AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996
REGISTRATION STATEMENT NO. 333-05581
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
GOLDEN BEAR GOLF, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 7999 65-0680880
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION NUMBER
INCORPORATION OR ORGANIZA- CLASSIFICATION CODE
TION) NUMBER)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
RICHARD P. BELLINGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GOLDEN BEAR GOLF, INC.
11780 U.S. HIGHWAY #1 11780 U.S. HIGHWAY #1
NORTH PALM BEACH, FLORIDA 33408 NORTH PALM BEACH, FLORIDA 33408
TELEPHONE (407) 626-3900 TELEPHONE (407) 626-3900
ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
ALISON W. MILLER, ESQ. VALERIE FORD JACOB, ESQ.
STEVEN D. RUBIN, ESQ. FRIED, FRANK, HARRIS,
STEARNS WEAVER MILLER SHRIVER & JACOBSON
WEISSLER ALHADEFF & SITTERSON, P.A. ONE NEW YORK PLAZA
150 WEST FLAGLER STREET NEW YORK, NEW YORK 10004
MIAMI, FLORIDA 33130 (212) 859-8000
(305) 789-3200
----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION Fee(3)
<S> <C> <C>
Class A Common Stock, par value $.01 per share $33,120,000 $11,421
<FN>
- -----------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
(3) Previously paid.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE RESPONSES TO THE ITEMS OF PART I OF FORM S-1.
FORM S-1 ITEM NO. ITEM CAPTION LOCATION IN PROSPECTUS
- ------------------------------ -----------------------
<S> <C>
1. Forepart of the Registration Statement and Forepart of the Registration Statement and Outside
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; The Company;
Capitalization; Selected Historical Combined
Financial and Operating Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Principal
Shareholders; Management; Certain Relationships
and Related Transactions; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Combined Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 29, 1996
P R O S P E C T U S
1,800,000 SHARES
GOLDEN BEAR GOLF, INC.
CLASS A COMMON STOCK
--------------------
All of the 1,800,000 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 93.9% of the combined voting power of the
Company's Common Stock and 62.5% 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. It is currently anticipated that the initial public offering price for
the Class A Common Stock will be between $14 and $16 per share. 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........... $ $ $
Total(3)...........$ $ $
(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
270,000 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 $ , $
and $ , 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 ,1996.
----------------------
MERRILL LYNCH & CO.
WILLIAM BLAIR & COMPANY
DEAN WITTER REYNOLDS INC.
---------------------
The date of this Prospectus is , 1996.
<PAGE>
[INSERT PHOTOS HERE]
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 93.9% of the voting
power of the Company's Common Stock and 62.5% 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 $1.5 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 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>
<CAPTION>
<S> <C>
CLASS A COMMON STOCK OFFERED ...........1,800,000 SHARES
Common Stock to be outstanding after
the Offering:
Class A Common Stock .................. 2,040,000 shares(1)
Class B Common Stock .................. 2,760,000 shares(2)
---------
Total ................................ 4,800,000 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
<FN>
- ---------------------
(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."
</FN>
</TABLE>
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) $21,596
Total assets .................................. 3,676 4,841 8,906 7,888 48,183
Long-term debt ................................ -- 113 44 25 13,010
Shareholders' equity .......................... 1,110 256 1,030 280 25,940
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
<FN>
- ---------------------
(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 (at an assumed initial public
offering price of $15.00 per share, which represents the midpoint of the
estimated range of the initial public offering price) and a $1.5 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.
</FN>
</TABLE>
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,
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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.
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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
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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.
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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 $1.5 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,
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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 62.5% of the
outstanding shares of Common Stock and 93.9% 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 $10.27 from an assumed initial public offering price of
$15 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 will be 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 2,040,000 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 1,800,000 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
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(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."
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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, 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 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. 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 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
17
<PAGE>
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 1,800,000 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 $24.1 million, based on an assumed initial public offering price
of $15.00 per share (which is the midpoint of the estimated range of the initial
public offering price), and $27.9 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 1,800,000
shares of Class A Common Stock offered in the Offering (based on an assumed
initial public offering price of $15.00 per share which is the midpoint of the
estimated range of the initial public offering price) 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 $22.7
million, or $4.73 per share of Common Stock. This represents an immediate
increase in net tangible book value of $4.14 per share to existing shareholders
and an immediate dilution of $10.27 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>
<CAPTION>
<S> <C> <C>
ASSUMED INITIAL PUBLIC OFFERING PRICE OF CLASS A COMMON STOCK(1) .... $15.00
--------
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 ...................................... 4.14
-------
As adjusted net tangible book value per share of Common Stock
after the Acquisitions and the Offering ............................ 4.73
--------
Dilution in net tangible book value per share of Common Stock
to new investors(2) ................................................ $10.27
========
<FN>
- ---------------------
(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.
</FN>
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1996,
after giving effect to the sale by the Company of 1,800,000 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 62.5% $ 2,461,000 8.4% $ 0.82
New investors(3) ............ 1,800,000 37.5 $27,000,000 91.6 $15.00
----------- --------- ----------- --------- --------------
Totals .................... 4,800,000 100.0% $29,461,000 100.0% $ 6.14
=========== ========= =========== ========= ==============
<FN>
- ---------------------
(1) As of the date of this Prospectus (and assuming consummation of the
Reorganization), there are 2,040,000 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 an initial public offering price of $15.00 per share of Class A
Common Stock (the midpoint of the estimated range of the initial public
offering price) and 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 5,070,000, 40.8%, $31,050,000, 92.7%
and $6.98, respectively.
</FN>
</TABLE>
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 (at
an assumed initial public offering price of $15.00 per share, which represents
the midpoint of the estimated range of the initial public offering price). 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; 2,040,000 shares issued and outstanding,
as adjusted ................................................ 2 2 20
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 ................................... 3,790 3,790 27,932
Retained earnings (accumulated deficit) ...................... (2,040) (2,040) (2,040)
--------------- ---------------- -----------
Total shareholders' equity .................................. 1,780 1,780 25,940
--------------- ---------------- -----------
Total capitalization ....................................... $2,479 $17,114 $39,624
=============== ================ ==========
<FN>
- ---------------------
(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 $1.5 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."
</FN>
</TABLE>
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)
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
-------- --------
STATEMENT OF OPERATIONS DATA:
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
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>
<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)
MARCH 31,
---------------------------------------
1995 1996
----------- --------------------------
ACTUAL AS ADJUSTED(C)
--------- ---------------
BALANCE SHEET DATA (AT PERIOD END)
Working capital (deficit) ...... $(1,289) $ (664) $21,596
Total assets .................... 4,016 7,888 48,183
Long-term debt .................. 96 25 13,010
Shareholders' equity ............ (652) 280 25,940
- ---------------------
(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 (at an assumed initial public offering price of
$15.00 per share, which represents the midpoint of the estimated range of
the initial public offering price) and a $1.5 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
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. The
operations and balance sheet of JNAI are consolidated with the Company and the
Company's operating results are reduced to reflect the minority interest of its
partner. Under licensing agreements, JNAI receives royalties based on a
percentage of net sales of licensed products. JNAI's license income increased to
$3.8 million in 1995 from $3.5 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 $1.5 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 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.
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 its planned acquisition and expansion strategy. Such
capital may be raised by the issuance of additional
28
<PAGE>
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.
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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
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<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
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<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
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<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."
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<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' designes 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.
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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
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<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."
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<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.
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The following table sets forth the Company's principal licensees and
products:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LICENSED LICENSEE
LICENSEE PRODUCTS BRANDS TERRITORIES SINCE
- -------- ---------- ---------- ------------- ----------
Hart, Schaffner & Marx, Slacks JACK NICKLAUS United States 1969
a business unit of sportscoats,
Hartmarx Corporation blazers,
woven dress
shirts
Trans-Apparel Group, Men's and JACK NICKLAUS North 1990
a business unit of women's NICKLAUS America
Hartmarx Corporation shirts, slacks Europe
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 NICKLAUS
unit of Boyt
Italian Design Group Belts and JACK NICKLAUS United States 1995
small leather NICKLAUS Great Britain
goods
JNAI: Men's and ladies' JACK NICKLAUS Japan 1973
Partnership with sportswear NICKLAUS Southeast
Hartmarx Corporation GOLDEN BEAR Asia
South Africa
South America
JNAI/FE: Men's and ladies' JACK NICKLAUS Thailand 1973
Partnership between JNAI sportswear NICKLAUS Indonesia
and Kosugi Sangyo to and GOLDEN BEAR Korea
license Jack Nicklaus accessories Malaysia
brands in Asia Singapore
Philippines
JNJ: Hats, ties, JACK NICKLAUS Japan 1995
Partnership between JNAI men's/ladies'/ NICKLAUS
and Kosugi Sangyo to children's GOLDEN BEAR
serve as master licensee sportswear MUIRFIELD
in Japan gloves, belts,
luggage
casual and
business bags
and eyewear
</TABLE>
40
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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
practive and instruction facilities workdwide 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
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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.
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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.
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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.
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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.
NAME AGE POSITION WITH THE COMPANY
- ---------------------- ------ ------------------------------------------------
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
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
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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
$20,000 per year for his or her services as a director plus reimbursement of
travel expenses to board and committee meetings. Pursuant to the Company's 1996
Stock Option Plan, non-employee directors automatically are granted each year,
on the first business day following the Company's annual meeting of
shareholders, non-qualified options to purchase 1,000 shares of Class A Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant, and having a term of ten years. Directors who are also
employees of the Company will receive no additional compensation for service as
a director other than reimbursement of out-of-pocket travel expenses associated
with attendance at meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company had no separate compensation committee or
other board committee performing equivalent functions. The Company's Board of
Directors carried out this function. Each of the directors of the Company
participated in deliberations concerning executive compensation.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by Mr. Nicklaus
and the Company's four most highly compensated executive officers for services
rendered in all capacities to GBI and the Operating Subsidiaries for the fiscal
year ended December 31, 1995.
SUMMARY HISTORICAL COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(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
<FN>
- ---------------------
(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.
</FN>
</TABLE>
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.
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<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.
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<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.
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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% 93.9%
Golden Bear International, Inc.(3) ...... -- 1,320,000 47.4% 44.5%
Richard P. Bellinger and
Barbara B. Nicklaus, as
co-trustees(4) ......................... -- 573,600 20.6% 19.4%
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% 93.9%
<FN>
- ---------------------
* 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."
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<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."
</FN>
</TABLE>
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<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
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<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
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<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
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<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
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<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
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<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.
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 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.
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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 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.
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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.
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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
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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."
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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.
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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 2,040,000 shares of
Class A Common Stock outstanding (2,310,000 if the Underwriters' over-allotment
option is exercised in full) and 2,760,000 shares of Class B Common Stock
outstanding. All of the 1,800,000 shares of Class A Common Stock offered hereby
(2,070,000 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 20,400 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.
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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
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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......................................
William Blair & Company, L.L.C. ...............................
Dean Witter Reynolds Inc. .....................................
-------------
Total ............................................ 1,800,000
=============
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 $ per
share of Class A Common Stock. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ 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 270,000
shares of Class A Common Stock at the 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
68
<PAGE>
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 will be
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 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.
69
<PAGE>
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-5
Unaudited Pro Forma Statements of Operations for the three months
ended March 31, 1996 and the year ended December 31, 1995 .................................... P-6
Notes to Unaudited Pro Forma Financial Information ............................................. P-8
</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. COMMITEMENTS--(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>
PRO FORMA
FOR
DECEMBER 31, 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 ... 5,669,786 5,855,245 6,055,260 1,181,924 1,342,540
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. GBI Carve-out is the owner of the various
trademarks and licenses used in JNAI's business and, as such, exercises total
control over the use of such trademarks and licenses. In addition, GBI
Carve-out's duties with respect to the various partnerships include contract
negotiation, accounting and determination and processing of distributions.
Accordingly, for financial reporting purposes, JNAI is considered to be
controlled by the Companies. Notwithstanding the lack of technical majority
ownership, consolidation of JNAI is necessary to fairly present the financial
position and results of operations of the Companies. The operations and
balance sheet data of JNAI are consolidated with GBI Carve-out, and minority
interest is reflected.
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.
"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.
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)
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.
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.
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)
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 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
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)
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>
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>
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)
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.
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.
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)
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>
RETAINED
COMMON STOCK 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.
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
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--(CONTINUED)
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.
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.
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--(CONTINUED)
An analysis of "Due from International" is as follows:
Balance, December 31, 1993 ..... $ (39,399)
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
==============
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.
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>
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)
<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>
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
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)
11. SUBSEQUENT EVENTS--(CONTINUED)
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 $2,050,000,
resulting in the recognition of compensation expense in the amount of
$1,450,000.
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
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)
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.
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.
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)
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 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.
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)
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
==============
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>
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)
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:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- -----------
<S> <C>
1996 ......... $133,455
1997 ......... 164,310
1998 ......... 164,310
1999 ......... 164,310
2000 ......... 164,310
Thereafter.... 13,692
-----------
$804,387
===========
</TABLE>
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 FORMA
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 ...... 3,790 144 12 1,354 1,308
Retained earnings ................ (2,040) -- 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
-------------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
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
-------------- ---------- ---------------- -------------
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) 3,790
Retained earnings ................ (72) (837) 541 (d) (2,040)
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>
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
-------------------------------------------------------------------- PRO FORMA
COOL TOM'S DALLAS ACQUISITION FOR
ACTUAL MCDAIN SPRINGS RIVER HIGHLANDER ROLLANDIA EAST COAST ADJUSTMENTS ACQUISITIONS
-------- ------- --------- ------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Golf division ................. $ 2,298 $ 469 $1,523 $424 $ 611 $1,807 $ 549 $ (244)(N) $ 7,397
Construction division ......... 19,177 -- -- -- -- -- -- -- 19,177
(40)(O)
Marketing division ............ 10,070 -- -- -- -- -- -- -- 10,070
-------- ------- --------- ------- ----------- ------------ ----------- ------------- -----------
31,545 469 1,523 424 611 1,807 549 (284) 36,644
-------- ------- --------- ------- ----------- ------------ ----------- ------------- -----------
OPERATING COSTS
AND EXPENSES:
Construction and shaping costs 16,500 -- -- -- -- -- -- -- 16,500
Operating expenses ............ 8,422 450 1,397 402 901 1,470 992 304 (j) 14,014
52 (b)
(336)(n)
(40)(o)
Corporate overhead ............ 3,121 -- -- -- -- -- -- 3,121
Depreciation and amortization 233 67 60 72 115 132 103 123 (k) 905
--------- ------- -------- ------- ----------- ------------ ----------- -------------- ----------
28,276 517 1,457 474 1,016 1,602 1,095 103 34,540
--------- ------- -------- ------- ----------- ------------ ----------- -------------- ----------
Operating income (loss) .... 3,269 (48) 66 (50) (405) 205 (546) (387) 2,104
OTHER INCOME (EXPENSE) ......... (1,025) (110) 12 (46) (4) (241) -- (1,295)(i) (2,312)
397 (l)
--------- ------- -------- ------- ----------- ------------ ----------- -------------- ----------
Income (loss) before foreign
and pro forma provision
for income taxes .......... 2,244 (158) 78 (96) (409) (36) (546) (1,285) (208)
ACTUAL AND PRO FORMA
TAX PROVISIONS ............... 875 (62) 36 (37) (156) (14) -- (723)(m) (81)
--------- ------- -------- ------- ----------- ------------ ----------- -------------- ----------
Net income (loss) ........... $ 1,369 $ (96) $ 42 $(59) $ (253) $ (22) $ (546) $ (562) $ (127)
========= ======= ======== ======= =========== ============ ============= ============ ==========
Net income per share ........... $ 0.46 $(0.04)
========= ==========
Weighted average number of
common stock and common
stock equivalents outstanding 3,000 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 $2,050,000, resulting in the
recognition of compensation expense in the amount of $1,450,000.
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
-------------------------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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
</TABLE>
--------------------------
UNTIL ________ , 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.
1,800,000 SHARES
GOLDEN BEAR GOLF, INC.
CLASS A COMMON STOCK
----------------------------------------------
PROSPECTUS
----------------------------------------------
MERRILL LYNCH & CO.
WILLIAM BLAIR & COMPANY
DEAN WITTER REYNOLDS INC.
______________ , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses (other than underwriting
discounts and commissions) to be paid by the Registrant in connection with the
issuance and distribution of the securities being registered herein.
<TABLE>
<CAPTION>
<S> <C>
SEC REGISTRATION FEE ............................ $ 11,421
NASD Filing Fee ................................. 3,812
NASDAQ National Market Quotation Fee ............ 15,200
Legal Fees and Expenses* ........................ 500,000
Registrar and Transfer Agent Fees and Expenses* 10,000
Accounting Fees and Expenses* ................... 200,000
Printing and Engraving Expenses* ................ 100,000
Blue Sky Qualification Fees and Expenses ....... 25,000
Miscellaneous* .................................. 85,000
----------
Total* ........................................ $950,433
==========
</TABLE>
- ------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida Act")
provides that a director is not personally liable for monetary damages to the
corporation or any person for any statement, vote, decision or failure to act
regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes: (i) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a circumstance under
which the director is liable for an improper distribution; (iv) in a proceeding
by, or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interests of
the corporation, or willful misconduct; or (v) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety or
property.
Section 607.0850 of the Florida Act provides that a corporation shall have
the power to indemnify any person who was or is a party to any proceeding (other
than an action by, or in the right of, the corporation), by reason of the fact
that he is or was a director, officer or employee or agent of the corporation
against liability incurred in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 607.0850 also provides that a corporation shall have the power to
indemnify any person, who was or is a party to any proceeding by, or in the
right of, the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Under Section 607.0850, indemnification is authorized if such person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification may be
made in respect of any claim, issue, or matter as to
II-1
<PAGE>
which such person is adjudged to be liable unless, and only to the extent that,
the court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability, but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court deems
proper. To the extent that a director, officer, employee or agent has been
successful on the merits or otherwise in defense of any of the foregoing
proceedings, or in defense of any claim, issue or matter therein Section
607.0850 provides that, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith. Under Section 607.0850, any
indemnification, unless pursuant to a determination by a court, shall be made by
the corporation only as authorized in the specific case upon a determination
that the indemnification of the director, officer, employee or agent is proper
under the circumstances because he has met the applicable standard of conduct.
Notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary determination by the corporation in a specific case,
Section 607.0850 permits a director, officer, employee or agent of the
corporation who is or was a party to a proceeding to apply for indemnification
to the appropriate court and such court may order indemnification if it
determines that such person is entitled to indemnification under the applicable
standard.
Section 607.0850 also provides that a corporation has the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of Section 607.0850.
The Registrant's bylaws provide that it shall indemnify its officers and
directors and former officers and directors to the full extent permitted by law.
The Registrant has entered into indemnification agreements with its directors
and certain of its officers. The indemnification agreements generally provide
that the Registrant will pay certain amounts incurred by an officer or director
in connection with any civil or criminal action or proceeding and specifically
including actions by or in the name of the Registrant (derivative suits) where
the individual's involvement is by reason of the fact that he was or is an
officer or director. Under the indemnification agreements, an officer or
director will not receive indemnification if such person is found not to have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant. The agreements provide a number
of procedures and presumptions used to determine the officer's or director's
right to indemnification and include a requirement that in order to receive an
advance of expenses, the officer or director must submit an undertaking to repay
any expenses advanced on his behalf that are later determined he was not
entitled to receive.
The Registrant's directors and officers are covered by insurance policies
indemnifying them against certain liabilities, including liabilities under the
federal securities laws (other than liability under Section 16(b) of the
Exchange Act), which might be incurred by them in such capacities.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the Registrant's
directors, officers and controlling persons against certain liabilities that may
be incurred in connection with the offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the Agreement and Plan of Reorganization, dated as of June 7,
1996, between the Registrant, Golden Bear International, Inc., a Florida
corporation ("GBI"), Jack W. Nicklaus, the Jack W. Nicklaus, II Trust, the
Steven Nicklaus Trust, the Nancy J. Nicklaus O'Leary Trust, the Gary T.
Nicklaus Trust, the Michael S. Nicklaus Trust, Richard P. Bellinger, Mark F.
Hesemann, Thomas P. Hislop and Jack P. Bates (collectively, the
"Shareholders"), and John G. Hines ("Hines"), upon the closing of the
Offering contemplated by this Registration Statement, the Registrant will
issue to
II-2
<PAGE>
(i) GBI, 1,332,000 shares of its Class B Common Stock in exchange for certain
assets and the assumption of certain related liabilities of GBI and (ii) the
Shareholders, an aggregate of 1,668,000 shares of its Class A Common Stock and
Class B Common Stock in exchange for the contribution by the Shareholders of
their shares in each of Paragon Golf Construction, Inc. ("Paragon") and Golden
Bear Golf Centers, Inc. ("GBGC"). The Shareholders currently own all of the
issued and outstanding capital stock of Paragon and GBGC and Mr. Nicklaus and
the above-named Family Controlled Trusts currently own all of the issued and
outstanding capital stock of GBI. GBI and the Shareholders currently own all of
the issued and outstanding capital stock of the Registrant. The transactions
contemplated by the Reorganization Agreement are exempt from registration under
the Securities Act by virtue of the provisions of Section 3(a)(9) and/or Section
4(2) of the Securities Act. None of the transactions contemplated by the
Reorganization Agreement involved any general solicitation and no commissions
were paid.
ITEM 16. EXHIBITS
The following exhibits either are filed herewith or incorporated by reference
to documents previously filed or will be filed by amendment, as indicated below:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Reorganization*
3.1 Amended and Restated Articles of Incorporation of the Registrant
3.2 Bylaws of the Registrant*
4.1 Form of Class A Common Stock Certificate
5.1 Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.*
10.1 Form of Nicklaus Family Registration Rights Agreement*
10.2 The Golden Bear Golf, Inc. 1996 Stock Option Plan*
10.3 Form of Employment Agreement, between Golden Bear Golf, Inc. and Jack W. Nicklaus*
10.4 Form of Employment Agreement, between Golden Bear Golf, Inc. and Richard P. Bellinger*
10.5 Form of Employment Agreement, between Golden Bear Golf, Inc. and Mark F. Hesemann*
10.6 Form of Employment Agreement, between Golden Bear Golf, Inc. and Thomas P. Hislop*
10.7 Form of Employment Agreement, between Golden Bear Golf, Inc. and Jack P. Bates*
10.8 Form of Indemnification Agreement between Golden Bear Golf, Inc. and each of its Directors*
10.9 Form of Indemnification Agreement between Golden Bear Golf, Inc. and each of its Executive Officers*
10.10 Amended and Restated Joint Venture Agreement, dated June 1, 1994 of Jack Nicklaus Apparel International
("JNAI"), a joint venture between Seaford Clothing Co. and Golden Bear International, Inc.*
10.11 Master Apparel Agreement, dated June 1, 1993, by and between Gold Bear International, Inc., Hart
Schaffner & Marx and Hartmarx Corporation*
10.12 Form of Trademark License Agreement, between Golden Bear Golf, Inc. and Golden Bear International,
Inc.*
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------------------
10.13 Form of Design Services Marketing Agreement, between Golden Bear Golf, Inc. and Golden Bear
International, Inc.*
10.14 Form of Personal Services Management Agreement, between Golden Bear Golf, Inc. and Golden Bear
International, Inc.*
10.15 Form of Marketing Consulting and Cooperation Agreement, between Golden Bear Golf, Inc. and Golden
Bear International, Inc.*
10.16 Form of Office Staff and Equipment Service Agreement, between Golden Bear Golf, Inc. and Golden
Bear International, Inc.*
10.17 Form of Sublease and Sharing Agreement, between Golden Bear Golf, Inc. and Golden Bear International, Inc.*
10.18 Lease Agreement, dated April 15, 1996, between Golden Bear Golf Centers, Inc. and McDain Golf
Center of Monroeville*
10.19 Purchase and Sale Agreement, dated June 17, 1996, among Cool Springs, Inc., William T. Duckworth
and Golden Bear Golf Centers, Inc.*
10.20 Purchase and Sale Agreement, dated April 26, 1996, between First Sports Capital Development Associates,
Ltd. and Golden Bear Golf Centers, Inc.*
10.21 Form of Shareholders' Agreement among Nicklaus Family Members and Golden Bear Golf, Inc.*
10.22 Form of Shareholders' Agreement among certain executives of Golden Bear Golf, Inc., Mr. Nicklaus
and Golden Bear Golf, Inc.*
10.23 Promissory Note of Golden Bear Golf, Inc. payable to Jack W. Nicklaus.*
10.24 Form of Registration Rights Agreement among certain executives of Golden Bear Golf, Inc. and Golden Bear Golf, Inc.
21.1 Subsidiaries of the Registrant*
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of National Golf Foundation*
24.1 Power of Attorney (included with signature pages to this Registration Statement)*
27.1 Financial Data Schedule*
<FN>
- ------------
* Previously filed.
</FN>
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such name as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
North Palm Beach, State of Florida, on the 29th day of July, 1996.
GOLDEN BEAR GOLF, INC.
By: /s/ RICHARD P. BELLINGER
----------------------------------------
Richard P. Bellinger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacity and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------
<S> <C> <C>
* Director and Chairman July 29, 1996
- ----------------------------- of the Board
Jack W. Nicklaus
/s/ RICHARD P. BELLINGER Director, President and July 29, 1996
- ----------------------------- Chief Executive Officer
Richard P. Bellinger
/s/ JACK P. BATES Senior Vice President and July 29, 1996
- ----------------------------- Chief Financial Officer
Jack P. Bates (Principal Financial and
Accounting Officer)
* Director and Senior July 29, 1996
Mark F. Hesemann Vice President
* Director and Senior July 29, 1996
Thomas P. Hislop Vice President
* By /s/ RICHARD P. BELLINGER
- -----------------------------
(Attorney-in-fact pursuant
to power of attorney)
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Boards of Directors of
Golden Bear Golf Centers, Inc.,
Paragon Golf Construction, Inc. and
Golden Bear International, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements 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 for each of the
three years in the period ended December 31, 1995 included in this
registration statement, and have issued our report thereon dated April 17,
1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is the
responsibility of the companies' management and is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
April 17, 1996.
S-1
<PAGE>
SCHEDULE II
GOLDEN BEAR GOLF CENTERS, INC.,
PARAGON GOLF CONSTRUCTION, INC., AND
CERTAIN OPERATIONS OF GOLDEN BEAR INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------- --------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AMOUNT AT END
DESCRIPTION OF PERIOD EXPENSES WRITTEN-OFF OF PERIOD
- --------------------------------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
1993
Allowance for uncollectible accounts $ -- $ 96,037 $ -- $ 96,037
============= ============= ============== ============
1994
Allowance for uncollectible accounts $ 96,037 $476,962 $ -- $572,999
============= ============= ============== ============
1995
Allowance for uncollectible accounts $572,999 $ 98,046 $159,212 $511,833
============= ============= ============== ============
</TABLE>
S-2
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GOLDEN BEAR GOLF, INC.
PURSUANT TO SECTIONS 607.1005, 607.1006 AND 607.1007
OF THE FLORIDA BUSINESS CORPORATION ACT
Golden Bear Golf, Inc., a Florida corporation (the
"Corporation"), hereby certifies that these Amended and Restated Articles of
Incorporation were duly adopted by the Board of Directors of the Corporation,
without shareholder action and shareholder action was not required, pursuant
to Section 607.0704 of the Florida Business Corporation Act, on July 26, 1996.
ARTICLE I - NAME AND ADDRESS
The name of this corporation is Golden Bear Golf, Inc. (the
"Corporation"). The address of the principal office and the mailing address of
this Corporation is 11780 U.S.
Highway One, North Palm Beach, Florida 33408.
ARTICLE II - PURPOSE
This Corporation is organized for the purpose of transacting any and
all lawful business for corporations organized under the Florida Business
Corporation Act.
ARTICLE III - CAPITAL STOCK
3.1 AUTHORIZED CAPITAL STOCK. The aggregate number of shares which this
Corporation shall have authority to issue is one hundred million (100,000,000)
shares, consisting of (a) seventy million (70,000,000) shares of Class A Common
Stock, par value $0.01 per share (the "Class A Common Stock"); (b) ten million
(10,000,000) shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"); and twenty million (20,000,000) shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), issuable in one or more
series as hereinafter provided. The Class A Common Stock and the Class B Common
Stock shall hereinafter collectively be called "Common Stock." Each oustanding
share of Common Stock and each share of Common Stock reserved for issuance
pursuant to that certain Agreement and Plan of Reorganization, dated June 7,
1996, among the Company and certain individuals and entities, shall, after the
date of these Amended and Restated Articles of Incorporation, represent 3,000
shares of the same class.
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3.2 TERMS OF COMMON STOCK. All shares of Class A Common Stock and Class
B Common Stock will be identical and will entitle the holders thereof to the
same rights and privileges, except as otherwise provided herein.
(a) VOTING RIGHTS. The holders of shares of Class A Common
Stock and of Class B Common Stock shall have the following voting rights:
(i) Each share of Class A Common Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation.
(ii) Each share of Class B Common Stock shall entitle the
holder thereof to ten votes on all matters submitted to a vote of the
shareholders of the Corporation.
(iii) Except as otherwise required by applicable law, the
holders of shares of Class A Common Stock and the holders of shares of Class B
Common Stock shall vote together as one class on all matters submitted to a
vote of shareholders of the Corporation (or, if any holders of shares of
Preferred Stock are entitled to vote together with the holders of Class A
Common Stock and Class B Common Stock, as a single class with such holders of
shares of Preferred Stock).
(b) DIVIDENDS AND DISTRIBUTIONS. Subject to the preferences
applicable to Preferred Stock outstanding at any time, the holders of shares of
Class A Common Stock and the holders of shares of Class B Common Stock shall be
entitled to receive such dividends and other distributions in cash, property or
shares of stock of the Corporation as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor; provided, that, subject to the provisions of this Section
3.2(b), each holder of Common Stock shall be entitled to share equally in, and
to receive, in accordance with the number of shares of Common Stock held by such
holder of all such dividends. In the case of dividends or other distributions
payable in Class A Common Stock or Class B Common Stock, including distributions
pursuant to stock splits or divisions of Class A Common Stock or
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Class B Common Stock which occur after the first date upon which the
Corporation has issued shares of both Class A Common Stock and Class B Common
Stock, only shares of Class A Common Stock shall be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock shall be
distributed with respect to Class B Common Stock. Whenever a dividend or
distribution, including distributions pursuant to stock splits or divisions of
the Class A Common Stock or Class B Common Stock, is payable in shares of Class
A Common Stock or Class B Common Stock, the number of shares of each class of
Common Stock payable per share of such class of Common Stock shall be equal in
number. In the case of dividends or other distributions consisting of other
voting securities of the Corporation, the Corporation shall declare and pay
such dividends in two separate classes of such voting securities, identical in
all respects, except that the voting rights of each such security paid to the
holders of Class A Common Stock shall be one-tenth of the voting rights of each
such security paid to the holders of Class B Common Stock, and such security
paid to the holders of Class B Common Stock shall convert into the security
paid to the holders of Class A Common Stock upon the same terms and conditions
applicable to the Class B Common Stock. In the case of dividends or other
distributions consisting of securities convertible into, or exchangeable for,
voting securities of the Corporation, the Corporation shall provide that such
convertible or exchangeable securities and the underlying securities be
identical in all respects (including, without limitation, the conversion or
exchange rate), except that the voting rights for the underlying securities of
the convertible or exchangeable security paid to the holders of Class A Common
Stock shall be one- tenth of the voting rights of each underlying security of
the convertible or exchangeable security paid to the holders of the Class B
Common Stock, and such underlying securities paid to the holders of Class B
Common Stock shall convert into the underlying securities paid to the holders
of Class A Common Stock upon the same terms and conditions applicable to the
Class B Common Stock.
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(c) TRANSFER OF CLASS B COMMON STOCK.
(i) No Class B Holder (as defined below) may voluntarily or
involuntarily transfer, sell, assign, devise, distribute or bequeath any of
such Class B Holder's interest in his, her or its shares of Class B Common
Stock (including, without limitation, the power to vote or provide a consent
with respect to his, her or its shares of Class B Common Stock by proxy or
otherwise, except for proxies given to any Permitted Transferee (as defined
below) of the Class B Holder or to a person designated by the Board of
Directors of the Corporation who is soliciting proxies on behalf of the
Corporation), and the Corporation and the transfer agent for the Class B Common
Stock, if any (the "Transfer Agent"), shall not register the transfer of such
shares of Class B Common Stock, whether by sale, grant or proxy, assignment,
gift, devise, bequest, distribution, appointment or otherwise, except to the
Corporation or a Permitted Transferee; provided, however, such restrictions on
transfer shall not apply to a merger, consolidation or business combination of
the Corporation with or into another corporation, whether or not the
Corporation is the surviving corporation. For the purposes of this Article III,
a "Permitted Transferee" shall include only the following persons: (A) Mr. Jack
W. Nicklaus, Barbara B. Nicklaus and their estates, guardians, conservators,
committees or attorneys-in-fact; (B) each lineal descendant of Mr. Nicklaus and
Mrs. Nicklaus (a "Nicklaus Descendant") and their respective guardians,
conservators, committees or attorneys- in-fact; (C) each Family Controlled
Entity (as defined below); and (D) the trustees, in their respective capacities,
as such, of each Family Controlled Trust (as defined below). For purposes of
this Article III, the term "Family Controlled Entity" means (A) any
not-for-profit corporation if at least 80% of its board of directors is
composed of Mr. Jack W. Nicklaus and/or Nicklaus Descendants; (B) Golden Bear
International, Inc., a Florida corporation, and any other corporation if at
least 80% of the value of its outstanding equity is owned by Permitted
Transferees; (C) any partnership if at least 80% of the value of its
partnership interests are
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owned by Permitted Transferees; and (D) any limited liability or similar
company if at least 80% of the company is owned by Permitted Transferees. For
purposes of this Article III, the term "Family Controlled Trust" shall mean (A)
the trusts set forth on Schedule A hereto and (B) any trust, 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. For purposes of this provision, the
primary beneficiaries of a trust will be deemed to be Nicklaus Beneficiaries if,
under the maximum exercise of discretion by the trustee in favor of persons who
are not Nicklaus Beneficiaries, the value of the interest of such persons in
such trust, computed actuarially, is 20% or less. The factors and methods
prescribed in Section 7520 of the Internal Revenue Code of 1986, as amended,
for use in ascertaining the value of certain interests shall be used in
determining a beneficiary's actuarial interest in a trust for purposes of
applying this provision. For purposes of this provision, the actuarial values
of the interest in a trust of any person in whose favor a testamentary power of
appointment may be exercised shall be deemed to be zero. For purposes of this
provision, in the case of a trust created by a Nicklaus Descendant, the
actuarial value of the interest in such trust of any person who may receive
trust property only at the termination of the trust and then only in the event
that, at the termination of the trust, there are no living issue of such
Nicklaus Descendant shall be deemed to be zero. For purposes of this Article
III, the term "Spouses of Nicklaus Descendants" shall mean those individuals
who at any time were married to any Nicklaus Descendant whether or not such
marriage is subsequently dissolved by death, divorce, or by any other means.
(ii) Notwithstanding anything to the contrary set forth
herein, any Class B Holder may pledge such Class B Holder's shares of Class B
Common Stock to a financial institution pursuant to a bona fide pledge of such
shares as collateral security for indebtedness
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due to the pledgee; provided, that, such shares shall remain subject to the
provisions of this Section 3.2(c) and may not be transferred to, or voted by,
the pledgee, except as otherwise permitted by the provisions of Section 3.2(c).
In the event of foreclosure or other similar action by the pledgee, such pledged
shares of Class B Common Stock may only be transferred to a Permitted Transferee
or converted into shares of Class A Common Stock, as the pledgee may elect.
(iii) For purposes of this Section 3.2(c);
(1) the relationship of any person that is derived by
or through legal adoption shall be considered a natural relationship;
(2) an incompetent shareholder who is a Permitted
Transferee but whose shares are owned or held by a guardian or conservator
shall be considered a Class B Holder of such shares and such guardian or
conservator who is the holder of such shares shall not be considered a Class B
Holder;
(3) unless otherwise specified, the term "person"
means and includes natural persons, corporations, partnerships, unincorporated
associations, firms, joint ventures, trusts and all other entities;
(4) the term "Nicklaus Descendant" shall apply to a
child in gestation in vitro who is a lineal descendant of Mr. Nicklaus and Mrs.
Nicklaus, and the term "Family Controlled Trust" shall include a trust
established for the benefit of such a Nicklaus Descendant prior to his or her
birth; and
(5) except as provided in clause 2 above, the term
"Class B Holder" shall mean in respect of any share of Class B Common Stock,
the record holder of such share; provided, however, that if such record holder
is a nominee, the Class B Holder shall be the first person in the chain of
ownership of such share of Class B Common Stock who is not holding such share
solely as a nominee.
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(iv) The Corporation may, in connection with preparing a
list of shareholders entitled to vote at any meeting of shareholders, or as a
condition to the transfer or the registration of shares of Class B Common Stock
on the Corporation's books, or at any other time, require the furnishing of
such affidavits or other proof as it deems necessary to establish that a Class
B Holder is a Permitted Transferee. Upon the determination by the Board of
Directors of the Corporation or a committee thereof that a Class B Holder is
not a Permitted Transferee, the Secretary of the Corporation shall serve
written notice of such determination upon all other Class B Holders then of
record. Unless the Corporation receives satisfactory evidence within sixty (60)
days of the date of such notice of: (a) the resolution of any circumstances
which prevented the original Class B Holder affected by such determination from
qualifying as a Permitted Transferee, or (b) the exercise by Permitted
Transferees of options to purchase shares of the Class B Common Stock under any
agreement between the Class B Holders then in effect, then each share of Class
B Common Stock held by such Class B Holder shall thereupon be converted
automatically into one (1) fully paid and nonassessable share of Class A Common
Stock pursuant to the procedures set forth in Section 3.2(d)(iii).
(v) Each certificate representing shares of Class B Common
Stock shall be endorsed with a legend that states that shares of Class B Common
Stock are not transferable other than to certain transferees and are subject to
certain restrictions as set forth in these Articles of Incorporation filed by
the Corporation with the Secretary of State of the State of Florida.
(d) CONVERSION OF CLASS B COMMON STOCK.
(i) If, on the record date for any meeting of shareholders
of the Corporation, the number of shares of Class B Common Stock then
outstanding constitutes less than 20% of the aggregate number of shares of
Common Stock then outstanding, as determined by the Board of Directors of the
Corporation, each share of Class B Common Stock then issued
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or outstanding shall thereupon be converted automatically as of such record
date into one (1) fully paid and nonassessable share of Class A Common Stock
and will have one vote per share at such meeting. Upon making such
determination, notice of such automatic conversion shall be given by the
Corporation by means of a press release and written notice to all Class B
Holders and shall be given as soon as practicable, but no later than the next
meeting of shareholders of the Corporation, and the Secretary of the
Corporation shall be instructed to, and shall promptly request from each Class
B Holder that each holder promptly deliver, and each holder shall promptly
deliver, the certificate representing each such share of Class B Common Stock
to the Corporation for exchange hereunder, together with instruments of
transfer, in form satisfactory to the Corporation and Transfer Agent, duly
executed by such holder or such holder's duly authorized attorney, and together
with transfer tax stamps or funds therefor, if required pursuant to Section
3.2(d)(vii).
(ii) Each Class B Holder shall be entitled to convert, at
any time and from time to time, any or all of the shares of such holder's Class
B Common Stock, on a one-for-one basis, into the same number of fully paid and
nonassessable shares of Class A Common Stock. Such right shall be exercised by
the surrender of the certificate or certificates representing the shares of
Class B Common Stock to be converted to the Corporation at any time during
normal business hours at the principal executive offices of the Corporation or
at the office of the Transfer Agent, accompanied by a written notice of the
holder of such shares stating that such holder desires to convert such shares,
or a stated number of the shares represented by such certificate or
certificates, into an equal number of shares of the Class A Common Stock, and
(if so required by the Corporation or the Transfer Agent) by instruments of
transfer, in form satisfactory to the Corporation and to the Transfer Agent,
duly executed by such holder or such holder's duly authorized attorney, and
transfer tax stamps or funds therefor, if required pursuant to Section
3.2(d)(vii). In the event that any shares of Class B Common Stock tendered for
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conversion under this Section are subject to restrictions upon transfer noted in
a legend on the certificates representing such shares, the Corporation and
Transfer Agent shall require the holder of such shares to submit, as a condition
to the conversion of such shares into shares of Class A Common Stock,
satisfactory evidence that the proposed conversion will not violate any of the
noted restrictions upon transfer of such shares.
(iii) Upon the determination by the Board of Directors of
the Corporation or a committee thereof that a Class B Holder is not a Permitted
Transferee, and the failure of such Class B Holder to cure such
disqualification within the sixty (60) day period provided in Section
3.2(c)(iv), any shares of Class B Common Stock, or any beneficial interest
therein, held by such Class B Holder which are not subject to the provisions of
Section 3.2(c)(v) shall thereupon be converted into an equal number of fully
paid and nonassessable shares of Class A Common Stock. The Secretary of the
Corporation shall be instructed to, and shall promptly request from the holder
of record of each such share of Class B Common Stock that each such holder
promptly deliver, and each such holder shall promptly deliver, the certificate
representing each such share of Class B Common Stock to the Corporation for
exchange hereunder, together with instruments of transfer, in form satisfactory
to the Corporation and Transfer Agent, duly executed by such holder or such
holder's duly authorized attorney, and together with transfer tax stamps or
funds therefor, if required pursuant to Section 3.2(d)(vii).
(iv) As promptly as practicable following the surrender for
conversion of a certificate representing shares of Class B Common Stock in the
manner provided in Section 3.2(d)(i), (ii) or (iii), as applicable, and the
payment in cash of any amount required by the provisions of Section
3.2(d)(viii), the Corporation will deliver or cause to be delivered at the
office of the Transfer Agent, a certificate or certificates representing the
number of full shares of Class A Common Stock issuable upon such conversion,
issued in such name or names as such holder may direct. In the case of a
conversion under Section 3.2(d)(i), such conversion shall
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be deemed to have been made on the record date for such meeting of shareholders
on which the condition set forth in Section 3.2(d)(i) is determined by the
Board of Directors of the Corporation to have occurred. In the case of a
conversion under Section 3.2(d)(ii), such conversion shall be deemed to have
been effected immediately prior to the close of business on the date of the
surrender of the certificate or certificates representing shares of Class B
Common Stock. In the case of a conversion under Section 3.2(d)(iii), such
conversion shall be deemed to have been made on the date of transfer. Upon the
date any conversion under Section 3.2(d)(i) is made or effected, all rights of
the holder of such shares as such holder shall cease, and the person or persons
in whose name or names the certificate or certificates representing the shares
of Class A Common Stock are to be issued shall be treated for all purposes as
having become the record holder or holders of such shares of Class A Common
Stock; provided, however, that if any such surrender and payment occurs on any
date when the stock transfer books of the Corporation shall be closed, the
person or persons in whose name or names the certificate or certificates
representing shares of Class A Common Stock are to be issued shall be deemed
the record holder or holders thereof for all purposes immediately prior to the
close of business on the next succeeding day on which the stock transfer books
are open. Upon the date any conversion under Section 3.2(d)(iii) is made, all
rights of the holder of such shares as such holder shall cease, and the new
owner or owners of such shares shall be treated for all purposes as having
become the record holder or holders of such shares of Class A Common Stock.
(v) In the event of a reclassification or other similar
transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a Class B Holder shall be entitled to
receive upon conversion the amount of such security that such holder would have
received if such conversion had occurred immediately prior to the record date
of such reclassification or other similar transaction. No adjustments in
respect of dividends shall be made upon the conversion of any share of Class B
Common Stock; provided, however,
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that if a share shall be converted subsequent to the record date for the
payment of a dividend or other distribution on shares of Class B Common Stock
but prior to such payment, then the registered holder of such share at the
close of business on such record date shall be entitled to receive the dividend
or other distribution payable on such share on such date notwithstanding the
conversion thereof or the Corporation's default in payment of the dividend due
on such date.
(vi) The Corporation covenants that it will at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common Stock, solely for the purpose of issuance upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock that shall be issuable upon the conversion of all such outstanding
shares of Class B Common Stock. The Corporation covenants that if any shares of
Class A Common Stock require registration with or approval of any governmental
authority under any federal or state law before such shares of Class A Common
Stock may be issued upon conversion, the Corporation will cause such shares to
be duly registered or approved, as the case may be. The Corporation will
endeavor to use its best efforts to list or make available for quotation the
shares of Class A Common Stock required to be delivered upon conversion prior
to such delivery upon each national securities exchange upon which the
outstanding Class A Common Stock is listed at the time of such delivery. The
Corporation covenants that all shares of Class A Common Stock that shall be
issued upon conversion of the shares of fully paid and nonassessable Class B
Common Stock will, upon issue, be fully paid and nonassessable.
(vii) The issuance of certificates of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without
charge to the holders of such shares for any stamp or other similar tax in
respect of such issuance; provided, however, that, if any such certificate is
to be issued in a name other than that of the holder of the share or shares of
Class B Common Stock converted, then the person or persons requesting the
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issuance thereof shall pay to the Corporation the amount of any tax that may be
payable in respect of any transfer involved in such issuance or shall establish
to the satisfaction of the Corporation that such tax has been paid.
(viii) Shares of Class B Common Stock that are converted
into shares of Class A Common Stock as provided herein shall continue to be
authorized shares of Class B Common Stock and available for reissue by the
Corporation; provided, however, that no shares of Class B Common Stock shall be
reissued except as expressly permitted by Sections 3.2(b), 3.2(e) and 3.2(f) of
these Articles of Incorporation.
(e) STOCK SPLITS. The Corporation shall not in any manner
subdivide (by any stock split, stock dividend, reclassification,
recapitalization or otherwise) or combine (by reverse stock split,
reclassification, recapitalization or otherwise) the outstanding shares of one
class of Common Stock unless the outstanding shares of all classes of Common
Stock shall be proportionately subdivided or combined.
(f) OPTIONS, RIGHTS OR WARRANTS.
(i) The Corporation shall not make any offering of options,
rights or warrants to subscribe for shares of Class B Common Stock. The
Corporation may make offerings of options, rights or warrants to subscribe for
shares of any other class or classes of capital stock (other than Class B
Common Stock) to all holders of Class A Common Stock or Class B Common Stock if
an identical offering is made simultaneously to the holders of the other class.
All such options, rights or warrants offerings shall offer the respective
holders of Class A Common Stock and Class B Common Stock the right to subscribe
at the same rate per share.
(ii) Subject to Sections 3.2(d)(v) and 3.2(f)(i), the
Corporation shall have the power to create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securitie
of the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes
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at the time authorized (other than Class B Common Stock), such rights or options
to have such terms and conditions, and to be evidenced by or in such instrument
or instruments, as shall be approved by the Board of Directors.
(g) MERGER, CONSOLIDATION, ETC. In the event that the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which shares of Common Stock are exchange for or changed into
other stock or securities, cash and/or any other property, then, and in such
event, the shares of each class of Common Stock shall be exchanged for or
changed into an amount per share equal to the amount of stock, securities, cash
and/or any other property, as the case may be, into which or for which each
share of any other class of Common Stock is exchanged or changed; provided,
however, that if shares of Class A Common Stock and Class B Common Stock are
exchanged for or changed into shares of capital stock, such shares so exchanged
for or changed into may differ to the extent and only to the extent that the
Class A Common Stock and Class B Common Stock differ as provided herein.
(h) LIQUIDATION RIGHTS. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation and after making provisions for the holders of
each series of Preferred Stock, if any, the remaining assets and funds of the
Corporation, if any, shall be divided among and paid ratably to the holders of
the Class A Common Stock and the Class B Common Stock treated as a single class.
3.3 PREFERRED STOCK. Shares of Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is authorized, by
resolution adopted and filed in accordance with law, to provide for the issue
of such series of shares of Preferred Stock. Each series of shares of Preferred
Stock (a) may have such voting powers, full or limited, or may be without
voting powers; provided, however, that, unless holders of at least seventy-five
percent (75%) of the outstanding shares of Class B Common Stock, if any, have
approved the issuance
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of such shares of Preferred Stock, the Board of Directors may not issue any
shares of Preferred Stock that have the right (i) to vote for the election of
directors under ordinary circumstances or (ii) under any circumstances to elect
fifty percent (50%) or more of the directors of the Corporation; (b) may be
subject to redemption at such time or times and at such prices; (c) may be
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rate or rates, on such conditions and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes or series of stock; (d) may have such rights upon the dissolution of,
or upon any distribution of the assets of, the Corporation; (e) may be made
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock of the
Corporation or such other corporation or other entity at such price or prices
or at such rates of exchange and with such adjustments; (f) may be entitled to
the benefit of a sinking fund to be applied to the purchase or redemption of
shares of such series in such amount or amounts; (g) may be entitled to the
benefit of conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional shares
(including additional shares of such series or of any other series) and upon
the payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any subsidiary
of, any outstanding shares of the Corporation; and (h) may have such other
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, in each case as shall be stated in said
resolution or resolutions providing for the issue of such shares of Preferred
Stock. Shares of Preferred Stock of any series that have been redeemed or
repurchased by the Corporation (whether through the operation of a sinking fund
or otherwise) or that, if convertible or exchangeable, have been converted or
exchanged in accordance with their terms shall be retired and have the status
of authorized and unissued shares of Preferred Stock of the same series and may
be reissued as a part of the series of which they were
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originally a part or may, upon the filing of an appropriate certificate with
the Secretary of State of the State of Florida be reissued as part of a new
series of shares of Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other series of shares of Preferred
Stock, all subject to the conditions or restrictions on issuance set forth in
the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of shares of Preferred Stock.
ARTICLE IV - INITIAL REGISTERED OFFICE AND AGENT
The street address of the initial registered office of this Corporation
and the name of the initial registered agent of this Corporation at such office
are:
NAME ADDRESS
---- -------
CSC Network 1201 Hays Street
Tallahassee, Florida 32301
ARTICLE V - SPECIAL MEETINGS OF SHAREHOLDERS
The shareholders of this Corporation may only call a special meeting of
shareholders if the holders of at least 50% of the voting power of all of the
shares of the capital stock of the Corporation all of the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting
sign, date and deliver to this Corporation's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to
be held.
ARTICLE VI - BOARD OF DIRECTORS
6.1 FUNCTION. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, the Board of Directors. Directors must be natural
persons who are at least 18 years of age but need not be residents of Florida
or shareholders of the Corporation.
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6.2 NUMBER OF DIRECTORS.
(i) The Board of Directors of the Corporation shall
consist of not less than four persons, the exact number to be determined from
time to time by resolution adopted by the affirmative vote of a majority of all
directors of the Corporation then holding office at any special or regular
meeting. Any such resolution increasing or decreasing the number of directors
shall have the effect of creating or eliminating a vacancy or vacancies, as the
case may be, provided that no such resolution shall reduce the number of
directors below the number then holding office and provided further that no
such resolution may increase or decrease the number of directors by more than
30% of the number of directors last approved by the shareholders at any special
or annual meeting of the shareholders of the Corporation.
(ii) Commencing with the first annual meeting of
shareholders of the Corporation following the consummation of the initial
offering and sale by the Corporation of shares of its common stock pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, the Board of Directors shall be divided into three (3) classes;
designated Class I, Class II and Class III, with each class having as nearly an
equal number of directors as possible. At the annual meeting, directors of
Class I shall be initially elected to hold office for a one-year term,
directors of Class II shall be initially elected to hold office for a two-year
term, and directors of Class III shall be initially elected to hold office for
a three-year term with each director in each class to hold office until his
successor is elected and qualified, or until his earlier resignation, removal
from office or death. At each succeeding annual meeting of shareholders
beginning at the annual meeting after such first meeting, the successors of the
class of directors whose term expires at the meeting will be elected to hold
office for a term expiring at the annual meeting of shareholders held in the
third year following the year of their election or until their successors are
duly elected and qualified. The original allocation among the three
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classes of directors elected at such first annual meeting shall be determined by
a resolution of the Board of Directors.
6.3 ELECTION OF DIRECTORS. Directors shall be elected at the annual
meeting of shareholders, but when the annual meeting is not held or directors
are not elected thereat, they may be elected at a special meeting called and
held for that purpose. Directors shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present.
6.4 VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled only by the Board of Directors (and not by the shareholders), by
resolution adopted by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors; provided,
however, that if not so filled, any such vacancy shall be filled by the
shareholders at the next annual meeting or at a special meeting called for that
purpose. Any director so elected or appointed shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred, as the case may be, and until
such director's successor is elected and qualified.
6.5 REMOVAL OF DIRECTORS. At a meeting of shareholders, any director
or the entire Board of Directors may be removed, solely with cause and provided
the notice of the meeting states that one of the purposes of the meeting is the
removal of the director. A director may be removed only if the number of votes
cast to remove him constitutes at least 66 2/3% of the voting power of all of
the shares of capital stock then entitled to vote generally in the election of
directors, voting together as a single class. For purposes of this Section 7.5
of Article VII, "cause" shall mean the failure of a director to substantially
perform such director's duties to the Corporation (other than any such failure
resulting from incapacity due to physical or mental illness) or the willful
engaging by a director in gross misconduct injurious to the Corporation.
-17-
<PAGE>
ARTICLE VII - INDEMNIFICATION
This Corporation shall indemnify any director, or any former director
of this Corporation, to the fullest extent permitted by law.
ARTICLE VIII - BYLAWS
The Bylaws of the Corporation may be altered, amended or repealed, and
new Bylaws adopted, by the affirmative vote of at least a majority of the
members of the Board of Directors then in office or by the affirmative vote of
the holders of not less than 66 2/3% of the voting power of all shares of
capital stock of the Corporation then entitled to vote generally in the
election of directors, voting as a single class.
ARTICLE IX - AMENDMENT OF ARTICLES OF INCORPORATION
The Corporation hereby reserves the right from time to time to amend,
alter, change or repeal any provision contained in these Articles of
Incorporation in any manner permitted by law and all rights and powers
conferred upon shareholders, directors and officers herein are granted subject
to this reservation. In addition to any vote otherwise required by law, any
such amendment, alteration, change or repeal shall require approval of both (a)
the Board of Directors by the affirmative vote of a majority of the members
then in office and (b) the holders of a majority of the voting power of all the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class; provided, however,
that any proposal to amend, alter, change or repeal the provisions of Article
VI and this Article IX shall require the affirmative vote of the holders of at
least 66 2/3% of the voting power of all the shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation on July 26, 1996.
/S/ RICHARD P. BELLINGER
-------------------------------------
Richard P. Bellinger
Director
-19-
EXHIBIT 4.1
GOLDEN BEAR LOGO
NUMBER GOLDEN BEAR GOLF, INC. SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP NUMBER
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK, $.01 PAR
VALUE, OF
GOLDEN BEAR GOLF, INC. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrende4r of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles of Incorporation, as amended, and the By-Laws of the Corporation, as
amended (copies of which are on file at the office of the Transfer Agent), to
all of which the holder4 of this Certificate by acceptance hereof assents. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
GOLDEN BEAR GOLF, INC
CORPORATE SEAL
1996
FLORIDA
SECRETARY PRESIDENT
[LANDSCAPED]
COUNTERSIGNED AND REGISTERED
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
(CHARLOTTE, N.C.)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
(SEE REVERSE SIDE)
<PAGE>
GOLDEN BEAR GOLF INC.
THE CORPORATION WILL FURNISH TO EACH SHAREHOLDER UPON REQUEST AND WITHOUT
SHARE, A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED AND, IF THE
CORPORATION IS AUTHORIZED TO ISSUE ANY CLASS OF PREFERRED SHARES IN SERIES, THE
DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SUCH SERIES
SO FAR AS THE SAME HAVE BEEN FIXED AND THE AUTHORITY OF THE BOARD TO DESIGNATE
AND FIX THE RELATIVE RIGHTS PREFERENCES AND LIMITATIONS OF OTHER SERIES.
-----------------------
The following abbreviations when used in the inscription on the fact of
this Certificate, shall be construed as though they were written out in full
according to applicable laws of regulations.
TEN COM - AS TENANTS IN COMMON UNIF GIFT MIN ACT - ______ CUSTODIAN_______
TEN ENT - AS TENANTS BY THE (CUST) (MINOR)
ENTIRETIES UNDER UNIFORM GIFTS TO MINORS
JT TEN - AS JOINT TENANTS WITH RIGHTS ACT _________________
OF SURVIVORSHIP AND NOT AS (STATE)
TENANTS IN COMMON
ADDITIONAL abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE, OR ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------- SHARES
OF THE COMMON STOCK EVIDENCED BY THIS CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
- --------------------------------------------------------------------, ATTORNEY,
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE CORPORATION WITH FULL POWER OF
SUBSTITUTION.
DATED ___________________________________
___________________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
NOTICE: WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED:
________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSITITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15.
EXHIBIT 10.24
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as
of July ___, 1996, by and among Golden Bear Golf, Inc. (the "Company") and those
individuals and entities listed on the Signature Page hereto (the
"Shareholders").
PRELIMINARY STATEMENTS
A. The Company and the Shareholders have entered into that
certain Agreement and Plan of Reorganization, dated June 7, 1996 (the
"Reorganization Agreement"), pursuant to which, among other things, the
Shareholders have agreed to contribute their shares of capital stock in Golden
Bear Golf Centers, Inc., a Florida corporation, in exchange for shares of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common
Stock").
B. The parties anticipate that the Company will consummate
an initial public offering of the Company's Class A Common Stock (the
"Offering").
C. The Company has agreed to grant to the Shareholders
certain registration rights for their Registrable Securities (as defined below)
after the Offering.
AGREEMENT
In consideration of the preliminary recitals and the respective
mutual agreements, covenants, representations and warranties herein contained,
the parties hereto agree as set forth below.
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere
"AFFILIATE" shall have the meaning specified in Rule 144
promulgated by the Commission under the Securities Act.
"BUSINESS DAY" shall mean any day on which commercial banks are
open for business in New York, New York.
"COMMISSION" shall mean the Securities and Exchange Commission.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"PERSON" shall mean any natural person, corporation,
unincorporated organization, partnership, association, limited
<PAGE>
liability company, joint stock company, joint venture, trust or government, or
any agency or political subdivision of any government, or any other entity.
"PROSPECTUS" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.
"REGISTRABLE SECURITIES" shall mean (i) the Class A Common Stock
received by each Shareholder pursuant to the Reorganization Agreement and (ii)
any securities of the Company that may be issued or distributed with respect to,
or in exchange for such Class A Common Stock (or other Registrable Securities
that can be traced directly or indirectly to such Class A Common Stock),
pursuant to a stock dividend or distribution, stock split, combination of
shares, recapitalization, reclassification, merger, consolidation,
reorganization, conversion right or otherwise.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall
mean a registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. SHELF REGISTRATION RIGHTS. The Company will file, at any time
following the date which is one year after the date of consummation of the
Offering, upon written request of any Shareholder (a "Requesting Holder"), a
shelf registration statement (the "Shelf Registration Statement") on Form S-3
covering the Registrable Securities owned by the Requesting Holder and
thereafter shall use its best efforts to cause the Shelf Registration Statement
to be declared effective as soon as practicable following such filing and to
maintain such effectiveness for a period up to two years from the date of
consummation of the Offering; PROVIDED, HOWEVER, that the Company shall have
the right to prohibit the sale of Registrable Securities pursuant to the Shelf
Registration Statement, upon notice to the Requesting Holder (A) if in the
opinion of counsel for the Company, the Company would thereby be required to
disclose information not otherwise then required by law to be publicly
disclosed, provided
-2-
<PAGE>
that the Company shall use its best efforts to minimize the period of time in
which it shall prohibit the sale of any shares of Registrable Securities
pursuant to this clause (A), (B) for periods of up to 30 days if the Company
reasonably believes that such sale might reasonably be expected to have an
adverse effect on any significant proposal or plan of the Company to engage in
an acquisition of assets or any merger, consolidation, tender offer, financing,
corporate reorganization or similar transaction; (C) during the period starting
with the date 10 days prior to the Company's estimate of the date of filing of,
and ending on a date 90 days after the effective date of, a Company initiated
registration in which the Requesting Holder is entitled to participate in
accordance with Section 3 hereof, or such longer post-effective periods as may
be reasonably required by the underwriter or underwriters if such offering is
underwritten; or (D) upon the happening of any event, as a result of which the
Prospectus under the Shelf Registration Statement includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing (in which case, the Company shall within a
reasonable period provide the Requesting Holder with revised or supplemental
prospectuses and the Requesting Holder shall promptly take action to cease
making any offers of the Registerable Securities until receipt and distribution
of such revised or supplemental prospectuses).
3. PIGGYBACK REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. Subject to the
limitations set forth in Section 3(c), if the Company shall propose to issue
and register shares of its equity securities on its own behalf or to register
equity securities on behalf of any holder of its equity securities under the
Securities Act, the Company shall give written notice as promptly as possible
of such registration to each of the Shareholders (which notice shall include
the anticipated filing date of the Registration Statement and the number of its
equity securities proposed to be included in the Registration Statement), and
will use its best efforts to include in the offering such amount of the
Registrable Securities as any Shareholder (a "Participating Holder") shall
request to be included by written notice to the Company received within fifteen
days after receipt of the Company's notice, upon the same terms (including the
method of distribution) as the equity securities being sold by the Company or
any such holder pursuant to any such offering (a "Piggyback Registration").
(b) REQUIREMENTS OF REQUEST. Each request
delivered to the Company pursuant to Section 3(a) shall: (i) specify the amount
of Registrable Securities intended to be offered and sold by the Participating
Holder; and (ii) contain the undertaking of the Participating Holder to provide
all such information and materials and take all such action as may be
-3-
<PAGE>
required in order to permit the Company to comply with all applicable
requirements of the Commission and state securities and "blue sky" laws and to
obtain acceleration of the effective date of the Registration Statement.
(c) LIMITATIONS ON INCIDENTAL REGISTRATIONS. The
obligations of the Company to cause Registrable Securities to be registered
pursuant to this Section 3 are subject to each of the following limitations,
conditions and qualifications:
(i) The Company shall not be required to give
notice or include Registrable Securities in any registration if the proposed
registration is primarily: (A) a registration of a stock option, thrift,
employee benefit or compensation plan or of securities issued or issuable
pursuant to any such plan; (B) a registration of securities proposed to be
issued in connection with a dividend reinvestment plan or stock purchase plan;
(C) a registration of securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or consolidation with,
another corporation or other entity; (D) a registration of securities to be
offered by the Company to its then existing security holders; or (E) a
registration of securities which is a combination of any of the above.
(ii) If the Company is advised by the managing
underwriter or its investment banking firm if the offering is not underwritten,
that the inclusion of Registrable Securities may, in the opinion of such
underwriter or investment banking firm, as the case may be, materially adversely
affect the successful marketing of the securities proposed to be offered by the
Company, the number of shares of Registrable Securities to be included in the
offering shall be reduced or eliminated to the extent necessary as shall be
reasonably determined by such underwriter or investment banker, as the case may
be, in good faith; provided that as to the Participating Holders, such reduction
shall be pro rata with respect to all securities to be sold by persons other
than the Company; and, PROVIDED, FURTHER, that in such event, the Participating
Holder shall have the right to withdraw their requests to participate in the
offering.
(iii) If any Participating Holder elects not to
participate in any offering in which it had previously requested the
registration described in Section 3(a), the Participating Holder may elect to
withdraw therefrom by delivering written notice to the Company and the managing
underwriter or underwriters, if any, at least 30 days prior to the planned
effective date of such Piggyback Registration.
(iv) The Company may, in its sole discretion
and without the consent of or prior notice to any Participating Holder, withdraw
such registration statement and abandon the proposed offering in which the
Participating Holder had requested to participate at any time.
-4-
<PAGE>
4. REGISTRATION EXPENSES.
(a) Except as set forth in Sections 4(b) or (c)
hereof, all expenses incident to the Company's performance of or compliance
with this Agreement pursuant to any registration of Registrable Securities
undertaken by the Company hereunder, including, without limitation, all (i)
registration and filing fees including National Association of Securities
Dealers' fees and fees and expenses associated with filings required to be made
with a national securities exchange or national computerized market system,
(ii) fees and expenses of compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for underwriters in
connection with blue sky qualifications of the Registrable Securities covered
by the Registration Statement and determination of eligibility for investment
under the laws of such jurisdictions designated by the managing underwriter or
underwriters, if any), (iii) printing expenses (including expenses of printing
certificates for the Registrable Securities covered by the Registration
Statement in a form eligible for deposit with the Depositary Trust Company and
of printing prospectuses) and the expenses related to copying any documents or
agreements related to such registration, (iv) fees and disbursements of counsel
for the Company and of all independent certified public accountants of the
Company (including the expenses of any special audit and "cold comfort" letters
required by or incident to such performance) and of all underwriters and (v)
fees and expenses of other Persons, such as any transfer agent or registrar,
retained by the Company in connection with such registration shall be borne by
(x) the Company with respect to any Piggyback Registration and (y) the
Requesting Holder with respect to any Shelf Registration, regardless of whether
the Registration Statement becomes effective.
(b) The Company shall, under either a Piggyback or
Shelf Registration, pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
of any Person (other than legal counsel), including special experts, retained
by the Company, regardless of whether the Registration Statement becomes
effective.
(c) The Requesting Holder or Participating Holder shall
bear the following expenses in connection with any Shelf or Piggyback
Registration regardless of whether the Registration Statement becomes effective:
(i) all discounts commissions or fees of underwriters, selling brokers, dealer
managers, or similar securities industry professionals relating to the
distribution of the Registrable Securities of such holder, (ii) all legal and
accounting fees and expenses of such holder and (iii) all taxes of such holder.
-5
<PAGE>
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Requesting Holder and Participating Holder, its trustees, beneficiaries,
employees, directors and officers and each Person who controls any such
Shareholder (within the meaning of Section 15 of the Securities Act) from and
against all losses, claims, damages, liabilities, and reasonable expenses
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
Prospectus or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished to the Company in writing by such Shareholder specifically
for use therein; PROVIDED, HOWEVER, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or expense
of such Shareholder arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any such
preliminary Prospectus if (i) such Shareholder or its agents failed to deliver
a copy of the Prospectus to the Person asserting such loss, claim, damage,
liability, or expense after the Company had furnished such Shareholder with a
sufficient number of copies of the same and (ii) the Prospectus corrected such
untrue statement or omission; and, PROVIDED, FURTHER, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the Prospectus, if
such untrue statement or alleged untrue statement or omission or alleged
omission is corrected in an amendment or supplement to the Prospectus and such
Shareholder or its agent thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of the
Registrable Securities covered by a Registration Statement to the Person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such Shareholder with a sufficient number of copies thereof in a
manner and at a time sufficient to permit delivery of the same. The Company
will also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors, and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act), as then customary in connection
with similar transactions, if requested, including an exception relating to any
information furnished to the Company in writing by such underwriters, selling
brokers, dealer managers and similar securities industry professionals.
(b) INDEMNIFICATION BY SHAREHOLDERS. In connection
with each Shelf Registration and Piggyback Registration hereunder, each
Requesting Holder and Participating Holder, respectively,
-6-
<PAGE>
shall furnish to the Company in writing such information as the Company
reasonably requests for use in connection with any Registration Statement or
Prospectus, and agrees, severally but not jointly, to indemnify and hold
harmless, to the full extent permitted by law, the Company, its officers,
directors and employees and each Person who directly or indirectly controls the
company (within the meaning of Section 15 of the Securities Act), from and
against any losses, claims, damages, liabilities, and reasonable expenses
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or Prospectus
or preliminary Prospectus or necessary to make the statements therein not
misleading, to the extent but only to the extent that such untrue statement or
omission is contained in such information so furnished by such Shareholder to
the Company specifically for inclusion in such Registration Statement or
Prospectus. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement. The
amount payable by any Requesting Holder or Participating Holder with respect to
the indemnification set forth in this subsection (b) in connection with any
Shelf Registration or Piggyback Registration shall not exceed the amount of
gross proceeds received by such Requesting Holder or Participating Holder, as
the case may be, from the sale of Registrable Securities sold in the offering
made pursuant to such Shelf Registration or Piggyback Registration, as the case
may be.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person
entitled to indemnification hereunder shall: (i) give prompt written notice to
the indemnifying party of any written claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party;
PROVIDED, HOWEVER, that any Person entitled to indemnification hereunder shall
have the right to employ separate counsel and to participate in the defense of
such claim, but the fees and expenses of such counsel shall be at the expense of
such Person unless: (x) the indemnifying party has agreed in writing to pay such
fees or expenses, (y) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such Person
or (z) in the reasonable judgment of any such Person, based upon written advice
of its counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any
-7-
settlement made without its consent (but such consent will not be unreasonably
withheld). No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement of, or consent to the entry of any
judgment with respect to, any claim in respect of which indemnification or
contribution may be sought hereunder unless such settlement or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such claim and (ii) does not include a statement as to or an
admission of fault by or on behalf of the indemnified party. An indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel
(together with appropriate local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, based upon written advice of counsel, a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels.
(d) CONTRIBUTION. If for any reason the
indemnification provided for in the preceding Sections 5(a) and 5(b) is
unavailable to an indemnified party or insufficient to hold it harmless as
contemplated by the preceding Sections 5(a) and 5(b), then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party
as a result of such loss, claim, damage, or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
6. HOLDBACK AGREEMENT; PRESS RELEASES.
(a) The Shareholders agree not to effect any
public sale or distribution of Registrable Securities, including sales pursuant
to Rule 144 of the Commission promulgated under the Securities Act, during the
fourteen days prior to, and during the 90-day period beginning on, the effective
date of any registration statement filed in connection with a registration (in
which the Shareholder participates) under Section 3 of this Agreement (or such
longer periods, not to exceed 180 days, as may be requested by the underwriter
or underwriters of such offering), except as part of such registration, if and
to the extent requested by the Company in the case of a non-underwritten
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten offering.
-8-
<PAGE>
(b) Before any Requesting Holder or Participating
Holder shall disseminate or announce publicly any information concerning a
proposed offering pursuant to Section 2 or 3 hereof that is intended for or may
result in public knowledge thereof, such holder shall so advise the Company and
shall not disseminate or announce publicly such information without the
Company's consent, unless such information is otherwise publicly available or
the dissemination thereof is required by applicable law.
(c) Notwithstanding anything to the contrary
contained herein, the parties hereto agree not to exercise any registration
rights provided herein without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") until 180 days after the
date of the prospectus used in connection with the Offering.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) If any of the Registrable Securities covered by a
Registration Statement is to be used in an Underwritten Offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by the Company.
(b) No Person may participate in any Underwritten
Registration hereunder unless such Person (i) agrees to sell such Person's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements, and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements, and other documents required under the terms of such
underwriting arrangements. Nothing in this Section 7 shall be construed to
create any additional rights regarding the registration of Registrable
Securities in any Person otherwise than as set forth herein.
8. EFFECTIVENESS AND TERMINATION. The rights and obligations
under this Agreement shall become effective upon consummation of the Offering
and, except for continuing obligations pursuant to Sections 4 or 5, shall
automatically terminate with respect to each Shareholder upon the sale or other
disposition by such Shareholder of all his, her or its Registrable Securities.
9. MISCELLANEOUS.
(a) NOTICE. Any notice, demand, claim or other
communication under this Agreement shall be in writing and shall be deemed to
have been given upon the delivery, mailing or transmission thereof, as the case
may be, if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, or sent by prepaid courier, or sent by facsimile to
the parties at the addresses set forth below their names on the signature pages
of this Agreement (or at such other addresses as shall be specified by the
parties by like notice).
-9-
<PAGE>
(b) ENTIRE AGREEMENT. This Agreement contains every
obligation and understanding between the parties relating to the subject matter
hereof and merges and supersedes all prior discussions, negotiations and
agreements (both oral and written), if any, between them, and none of the
parties shall be bound by any conditions, definitions, understandings,
warranties or representations other than as expressly provided or referred to
herein.
(c) BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs, personal representatives, legal representatives, and
permitted assigns.
(d) ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned by any of the
parties hereto, except, in the case of the Company, by operation of law. This
Agreement will be binding upon, and will inure to the benefit of and be
enforceable by the parties and their permitted successors (which shall include,
in the case of an individual, such individual's estate, guardian, conservator,
committee and assigns).
(e) NO THIRD PARTY BENEFICIARY. Other than Merrill
Lynch pursuant to the provisions of Section 7(c), nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer upon or give
any person other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
(f) HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of any provisions of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
(h) GOVERNING LAW. This Agreement has been entered
into and shall be construed and enforced in accordance with the laws of the
State of Florida without reference to the choice of law principles thereof.
(i) ENFORCEMENT. Each party hereto hereby agrees that
the remedy at law for any breach of this Agreement is inadequate and that
should any dispute arise concerning the sale or disposition of any Registrable
Securities or any other matter hereunder, this Agreement shall be enforceable
in a court of equity by an injunction or a decree of specific performance. Such
-10-
<PAGE>
remedies shall, however, be cumulative and non-exclusive, and shall be in
addition to any other remedies which the parties may have.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Agreement as of the day and year first above written.
THE COMPANY
GOLDEN BEAR GOLF, INC.
By:_________________________________
Address: 1178 U.S. Highway #1
North Palm Beach, FL 33408
THE SHAREHOLDERS
By:
---------------------------------
RICHARD P. BELLINGER
Address:
By:
---------------------------------
MARK F. HESEMANN
Address:
By:
---------------------------------
THOMAS P. HISLOP
Address:
By:
---------------------------------
JACK P. BATES
Address:
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EXHIBIT 23.1
CONSENT OF COUNSEL
We hereby consent to the use of our opinion included herein and to all
references to this firm under the header "Legal Matters" in the Prospectus
constituting a part of this Registration Statement on Form S-1 of Golden Bear
Golf, Inc.
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
Miami, Florida
July 29, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports covering the balance sheet of Golden Bear Golf, Inc. as of
June 7, 1996 (dated June 7, 1996); the combined balance sheets 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
related combined statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995
(dated April 17, 1996); the balance sheets of Cool Springs, Inc. as of
October 31, 1994 and 1995 and the related statements of operations,
stockholders' equity and cash flows for the years then ended (dated June 7,
1996); the balance sheets of First Sports Capital Development Associates
Ltd., Inc. 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
(dated June 21, 1996); the balance sheets of Dallas Highlander, Ltd. 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 the
three months ended March 31, 1996 (dated July 14, 1996); the combined balance
sheets of Sugar Creek Golf Course, Inc. and Magic Castle, Inc. 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 (dated July 16, 1996); and the combined
balance sheets 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 and 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, the year ended December
31, 1995 and the three months ended March 31, 1996 (dated July 15, 1996); and
to all references to our Firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
July 29, 1996.
