus for personal
endorsement services obtained through the marketing efforts of the Company
equal to (i) 30% of all such revenues under any existing contract or
arrangement or renewal thereof and (ii) an agreed upon amount not less than
20% of all such revenues received under any new contract or arrangement. The
Company will receive 100% of any revenues associated with strategic marketing
alliances. Revenues attributable to such marketing arrangements were
approximately $0.5 million in 1995, compared to $0.3 million in 1994 and $0.1
million in 1993. See "Certain Relationships and Related
Transactions--Reorganization--Personal Services Management Agreement."
38
<PAGE>
The Company's marketing and licensing strategy is to (i) expand the
worldwide sales of the Company's products, particularly throughout the United
States, Europe and Asia; (ii) selectively expand its licensed product lines,
particularly in accessories and women's sportswear; (iii) work with existing
licensees to maximize brand advertising and promotional exposure; and (iv)
develop new licensing relationships for product categories that are
appropriate for Jack Nicklaus brands, such as home furnishings and skincare.
The Company is also considering several retail strategies, including stand
alone retail shops devoted primarily to the Company's branded products and
the creation of dedicated areas in golf shops and better department stores.
No assurances can be given that any such retail strategies will be
undertaken. The Company will seek to create dedicated areas for the sale of
the Company's branded products within the pro shops of GOLDEN BEAR GOLF
CENTERS and at Nicklaus designed golf courses.
39
<PAGE>
The following table sets forth the Company's principal licensees and
products:
<TABLE>
<CAPTION>
LICENSED LICENSEE
LICENSEE PRODUCTS BRANDS TERRITORIES SINCE
- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C>
Hart, Schaffner & Marx, a Slacks, JACK NICKLAUS United States 1969
business unit of Hartmarx sportscosts,
Corporation blazers,
woven dress
shirts
Trans-Apparel Group, a business Men's and JACK NICKLAUS North 1990
unit of Hartmarx Corporation women's NICKLAUS America
shirts, slacks, Europe
shorts,
blazers,
socks,
sweatshirts,
outerwear,
rainwear
The Rockport Corporation Casual and JACK NICKLAUS Worldwide 1992
dress shoes, GOLDEN BEAR
golf shoes
Brookville Corporation Neckwear JACK NICKLAUS United States 1995
NICKLAUS
Abba Accessories, Inc. Cufflinks, JACK NICKLAUS United States 1995
belt buckles, NICKLAUS Great Britain
tie bars and
tacks
Platinum Hosiery Socks JACK NICKLAUS United States 1995
NICKLAUS
American Contract Luggage JACK NICKLAUS United States 1995
Manufacturers, a business unit NICKLAUS
of Boyt
Italian Design Group Belts and JACK NICKLAUS United States 1995
small leather NICKLAUS Great Britain
goods
JNAI: Men's and JACK NICKLAUS Japan 1973
Partnership with ladies' NICKLAUS Southeast
Hartmarx Corporation sportswear GOLDEN BEAR Asia
Australia
South Africa
South America
JNAI/FE: Men's and JACK NICKLAUS Thailand 1973
Partnership between JNAI and ladies' NICKLAUS Indonesia
Kosugi Sangyo to license sportswear GOLDEN BEAR Korea
Jack Nicklaus brands in Asia and Malaysia
accessories Singapore
Philippines
JNJ: Hats, ties, JACK NICKLAUS Japan 1995
Partnership between JNAI and men's/ladies'/ NICKLAUS
Kosugi Sangyo to serve as children's GOLDEN BEAR
master licensee in Japan sportswear, MUIRFIELD
glovles, belts,
luggage,
casual and
business bags
and eyewear
</TABLE>
40
<PAGE>
NICKLAUS/FLICK GOLF SCHOOLS
The Company operates high-end golf schools principally under the
NICKLAUS/FLICK GOLF SCHOOL ("NFGS") brand name. Jack Nicklaus and Jim Flick,
a world renowned instructor, collaborated to develop a program which has been
recognized by major golf publications for its leadership role in the golf
instruction industry since the school's inception in 1991. Revenues
attributable to golf instruction were $3.5 Million in 1995, compared to $3.0
Million in 1994 and $2.3 Million in 1993.
The Company believes that growth in the golf instruction industry is
driven by existing golfers' desire to continually improve their golf games
and by new golfers seeking to learn the game. Historically, instruction was
provided by local golf professionals. In recent years technological changes
have made possible the development of sophisticated instruction products and
computer programs for use in teaching. The Company has invested approximately
$1.3 million in a proprietary teaching method including instruction books and
a computer assisted video swing analysis device. This teaching methodology is
the basis for the JACK NICKLAUS COACHING STUDIOS included within the
Company's golf practice and instruction facilities worldwide as well as
teaching at the NFGS.
The NFGS offers over 85 Master Golf Instruction multi-day programs
including several specialty programs targeted at women, couples, parents and
children and special alumni groups. NFGS currently operates as an independent
contractor at five resort destinations and/or private clubs located in the
United States: Pebble Beach, Monterey, California; Desert Mountain Golf Club,
Carefree, Arizona; Ibis Golf & Country Club, Palm Beach, Florida; Boyne
Highlands Resort, Harbor Springs, Michigan; and Park Meadows, Park City,
Utah. The Company is currently pursuing additional venues for its NFGS
operations.
The target market for the NFGS retail schools is consumers who have
significant disposable income. NFGS has historically priced its package
offerings at the upper end of golf school pricing which is consistent with
other Company product offerings. The Company is considering commencing
operation of a moderately priced golf school under the GOLDEN BEAR brand name
in 1997. The Company currently markets retail schools principally through:
(i) direct response media advertising; (ii) direct mail programs targeted at
NFGS graduates (currently over 3,000) and high net worth golfers; (iii) word
of mouth referrals; and (iv) telemarketing.
The NFGS teaching faculty is currently comprised of 18 teaching
professionals selected by Jack Nicklaus and Jim Flick, six of whom were
included in GOLF MAGAZINE's list of the top 100 golf instructors in the
United States in 1995. These professionals have been trained in a philosophy
that is consistent with Jack Nicklaus' approach to playing the game and Jim
Flick's approach to teaching. Most of NFGS' instruction staff are independent
outside contractors and their agreements with NFGS are negotiated annually.
In addition to its regular three and five-day consumer packages, NFGS
provides businesses and corporations with a wide range of program
alternatives including, three-day executive golf programs, one-day golf
outings, charity golf events and hospitality programs at select professional
tour events. These corporate programs, which operate under the brand name
GOLDEN BEAR EXECUTIVE GOLF, are designed specifically for corporations as an
effective way to entertain clients, strengthen business relationships, reward
top performers and raise funds for charitable organizations. The corporate
programs also expose a wide variety of people to the Company's golf programs,
which provide future referral sources for the NFGS retail sessions.
JACK NICKLAUS INTERNATIONAL GOLF CLUB
The Jack Nicklaus International Golf Club was founded in mid-1995 to
provide additional benefits to Nicklaus Design golf courses. The Jack
Nicklaus International Golf Club is a proprietary membership club which
offers its members an opportunity to obtain a variety of member services
including golf playing privileges at prestigious private clubs worldwide that
feature a Jack Nicklaus Signature or
41
<PAGE>
Nicklaus Design golf course. Membership in the Club is by invitation only and
is restricted to members of the golf clubs that agree to participate in the
program ("Host Clubs"). There are currently approximately 70 Host Clubs.
Members enjoy reciprocal playing and guest privileges at each of the Host
Clubs. The current membership fee is $250 per year. There is no membership
fee to the participating Host Clubs and each is permitted to impose a direct
charge for golf playing privileges extended to Club members. In addition to
fees generated from its members, the Company may receive revenues through
travel services and the sale of golf-related products. The Company believes
the availability of the Jack Nicklaus International Golf Club assists the
Company's marketing efforts on behalf of Nicklaus Design.
COMPETITION
The Company's competition varies among its business lines. The markets in
which the Company competes in its Golf Division are generally highly
competitive. The Company's golf practice and instruction facilities compete
against other golf centers, traditional golf ranges, golf courses and other
recreational pursuits. Competition for prime locations is intense.
Competition associated with the Company's golf practice and instruction
facilities primarily relates to the location, the quality of the facilities
and services offered, marketing of the facilities and proximity to other golf
centers. In the provision of golf course construction and golf course
management and consulting services, the Company faces competition both
domestically and internationally from several national golf course
construction firms and golf course management firms, as well as from several
smaller regional firms. Competition in golf course construction is based
mainly on reputation, quality of service, experience and price. While many of
the Company's Golf Division competitors and potential competitors have
considerably greater financial resources and experience than does the
Company, the Company believes that its well recognized brand names and its
reputation for providing high quality, innovative products and services will
distinguish it from its competitors.
The consumer markets for goods and services in which the Company's
Marketing Division competes are extremely competitive, with the Company's
products and services competing against a mix of established brand name
consumer products and services, products and services licensed or endorsed by
sports and entertainment celebrities, private label products and generic
products which have not established a distinct brand identity. Competition in
these products and services is centered mainly on styling, quality, price,
brand recognition and service. In order for the Company to be competitive in
these marketplaces, the Company must effectively maintain and promote the
unique brand image of its services and its licensed products among consumers
and establish strong marketing relationships with manufacturers and
distributors of products which enhance that brand image. While the Company
believes that its strong brand name recognition and established licensing and
distribution networks will enable it to compete effectively, the Company and
its licensees compete with a number of manufacturers and marketers of
sporting goods, recreational products, apparel and other consumer products
and services, many of which have substantially greater resources than the
Company and its licensees and many of which have well recognized brand names
and broader and more established distribution networks. These markets also
face competition from other leisure and recreational activities and sales of
leisure and recreational products and services are affected by changes in
consumer preferences, which are difficult to predict.
EMPLOYEES
As of March 31, 1996, the Company had approximately 140 employees. In
addition, the Company hires a number of part-time employees during peak
seasonal periods. The Company has no collective bargaining agreements
covering any of its employees, has not experienced any material labor
disruption and is unaware of any efforts or plans to organize its employees.
The Company considers relations with its employees to be satisfactory.
42
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
The Company's NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names are
believed by the Company to be well-recognized by consumers and therefore
important in the sales of its products. The public identification of these
brands has been developed historically through their association with the
personal rights of Jack Nicklaus as a living individual to commercialize his
personality under common law and various statutes enacted in certain domestic
states and foreign countries. As part of the Reorganization, the Company will
acquire from GBI the exclusive royalty-free right to utilize and license the
major trademarks and service marks which have been developed under common law
prior to the formation of the Company, including marks previously registered
in the United States and various foreign countries in which products or
services are currently sold by GBI and its licensees, and the right, subject
to the approval of GBI, to obtain the registration of additional trademarks
and service marks for the future expansion of the business of the Company.
The Company also will acquire rights to utilize customer lists, trade
secrets, know-how, and certain copyrighted materials necessary or useful in
the conduct of its business, including intellectual property currently
provided to the predecessors of the Company under license from GBI. See
"Certain Relationships and Related Transactions--Reorganization--Trademark
License," "Risk Factors--Dependence Upon Jack Nicklaus and Use of the
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR Names and Symbols" and "--Dependence
on Licensed Trademarks."
PROPERTIES
The following table sets forth certain information concerning the
Company's corporate and administrative offices:
<TABLE>
<CAPTION>
APPROXIMATE NATURE
SQUARE OF
LOCATION PRIMARY USE FOOTAGE OCCUPANCY TERM
- -------- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
North Palm Beach,
Florida ........ Corporate and administrative offices 16,000 Lease 2000
Singapore ........ Corporate and administrative offices 3,000 Lease 1997
</TABLE>
The Company subleases its corporate headquarters in North Palm Beach,
Florida from GBI, a private company controlled by Nicklaus Family Members.
The Company believes that its corporate and administrative offices are
adequate and suitable for its current needs. See "Certain Relationships and
Related Transactions--Reorganization--Sublease and Sharing Agreement." The
Company has also commenced the operations of three golf instruction and
practice facilities and has entered into agreements or letter agreements
regarding the proposed acquisition of four additional existing facilities and
two facilities currently under development which are described under "The
Company--Recent Acquisitions."
GOVERNMENTAL REGULATION
The Company's golf centers and its golf course and construction operations
are subject to various federal, state, local and foreign laws and regulations
designed to protect the environment from waste emissions, the handling,
treatment and disposal of solid and hazardous wastes and the remediation of
contaminates associated with the use and disposal of hazardous substances.
Although the Company believes that it is in substantial compliance with all
such laws, ordinances and regulations applicable to its properties and
operations, there can be no assurance that compliance with such requirements
in the future will not have a material adverse effect on the Company's
financial condition. It is the Company's general practice to hire
environmental consultants to conduct environmental assessments, including
invasive procedures such as soil sampling or ground water analysis, on golf
facilities it owns, operates or intends to acquire or develop, in some cases
only limited invasive procedures are conducted on such properties.
Accordingly, there may be environmental liabilities or conditions associated
with such properties of which the Company is not aware. The Company is also
subject to the federal Occupational Safety and Health Act and other laws and
regulations affecting the safety and health of employees.
43
<PAGE>
Further, the Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. Additionally, certain
restaurants and snack bars at the Company's golf facilities serve alcoholic
beverages and are subject to certain state "dram shop" laws, which provide a
person injured by an intoxicated individual the right to recover damages from
an establishment that wrongfully served such beverages to the intoxicated
individual. The Company will also be subject to foreign immigration, labor,
safety and environmental laws in those jurisdictions where the Company
performs services.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings that have arisen in
the ordinary course of its business. The Company does not believe that it is
currently involved in any legal proceedings which, individually or in the
aggregate, could be expected to have a material adverse effect on its
operations or financial position.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names and ages of the directors and
executive officers of the Company as well as the positions and offices held
by such persons. Each of the Company's executive officers is currently
employed by and provides services to GBI and/or various of the Operating
Subsidiaries. Upon completion of the Offering, each of the Company's
executive officers other than Messrs. Nicklaus, Bellinger and Bates, will be
employed solely by the Company. Messrs. Bellinger and Bates have agreed to
dedicate a minimum of 80% of their business time to providing services to the
Company. Mr. Nicklaus, in addition to the time necessary to serve as Chairman
of the Board, will only be required to spend a maximum of ten days performing
personal services or making appearances in connection with the Company's
licensing arrangements and marketing partnerships. A summary of the
background and experience of each of these individuals is set forth after the
table. The officers of the Company serve at the discretion of the Company's
Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Jack W. Nicklaus .... 56 Chairman of the Board
Richard P. Bellinger 44 President, Chief Executive Officer and Director
Mark F. Hesemann .... 42 Senior Vice President and Director
Thomas P. Hislop .... 39 Senior Vice President and Director
Jack P. Bates ........ 36 Senior Vice President and Chief Financial Officer
</TABLE>
JACK W. NICKLAUS serves as the Chairman of the Board of the Company. Mr.
Nicklaus founded GBI in 1970 and has served as Chairman of the Board of GBI
since its inception. Mr. Nicklaus, who has been a professional golfer for
over 35 years, continues to be one of professional golf's most recognized
players. Mr. Nicklaus also has over 25 years experience as a golf course
designer, having designed 124 courses in 23 countries. Mr. Nicklaus received
the Athlete of the Decade Award (1970-1979) from SPORTS ILLUSTRATED magazine
and the Golfer of the Century Award in 1988.
RICHARD P. BELLINGER is a member of the Company's Board of Directors and
serves as the President and Chief Executive Officer of the Company. Mr.
Bellinger joined GBI in 1979 as Controller for the golf course and real
estate development areas of GBI. In 1981, he was promoted to Treasurer, and
in 1984, became GBI's Chief Financial Officer. Mr. Bellinger was promoted to
Chief Operating Officer of GBI in 1985 and was named President in 1989. Mr.
Bellinger graduated from the University of Miami where he earned both his BBA
in accounting and his MBA.
MARK F. HESEMANN is a member of the Company's Board of Directors and
serves as the Senior Vice President of the Company, with primary
responsibility for the Company's Golf Division. Mr. Hesemann joined GBI in
1982 as Director of Marketing. He became Executive Vice President of Jack
Nicklaus Club Management, a division of GBI in 1984 and was named Vice
President of GBI in 1985 with responsibility for marketing of Jack Nicklaus
Golf Services, the golf course design division of GBI. He became General
Manager of Jack Nicklaus Golf Services in 1986 and assumed the additional
responsibility of Senior Vice President of GBI in 1992. From October 1994 to
January 1996, Mr. Hesemann served as Managing Director in charge of all of
GBI's business in Asia. Mr. Hesemann graduated from Indiana University where
he earned both a BS in Marketing and an MBA in International Finance.
THOMAS P. HISLOP is a member of the Company's Board of Directors and
serves as a Senior Vice President of the Company, with primary responsibility
for the Company's Marketing Division. Mr. Hislop joined GBI in 1984 as
Director of Marketing. Mr. Hislop became Vice President of Marketing in 1985
with responsibility for Jack Nicklaus' marketing and endorsement
relationships. Mr. Hislop was named General Manager of Jack Nicklaus
Marketing Services in 1986, Senior Vice
45
<PAGE>
President of GBI in 1992 and member of GBI's Executive Committee in 1994. Mr.
Hislop completed his undergraduate education at Bucknell University and
obtained his MBA from Harvard Business School.
JACK P. BATES serves as a Senior Vice President and the Chief Financial
Officer of the Company. Mr. Bates joined GBI in 1984. From 1985 to 1993, he
served as Treasurer and became Chief Financial Officer, Senior Vice President
and an Executive Committee member of GBI in 1993. Mr. Bates is a member of
the Florida Institute of Certified Public Accountants. He received a Bachelor
of Science Degree in Accounting from Florida Southern College.
BOARD OF DIRECTORS
GENERAL. The Board of Directors of the Company is currently comprised of
four directors. The Company anticipates that the Board of Directors will be
comprised of seven directors, including the four current directors and three
independent directors to be appointed as soon as practicable but no later
than 90 days after consummation of the Offering. The directors will be
divided into three classes at the first annual meeting of shareholders after
the Offering. At such meeting, one class will be elected to serve a term
expiring one year thereafter, the second class will be elected to serve for a
term expiring two years thereafter and the third class will be elected to
serve for a term expiring three years thereafter. After expiration of such
initial terms, each class will be elected for a three-year term. Directors
may be removed only for cause and only by the affirmative vote of holders of
greater than 66 2/3 % of the total voting power of the Company.
COMMITTEES. Upon election of the additional directors, the Board of
Directors will establish an Audit Committee and a Compensation Committee. The
Audit Committee, which will consist of at least a majority of directors who
are not employees of the Company, will, among other things, make
recommendations to the Board of Directors regarding the independent auditors
for the Company, approve the scope of the annual audit activities of the
independent auditors and review audit results and have general responsibility
for all auditing related matters. The Compensation Committee will consist
entirely of directors who are not employees of the Company. The Compensation
Committee will recommend to the Board of Directors compensation plans and
arrangements with respect to the Company's executive officers and will
administer certain employee benefit plans, including the Company's 1996 Stock
Option Plan.
COMPENSATION OF DIRECTORS. The Company intends to implement a compensation
program for non-employee directors pursuant to which such directors will
receive fees and stock options. Non-employee directors will be entitled to
receive $20,000 per year for his or her services as a director plus
reimbursement of travel expenses to board and committee meetings. Pursuant to
the Company's 1996 Stock Option Plan, non-employee directors automatically
are granted each year, on the first business day following the Company's
annual meeting of shareholders, non-qualified options to purchase 1,000
shares of Class A Common Stock at an exercise price equal to the fair market
value of the Common Stock on the date of grant, and having a term of ten
years. Directors who are also employees of the Company will receive no
additional compensation for service as a director other than reimbursement of
out-of-pocket travel expenses associated with attendance at meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company had no separate compensation committee
or other board committee performing equivalent functions. The Company's Board
of Directors carried out this function. Each of the directors of the Company
participated in deliberations concerning executive compensation.
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by Mr.
Nicklaus and the Company's four most highly compensated executive officers
for services rendered in all capacities to GBI and the Operating Subsidiaries
for the fiscal year ended December 31, 1995.
SUMMARY HISTORICAL COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(2) ($) ($) ($)(3)
- --------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jack W. Nicklaus 1995 800,000 0 -- 8,550
Chairman of the Board
Richard P. Bellinger 1995 400,000 16,250 -- 58,176
President and Chief Executive Officer
Mark F. Hesemann 1995 172,700 8,125 -- 40,604
Senior Vice President
Thomas P. Hislop 1995 175,000 9,800 -- 21,396
Senior Vice President
Jack P. Bates 1995 150,000 5,417 -- 20,330
Senior Vice President and Chief
Financial Officer
</TABLE>
(1) Only approximately 50% of the amounts included in the "Annual
Compensation" and "All Other Compensation" columns for Messrs. Bellinger,
Hesemann and Bates and 15% of such amounts for Mr. Nicklaus, were
expenses allocated to the Predecessor Companies for services rendered by
such individuals to such companies and reflected in the historical
financial statements of the Company. The remainder of such amounts were
expenses allocated to divisions of GBI and its affiliates not being
contributed to the Company pursuant to the Reorganization.
(2) Pursuant to employment agreements with the Company, Messrs. Nicklaus,
Bellinger, Hesemann, Hislop and Bates will receive annual base salaries
of $125,000, $450,000, $210,000, $210,000 and $160,000. See
"Management--Employment Agreements."
(3) The amounts included in the "All Other Compensation" column represent
matching contributions made by the Company under the Company's 401(k)
plan, allowances for automobile related expenses and profit sharing
contributions.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan was adopted in July 1996. A total of
675,000 shares of Class A Common Stock may be issued under the 1996 Stock
Option Plan. The Company has granted under the 1996 Stock Option Plan,
subject to the closing of the Offering, options to purchase 384,000 shares of
Class A Common Stock, exercisable at the initial public offering price set
forth on the cover page hereof. Messrs. Bellinger, Hesemann, Hislop and Bates
have received options to purchase 96,000, 32,000, 32,000 and 32,000 shares of
Class A Common Stock, respectively, under the Company's 1996 Stock Option
Plan pursuant to their employment agreements. Additionally, pursuant to an
employment agreement with Mr. Nicklaus, the Company has agreed to grant Mr.
Nicklaus options to purchase 65,000 shares of Class A Common Stock each year
for a period of four years, commencing one year after consummation of the
Offering at the fair market value on the date of grant. See "Management--
Employment Agreements."
Pursuant to the 1996 Stock Option Plan, the Company may grant incentive
stock options within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), to employees, and non-qualified stock
options to non-employee directors, independent contractors and agents, as
well as to employees of the Company. The 1996 Stock Option Plan provides for
administration by a committee of the Board of Directors. As stated above, the
compensation committee of the Board of Directors (the "Compensation
Committee"), once it is established, will administer the 1996 Stock Option
Plan.
47
<PAGE>
The Compensation Committee will select the optionees (excluding
non-employee directors), authorize the grant of options and determine the
exercise price, terms and vesting schedule for options. The Compensation
Committee also has the authority to prescribe, amend and rescind rules and
regulations relating to the Plan, to accelerate the exercise date of any
option, to delegate authority to specific members or a committee of
management, and to interpret the Plan and make all necessary determinations
in administering the Plan. All options granted under the Plan shall be
evidenced by written option agreements, which shall contain such provisions,
including, without limitation, restrictions upon the exercise of the options,
as the Compensation Committee shall determine.
Under the 1996 Stock Option Plan, an option to purchase 1,000 shares shall
be granted to each person who is a non-employee director on the first
business day following the annual meeting of shareholders of the Company.
These non-employee director options shall terminate 10 years from the date of
grant.
The per share exercise price of an option shall be as determined by the
Compensation Committee, provided that the exercise price of incentive stock
options and non-qualified stock options may not be less than fair market
value on the date of grant and shall be equal to the fair market value on the
date of grant for non-qualified stock options granted to non-employee
directors. Further, no person who owns, directly or indirectly, at the time
of the granting of an incentive stock option to such person, 10% or more of
the total combined voting power of all classes of stock of the Company (a
"10% Shareholder") shall be eligible to receive any incentive stock options
under the 1996 Stock Option Plan unless the exercise price is at least 110%
of the fair market value of the shares of Class A Common Stock subject to the
option, determined on the date of grant. The purchase price for shares
acquired pursuant to the exercise of an option shall be as determined by the
Compensation Committee and may consist of cash, check, promissory note,
surrender of other shares of the Company's capital stock, or any combination
thereof.
No stock options may be transferred by an optionee other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order, and, except with respect to a qualified domestic relations
order, during the lifetime of an optionee, the option will be exercisable
only by the optionee. Notwithstanding the foregoing, to the extent permitted
by applicable law and Rule 16b-3 under the Securities Exchange Act of 1934,
the Compensation Committee may permit an optionee to (i) designate in writing
during the optionee's lifetime a family member or a trust established
primarily for the benefit of the optionee or a family member (a
"Beneficiary"), to receive and exercise the optionee's non-qualified stock
options in the event of such optionee's death or (ii) transfer a
non-qualified stock option to a Beneficiary, a trust or a charitable
organization. In the event of termination of employment other than by reason
of retirement or as a result of termination by the Company for deliberate,
willful or gross misconduct, the option will be exercisable within twelve
months after such termination (unless otherwise determined by the
Compensation Committee) to the extent the option was exercisable as of the
date of termination. Upon termination of employment of an optionee by reason
of such employee's retirement, such optionee's options remain exercisable for
thirty-six months thereafter to the extent such options were exercisable on
the date of such termination. In the event of termination of employment of an
optionee by the Company for deliberate, willful or gross misconduct, all
stock options held by such optionee will be immediately cancelled and will
not be exercisable, unless otherwise determined by the Compensation
Committee. Upon termination of employment by reason of death, such optionee's
options remain exercisable, subject to certain limitations by the optionee's
legal representative or heir, but only to the extent such options were
exercisable as of the date of death (unless otherwise determined by the
Compensation Committee). The exercise of any option after termination of
employment may be subject to the condition that the optionee not engage in
deliberate action which, as determined by the Compensation Committee, causes
substantial harm to the interests of the Company or constitutes a breach of
any obligation of the optionee to the Company. In no case may options be
exercised later than the expiration date of the stock options originally
specified in the option agreements. In the event of change of control of the
Company, all options then outstanding under the plan will become immediately
exercisable.
48
<PAGE>
The 1996 Stock Option Plan will expire in 2006 unless terminated earlier
by the Board of Directors. No options granted under the 1996 Stock Option
Plan can be exercised more than 10 years from the date of grant. Incentive
stock options issued to a 10% Shareholder are limited to a five year term.
Shares under any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the 1996 Stock Option Plan.
The 1996 Stock Option Plan may be amended or terminated by the Board of
Directors without shareholder approval, except that no amendment which
increases the maximum aggregate number of shares which may be issued under
the 1996 Stock Option Plan, changes the class of persons who are eligible to
participate in the 1996 Stock Option Plan or materially increases the
benefits accruing to the participants, may be made without the approval of
the shareholders of the Company. No amendment or termination of the 1996
Stock Option Plan will affect previously granted awards without the
optionee's consent unless the Compensation Committee determines that such
amendment is in the best interest of the shareholders or optionees.
ANNUAL INCENTIVE PLAN
The Company's annual incentive compensation plan (the "Annual Incentive
Plan") is designed to motivate employee participants to achieve the Company's
annual strategic goals. Only certain employees are eligible to participate in
the Annual Incentive Plan. Under the Annual Incentive Plan, each
participating employee is assigned a target bonus award representing up to a
specified percentage of his or her annual base salary that will be paid if
the Company's annual performance objectives and the participant's individual
performance objectives are achieved. Company performance objectives are
established by senior management members for each fiscal year and individual
performance objectives are established by the manager of the applicable
subsidiary or division of the Company for each fiscal year. Performance
objectives and awards for executive officers under the Annual Incentive Plan
will be made by the Compensation Committee for recommendation to the full
Board of Directors. Payouts are determined annually following determination
of the Company's fiscal year-end results, and the Company intends to make the
payments in quarterly installments to participants who remain employed at
that time or, in the Company's discretion, to participants who have ceased to
be employed by the Company. The Annual Incentive Plan is subject to amendment
or termination at any time, but no such action may adversely affect any
rights or obligations with respect to any awards theretofore made under the
Annual Incentive Plan.
EMPLOYEE SAVINGS PLAN
The Company also sponsors a defined contribution profit-sharing plan (the
"401(k) Savings Plan"). Under the Plan, each participant may, subject to the
requirements and limitations imposed on 401(k) plans under the Code, elect to
have up to 15% of his or her annual earnings deferred and contributed to the
Plan. All full-time employees of the Company who are at least 21 years old
are eligible to participate in the 401(k) Savings Plan on the first day of
the quarter following the employee's date of hire. Under the 401(k) Savings
Plan, the Company may, in its discretion, match the participant's annual
contributions in cash or shares of Class A Common Stock, up to a maximum
amount to be determined by the Company each year. The 401(k) Savings Plan
also allows the Company to make other discretionary contributions, including
profit sharing contributions, which will be administered by the Compensation
Committee.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Nicklaus,
effective upon consummation of the Offering, which provides for an annual
base salary of $125,000, subject to annual increases thereafter as determined
by the Compensation Committee. The Company will employ Mr. Nicklaus for a
period of five years, which period is automatically extended for additional
one year periods until the employment agreement is terminated by the Company
or Mr. Nicklaus. Pursuant to the terms of this agreement, in addition to the
time associated with serving as the Chairman of the
49
<PAGE>
Board of the Company, Mr. Nicklaus will be required to spend a maximum of ten
days performing personal services or making appearances in connection with
the Company's licensing arrangements and marketing partnerships. Compensation
for any additional days in which Mr. Nicklaus agrees to provide such personal
services or appearances on behalf of the Company will be agreed upon by the
Company and Mr. Nicklaus on a case-by-case basis. Mr. Nicklaus will also be
entitled to receive options to purchase 65,000 shares of Class A Common Stock
each year, for a period of four years, commencing one year after consummation
of the Offering. The options will be immediately exercisable upon grant, will
expire in 2006 and will have a per share exercise price equal to the fair
market value on the date of grant. In the event of Mr. Nicklaus' death, Mr.
Nicklaus' heirs will be entitled to continue to receive the stock options
which Mr. Nicklaus would have been entitled to receive under the employment
agreement.
The Company has also entered into employment agreements with Messrs.
Bellinger, Hesemann, Hislop and Bates (the "Employment Agreements"),
effective upon consummation of the Offering, which provide for an annual base
salary and certain other benefits. Pursuant to the Employment Agreements, the
fiscal 1996 base salaries of Messrs. Bellinger, Hesemann, Hislop and Bates
for the services provided to the Company are to be $450,000, $210,000,
$210,000 and $160,000, respectively, subject in each case to annual increases
thereafter as determined by the Compensation Committee. The Employment
Agreements also provide for the payment of annual performance-based
additional compensation through the Company's Annual Incentive Plan, equal to
a percentage of such executive's base salary, based on the achievement by the
Company and the executive of certain pre-established performance objectives.
Under the terms of the Employment Agreements, the Company will employ Messrs.
Bellinger, Hesemann, Hislop and Bates for periods extending through September
30, 2001, March 31, 2001, September 30, 2000 and March 31, 2000,
respectively, which periods are automatically extended for additional
two-year periods until their respective Employment Agreements are terminated
by the Company or the executive.
Pursuant to the Employment Agreements, if Messrs. Bellinger, Hesemann,
Hislop or Bates are terminated by the Company without "cause" (as defined in
each Employment Agreement), if the Company does not renew their employment
upon the expiration of the original term or any renewal term or if such
executive terminates the Employment Agreement for "good reason" (as defined
in the Employment Agreement), which would include a material breach by the
Company under the agreement or a material reduction in such executive's
duties or responsibilities, such executive will: (i) be entitled to continue
to be paid for the greater of the remainder of the current term or two years
(a) his base salary (as in effect at the time of termination of the
Employment Agreement (the "Base Salary")) and (b) annual additional
compensation equal to the average of the actual additional incentive
compensation paid to him prior to such termination for the most recent fiscal
year prior to termination (the "Bonus Compensation"); (ii) continue to
receive health insurance benefits for himself and his family for a period of
18 months; and (iii) not be subject to a covenant not to compete provided for
in such Employment Agreement. If an executive's employment is terminated for
any of the reasons listed above within one year of a change of control of the
Company, the executive will be entitled to receive all of the amounts
described above in a lump sum cash payment. If any of the executives are
terminated for cause or resigns, the payment of salary and additional
compensation will cease. In the event such executive's employment is
terminated due to death or "disability" (as defined in the agreement), such
executive or his legal representative (as applicable) will be paid (i) such
executive's Base Salary for a period of two years from the date of
termination and (ii) the cost of health insurance benefits for himself and
his family for a period of 18 months.
Pursuant to the Employment Agreements, each of the executives have agreed
to devote their full business time (except for Messrs. Bellinger and Bates,
who are required to dedicate at least 80% of their business time) to
providing services to the Company. The remainder of Messrs. Bellinger's and
Bates' business time may be spent on management of other entities, including
those controlled by Jack Nicklaus. Each Employment Agreement also contains
certain confidentiality and non-competition provisions.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A Common Stock and Class B Common
Stock (after giving pro forma effect to the Reorganization) immediately prior
to and immediately following the Offering by (i) each person or entity who is
the beneficial owner of five percent or more of the outstanding shares of
Class A Common Stock or Class B Common Stock, (ii) each director and named
executive officer of the Company and (iii) all directors and executive
officers of the Company as a group. The business address of each five percent
holder is the Company's corporate address. As described in the notes to the
table, voting and/or investment power with respect to certain shares of
Common Stock is shared by the named individuals. Consequently, such shares
may be shown as beneficially owned by more than one person.
<TABLE>
<CAPTION>
TOTAL COMMON STOCK
--------------------------------
NUMBER OF NUMBER OF
SHARES OF SHARES OF
CLASS A CLASS B PERCENT OF
COMMON STOCK COMMON STOCK TOTAL VOTING PERCENT OF
OWNED PRIOR OWNED PRIOR POWER PRIOR TOTAL VOTING
TO THE TO THE TO THE POWER AFTER
BENEFICIAL OWNER OFFERING OFFERING(1) OFFERING THE OFFERING
- ---------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Jack W. Nicklaus(2)(4)(5) ................ 240,000 2,760,000 100.0% 92.8%
Golden Bear International, Inc.(3) ...... -- 1,320,000 47.4% 44.0%
Richard P. Bellinger and
Barbara B. Nicklaus, as
co-trustees(4) ......................... -- 573,600 20.6% 19.1%
Richard P. Bellinger(4)(5) ............... 120,000 -- * *
Mark F. Hesemann(5) ...................... 40,000 -- * *
Thomas P. Hislop(5) ...................... 40,000 -- * *
Jack P. Bates(5) ......................... 40,000 -- * *
All directors and executive officers as a
group (5 persons)(2)(4)(5)(6) .......... 240,000 2,760,000 100.0% 92.8%
</TABLE>
- ----------
* Represents less than 1% of the total.
(1) Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock and is automatically
converted into a share of Class A Common Stock upon transfer to a person
who is not a Nicklaus Family Member or if the total number of shares of
Class B Common Stock is less than 20% of the aggregate number of shares
of Common Stock outstanding on the record date of any shareholders
meeting. See "Description of Capital Stock."
(2) Includes the 573,600 shares of Class B Common Stock held in family trusts
for the benefit of Mr. Nicklaus' children, and the 240,000 shares of
Class A Common Stock pledged to Mr. Nicklaus by Messrs. Bellinger,
Hesemann, Hislop and Bates as to which Mr. Nicklaus disclaims beneficial
ownership. Also includes the 1,320,000 shares of Class B Common Stock
owned of record by GBI.
(3) Mr. Nicklaus is the Chairman of the Board and the beneficial owner of the
controlling interest in GBI and, accordingly, will be deemed to
beneficially own all such shares.
(4) All 573,600 shares of Class B Common Stock are held by Mr. Bellinger and
Mrs. Nicklaus as co-trustees of trusts for the benefit of Mr. and Mrs.
Nicklaus' children. Mr. Bellinger and Mrs. Nicklaus disclaim beneficial
ownership of such shares. All of these shares are subject to a
shareholders' agreement with Mr. Nicklaus which, among other things,
grants to Mr. Nicklaus the right to vote all such shares and imposes
certain limitations on the transfer of such shares. Certain of these
shares are pledged to Mr. Nicklaus to secure loans made by Mr. Nicklaus
to each of the trusts to fund the purchase by the trusts of additional
shares of Golf Centers. These pledged shares are subject to further
restrictions prohibiting the sale or other disposition of any such shares
for a two year period. See "Certain Relationships and Related
Transactions--Shareholders' Agreements."
51
<PAGE>
(5) Messrs. Bellinger, Hesemann, Hislop and Bates acquired shares of the
capital stock of Golf Centers immediately prior to signing of the
Reorganization Agreement. As a consequence of the Reorganization, Messrs.
Bellinger, Hesemann, Hislop and Bates received shares of the Company's
Class A Common Stock in exchange for their shares in Golf Centers. See
"The Company--Reorganization." All of such shares are pledged to Mr.
Nicklaus to secure loans made by Mr. Nicklaus to such individuals to fund
the purchase of such shares. All of these shares are subject to
shareholder agreements with Mr. Nicklaus, prohibiting each of Messrs.
Bellinger, Hesemann, Hislop and Bates from, without the consent of Mr.
Nicklaus, selling or otherwise disposing of any such shares for a
two-year period ending in June 1998, granting Mr. Nicklaus the right to
vote all of such shares until such shares are sold or transferred to a
third party and imposing certain limitations on the transfer of such
shares. See "Certain Relationships and Related
Transactions--Shareholders' Agreements." Mr. Nicklaus disclaims
beneficial ownership of such shares.
(6) Excludes stock options with respect to a total of 192,000 shares granted
to executive officers and directors of the Company immediately prior to
the Offering. See "Management--Executive Compensation--1996 Stock Option
Plan."
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FAMILY RELATIONSHIPS
As described under the heading "Reorganization," various businesses and
operations were contributed to the Company by GBI and its affiliates. Mr.
Nicklaus, who founded GBI in 1970, is the principal shareholder of GBI and
will also be the Chairman of the Board and the principal shareholder of the
Company. See "Risk Factors--Potential Conflicts of Interest" and "The
Reorganization."
As used in this Prospectus, the term "Nicklaus Family Member" includes the
following persons: (i) Jack W. Nicklaus, Barbara B. Nicklaus and their
estates, guardians, conservators, committees or attorneys-in-fact; (ii) each
lineal descendant of Jack W. Nicklaus and Barbara B. Nicklaus (a "Nicklaus
Descendant") and their respective guardians, conservators, committees or
attorneys-in-fact; (iii) each "Family Controlled Entity" (as defined below);
and (iv) the trustee, in their respective capacities, as such, of each
"Family Controlled Trust" (as defined below). The term "Family Controlled
Entity" means (i) any not-for-profit corporation if at least 80% of its Board
of Directors is composed of Mr. Nicklaus and/or Nicklaus Descendants; (ii)
GBI and any other corporation if at least 80% of the value of its outstanding
equity is owned by Nicklaus Family Members; (iii) any partnership if at least
80% of the value of its partnership interests are owned by Nicklaus Family
Members; and (iv) any limited liability or similar company if at least 80% of
the value of the company is owned by Nicklaus Family Members. The term
"Family Controlled Trust" includes certain trusts existing on the date hereof
and trusts, the primary beneficiaries of which are Mr. Nicklaus, Nicklaus
Descendants, spouses of Nicklaus Descendants and/or charitable organizations,
provided that if the trust is a wholly-charitable trust, at least 80% of the
trustees of such trust consist of Mr. Nicklaus and/or Nicklaus Descendants.
REORGANIZATION
Immediately prior to the consummation of the Offering, the Company, its
shareholders, GBI and certain other Nicklaus Family members will consummate
the Reorganization. As a result of the Reorganization, GBI will contribute to
the Company certain assets and Messrs. Bellinger, Hesemann, Hislop and Bates,
Mr. Nicklaus and certain other Nicklaus Family Members will contribute to the
Company their shares in the Operating Subsidiaries, in exchange for shares of
the Company's Common Stock. Additionally, in connection with the transactions
described under the heading "Reorganization," the Company entered into
various agreements with GBI, which will, following completion of the
Offering, continue to be involved in or affiliated with the businesses of (i)
golf course design and consulting, (ii) residential community development,
(iii) sponsorship, promotion and management of golf tournaments, (iv) daily
fee golf course development, (v) the manufacture and marketing of golf clubs
and equipment, (vi) the creation, production and marketing of golf and other
sporting events, (vii) the creation, development, editing and distribution of
books, articles and print media creative works and audio visual media
programming and properties, including video games and (viii) a membership
club offering golf improvement tips. The terms of these agreements were
established by Mr. Nicklaus and management of GBI and are not the result of
arm's-length negotiations. There is no assurance that these agreements are on
terms as favorable as those which could have been obtained in arm's-length
transactions. All of these agreements will be effective only upon
consummation of the Offering. See "Risk Factors--Potential Conflicts of
Interest."
TRADEMARK LICENSE
Pursuant to a Trademark License Agreement (the "License Agreement"), GBI
has granted to the Company a royalty-free, exclusive right (subject to the
exceptions described below) to utilize and sublicense all major trademarks,
tradenames and service marks owned or developed by GBI, including the GOLDEN
BEAR, NICKLAUS and JACK NICKLAUS trademarks (collectively, the "Licensed
Marks") in any jurisdiction worldwide in which GBI has trademark rights, and
the right, subject to the approval of GBI, to obtain the registration of
additional trademarks and service marks related to the Nicklaus name deemed
by the Company to be necessary or prudent to the maintenance and future
expansion of the
53
<PAGE>
Company. The Company has the right to sublicense the Licensed Marks provided
such sublicense is expressly subject to the terms of the License Agreement.
Subject to receipt of GBI's approval which shall not be unreasonably withheld
or delayed, the Company will have the right to adopt and use any mark which
is similar in sound or appearance to any of the Licensed Marks subject to
compliance with quality standards. GBI has also granted to the Company the
right to use the name, likeness, nickname, biographical data and other
identifying characteristics of Mr. Nicklaus in connection with the
advertising, promotion, sale or rendering of the Company's products or
services throughout the world. GBI has retained the exclusive right to
utilize and license any of the Licensed Marks in connection with and limited
to its continuing businesses (such businesses being hereinafter referred to
as the "Retained Businesses"), which are limited to (i) golf course design
and consulting; (ii) residential community development; (iii) sponsorship,
promotion and management of golf tournaments; (iv) daily fee golf course
development; (v) the manufacture and marketing of golf clubs and equipment;
(vi) the creation, production and marketing of golf and other sporting
events; (vii) the creation, development, editing and distribution of books,
articles and print media creative works including audiovisual media
programming and properties including video games; and (viii) a membership
club offering golf improvement tips. Additionally, by virtue of a Memorandum
of Understanding among predecessors of the Company and Suntory Limited, a
Japanese corporation, the Company will be required to offer to Suntory a
right of first refusal to participate in any business or licensing
arrangement generally relating to a non-golf sporting goods business in which
the Company proposes to engage in Japan or South Korea utilizing any of the
Licensed Marks. Such arrangement could deter the Company's ability to expand
its business in such area into those territories in the future.
Pursuant to the License Agreement, in the event GBI decides to assign,
transfer or otherwise convey its legal title and ownership interest in any of
the Licensed Marks, GBI must first offer to transfer such interests to the
Company for nominal consideration, subject to GBI's exclusive rights with
respect to the Retained Businesses. In the event GBI desires to negotiate
with any third party (other than a Nicklaus Family Member) to (i) assign,
convey or transfer its ownership interest in or to license substantially all
of its beneficial interest in the right to license and utilize any part of
the Licensed Marks in connection with the Retained Businesses or (ii)
otherwise divest itself of all or substantially all of the assets, equity
holdings or business opportunities relating to any of the Retained
Businesses, GBI has agreed to enter into good faith negotiations with the
Company for a period of sixty days for the acquisition by the Company of any
such rights, assets or businesses which GBI desires to transfer to third
parties.
The License Agreement also contains provisions which are intended to
assure the quality of the goods produced and services rendered under the
Licensed Marks including the obligation of the Company to produce goods that
meet established standards of quality. New products will be subject to
quality standards which GBI must approve, which approval shall not be
unreasonably withheld. In order to insure the quality standards, the Company
has agreed to furnish, at GBI's request, samples of any product and to allow
GBI or its designee to inspect the Company's goods and services. In addition,
all advertising and labeling of the Company's products must be in conformity
with good industry practice and must be submitted to GBI for approval, which
shall not be unreasonably withheld. Under the License Agreement, GBI is also
required to maintain certain quality standards with respect to its goods and
services using the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR trademarks.
Under the terms of the License Agreement, the Company will bear the cost
of filing and maintenance of registration of the Licensed Marks and will
advance to GBI any governmental fees and out-of-pocket expenses, including
attorneys' fees in connection with filing or maintenance of registrations or
trademark litigation involving the Licensed Marks. GBI has also agreed to
maintain registrations for as long as the Company is using the mark and will,
upon request of the Company, file applications to register any of the
Licensed Marks in any country where the Licensed Marks are not presently
registered.
GBI has also granted the Company a security interest in the Licensed Mark
for the purpose of securing a claim for damages which the Company would incur
in the event that the license granted to
54
<PAGE>
the Company were rejected in a future bankruptcy proceeding. However, the
grant of the security interest may not be effective to guarantee the
continued use of the Licensed Marks or assure that the Company will receive
compensation for any damages it may incur. In addition, if the License
Agreement were rejected in a bankruptcy proceeding, the provisions regarding
the maintenance of quality standards and relating to the transfer of the
marks utilized in the Retained Businesses would no longer be operable. As a
result of the foregoing, the value of the Licensed Marks, if still available
to the Company, could be materially impaired. The term of the Company's
license is initially for a period of thirty years but is renewable by the
Company for additional ten-year periods thereafter and may only be terminated
by GBI, after notice, in the event the Company abandons its use of all or
substantially all of the Licensed Marks in all or substantially all of the
countries where the Company has the right to use the Licensed Marks or
materially breaches the License Agreement or following a material breach by
the Company after notice and an opportunity to cure and following the
completion of arbitration. In the event that an arbitrator determines that
there has been a material breach, the Company will be afforded an additional
opportunity to cure the breach or, if such breach is not subject to cure and
the arbitrator has determined actions or payments which would appropriately
ameliorate such breach, an additional period of time to do so. The Company
may transfer its rights under the License Agreement, without the consent of
GBI, by assignment or by operation of law, to any entity which acquires all
or substantially all of the Company's licensing business and which agrees in
writing to accept and be bound by all of the terms and conditions of the
agreement to the extent such undertaking is not made by operation of law.
AGREEMENTS REGARDING CORPORATE HEADQUARTERS IN NORTH PALM BEACH, FLORIDA
The Company subleases its corporate headquarters in North Palm Beach,
Florida from GBI pursuant to a Sublease and Sharing Agreement. The sublease
commences concurrently with the consummation of the Offering and terminates
January 31, 2000. The terms of the sublease are expressly subject to the
provisions of a Lease Agreement between the third party unaffiliated lessor,
Golden Bear Plaza Associates and GBI, as lessee (the "Primary Lease").
Aggregate monthly rent under the Primary Lease, including all common area
maintenance, personal property taxes and sales taxes, is $101,630, and
pursuant to the Sublease and Sharing Agreement, the Company is responsible
for 47% of such monthly rent. Such percentage was calculated based on an
estimate of the percentage of the total leased space which will be utilized
by the Company. GBI and the Company have further agreed to share the usage
and costs of all common areas and facilities located in the premises covered
by the Primary Lease (the "Premises"), which generally consist of reception
areas, conference rooms and storage areas.
In connection with the sublease, GBI and the Company also entered into an
Office Staff and Equipment Service Agreement which provides for the sharing
and joint ownership of certain office and business services and equipment,
including the telephone systems, main switchboard, central facsimile
machines, photocopying machines and computer networks. The Company has also
agreed, during the term of the Office Staff and Equipment Service Agreement,
to provide to GBI the services of certain identified office staff and
personnel whom the parties believe can effectively serve the needs of both
organizations and facilitate the joint use of the common areas of the
Premises. Pursuant to the agreement, GBI has agreed to pay to the Company a
monthly management fee equal to fifty percent (50%) of the current cost to
the Company of employing the identified shared office staff and personnel and
have agreed to jointly share the costs of service, consumable supplies and
maintenance of the shared office and business equipment. Additionally, the
Company will pay GBI a monthly phone rental fee based upon the Company's pro
rata share of GBI's costs of providing local telephone service. Both the
Sublease and Sharing Agreement and the Office Staff and Equipment Service
Agreement will be subject to future adjustment to re-apportion the costs to
be shared by the parties based upon actual usage.
PERSONAL SERVICES MANAGEMENT AGREEMENT
Pursuant to a Personal Services Management Agreement, GBI and Jack W.
Nicklaus have retained the Company as the exclusive manager and
representative to market the personal endorsement services of Mr. Nicklaus as
a celebrity and corporate spokesman for third parties not affiliated with GBI
or the
55
<PAGE>
Company throughout the world. The Company may, during the term of the
agreement, represent, manage or otherwise provide marketing services similar
to those contemplated by the agreement to any other professional golfer
without the prior written consent of GBI, subject to various conditions
restricting the use of any confidential information obtained by the Company
and so long as the Company does not otherwise take unfair advantage of its
corporate affiliations or licensing relationships with GBI or Mr. Nicklaus
(i) to further the interests of any other professional golfer in obtaining
personal service contracts where such contract opportunities would otherwise
be reasonably available to Mr. Nicklaus or (ii) to imply the endorsement of
GBI or Mr. Nicklaus for the personal services of such a golfer. The services
provided by the Company will include development of personal appearance and
personal service opportunities for approval by Mr. Nicklaus and GBI,
reviewing requests from prospective clients, identification and qualification
of prospects, negotiation of contracts for approval by GBI and Mr. Nicklaus,
and coordination of all scheduling and performance under approved contracts.
As compensation for the services to be provided by the Company under the
agreement, GBI will pay the Company, on a monthly basis in arrears, a
percentage of the net revenues (as defined) received by GBI from endorsement
services (i) equal to 30% of all such net revenues recorded under any
existing contract or arrangement or renewal thereof during the term of the
agreement and (ii) a percentage to be negotiated (but in no event less than
20%) of all such revenues under any new contract (and extensions thereof)
signed or substantially negotiated during the term of the agreement.
The term of the agreement will commence concurrently with the consummation
of the Offering and will expire on December 31, 2006, unless otherwise
terminated or renewed. The Company has the right, upon expiration of the
initial term of this agreement, to continually renew the agreement for
successive three (3) year terms, subject to its satisfactory performance of
its responsibilities to GBI under the agreement through the effective date of
such renewal. The agreement may be terminated by the Company at the end of
any calendar year, commencing with the end of calendar year 1997, upon
written notice to GBI of its intention to terminate not later than July 1 of
the year in which such termination is to be effective. Either party has the
right to terminate the agreement in the event of a material breach by the
other party which is not cured within ninety (90) days after receipt of
written notice specifying the breach.
DESIGN SERVICES MARKETING AGREEMENT
Pursuant to a Design Services Marketing Agreement, GBI has retained the
Company as its exclusive worldwide marketing representative and sales agent
(except for certain exclusions described below) for the purpose of
identifying and negotiating contracts with developers, owners and operators
of golf facilities for GBI's golf course design and consulting services,
including the promotion of the golf course design services of Jack W.
Nicklaus, Jack W. Nicklaus II, Steven C. Nicklaus, Gary T. Nicklaus and other
associated designers employed or retained by GBI. The Company is not required
to represent GBI or its Nicklaus Design division exclusively and may, during
the term of this agreement, participate in the promotion, sale, negotiation,
contracting or performance of golf course design for its own account or on
behalf of any other golf course designer, subject to certain covenants and
conditions. In particular, the Company agrees at all times during the term of
the agreement to use its reasonable efforts to promote the services of
Nicklaus Design throughout the world and to actively encourage all
prospective clients to utilize the services of Nicklaus Design, unless (i)
Nicklaus Design has expressly rejected a client introduced by the Company or
(ii) a client has contacted the Company for the express purpose of obtaining
the services of another golf course designer. Additionally, the Company has
agreed not to utilize any confidential information obtained in connection
with this agreement or any other agreement or association with GBI or a
Nicklaus Family Member to further the interests of any competing golf course
designer or to imply the endorsement of Nicklaus Design or any Nicklaus
Family Member for the services of such a designer.
GBI is free to deal directly with respect to the marketing and negotiation
of contracts, agreements and undertakings to provide any of the following
design services: (i) any design or design consulting services provided for
any entity controlled by, or under common control with GBI or, in the case of
a residential golf community, in which GBI, Jack Nicklaus or any other
Nicklaus Family Members acquire
56
<PAGE>
a controlling interest; (ii) any design services provided as a courtesy or at
Nicklaus Design's cost to modify, upgrade or redesign any existing golf
course which was designed or previously redesigned by GBI or its predecessor
entities; or (iii) any daily fee golf facility developed by GBI, licensed by
GBI to operate utilizing GBI's trademarks on a royalty basis. To the extent
the Company provides services to GBI in connection with any of these
particular design services, it will be entitled to receive reasonable
compensation as determined by mutual agreement of the parties on a
case-by-case basis. GBI will have the right to approve, which approval shall
not be unreasonably withheld, any prospective clients identified by the
Company prior to their solicitation by the Company. GBI will also provide
promotional materials and other information regarding GBI's design business
and will provide access to its professional staff in connection with the
marketing of design work.
As compensation for the services provided by the Company under the
agreement, GBI will pay the Company, on a monthly basis in arrears, a
commission at the rate of ten percent (10%) of the gross fees (as defined)
received by GBI from any design contract executed by GBI during the term of
this agreement, except for design contracts for any of the specifically
excluded design services described above. The term of the agreement will
commence concurrently with the consummation of the Offering and will expire
on December 31, 2006, unless otherwise terminated or received. The Company
has the right, upon expiration of the initial term of this agreement, to
continually renew the agreement for successive three (3) year terms, subject
to its satisfactory performance of its responsibilities to GBI under the
agreement through the effective date of such renewal. The agreement may be
terminated by the Company at the end of any calendar year, commencing with
the end of calendar year 2000, upon written notice to GBI of its intention to
terminate not later than July 1 of the year in which such termination is to
be effective. Either party has the right to terminate the agreement in the
event of a material breach by the other party which is not cured within
ninety (90) days after receipt of written notice specifying the breach.
MARKETING, CONSULTING AND COOPERATION AGREEMENT
Pursuant to a Marketing, Consulting and Cooperation Agreement, GBI has
agreed to retain the Company to provide services to Nicklaus Golf Equipment
Company, L.C. ("NGEC") which GBI is currently required to provide to NGEC
relating to certain marketing activities. The Company will receive a fee of
$100,000 per year for up to 300 hours per year. In the event additional time
is required, the parties will negotiate in good faith a mutually acceptable
hourly or per diem rate for such services based on the market rates for
similar services. NGEC, in which GBI has a 50% ownership interest,
manufactures, markets and distributes golf equipment, including golf clubs,
bags, belts, gloves, carts (other than riding golf cars) and other
accessories (other than items of apparel, footwear and luggage) utilizing the
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR trademarks and tradenames. The term
of the agreement will commence concurrently with the consummation of the
Offering and will expire on December 31, 2006, unless otherwise terminated or
renewed. The Company has the right, upon expiration of the initial term of
this agreement, to continually renew the agreement for successive three (3)
year terms, subject to its satisfactory performance of its responsibilities
to GBI under the agreement through the effective date of such renewal. The
agreement may be terminated by the Company at the end of any calendar year,
commencing with the end of calendar year 1997, upon written notice to GBI of
its intention to terminate the agreement. Either party has the right to
terminate the agreement in the event of a material breach by the other party
which is not cured within ninety (90) days after receipt of written notice
specifying the breach.
REGISTRATION RIGHTS AGREEMENTS
Mr. Nicklaus, GBI, certain Family Controlled Trusts and the Company will
enter into a Registration Rights Agreement (the "Nicklaus Family Registration
Rights Agreement") upon the consummation of the Offering, pursuant to which
each of Mr. Nicklaus, GBI and the Family Controlled Trusts will be granted
three demand registration rights with respect to their shares of Class A
Common Stock (including Class A Common Stock issued upon conversion of Class
B Common Stock) held by them; provided that each such registration includes
at least 33% of their then current holdings or all
57
<PAGE>
remaining shares of Class A Common Stock held by Mr. Nicklaus, GBI and the
Family Controlled Trusts. Additionally, Messrs. Bellinger, Hesemann, Hislop
and Bates will, upon consummation of the Offering, enter into a Registration
Rights Agreement (the "Management Registration Rights Agreement" and,
together with the Nicklaus Family Registration Rights Agreement, the
"Registration Rights Agreements"), pursuant to which each of them will have
the right at any time during the period until two years after repayment of
certain loans from Mr. Nicklaus (see "Certain Relationships and Related
Transactions--Shareholders' Agreements") to cause the Company to file a
registration statement for the proposed sale from time to time of all or any
portion of their shares of Class A Common Stock acquired pursuant to the
Reorganization. Each of the foregoing parties to the Registration Rights
Agreements (other than the Company) and Messrs. Bellinger, Hesemann, Hislop
and Bates will also have an unlimited number of piggyback registration rights
in respect of their shares. The Company will not be required to effect more
than one registration of Class A Common Stock under the Nicklaus Family
Registration Rights Agreement in any twelve calendar month period. The
piggyback registration rights will allow the holders to include their shares
of Class A Common Stock in any registration statement filed by the Company,
subject to certain limitations. The Company may postpone any registration
pursuant to these agreements for a period of up to 90 days if the Company
believes that such registration might have a material adverse effect on any
plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other similar transaction, or the Company
is in possession of material non-public information which if disclosed could
result in a material disruption of a material corporate development or
transaction then pending or in progress or in other material adverse
consequences to the Company. The Company may also grant additional
registration rights in connection with its acquisition of golf practice and
instruction facilities when the consideration for such acquisition includes
shares of Class A Common Stock.
The Company will pay all expenses (other than underwriting discounts and
commissions of the selling shareholders, taxes payable by the selling
shareholders and the fees and expenses of the selling shareholders' counsel)
in connection with any demand registrations, as well as any registrations
pursuant to the exercise of piggyback rights. The selling shareholders will
pay substantially all expenses in connection with any demand registrations
under the Management Registration Rights Agreement. The Company also will
agree to indemnify such persons against certain liabilities, including
liabilities arising under the Securities Act. The Nicklaus Family Members who
are parties to the Nicklaus Family Registration Rights Agreement will agree
not to exercise their registration rights without the prior written consent
of Merrill Lynch, Pierce, Fenner & Smith Incorporated for a period of 180
days following the date of this Prospectus. See "Underwriting."
ARRANGEMENTS WITH GBI
A majority of the construction, shaping and consulting contracts received
by Paragon have been entered into with respect to golf courses designed by
GBI, through its Nicklaus Design division. Certain payments under consulting
contracts awarded to Paragon have been remitted directly to GBI. At December
31, 1995, $637,210 of such amounts were due from GBI. Historical revenues of
the Company include 10% of the golf course design fees received by GBI. Such
amounts totalled $953,656, $1,160,371, $1,310,523 and $299,539 in 1993, 1994
and 1995 and the first three months of 1996, respectively.
During the year ended December 31, 1994, Paragon paid off a note payable
to GBI in the amount of $20,593. Additionally, in 1994 Paragon agreed to
build a golf course for GBI at cost. The estimated project cost is $1,360,000
and construction began in February 1995. Approximately 11% of the Company's
revenues in 1995 related to this project.
GBI, Mr. Nicklaus, Barbara Nicklaus and Jack Nicklaus Productions, Inc.
are also presently guarantors of Paragon's obligations under a $1 million
secured line of credit which matures on April 26, 1997. As of June 30, 1996,
$603,220 was outstanding under the line.
Historical revenues of the Company also include 30% of net revenues for
GBI's endorsement contracts. Such amounts totalled $116,250, $300,000,
$480,000 and $78,750 in 1993, 1994, 1995 and the
58
<PAGE>
first three months of 1996 respectively. In the future, the Company will be
entitled to 30% of net revenues for endorsement contracts (and continuations
thereof) entered into prior to the Reorganization and a percentage to be
mutually agreed upon by the parties but in no event less than 20% of net
revenues for new endorsement contracts.
The Company's historical financial statements do not include any revenue
for providing marketing and consulting services to NGEC which the Company
will provide upon consummation of the Offering pursuant to the Marketing,
Consulting and Cooperation Agreement described above.
SHAREHOLDERS' AGREEMENTS
All Nicklaus Family Members that beneficially own shares of Class B Common
Stock as of the date of this Prospectus will enter into a shareholders'
agreement upon consummation of the Offering (the "Family Shareholders'
Agreement"). Each of the shareholders who are parties to the Family
Shareholders' Agreement will assign to Mr. Nicklaus (or GBI, in the event of
the death or incompetence of Mr. Nicklaus) the right to vote all shares of
Class B Common Stock owned by such shareholder in Mr. Nicklaus' discretion on
any and all corporate matters on which such shareholder is entitled to vote.
The Family Shareholders' Agreement will also contain certain limitations on
the transfer of shares of Common Stock owned by the shareholders. In
addition, each shareholder who is a party to the Family Shareholders'
Agreement (the "Offering Shareholders") will grant to the other parties
thereto (the "Offerees") a right of first offer to purchase the shares of
Common Stock the Offering Shareholder intends to sell or transfer to a person
(or group of persons) who is not a trust established for the benefit or
certain Nicklaus Family Members. Each Offeree will have the opportunity to
purchase the Offeree's pro rata portion of the shares to be offered by the
Offering Shareholder, as well as additional shares not purchased by other
Offerees. Any shares not purchased pursuant to the right of first offer may
be sold at or above the price offered to the Offerees. Each shareholder who
is a party to the Family Shareholders' Agreement is also granted the right to
purchase a pro rata portion of the shares owned by any shareholder subject to
the agreement who is declared or adjudicated bankrupt, or the legal
termination of the trust under which such shareholder holds the shares, as
well as additional shares not purchased by other shareholders. The provisions
of the Family Shareholders' Agreement will not apply to any shares of Class A
Common Stock acquired by the stockholders after the Offering.
Certain of the shares of Class B Common Stock owned by certain Family
Controlled Trusts were acquired pursuant to the Reorganization in exchange
for additional shares of the capital stock of Golf Centers purchased by such
trusts for an aggregate purchase price of $900,000 immediately prior to the
Reorganization. All of such shares are pledged to Mr. Nicklaus to secure
loans made by Mr. Nicklaus to such trusts to fund the purchase of such shares
of Golf Centers. The Family Controlled Trusts will be prohibited from
selling, disposing or otherwise transferring any such shares for a period of
two years ending July, 1998.
Messrs. Bellinger, Hesemann, Hislop and Bates acquired shares of the
outstanding capital stock of Golf Centers immediately prior to the
Reorganization for an aggregate purchase price of $600,000. As a consequence
of the Reorganization, Messrs. Bellinger, Hesemann, Hislop and Bates will
receive shares of the Company's Class A Common Stock in exchange for their
shares in Golf Centers. All of such shares are pledged to Mr. Nicklaus to
secure loans made by Mr. Nicklaus to such individuals to fund the purchase of
such shares of Golf Centers. All of such individuals have entered into a
shareholders' agreement with Mr. Nicklaus and the Company (the "Management
Shareholders' Agreement"), pursuant to which they assigned to Mr. Nicklaus
the right to vote all of such shares in Mr. Nicklaus' discretion until such
shares are sold or transferred to a third party. The Management Shareholders'
Agreement also prohibits any of Messrs. Bellinger, Hesemann, Hislop or Bates
from, without the consent of Mr. Nicklaus, selling, disposing or otherwise
transferring any such shares for a period of two years ending July 1998. In
addition, each of Messrs. Bellinger, Hesemann, Hislop and Bates granted to
Mr. Nicklaus a right of first offer to purchase the shares of Class A Common
Stock which he intends to sell or transfer to a person (or group of persons)
who is not a holder of Class B Common Stock. Any
59
<PAGE>
shares not purchased pursuant to the right of first offer may be sold at or
above the price offered to Mr. Nicklaus. Each of Messrs. Bellinger, Hesemann,
Hislop and Bates also granted to Mr. Nicklaus the right to purchase his
shares in the event of his death, declaration or adjudication of personal
bankruptcy or legal declaration of incompetency.
INDEBTEDNESS TO MR. NICKLAUS
Mr. Nicklaus provided a bridge loan of approximately $1.65 million to Golf
Centers in connection with the Acquisitions. The loan is evidenced by a
demand promissory note, bears interest at the Federal Mid-Term annual
interest rate in effect at the time the note was executed and will be repaid
from the proceeds of the Offering. See "Use of Proceeds."
FUTURE TRANSACTIONS WITH AFFILIATES
Following the closing of the Offering, the Company intends to submit any
transactions between the Company and its directors and its principal
shareholders and their affiliates to a committee of disinterested members of
the Company's Board of Directors or to require approval of any such
transactions by a majority of the disinterested members of the Board of
Directors. Additionally, provisions of the Florida Business Corporation Act
require that certain specified transactions between the Company and holders
of more than 10% of the outstanding voting power of the Company's Common
Stock will require the approval of the disinterested shareholders of the
Company, unless such transactions are approved by a majority of the
disinterested members of the Board of Directors.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital consists of 70 million shares of Class A
Common Stock, par value $.01 per share ("Class A Common Stock"), 10 million
shares of Class B Common Stock, par value $.01 per share ("Class B Common
Stock"), and 20 million shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). As of the date of this Prospectus (assuming
consummation of the Reorganization) there are 2,760,000 shares of Class B
Common Stock outstanding (which may be converted into Class A Common Stock at
any time), all of which are owned by Nicklaus Family Members and 240,000
shares of Class A Common Stock outstanding. See "The Reorganization" and
"Principal Shareholders." No shares of Preferred Stock are outstanding as of
the date of this Prospectus.
The Company's shareholders have approved Amended and Restated Articles of
Incorporation and Bylaws to become effective upon consummation of the
Offering. The discussions herein describe the Company's capital stock,
Articles of Incorporation and Bylaws as anticipated to be in effect upon
consummation of the Offering. The following descriptions of the Company's
capital stock do not purport to be complete and are subject to and qualified
in their entirety by the provisions of the Company's Articles of
Incorporation and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock,
as described below.
VOTING RIGHTS. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of the Company's shareholders and
each share of Class B Common Stock entitles the holder to ten votes on each
such matter, including the election of directors. Except as required by
applicable law, holders of the Class A Common Stock and Class B Common Stock
will vote together on all matters submitted to a vote of the shareholders.
See "Risk Factors--Control By Current Shareholders and Anti-Takeover Effect
of Dual Classes of Stock." Neither the Class A Common Stock nor the Class B
Common Stock have cumulative voting rights.
Any action that can be taken at a meeting of the shareholders may be taken
by written consent in lieu of the meeting if the Company receives consents
signed by shareholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present. This could permit the holders of Class B
Common Stock to take all actions required to be taken by the shareholders
without providing the other shareholders the opportunity to make nominations
or raise other matters at a meeting.
DIVIDENDS. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if and when declared by the
Board of Directors out of funds legally available therefor, subject to the
dividend and liquidation rights of any Preferred Stock that may be issued and
outstanding. No dividend or other distribution (including redemptions or
repurchases of shares of capital stock) may be made if after giving effect to
such distribution, the Company would not be able to pay its debts as they
become due in the usual course of business, or if the Company's total assets
would be less than the sum of its total liabilities plus the amount that
would be needed at the time of a liquidation to satisfy the preferential
rights of any holders of Preferred Stock. See "Dividend Policy."
If a dividend or distribution payable in Class A Common Stock is made on
the Class A Common Stock, the Company must also make a pro rata and
simultaneous dividend or distribution on the Class B Common Stock payable in
shares of Class B Common Stock. Conversely, if a dividend or distribution
payable in Class B Common Stock is made on the Class B Common Stock, the
Company
61
<PAGE>
must also make a pro rata and simultaneous dividend or distribution on the
Class A Common Stock payable in shares of Class A Common Stock.
RESTRICTIONS ON TRANSFER. If a holder of Class B Common Stock transfers
such shares, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than a Nicklaus Family Member, such shares will
be converted automatically into shares of Class A Common Stock. In the case
of a pledge of shares of Class B Common Stock to a financial institution,
such shares will not be deemed to be transferred unless and until a
foreclosure or similar event occurs.
CONVERSION. Class A Common Stock has no conversion rights. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any
time and from time to time at the option of the holder, on the basis of one
share of Class A Common Stock for each share of Class B Common Stock
converted. In the event of a transfer of shares of Class B Common Stock to
any person other than a Nicklaus Family Member, each share of Class B Common
Stock so transferred will be converted automatically into one share of Class
A Common Stock. Each share of Class B Common Stock will also automatically
convert into one share of Class A Common Stock if, on the record date for any
meeting of the shareholders, the number of shares of Class B Common Stock
then outstanding is less than 20% of the aggregate number of shares of Class
A Common Stock and Class B Common Stock then outstanding.
LIQUIDATION. In the event of liquidation, after payment of the debts and
other liabilities of the Company and after making provision for the holders
of Preferred Stock, if any, the remaining assets of the Company will be
distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.
MERGERS AND OTHER BUSINESS COMBINATIONS. Upon the merger of consolidation
of the Company, holders of each class of Common Stock are entitled to receive
equal per share payments or distributions, except that in any transaction in
which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of
the Class A Common Stock and Class B Common Stock differ at that time.
OTHER PROVISIONS. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. Neither the Class A
Common Stock nor the Class B Common Stock may be subdivided or combined in
any manner unless the other class is subdivided or combined in the same
proportion.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Class A Common Stock is First Union National Bank.
LISTING. The Class A Common Stock has been approved for quotation on the
Nasdaq National Market under the trading symbol "JACK," subject to official
notice of issuance.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to divide any or all shares of the authorized Preferred
Stock into series and fix and determine the designations, preferences and
relative rights and qualifications, limitations, or restrictions thereon of
any series so established, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. As of
the date of this Prospectus, the Board of Directors has not authorized any
series of Preferred Stock, and there are no plans, agreements or
understandings for the authorization or issuance of any shares of Preferred
Stock. The issuance of Preferred Stock with voting rights or conversion
rights may adversely affect the voting power of the Common Stock, including
the loss of voting control to others. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change of control of
the Company without shareholder approval. See "Risk Factors--Preferred
Stock; Possible Anti--Takeover Effect of Certain Charter Provisions."
62
<PAGE>
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless
the corporation has elected to opt out of such provisions in its Articles of
Incorporation or Bylaws. The Company has not elected to opt out of such
provisions. Accordingly, the Common Stock of the Company is subject to the
"affiliated transactions" and "control-share acquisition" provisions of the
Florida Business Corporation Act. These provisions require, subject to
certain exceptions, that an "affiliated transaction" be approved by the
holders of two-thirds of the voting shares other than those beneficially
owned by an "interested shareholder" or by a majority of disinterested
directors and that voting rights be conferred on "control shares" acquired in
specified control share acquisitions generally only to the extent conferred
by resolution approved by the shareholders, excluding holders of shares
defined as "interested shares." In addition, Florida law presently limits the
personal liability of a corporate director for monetary damages, except where
the director (i) breaches his or her fiduciary duties and (ii) such breach
constitutes or includes certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct. See "Risk Factors--Preferred
Stock; Possible Anti-Takeover Effect of Certain Charter Provisions."
INDEMNIFICATION AND LIMITED LIABILITY
Pursuant to the Company's Articles of Incorporation, Bylaws and
indemnification agreements between the Company and each of its officers and
directors the Company is obligated to indemnify each of its directors and
officers to the fullest extent permitted by law with respect to all liability
and loss suffered, and reasonable expense incurred, by such person in any
action, suit or proceeding in which such person was or is made or threatened
to be made a party or is otherwise involved by reason of the fact that such
person is or was a director or officer of the Company. The Company is also
obligated to pay the reasonable expenses of indemnified directors or officers
in defending such proceedings if the indemnified party agrees to repay all
amounts advanced should it be ultimately determined that such person is not
entitled to indemnification.
The Company maintains an insurance policy covering directors and officers
under which the insurer agrees to pay, subject to certain exclusions, for any
claim made against the directors and officers of the Company for a wrongful
act for which they may become legally obligated to pay or for which the
Company is required to indemnify its directors or officers.
OTHER CHARTER AND BY-LAW PROVISIONS
The Articles of Incorporation provide that the Board of Directors will be
divided into three classes, with each class, after a transitional period,
serving for three years, and one class being elected each year. A majority of
the remaining directors then in office, though less than a quorum, or the
sole remaining director, will be empowered to fill any vacancy on the Board
which arises during the term of a director. The provision for a classified
board may be altered or repealed only upon the affirmative vote of holders of
at least 66 2/3 % of the total voting power of the Company. The
classification of the Board of Directors may discourage a third party from
making a tender offer or otherwise attempting to gain control of the Company
and may have the effect of maintaining the incumbency of the Board.
Special meetings of shareholders may be called by the Company's Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Shareholders of the Company may only call a special meeting of
shareholders if the holders of at least 50% of the total voting power of the
Company sign, date and deliver to the Company's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to
be held.
Shareholders of the Company are required to provide advance notice of
nominations of directors to be made at, and of business proposed to be
brought before, a meeting of shareholders. The failure to deliver proper
notice within the periods specified in the Company's Bylaws will result in
the denial of the shareholder's right to make such nominations or propose
such action at the meeting.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Class A
Common Stock. No information is currently available and no prediction can be
made as to the timing or amount of future sales of shares, or the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Class A Common Stock (including shares issuable upon
conversion of Class B Common Stock and upon exercise of stock options) in the
public market after the lapse of the restrictions described below, or the
perception that such sales may occur, could materially adversely affect the
prevailing market prices for the Class A Common Stock and the ability of the
Company to raise equity capital in the future. See "Risk Factors--Shares
Eligible for Future Sale."
After completion of the Offering, the Company will have 2,400,000 shares
of Class A Common Stock outstanding (2,724,000 if the Underwriters'
over-allotment option is exercised in full) and 2,760,000 shares of Class B
Common Stock outstanding. All of the 2,160,000 shares of Class A Common Stock
offered hereby (2,484,000 if the Underwriters' over-allotment option is
exercised in full), will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of
the Company, as that term is defined in Rule 144, described below. All of the
shares of Class B Common Stock held by Nicklaus Family Members, as well as
shares of Class A Common Stock issuable upon conversion of Class B Common
Stock, and all of the Class A Common Stock acquired by certain executives of
the Company pursuant to the Reorganization, are "Restricted Securities," as
that term is defined in Rule 144, and may not be sold in the absence of
registration other than in accordance with Rule 144 described below or
another exemption from registration under the Securities Act.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance
with the Rule) who has beneficially owned Common Stock which is treated as
Restricted Securities for at least two years would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
1% of the outstanding shares of Class A Common Stock (approximately 24,000
shares based upon the number of shares outstanding after the Offering) or the
reported average weekly trading volume in the Class A Common Stock during the
four weeks preceding the date on which notice of such sale was filed under
Rule 144. Sales under Rule 144 are also subject to certain manner of sale
restrictions and notice requirements and to the availability of current
public information concerning the Company. In addition, affiliates of the
Company must comply with the restrictions and requirements of Rule 144 (other
than the two-year holding period requirements) in order to sell Class A
Common Stock that are not Restricted Securities (such as Class A Common Stock
acquired by affiliates in market transactions). Further, if a period of at
least three years has elapsed from the date Restricted Securities were
acquired from the Company or an affiliate of the Company, a holder of such
Restricted Securities who is not an affiliate at the time of the sale and who
has not been an affiliate for at least three months prior to such sale would
be entitled to sell the shares immediately without regard to the volume,
manner of sale, notice and public information requirements of Rule 144.
Mr. Nicklaus, GBI, the Family Controlled Trusts and Messrs. Bellinger,
Hesemann, Hislop and Bates will each have certain demand registration rights
(subject to the 180-day lock-up arrangement described below), under certain
circumstances and subject to certain conditions, to require the Company to
register their shares of Common Stock under the Securities Act and, certain
rights to participate in any future registration of securities by the
Company. The Company is not required to effect more than one demand
registration on behalf of the Nicklaus Family Members in any twelve calendar
month period. See "Certain Relationships and Related
Transactions--Registration Rights Agreement."
The Company intends to file a registration statement on Form S-8 covering
all shares of Class A Common Stock issuable under the Company's employee
benefit plans in effect on the date of this Prospectus. The Company has
granted stock options with respect to an aggregate of approximately 384,000
shares of Class A Common Stock. Accordingly, any shares issued upon exercise
of outstanding options will be eligible for sale in the public market
(subject to the 180-day lock-up arrangement described below) beginning on the
effective date of such registration statement.
64
<PAGE>
The Company and the Nicklaus Family Members and members of the Company's
management who are shareholders of the Company have agreed for 180 days
following the offering not to, without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any share of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or file any registration statement under the Securities Act with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the shares of
Common Stock to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in this Prospectus,
(C) any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company referred
to in this Prospectus, (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or (E) the pledge by certain shareholders of
the Company of shares of Common Stock to Mr. Nicklaus.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a general discussion of the material United States
federal income and estate tax consequences of the ownership and disposition
of shares of Class A Common Stock applicable to non-U.S. Holders of such
shares of Class A Common Stock. In general, a "non-U.S. Holder" is any holder
other than (i) a citizen or resident of the United States for income tax
purposes, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any State, or
(iii) any estate or trust whose income is includible in gross income for
United States federal income tax purposes regardless of its source. The
discussion is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and regulations thereunder and judicial and
administrative interpretations as of the date of this Prospectus, all of
which are subject to change, possibly with retroactive effect, and is for
general information only. The discussion does not address all aspects of
federal income and estate taxation nor any aspects of state, local or foreign
tax laws. The discussion does not consider any specific facts or
circumstances that may apply to a particular non-U.S. Holder (including,
without limitation, certain U.S. expatriates, insurance companies, tax-exempt
organizations, financial institutions or broker dealers). Accordingly,
prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local and non-U.S. income, estate and other tax
consequences of the acquisition, ownership and disposition of shares of Class
A Common Stock that may apply to them.
An individual may, subject to certain exceptions, be deemed to be a
resident alien for income tax purposes (as opposed to a non-resident alien)
by virtue of being present in the United States for at least 31 days in the
calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to tax as if they were United
States citizens.
DIVIDENDS
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. See "Dividend Policy."
If, however, the Company were to pay dividends, then, in general, dividends
paid to a non-U.S. Holder will be subject to United States federal
withholding tax at a 30% rate (or lower rate as may be prescribed by an
applicable tax treaty) unless the dividends are effectively
65
<PAGE>
connected with a trade or business carried on by the non-U.S. Holder within
the United States. Dividends effectively connected with such a trade or
business will generally not be subject to withholding tax (if the non-U.S.
Holder properly files an executed IRS Form 4224 with the payor of the
dividend) and will generally be subject to United States federal income tax
on a net income basis at regular graduated rates. In the case of a non-U.S.
Holder which is a corporation, such effectively connected income also may be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively
connected earnings and profits at a 30% rate). The branch profits tax may not
apply (or may apply at a reduced rate) if the recipient is a qualified
resident of certain countries with which the United States has an income tax
treaty. To determine the applicability of a tax treaty providing for a lower
rate of withholding, dividends paid to an address in a foreign country are
presumed to be paid to a resident of that country, unless the payor has
definite knowledge that such presumption is not warranted. Proposed Treasury
regulations, if finally adopted, however, would require non-U.S. Holders to
file certain forms to obtain the benefit of any applicable tax treaty
providing for a lower rate of withholding tax on dividends. A non-U.S. Holder
that is eligible for a reduced rate of U.S. withholding tax pursuant to a tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the Internal Revenue Service. The Company
must report annually to the Internal Revenue Service and to each non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each non-U.S. Holder. These reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the non-U.S. Holder resides.
SALE OF CLASS A COMMON STOCK
Generally, a non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares
of Class A Common Stock unless (i) the gain is effectively connected with a
trade or business carried on by the non-U.S. Holder within the United States
or, if an applicable tax treaty provides, is attributable to a permanent
establishment maintained by the non-U.S. Holder in the United States (in
either case, the branch profits tax described above may also apply to a
corporate non-U.S. Holder); (ii) the non-U.S. Holder is an individual who
holds the shares of Class A Common Stock as a capital asset and is present in
the United States for 183 days or more in the taxable year of the
disposition, and certain other conditions are met; or (iii) the Company is or
has been a "U.S. real property holding corporation" for federal income tax
purposes (which the Company does not believe that it has been) at any time
during the five-year period ending on the date of disposition (or such
shorter period that such shares were held). A corporation is generally a
"U.S. real property holding corporation" if the fair market value of its
"United States real property interests" equals or exceeds 50% of the sum of
the fair market value of its worldwide real property interests plus its other
assets used or held for use in a trade or business. As discussed above, one
of the Company's strategies is to focus its efforts on the acquisition and
development of golf practice and instruction facilities and accordingly, the
Company may in the future, depending on the assets which it then holds, be
deemed to be a "U.S. real property holding corporation." If the Company is or
has been a "U.S. real property holding corporation" at any time during the
relevant period, a non-U.S. Holder which did not directly or indirectly own
more than 5% of the Class A Common Stock at any time during the period would
not be subject to U.S. federal income tax provided that the Class A Common
Stock is regularly traded on an established securities market.
ESTATE TAX
Shares of Class A Common Stock owned or treated as owned by an individual
who is a non-U.S. Holder at the time of death will be includible in the
individual's gross estate for the United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise, and may be subject
to United States federal estate tax.
66
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain required information,
including the person's U.S. taxpayer identification number) and information
reporting requirements apply to payments of dividends (actual and
constructive) made to certain non-corporate United States persons. The United
States backup withholding tax and information reporting requirements (other
than those described above under "Dividends") will generally not apply to
dividends paid on Class A Common Stock to a non-U.S. Holder at an address
outside the United States that is either subject to the 30% withholding
discussed above or that is not so subject because a tax treaty applies that
reduces or eliminates such 30% withholding. However, backup withholding and
information reporting generally will apply to the dividends paid on shares of
Class A Common Stock to addresses in the United States to beneficial owners
that are not "exempt recipients" and that fail to provide in the manner
required certain identifying information.
The payment of the proceeds from the disposition of shares of Class A
Common Stock through the United States office of a broker will be subject to
information reporting and backup withholding unless the holder, under penalty
of perjury, certifies, among other things, its status as a non-U.S. Holder,
or otherwise establishes an exemption. Generally, the payment of the proceeds
from the disposition of shares of Class A Common Stock to or through a
non-U.S. office of a non-U.S. broker will not be subject to backup
withholding and will not be subject to information reporting. In the case of
the payment of proceeds from the disposition of shares of Class A Common
Stock through a non-U.S. office of a broker that is a U.S. person or a "U.S.
related person," existing regulations require information reporting (but not
backup withholding) on the payment unless the broker receives a statement
from the owner, signed under penalties of perjury, certifying, among other
things, its status as a non-U.S. Holder, or the broker has documentary
evidence in its files that the owner is a non-U.S. Holder and the broker has
no actual knowledge to the contrary. Proposed regulations state that backup
withholding will not apply to such payments (absent actual knowledge that the
payee is a U.S. person). For this purpose, a "U.S.-related person" is (i) a
"controlled foreign corporation" for United States federal income tax
purposes or (ii) a foreign person, 50% or more of whose gross income from all
sources for the three year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has
been in existence) is derived from activities that are effectively connected
with the conduct of a United States trade or business.
Any amounts withheld from a payment to a non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the U.S. Internal
Revenue Service. The backup withholding and information reporting rules are
currently under review by the U.S. Treasury Department and their application
to the shares of Class A Common Stock is subject to change.
Non-U.S. Holders should consult their tax advisors regarding the
application of these rules to their particular situations, the availability
of an exemption therefrom and the procedure for obtaining such an exemption,
if available.
67
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company, GBI and the Underwriters named
below, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), William Blair & Company, L.L.C. and Dean Witter Reynolds Inc. are
acting as representatives (the "Representatives"), the Company has agreed to
sell to each of the Underwriters, and each of the Underwriters severally has
agreed to purchase from the Company, the number of shares of Class A Common
Stock set forth opposite its name below.
NUMBER OF
SHARES OF
CLASS A
UNDERWRITERS COMMON STOCK
- ------------ ------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ............ 500,000
William Blair & Company, L.L.C. ..... 500,000
Dean Witter Reynolds Inc. ............ 500,000
Alex. Brown & Sons Incorporated ..... 40,000
A.G. Edwards & Sons, Inc. ............ 40,000
Goldman, Sachs & Co. ................. 40,000
Hambrecht & Quist LLC ................ 40,000
Montgomery Securities ................ 40,000
Morgan Stanley & Co. Incorporated ... 40,000
Oppenheimer & Co., Inc. .............. 40,000
PaineWebber Incorporated ............. 40,000
Salomon Brothers Inc ................. 40,000
Smith Barney Inc. .................... 40,000
J.C. Bradford & Co. .................. 20,000
The Chicago Corporation .............. 20,000
Fahnestock & Co. Inc. ................ 20,000
First of Michigan Corporation ....... 20,000
Janney Montgomery Scott Inc. ......... 20,000
Legg Mason Wood Walker, Incorporated 20,000
Monness, Crespi, Hardt & Co., Inc. .. 20,000
The Ohio Company ..................... 20,000
Rauscher Pierce Refsnes, Inc. ....... 20,000
Raymond James & Associates, Inc. .... 20,000
The Robinson-Humphrey Company, Inc. . 20,000
The Seidler Companies Incorporated .. 20,000
Van Kasper & Company ................. 20,000
---------
Total ..................... 2,160,000
=========
The Underwriters have agreed, subject to the terms and conditions set
forth in the Purchase Agreement, to purchase all of the shares of Class A
Common Stock being sold pursuant to the Purchase Agreement, if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Class A Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $.64
per share of Class A Common Stock. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $.10 per share of Class A
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
324,000 shares of Class A Common Stock at the
68
<PAGE>
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. The Underwriters may exercise this option
only to cover over-allotments, if any, made on the sale of the Class A Common
Stock offered hereby. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares of Class A Common Stock proportionate
to such Underwriter's initial amount reflected in the foregoing table.
The Company and the Nicklaus Family Members and members of the Company's
management who are shareholders of the Company have agreed for 180 days
following the offering not to, without the prior written consent of Merrill
Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the Securities Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the shares of Common Stock to be
sold hereunder, (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security outstanding
on the date hereof and referred to in this Prospectus, (C) any shares of
Common Stock issued or options to purchase Common Stock granted pursuant to
existing employee benefit plans of the Company referred to in this
Prospectus, (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or (E) the pledge by certain shareholders of
the Company of shares of Common Stock to Mr. Nicklaus. See "Shares Eligible
for Future Sale."
At the request of the Company, the Underwriters have initially reserved up
to 125,000 shares of Class A Common Stock for sale at the initial public
offering price set forth on the cover page of this Prospectus to directors,
officers, employees and business associates of the Company and other persons
associated with the Company or affiliated with any director, officer or
employee of the Company. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the
same basis as other shares offered hereby. Certain managerial employees of
the Company who purchase reserved shares will be required to agree not to
dispose of such shares for a period of 180 days after the date of this
Prospectus.
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock of the Company. The initial public offering price was
determined through negotiations among the Company and the Representatives.
Among the factors considered in determining the public offering price, in
addition to prevailing market conditions, are price-earnings ratios of
publicly traded companies that the Representatives believe to be comparable
to the Company, certain financial information of the Company, the history of,
and the prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance given as to the
liquidity of the trading market for the Class A Common Stock or that an
active public market will develop for the Class A Common Stock or that the
Class A Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price. If an active public
market for the Common Stock does not develop, the market price and liquidity
of the Class A Common Stock may be adversely affected.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the proposed trading symbol "JACK."
Each Underwriter has agreed that (i) it has not offered or sold and, prior
to the expiration of the period of six months from the Closing Date, will not
offer or sell any shares of Class A Common Stock
69
<PAGE>
to persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995; (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Class A Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in connection
with the issuance of Class A Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document
may otherwise lawfully be issued or passed on.
The Underwriters do not intend to confirm sales of the Class A Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company and GBI have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
From time to time, Merrill Lynch utilizes the services of Nicklaus/Flick
Golf Schools and pays for such services on an arms' length basis.
LEGAL MATTERS
The validity of the Class A Common Stock being offered hereby and certain
other legal matters will be passed upon for the Company by Stearns Weaver
Miller Weissler Alhadeff & Sitterson, P.A., Miami, Florida. Certain legal
matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership, including professional corporations), New
York, New York. Fried, Frank, Harris, Shriver & Jacobson will rely on the
opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson P.A. as to
matters relating to Florida law.
EXPERTS
The financial statements and schedule included in this Registration
Statement have been audited by Arthur Andersen LLP, independent certified
public accountants, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Class A Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which are omitted as
permitted by the rules and regulations of the Commission. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Prospectus regarding the
contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file reports and other
information with the Commission. Such reports and other information, as well
as the Registration Statement and the exhibits and schedules thereto, may be
inspected, without charge, at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
70
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE REGISTRANT--GOLDEN BEAR GOLF, INC.:
Report of Independent Certified Public Accountants ........................................... F-4
Balance Sheet as of June 7, 1996 ............................................................. F-5
Notes to Balance Sheet ....................................................................... F-6
COMBINED BUSINESSES TO BE ACQUIRED--GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.:
Report of Independent Certified Public Accountants ......................................... F-12
Combined Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (Unaudited) ............................................................. F-13
Combined Statements of Operations for each of the three years
in the period ended December 31, 1995 and for the three months ended
March 31, 1995 and 1996 (Unaudited) ........................................................ F-14
Combined Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1995 and for the three months ended
March 31, 1996 (Unaudited) ................................................................. F-15
Combined Statements of Cash Flows for each of the three years
in the period ended December 31, 1995 and for the three months ended
March 31, 1995 and 1996 (Unaudited) ........................................................ F-16
Notes to Combined Financial Statements ....................................................... F-17
BUSINESSES TO BE ACQUIRED SUBSEQUENT TO YEAR END:
COOL SPRINGS, INC.
Report of Independent Certified Public Accountants ........................................... F-33
Balance Sheets as of October 31, 1994 and 1995 and April 30, 1996 (Unaudited) ............... F-34
Statements of Operations for the years ended October 31, 1994 and 1995
and for the six months ended April 30, 1996 (Unaudited) .................................... F-35
Statements of Stockholders' Equity for the years ended October 31, 1994 and 1995
and for the six months ended April 30, 1996 (Unaudited) .................................... F-36
Statements of Cash Flows for the years ended October 31, 1994 and 1995
and for the six months ended April 30, 1996 (Unaudited) .................................... F-37
Notes to Financial Statements ................................................................ F-38
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
Report of Independent Certified Public Accountants ........................................... F-43
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (Unaudited) .............. F-44
Statements of Operations for the period from Inception (June 13, 1994)
to December 31, 1994 and for the year ended December 31, 1995
and for the three months ended March 31, 1996 (Unaudited) .................................. F-45
Statements of Stockholders' Equity for the period from Inception (June 13, 1994)
to December 31, 1994 and for the year ended December 31, 1995
and for the three months ended March 31, 1996 (Unaudited) .................................. F-46
Statements of Cash Flows for the period from Inception (June 13, 1994)
to December 31, 1994 and for the year ended December 31, 1995
and for the three months ended March 31, 1996 (Unaudited) .................................. F-47
Notes to Financial Statements ................................................................ F-48
</TABLE>
F-1
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DALLAS HIGHLANDER, LTD.
Report of Independent Certified Public Accountants ............................................. F-53
Balance Sheets as of December 31, 1994, December 31, 1995 and March 31, 1996 .................. F-54
Statements of Operations for the period from inception (July 1, 1994) to December 31, 1994, the
year ended December 31, 1995 and for the three months ended March 31, 1996 ................... F-55
Statements of Partners' Capital for the period from inception (July 1, 1994) to December 31,
1994, the year ended December 31, 1995 and for the three months ended March 31, 1996 ......... F-56
Statements of Cash Flows for the period from inception (July 1, 1994) to December 31, 1994, the
year ended December 31, 1995 and for the three months ended March 31, 1996 ................... F-57
Notes to Financial Statements .................................................................. F-58
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
Report of Independent Certified Public Accountants ............................................. F-63
Combined Balance Sheets as of December 31, 1995 and June 30, 1996 .............................. F-64
Combined Statements of Operations for the year ended December 31, 1995
and for the six months ended June 30, 1996 ................................................... F-65
Combined Statements of Stockholders' Equity for the year ended December 31, 1995
and for the six months ended June 30, 1996 ................................................... F-66
Combined Statements of Cash Flows for the year ended December 31, 1995
and for the six months ended June 30, 1996 ................................................... F-67
Notes to Combined Financial Statements ......................................................... F-68
EAST COAST GOLF CENTER, INC. AND EAST COAST GOLF CENTER OF COLUMBUS, LTD. AND EAST COAST GOLF
CENTERS OF FORT LAUDERDALE, INC.
Report of Independent Certified Public Accountants ............................................. F-73
Combined Balance Sheets as of December 31, 1994, December 31, 1995 and March 31, 1996 ......... F-74
Combined Statements of Operations for the period from inception (June 7, 1994) to December 31,
1994, the year ended December 31, 1995 and for the three months ended March 31, 1996 ......... F-75
Combined Statements of Shareholders' Equity for the period from inception (June 7, 1994) to
December 31, 1994, the year ended December 31, 1995 and for the three months ended March 31,
1996 ......................................................................................... F-76
Combined Statements of Cash Flows for the period from inception (June 7, 1994) to December 31,
1994, the year ended December 31, 1995 and for the three months ended March 31, 1996 ......... F-77
Notes to Combined Financial Statements ......................................................... F-78
UNAUDITED PRO FORMA FINANCIAL INFORMATION:
Introduction to Unaudited Pro Forma Financial Information ...................................... P-2
Unaudited Pro Forma Balance Sheet as of March 31, 1996 ......................................... P-6
Unaudited Pro Forma Statements of Operations for the three months
ended March 31, 1996 and the year ended December 31, 1995 .................................... P-7
Notes to Unaudited Pro Forma Financial Information ............................................. P-9
</TABLE>
F-2
<PAGE>
GOLDEN BEAR GOLF, INC.
BALANCE SHEET
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Golden Bear Golf, Inc.:
We have audited the accompanying balance sheet of Golden Bear Golf, Inc.
as of June 7, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Golden Bear Golf, Inc. as of
June 7, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
June 7, 1996.
F-4
<PAGE>
GOLDEN BEAR GOLF, INC.
BALANCE SHEET
JUNE 7, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ......................................................... $ --
DEFERRED OFFERING COSTS ....................................... 400,000
-----------
Total assets .............................................. $400,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses ............................................. $400,000
-----------
COMMITMENTS (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 20,000,000 shares
authorized,
no shares issued and outstanding ........................... --
Common stock--
Class A, $.01 par value, 70,000,000 shares authorized,
no shares issued and outstanding .......................... --
Class B, $.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding .......................... --
-----------
Total stockholders' equity ................................ --
-----------
Total liabilities and stockholders' equity ................ $400,000
===========
</TABLE>
The accompanying notes to balance sheet are an integral part of this balance
sheet.
F-5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO BALANCE SHEET
JUNE 7, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Golden Bear Golf, Inc. ("Golden Bear") was formed on June 7, 1996 to enter
into an exchange agreement which will be consummated only upon the closing of
a proposed initial public offering of Golden Bear's Class A Common Stock.
Parties to the plan of reorganization include Golden Bear's affiliates,
Golden Bear Golf Centers, Inc., Paragon Golf Construction, Inc.
(collectively, the "Companies") and Golden Bear International, Inc. ("GBI").
Pursuant to the exchange agreement, Golden Bear will acquire all of the
outstanding common stock of the Companies in exchange for an aggregate of
1,668,000 (after the proposed 3,000-for-1 stock split) shares of its Class A
and Class B Common Stock. In addition Golden Bear will acquire certain assets
and assume certain liabilities of GBI in exchange for 1,332,000 (after the
proposed 3,000-for-1 stock split) shares of Class B Common Stock.
If the exchange agreement is consummated and Golden Bear closes its
initial public offering, the transaction will be accounted for on a
historical cost basis in a manner similar to a pooling of interests as Golden
Bear and the Companies have common stockholders and management.
DEFERRED OFFERING COSTS
Deferred offering costs represent fees incurred related to the proposed
initial public offering. If consummated, such costs will be netted against
the proceeds of the initial public offering. If unsuccessful, such costs will
be expensed.
INCOME TAXES
Golden Bear is a corporation subject to Federal and state taxation. To
date, Golden Bear has had no operations and, therefore, has generated no tax
liabilities.
2. COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock,
as described below.
VOTING RIGHTS. Each share of Class A Common Stock entitles the holder to
one vote on each matter submitted to a vote of Golden Bear's shareholders and
each share of Class B Common Stock entitles the holder to ten votes on each
such matter, including the election of directors. Except as required by
applicable law, holders of the Class A Common Stock and Class B Common Stock
will vote together on all matters submitted to a vote of the shareholders.
Neither the Class A Common Stock nor the Class B Common Stock have cumulative
voting rights.
Any action that can be taken at a meeting of the shareholders may be taken
by written consent in lieu of the meeting if Golden Bear receives consents
signed by shareholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present. This could permit the holders of Class B
Common Stock to take all
F-6
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
JUNE 7, 1996
2. COMMON STOCK--(CONTINUED)
actions required to be taken by the shareholders without providing the other
shareholders the opportunity to make nominations or raise other matters at a
meeting.
DIVIDENDS. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if and when declared by the
Board of Directors out of funds legally available therefore, subject to the
dividend and liquidation rights of any Preferred Stock that may be issued and
outstanding. No dividend or other distribution (including redemptions or
repurchases of shares of capital stock) may be made if after giving effect to
such distribution, Golden Bear would not be able to pay its debts as they
become due in the usual course of business, or if Golden Bear's total assets
would be less than the sum of its total liabilities plus the amount that
would be needed at the time of a liquidation to satisfy the preferential
rights of any holders of Preferred Stock.
If a dividend or distribution payable in Class A Common Stock is made on
the Class A Common Stock, Golden Bear must also make a pro rata and
simultaneous dividend or distribution on the Class B Common Stock payable in
shares of Class B Common Stock. Conversely, if a dividend or distribution
payable in Class B Common Stock is made on the Class B Common Stock, Golden
Bear must also make a pro rata and simultaneous dividend or distribution on
the Class A Common Stock payable in shares of Class A Common Stock.
RESTRICTIONS ON TRANSFER. If a holder of Class B Common Stock transfers
such shares, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than a Nicklaus Family Member, such shares will
be converted automatically into shares of Class A Common Stock. In the case
of a pledge of shares of Class B Common Stock to a financial institution,
such shares will not be deemed to be transferred unless and until a
foreclosure occurs.
CONVERSION. Class A Common Stock has no conversion rights. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any
time and from time to time at the option of the holder, on the basis of one
share of Class A Common Stock for each share of Class B Common Stock
converted. In the event of a transfer of shares of Class B Common Stock to
any person other than a Nicklaus Family Member, each share of Class B Common
Stock so transferred will be converted automatically into one share of Class
A Common Stock. Each share of Class B Common Stock will also automatically
convert into one share of Class A Common Stock if, on the record date for any
meeting of the shareholders, the number of shares of Class B Common Stock
then outstanding is less than 20% of the aggregate number of shares of Class
A Common Stock and Class B Common Stock then outstanding.
LIQUIDATION. In the event of liquidation, after payment of the debts and
other liabilities of Golden Bear and after making provision for the holders
of Preferred Stock, if any, the remaining assets of Golden Bear will be
distributable ratably among the holders of the Class A Common Stock and Class
B Common Stock treated as a single class.
MERGERS AND OTHER BUSINESS COMBINATIONS. Upon the merger of consolidation
of Golden Bear, holders of each class of Common Stock are entitled to receive
equal per share payments or distributions, except that in any transaction in
which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of
the Class A Common Stock and Class B Common Stock differ at that time.
F-7
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
JUNE 7, 1996
3. COMMITMENTS
In connection with the offering described above, Golden Bear intends to
enter into the following agreements:
DESIGN SERVICES MARKETING AGREEMENT-
GBI will retain Golden Bear as its exclusive worldwide marketing agent for
the purpose of identifying and negotiating contracts with developers, owners
and operators of golf facilities for GBI or its division, Nicklaus Design,
including the promotion of the golf course design and consulting services of
Jack W. Nicklaus, Jack W. Nicklaus II and other associated designers employed
or retained by GBI.
As compensation for the services provided by Golden Bear under the
agreement, GBI will pay Golden Bear, on a monthly basis in arrears, a
commission at the rate of ten percent (10%) of the gross fees (as defined)
received by GBI from any design contract executed by GBI during the term of
this agreement, except for design contracts for any of the specifically
excluded design services. The term of the agreement will commence
concurrently with the commencement of the proposed initial public offering
and will expire on December 31, 2006, unless otherwise terminated or
received. Golden Bear has the right, upon expiration of the initial term of
this agreement, to continually renew the agreement for successive three (3)
year terms, subject to its satisfactory performance of its responsibilities
to GBI under the agreement through the effective date of such renewal. The
agreement may be terminated by Golden Bear at the end of any calendar year,
(commencing with the end of calendar year 2000), upon written notice to GBI
of its intention to terminate not later than July 1 of the year in which such
termination is to be effective.
TRADEMARK LICENSE AGREEMENT-
GBI will grant to Golden Bear a royalty-free, indefinite, exclusive right
(subject to certain exclusions) to utilize and sublicense all major
trademarks, tradenames and service marks owned or developed by GBI, including
the GOLDEN BEAR, NICKLAUS and JACK NICKLAUS trademarks (collectively, the
"Licensed Marks") and the right, subject to the approval of GBI, to obtain
the registration of additional trademarks and service marks deemed by Golden
Bear to be necessary or prudent to the maintenance and future expansion of
Golden Bear. GBI will also grant Golden Bear the right to use the name,
likeness, nickname, biographical data and other identifying characteristics
of Jack Nicklaus in connection with the advertising, promotion, sale or
rendering of Golden Bear's products or services throughout the world. GBI
will retain the exclusive right to utilize any of the Licensed Marks in
connection with its continuing businesses, which encompass (i) golf course
design and consulting; (ii) residential community development; (iii)
sponsorship, promotion and management of golf tournaments; (iv) daily fee
golf course development; (v) the manufacture and marketing of golf clubs and
equipment; (vi) the creation, production and marketing of golf and other
sporting events; (vii) the creation, development, editing and distribution of
books, articles and print media creative works and audio visual media
programming and properties, including video games; and (viii) a membership
club offering golf improvement tips.
The initial term of the license is 30 years, renewable and may only be
terminated by GBI in the event Golden Bear abandons its use of the Licensed
Marks or breaches, violates or fails to perform or observe in any material
respect any of the material covenants, terms or conditions of the Trademark
F-8
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
JUNE 7, 1996
3. COMMITMENTS--(CONTINUED)
License Agreement and fails to correct or take immediate action in good faith
to correct any such curable breach, violation or failure following the
receipt of notice of such breach or violation from an arbitrator.
PERSONAL SERVICES MANAGEMENT AGREEMENT-
GBI has agreed to retain Golden Bear as the exclusive manager and
representative to market the personal services of Jack Nicklaus as a
professional athlete, celebrity and corporate spokesman for third parties not
affiliated with GBI or Golden Bear throughout the world. Golden Bear has
agreed that it will not, during the term of the agreement, represent, manage
or otherwise provide marketing services similar to those contemplated by the
agreement to any other professional golfer without the prior written consent
of GBI. The services provided by Golden Bear will include development of
personal appearance and personal service opportunities for approval by Jack
Nicklaus and GBI as well as requests from prospective clients, identification
and qualification of prospects, negotiation of contracts for approval by GBI
and Jack Nicklaus, and coordination of all scheduling and performance under
approved contracts. As compensation for the services to be provided by Golden
Bear, GBI will pay Golden Bear, on a monthly basis in arrears, thirty percent
(30%) of the net revenues (as defined) received by GBI from existing
endorsement services and a percentage to be negotiated (but in no event less
than 20%) of net revenues (as defined) received by GBI from endorsement
services under any contract which is signed or substantially negotiated
during the term of the agreement.
The term of the agreement will commence concurrently with the consummation
of the initial public offering and will expire on December 31, 2006, unless
otherwise terminated or renewed. Golden Bear has the right, upon expiration
of the initial term of this agreement to continually renew the agreement for
successive three (3) year terms, subject to its satisfactory performance of
its responsibilities to GBI under the agreement through the effective date of
such renewal.
GOLF EQUIPMENT MARKETING, CONSULTING AND COOPERATION AGREEMENT-
GBI has agreed to retain Golden Bear to provide marketing, consulting and
cooperation services to International in connection with its marketing
obligations as a licensee and member of Nicklaus Golf Equipment Company,
L.C., a Florida limited liability company ("NGEC"). For these services Golden
Bear will receive a fee of approximately $100,000 per year for up to 300
hours of services. In the event additional time is required, the parties will
negotiate in good faith a mutually acceptable hourly or per diem rate based
on the market rates for similar services. International has a 50% ownership
interest in NGEC, which manufactures, markets and distributes golf equipment
utilizing the Nicklaus, Jack Nicklaus and Golden Bear trademarks and
tradenames.
The term of the agreement will commence concurrently with the commencement
of the proposed initial public offering and will expire on December 31, 2006,
unless otherwise terminated or renewed. Golden Bear has the right, upon
expiration of the initial term of this agreement, to continually renew the
agreement for successive three (3) year terms, subject to its satisfactory
performance of its responsibilities to GBI under the agreement through the
effective date of such renewal. The agreement may be terminated by Golden
Bear at the end of any calendar year, commencing with the end of calendar
year 1997, upon written notice to GBI of its intention to terminate the
agreement.
F-9
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
JUNE 7, 1996
3. COMMITMENTS--(CONTINUED)
OFFICE FACILITIES LICENSING AGREEMENT-
Golden Bear will sublease its corporate headquarters from GBI, pursuant to
a sublease and sharing agreement. The sublease commences concurrently with
the commencement of the proposed initial public offering and terminates
January 31, 2000. Aggregate monthly rent payable under the agreement will be
approximately $50,000, including sales taxes and common area maintenance,
representing approximately 47% of the primary lease.
The agreement also provides for the sharing and joint ownership of certain
office and business services and equipment formerly provided by or owned by
GBI, including the telephone systems, main switchboard, central facsimile
machines, photocopying machines and computer networks. Pursuant to the
agreement, GBI has agreed to pay a monthly management fee equal to fifty
percent (50%) of the costs of employing the identified shared office staff
and personnel and a monthly equipment fee equal to fifty percent (50%) of the
agreed costs, consumable supplies and maintenance of the shared office and
business equipment. Additionally, Golden Bear will pay GBI a monthly phone
rental fee based upon the pro rata share of costs of providing local
telephone service and maintenance to dedicated and shared phone equipment in
the premises.
F-10
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
COMBINED FINANCIAL STATEMENTS
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Boards of Directors of
Golden Bear Golf Centers, Inc.,
Paragon Golf Construction, Inc. and
Golden Bear International, Inc.:
We have audited the accompanying combined balance sheets of Golden Bear
Golf Centers, Inc., Paragon Golf Construction, Inc. and Certain Operations of
Golden Bear International, Inc. (Florida corporations) as of December 31,
1994 and 1995 and the related combined statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Golden Bear Golf
Centers, Inc., Paragon Golf Construction, Inc. and Certain Operations of
Golden Bear International, Inc. as of December 31, 1994 and 1995, and the
results of their combined operations and cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
April 17, 1996.
F-12
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
PRO FORMA
FOR
REORGANIZATION
MARCH 31, MARCH 31,
1994 1995 1996 1996
------------- ------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 441,308 $ 377,796 $ 299,784 $ 1,799,784
Restricted cash ............................... 52,353 52,353 52,353 52,353
Accounts receivable, net of allowances of
$572,999, $511,833 and $519,719 (unaudited) . 3,263,338 6,366,435 5,287,144 5,287,144
Due from International ........................ 30,089 647,146 253,840 253,840
Costs and estimated earnings in excess of
billings on uncompleted contracts ........... 194,177 666,338 869,940 869,940
Prepaid expenses and other current assets .... 188,972 174,032 363,085 363,085
------------- ------------- ------------- ---------------
Total current assets ........................ 4,170,237 8,284,100 7,126,146 8,626,146
PROPERTY AND EQUIPMENT, net .................... 620,109 582,586 566,682 566,682
OTHER ASSETS ................................... 50,400 39,673 195,426 195,426
------------- ------------- ------------- ---------------
Total assets ................................ $4,840,746 $8,906,359 $7,888,254 $ 9,388,254
============= ============= ============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................. $1,307,916 $4,268,808 $3,463,573 $ 3,463,573
Accrued expenses .............................. 1,168,643 1,889,912 1,594,272 1,594,272
Billings in excess of costs and estimated
earnings on uncompleted contracts ........... 829,792 602,990 846,213 846,213
Deferred revenue .............................. 858,019 700,824 1,144,767 1,144,767
Current portion of notes payable .............. 62,975 219,225 674,145 674,145
Provision for estimated losses on construction
contracts in process ........................ 82,147 67,288 67,288 67,288
------------- ------------- ------------- ---------------
Total current liabilities ................... 4,309,492 7,749,047 7,790,258 7,790,258
------------- ------------- ------------- ---------------
NOTES PAYABLE, net of current portion ......... 112,735 43,510 25,158 25,158
------------- ------------- ------------- ---------------
MINORITY INTEREST .............................. 162,903 83,484 (207,209) (207,209)
------------- ------------- ------------- ---------------
COMMITMENTS AND CONTINGENCIES
(Notes 8 and 11)
SHAREHOLDERS' EQUITY:
Common stock ................................ 30,000 30,000 30,000 30,000
Additional paid-in capital .................... 840,000 840,000 840,000 3,790,000
Retained earnings ............................. (614,384) 160,318 (589,953) (2,039,953)
------------- ------------- ------------- ---------------
Total shareholders' equity .................. 255,616 1,030,318 280,047 1,780,047
------------- ------------- ------------- ---------------
Total liabilities and shareholders' equity . $4,840,746 $8,906,359 $7,888,254 $ 9,388,254
============= ============= ============= ===============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-13
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1993 1994 1995 1995 1996
-------------- ------------- ------------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Golf division -
Golf centers and academy fees
and royalties ................. $ 567,639 $ 744,549 $ 986,790 $ 125,375 $ 233,952
Related party management fees .. 953,656 1,160,371 1,310,523 239,000 299,539
-------------- ------------- ------------- ------------ ------------
Total golf division ............ 1,521,295 1,904,920 2,297,313 364,375 533,491
-------------- ------------- ------------- ------------ ------------
Construction division ............ 2,177,214 5,598,978 19,177,460 1,434,680 2,055,894
Marketing division -
Golf instruction revenues ...... 2,283,417 2,965,482 3,535,444 1,141,771 961,037
Licensing and other revenues ... 3,165,487 3,221,761 3,382,263 500,111 461,233
Equity in the operations of JNAI 2,504,299 2,633,484 2,672,997 681,813 881,307
Related party commissions ...... 116,250 300,000 480,000 129,375 78,750
-------------- ------------- ------------- ------------ ------------
Total marketing division ...... 8,069,453 9,120,727 10,070,704 2,453,070 2,382,327
-------------- ------------- ------------- ------------ ------------
Total revenues ................ 11,767,962 16,624,625 31,545,477 4,252,125 4,971,712
-------------- ------------- ------------- ------------ ------------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs .. 1,894,442 4,736,600 16,500,035 1,422,681 2,000,441
Operating expenses ............... 6,501,649 7,756,628 8,421,972 1,615,303 1,698,853
Corporate overhead ............... 2,994,015 3,051,444 3,121,257 714,052 750,466
Depreciation and amortization ... 243,318 198,710 233,041 53,305 72,207
-------------- ------------- ------------- ------------ ------------
11,633,424 15,743,382 28,276,305 3,805,341 4,521,967
-------------- ------------- ------------- ------------ ------------
Operating income ................ 134,538 881,243 3,269,172 446,784 449,745
-------------- ------------- ------------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest income .................. 9,146 17,929 37,166 1,352 4,356
Interest expense ................. -- (7,541) (25,255) (4,054) (12,342)
Other ............................ (6,751) (20,069) (12,954) (1,355) 12,116
-------------- ------------- ------------- ------------ ------------
Total other income (expense) ... 2,395 (9,681) (1,043) (4,057) 4,130
-------------- ------------- ------------- ------------ ------------
Income before income taxes and
minority interest ............. 136,933 871,562 3,268,129 442,727 453,875
FOREIGN TAX PROVISION ............. 616,038 699,499 1,010,312 177,880 95,975
MINORITY INTEREST ................. 924,935 1,037,698 1,023,942 203,294 324,708
-------------- ------------- ------------- ------------ ------------
Income (loss) before pro forma
income taxes .................. (1,404,040) (865,635) 1,233,875 61,553 33,192
PRO FORMA INCOME TAX
BENEFIT--UNAUDITED
(Note 1) ........................ (923,358) (764,292) (135,080) (84,502) (45,600)
-------------- ------------- ------------- ------------ ------------
Pro forma net income (loss) .... $ (480,682) $ (101,343) $ 1,368,955 $ 146,055 $ 78,792
============== ============= ============= ============ ============
Pro forma net income per share of
common stock .................... $ (0.16) $ (0.03) $ 0.46 $ 0.05 $ 0.03
============== ============= ============= ============ ============
Weighted average number of
common stock and common stock
equivalents outstanding ......... 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
============== ============= ============= ============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-14
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS/
COMMON PAID-IN DIVISIONAL
STOCK CAPITAL EQUITY TOTAL
---------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 ........................ $1,250 $ 8,750 $ 1,429,022 $ 1,439,022
Sale of common stock of Golf Centers ............. 1,250 108,750 -- 110,000
Divisional transfers from International ......... -- -- 965,063 965,063
Net loss ......................................... -- -- (1,404,040) (1,404,040)
---------- ------------- -------------- --------------
BALANCE, December 31, 1993 ........................ 2,500 117,500 990,045 1,110,045
---------- ------------- -------------- --------------
Contributions to Paragon ......................... -- 750,000 -- 750,000
Divisional transfers to International ............ -- -- (738,794) (738,794)
Net loss ......................................... -- -- (865,635) (865,635)
---------- ------------- -------------- --------------
BALANCE, December 31, 1994 ........................ 2,500 867,500 (614,384) 255,616
---------- ------------- -------------- --------------
Divisional transfers to International ............ -- -- (459,173) (459,173)
Net income ....................................... -- -- 1,233,875 1,233,875
---------- ------------- -------------- --------------
BALANCE, December 31, 1995 ........................ 2,500 867,500 160,318 1,030,318
---------- ------------- -------------- --------------
Divisional transfers to International (unaudited) -- -- (783,463) (783,463)
Net income (unaudited) ........................... -- -- 33,192 33,192
---------- ------------- -------------- --------------
BALANCE, March 31, 1996 (unaudited) ............... $2,500 $867,500 $(589,953) $ 280,047
========== ============= ============== ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-15
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
--------------- -------------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $(1,404,040) $ (865,635) $ 1,233,875 $ 61,553 $ 33,192
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization ............... 243,318 198,710 233,041 53,305 72,207
Provision for uncollectibles ................... 96,037 476,962 98,046 -- 7,886
Provision for estimated losses on construction
contracts in process ......................... -- 82,147 (14,859) -- --
Minority interest .............................. 924,935 1,037,698 1,023,942 203,294 324,708
Changes in assets and liabilities:
Restricted cash ............................... -- (52,353) -- -- --
Accounts receivable ........................... (1,095,818) (1,879,278) (3,201,143) 802,810 1,087,177
Decrease (increase) in due from International 93,744 (69,488) (617,057) (123,548) 393,306
Costs and estimated earnings in excess of
billings on uncompleted contracts ........... -- (194,177) (472,161) 14,821 (203,602)
Prepaid expenses and other current assets .... (56,275) (51,039) 14,940 (5,171) (189,053)
Other assets .................................. 91,832 7,485 20,761 56,951 (171,926)
Accounts payable .............................. 466,077 396,952 2,960,892 (35,556) (805,235)
Accrued expenses .............................. 395,557 379,361 721,269 117,573 (295,640)
Billings in excess of costs and estimated
earnings on uncompleted contracts ........... 196,268 633,524 (226,802) (132,802) 243,223
Deferred revenue .............................. 244,985 364,554 (157,195) 538,296 443,943
--------------- -------------- -------------- -------------- ------------
Net cash provided by operating activities ... 196,620 465,423 1,617,549 1,551,526 940,186
--------------- -------------- -------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................ (23,259) (248,551) (193,913) (111,876) (56,303)
Distributions to minority investors ............. (901,388) (1,002,137) (1,115,000) (347,500) (615,000)
--------------- -------------- -------------- -------------- ------------
Net cash used in investing activities ....... (924,647) (1,250,688) (1,308,913) (459,376) (671,303)
--------------- -------------- -------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock and contributions ......... 110,000 750,000 -- -- --
Proceeds from notes payable ..................... -- 200,242 150,000 -- 454,922
Payments on notes payable ....................... (106,314) (24,532) (62,975) (15,744) (18,354)
Divisional transfers from (to) International ... 965,063 (738,794) (459,173) (992,017) (783,463)
--------------- -------------- -------------- -------------- ------------
Net cash provided by (used in)
financing activities ....................... 968,749 186,916 (372,148) (1,007,761) (346,895)
--------------- -------------- -------------- -------------- ------------
Net increase (decrease) in cash and
cash equivalents ........................... 240,722 (598,349) (63,512) 84,389 (78,012)
CASH AND CASH EQUIVALENTS,
beginning of year .............................. 798,935 1,039,657 441,308 441,308 377,796
--------------- -------------- -------------- -------------- ------------
CASH AND CASH EQUIVALENTS, end of year ........... $ 1,039,657 $ 441,308 $ 377,796 $ 525,697 $ 299,784
=============== ============== ============== ============== ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest ........................ $ -- $ 7,541 $ 24,962 $ 6,693 $ 3,394
=============== ============== ============== ============== ===========
Cash paid for foreign taxes ..................... $ 386,038 $ 559,499 $ 532,383 $ 265,811 $ 277,975
=============== ============== ============== ============== ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-16
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The combined financial statements include the accounts of Golden Bear Golf
Centers, Inc. ("Golf Centers"), Paragon Golf Construction, Inc. ("Paragon")
and Certain Operations of Golden Bear International, Inc. ("GBI Carve-out")
(collectively, the "Companies"). All significant intercompany transactions
and accounts have been eliminated. Golden Bear International, Inc.
("International") is a privately owned company controlled by Jack Nicklaus,
primarily involved in golf course design and consulting, the development of
residential communities and daily fee golf courses, the manufacture and
marketing of golf clubs and equipment and the production and marketing of
golf and other sporting events. Golf Centers and Paragon are both owned and
controlled by Jack Nicklaus. Accordingly, for financial statement
presentation purposes, the businesses have been combined.
Golf Centers was incorporated in December 1992 to offer franchise
opportunities for the operation of golf instruction and practice facilities
that consist of practice stations and the teaching techniques developed by
Jack Nicklaus, Jim Flick and the International staff. In connection with the
franchise program, Golf Centers enters into various agreements with
franchisees including, but not limited to, development and license agreements
which provide for the establishment and operation of golf centers and use of
various trademarks, trade names and associated logos and symbols.
Paragon was incorporated in October 1992 to provide golf course
construction, shaping and consulting services to customers located throughout
the world. Construction and shaping work is performed under both
cost-plus-fee contracts and fixed-price contracts. Paragon also manages or
supervises, for a fee, the construction projects of others. The length of
Paragon's contracts varies but typically is less than two years.
GBI Carve-out provides golf club management services, operates golf
academies, licenses the brand names of Nicklaus, Jack Nicklaus and Golden
Bear and develops and conducts golf instruction. GBI Carve-out receives 30%
of all revenues received by Jack Nicklaus for personal endorsement services
with various companies. GBI Carve-out also receives a 10% management fee
based on the golf course design fees received by International. See Note 9.
The financial statements of GBI Carve-out, which are included in the
accompanying combined financial statements, have been prepared from the books
and records of International. As such, the combined statements of operations
include allocations of expenses between GBI Carve-out and the other divisions
of International which are material in amount. Such expenses include
allocations for corporate overhead, payroll, facilities, administration and
other overhead which were allocated to GBI Carve-out using a proportional
cost method of allocation because specific identification of expenses is not
practicable. Management believes that such allocations are representative of
stand-alone expenses based on GBI Carve-out's operations, and are further
supported by agreements to be entered into in connection with the proposed
initial public offering. See Note 11. The divisional equity of GBI Carve-out
includes transfers to International. Such transfers represent cash generated
by GBI Carve-out used in other operations of International.
In the opinion of management, the results of operations and cash flows of
GBI Carve-out are properly reflected in the accompanying combined financial
statements.
F-17
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The apparel licensing activities of GBI Carve-out are conducted through
Jack Nicklaus Apparel International ("JNAI") and its various partnerships.
GBI Carve-out serves as a 50% general partner and is generally entitled to
receive 50% to 66 2/3 % of the cash distributions of the various
partnerships' operations. The Company's investment in JNAI is recorded on the
equity method.
The following is a summary of the financial results of JNAI (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
License revenues ................... $2,504 2,634 $2,673
Commissions paid to Venture partner 613 831 979
Expenses ........................... 348 233 116
Tax provision ...................... 573 544 645
--------- --------- ---------
Income attributable to JNAI ....... $ 970 $1,026 $ 933
========= ========= =========
</TABLE>
The minority interest asset of approximately $207,000 (unaudited) at March
31, 1996 results from cash distributions made during the three month period
exceeding income recognized during the period. Such asset will be realized as
additional income is recognized during the year.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investment instruments with a
maturity of three months or less when purchased to be cash equivalents. In
1994, the Companies adopted Financial Accounting Standards Board Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
and, accordingly, all such instruments are classified as "held to maturity"
securities which are reported at amortized cost. The adoption of this
pronouncement did not have a material effect on the financial position or
results of operations of the Companies.
RESTRICTED CASH
In 1994, to begin construction on a certain project, Paragon was required
by a local government's environmental department to place $52,353 in a
certificate of deposit as a performance bond. This performance bond is
required until such time as the government agency deems it unnecessary to be
maintained. This three-month certificate of deposit is automatically extended
and bears interest at 2.8%.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
GOLF CENTERS
Revenues include franchise fees and royalty fees received from
franchisees. Franchise fees relate to the establishment of the golf centers
and royalties fees relate to the provision of assistance by Golf Centers with
marketing, training and other operational issues. Accordingly, franchise fees
are recognized as revenue when substantially all such services required under
the development agreement have been performed. Royalty fees are based upon
franchisees' adjusted gross revenues, as defined, and are recognized as
revenues when earned.
F-18
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
"Deferred revenue" includes franchise fees due or collected in excess of
amounts earned and amounted to $177,500, $190,000 and $190,000 (unaudited) at
December 31, 1994, December 31, 1995 and March 31, 1996.
PARAGON
Paragon records profits on long-term construction and shaping contracts
using the percentage-of-completion method, measured by the percentage of
costs incurred to date as compared to estimated total cost for each contract.
This method is used as management considers expended contract costs to be the
best available measure of progress on these contracts. Provision for
estimated losses on uncompleted contracts are made in the period in which the
Company determines that such losses are probable.
Construction and shaping costs include all direct material and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools and repairs and depreciation costs. Selling, general
and administrative costs are charged to expense as incurred.
Accounts receivable are principally from owners of golf courses under
construction. Paragon performs periodic credit evaluations of its customers
and maintains allowances for potential credit losses.
In 1995, revenues from Montreux Golf Club Limited, an unaffiliated Paragon
customer, represented approximately 16% of the combined Companies' total
revenues. Accounts receivable at December 31, 1995 include amounts due from
this same customer of approximately $1,000,000.
GBI CARVE-OUT
Fees received for golf management services are generally received and
recorded over the life of the related contracts. Golf academy and golf
instruction revenues are recognized concurrent with the time the services are
rendered. License revenue is recognized over the term of the underlying
license agreement, generally from five to ten years.
GBI Carve-out is also entitled to receive 30% of revenues received by Jack
Nicklaus for personal endorsement services with various companies and is
entitled to receive a management fee which represents 10% of the golf course
design fees received by International. Related revenues are recognized as
Jack Nicklaus becomes entitled to receive such personal endorsement fees and
as International receives its design fees. International generally receives
deposits ranging from 10% to 50% for its design services. The remaining
design fee is received in installments over the period of the design
contract.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using straight-line and accelerated
methods over the estimated useful lives of the assets.
F-19
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and
accumulated depreciation are removed from the accounts and any gain or loss
is recognized currently.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS 107), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents,
accounts receivable, costs and estimated earnings in excess of billings on
uncompleted contracts, prepaid expenses and other current assets, accounts
payable, accrued expenses, billings in excess of costs and estimated earnings
on uncompleted contracts, deferred revenue, provision for estimated losses on
construction contracts in process and long-term debt are reflected in the
accompanying financial statements at cost which approximates fair value.
PRO FORMA INCOME TAXES
Golf Centers and Paragon are S Corporations for Federal income tax
reporting purposes. GBI Carve-out is a division of International, an S
Corporation. As S Corporations, net income (loss) and related temporary
differences which arise in the recording of income and expense items for
financial and income tax reporting purposes of the Companies are reported in
the tax returns of the individual shareholders.
Foreign tax provision represents taxes paid or accrued on the Companies'
foreign operations as foreign jurisdictions do not recognize the S
Corporation status.
The pro forma income tax benefit is included in the combined statements of
operations and is presented for informational purposes as if the domestic
operations of the Companies were C Corporations during the years presented.
Generally foreign taxes paid will serve to reduce the Companies' tax
obligation.
Pro forma taxes have been presented to reflect this benefit and to reduce
the historical effective tax rate to an overall estimated effective rate of
approximately 39%.
PRO FORMA NET INCOME PER SHARE OF COMMON STOCK
Pro forma net income is divided by the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding, after
applying the treasury stock method to determine
F-20
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
net income per share. Primary and fully diluted net income per share are the
same for all periods presented as there were no common stock equivalents
outstanding during any of the periods presented.
INTERIM FINANCIAL DATA
In the opinion of the management of the Companies, the accompanying
unaudited combined financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position of the Companies as of March 31, 1996, and the results of
operations for the three-month periods ended March 31, 1995 and 1996. The
results of operations and cash flows for the three-month period ended March
31, 1996, are not necessarily indicative of the results of operations or cash
flows which may be reported for the remainder of 1996.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted construction and shaping
contracts consist of the following for contracts recognized under the
percentage-of-completion method of accounting:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
MARCH 31,
1994 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred on uncompleted contracts $4,368,661 $16,614,195 $16,529,729
Estimated earnings ...................... 435,335 2,116,225 2,560,969
-------------- -------------- --------------
4,803,996 18,730,420 19,090,698
Less-Billings to date ................... 5,439,611 18,667,072 19,066,971
-------------- -------------- --------------
$ (635,615) $ 63,348 $ 23,727
============== ============== ==============
</TABLE>
Such amounts are included in the accompanying combined balance sheets
under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
MARCH 31,
1994 1995 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts ...... $ 194,177 $ 666,338 $ 869,940
Billings in excess of costs and estimated
earnings on uncompleted contracts ...... (829,792) (602,990) (846,213)
------------- ------------ ------------
$(635,615) $ 63,348 $ 23,727
============= ============ ============
</TABLE>
F-21
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS--(CONTINUED)
Construction contract revenues and cost of construction contract revenues
consist of the following:
<TABLE>
<CAPTION>
CONSTRUCTION CONTRACT REVENUES COST OF CONSTRUCTION CONTRACT REVENUES
-------------------------------------------- -------------------------------------------
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
MARCH 31, MARCH 31,
1994 1995 1996 1994 1995 1996
------------- -------------- ------------- ------------- -------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Completed contracts .. $ 477,337 $ 4,255,046 $ -- $ 367,939 $ 3,391,505 $ --
Uncompleted contracts 5,121,641 14,922,414 2,055,894 4,368,661 13,108,530 2,000,441
------------- -------------- ------------- ------------- -------------- ------------
$5,598,978 $19,177,460 $2,055,894 $4,736,600 $16,500,035 $2,000,441
============= ============== ============= ============= ============== ============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
USEFUL
MARCH 31, LIFE
1994 1995 1996 IN YEARS
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Leasehold improvements ............ $ 299,354 $ 333,337 $ 333,337 3 -5
Equipment, furniture and fixtures 1,466,937 1,684,103 1,861,511 5 -10
------------ ------------ ------------
1,766,291 2,017,440 2,194,848
Less-Accumulated depreciation
and amortization ............. 1,146,182 1,434,854 1,628,166
------------ ------------ ------------
$ 620,109 $ 582,586 $ 566,682
============ ============ ============
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
MARCH 31,
1994 1995 1996
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related costs $ 345,691 $ 623,811 $ 636,067
Foreign taxes ............. 680,000 1,132,464 922,214
Other ..................... 142,952 133,637 35,991
------------- ------------- ------------
$1,168,643 $1,889,912 $1,594,272
============= ============= ============
</TABLE>
5. NOTES PAYABLE
In August, 1994, Paragon purchased construction equipment valued at
$200,000 and received financing from a finance company. The note, which
extends through July 1997, requires payments of $6,414 per month, including
interest at 9.5% per annum and is secured by the construction equipment. The
note balance outstanding at December 31, 1994 and 1995 was $175,710 and
$112,735.
F-22
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE--(CONTINUED)
In 1995, Paragon entered into a loan agreement with a bank which provides
for a revolving line of credit collateralized by substantially all of
Paragon's assets. Borrowings under the line of credit are limited to a
percentage of eligible accounts receivable, as defined, and may not exceed
$1,000,000 through the April 26, 1996, maturity date. See Note 11. Interest
is payable at 8.5% per annum. The amount outstanding under the line was
$150,000 at December 31, 1995 and $600,000 (unaudited) at March 31, 1996.
The loan agreement contains restrictive covenants, including the
maintenance of various ratios. At December 31, 1995, Paragon was in
compliance with the covenants in the agreement. The loan agreement is
guaranteed by the Companies' majority stockholder.
6. STOCKHOLDERS' EQUITY
The combined stockholders' equity accounts, prior to the Reorganization
discussed in Note 11, include the accounts of the Companies at December 31,
1995 as follows:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
RETAINED
ADDITIONAL EARNINGS/
PAID-IN DIVISIONAL
SHARES AMOUNT CAPITAL EQUITY
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Golf Centers, $1 par value, 2,000 shares authorized 1,250 $1,250 $108,750 $(56,683)
Paragon, $1 par value, 2,000 shares authorized .... 1,250 1,250 758,750 125,864
GBI Carve-out ...................................... -- -- 91,137
--------- --------- ------------- -------------
2,500 $2,500 $867,500 $160,318
========= ========= ============= =============
</TABLE>
7. RETIREMENT SAVINGS PLAN
The Companies participate in a retirement savings plan (the "Plan")
sponsored by International. The Plan operates as a defined contribution plan
and is qualified under Section 401(k) of the Internal Revenue Code. The Plan
covers all employees who have completed one year of service. The Companies
match the employees' contributions, up to a maximum of $1,500 per employee
per Plan year. A participant's individual contribution is limited to the
maximum amount for such year under the Internal Revenue Code. Discretionary
contributions can also be made to the Plan. All employees who have completed
one year of service and are employed at year-end are eligible for this
contribution.
Contributions to the Plan were $47,183, $59,639 and $59,218 during the
years ended December 31, 1993, 1994 and 1995, respectively.
F-23
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Companies lease vehicles through lease agreements expiring at various
dates through 1997. Minimum lease payments under noncancelable operating
lease obligations at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- --------------------------
<S> <C>
1996 ................. $32,712
1997 ................. 15,735
----------
$48,447
==========
</TABLE>
LITIGATION
In August 1995, Paragon brought an arbitration claim against a customer
for breach of contract. Paragon alleges it has properly completed the
construction relating to the renovation of the customer's golf course and is
seeking final payment of retainage and other amounts due, totaling $238,053.
In addition, Paragon is seeking additional damages of $144,820. Simultaneous
to this claim of arbitration, the customer filed a counterclaim of
arbitration against Paragon for alleged construction defects in the
renovation of its golf course. The customer is seeking damages in the amount
of $750,000. In the opinion of both legal counsel and management of Paragon,
the outcome of this counterclaim is indeterminable. As such, no additional
provision for loss has been recorded at December 31, 1995 or March 31, 1996.
GUARANTEES
Several of Paragon's construction contracts guarantee that Paragon shall,
at its sole cost and expense, properly correct and remedy, to the
satisfaction of the golf course owner, any structural, aesthetic or
functional defects which may appear in the work within a designated period of
time.
Additionally, Paragon has entered into construction agreements which
specify that Paragon will be liable for penalties incurred on all
construction projects uncompleted within a specified period of time.
Paragon's management does not expect the costs associated with corrective
action or penalties incurred, if any, to materially impact the financial
statements.
F-24
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS
"Due from International" consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
MARCH 31,
1994 1995 1996
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Paragon ....... $ -- $637,210 $253,840
GBI Carve-out 30,089 9,936 --
---------- ----------- ------------
$30,089 $647,146 $253,840
========== =========== ============
</TABLE>
A majority of the construction, shaping and consulting contracts received
by Paragon have been entered into with respect to golf courses designed by
International. Certain payments under consulting contracts awarded to Paragon
are remitted directly to International. In 1994, Paragon contracted to build
a golf course for International at cost. The estimated project cost is
$1,360,000 and construction began in February 1995. At December 31, 1995,
$637,210 was due from International related to these arrangements.
During the year ended December 31, 1994, Paragon paid off a note payable
to International in the amount of $20,593.
GBI Carve-out revenues include 30% of the personal endorsement fees
received by Jack Nicklaus. Such amounts totaled $116,250, $300,000 and
$480,000 in 1993, 1994 and 1995, respectively, and $78,750 (unaudited) for
the three-month period ended March 31, 1996.
GBI Carve-out revenues include 10% of the golf course design fees received
by International. Such amounts totaled $953,656, $1,160,371 and $1,310,523 in
1993, 1994 and 1995, respectively, and $299,539 (unaudited) for the
three-month period ended March 31, 1996.
An analysis of "Due from International" is as follows:
<TABLE>
<CAPTION>
BALANCE, DECEMBER 31, 1993 .... $ (39,399)
<S> <C>
Management fees and commissions 1,460,371
Cash received .................. (1,390,883)
--------------
Balance, December 31, 1994 .... 30,089
Management fees and commissions 1,790,523
Cash received .................. (1,173,466)
--------------
Balance, December 31, 1995 .... $ 647,146
==============
</TABLE>
10. SEGMENT REPORTING AND INTERNATIONAL OPERATIONS
SEGMENTS
The Golf Division includes the operating entities involved primarily in
golf practice and instruction facilities. The Construction Division includes
the operating activities of Paragon, involved in golf course construction and
shaping. The Marketing Division includes operating entities involved in the
development of the licensed products and marketing endorsements
relationships.
F-25
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. SEGMENT REPORTING AND INTERNATIONAL OPERATIONS--(CONTINUED)
Operating results of each segment are detailed below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Golf ......................... $ 1,521,295 $ 1,904,920 $ 2,297,313 $ 364,375 $ 533,491
Construction ................. 2,177,214 5,598,978 19,177,460 1,434,680 2,055,894
Marketing .................... 8,069,453 9,120,727 10,070,704 2,453,070 2,382,327
-------------- -------------- -------------- ------------- -------------
$11,767,962 $16,624,625 $31,545,477 $4,252,125 $4,971,712
============== ============== ============== ============= =============
OPERATING INCOME (LOSS)
Golf ......................... $ (34,174) $ 222,703 $ 425,903 $ 7,055 $ 141,518
Construction ................. (494,178) (422,063) 1,659,516 11,999 55,453
Marketing .................... 3,900,223 4,330,757 4,538,051 1,195,087 1,075,447
Corporate .................... (2,994,015) (3,051,444) (3,121,257) (714,052) (750,466)
-------------- -------------- -------------- ------------- -------------
$ 377,856 $ 1,079,953 $ 3,502,213 $ 500,089 $ 521,952
============== ============== ============== ============= =============
DEPRECIATION AND AMORTIZATION
Golf ......................... $ 45,400 $ 35,000 $ 41,690 $ 10,422 $ 8,014
Construction ................. 8,400 17,702 25,007 6,252 7,632
Marketing .................... 65,000 55,000 77,000 19,237 12,249
Corporate .................... 124,518 91,008 89,344 17,394 44,312
-------------- -------------- -------------- ------------- -------------
$ 243,318 $ 198,710 $ 233,041 $ 53,305 $ 72,207
============== ============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
MARCH 31,
1994 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Golf ................ $ 249,019 $ 405,959 $1,148,214
Construction ........ 1,598,120 5,676,554 5,017,623
Marketing ........... 2,570,261 2,441,429 1,311,400
Corporate ........... 423,346 382,417 411,017
------------- ------------- -------------
$4,840,746 $8,906,359 $7,888,254
============= ============= =============
CAPITAL EXPENDITURES
Golf ................ $ -- $ -- $ --
Construction ........ 224,308 102,638 35,752
Marketing ........... -- -- --
Corporate ........... 24,243 91,275 20,551
------------- ------------- -------------
$ 248,551 $ 193,913 $ 56,303
============= ============= =============
</TABLE>
F-26
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. SEGMENT REPORTING AND INTERNATIONAL OPERATIONS--(CONTINUED)
INTERNATIONAL
The Companies derive a portion of their revenues from foreign sources.
Foreign operations are primarily conducted through Paragon and JNAI and are
located in the Asia Pacific region, primarily Japan. Substantially all
Paragon contracts and agreements are denominated in U.S. currency.
Accordingly, Paragon's historic results are not generally subject to foreign
currency fluctuations. A substantial portion of the revenues of JNAI's
licensees are generated in foreign currencies. The licensees pay the license
fee to JNAI in U.S. dollars based on the exchange rate on the date of
payment. Although foreign currency fluctuations have not been significant
historically, fluctuations in the values of these currencies relative to the
United States dollar could have a material adverse effect on the Companies'
future profitability. The following summarizes the combined financial data of
foreign activities (after elimination of intercompany transactions):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Assets ................... $ 149,097 $2,468,810 $4,202,734 $1,542,768 $2,993,023
============= ============= ============= ============= =============
Revenues ................. $5,289,594 $6,537,105 $9,585,534 $1,614,106 $1,687,615
============= ============= ============= ============= =============
Contribution to operating
income before allocation
of corporate overhead .. $2,591,013 $3,660,780 $4,703,812 $ 848,047 $ 778,977
============= ============= ============= ============= =============
</TABLE>
11. SUBSEQUENT EVENTS
PLAN OF REORGANIZATION
The Companies have entered into a proposed plan of reorganization which
will be consummated only upon the closing of a proposed initial public
offering of Class A Common Stock. The Companies will become subsidiaries of a
newly-formed parent company, Golden Bear Golf, Inc. ("Golden Bear"). Pursuant
to an exchange agreement, Golden Bear will acquire all of the outstanding
common stock of Golf Centers and Paragon in exchange for an aggregate of
1,668,000 shares (after the proposed 3,000-for-1 stock split) of Golden
Bear's Class A and Class B Common Stock. In addition Golden Bear will acquire
certain assets and assume certain liabilities of GBI Carve-out for 1,332,000
(after the proposed 3,000-for-1 stock split) shares of Class B Common Stock.
If the exchange agreement is consummated and Golden Bear closes its
initial public offering, the transaction will be accounted for on a
historical cost basis in a manner similar to a pooling of interests as the
transaction is between entities under common control.
In June 1996, members of management and certain Nicklaus Family Members
purchased capital stock of Golf Centers for an aggregate price of $1,500,000.
The shares were sold to members of management for $600,000. The fair value of
the shares sold to management at the date of issuance was based on the
assumed initial public offering price of $15 per share which will result in
the recognition of compensation expense in the amount of $3,000,000.
F-27
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS--(CONTINUED)
AGREEMENTS
In connection with the offering described above, Golden Bear intends to
enter into the following agreements. The agreements reflect terms and
agreements that are substantially the same as the allocated expenses
reflected in the GBI Carve-out books and records.
DESIGN SERVICES MARKETING AGREEMENT
International will retain Golden Bear as its exclusive worldwide marketing
agent for the purpose of identifying and negotiating contracts with
developers, owners and operators of golf facilities for International or its
division, Nicklaus Design's, including the promotion of the golf course
design and consulting services of Jack W. Nicklaus, Jack W. Nicklaus II and
other associated designers employed or retained by International.
As compensation for the services provided by Golden Bear under the
agreement, International will pay Golden Bear, on a monthly basis in arrears,
a commission at the rate of ten percent (10%) of the gross fees (as defined)
received by International from any design contract executed by International
during the term of this agreement, except for design contracts for any of the
specifically excluded design services. The term of the agreement will
commence concurrently with the commencement of the proposed initial public
offering and will expire on December 31, 2006, unless otherwise terminated or
received. Golden Bear has the right, upon expiration of the initial term of
this agreement, to continually renew the agreement for successive three (3)
year terms, subject to its satisfactory performance of its responsibilities
to International under the agreement through the effective date of such
renewal. The agreement may be terminated by Golden Bear at the end of any
calendar year, (commencing with the end of calendar year 2000), upon written
notice to International of its intention to terminate not later than July 1
of the year in which such termination is to be effective.
TRADEMARK LICENSE AGREEMENT
International will grant Golden Bear a royalty-free, exclusive right
(subject to certain exclusions) to utilize and sublicense all major
trademarks, tradenames and service marks owned or developed by International,
including the Golden Bear, Nicklaus and Jack Nicklaus trademarks
(collectively, the "Licensed Marks") and the right, subject to the approval
of International, to obtain the registration of additional trademarks and
service marks deemed by Golden Bear to be necessary or prudent to the
maintenance and future expansion of Golden Bear. International also granted
Golden Bear the right to use the name, likeness, nickname, biographical data
and other identifying characteristics of Jack Nicklaus in connection with the
advertising, promotion, sale or rendering of Golden Bear's products or
services throughout the world. International has retained the exclusive right
to utilize any of the Licensed Marks in connection with its continuing
businesses, which encompass (i) golf course design and consulting; (ii)
residential community development; (iii) sponsorship, production and
management of golf tournaments; (iv) daily fee golf course development; (v)
the manufacture and marketing of golf clubs and equipment; (vi) the creation,
production and marketing of golf and other sports events; (vii) the creation,
development, editing and distribution of books, articles and print media
creative works and audio visual media programming and properties, including
video games; and (viii) a membership club offering golf improvement tips.
F-28
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS--(CONTINUED)
The initial term of Golden Bear's license is 30 years, renewable and may
only be terminated by International in the event Golden Bear abandons its use
of the Licensed Marks or breaches, violates or fails to perform or observe in
any material respect any of the material covenants, terms or conditions of
the Trademark License Agreement and fails to correct or take immediate action
in good faith to correct any such curable breach, violation or failure
following the receipt of notice of such breach or violation from an
arbitrator.
PERSONAL SERVICES MANAGEMENT AGREEMENT
International has agreed to retain Golden Bear as the exclusive manager
and representative to market the personal services of Jack Nicklaus as a
professional athlete, celebrity and corporate spokesman for third parties not
affiliated with International or Golden Bear throughout the world. Golden
Bear has agreed that it will not, during the term of the agreement,
represent, manage or otherwise provide marketing services similar to those
contemplated by the agreement to any other professional golfer without the
prior written consent of International. The services provided by Golden Bear
will include development of personal appearance and personal service
opportunities for approval by Jack Nicklaus and International as well as
requests from prospective clients, identification and qualification of
prospects, negotiation of contracts for approval by International and Jack
Nicklaus, and coordination of all scheduling and performance under approved
contracts. As compensation for the services to be provided by Golden Bear,
International will pay Golden Bear, on a monthly basis in arrears, thirty
percent (30%) of the net revenues (as defined) received by International from
existing endorsement services and a percentage to be negotiated but in no
event less than twenty percent (20%) of net revenues (as defined) received by
International from endorsement services under any contract which is signed or
substantially negotiated during the term of the agreement.
The term of the agreement will commence concurrently with the consummation
of the initial public offering and will expire on December 31, 2006, unless
otherwise terminated or renewed. Golden Bear has the right, upon expiration
of the initial term of this agreement to continually renew the agreement for
successive three (3) year terms, subject to its satisfactory performance of
its responsibilities under the agreement through the effective date of such
renewal.
GOLF EQUIPMENT MARKETING, CONSULTING AND COOPERATION AGREEMENT
International has agreed to retain Golden Bear to provide marketing,
consulting and cooperation services to International in connection with its
marketing obligations as a licensee and member of Nicklaus Golf Equipment
Company, L.C., a Florida limited liability company ("NGEC"). For these
services Golden Bear will receive a fee of approximately $100,000 per year
for up to 300 hours of services. In the event additional time is required,
the parties will negotiate in good faith a mutually acceptable hourly or per
diem rate based on the market rates for similar services. International has a
50% ownership interest in NGEC, which manufactures, markets and distributes
golf equipment utilizing the Nicklaus, Jack Nicklaus and Golden Bear
trademarks and tradenames.
The term of the agreement will commence concurrently with the commencement
of the proposed initial public offering and will expire on December 31, 2006,
unless otherwise terminated or renewed. Golden Bear has the right, upon
expiration of the initial term of this agreement, to continually renew
F-29
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS--(CONTINUED)
the agreement for successive three (3) year terms, subject to its
satisfactory performance of its responsibilities to International under the
agreement through the effective date of such renewal. The agreement may be
terminated by Golden Bear at the end of any calendar year, commencing with
the end of calendar year 1997, upon written notice to International of its
intention to terminate the agreement.
OFFICE FACILITIES LICENSING AGREEMENT
Golden Bear will sublease its corporate headquarters from International,
pursuant to a sublease and sharing agreement. The sublease commences
concurrently with the commencement of the proposed initial public offering
and terminates January 31, 2000. Aggregate monthly rent payable under the
agreement will be approximately $50,000, including sales taxes and common
area maintenance, representing approximately 47% of the primary lease.
The agreement also provides for the sharing and joint ownership of certain
office and business services and equipment formerly provided by or owned by
International, including the telephone systems, main switchboard, central
facsimile machines, photocopying machines and computer networks. Pursuant to
the agreement, International has agreed to pay a monthly management fee equal
to fifty percent (50%) of the costs of employing the identified shared office
staff and personnel and a monthly equipment fee equal to fifty percent (50%)
of the agreed costs, consumable supplies and maintenance of the shared office
and business equipment. Additionally, Golden Bear will pay International a
monthly phone rental fee based upon the pro rata share of costs of providing
local telephone service and maintenance to dedicated and shared phone
equipment in the premises.
LINE OF CREDIT
Subsequent to year-end, Paragon extended the maturity date of its line of
credit to April 26, 1997.
ACQUISITIONS
Subsequent to year-end, the Companies entered into agreements or letters
of intent to acquire or operate several independently owned golf centers for
approximately $16.4 million in cash and notes. The acquisitions will be
accounted for as purchases and, accordingly, the purchase price will be
allocated to the net assets acquired based on their estimated fair values at
the date of acquisition as follows:
Aggregate purchase price ........... $16,385,000
Estimated fair value of net assets 13,669,000
--------------
Goodwill ........................... $ 2,716,000
==============
F-30
<PAGE>
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC. AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS--(CONTINUED)
Had these acquisitions occurred as of January 1, 1994, the Companies
unaudited results of operations would have been as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
THREE MONTHS ENDED
1994 1995 MARCH 31, 1996
-------------------------- -------------------------- --------------------------
NET INCOME NET INCOME NET INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Historical operating results ... $16,625 $(101) $31,545 $1,369 $4,972 $ 79
Operating results of business
to be acquired ................ 1,746 138 5,383 (934) 1,081 (300)
Pro forma adjustments, primarily
interest expense and goodwill,
net of tax .................... -- (131) (284) (562) (46) (126)
----------- ------------- ----------- ------------- ----------- -------------
Pro forma ....................... $18,371 $ (94) $36,644 $ (127) $6,007 $(347)
=========== ============= =========== ============= =========== =============
</TABLE>
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly operating results for the year ended December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
------------ ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Golf division .................. $ 364 $ 655 $ 649 $ 630
Construction division .......... 1,435 4,593 7,427 5,722
Marketing division ............. 2,453 3,113 1,938 2,566
------------ ----------- ---------------- ---------------
4,252 8,361 10,014 8,918
------------ ----------- ---------------- ---------------
Costs and operating expenses:
Construction and shaping costs 1,423 3,814 6,312 4,951
Operating expenses ............. 1,615 2,317 2,147 2,343
Corporate overhead ............. 714 788 773 846
Depreciation and amortization . 53 58 59 63
------------ ----------- ---------------- ---------------
3,805 6,977 9,291 8,203
------------ ----------- ---------------- ---------------
Operating income ................ 447 1,384 723 715
Other income (expense) .......... (207) (304) (159) (355)
------------ ----------- ---------------- ---------------
Income before income taxes ..... 240 1,080 564 360
Foreign tax expense ............. 178 265 292 275
------------ ----------- ---------------- ---------------
Net income .................... $ 62 $ 815 $ 272 $ 85
============ =========== ================ ===============
</TABLE>
F-31
<PAGE>
COOL SPRINGS, INC.
FINANCIAL STATEMENTS
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Cool Springs, Inc.:
We have audited the accompanying balance sheets of Cool Springs, Inc. (a
Pennsylvania corporation) as of October 31, 1994 and 1995, and the related
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cool Springs, Inc. as of
October 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.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
June 7, 1996.
F-33
<PAGE>
COOL SPRINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- APRIL 30,
1994 1995 1996
------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 77,208 $161,328 $ 76,311
Inventories ................................................ 162,466 19,172 4,527
Prepaid expenses and other current assets .................. 36,035 36,027 31,049
------------- ----------- ------------
Total current assets .................................... 275,709 216,527 111,887
PROPERTY AND EQUIPMENT, net ................................. 737,770 719,014 699,867
------------- ----------- ------------
Total assets ............................................ $1,013,479 $935,541 $811,754
============= =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 20,770 $ 8,167 $ 7,293
Accrued liabilities ........................................ 44,925 35,336 46,618
Due to stockholder ......................................... 438,546 356,046 250,674
Deposits and other current liabilities ..................... 24,339 20,012 41,126
------------- ----------- ------------
Total current liabilities ............................... 528,580 419,561 345,711
------------- ----------- ------------
COMMITMENTS (Notes 7 and 8)
STOCKHOLDERS' EQUITY:
Common stock, $.25 par value, 200,000 shares authorized,
99,755 shares issued, 67,445 and 62,120 shares
outstanding, respectively ................................ 15,530 15,530 15,530
Additional paid-in capital ................................. 11,746 11,746 11,746
Retained earnings .......................................... 511,143 552,874 502,937
Less-Treasury stock, 32,310 and 37,635 shares,
respectively,
at cost .................................................. (53,520) (64,170) (64,170)
------------- ----------- ------------
Total stockholders' equity .............................. 484,899 515,980 466,043
------------- ----------- ------------
Total liabilities and stockholders' equity .............. $1,013,479 $935,541 $811,754
============= =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-34
<PAGE>
COOL SPRINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS
--------------------------- ENDED APRIL 30,
1994 1995 1996
------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Admission fees ....................... $1,204,951 $1,184,414 $241,197
Pro shop sales ....................... 284,547 338,522 6,565
------------- ------------- ----------------
Total revenues .................... 1,489,498 1,522,936 247,762
------------- ------------- ----------------
OPERATING COSTS AND EXPENSES:
Operating costs ...................... 1,042,515 961,948 223,340
Cost of pro shop sales ............... 204,923 303,570 14,777
General and administrative expenses . 143,579 131,938 41,281
Depreciation and amortization ....... 66,704 59,981 19,146
------------- ------------- ----------------
Total operating costs and expenses 1,457,721 1,457,437 298,544
------------- ------------- ----------------
Operating income (loss) ........... 31,777 65,499 (50,782)
------------- ------------- ----------------
OTHER INCOME:
Interest ............................. 1,972 2,232 845
Insurance proceeds ................... 70,000 -- --
Other ................................ 4,641 10,000 --
------------- ------------- ----------------
Total other income ................ 77,613 12,232 845
------------- ------------- ----------------
Income (loss) before provision for
income taxes .................... 109,390 77,731 (49,937)
PROVISION FOR INCOME TAXES ............ 50,500 36,000 --
------------- ------------- ----------------
Net income (loss) ................. $ 58,890 $ 41,731 $(49,937)
============= ============= ================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-35
<PAGE>
COOL SPRINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
--------- ---------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, October 31, 1993 ............ 99,755 $15,530 $11,746 $(12,552) $452,253 $466,977
Purchase of 30,248 shares of
treasury stock, at cost ........... -- -- -- (40,968) -- (40,968)
Net income for the year ............. -- -- -- -- 58,890 58,890
------ ------- ------- -------- -------- --------
BALANCE, October 31, 1994 ............ 99,755 15,530 11,746 (53,520) 511,143 484,899
Purchase of 5,325 shares of treasury
stock, at cost .................... -- -- -- (10,650) -- (10,650)
Net income for the year ............. -- -- -- -- 41,731 41,731
------ ------- ------- -------- -------- --------
BALANCE, October 31, 1995 ............ 99,755 15,530 11,746 (64,170) 552,874 515,980
Net loss for the six months
(unaudited) ....................... -- -- -- -- (49,937) (49,937)
------ ------- ------- -------- -------- --------
BALANCE, April 30, 1996 (unaudited) . 99,755 $15,530 $11,746 $(64,170) $502,937 $466,043
====== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-36
<PAGE>
COOL SPRINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS
--------------------- ENDED APRIL 30,
1994 1995 1996
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 58,890 $ 41,731 $ (49,937)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation and amortization ................... 66,704 59,981 19,146
Changes in assets and liabilities:
Inventories ....................................... (38,638) 143,294 14,645
Prepaid expenses and other current assets ........ 19,069 8 4,979
Accounts payable .................................. (41,429) (12,603) (874)
Accrued liabilities ............................... 28,924 (9,589) 11,282
Deposits and other current liabilities ............ 3,238 (4,327) 21,114
-------- -------- ---------
Net cash provided by operating activities ....... 96,758 218,495 20,355
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................. (31,935) (41,225) --
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to stockholder ....................... (12,713) (82,500) (105,372)
Purchase of treasury stock ........................... (40,968) (10,650) --
-------- -------- ---------
Net cash used in financing activities ............ (53,681) (93,150) (105,372)
-------- -------- ---------
Net increase (decrease) in cash and
cash equivalents ............................... 11,142 84,120 (85,017)
CASH AND CASH EQUIVALENTS, beginning of year ......... 66,066 77,208 161,328
-------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year ................ $ 77,208 $161,328 $ 76,311
======== ======== =========
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes ........................... $ 11,760 $ 42,367 $ --
======== ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-37
<PAGE>
COOL SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Cool Springs, Inc. (the "Company") is a Pennsylvania corporation engaged
in the operation of a golf driving range, a miniature golf course, baseball
batting cages, a golf pro shop, a golf school and an outdoor roller skating
center. The Company operates its facilities in Bethel Park, Pennsylvania.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents. Included in the cash and cash equivalents balance as of October
31, 1994 and 1995 are interest bearing deposits of $75,822 and $133,330,
respectively.
INVENTORIES
Inventories consist primarily of golf clubs, clothing and various other
golfer's supplies. Inventories are stated at the lower of cost, using
first-in, first-out method ("FIFO"), or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using accelerated methods over the
estimated useful lives of the assets ranging from five to thirty years.
REVENUE RECOGNITION
Revenues include fees received for use of the Company's various
facilities. Golf instruction revenues are recognized concurrent with the time
services are provided. Merchandise sales are recognized at the time of sale.
INCOME TAXES
The Company accounts for income taxes under Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
that deferred income taxes be recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and
their financial reporting basis at rates based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, inventories,
prepaid expenses and other current assets, accounts payable, accrued
liabilities and deposits and other current liabilities are reflected in the
accompanying financial statements at cost which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-38
<PAGE>
COOL SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of April 30, 1996, and the results of operations
for the three-month period ended April 30, 1996. The results of operations
and cash flows for the three-month period ended April 30, 1996, are not
necessarily indicative of the results of operations or cash flows which may
be reported for the remainder of 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Land ............................................ $ 134,026 $ 137,197
Furniture, fixtures and equipment ............... 452,852 478,035
Leasehold improvements .......................... 1,668,425 1,681,296
-------------- --------------
2,255,303 2,296,528
Less: Accumulated depreciation and amortization (1,517,533) (1,577,514)
-------------- --------------
$ 737,770 $ 719,014
============== ==============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1994 1995
---------- ---------
<S> <C> <C>
Accrued payroll and payroll taxes $10,985 $ 7,638
Accrued sales and amusement taxes 2,660 3,438
Income tax payable ................ 31,280 24,260
---------- ---------
$44,925 $35,336
========== =========
</TABLE>
4. DUE TO STOCKHOLDER
"Due to stockholder" represents non-interest bearing amounts owed to a
Company stockholder primarily for reimbursement of operating expenses paid by
the stockholder on behalf of the Company.
F-39
<PAGE>
COOL SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
A reconciliation of the tax provision at the statutory rate of 34% to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Tax provision at the statutory rate $37,000 $26,500
State income taxes ................. 13,500 9,500
---------- ----------
$50,500 $36,000
========== ==========
</TABLE>
6. INSURANCE PROCEEDS
"Insurance proceeds" in the accompanying 1994 statement of operations
represents amounts received related to insurance recoveries for damaged
property resulting from severe weather conditions.
7. COMMITMENTS
The Company leases from Allegheny County, Pennsylvania, the property on
which the facility is located. Lease payments are based upon a percentage of
gross income as follows:
Roller skating rink .... 10%
Ice skating rink ....... 16%
Bike rental ............ 18%
Lease payments to Allegheny County were $65,057 and $67,576 for the years
ended October 31, 1994 and 1995, respectively. The lease agreement was
terminated when the Company's majority stockholder purchased the Allegheny
property in November 1995.
The Company's lease with the majority stockholder has future annual
minimum payments as follows:
YEAR ENDED AMOUNT
- --------------- -----------
1996 ......... $133,455
1997 ......... 164,310
1998 ......... 164,310
1999 ......... 164,310
2000 ......... 164,310
Thereafter .. 13,692
-----------
$804,387
===========
8. SUBSEQUENT EVENTS
Subsequent to year-end, the Company entered into a Guaranty and Suretyship
Agreement (the "Agreement") with a financing institution in order to secure
an obligation of the Company's majority stockholder in the amount of
$1,350,000. The obligation is secured by the land which is leased to the
Company. See Note 7.
F-40
<PAGE>
COOL SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENTS--(CONTINUED)
The Company entered into a letter agreement with Golden Bear Golf Centers,
Inc. ("Golf Centers"), an unaffiliated entity, for the sale of various assets
of the Company and the land owned by the majority stockholder. The purchase
price of the land and assets is $2,900,000. Pursuant to this letter
agreement, Golf Centers has made non-refundable deposits of $150,000 which
are to be credited against the purchase price. As of June 7, 1996, the terms
of the acquisition had not been finalized.
F-41
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
FINANCIAL STATEMENTS
F-42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
First Sports Capital Development Associates Ltd., Inc.:
We have audited the accompanying balance sheets of First Sports Capital
Development Associates Ltd., Inc. (a New Jersey corporation) as of December
31, 1994 and 1995, and the related statements of operations, stockholders'
equity and cash flows for the period from inception (June 13, 1994) to
December 31, 1994 and for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Sports Capital
Development Associates, Ltd., Inc. as of December 31, 1994 and 1995, and the
results of its operations and its cash flows for the period from inception
(June 13, 1994) to December 31, 1994 and for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
June 21, 1996.
F-43
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 78,280 $ 2,445 $ --
Inventories ...................................... -- 6,464 6,464
Prepaid expenses ................................. -- 5,989 5,489
------------- ------------- -------------
Total current assets .......................... 78,280 14,898 12,453
PROPERTY AND EQUIPMENT, net ....................... 941,378 2,315,078 2,290,058
OTHER ASSETS ...................................... 11,855 32,614 32,614
------------- ------------- -------------
Total assets .................................. $1,031,513 $2,362,590 $2,335,123
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 130,078 $ 44,523 $ 47,925
Accrued liabilities .............................. 21,936 157,916 153,274
Current portion of long-term debt ................ -- 27,604 27,604
Due to stockholders .............................. 300,000 375,000 375,000
------------- ------------- -------------
Total current liabilities ..................... 452,014 605,043 603,803
------------- ------------- -------------
LONG-TERM DEBT, net of current portion ............ -- 519,590 512,059
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200 shares
authorized,
issued and outstanding, respectively ........... -- -- --
Additional paid-in capital ....................... 599,797 1,354,000 1,354,000
Accumulated deficit .............................. (20,298) (116,043) (134,737)
------------- ------------- -------------
Total stockholders' equity .................... 579,499 1,237,957 1,219,263
------------- ------------- -------------
Total liabilities and stockholders' equity ... $1,031,513 $2,362,590 $2,335,123
============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-44
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 13, 1994) THREE MONTHS
TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
---------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES .............................. $ -- $424,351 $120,880
---------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Cost of merchandise sold ............. -- 30,472 --
Operating costs ...................... 7,979 372,497 100,874
Depreciation and amortization ....... -- 71,512 25,020
---------------- --------------- ---------------
Total operating costs and expenses 7,979 474,481 125,894
---------------- --------------- ---------------
Operating loss .................... (7,979) (50,130) (5,014)
---------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense ..................... (16,161) (71,798) (13,680)
Interest income ...................... 3,842 -- --
Utility rebate ....................... -- 26,183 --
---------------- --------------- ---------------
Total other income (expense) ..... (12,319) (45,615) (13,680)
---------------- --------------- ---------------
Net loss .......................... $(20,298) $(95,745) $(18,694)
================ =============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-45
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES CAPITAL DEFICIT TOTAL
--------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Issuance of common stock ............................. 200 $ -- $ -- $ --
Capital contribution ................................. -- 599,797 -- 599,797
Net loss for the period from inception (June 13,
1994)
to December 31, 1994 ............................... -- -- (20,298) (20,298)
--------- ------------- -------------- ------------
BALANCE, December 31, 1994 ........................... 200 599,797 (20,298) 579,499
Capital contribution ................................. -- 754,203 -- 754,203
Net loss for the year ended December 31, 1995 ....... -- -- (95,745) (95,745)
--------- ------------- -------------- ------------
BALANCE, December 31, 1995 ........................... 200 1,354,000 (116,043) 1,237,957
Net loss for the three months ended March 31, 1996
(unaudited) ........................................ -- -- (18,694) (18,694)
--------- ------------- -------------- ------------
BALANCE, March 31, 1996 (unaudited) .................. 200 $1,354,000 $(134,737) $1,219,263
========= ============= ============== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-46
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(JUNE 13,
1994) THREE MONTHS
TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (20,298) $ (95,745) $(18,694)
Adjustments to reconcile net loss to net cash provided
by
(used in) operating activities-
Depreciation and amortization ....................... -- 71,512 25,020
Changes in assets and liabilities:
Inventories ........................................... -- (6,464) --
Prepaid expenses ...................................... -- (5,989) --
Other assets .......................................... (11,855) (20,759) --
Accounts payable ...................................... 130,078 (85,555) 3,402
Accrued liabilities ................................... 21,936 135,980 (4,642)
--------------- --------------- ---------------
Net cash provided by (used in)
operating activities .............................. 119,861 (7,020) 5,086
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (941,378) (1,445,212) --
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions ................................... 599,797 754,203 --
Increase in due to stockholders ......................... 300,000 75,000 --
Borrowing on long-term debt ............................. -- 551,794 --
Payments on long-term debt .............................. -- (4,600) (7,531)
--------------- --------------- ---------------
Net cash provided by financing activities .......... 899,797 1,376,397 (7,531)
--------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents .................................. 78,280 (75,835) (2,445)
CASH AND CASH EQUIVALENTS,
beginning of period .................................... -- 78,280 2,445
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of period ................. $ 78,280 $ 2,445 $ --
=============== =============== ===============
SUPPLEMENTAL INFORMATION:
Cash paid for interest .................................. $ -- $ 35,798 $ --
=============== =============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-47
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
First Sports Capital Development Associates Ltd., Inc. (the "Company") is
a New Jersey corporation engaged in the operation of golf driving ranges,
golf instruction center and a golf pro shop. The Company operates its
facilities in Toms River, New Jersey and commenced its operations in 1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents.
INVENTORIES
Inventories consist primarily of golf clubs, clothing and various other
golfers' supplies. Inventories are stated at the lower of cost, using the
first-in, first-out method ("FIFO"), or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets ranging from five to thirty-seven
years.
REVENUE RECOGNITION
Revenues include fees received for use of the Company's various
facilities. Golf instruction revenues are recognized concurrent with the time
services are provided. Merchandise sales are recognized at the time of sale.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
that deferred income taxes be recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and
their financial reporting basis at rates based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, inventories,
prepaid expenses, accounts payable, accrued liabilities and long-term debt
are reflected in the accompanying financial statements at cost which
approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-48
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of March 31, 1996, and the results of operations
for the three-month period ended March 31, 1996. The results of operations
and cash flows for the three-month period ended March 31, 1996, are not
necessarily indicative of the results of operations or cash flows which may
be reported for the remainder of 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -------------
<S> <C> <C>
Building ....................................... $425,288 $1,221,014
Site improvements .............................. 498,633 959,896
Furniture, fixtures and equipment .............. 17,457 205,680
----------- -------------
941,378 2,386,590
Less: Accumulated depreciation and amortization -- (71,512)
----------- -------------
$941,378 $2,315,078
=========== =============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Accrued legal costs ..................... $ 3,987 $ 33,692
Accrued payroll taxes ................... 1,788 9,342
Accrued interest on stockholder advances 16,161 36,000
Accrued rent ............................ -- 44,600
Other ................................... -- 34,282
---------- ----------
$21,936 $157,916
========== ==========
</TABLE>
4. DUE TO STOCKHOLDERS
"Due to stockholders" represents amounts advanced by the Company's
stockholders primarily for payment of operating expenses. Of the total
balance outstanding, $300,000 is repayable from profits of the business or
sale and bear interest at prime plus 4%. See Note 8. The remaining balance is
non-interest bearing and has no fixed repayment terms.
F-49
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- -----------
<S> <C> <C>
Loan payable to a bank bearing interest at prime plus 2% (10.75%
at December 31, 1995); monthly principal payments of $1,677, plus
interest through 2021; secured by property and equipment ........ $ -- $500,000
Loan payable to stockholder, bearing interest at 9%; quarterly
payments of $3,000 including interest; secured by equipment ..... -- 47,194
-------- -----------
-- 547,194
Less: Current portion ............................................ -- 27,604
-------- -----------
$-- $519,590
======== ===========
</TABLE>
Future maturities of long-term debt as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1996 ................. $ 27,604
1997 ................. 28,000
1998 ................. 28,700
1999 ................. 47,500
2000 ................. 20,000
Thereafter ........... 395,390
----------
$547,194
==========
</TABLE>
6. INCOME TAXES
A reconciliation of the tax provision at the statutory rate of 34% to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(JUNE 13, 1994) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1994 1995
---------------- ---------------
<S> <C> <C>
Tax provision at the statutory rate $(5,500) $(26,000)
State income taxes ................. (1,000) (5,000)
Net operating loss carried forward 6,500 31,000
---------------- ---------------
$ -- $ --
================ ===============
</TABLE>
Deferred income taxes consist primarily of available net operating loss
carryforwards in the amount of approximately $94,000 which have been fully
reserved as their net realizability is not more likely than not.
F-50
<PAGE>
FIRST SPORTS CAPITAL DEVELOPMENT ASSOCIATES LTD., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
During 1994, the Company entered into employment agreements with two of
its stockholder/ officers. Such agreements provide, among other things, for
aggregate annual compensation of $350,000. The agreements have no fixed
termination date.
OPERATING LEASES
The Company leases land under operating leases which expire through 2044.
Future annual minimum payments under operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- ------------------------ ------------
<S> <C>
1996 ................. $ 107,040
1997 ................. 107,040
1998 ................. 107,040
1999 ................. 107,040
2000 ................. 107,040
Thereafter ........... 4,683,400
------------
$5,218,600
============
</TABLE>
Lease expense of approximately $44,600 was incurred in 1995.
8. SUBSEQUENT EVENT
Subsequent to year-end, the Company entered into an interim management
agreement with Golden Bear Golf Centers, Inc. ("Golf Centers"), an
unaffiliated entity. Golf Centers has also entered into an agreement with the
Company to sublease certain property and to purchase certain assets. The
lease is for an initial term of 20 years and may be extended for two
additional five-year terms. The purchase price for the assets is $1.9 million
dollars, of which $500,000 will be paid at closing with the remainder of the
purchase price to be evidenced by a promissory note for a term of three years
at an interest rate of prime plus one and one half percent. As of June 21,
1996, the asset purchase had not been consummated.
F-51
<PAGE>
DALLAS HIGHLANDER, LTD.
FINANCIAL STATEMENTS
F-52
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Dallas Highlander, Ltd.:
We have audited the accompanying balance sheets of Dallas Highlander, Ltd.
(a Texas limited partnership) as of December 31, 1994 and 1995 and March 31,
1996, and the related statements of operations, partners' capital and cash
flows for the period from inception (July 1, 1994) to December 31, 1994, the
year ended December 31, 1995 and for the three months ended March 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dallas Highlander, Ltd.
as of December 31, 1994 and 1995 and March 31, 1996, and the results of its
operations and its cash flows for the period from inception (July 1, 1994) to
December 31, 1994, the year ended December 31, 1995 and for the three months
ended March 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
July 14, 1996.
F-53
<PAGE>
DALLAS HIGHLANDER, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 3,861 $ 51,674 $ 61,210
Inventories ................................ -- 217,625 240,244
Due from affiliate ......................... -- 19,740 19,740
Other current assets ....................... -- 1,557 699
---------- ------------- -------------
Total current assets ..................... 3,861 290,596 321,893
PROPERTY AND EQUIPMENT, net ................. 51,911 1,436,687 1,433,712
---------- ------------- -------------
Total assets ............................. $55,772 $1,727,283 $1,755,605
========== ============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable ........................... $ -- $ 47,719 $ 97,636
Accrued liabilities ........................ 3,761 104,598 29,130
Due to affiliates .......................... 48,230 132,705 303,451
Deposits and other current liabilities .... -- 25,448 17,391
---------- ------------- -------------
Total current liabilities ................ 51,991 310,470 447,608
---------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and
7)
PARTNERS' CAPITAL:
General partner ............................ 289 (19,755) (25,196)
Limited partners ........................... 5,492 1,437,568 1,334,193
Note receivable from limited partners ..... (2,000) (1,000) (1,000)
---------- ------------- -------------
Total partners' capital .................. 3,781 1,416,813 1,307,997
---------- ------------- -------------
Total liabilities and partners' capital . $55,772 $1,727,283 $1,755,605
========== ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-54
<PAGE>
DALLAS HIGHLANDER, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(JULY 1, 1994) THREE MONTHS
TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES:
Range and instruction fees ........... $ -- $ 315,227 $ 118,003
Pro shop sales ....................... -- 296,075 87,724
--------------- --------------- ---------------
Total revenues ..................... -- 611,302 205,727
--------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Cost of pro shop sales ............... -- 222,185 60,814
Operating costs ...................... 4,219 678,541 208,557
Depreciation and amortization ....... -- 115,045 47,241
--------------- --------------- ---------------
Total operating costs and expenses 4,219 1,015,771 316,612
--------------- --------------- ---------------
Operating loss ..................... (4,219) (404,469) (110,885)
--------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense ..................... -- (4,235) --
Other ................................ -- 7,827 2,069
--------------- --------------- ---------------
Total other income (expense) ...... -- 3,592 2,069
--------------- --------------- ---------------
Net loss ........................... $(4,219) $ (400,877) $(108,816)
=============== =============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-55
<PAGE>
DALLAS HIGHLANDER, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED NOTES
PARTNER PARTNERS RECEIVABLE TOTAL
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Partners' capital contributions ............... $ 500 $ 9,500 $(2,000) $ 8,000
Net loss for the period from inception (July
1, 1994 ) to December 31, 1994 .............. (211) (4,008) -- (4,219)
------------ ------------- ------------- ------------
BALANCE, December 31, 1994 ..................... 289 5,492 (2,000) 3,781
Repayment of note from limited partner ....... -- -- 1,000 1,000
Partners' capital contribution ................ -- 1,812,909 -- 1,812,909
Net loss for the year ended
December 31, 1995 ........................... (20,044) (380,833) -- (400,877)
------------ ------------- ------------- ------------
BALANCE, December 31, 1995 ..................... (19,755) 1,437,568 (1,000) 1,416,813
Net loss for the three months ended
March 31, 1996 .............................. (5,441) (103,375) -- (108,816)
------------ ------------- ------------- ------------
BALANCE, March 31, 1996 ........................ $(25,196) $1,334,193 $(1,000) $1,307,997
============ ============= ============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-56
<PAGE>
DALLAS HIGHLANDER, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(JULY 1, 1994) THREE MONTHS
TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $ (4,219) $ (400,877) $(108,816)
Adjustments to reconcile net loss to net cash used
in
operating activities--
Depreciation and amortization .................. -- 115,045 47,241
Changes in assets and liabilities:
Inventories ...................................... -- (217,625) (22,619)
Other current assets ............................. -- (1,557) 858
Accounts payable ................................. -- 47,719 49,917
Accrued liabilities .............................. 3,761 104,598 (75,468)
Deposits and other current liabilities .......... -- 21,688 (8,057)
--------------- --------------- ---------------
Net cash used in operating activities .......... (458) (331,009) (116,944)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................ (51,911) (1,499,821) (44,266)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in due to/from affiliates .............. 48,230 65,734 170,746
Capital contributions ............................... 8,000 1,812,909 --
--------------- --------------- ---------------
Net cash provided by financing activities ...... 56,230 1,878,643 170,746
--------------- --------------- ---------------
Net increase in cash and cash equivalents ...... 47,813 9,536
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS,
beginning of year .................................. -- 3,861 51,674
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year ............... $ 3,861 $ 51,674 $ 61,210
=============== =============== ===============
SUPPLEMENTAL INFORMATION:
Cash paid for interest .............................. $ -- $ -- $ 4,235
=============== =============== ===============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-57
<PAGE>
DALLAS HIGHLANDER, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Dallas Highlander, Ltd. (the "Company") is a Texas limited partnership
engaged in the operation of a golf driving range, a miniature golf course, a
golf pro shop and a golf school. The Company operates its facilities in
Carrollton, Texas.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents. Included in cash and cash equivalents at December 31, 1995 and
March 31, 1996 are interest bearing deposits of $16,641 and $21,692,
respectively.
INVENTORIES
Inventories consist primarily of golf clubs, clothing and various other
golfer's supplies. Inventories are stated at the lower of cost, using a
weighted-average cost method, or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Property and equipment are depreciated and amortized using
a straight-line method over the estimated useful lives ranging from five to
ten years, or over the lease term, whichever is shorter.
REVENUE RECOGNITION
Revenues include fees received for use of the Company's various
facilities. Golf instruction revenues are recognized concurrent with the time
services are provided. Merchandise sales are recognized at the time of sale.
INCOME TAXES
The Company is not a taxable entity. Losses of the Company are included in
the income tax returns of its corporate, partnership and individual partners.
Accordingly, no provision for income taxes has been made in the accompanying
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, inventories,
other current assets, accounts payable, accrued liabilities and deposits and
other current liabilities are reflected in the accompanying financial
statements at cost which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-58
<PAGE>
DALLAS HIGHLANDER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. DUE FROM AFFILIATE
Due from affiliate represents noninterest bearing advances due from
Highlander Towngate, Ltd., due on demand.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ------------
<S> <C> <C> <C>
Building ........................................ $ -- $ 488,652 $ 488,652
Furniture, fixtures and equipment ............... -- 253,426 266,969
Leasehold improvements .......................... -- 809,654 840,377
Construction in process ......................... 51,911 -- --
--------------- --------------- ------------
51,911 1,551,732 1,595,998
Less: Accumulated depreciation and amortization -- (115,045) (162,286)
--------------- --------------- ------------
$51,911 $1,436,687 $1,433,712
=============== =============== ============
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ------------
<S> <C> <C> <C>
Accrued license fees ............. $ -- $ 28,581 $ 3,879
Accrued payroll .................. -- 3,880 9,251
Accrued sales and property taxes -- 62,987 5,955
Other ............................ 3,761 9,150 10,045
--------------- --------------- ------------
$3,761 $104,598 $29,130
=============== =============== ============
</TABLE>
5. DUE TO AFFILIATES
Due to affiliates represents noninterest bearing amounts owed to Genus
Holdings, Ltd. and FLD Interests and interest bearing amounts owed to
Highlander Golf Corp. primarily for advances of and reimbursement of
operating expenses paid by the affiliated entities on behalf of the Company.
Such amounts are due on demand. See Note 8.
6. COMMITMENTS
The Company entered into a license agreement with Golden Bear Golf
Centers, Inc. ("Golf Centers"), an unaffiliated entity, on May 20, 1995, to
utilize the Golf Center's licensed marks in
F-59
<PAGE>
DALLAS HIGHLANDER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS--(CONTINUED)
developing and operating its facilities. The Company agreed to pay a $20,000
facility development fee upon execution of the agreement and a monthly
service fee, calculated as a percentage of the previous month's revenues (as
defined) or a minimum annual service fee of $50,000, prorated in 1995 for
months of actual operation.
Future annual minimum payments under the license agreement are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- --------------- ----------
<S> <C>
1996 ......... $ 37,000
1997 ......... 50,000
1998 ......... 50,000
1999 ......... 50,000
2000 ......... 50,000
Thereafter .. 224,000
----------
$461,000
==========
</TABLE>
Service fee payments to the Golf Centers were approximately $22,000 and
$13,000 for the year ended December 31, 1995 and the three months ended March
31, 1996, respectively. The license agreement expires May 20, 2005.
The Company has a lease with Trinity Mills-Midway Partners, Ltd. ("Trinity
Mills"), an affiliated entity, for the rental of the land upon which the
Company operates its facilities. Lease payments are based on a percentage of
gross sales, (as defined), or a minimum annual rent. The minimum annual rent
increases on the first and second anniversaries from the rental commencement
date. Upon termination of the lease by expiration of the term or otherwise,
the building and leasehold improvements shall become and remain the absolute
property of Trinity Mills at no additional cost or expense. Future annual
minimum payments under this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- --------------- ----------
<S> <C>
1996 ......... $ 67,450
1997 ......... 105,970
1998 ......... 100,000
1999 ......... 100,000
2000 ......... 100,000
Thereafter .. 416,667
----------
$890,087
==========
</TABLE>
Lease payments to Trinity Mills' were $70,833 and $22,083 for the year
ended December 31, 1995 and for the three months ended March 31, 1996,
respectively. The lease agreement expires February 28, 2005. The Company
subleases a portion of the building to an unaffiliated entity. The rental
income under the sublease agreement is based on a percentage of gross sales,
as defined, or a minimum monthly rent.
7. SUBSEQUENT EVENT
The Company entered into a letter agreement with Golf Centers for the sale
of various assets of the Company. The purchase price of these assets is
anticipated to be $2,250,000, of which $1,500,000 will
F-60
<PAGE>
DALLAS HIGHLANDER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
be paid at closing and the balance will be evidenced by an 8 percent
promissory note due in five years. As of July 14, 1996, the terms of the
acquisition had not been finalized.
8. RELATED-PARTY TRANSACTIONS
The Company entered into a promissory note with Highlander Golf Corp., an
affiliated entity, for a maximum loan amount of $300,000, which expires on
December 31, 1997. The Company draws on the note from time to time and pays
interest on the unpaid principal balance at a rate of 4.35 percent per annum.
At December 31, 1994 and 1995 and at March 31, 1996, the loan balance of
$41,000, $125,000 and $125,000, respectively, under the promissory note is
included in "due to affiliates" in the accompanying balance sheets.
The Company's overhead costs for accounting, systems and general
administration are supported by Highlander Golf Corp. and the Fritz Duda
Company, affiliated entities. As a result, the accompanying financial
statements do not include such overhead costs.
F-61
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
COMBINED FINANCIAL STATEMENTS
F-62
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Sugar Creek Golf Course, Inc. and Magic Castle, Inc.:
We have audited the accompanying combined balance sheets of Sugar Creek
Golf Course, Inc. (an Ohio corporation) and Magic Castle, Inc. (an Ohio
corporation) as of December 31, 1995 and June 30, 1996, and the related
combined statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1995 and the six months ended June 30, 1996.
These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Sugar Creek Golf
Course, Inc. and Magic Castle, Inc. as of December 31, 1995 and June 30,
1996, and the results of their combined operations and their combined cash
flows for the year ended December 31, 1995 and the six months ended June 30,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
July 16, 1996.
F-63
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 22,604 $ 9,685
Inventories .................................................. 134,077 195,953
Prepaid expenses and other current assets .................... 8,437 11,120
Accounts receivable .......................................... 2,226 4,915
--------------- -------------
Total current assets ....................................... 167,344 221,673
PROPERTY AND EQUIPMENT, net ................................... 2,893,721 2,865,171
INTANGIBLE ASSETS, net ........................................ 388,619 383,619
--------------- -------------
Total assets ............................................... $3,449,684 $3,470,463
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 181,065 $ 199,361
Accrued liabilities .......................................... 58,784 53,921
Short-term debt .............................................. 250,000 250,000
Current portion of long-term debt ............................ 168,492 159,994
Due to stockholders .......................................... 244,674 365,709
--------------- -------------
Total current liabilities .................................. 903,015 1,028,985
--------------- -------------
LONG-TERM DEBT, net of current portion ........................ 2,203,450 2,150,955
--------------- -------------
COMMITMENT (Note 8)
STOCKHOLDERS' EQUITY:
Sugar Creek Golf Course, Inc., Common stock, no par value,
600 shares authorized, issued and outstanding .............. 361,466 361,466
Magic Castle, Inc., Common stock, no par value, 1,000 shares
authorized, issued and outstanding ......................... 1,000 1,000
Accumulated deficit .......................................... (19,247) (71,943)
--------------- -------------
Total stockholders' equity ................................. 343,219 290,523
--------------- -------------
Total liabilities and stockholders' equity ................. $3,449,684 $3,470,463
=============== =============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-64
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
--------------- -------------
<S> <C> <C>
REVENUES .............................. $1,806,608 $ 870,483
--------------- -------------
OPERATING COSTS AND EXPENSES:
Operating costs ...................... 1,029,450 516,206
Cost of pro shop and food sales ..... 440,533 194,829
Depreciation and amortization ....... 132,371 70,941
--------------- -------------
Total operating costs and expenses 1,602,354 781,976
--------------- -------------
Operating income ................... 204,254 88,507
--------------- -------------
OTHER INCOME (EXPENSE):
Interest expense ..................... (240,640) (142,095)
Other income, net .................... 799 892
--------------- -------------
Total other income (expense) ...... (239,841) (141,203)
--------------- -------------
Net loss ........................... $ (35,587) $ (52,696)
=============== =============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-65
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SUGAR CREEK
GOLF COURSE, INC. MAGIC CASTLE, INC.
COMMON STOCK COMMON STOCK
---------------------- --------------------
ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- ----------- --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 .......... 600 $361,466 1,000 $1,000 $ 16,340 $378,806
Net loss for the year ended
December 31, 1995 .............. -- -- -- -- (35,587) (35,587)
--------- ----------- --------- --------- -------------- ---------------
BALANCE, December 31, 1995 ........ 600 361,466 1,000 1,000 (19,247) 343,219
Net loss for the six months ended
June 30, 1996 .................. -- -- -- -- (52,696) (52,696)
--------- ----------- --------- --------- -------------- ----------------
BALANCE, June 30, 1996 ............ 600 $361,466 1,000 $1,000 $(71,943) $290,523
========= =========== ========= ========= ============== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-66
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (35,587) $(52,696)
Adjustments to reconcile net loss to net cash provided
by
(used in) operating activities--
Depreciation and amortization ...................... 132,372 70,941
Changes in assets and liabilities:
Accounts receivable .................................. (1,727) (2,689)
Inventories .......................................... (27,035) (61,876)
Prepaid expenses and other current assets ........... 272 (2,683)
Accounts payable ..................................... (54,540) 18,296
Accrued liabilities .................................. 22,463 (4,863)
Increase in intangible assets ........................ (16,493) --
--------------- -------------
Net cash provided by (used in) operating activities 19,725 (35,570)
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (484,589) (37,391)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under short-term debt ......................... 250,000 --
Borrowings under (repayments of) long-term debt ........ 33,886 (60,993)
Increase in due to stockholders ......................... 194,229 121,035
--------------- -------------
Net cash provided by financing activities .......... 478,115 60,042
--------------- -------------
Net increase (decrease) in cash and cash equivalents 13,251 (12,919)
--------------- -------------
CASH AND CASH EQUIVALENTS, beginning of period .......... 9,353 22,604
--------------- -------------
CASH AND CASH EQUIVALENTS, end of period ................. $ 22,604 $ 9,685
=============== =============
SUPPLEMENTAL INFORMATION:
Cash paid for interest .................................. $ 233,485 $129,596
=============== =============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-67
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Sugar Creek Golf Course, Inc. ("Sugar Creek") and Magic Castle, Inc.
("Magic Castle") (collectively, the "Companies") are engaged in the operation
of a golf driving range, a miniature golf course, a golf pro shop, a golf
school and a family entertainment center. The Companies operate their
facilities in Dayton, Ohio.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents.
INVENTORIES
Inventories consist primarily of golf accessories and food items.
Inventories are stated at the lower of cost, using first-in, first-out
("FIFO") method, or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using accelerated methods over the
estimated useful lives of the assets ranging from five to forty years.
REVENUE RECOGNITION
Revenues include fees received from the public for use of the Companies'
facilities. Golf instruction revenues are recognized concurrent with the time
services are provided. Merchandise sales are recognized at the time of sale.
INCOME TAXES
Sugar Creek has elected to report its earnings and losses under the
provisions of Chapter S of the U.S. Internal Revenue Code. Taxable income and
loss is reported by the individual stockholders on their personal income tax
returns. Accordingly, no provision for income taxes has been made in the
accompanying combined financial statements.
Magic Castle has reported net operating losses since its inception in July
1994. These net operating loss carryforwards are not expected to be offset
against future taxable income. Accordingly, a valuation allowance has been
recorded equal to the net deferred tax asset and no provision or benefit for
income taxes has been made in the accompanying combined financial statements.
INTANGIBLE ASSETS
During 1993, the Companies purchased a golf course from an unaffiliated
entity. The excess of the cost over the fair value of net assets of the
purchased business is recorded as goodwill and is being
F-68
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
amortized on a straight-line basis, over 40 years. Subsequent to purchase,
the Companies continually evaluate whether events and circumstances have
occurred that indicate the remaining net book value of intangibles may
warrant revision or may not be recoverable. When factors indicate that
impairment has occurred, the Companies use an estimate of the related
operations' undiscounted operating income over the remaining book value of
intangibles in measuring whether such cost is recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, inventories,
prepaid expenses and other current assets, accounts payable, accrued
liabilities and deposits and other current liabilities are reflected in the
accompanying combined financial statements at cost which approximates fair
value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------- ------------
<S> <C> <C>
Land .............................. $ 600,000 $ 600,000
Land improvements ................. 313,787 317,367
Mini course ....................... 539,936 541,995
Buildings ......................... 866,955 874,866
Games ............................. 530,061 542,822
Furniture, fixtures and equipment 244,899 255,976
Auto .............................. 31,748 31,748
--------------- ------------
3,127,386 3,164,774
Less: Accumulated depreciation .. (233,665) (299,603)
--------------- ------------
$2,893,721 $2,865,171
=============== ============
</TABLE>
F-69
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND JUNE 30, 1996
(3) DUE TO STOCKHOLDERS
Due to stockholders represents amounts owed to stockholders primarily for
reimbursement of operating expenses paid by stockholders on behalf of the
Companies. Due to stockholders consists of the following as of December 31,
1995 and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------- -----------
<S> <C> <C>
Notes payable, 12% interest, no stated maturity ...... $219,813 $307,300
Other advances from stockholders, noninterest bearing 24,861 58,409
--------------- -----------
$244,674 $365,709
=============== ===========
</TABLE>
During 1995 and 1996, the Companies recorded approximately $22,000 and
$17,000 of interest expense related to these notes. As of December 31, 1995
and June 30, 1996, approximately $12,000 and $27,000 of accrued interest due
to stockholders was included in accrued liabilities in the accompanying
combined balance sheets.
(4) SHORT-TERM DEBT
The Companies borrowed $600,000 from a bank in 1994 to finance the
construction of a building. The terms of the loan were interest only at the
rate of 1.5 percent over prime and the loan was payable on April 1, 1996.
During 1994, the Companies paid interest in the amount of $29,653. The loan
was personally guaranteed by the stockholders. During 1995, the loan was
refinanced with another bank.
During 1995, the Companies borrowed under two short-term notes totaling
$250,000 from a bank. The terms of the notes are interest only at the rate of
1 percent over prime and the loans were due in June 1996 and are in the
process of being renegotiated. These notes are personally guaranteed by the
stockholders.
F-70
<PAGE>
SUGAR CREEK GOLF COURSE, INC. AND MAGIC CASTLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND JUNE 30, 1996
(5) LONG-TERM DEBT
Long-term debt at December 31, 1995 and June 30, 1996, consist of the
following:
<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
Note payable to Bank, 7.95% fixed rate, guaranteed by SBA,
interest only for first year with monthly installments of
$7,146 commencing on April 1994 through March 2009,
secured by substantially all assets ...................... $ 703,767 $ 688,686
Note payable to Bank, variable rate (7.25% as of June 30,
1996) payable in monthly installments of $6,846 commencing
on April 1994 through March 2009,
secured by substantially all assets ...................... 701,267 685,413
Note payable to Bank, 1% over prime rate adjustable,
payable in monthly installments of $9,751 commencing on
June 1995 through July 2001, secured by substantially all
assets ................................................... 887,766 870,957
Note payable to vendor ..................................... 67,338 54,642
Note payable to Bank, 5.99% fixed rate, secured by
automobile, payable in monthly installments of $622
through August 1997 ...................................... 11,804 11,251
------------- ------------
2,371,942 2,310,949
Less-Current portion ....................................... 168,492 159,994
------------- ------------
$2,203,450 $2,150,955
============= ============
</TABLE>
Maturities on long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- --------------- ------------
<S> <C>
1997 ......... $ 159,994
1998 ......... 75,004
1999 ......... 76,473
2000 ......... 82,488
2001 ......... 88,975
Thereafter .. 1,828,015
------------
$2,310,949
============
</TABLE>
(6) SUBSEQUENT EVENTS
The Companies entered into a letter agreement with Golden Bear Golf
Centers, Inc. ("Golf Centers"), an unaffiliated entity, for the lease of
various assets of the Company. The proposed terms of the lease provide for a
term of twenty years, an initial payment of $1.1 million and annual rental
payments of $325,000 at year one, $350,000 at year two, $375,000 at years
three through thirteen, $300,000 at year fourteen and $200,000 at years
fifteen through twenty. Golf Centers will, under the proposed terms, grant
the right of first refusal with respect to proposed sales of the leased
premises throughout the term of the lease.
F-71
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
COMBINED FINANCIAL STATEMENTS
F-72
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
East Coast Golf Centers, Inc.,
East Coast Golf Centers of Columbus, Ltd. and
East Coast Golf Centers of Fort Lauderdale, Inc.:
We have audited the accompanying combined balance sheets of East Coast
Golf Centers, Inc., (a Delaware corporation), East Coast Golf Centers of
Columbus, Ltd. (an Ohio corporation) and East Coast Golf Centers of Fort
Lauderdale, Inc. (a Florida corporation) as of December 31, 1994, December
31, 1995 and March 31, 1996, and the related combined statements of
operations, stockholders' equity and cash flows for the period from inception
(June 7, 1994) to December 31, 1994, for the year ended December 31, 1995 and
the three months ended March 31, 1996. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of East Coast Golf
Centers, Inc., East Coast Golf Centers of Columbus, Ltd. and East Coast Golf
Centers of Fort Lauderdale, Inc., as of December 31, 1994, December 31, 1995
and March 31, 1996, and the combined results of their operations and their
cash flows for the period from inception (June 7, 1994) to December 31, 1994,
for the year ended December 31, 1995 and three months ended March 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
July 15, 1996.
F-73
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 334,377 $1,093,645 $ 534,181
Inventories .............................................. -- 102,963 147,606
Prepaid expenses and other current assets ................ -- 16,149 9,158
------------ ------------- -------------
Total current assets .................................. 334,377 1,212,757 690,945
PROPERTY AND EQUIPMENT, net ............................... 166,991 1,794,298 2,560,324
INTANGIBLE ASSETS, net .................................... -- 416,778 409,945
------------ ------------- -------------
Total assets .......................................... $ 501,368 $3,423,833 $3,661,214
============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 6,957 $ 178,511 $ 484,868
Accrued expenses ......................................... -- 53,004 91,462
Note payable to bank ..................................... -- 1,000,000 1,000,000
------------ ------------- -------------
Total current liabilities ............................. 6,957 1,231,515 1,576,330
------------ ------------- -------------
NOTES PAYABLE TO STOCKHOLDERS ............................. -- 870,000 999,980
------------ ------------- -------------
COMMITMENTS (Notes 6 and 7)
STOCKHOLDERS' EQUITY:
Common stock/capital--
ECGC, $1 par value, 3,000 shares authorized,
350,445 and 445 shares issued and outstanding,
respectively .......................................... 350 445 445
Ft. Lauderdale, $.01 par value, 10,000 shares
authorized, 2,000 shares issued and outstanding in 1996 -- -- 20
Columbus ................................................ -- 1,002,000 922,000
Additional paid-in capital ............................... 599,555 999,605 999,605
Accumulated deficit ...................................... (105,494) (679,732) (837,166)
------------ ------------- -------------
Total stockholders' equity ............................ 494,411 1,322,318 1,084,904
------------ ------------- -------------
Total liabilities and stockholders' equity ........... $ 501,368 $3,423,833 $3,661,214
============ ============= =============
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-74
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 7, 1994)
TO YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- -------------------
<S> <C> <C> <C>
REVENUES:
Admission fees ........................ $ -- $ 356,651 $ 95,743
Pro Shop sales ........................ -- 192,203 40,015
--------------- --------------- -------------------
Total revenues ..................... -- 548,854 135,758
--------------- --------------- -------------------
OPERATING COSTS AND EXPENSES:
Operating costs ....................... 105,494 833,119 205,539
Cost of pro shop sales ................ -- 186,679 40,187
Depreciation and amortization ......... -- 103,294 47,466
--------------- --------------- -------------------
Total operating costs and expenses 105,494 1,123,092 293,192
--------------- --------------- -------------------
Net loss ........................... $(105,494) $ (574,238) $(157,434)
=============== =============== ===================
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-75
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ECGC FT. LAUDERDALE
COMMON STOCK COMMON STOCK ADDITIONAL
----------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Sale of common stock ..... 350 $350 -- $-- $599,555
Net loss ..................
--------- --------- --------- --------- -------------
Balance, December 31, 1994 350 350 -- -- 599,555
Sale of common stock ..... 95 95 -- -- 400,050
Net loss .................. -- -- -- -- --
--------- --------- --------- --------- -------------
Balance, December 31, 1995 445 445 -- -- 999,605
Sale of common stock ..... -- -- 2,000 20 --
Capital contributions .... -- -- -- -- --
Return of capital ......... -- -- -- -- --
Net loss .................. -- -- -- -- --
--------- --------- --------- --------- -------------
Balance, March 31, 1996 .. 445 $445 2,000 $20 $999,605
========= ========= ========= ========= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
COLUMBUS ACCUMULATED
CAPITAL DEFICIT TOTAL
-------- ----------- -----
<S> <C> <C> <C>
Sale of common stock ..... $ -- $ -- $ 599,905
Net loss .................. (105,494) (105,494)
------------ -------------- ------------
Balance, December 31, 1994 -- (105,494) 494,411
Sale of common stock ..... 1,002,000 -- 1,402,145
Net loss .................. -- (574,238) (574,238)
------------ -------------- ------------
Balance, December 31, 1995 1,002,000 (679,732) 1,322,318
Sale of common stock ..... -- -- 20
Capital contributions .... 50,000 -- 50,000
Return of capital ......... (130,000) -- (130,000)
Net loss .................. -- (157,434) (157,434)
------------ -------------- ------------
Balance, March 31, 1996 .. $ 922,000 $(837,166) $1,084,904
============ ============== =========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-76
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(JUNE 7, 1994)
TO YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................... $(105,494) $ (574,238) $ (157,434)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization ............ -- 103,294 47,466
Changes in assets and liabilities:
Inventories ................................ -- (102,963) (44,643)
Prepaid expenses and other current assets . (16,149) 6,991
Accounts payable ........................... 6,957 171,554 306,357
Accrued expenses ........................... -- 53,004 38,458
--------------- --------------- -------------------
Net cash provided by (used in)
operating activities .................... (98,537) (365,498) 197,195
--------------- --------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................... (166,991) (977,379) (806,659)
Cash paid for acquisition of Able Golf Center -- (1,170,000) --
--------------- --------------- -------------------
Net cash used in investing activities .... (166,991) (2,147,379) (806,659)
--------------- --------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable ................... -- 1,000,000 --
Sale of stock/capital contributions ......... 599,905 1,402,145 50,020
Return of capital ............................ -- -- (130,000)
Increase in notes payable to stockholders ... -- 870,000 129,980
--------------- --------------- -------------------
Net cash provided by financing activities 599,905 3,272,145 50,000
--------------- --------------- -------------------
Net increase (decrease) in cash ........... 334,377 759,268 (559,464)
--------------- --------------- -------------------
CASH AND CASH EQUIVALENTS,
beginning of period ......................... -- 334,377 1,093,645
--------------- --------------- -------------------
CASH AND CASH EQUIVALENTS, end of period ..... $ 334,377 $ 1,093,645 $ 534,181
=============== =============== ===================
SUPPLEMENTAL INFORMATION:
Cash paid for interest ........................ $ -- $ -- $ 16,687
=============== =============== ===================
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-77
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
East Coast Golf Centers, Inc. ("ECGC"), East Coast Golf Centers of
Columbus, Ltd. ("Columbus") and East Coast Centers of Fort Lauderdale, Inc.
("Fort Lauderdale"), (collectively, the "Companies") are engaged in the
operation of a golf driving range, a miniature golf course, a golf pro shop
and a golf school. The Companies operate in Columbus, Ohio and Fort
Lauderdale, Florida, and have corporate offices in Uniondale, New York.
Columbus commenced operations in May 1995. Fort Lauderdale is in the
construction phase and has not officially commenced operations as of July 15,
1996.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with original
maturities of three months or less at the date of purchase to be cash
equivalents. Included in the cash and cash equivalents balance as of December
31, 1994, December 31, 1995 and March 31, 1996 are interest bearing deposits
of $0, $125,000 and $415,000, respectively.
INVENTORIES
Inventories consist primarily of golf clubs, clothing and various other
golfer's supplies. Inventories are stated at the lower of cost, using
first-in, first-out method ("FIFO"), or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Property and equipment are depreciated and amortized using
accelerated methods over the estimated useful lives of the assets ranging
from five to forty years.
REVENUE RECOGNITION
Revenues include fees received from use of the Companies' facilities. Golf
instruction revenues are recognized concurrent with the time services are
provided. Merchandise sales are recognized at the time of sale.
INCOME TAXES
ECGC and Fort Lauderdale have elected to report their earnings under the
provisions of Chapter S of the U.S. Internal Reserve Code. Columbus is a
limited liability corporation which is taxed as a partnership. Taxable income
and loss is reported by the individual stockholders' on their personal income
tax returns. Accordingly, no provision or benefit for income taxes has been
made in the accompanying combined financial statements.
Had the Companies been C corporations for all periods presented there
would be no pro forma tax provision due to the existence of net operating
loss carryforwards.
F-78
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INTANGIBLE ASSETS
During 1995, Columbus purchased a facility from an unaffiliated entity,
Able Golf Center, for cash of $1,170,000. The excess of the cost over the
fair value of net assets acquired of $420,000 was recorded as intangible
assets and is being amortized on a straight-line basis over 15 to 40 years.
Subsequent to purchase, the Companies continually evaluate whether events and
circumstances have occurred that indicate the remaining net book value of
intangibles may warrant revision or may not be recoverable. When factors
indicate that impairment has occurred, the Companies use an estimate of the
related operations' undiscounted operating income over the remaining book
value of intangibles in measuring whether such cost is recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, inventories,
prepaid expenses and other current assets, accounts payable, accrued expenses
and debt are reflected in the accompanying combined financial statements at
cost which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-79
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- -------------
<S> <C> <C> <C>
Construction in progress ............ $164,350 $ 730,943 $1,530,319
Batting cages ....................... -- 113,059 113,059
Miniature golf course ............... -- 121,408 121,408
Golf center ......................... -- 748,708 748,708
Machinery and equipment ............. 402 108,287 107,071
Furniture and fixtures .............. 2,239 24,063 25,173
Computer equipment .................. -- 33,000 39,145
--------------- --------------- -------------
166,991 1,879,468 2,684,883
Less: Accumulated depreciation and
amortization .................... -- (85,170) (124,559)
--------------- --------------- -------------
$166,991 $1,794,298 $2,560,324
=============== =============== =============
</TABLE>
3. TRANSACTIONS WITH STOCKHOLDERS
Notes payable to stockholders represents notes bearing interest at prime
plus two percent payable quarterly. The notes mature April 28, 2000. Under
certain provisions, as defined in the Columbus Operating Agreement, these
loans may be converted into capital.
ECGC rents office space from a shareholder. Total rent payments to this
shareholder equalled $0 during the period from inception to December 31,
1994, $3,250 during the year ended December 31, 1995, and $1,950 during the
three months ended March 31, 1996.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
--------------- --------------- ------------
<S> <C> <C> <C>
Accrued interest $ -- $53,004 $82,437
Accrued payroll -- -- 8,025
Other ........... -- -- 1,000
--------------- --------------- ------------
$-- $53,004 $91,462
=============== =============== ============
</TABLE>
5. NOTE PAYABLE TO BANK
The Companies' note payable to bank bears interest at prime plus one
percent, payable monthly. The note matures April, 2001, at which time the
entire principal balance is due. Substantially all of the Companies' assets
serve as collateral under the terms of the note. The note is also guaranteed
by the Companies' shareholders. The note includes an event of default which
causes its maturity to accelerate upon sale of the underlying collateral.
Because of the potential sale discussed in Note 7, the note payable has been
classified as a current liability.
F-80
<PAGE>
EAST COAST GOLF CENTERS, INC.,
EAST COAST GOLF CENTERS OF COLUMBUS, LTD.
AND
EAST COAST GOLF CENTERS OF FORT LAUDERDALE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS
The Companies have lease agreements for each of the facilities.
Approximate future annual minimum lease payments under these leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- -------------- ------------
<S> <C>
1997 ........ $ 392,500
1998 ........ 431,200
1999 ........ 441,000
2000 ........ 451,200
2001 ........ 451,200
Thereafter .. 6,233,900
------------
$8,401,000
============
</TABLE>
In addition to the obligations listed above, the lease payment for the
Columbus facility is calculated as a percentage of the previous month's
revenues (as defined) with a maximum lease payment of $200,000 annually.
Lease expense was approximately $0, $82,000, and $21,000 for the period
from inception to December 31, 1994, the year ended December 31, 1995, and
the three months ended March 31, 1996, respectively.
The Companies entered into a license agreement with Golden Bear Golf
Centers, Inc. ("Golf Centers"), an unaffiliated entity, on August 15, 1994 to
utilize the Golf Center's licensed marks in developing and operating its
facilities. The Companies agreed to pay a $100,000 facility development fee
upon execution of the agreement and a monthly royalty payment calculated as a
percentage of the previous month's revenues (as defined). Royalty expense was
approximately $0, $18,000, and $5,800 for the period from inception to
December 31, 1994, the year ended December 31, 1995 and the three months
ended March 31, 1996, respectively.
7. SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Companies entered into letters of intent
with Golf Centers to sell substantially all of the Companies' assets for
approximately $5.8 million in cash and/or stock. Consummation of the
transaction is subject to a number of conditions.
The Companies have also entered into a letter agreement outlining the
terms of a proposed joint venture agreement among the Companies and Golf
Centers pursuant to which the joint venture shall enter into an exclusive
five year agreement to develop and operate Golden Bear Golf Centers in
certain territories in North Carolina and South Carolina and a nonexclusive
development agreement for territories in Florida (excluding Palm Beach
County), Ohio and Long Island, New York. The rights and obligations of the
parties in the joint venture will be defined in and subject to the execution
of a binding definitive agreement. There is no assurance that a definitive
joint venture agreement will be executed or, if executed, that any Golden
Bear Golf Center will ever be developed or operated by the joint venture.
Subsequent to March 31, 1996, the Companies entered into a bank loan
agreement for $1,250,000, with an interest rate based on the prime rate plus
one percent. The loan matures in approximately six years and is secured by
the personal property of the Companies.
F-81
<PAGE>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
P-1
<PAGE>
GOLDEN BEAR GOLF, INC.
INTRODUCTION TO
UNAUDITED PRO FORMA FINANCIAL INFORMATION
GENERAL
The following Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1996 and the Unaudited Pro Forma Consolidated Statements of Operations
for the three months ended March 31, 1996 and for the year ended December 31,
1995 reflect adjustments to Golden Bear Golf, Inc.'s ("Golden Bear" or the
"Company") historical financial position and results of operations to give
effect to the transactions discussed below as if such transactions had been
consummated at March 31, 1996 for balance sheet purposes, or at the beginning
of the period presented for income statement purposes.
Golden Bear was formed on June 7, 1996 to enter into an exchange agreement
which will be consummated only upon the closing of a proposed initial public
offering of Golden Bear's Class A Common Stock. Parties to the plan of
reorganization include Golden Bear's affiliates, Golden Bear Golf Centers,
Inc. ("Golf Centers"), Paragon Golf Construction, Inc. (collectively, the
"Companies") and Golden Bear International, Inc. ("GBI"). Pursuant to the
exchange agreement, Golden Bear will acquire all of the outstanding common
stock of the Companies in exchange for an aggregate of 1,668,000 (after the
proposed 3,000-for-1 stock split) shares of its Class A and Class B Common
Stock. In addition Golden Bear will acquire certain assets and assume certain
liabilities of GBI in exchange for 1,332,000 (after the proposed 3,000-for-1
stock split) shares of Class B Common Stock.
If the exchange agreement is consummated and Golden Bear closes its
initial public offering, the transaction will be accounted for on a
historical cost basis in a manner similar to a pooling of interests as Golden
Bear and the Companies have common stockholders and management.
The pro forma financial statements do not reflect the effect of expected
increases in levels of expenses as a result of an upgrade to Golden Bear's
management information systems, the addition of accounting and personnel to
support its growth strategy and increased costs associated with operating the
Company as a separate public company. Such increases are not reflected
because they are not currently factually determinable or estimable.
The pro forma financial statements have been prepared by Golden Bear
based, in part, on the audited financial statements of certain of the
businesses acquired and to be acquired as required under the Securities Act,
which financial statements are included elsewhere in this Prospectus, and the
unaudited financial statements of other businesses acquired, which financial
statements are, in certain circumstances, not included herein, adjusted where
necessary, with respect to pre-acquisition periods, to the basis of
accounting used in Golden Bear's historical financial statements. These pro
forma financial statements are not intended to be indicative of the results
that would have occurred on the dates indicated or which may be realized in
the future.
BUSINESSES TO BE ACQUIRED
Subsequent to year-end, the Companies entered into the following
agreements and letters of intent pursuant to which it acquired two golf
practice and instruction facilities, one by purchase and the other pursuant
to a long-term lease and proposes to acquire subject to the satisfaction of
certain conditions, five other existing golf practice and instruction
facilities (one of which it currently manages) and two facilities currently
under development.
MCDAIN GOLF CENTER
On April 15, 1996, the Company entered into a long-term lease agreement
with McDain Golf Center of Monroeville, a Pennsylvania limited partnership,
for the lease of an existing golf practice and
P-2
<PAGE>
instruction facility in the greater Pittsburgh area and has begun operating
the facility as a GOLDEN BEAR GOLF CENTER. The lease is for a term of
twenty-nine years and calls for annual payments of $325,000 with annual cost
of living increases commencing after the fifth year. The Company has been
granted an option to purchase the leased premises for $2,000,000 in 2001. The
Company has not yet determined whether it will acquire the leased premises
pursuant to the option.
For financial statement purposes, the portion of the long-term lease
attributable to building and improvements is considered a capital lease as
the net present value of the future payments exceeds 90% of the fair value of
the properties.
TOMS RIVER GOLF CENTER
On April 26, 1996, the Company entered into an agreement, subject to
certain conditions, with First Sports Capital Development Associates, Ltd.
("FSCDA") to lease certain real property and to purchase certain assets
utilized in connection with an existing golf practice and instruction
facility located in Toms River, New Jersey. The lease is for a term of 20
years and may be extended for two five-year terms. The purchase price for the
assets is $1.9 million, of which $500,000 will be paid at closing with the
remainder of the purchase price to be evidenced by a promissory note for a
term of three years at an interest rate equal to the prime rate of interest,
plus one and one half percent (1 1/2 %).
The Company also entered into an interim management agreement with FSCDA
to manage the facility pending closing of the above-described transaction. In
the event this transaction is not consummated, the Company has agreed to
enter into a GOLDEN BEAR GOLF CENTER franchise agreement with FSCDA with
respect to the facility. The consummation of this transaction is subject to a
number of conditions, including the satisfactory completion of due diligence
by the Company. There is no assurance that this transaction will be
consummated.
COOL SPRINGS GOLF CENTER
On June 17, 1996, the Company purchased an existing golf practice and
instruction facility on 40.833 acres of land in Pittsburgh, Pennsylvania
pursuant to purchase and sale agreements with Cool Springs, Inc. and William
T. Duckworth. The purchase price for the land and assets was $2.9 million.
EAST COAST FACILITIES
On June 11, 1996, the Company entered into letters of intent with each of
East Coast Golf Centers of Columbus, Ltd., East Coast Golf Centers of Fort
Lauderdale, Inc. and East Coast Golf Centers, Inc. ("East Coast"), providing
for the proposed purchase and/or assumption of lease of an existing GOLDEN
BEAR GOLF CENTER located in Columbus, Ohio and two GOLDEN BEAR GOLF CENTERS
currently under development in Fort Lauderdale, Florida and Charlotte, North
Carolina (collectively, the "East Coast Facilities"). The facility in Fort
Lauderdale, Florida is expected to open in August, 1996. Construction of the
facility in Charlotte, North Carolina has not yet commenced and opening of
the facility is not expected until late in the second quarter of 1997. The
purchase price for the East Coast Facilities is anticipated to be
approximately $5.8 million, of which $5.2 million will be paid in cash at the
closing and the remainder will be payable in either cash or restricted shares
of the Company's Class A Common Stock valued at the initial public offering
price set forth on the cover page hereof. It is anticipated that the Company
will acquire each of these facilities by assumption of the existing leases
for the real property and purchase of the assets relating to or utilized in
the operation or development of the facilities. The Company has also agreed
to grant to East Coast certain registration rights if shares of the Class A
Common Stock are issued in connection with the transaction. Pursuant to such
rights, during the two-year period following consummation of the acquisition
of the East Coast Facilities, the Company will, subject to various
restrictions and limitations, (i) at any time after the date which is one
year following consummation of the Offering, if and when requested by East
Coast, file with the Securities and Exchange Commission (the "SEC") a
registration statement for the proposed sale from time to time by East Coast
of all or any portion of such shares of Class A Common Stock and
P-3
<PAGE>
(ii) provide East Coast with the opportunity to participate in certain
registration statements filed with the SEC by the Company for the offering of
Class A Common Stock. The rights and obligations of each of the above parties
in the above-described transactions will be defined in and subject to the
execution of definitive purchase and sale agreements. Consummation of each of
these transactions is subject to a number of conditions, including the
satisfactory completion of due diligence by the Company. There is no
assurance that the above-described transactions will be consummated.
The Company has also entered into a letter agreement with East Coast
outlining the terms of a proposed joint venture agreement among the Company
and East Coast pursuant to which the joint venture shall enter into an
exclusive five year agreement to develop and operate GOLDEN BEAR GOLF CENTERS
in certain territories in North Carolina and South Carolina and a
non-exclusive development agreement for territories in Florida (excluding
Palm Beach County), Ohio and Long Island, New York. The rights and
obligations of the parties in the joint venture will be defined in and
subject to the execution of a binding definitive agreement. There is no
assurance that a definitive joint venture agreement will be executed or, if
executed, that any GOLDEN BEAR GOLF CENTER will ever be developed or operated
by the joint venture.
HIGHLANDER FACILITIES
On July 16, 1996 the Company entered into letters of intent with
Highlander Golf Corp. Ltd. ("Highlander") to acquire the GOLDEN BEAR GOLF
CENTER located in Carrollton, Texas and to lease the GOLDEN BEAR GOLF CENTER
located in Moreno Valley, California. It is anticipated that the purchase
price for the Texas facility will be $2.25 million, of which $1.5 million
will be paid at closing, with the remainder of the purchase price to be
evidenced by a promissory note. The note will require payments of interest
only for five years at a rate of 8% per annum, with the entire principal
amount due in five years. The Company will enter into a ground lease for the
underlying real property of the Texas facility with an entity affiliated with
Highlander. The ground lease will be for a term of 15 years, and will be
renewable for two additional 5-year terms. The annual rent under the ground
lease will equal to 8% of the gross sales attributable to the facility for
years one through five and 10% of gross sales for years six through fifteen.
The minimum rent under the ground lease will be $122,500 per year, increasing
3% per year. The Company will have a right of first refusal with respect to
proposed sales of the leased premises throughout the term of the lease.
The lease of the facility located in California provides for a ground
lease of the real property and an operating lease of the facility. Both the
ground lease and the operating lease will be for a period of ten years,
renewable for two additional five year terms. The annual rent due under the
ground lease will be equal to 10% of the gross revenues attributable to the
facility with a minimum rent of $65,000 per year. The annual rent due under
the operating lease will be $50,000. The annual rent under the operating
lease and the minimum rent under the ground lease will increase 3% annually,
effective every fifth lease year. The rights and obligations of the parties
in this transaction will be defined in and subject to the execution of
definitive agreements. Consummation of the acquisitions of these facilities
will be subject to the satisfaction of a number of conditions, including the
satisfactory completion of due diligence by the Company. There is no
assurance that either of these transactions will be consummated.
The Company has also entered into a letter agreement with Highlander
outlining the terms of a proposed joint venture agreement between the Company
and Highlander pursuant to which the joint venture will enter into an
exclusive five year agreement to develop and operate GOLDEN BEAR GOLF CENTERS
in certain territories in Dallas/Ft. Worth, Texas, Orange and San Diego
Counties, California and Chicago, Illinois and a non-exclusive development
agreement for certain territories in Nevada and northern California. The
rights and obligations of the parties in the joint venture will be defined in
and subject to the execution of a binding definitive agreement. There is no
assurance that the definitive joint venture agreement will ever be executed
or, if executed, that any GOLDEN BEAR GOLF CENTER will ever be developed or
operated by the joint venture.
P-4
<PAGE>
ROLLANDIA GOLF PARK PLUS
On July 17, 1996, the Company entered into a letter agreement with Sugar
Creek Golf Course, Inc. ("Sugar Creek") outlining the terms of a proposed
long-term lease of an existing golf practice and instruction facility in the
Dayton, Ohio area. The proposed terms of the lease provide for a term of
twenty years, with an initial up-front payment of $1.1 million and annual
rental payments of $325,000 in year one, $350,000 in year two, $375,000 in
years three through thirteen, $300,000 in year fourteen and $200,000 in years
fifteen through twenty. The Company will also commit to invest at least
$750,000 in improvements to the property within the first two years of the
term of the lease. The Company will also retain Sugar Creek as a consultant
for a period of one year for a fee of $60,000. The Company will be granted
the right of first refusal with respect to proposed sales of the leased
premises throughout the term of the lease. The rights and obligations of the
parties in this transaction will be defined in and subject to the execution
of a definitive lease agreement. Consummation of the lease transaction will
be subject to the satisfaction of a number of conditions, including the
satisfactory completion of due diligence by the Company and there can be no
assurance that this transaction will be consummated.
For financial statement purposes, the portion of the long-term lease
attributable to building and improvements is considered a capital lease as
the net present value of the future payments exceeds 90% of the fair value of
the properties.
P-5
<PAGE>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORM
FOR BUSINESSES ACQUIRED
REORGANIZATION ------------------------------------------------
AND SALE OF COOL TOM'S
STOCK (A) MCDAIN SPRINGS(C) RIVER HIGHLANDER
------------ ------ ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........ $ 1,800 $ 1 $ 76 $ -- $ 61
Restricted cash .................. 52 -- -- -- --
Accounts receivable, net ......... 5,287 48 -- -- --
Due from affiliate ............... 254 -- -- -- 20
Costs and estimated earnings
in excess of billings on
uncompleted contracts .......... 870 -- -- -- --
Inventories ...................... -- 17 5 7 240
Prepaid expenses and
other current assets ........... 363 31 31 5 1
--------------- --------- ----------- --------- -------------
Total current assets ........... 8,626 97 112 12 322
PROPERTY AND EQUIPMENT, net ...... 567 1,791 700 2,290 1,434
OTHER ASSETS ...................... 195 51 -- 33 --
--------------- --------- ----------- --------- -------------
Total assets ................... $ 9,388 $1,939 $812 $2,335 $1,756
=============== ========= =========== ========= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................. $ 3,464 $ 161 $ 7 $ 48 $ 98
Accrued expenses ................. 1,594 -- 47 153 29
Billings in excess of costs and
estimated earnings on
uncompleted contracts .......... 846 -- -- -- --
Deferred revenue ................. 1,145 -- -- -- --
Current portion of long term ....
debt ............................ 674 81 -- 28 --
Provision for estimated losses on
construction contracts in
process ........................ 67 -- -- -- --
Due to stockholder and affiliates -- -- 251 375 304
Other current liabilities ........ -- 152 41 -- 17
--------------- --------- ----------- --------- -------------
Total current liabilities ..... 7,790 394 346 604 448
--------------- --------- ----------- --------- -------------
LONG TERM DEBT, net of current
portion ......................... 25 1,401 -- 512 --
--------------- --------- ----------- --------- -------------
MINORITY INTEREST ................. (207) -- -- -- --
--------------- --------- ----------- --------- -------------
SHAREHOLDERS' EQUITY:
Common stock ..................... 30 -- 15 -- --
Additional paid-in capital ...... 5,340 144 12 1,354 1,308
Retained earnings ................ (3,590) -- 503 (135) --
Less-Treasury stock .............. -- -- (64) -- --
--------------- --------- ----------- --------- -------------
Total stockholders' equity .... 1,780 144 466 1,219 1,308
--------------- --------- ----------- --------- -------------
Total liabilities and
stockholders' equity ......... $ 9,388 $1,939 $812 $2,235 $1,756
=============== ========= =========== ========= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
EAST ACQUISITION FOR
ROLLANDIA(C) COAST ADJUSTMENTS ACQUISITIONS
------------ ----- ----------- ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents ........ $ 10 $534 $ (682)(d) $ 50
(1,750)(f)
Restricted cash .................. -- -- 52
Accounts receivable, net ......... 5 -- (53)(d) 5,287
Due from affiliate ............... -- -- (20)(d) 254
Costs and estimated earnings
in excess of billings on
uncompleted contracts .......... -- -- 870
Inventories ...................... 196 148 (613)(d) --
Prepaid expenses and
other current assets ........... 11 9 (88)(d) 363
P-6
<PAGE>
PRO FORMA
EAST ACQUISITION FOR
ROLLANDIA(C) COAST ADJUSTMENTS ACQUISITIONS
------------ ----- ----------- ------------
ASSETS
CURRENT ASSETS:
------------- --------- -------------- ---------------
Total current assets ........... 222 691 (3,206) 6,876
PROPERTY AND EQUIPMENT, net ...... 2,865 2,560 2,029 (E) 14,236
OTHER ASSETS ...................... 383 410 2,716 (E) 2,911
(877)(D)
------------- --------- -------------- ---------------
Total assets ................... $3,470 $3,661 $ 662 $24,023
============= ========= ============== ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................. $ 199 $ 485 $ (998)(D) $ 3,464
Accrued expenses ................. 54 91 (374)(D) 1,594
Billings in excess of costs and
estimated earnings on
uncompleted contracts .......... -- -- 846
Deferred revenue ................. -- -- 1,145
Current portion of long term .... 1,650 (g)
debt ............................ 410 -- (519)(D) 2,324
Provision for estimated losses on
construction contracts in
process ........................ -- -- -- 67
Due to stockholder and affiliates 366 1,000 (2,296)(D) --
Other current liabilities ........ -- -- (210)(D) --
------------- --------- -------------- ---------------
Total current liabilities ..... 1,029 1,576 (2,747) 9,440
------------- --------- -------------- ---------------
LONG TERM DEBT, net of current
portion ......................... 2,151 1,000 (5,064)(D) 13,010
------------- --------- -------------- ---------------
12,985 (H)
MINORITY INTEREST ................. -- -- (207)
------------- --------- ---------------
SHAREHOLDERS' EQUITY:
Common stock ..................... -- -- (15)(D) 30
Additional paid-in capital ...... 362 1,922 (5,102)(D) 5,340
Retained earnings ................ (72) (837) 541 (D) (3,590)
Less-Treasury stock .............. -- -- 64 (D) --
------------- --------- -------------- ---------------
Total stockholders' equity .... 290 1,085 (4,512) 1,780
------------- --------- -------------- ---------------
Total liabilities and
stockholders' equity ......... $3,470 $3,661 $ 662 $24,023
============= ========= ============== ===============
</TABLE>
P-6
<PAGE>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BUSINESSES ACQUIRED
----------------------------------------------
COOL TOM'S
ACTUAL MCDAIN SPRINGS RIVER HIGHLANDER
--------- --------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Golf division ................. $ 534 $ 59 $124 $121 $ 206
Construction division ......... 2,056 -- -- -- --
Marketing division ............ 2,382 -- -- -- --
--------- --------- ---------- -------- -------------
4,972 59 124 121 206
--------- --------- ---------- -------- -------------
OPERATING COSTS AND EXPENSES:
Operating expenses .......... 1,699 59 140 101 270
Construction and shaping costs 2,000 -- -- -- --
Corporate overhead ............ 751 -- -- -- --
Depreciation and amortization 72 17 10 25 47
--------- --------- ---------- -------- -------------
4,522 76 150 126 317
--------- --------- ---------- -------- -------------
Operating income ........... 450 (17) (26) (5) (111)
OTHER INCOME (EXPENSE) ......... (321) -- -- (14) 2
--------- --------- ---------- -------- -------------
Income (loss) before foreign
and pro forma provision
for income taxes .......... 129 (17) (26) (19) (109)
ACTUAL AND PRO FORMA
TAX PROVISIONS ............... 50 -- -- -- (43)
--------- --------- ---------- -------- -------------
Net income (loss) ........... $ 79 $(17) $(26) $(19) $ (66)
========= ========= ========== ======== =============
Net income per share ........... $ 0.03
=========
Weighted average number of
common stock and common
stock equivalents outstanding 3,000
=========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BUSINESSES ACQUIRED
--------------------- PRO FORMA
EAST ACQUISITION FOR
ROLLANDIA COAST ADJUSTMENTS ACQUISITIONS
------------ --------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Golf division ................. $435 $ 136 $ (27)(n) $1,569
(19)(o)
Construction division ......... -- -- -- 2,056
Marketing division ............ -- -- 2,382
------------ --------- -------------- ---------------
435 136 (46) 6,007
------------ --------- -------------- ---------------
OPERATING COSTS AND EXPENSES:
Operating expenses .......... 356 246 76 (j) 2,896
(19)(o)
9 (b)
(41)(n)
Construction and shaping costs -- -- -- 2,000
Corporate overhead ............ -- -- 751
Depreciation and amortization 36 47 31 (k) 285
------------ --------- -------------- ---------------
392 293 56 5,932
------------ --------- -------------- ---------------
Operating income ........... 43 (157) (102) 75
OTHER INCOME (EXPENSE) ......... (68) -- (325)(i) (644)
82 (l)
------------ --------- -------------- ---------------
Income (loss) before foreign
and pro forma provision
for income taxes .......... (25) (157) (345) (569)
ACTUAL AND PRO FORMA
TAX PROVISIONS ............... (10) -- (219)(m) (222)
------------ --------- -------------- ---------------
Net income (loss) ........... $(15) $(157) $(126) $ (347)
============ ========= ============== ===============
Net income per share ........... $ (.12)
===============
Weighted average number of
common stock and common
stock equivalents outstanding 3,000
===============
</TABLE>
P-7
<PAGE>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BUSINESSES ACQUIRED
---------------------------------------------
COOL TOM'S DALLAS
ACTUAL MCDAIN SPRINGS RIVER HIGHLANDER
------ ------ ------- ----- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Golf division ................. $ 2,298 $ 469 $1,523 $424 $ 611
Construction division ......... 19,177 -- -- -- --
Marketing division ............ 10,070 -- -- -- --
------- ----- ------ ---- ------
31,545 469 1,523 424 611
------- ----- ------ ---- ------
OPERATING COSTS
AND EXPENSES:
Construction and shaping costs 16,500 -- -- -- --
Operating expenses ............ 8,422 450 1,397 402 901
Corporate overhead ............ 3,121 -- -- -- --
Depreciation and amortization 233 67 60 72 115
------- ----- ------ ---- ------
28,276 517 1,457 474 1,016
------- ----- ------ ---- ------
Operating income (loss) .... 3,269 (48) 66 (50) (405)
OTHER INCOME (EXPENSE) ......... (1,025) (110) 12 (46) (4)
------- ----- ------ ---- ------
Income (loss) before foreign
and pro forma provision
for income taxes .......... 2,244 (158) 78 (96) (409)
ACTUAL AND PRO FORMA
TAX PROVISIONS ............... 875 (62) 36 (37) (156)
------- ----- ------ ---- ------
Net income (loss) ........... $ 1,369 $ (96) $ 42 $(59) $ (253)
======= ===== ====== ==== ======
Net income per share ........... $ 0.46
=======
Weighted average number of
common stock and common
stock equivalents outstanding 3,000
=======
</TABLE>
<TABLE>
<CAPTION>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
BUSINESSES ACQUIRED
---------------------- PRO FORMA
ACQUISITION FOR
ROLLANDIA EAST COAST ADJUSTMENTS ACQUISITIONS
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Golf division ................. $1,807 $ 549 $ (244)(n) $ 7,397
Construction division ......... -- -- -- 19,177
(40)(o)
Marketing division ............ -- -- -- 10,070
------ ------ ------- -------
1,807 549 (284) 36,644
------ ------ ------- -------
OPERATING COSTS
AND EXPENSES:
Construction and shaping costs -- -- -- 16,500
Operating expenses ............ 1,470 992 304 (j) 14,014
52 (b)
(336)(n)
(40)(o)
Corporate overhead ............ -- -- 3,121
Depreciation and amortization 132 103 123 (k) 905
------ ------ ------- -------
1,602 1,095 103 34,540
------ ------ ------- -------
Operating income (loss) .... 205 (546) (387) 2,104
Other income (expense) ......... (241) -- (1,295)(i) (2,312)
397 (l)
------ ------ ------- -------
Income (loss) before foreign
and pro forma provision
for income taxes .......... (36) (546) (1,285) (208)
ACTUAL AND PRO FORMA
TAX PROVISIONS ............... (14) -- (723)(m) (81)
------ ------ ------- -------
Net income (loss) ........... $ (22) $ (546) $ (562) $ (127)
====== ======== ======= =======
Net income per share ........... $ (0.04)
=======
Weighted average number of
common stock and common
stock equivalents outstanding 3,000
=======
</TABLE>
P-8
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Reflects the sale of capital stock of Golf Centers to members of
management and certain Nicklaus Family Members which occurred in June
1996 for aggregate proceeds of $1,500,000. The shares were sold to
members of management for $600,000. The fair value of the shares sold to
management at the date of issuance was $3,600,000, resulting in the
recognition of compensation expense in the amount of $3,000,000.
Because the Reorganization is between entities under common control and
will be accounted for on a historical cost basis the consummation of the
Reorganization will not have an impact on the historical accounts.
(b) Represents lease expense which will be paid related to Highlander
($122,500 annually) in excess of amounts previously recorded by
Highlander ($71,000 in 1995 and $22,000 during the three months ended
March 31, 1996).
(c) Represents the balance sheet of Cool Springs as of April 30, 1996 and
Rollandia as of June 30, 1996. Such balance sheets would not vary
significantly from the balance sheets as of March 31, 1996 for the net
assets to be acquired (properties).
(d) As the acquisitions include only the purchase of certain property and
equipment, adjustment has been made to eliminate assets, liabilities and
equity which are excluded from the various acquisitions but which are
included in the historical financial statements of the acquired entities.
(e) Represents the purchase price of golf centers, the write-up to fair value
of the net assets acquired (primarily land and improvements) and the
recording of goodwill as follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE OF
PURCHASE NET ASSETS
PRICE ACQUIRED GOODWILL
----------- ---------------- -----------
<S> <C> <C> <C>
McDain(1) ...... $ 1,226 $ 1,226 $ --
Cool Springs .. 2,900 2,600 300
Tom's River ... 1,900 1,900 --
Highlander ..... 2,250 1,434 816
Rollandia(1) .. 2,309 2,309 --
East Coast ..... 5,800 4,200 1,600
----------- ---------------- -----------
$16,385 $13,669 $2,716
=========== ================ ===========
</TABLE>
- ----------
(1) Capital lease.
(f) Represents cash used to fund the acquisitions of Cool Springs and McDain.
(g) Represents a note from Jack Nicklaus, the proceeds of which were used to
fund the Cool Springs acquisition.
(h) Represents debt to be incurred in connection with the acquisitions. See
Note (i).
P-9
<PAGE>
(i) Represents interest expense on debt resulting from the acquisitions as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
DEBT RATE 1995 1996
---------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
McDain ........... $ 1,226 9% $ 110 $ 28
Tom's River ...... 1,400 9% 126 32
East Coast ....... 5,800 9% 522 131
Highlander ....... 2,250 8% 180 45
Rolandia ......... 2,309 9% 208 52
Nicklaus Note(g) 1,650 9% 149 37
---------- ------- --------------- ---------------
$14,635 $1,295 $325
========== =============== ===============
</TABLE>
(j) Represents the impact of employment agreements to be entered into upon
consummation of the offering. Historically, Richard Bellinger, Jack
Bates and Mark Hesemann spent approximately 50% of their efforts, and
Jack Nicklaus spent approximately 15% of his efforts in connection with
the businesses included in the Reorganization. Accordingly,
approximately 50% of the employment costs with respect to Messrs.
Bellinger, Bates and Hesemann, and 15% of the employment costs with
respect to Mr. Nicklaus were included in the Company's historical
financial statements. Upon consummation of the Offering, these
individuals will have fixed employment contracts as more fully described
in "Management--Employment Agreements."
(k) Represents amortization expense related to goodwill resulting from the
acquisitions as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AMORTIZATION DECEMBER 31, MARCH 31,
AMOUNT PERIOD 1995 1996
--------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cool Springs .. $ 300 30 years $ 10 $ 3
Highlander ..... 816 25 years 33 8
East Coast ..... 1,600 20 years 80 20
--------- --------------- ---------------
$2,716 $123 $31
========= =============== ===============
</TABLE>
(l) Represents the elimination of interest expense on debt of the Acquired
Businesses which will not be assumed in the acquisition.
(m) Represents the tax effect of the pro forma adjustments at an effective
rate of 39%.
(n) Represents the elimination of revenue and expenses from the operation of
Cool Spring's roller skating center which is excluded from the
acquisition.
(o) Represents the elimination of licensing fees paid by Highlander and East
Coast to the Company as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
--------------- ---------------
<S> <C> <C>
Highlander . $22,000 $13,000
East Coast . 18,000 5,800
--------------- ---------------
$40,000 $18,800
=============== ===============
</TABLE>
P-10
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION AND 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 A SOLICITATION OF AN OFFER TO BUY THE CLASS A
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
-----------------
PAGE
---------
Prospectus Summary ......................... 3
Risk Factors ............................... 8
The Company ................................ 15
Use of Proceeds ............................ 19
Dividend Policy ............................ 19
Dilution ................................... 20
Capitalization ............................. 21
Selected Historical Combined
Financial Data ........................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................ 23
Business ................................... 30
Management ................................. 45
Principal Shareholders ..................... 51
Certain Relationships and Related
Transactions ............................... 53
Description of Capital Stock ............... 61
Shares Eligible for Future Sale ............ 64
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders of Class A Common Stock . 65
Underwriting ............................... 68
Legal Matters .............................. 70
Experts .................................... 70
Additional Information ..................... 70
Index to Combined Financial Statements .... F-1
Pro Forma Financial Information ............ P-1
-----------------
UNTIL AUGUST 26, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,160,000 SHARES
[LOGO]
GOLDEN BEAR GOLF, INC.
CLASS A COMMON STOCK
----------
PROSPECTUS
----------
MERRILL LYNCH & CO.
WILLIAM BLAIR & COMPANY
DEAN WITTER REYNOLDS INC.
JULY 31, 1996
===============================================================================
