SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission File Number: 0-21089
ended December 31, 1998
GOLDEN BEAR GOLF, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
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(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Class A Common Stock held by non-affiliates of the
Registrant as of March 26, 1999 was $4,204,089. The Registrant had outstanding
2,744,962 shares of Class A Common Stock (par value $.01 per share) and
2,760,000 shares of Class B Common Stock (par value $.01 per share) as of March
26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
Item 1. BUSINESS
GENERAL
Golden Bear Golf, Inc., together with its wholly owned subsidiaries
(collectively, "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,
distribution and sale of golf-related consumer products, the operation of golf
instructional schools and the licensing and franchising of golf practice and
instruction facilities. Through its various operating units, the Company
provides high quality products and services in over 40 countries, primarily
under the NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names.
The Company was formed on June 7, 1996 to enter into an exchange agreement which
was consummated on August 1, 1996 upon the closing of an initial public offering
of the Company's Class A Common Stock. Parties to the plan of reorganization
included, among others, the Company's affiliates, Golden Bear Golf Centers, Inc.
("Golf Centers"), Paragon Construction International, Inc. ("Paragon")
(collectively, the "Constituent Companies") and Golden Bear International, Inc.
("International"), a privately owned company controlled by Jack Nicklaus.
Pursuant to the exchange agreement, the Company acquired all of the outstanding
common stock of the Constituent Companies in exchange for shares of its Class A
and Class B Common Stock. In addition, the Company acquired certain assets and
assumed certain liabilities of International in exchange for shares of the
Company's Class B Common Stock. The transaction was accounted for on a
historical cost basis in a manner similar to a pooling of interests as Golden
Bear and the Constituent Companies had common stockholders and management.
Although Jack Nicklaus beneficially owns 91.7% of the total voting power of the
Company's outstanding Common Stock, the Company has no equity interest in
International.
During 1998, the Company sold Golf Centers and discontinued the construction
operations conducted by Paragon. Accordingly, the operations and financial
activity associated with such businesses have been reclassified as discontinued
operations. The Company's continuing businesses include the licensing and
franchising 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. In
addition, on December 18, 1998, the Company entered into an agreement with Weitz
Golf International LLC ("Weitz Golf"), a newly formed construction company,
pursuant to which the Company will provide marketing assistance in connection
with the construction activities offered by Weitz Golf.
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.
The Company currently licenses the Jack Nicklaus brands to more than 20
companies that distribute products in over 35 countries. The largest markets for
the Company's branded products currently are 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, eyewear, furniture, calendars, and various forms of artwork and
commemoratives.
The Company's licensing of apparel in the Far East is conducted exclusively
through Jack Nicklaus Apparel International ("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 ("JNJ")
and the rest of Asia ("JNAI/FE"). Pursuant to such arrangements, JNAI will
receive from 50% to 75% of the revenues of JNJ and approximately 66-2/3% of
amounts distributed by JNAI/FE.
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The following table sets forth the Company's principal licensees and products:
<TABLE>
<CAPTION>
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LICENSED LICENSEE
LICENSEE PRODUCTS BRANDS TERRITORIES SINCE
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<S> <C> <C> <C> <C>
Hart, Schaffner & Marx, Slacks, sportscoats, blazers, JACK NICKLAUS United States 1969
a business unit of Hartmarx woven dress shirts
Corporation
Trans-Apparel Group, Men's and women's shirts, slacks, NICKLAUS North America 1990
a business unit of Hartmarx shorts, blazers, socks, sweatshirts, Europe
Corporation outerwear, rainwear, headwear
The Rockport Corporation Casual and dress shoes, golf shoes JACK NICKLAUS Worldwide 1992
GOLDEN BEAR
Brookville Corporation Neckwear NICKLAUS United States 1995
Italian Design Group Belts and small leather goods NICKLAUS United States 1995
Great Britain
Drexel Heritage, Inc. Furniture NICKLAUS North America 1997
JNAI: Men's and ladies' sportswear JACK NICKLAUS Japan 1973
Partnership with NICKLAUS Southeast Asia
Hartmarx Corporation GOLDEN BEAR Australia
South Africa
South America
JNAI/FE: Men's and ladies' sportswear and JACK NICKLAUS Thailand 1973
Partnership between JNAI accessories NICKLAUS Indonesia
and Kosugi Sangyo to GOLDEN BEAR Korea
license Jack Nicklaus Malaysia
brands in Asia Singapore
Philippines
JNJ: Hats, ties, men's/ladies'/children's JACK NICKLAUS Japan 1995
Partnership between JNAI sportswear, gloves, belts, luggage, NICKLAUS
and Kosugi Sangyo to casual and business bags and GOLDEN BEAR
serve as master apparel eyewear MUIRFIELD
licensee in Japan
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</TABLE>
GOLF CENTERS AND ACADEMIES
The Company licenses its GOLDEN BEAR GOLF CENTERS, JACK NICKLAUS GOLF CENTERS
and JACK NICKLAUS ACADEMY OF GOLF programs to licensees which operate golf
practice and instruction facilities. These programs are designed to provide golf
practice opportunities, affordable golf instruction and related recreational
activities at such facilities. There are presently a total of 22 licensed GOLDEN
BEAR GOLF CENTERS in the United States, 21 of which are being operated by one
licensee of the Company. Internationally, the Company's licensees operate eight
facilities under the brand names JACK NICKLAUS GOLF CENTERS and JACK NICKLAUS
ACADEMY OF GOLF located in Japan, Hong Kong, England and Spain. The Company
intends to continue to support its existing licensee network and is currently
pursuing new licensees and additional territory development agreements in
locations and territories both domestically and internationally.
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DOMESTIC OPERATIONS
The 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 may 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 instruction programs designed by the internationally recognized
NICKLAUS FLICK GOLF SCHOOL and JACK NICKLAUS COACHING STUDIO (a proprietary
multimedia video and computer swing analysis system) and a clubhouse facility
that typically includes a full-line retail pro shop. The domestic golf centers
may also include other recreational amenities such as miniature golf courses and
baseball batting areas. The Company believes that its GOLDEN BEAR branding and
its instruction programs provide a competitive advantage and differentiate
GOLDEN BEAR GOLF CENTERS from other range operators.
Franchisees pay a facility franchise fee of $45,000 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 between $35,000 and $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 generally are paid, ranging between $35,000 and $50,000,
subject to increases based on the consumer price index.
As of the beginning of 1998, the Company had one unaffiliated licensee that
operated seven GOLDEN BEAR GOLF CENTERS. On July 20, 1998, the Company sold Golf
Centers, which owned and operated a total of 14 golf center facilities under the
GOLDEN BEAR GOLF CENTERS brand name, to this licensee. In connection with the
sale, the Company entered into a licensing agreement with this licensee granting
it the right to continue operating the acquired golf centers under the GOLDEN
BEAR GOLF CENTERS brand name. Accordingly, there are currently 21 licensed
GOLDEN BEAR GOLF CENTERS in the United States that are operated by one owner.
The licensing terms associated with the original seven facilities operated by
this licensee were merged into the agreement governing the 14 acquired centers,
pursuant to which the Company is entitled to receive minimum annual licensing
fees in the aggregate of $795,000 payable in equal quarterly installments, along
with certain additional incentive compensation based on the achievement of
certain defined target annual revenue levels by the licensed facilities. The
licensing agreement has a term that expires on December 31, 2008, although the
licensee may elect to terminate the agreement effective December 31, 2000.
The Company's licensees are provided exclusive licenses in specified territories
to operate GOLDEN BEAR GOLF CENTERS and are able to utilize certain of the
Company's trademarks, servicemarks and other rights relating to the operation of
their facilities. 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.
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Set forth below is a list of the Company's existing domestic licensees and the
location of the golf practice and instruction facilities operated by them.
<TABLE>
<CAPTION>
LICENSEE GROUP LOCATION OF FACILITIES
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<S> <C> <C>
Family Golf Centers, Inc. Henrietta, NY Pittsburgh, PA
Farmingdale, NY Dayton, OH
Elmsford, NY Columbus, OH
Douglaston, NY Royal Oak, MI
Liverpool, NY Plymouth, MI
Williamsville, NY College Park, MD
Tom's River, NJ Lake Park, FL
Wayne, NJ Fort Lauderdale, FL
Pittsburgh, PA Carrollton, TX
Moreno Valley, CA El Segundo, CA
Beaverton, OR
KRIM & Associates, LLC Albany, NY
</TABLE>
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 that 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 generally has granted
its foreign licensees an exclusive radius around the site of each facility. The
Company's foreign licensees currently have eight operating facilities.
MARKETING
The Company also has developed two types of "marketing partnerships" with
selected companies worldwide. These partnerships involve either Mr. Nicklaus'
personal endorsement and use of his likeness or strategic marketing alliances
that utilize golf and the Company's marketing access to high-end golf consumers
to help market a partner's products or services. Such marketing partnerships
involving Nicklaus' personal endorsement have been established with, among
others, Lincoln-Mercury, a division of Ford Motor Company, Gulfstream Aerospace
Corporation, Textron, Golf Magazine and Griptec. Such partnerships are important
to the Company in that they increase the exposure and reinforce the image of Mr.
Nicklaus in the Company's target markets.
The Company receives 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 contract or arrangement
existing as of the reorganization of the Company on August 1, 1996 or any
renewal thereof and (ii) no less than 20% of all such revenues received under
any new contract or arrangement. The Company receives 100% of any revenues
associated with strategic marketing alliances. Such marketing alliances have
been established with companies such as VISA, Pepsi, Citigroup, American
Airlines and CBS Sportsline.
The Company's marketing and licensing strategy is to (i) expand the worldwide
sales of the Company's products; (ii) selectively expand its licensed product
lines; (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.
5
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NICKLAUS FLICK GOLF SCHOOLS
The Company operates 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 that has been recognized by major
golf publications for its leadership role in the golf instruction industry since
the school's inception in 1991. 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
developed a proprietary teaching methodology that includes 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 as well as teaching at the NFGS.
The NFGS offers more than 130 golf instruction programs including several
specialty programs targeted at women, corporations and special alumni groups.
NFGS currently operates as an independent contractor at three resort clubs
located in the United States, comprised of the Desert Mountain Golf Club located
in Carefree, Arizona, the Boca Raton Resort and Club in Boca Raton, Florida and
the Lake Las Vegas Resort in Las Vegas, Nevada. The Company currently is
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 started a moderately priced golf school program under the
NICKLAUS FLICK FAULTS & CURES brand name in 1997 and commenced operation of a
premium priced school exclusively for women under the GOLF FOR WOMEN MAGAZINE
brand name in 1998. The Company currently markets retail schools principally
through: (i) direct response media advertising; (ii) direct mail programs
targeted at NFGS graduates and high net worth golfers; (iii) word-of-mouth
referrals; and (iv) telemarketing.
The NFGS teaching faculty currently is comprised of 30 teaching professionals
selected by Jim Flick, five of whom were included in GOLF MAGAZINE'S list of the
top 100 golf instructors in the United States in 1998. 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 contractors and their agreements with NFGS are negotiated
annually.
In addition to its regular one, two and three-day consumer packages, NFGS
provides businesses and corporations 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 NICKLAUS FLICK 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.
OTHER OPERATIONS
WEITZ GOLF INTERNATIONAL
On December 18, 1998, the Company entered into an agreement with Weitz Golf, a
construction company focused on building golf courses and clubhouses nationally
and internationally. Under the terms of the agreement, Golden Bear,
International and Jack Nicklaus will provide certain technical and marketing
assistance in connection with the construction services offered by Weitz Golf,
which offers general contracting, design-build and construction management. The
principal markets targeted for these services are developers and designers in
the golf industry. Under the agreement, Golden Bear is entitled to receive fees
based upon the profitability of Weitz Golf's operations and agreed to no longer
offer construction services directly during the term of the agreement. There
were no significant operations of Weitz Golf during 1998.
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JACK NICKLAUS INTERNATIONAL GOLF CLUB
The Jack Nicklaus International Golf Club ("Golf Club") was founded in 1995 to
provide additional benefits to members of Nicklaus designed golf courses. The
Golf Club is a proprietary membership club that offers its members an
opportunity to obtain a variety of member services, including golf playing
privileges at prestigious private clubs worldwide that feature a Nicklaus
designed golf course. Membership in the Golf Club is restricted to members of
the golf clubs that agree to participate in the program ("Host Clubs"). There
currently are approximately 95 Host Clubs. Members enjoy reciprocal playing and
guest privileges at each of the Host Clubs. The current membership fee is $295
per year. There is no membership fee to the participating Host Clubs and each
Host Club is permitted to impose a direct charge for golf playing privileges
extended to Golf Club members.
TICKETMASTER GOLF
During 1997, the Company was a participant in creating Ticketmaster Golf, a
joint venture established to offer golfers advance ticketing for specific tee
times at golf courses in the United States. Under the terms of the joint venture
agreement, Golden Bear provided capital in the aggregate of $450,000 and certain
marketing services to the enterprise and participated in the operating results
of the joint venture. Effective December 31, 1998, the Company terminated its
participation in Ticketmaster Golf and the joint venture was dissolved.
DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS, INC.
On July 20, 1998, the Company sold all of the issued and outstanding stock of
its Golf Centers subsidiary to one unaffiliated licensee for cash consideration
of approximately $21.5 million resulting in a gain of approximately $1 million.
Prior to the closing of the sale, Golf Centers distributed certain assets and
liabilities to the Company. All of the financial activities associated with the
operations that were sold have been classified as discontinued operations.
Through its Golf Centers subsidiary, the Company had been engaged in the
acquisition, ownership and operation of golf practice and instruction
facilities. As of the date of the sale, Golf Centers owned and operated a total
of 14 golf center facilities under the GOLDEN BEAR GOLF CENTER brand name. In
connection with the sale, the Company entered into a licensing agreement with
this licensee granting it the right to continue operating the acquired golf
centers under the GOLDEN BEAR GOLF CENTER brand name. The licensing terms
associated with seven facilities operated by this licensee prior to the
acquisition of Golf Centers were merged into the agreement governing the 14
acquired centers, pursuant to which the Company is entitled to receive minimum
annual licensing fees in the aggregate of $795,000 payable in equal quarterly
installments, along with certain additional incentive compensation based on the
achievement of certain defined target annual revenue levels by the licensed
facilities. The licensing agreement has a term that expires on December 31,
2008, although the licensee may elect to terminate the agreement effective
December 31, 2000.
PARAGON CONSTRUCTION INTERNATIONAL, INC.
On October 26, 1998, Golden Bear's Board of Directors approved the
discontinuance of the construction operations conducted by Paragon.
Substantially all such projects have been completed and the Company is no longer
actively involved in pursuing construction projects independent of its agreement
with Weitz Golf. The operations and financial activity associated with Paragon
have been classified as discontinued operations.
Paragon had been involved in providing comprehensive golf course and other
resort-related construction services, including project management, shaping,
renovation and golf course construction. In addition to construction projects
located within the United States, Paragon's operations included projects in
numerous countries abroad as well.
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COMPETITION
The Company's competition varies among its business lines. The consumer markets
for goods and services in which Golden Bear's marketing and licensing operations
compete 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 that have not
established a distinct brand identity. Competition in these products and
services is primarily centered 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 December 31, 1998, the Company had approximately 44 employees. 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 good.
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. The Company has obtained the exclusive royalty-free rights to utilize
and license the major trademarks and service marks that have been previously
developed under common law, including marks previously registered in the United
States and various foreign countries in which products or services currently are
sold by the Company and its licensees. Subject to the approval of International,
the Company also has the right to obtain the registration of additional
trademarks and service marks for the future expansion of its businesses. The
Company also has the rights to utilize certain customer lists, trade secrets,
know-how, and certain copyrighted materials necessary or useful in the conduct
of its business, including certain intellectual property.
GOVERNMENTAL REGULATION
The Company's former golf centers operations and its golf course construction
activities 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 and has been in substantial
compliance with all such laws, ordinances and regulations applicable to these
operations, there may be environmental liabilities or conditions associated with
such activities of which the Company is not aware. Accordingly, there can be no
assurance that future compliance with such requirements will not have a material
adverse effect on the Company's financial condition.
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The Company is also subject to the Federal Occupancy Safety and Health Act and
other laws and regulations affecting the safety and health of employees.
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. The Company is also
subject to foreign immigration, labor, safety and environmental laws in those
jurisdictions where it performs services.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located in
North Palm Beach, Florida in approximately 11,000 square feet of space leased
under an agreement with a term that expires in 2007. The Company considers its
executive and administrative offices to be adequate and suitable for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
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 related amounts due, together with additional damages,
totaling approximately $350,000. Simultaneous to this claim of arbitration, the
customer filed a counterclaim of arbitration against Paragon for alleged
construction defects in the renovation of its golf course. Although the customer
now claims its damages are in excess of $3.0 million, the initial claim
submitted by the customer in arbitration was for $750,000. The ultimate outcome
of this matter is not determinable at this time. Accordingly, no provision for
loss regarding this matter had been established at December 31, 1998. The
ultimate disposition of this matter is not expected to have a material effect on
the Company's financial position or results of operations.
Based on a comprehensive review conducted by the Company of its Paragon
subsidiary's construction projects, it was necessary for the Company to restate
certain financial statements it had previously filed with the Securities and
Exchange Commission. As a result of the restatement of the Company's financial
statements, numerous purported class action lawsuits have been filed against the
Company and certain current and former officers and directors of the Company,
asserting various claims under the federal securities laws. On July 28, 1998,
individuals purporting to be shareholders of the Company filed a class action
lawsuit in the United States District Court for the Southern District of Florida
against the Company and certain of the Company's present and former officers and
directors.
Since the filing of this matter, nine additional lawsuits have been filed
against the Company and certain of its present and former officers and
directors. Eight of these lawsuits were filed in the United States District
Court for the Southern District of Florida and one was filed in the United
States District Court for the Eastern District of New York, though the court in
New York has entered an order transferring this action to the Southern District
of Florida. The District Court in Florida entered an order consolidating all of
the actions originally filed in the Southern District of Florida and all similar
actions which are transferred to or subsequently filed in the Southern District
of Florida and directed the plaintiffs to file a consolidated complaint.
On December 24, 1998, plaintiffs filed their First Consolidated Class Action
Complaint ("Consolidated Complaint") on behalf of themselves and all others who
purchased common stock of the Company from April 30, 1997 through July 27, 1998,
with the exception of the defendants and certain related or affiliated persons
or entities. The defendants named in the Consolidated Complaint are Golden Bear
Golf, Inc., Jack W. Nicklaus, Richard P. Bellinger, Jack P. Bates, Stephen S.
Winslett, John Boyd and Arthur Andersen LLP. The Consolidated Complaint alleges
that during the purported class period, the defendants violated Section 10(b)
and Rule 10b-5 promulgated thereunder and Section 20(a) of the Securities
Exchange Act of 1934 by making misrepresentations or omissions of material fact
in publicly filed documents and in other alleged public statements relating to
the Company's financial condition and that of its wholly-owned subsidiary,
Paragon Construction International, Inc. The plaintiffs are seeking an
unspecified amount of damages, interest, costs and attorneys' fees.
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The Company intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicated. Any of such lawsuits, if
determined adversely to the Company, could have a material adverse effect on the
Company's financial position and results of operations. The Company's ultimate
liability with respect to any of the foregoing proceedings is not presently
determinable.
The Securities and Exchange Commission has also advised the Company that it is
conducting a private investigation to determine whether the Company or certain
of its current or former officers, directors and employees have engaged in
conduct in violation of certain provisions of the Exchange Act and the rules and
regulations thereunder. The Company believes that such investigation is focused
principally on the recognition of additional costs and losses associated with
the review of Paragon construction projects and the Company's public statements
and accounting systems with respect thereto. The Company is cooperating in such
investigation.
The Company is also a party to various other legal proceedings which have arisen
in the ordinary course of its business. While the ultimate outcome of these
matters cannot be predicated with certainty, the Company does not believe that
any losses resulting from such other legal proceedings will have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company during
the fourth quarter of the fiscal year ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock, which was issued to the public in its
initial public offering on August 1, 1996, was traded on the NASDAQ Stock Market
under the symbol "JACK" until July 28, 1998, at which time the NASD suspended
trading of the Company's stock. Effective on August 18, 1998, the NASD delisted
the Company's stock from trading on the NASDAQ. The Company's Class A Common
Stock resumed trading on the over-the-counter bulletin board effective on August
20, 1998. The following table sets forth, for the periods indicated, the high
and low closing prices per share of the Class A Common Stock as reported by
NASDAQ.
1998 1997
---------------------- ----------------------
HIGH LOW HIGH LOW
-------- ------- -------- ----------
First Quarter $ 10-1/8 $ 6-1/4 $ 15-1/2 $ 11-1/4
Second Quarter 9-1/2 5 13 9-3/4
Third Quarter 5-3/8 0-3/4 14-3/4 9-1/2
Fourth Quarter 1-1/4 0-3/8 13-7/8 8
As of March 26, 1999, there were 2,744,962 shares of the Company's Class A
Common Stock outstanding and approximately 590 registered shareholders of
record.
The Company's Class B Common Stock is not publicly traded. All of the
outstanding shares of the Class B Common Stock are beneficially owned by members
of the Nicklaus family, which includes: (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 and their respective guardians, conservators, committees or
attorneys-in-fact; (iii) each entity controlled by such family members; and (iv)
the trustee, in their respective capacities, as such, of each trust established
for the benefit of such family members (collectively, such family members herein
defined as "Nicklaus Family Members"). See Note 6 to the Consolidated Financial
Statements included at Item 8 of this Form 10-K.
No cash dividends have been declared on the Company's Class A Common Stock and
Class B Common Stock since the initial public offering on August 1, 1996.
Moreover, the Company currently intends to retain any earnings to finance the
development and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below was derived from the respective
year's audited financial statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included at Item 7 herein, together with the Consolidated Financial
Statements, including the Notes thereto, included at Item 8 herein. During 1998,
the Company sold Golf Centers and discontinued the construction operations
conducted by Paragon. Accordingly, the operations and financial activity
associated with such businesses have been reclassified as discontinued
operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenues $ 11,385 $ 12,873 $ 10,792 $ 9,604 $ 8,381
-------- -------- -------- -------- --------
Operating costs and expenses:
Operating expenses 7,722 7,691 6,458 6,366 5,454
Compensation recorded on sale of shares
to management(1) -- -- 3,000 -- --
Corporate administration 3,394 3,458 2,598 2,486 2,495
Depreciation and amortization 319 417 221 134 143
-------- -------- -------- -------- --------
Total operating costs and expenses 11,435 11,566 12,277 8,986 8,092
-------- -------- -------- -------- --------
Operating income (loss) (50) 1,307 (1,485) 618 289
Other income (expense) (595) (194) 188 (1) (10)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes (645) 1,113 (1,297) 617 279
Provision for income taxes 191 57 81 -- --
-------- -------- -------- -------- --------
Income (loss) from continuing operations (836) 1,056 (1,378) 617 279
Gain on sale of business segment 969 -- -- -- --
Income (loss) from discontinued
operations, net (30,585) (25,755) (1,053) 617 (1,145)
-------- -------- -------- -------- --------
Net income (loss) $(30,452) $(24,699) $ (2,431) $ 1,234 $ (866)
======== ======== ======== ======== ========
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ (0.15) $ 0.19 $ (0.34) $ 0.21 $ 0.09
Income (loss) from discontinued
operations, net (5.38) (4.68) (0.26) 0.20 (0.38)
-------- -------- -------- -------- --------
Net income (loss) per share $ (5.53) $ (4.49) $ (0.60) $ 0.41 $ (0.29)
======== ======== ======== ======== ========
Pro forma earnings per share - basic
and diluted(2):
Income (loss) from continuing operations $ (0.31) $ 0.26 $ 0.35
Income (loss) from discontinued
operations, net (0.26) 0.20 (0.38)
-------- -------- --------
Net income (loss) per share $ (0.57) $ 0.46 $ (0.03)
======== ======== ========
Weighted average common shares outstanding 5,505 5,505 4,040 3,000 3,000
======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1998(3) 1997(3) 1996(4) 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT YEAR-END): (DOLLARS IN THOUSANDS)
Working capital (deficit) $(17,105) $(12,442) $ 20,593 $ 368 $ (462)
Total assets 5,884 28,898 39,829 2,681 1,874
Long-term debt 2,606 256 -- -- --
Shareholders' equity (deficit) (16,890) 13,561 38,254 1,030 256
</TABLE>
(1) Represents compensation deemed to have been received by certain executives
in connection with their purchase of shares in Golf Centers. See Note 13 to
the Consolidated Financial Statements included at Item 8 herein.
(2) Pro forma earnings per share assumes pro forma income tax benefits of
$127,000, $135,000 and $764,000 included for the years ended December 31,
1996, 1995 and 1994, respectively, to show the effects on the Company's
operations as if the relevant entities comprising the Company had been C
Corporations for income tax purposes for all of the years presented. See
Note 1 to the Consolidated Financial Statements included at Item 8 herein.
(3) See discussion regarding liquidity and shareholders' deficit at Note 7 to
the Consolidated Financial Statements included at Item 8 herein.
(4) The significant increases in the respective balance sheet data amounts for
1996 are primarily attributable to the Company's initial public offering of
2.484 million shares of its Class A Common Stock on August 1, 1996.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1998, 1997 and 1996.
This discussion and analysis should be read in conjunction with the Selected
Financial Data and the accompanying audited Consolidated Financial Statements of
the Company and the related Notes thereto which are included elsewhere in this
10-K.
OVERVIEW
The Company sold the stock of its wholly-owned Golf Centers subsidiary on July
20, 1998 and formally approved the discontinuance of the construction operations
conducted by its Paragon subsidiary on October 26, 1998. Accordingly, the
operations and financial activity associated with such businesses have been
reclassified as discontinued operations. With the disposition of such
operations, the Company is now fully focused on its core businesses, which
include the licensing and franchising of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR
branded products throughout the world, the operation of the NICKLAUS FLICK GOLF
SCHOOLS and managing the personal endorsement services provided by Jack
Nicklaus. In addition, the Company also anticipates continued involvement in
golf course construction through an agreement it entered into on December 18,
1998 with Weitz Golf International LLC ("Weitz Golf"), a newly formed
construction company focused on building golf courses and clubhouses nationally
and internationally. Under the terms of the agreement, the Company,
International and Jack Nickluas will provide certain technical and marketing
assistance in connection with the construction services offered by Weitz Golf,
which include general contracting, design-build and construction management. The
principal markets targeted for these services are developers and designers in
the golf industry. Pursuant to the terms of the agreement, Golden Bear is
entitled to receive fees based on the profitability of Weitz Golf's operations
and Golden Bear will not offer construction services directly during the term of
the agreement. There were no significant operations of Weitz Golf during 1998.
In connection with the departure of certain members of Paragon's senior
management during 1998, the Company conducted a comprehensive review of
Paragon's construction projects, focusing on the status of the projects, the
costs required to fully complete the jobs and the anticipated profitability or
losses of such projects. Attention was also directed toward determining contract
requirements, including known and unknown amendments and change orders, and the
related estimated costs of fulfilling those requirements. In the review, the
Company found evidence that former management of Paragon falsified records,
misrepresented the status of construction projects and made false statements
about Paragon's revenues, costs and profits to the Company's executive
management and Board of Directors.
Based on the results of the review, the Company recognized additional costs and
losses incurred on certain construction projects, resulting in the restatement
of the Company's financial statements included in its Annual Report on Form 10-K
for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for
the three months ended March 31, 1998, as previously filed with the Securities
and Exchange Commission.
As a result of the foregoing review and restatement of the Company's financial
statements, numerous purported class action lawsuits have been filed against the
Company and certain current and former officers and directors of the Company,
asserting various claims under the federal securities laws. While it is not
feasible to predict or determine the outcome of these proceedings or to estimate
the amounts or potential range of loss with respect to these matters, management
believes that an adverse outcome with respect to such proceedings could have a
material adverse impact on the Company's financial position and results of
operations. See Note 12 to the Consolidated Financial Statements.
Additionally, the Securities and Exchange Commission ("SEC") has advised the
Company that it is conducting a private investigation to determine whether the
Company or certain of its current or former officers, directors and employees
have engaged in conduct in violation of certain provisions of the Securities
Exchange Act of 1934 and the rules and regulations thereunder. The Company
believes that such investigation is focused principally on the recognition of
additional costs and losses associated with the review of Paragon construction
projects and the Company's public statements and accounting systems with respect
thereto. The Company is cooperating in such investigation.
14
<PAGE>
DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS, INC.
On July 20, 1998, the Company sold all of the issued and outstanding stock of
its Golf Centers subsidiary to an unrelated party for cash consideration of
approximately $21.5 million. Through its Golf Centers subsidiary, the Company
had been engaged in the acquisition, ownership and operation of golf practice
and instruction facilities. As of the date of the sale, Golf Centers owned and
operated a total of 14 golf center facilities under the GOLDEN BEAR GOLF CENTER
brand name.
In connection with the sale, the Company entered into a licensing agreement with
the purchaser granting such purchaser the right to continue operating the
acquired golf centers under the GOLDEN BEAR GOLF CENTER brand name. The Company
retained its licensing and franchising rights with respect to being able to
offer franchise opportunities to outside parties for the operation of golf
instruction and practice facilities. In this regard, Golf Centers distributed
certain of its assets and liabilities to the Company prior to the closing of the
sale. All of the financial activities associated with the operations that were
sold have been classified as discontinued operations.
PARAGON CONSTRUCTION INTERNATIONAL, INC.
On October 26, 1998, the Company's Board of Directors approved the
discontinuance of the Company's golf course construction operations conducted by
its Paragon subsidiary. Substantially all such projects have been completed and
the Company is no longer actively involved in pursuing construction projects
independent of its agreement with Weitz Golf. Paragon had been involved in
providing comprehensive golf course and other resort-related construction
services, including project management, shaping, renovation and golf course
construction. In addition to construction projects located within the United
States, Paragon's operations had included projects in numerous countries abroad
as well. The financial activities associated with Paragon have been classified
as discontinued operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Total revenues were $11.4 million during the year ended December 31, 1998,
compared to $12.9 million for the comparable period of 1997. The $1.5 million
decrease in total revenues during the current year was attributable to
reductions in revenue from related party commissions, licensing activities and
the income from the operations of JNAI, offset in part by increased revenues
from the Company's golf instruction operations. The Company received $1.3
million in related party commissions during 1997 under a design services
marketing agreement with International that was terminated effective January 1,
1998. The costs and expenses associated with providing the marketing services
required under the agreement were also terminated.
Licensing and other revenues decreased by $1.0 million during 1998, due
primarily to the Company's foreign operations in the Far East and other
geographical areas that experienced volatile markets and downturns in their
general economic conditions that unfavorably impacted the retail sales and
operations of Company's customers in those regions. Income from the operations
of the Company's JNAI joint venture decreased by $0.4 million during the current
year due to the volatility and downturn in general economic conditions in the
Far East, where the majority of JNAI's customers are located. Revenues
attributable to the Company's golf instruction operations increased by $1.2
million during the year ended December 31, 1998, due primarily to expansion of
its executive golf program which targets the high-end corporate outing type
functions, along with a new source of revenues from a premium priced program
offered exclusively to women, which was introduced during 1998.
15
<PAGE>
The Company incurred a net operating loss of approximately $50,000 during the
year ended December 31, 1998, compared to generating operating income of $1.3
million during the prior year. The $1.4 million decrease in operating income for
the current year was primarily attributable to a reduction in revenues which was
not offset by a commensurate decrease in operating expenses. Operating expenses
were $7.7 million for fiscal 1998 and 1997, and as a percentage of total
revenues, such expenses were 67.8% and 59.7% during the years ended December 31,
1998 and 1997, respectively. Contributing to the increase in operating expenses
as a percentage of total revenues were increased levels of costs incurred during
the current year associated with the provision for bad debts, advertising costs
and commissions incurred in connection with the expansion of the golf
instruction operations and certain other promotional activities.
Corporate administration expenses, which are comprised primarily of
personnel-related costs, were $3.4 million and $3.5 million for the years ended
December 31, 1998 and 1997, respectively. Although the Company effected a
reduction in its ongoing overhead costs in connection with the sale of Golf
Centers and discontinuance of the construction operations of Paragon, such
reductions were offset by increased costs incurred for legal and professional
fees in connection with the shareholder claims that have been asserted against
the Company and the SEC investigation. Charges for depreciation and amortization
expense were approximately $0.3 million and $0.4 million for fiscal 1998 and
1997, respectively.
Interest income during the year ended December 31, 1998 was not material to the
Company's results of operations. Interest income of $0.1 million for the
comparable period of the prior year was comprised primarily of earnings on the
unexpended proceeds from the Company's initial public offering which were
invested in short-term commercial paper instruments and repurchase agreements.
Interest expense for fiscal 1998 increased to $0.4 million compared to $0.1
million for fiscal 1997, due primarily to increased levels of indebtedness
outstanding under the Company's revolving credit facility and short-term credit
facility during the current year. Other expenses of $0.2 million for the years
ended December 31, 1998 and 1997 were comprised primarily of the losses
associated with a joint venture arrangement in which the Company had invested
capital and participated in the operating results of such venture.
Although the Company has sufficient net operating loss carryforwards and other
tax benefits to absorb substantially all of the Company's Federal income tax
liabilities, certain of its operations are subject to state and foreign income
taxes. The provision for income taxes of $0.2 million and $0.1 million for the
years ended December 31, 1998 and 1997, respectively, are comprised of amounts
incurred with respect to state and foreign income taxes.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues were $12.9 million for the year ended December 31, 1997,
reflecting an increase of $2.1 million or 19.3% from the $10.8 million recorded
for the comparable period of 1996. The increase in total revenues was
attributable to a $1.3 million increase in revenues derived from golf
instruction activities along with a $1.2 million increase in licensing and other
revenues, offset in part, by a $0.4 million decrease in the income attributable
to the operations of the Company's JNAI joint venture. The increase in golf
instructions revenues was principally the result of expanding the types of
instructional programs offered by the Company to include moderately priced
schools in addition to its existing programs targeted at the upper end of the
golf schools market. The increase in licensing revenues was primarily
attributable to revenues associated with a strategic marketing alliance that the
Company entered into with VISA USA, Inc. during 1997. Income from the operations
of JNAI decreased during 1997 due primarily to the downturn during the year in
the general economic conditions of the Far East, where the majority of JNAI's
customers are located. Revenues attributable to related party commissions and
fees remained relatively flat at approximately $1.9 million for the years ended
December 31, 1997 and 1996.
The Company's ongoing operations generated operating income of $1.3 million for
the year ended December 31, 1997, compared to an operating loss of $1.5 million
during the prior year. The operating loss incurred for the year ended December
31, 1996 included a one-time, non-cash charge of $3.0 million representing
compensation deemed to have been received by certain executive officers in
connection with their purchase of shares in Golf Centers prior to the Company's
initial public offering. Exclusive of the effects of the $3.0 million charge,
operating income decreased by approximately $0.2 million during 1997.
16
<PAGE>
Operating expenses as a percentage of total revenues were 59.7% and 59.8% for
the years ended December 31, 1997 and 1996, respectively. Corporate
administration expenses, which are comprised primarily of personnel-related
costs, increased to $3.5 million for the year ended December 31, 1997 from $2.6
million for the year ended December 31, 1996. The increase in corporate
administration expenses was attributable to additions of personnel and systems
upgrades, together with the increased costs associated with the expansion of the
Company's operations and operating the Company as a separate public company.
Charges to depreciation and amortization expense increased to $0.4 million
during the year ended December 31, 1997 from $0.2 million for the comparable
period of 1996, due primarily to the increase in computer equipment and
leasehold improvements that were incurred to accommodate the increased number of
personnel employed by the Company.
Interest income, which decreased to approximately $0.1 million during fiscal
1997 from $0.2 million for fiscal 1996, was comprised primarily of earnings on
the unexpended proceeds from the Company's initial public offering which were
invested in short-term commercial paper instruments and repurchase agreements.
The Company incurred interest expense of $0.1 million during the year ended
December 31, 1997, comprised primarily of the charges associated with borrowings
outstanding under a revolving line of credit during the fourth quarter of such
year, and certain capital lease obligations that were incurred in connection
with the acquisition of telephone equipment and office furniture and fixtures.
The Company did not have indebtedness outstanding during 1996, and accordingly,
did not incur interest expense during such year. Other expense of $0.2 million
during the year ended December 31, 1997 was comprised primarily of the losses
associated with a joint venture arrangement in which the Company had invested
capital and participated in the operating results of such venture.
Although the Company has sufficient net operating loss carryforwards and other
tax benefits to absorb substantially all of the Company's Federal income tax
liabilities, certain of its operations are subject to state and foreign taxes.
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, the various entities that comprised its operations were S
Corporations and therefore not subject to United States Federal and state income
taxes. Prior to the reorganization, such entities generally paid only foreign
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998 and 1997, the Company had a working capital deficit of
$17.1 million and $12.4 million, respectively, including cash and cash
equivalents of $1.2 million and $0.7 million, respectively.
During 1998, certain of the Company's working capital requirements were financed
by borrowings under a $10 million revolving credit facility and an additional
short-term $5 million credit facility with a financial institution. Borrowings
under such facilities were secured by Company assets excluding various golf
center properties and certain other assets pledged to secure other long-term
indebtedness. During July 1998, all amounts outstanding under the revolving and
short-term credit facilities were repaid in full using the proceeds from the
sale of the Company's Golf Centers subsidiary, and the credit facilities were
terminated. See Note 5 to the Consolidated Financial Statements.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Primarily as a result of losses
and costs incurred by the Company's Paragon subsidiary, the Company has incurred
operating losses which have resulted in a shareholders' deficit of approximately
$16.9 million and a working capital deficiency of approximately $17.1 million at
December 31, 1998. In addition, the Company incurred a net loss of approximately
$30.5 million and $24.7 million for the years ended December 31, 1998 and 1997,
respectively, attributable primarily to Paragon. Management's plans in regard to
these matters include discontinuing the Company's construction operations and
reducing on-going expenses. In this regard, the Company has formally approved
the discontinuance of the construction activities conducted by its Paragon
subsidiary and is in the process of winding down such operations. The Company is
negotiating with certain project owners, as well as construction vendors and
subcontractors to expedite the completion of the remaining projects and to
minimize the costs associated with such completion.
17
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern and future working capital requirements are dependent on the Company's
ability to successfully complete such negotiations involving Paragon and on its
ability to achieve and maintain profitable operations in the future. Management
of the Company believes that such objectives are attainable. However, there is
no assurance that the Company will be successful in realizing these objectives,
or that the Company will generate sufficient cash flow from operations to meet
its future working capital requirements. To the extent that capital requirements
exceed available capital, the Company will be required to seek alternative
sources of financing to fund its operations. The Company has no existing credit
facility and there is no assurance that alternative financing will be available,
if at all, on satisfactory terms. If the Company is unable to obtain
satisfactory alternative financing, the Company may be required to delay or
reduce its future expenditures, sell additional assets to meet its obligations,
seek to renegotiate the terms of its obligations or curtail its operations.
There can be no assurance that any source of funds or other actions taken by the
Company will provide sufficient capital so as to enable the Company to remain a
going concern.
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 could impact the Company's results of operations. A
substantial portion of the revenues of the Company's overseas licensees are
generated in foreign currencies and accordingly, fluctuations in the value of
these currencies relative to the United States dollar could adversely affect the
Company's profitability. Royalty payments received by the Company or by its JNAI
equity investee relating to foreign licensing arrangements are converted to U.S.
dollars based on the exchange rate at the time of payment.
The Company's JNAI joint venture has entered into futures contracts during 1998
and 1997 to hedge its anticipated receipt of a portion of the royalty payments
denominated in Japanese yen. Apart from these futures contracts on the part of
JNAI which were not material to the Company's results of operations, the Company
does not currently engage in hedging activities with respect to currency
fluctuations, but may do so in the future.
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 such rates have had a
material effect on the Company's revenues or profitability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. SFAS No. 131 establishes standards for the
reporting of operating segment information in both annual financial reports and
interim financial reports issued to shareholders. Operating segments are
components of an entity for which separate financial information is available
and is evaluated regularly by the entity's chief operating management.
Both statements were adopted in fiscal 1998.
18
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires than an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value depends on the intended
use of the derivative and the resulting designation. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not believe that the adoption of SFAS No. 133 will have a material
effect on its financial position or results of operations.
YEAR 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to properly treat the Year 2000 issue may cause systems to
process critical financial and operational information incorrectly.
The Company has conducted an assessment of its state of readiness with respect
to the Year 2000 issue. The Company has evaluated all of its computing hardware,
software, and other equipment containing embedded devices, including non
information-technology ("IT") systems. The Company operates in a networked
computing environment, using software and network devices that are generally
current versions of standard applications that require only limited or no
modifications. To the extent that shortfalls in compliance were identified as
part of its evaluation, the Company replaced, updated or modified the affected
hardware or software to remediate the date related problems.
The assessment of the Company's internal systems for compliance with the Year
2000 issue has been completed and such systems have also been tested to ensure
correct date processing, before, during, and after January 1, 2000. All
computing hardware has been tested using a third party certification program and
also has been manually tested by date advancement. Non-conforming models have
been replaced with conforming models. Software has been upgraded to vendor
certified versions and additional testing, via date advancement, has been
performed on critical applications as well as other applications deemed to be
date sensitive. The Company's non-IT equipment containing embedded devices, such
as telephones, voice-mail equipment, fax machines and other related office
equipment, has been vendor certified as Year 2000 compliant, and with respect to
certain equipment, additional testing was performed using date advancement.
Accordingly, the Company has completed the evaluation of its internal computer
systems along with its non-IT equipment, and has determined that such systems
are Year 2000 compliant and that no additional material modifications were
necessary.
The costs incurred by the Company in connection with its remediation efforts to
address the Year 2000 issue have not been material to the Company's financial
position or results of operations. Hardware replacements were made using surplus
inventory and did not require the purchase of new computer systems. For the most
part, software modifications were made using compliant upgrades provided without
cost by the respective vendors or by using upgrades provided under existing
software maintenance agreements, and did not require the purchase of significant
new software.
The Company is also monitoring the adequacy of the manner in which third
parties, including customers, suppliers and service providers to the Company,
are attempting to address the Year 2000 issue. Based on the assessment performed
to date, the costs of addressing potential problems are not currently expected
to have a material impact on the Company's financial position, results of
operations or cash flows in future periods. While the Company believes its
internal conversion efforts and those of its external customers, suppliers and
service providers are designed to be successful, because of the complexity of
the Year 2000 issue, and the interdependence of organizations using computer
systems, it is possible that the Company's efforts or those of third parties
with whom the Company interacts, will not be successful or satisfactorily
completed in a timely fashion.
19
<PAGE>
Although the Company believes that the Year 2000 issue will not pose significant
operational problems, certain potential risks have been identified at this time.
Certain of the Company's customers, particularly those that are located abroad
or have significant operations outside of the United States may not be or may
not become Year 2000 compliant in a timely manner. The risk posed by such
customers is a decrease or delay in their remittances of fees and various other
revenues to the Company. With respect to the Company, a reasonably likely worst
case Year 2000 scenario would involve certain of the Company's customers,
including customers with significant operations outside of the United States. To
the extent that markets and the general economic conditions become disrupted or
volatile due to problems attributable to the Year 2000 issue, and unfavorably
impact the Company's customers, such events could have an adverse effect on the
Company's operations. Reasonably likely problems resulting from such events
would include reduced revenues from customers and delays in the receipt of
revenues and distributions. Such factors could negatively impact the financial
position, operating results and cash flows of the Company. In addition to the
foregoing reasonably worst case scenario, Year 2000 issues could have an impact
on the Company's operations and its financial results if unforeseen needs or
problems arise or if systems operated by third parties are not, or do not,
become Year 2000 compliant in a timely manner.
Based on the modifications and conversions of the Company's hardware, software
and non-IT embedded devices made to date, the Company does not believe that
contingency planning with respect to its internal systems is warranted at this
time. The Company will continue to monitor developments with respect to its
applicable external third parties, which may reveal the need for contingency
planning at a later date. The Company will continue to regularly evaluate the
need for contingency planning based on new information and developments in this
regard.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-K contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, those risks associated with economic conditions generally
and the economy in those areas where the Company has assets and operations,
including Asia and Japan; competitive and other factors affecting the Company's
operations, markets, products and services; those risks associated with the
licensing and franchising of golf centers, including the renewals of such
licensing and franchising agreements; those risks associated with the
performance of Paragon, including its ability to successfully negotiate with
certain project owners, as well as construction vendors and subcontractors,
regarding the completion of existing projects and the minimization of costs
associated with such completion, risks relating to estimated contract costs,
estimated losses on uncompleted contracts and estimates regarding the percentage
of completion of contracts, and risks relating to litigation and associated
costs arising out of Paragon's activities and the matters discussed in this
report; risks relating to changes in interest rates and in the availability,
cost and terms of financing; risks related to the performance of financial
markets; risks related to changes in domestic and foreign laws, regulations and
taxes; risks related to changes in business strategy or development plans; risks
related to the outcomes of the pending lawsuits against the Company and the
associated costs; risks associated with future profitability; and other factors
discussed elsewhere in this report and in documents filed by the Company with
the Securities and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this Annual
Report on Form 10-K will, in fact, occur. The Company does not undertake any
obligation to revise these forward-looking statements to reflect future events
or circumstances and other factors discussed elsewhere in this report and the
documents filed by the Company with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes. Such exposure to
market risk is inherent in certain of the Company's financial instruments which
arise from transactions entered into in the normal course of business. The
Company is subject to interest rate risk on its outstanding note payable to a
shareholder and any future financing requirements. The Company's fixed rate
indebtedness consists of certain capital lease obligations requiring monthly
payments of principal and interest, with terms maturing through 2002.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLDATED FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants............................22
Consolidated Balance Sheets as of December 31, 1998 and 1997..................23
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996.....................................24
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1997 and 1996.......................25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996.....................................26
Notes to Consolidated Financial Statements....................................28
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts for the Years
Ended December 31, 1998, 1997 and 1996.....................................60
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Golden Bear Golf, Inc.:
We have audited the accompanying consolidated balance sheets of Golden Bear
Golf, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Golden Bear Golf,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, primarily as a result of losses and costs
incurred at its construction subsidiary Paragon Construction International,
Inc., the Company incurred significant losses from operations which resulted in
a working capital and shareholders' deficiency at December 31, 1998 and raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans to discontinue the operations of Paragon and other plans in
regard to these matters are described in Note 7. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits 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 20, 1999.
22
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,168,118 $ 675,303
Accounts receivable, net of allowances of $280,688 in 1998
and $52,500 in 1997 1,626,783 1,501,767
Due from International 41,812 157,698
Prepaid expenses and other current assets 226,806 304,115
------------ ------------
Total current assets 3,063,519 2,638,883
PROPERTY AND EQUIPMENT, net 706,361 1,069,067
OTHER ASSETS, net 438,983 546,819
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 1,675,550 24,643,492
------------ ------------
Total assets $ 5,884,413 $ 28,898,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 2,083,702 $ 897,964
Accrued liabilities 1,145,550 710,498
Deferred revenue 1,275,042 659,816
Current portion of notes payable and capital leases 111,140 9,024,619
Net current liabilities of discontinued operations 15,552,968 3,788,178
------------ ------------
Total current liabilities 20,168,402 15,081,075
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 2,606,441 255,891
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY (DEFICIT):
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,
2,744,962 shares issued and outstanding 27,450 27,450
Class B, $.01 par value, 10,000,000 shares authorized,
2,760,000 shares issued and outstanding 27,600 27,600
Additional paid-in capital 40,856,943 40,856,943
Accumulated deficit (57,802,423) (27,350,698)
------------ ------------
Total shareholders' equity (deficit) (16,890,430) 13,561,295
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 5,884,413 $ 28,898,261
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these balance sheets.
23
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Golf instruction revenues $ 5,805,416 $ 4,604,638 $ 3,339,184
Licensing and other revenues 4,297,232 5,316,387 4,096,674
Income from operations of JNAI 710,643 1,080,892 1,431,616
Related party commissions and fees 571,749 1,870,735 1,924,913
------------ ------------ ------------
Total revenues 11,385,040 12,872,652 10,792,387
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Operating expenses 7,721,909 7,691,115 6,457,666
Compensation recorded on sale of shares to management -- -- 3,000,000
Corporate administration 3,393,675 3,457,733 2,598,490
Depreciation and amortization 319,449 416,910 220,750
------------ ------------ ------------
Total operating costs and expenses 11,435,033 11,565,758 12,276,906
------------ ------------ ------------
Operating income (loss) (49,993) 1,306,894 (1,484,519)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 45,096 110,695 178,852
Interest expense (398,556) (91,032) --
Other (242,089) (213,821) 8,990
------------ ------------ ------------
Total other income (expense) (595,549) (194,158) 187,842
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes (645,542) 1,112,736 (1,296,677)
PROVISION FOR INCOME TAXES 190,716 56,230 80,801
------------ ------------ ------------
Income (loss) from continuing operations (836,258) 1,056,506 (1,377,478)
Gain on sale of business segment 969,405 -- --
Loss from discontinued operations, net (30,584,872) (25,755,308) (1,053,055)
------------ ------------ ------------
Net loss $(30,451,725) $(24,698,802) $ (2,430,533)
============ ============ ============
EARNINGS PER SHARE - BASIC AND DILUTED:
Income (loss) from continuing operations $ (0.15) $ 0.19 $ (0.34)
Loss from discontinued operations, net (5.38) (4.68) (0.26)
------------ ------------ ------------
Net loss per share $ (5.53) $ (4.49) $ (0.60)
============ ============ ============
PRO FORMA EARNINGS PER SHARE - BASIC
AND DILUTED (Note 1):
Loss from continuing operations $ (0.31)
Loss from discontinued operations, net (0.26)
------------
Pro forma net loss per share $ (0.57)
============
Weighted average common shares outstanding 5,504,962 5,505,200 4,040,378
============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
24
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED
STOCK STOCK CAPITAL DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 2,400 $ 27,600 $ 840,000 $ 160,318 $ 1,030,318
Sale of shares to management -- -- 1,500,000 -- 1,500,000
Compensation recorded on sale
of shares to management -- -- 3,000,000 -- 3,000,000
Initial public offering, net 24,840 -- 35,177,574 -- 35,202,414
Exercise of stock options 208 -- 332,784 -- 332,992
Divisional transfers to International
prior to initial public offering -- -- -- (381,681) (381,681)
Net loss -- -- -- (2,430,533) (2,430,533)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 27,448 27,600 40,850,358 (2,651,896) 38,253,510
Repurchase and retirement of
common stock (30) -- (43,783) -- (43,813)
Exercise of stock options 32 -- 50,368 -- 50,400
Net loss -- -- -- (24,698,802) (24,698,802)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 27,450 27,600 40,856,943 (27,350,698) 13,561,295
Net loss -- -- -- (30,451,725) (30,451,725)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 $ 27,450 $ 27,600 $ 40,856,943 $(57,802,423) $(16,890,430)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
25
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(30,451,725) $(24,698,802) $ (2,430,533)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 319,449 416,910 220,750
Provision for uncollectible accounts 384,995 80,250 45,870
Compensation recorded on sale of shares to management -- -- 3,000,000
Loss from discontinued operations, net 29,615,467 25,755,308 1,053,055
Changes in assets and liabilities:
Accounts receivable (510,011) (132,590) (550,850)
Due from International 115,886 685,537 (196,089)
Prepaid expenses and other current assets 77,309 (177,935) 35,457
Other assets 107,836 (227,234) (277,642)
Accounts payable 1,185,738 131,914 (1,106,780)
Accrued liabilities 435,052 264,530 1,358,145
Deferred revenue 615,226 296,576 (326,475)
------------ ------------ ------------
Net cash provided by operating activities 1,895,222 2,394,464 824,908
------------ ------------ ------------
NET CASH USED IN DISCONTINUED OPERATIONS: (16,388,357) (17,151,881) (30,365,005)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net 43,257 (116,542) (423,112)
Proceeds from sale of business segment 21,505,622 -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities 21,548,879 (116,542) (423,112)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - shareholder 2,400,000 -- --
Proceeds from short-term credit facility 5,000,000 -- --
Repayment of short-term credit facility (5,000,000) -- --
Proceeds from subordinated short-term loan - shareholder 850,000 -- --
Repayment of subordinated short-term loan - shareholder (850,000) -- --
(Repayment of) proceeds from revolving credit facility, net (8,872,410) 8,872,410 --
Payments on capital lease obligations (90,519) (77,079) --
Proceeds from initial public offering, net -- -- 35,202,414
Proceeds from sale of shares to management -- -- 1,500,000
Proceeds from exercise of stock options -- 50,400 332,992
Repurchase and retirement of common stock -- (43,813) --
Divisional transfers to International -- -- (381,681)
------------ ------------ ------------
Net cash (used in) provided by financing activities (6,562,929) 8,801,918 36,653,725
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 492,815 (6,072,041) 6,690,516
CASH AND CASH EQUIVALENTS, beginning of year 675,303 6,747,344 56,828
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,168,118 $ 675,303 $ 6,747,344
============ ============ ============
</TABLE>
(Continued)
26
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
OPERATING AND INVESTING ACTIVITIES:
Acquisitions of office furniture and equipment accounted
for as capital lease obligations $ -- $ 485,179 $ --
Compensation recorded on sale of shares to management $ -- $ -- $3,000,000
Discontinued operations:
Notes payable, capital lease and other obligations issued
in connection with the acquisition of golf centers $ -- $3,074,000 $4,584,854
Acquisitions of computer equipment and office furniture
accounted for as capital lease obligations $ 666,279 $ -- $ --
Notes payable and capital lease obligations issued in
connection with acquisition of construction equipment $2,161,221 $2,706,716 $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $1,951,500 $ 938,012 $ 210,226
Cash paid for income taxes $ 140,186 $ 376,485 $ 201,835
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
27
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of
Golden Bear Golf, Inc. and its subsidiaries ("Golden Bear" or the "Company").
All significant intercompany accounts and transactions have been eliminated. In
order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform to the financial statement presentation of the
current year. The Company sold its wholly-owned subsidiary, Golden Bear Golf
Centers, Inc. ("Golf Centers") on July 20, 1998 and formally approved the
discontinuance of the construction operations conducted by its wholly-owned
subsidiary, Paragon Construction International, Inc. ("Paragon") on October 26,
1998. Accordingly, the operations and financial activity associated with such
businesses have been reclassified as discontinued operations and the former
"Consumer Division" designation for the Company's remaining operations was
eliminated. With the disposition of such operations, the Company is now fully
focused on its core businesses, which include the licensing and franchising of
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR branded products throughout the world,
the operation of the NICKLAUS FLICK GOLF SCHOOLS and managing the personal
endorsement services provided by Jack Nicklaus.
Golden Bear was formed on June 7, 1996 to enter into an exchange agreement which
was consummated on August 1, 1996 upon the closing of an initial public offering
of Golden Bear's Class A Common Stock. Parties to the plan of reorganization
included, among others, Golden Bear's affiliates, Golf Centers, Paragon
(collectively, the "Constituent Companies") and Golden Bear International, Inc.
("International"), a privately owned company controlled by Jack Nicklaus.
Pursuant to the exchange agreement, Golden Bear acquired all of the outstanding
common stock of the Constituent Companies in exchange for an aggregate of
1,668,000 shares of its Class A and Class B Common Stock. In addition, Golden
Bear acquired certain assets and assumed certain liabilities of International in
exchange for 1,332,000 shares of Class B Common Stock. The transaction was
accounted for on an historical cost basis in a manner similar to a pooling of
interests as Golden Bear and the Constituent Companies had common stockholders
and management. Therefore, the financial statements of Golden Bear and the
Constituent Companies for the period prior to the reorganization are presented
in a combined format.
International is primarily involved in golf course design and consulting, along
with the development of residential communities and daily fee golf courses. The
financial statements attributable to the operations acquired from International
for the period prior to the reorganization, which are included in the
accompanying Consolidated Financial Statements, have been prepared from the
books and records of International. As such, the consolidated statements of
operations include allocations of expenses between the operations acquired from
International 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 the
Company using a proportional cost method of allocation because specific
identification of such expenses was not practicable. Management believes that
such allocations are representative of the respective stand-alone expenses based
on the operations acquired from International, and are further supported by
agreements that were entered into in connection with the reorganization of the
Company. The equity of the Company includes transfers to International,
representing cash generated by the Company that was used in other operations of
International. In the opinion of management, the results of operations and cash
flows of the operations acquired from International are properly reflected in
the accompanying Consolidated Financial Statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised primarily of funds on deposit in
interest bearing accounts with various banks with maturities of less than ninety
days.
28
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Golf instruction revenues are recognized concurrent with the time the services
are rendered. Licensing revenues are recognized over the terms of the underlying
licensing agreements, generally from five to ten years. Revenues attributable to
strategic marketing agreements are recognized over the respective contract
periods as the goods and services required thereunder are provided. The
Company's franchising arrangements generally have initial terms of three to five
years, with options to renew. Franchising fees are derived from the
establishment of franchised golf center facilities and accordingly, such
revenues are recognized when substantially all of the services required under
the development agreements have been performed. The Company also earns royalty
fees by providing assistance with marketing, training and other operational
issues to its franchised golf centers. In this regard, the Company has a
significant agreement with one licensee covering 21 golf center facilities, for
which the Company is entitled to receive minimum annual licensing fees of
$795,000. This licensing agreement has a term that expires on December 31, 2008,
although the licensee may elect to terminate the agreement effective December
31, 2000. Such royalty fees are based upon licensees' adjusted gross revenues,
as defined, and are recognized as revenues when earned.
Related party management fees are attributable to the personal endorsement
services provided by Jack Nicklaus and are recognized as revenue when Jack
Nicklaus becomes entitled to receive such fees. The Company is generally
entitled to approximately 20% to 30% of all such endorsement revenues received
by Jack Nicklaus. The Company also received related party commissions for
marketing golf course design services on behalf of International through
December 31, 1997. Commissions for such services were based on 10% of the golf
course design fees and were recognized as International received its design
fees. See Note 13.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets generally
ranging from three to seven years. Expenditures for major additions and
improvements are capitalized, while minor replacements, maintenance and repairs
are charged to expense as incurred. When property is retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized currently. The Company periodically
evaluates whether events and circumstances have occurred that may warrant
revision of the estimated useful life of its property and equipment or whether
the remaining balance of its property and equipment should be evaluated for
possible impairment. The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the property and equipment in measuring
their recoverability.
DEFERRED REVENUE
Deferred revenue includes fees collected in excess of amounts earned under the
Company's marketing, franchising and royalty agreements as well as fees
collected in advance for the Company's golf instruction operations.
USE OF ESTIMATES
The preparation of consolidated 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. Significant estimates made by management include the allowance
for doubtful accounts receivable, the estimated useful lives and realizability
of the Company's long-lived assets and recorded amounts for claims and
assessments against the Company. Specifically for Paragon, significant estimates
include construction costs, the length of time to complete contracts,
collectability of billings for costs incurred and change orders along with
construction site conditions. Actual results could differ from those estimates.
29
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company accounts for its financial instruments in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair
Value of Financial Instruments." Cash and cash equivalents, accounts receivable,
prepaid expenses and other current assets, accounts payable, accrued
liabilities, deferred revenue and capital leases are reflected in the
accompanying Consolidated Financial Statements at cost which approximates fair
value. The carrying value of fixed rate indebtedness at December 31, 1998 was
$317,581 which approximates the estimated fair value. The estimated fair value
of such indebtedness was determined based on the expected future payments
discounted at risk adjusted rates for debt of similar terms and remaining
maturities.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided for to show the effect of temporary differences between the tax basis
of assets and liabilities and their reported amounts in the consolidated
financial statements. The Company files a consolidated Federal income tax return
which includes the operations of the Company and its subsidiaries. Prior to the
reorganization of the Company on August 1, 1996, the respective entities
comprising the current Company were S Corporations for Federal income tax
reporting purposes, and therefore not subject to Federal income taxes.
A valuation allowance was established to offset the Company's net deferred tax
assets as of December 31, 1998 and 1997 because management currently believes
that the future realization of such deferred tax assets is not more likely than
not. See Notes 7 and 9.
LOSS PER SHARE
Loss per share in the accompanying Consolidated Statements of Operations is
computed by dividing the net loss or pro forma net loss by the weighted average
common shares outstanding for the respective years. Diluted earnings per share
as computed under SFAS No. 128 includes the effects of common stock equivalents,
including the dilutive effect of all outstanding stock options using the
treasury stock method. Diluted earnings per share is the same as basic earnings
per share in the accompanying Consolidated Statements of Operations. Options to
purchase 222,675, 670,150 and 383,688 shares of common stock were not included
in computing earnings per share for the years ended December 31, 1998, 1997 and
1996, respectively, because their effects were anti-dilutive for the respective
periods.
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, Golf Centers and Paragon were S Corporations for Federal and
state income tax reporting purposes and International was also an S Corporation.
As S Corporations prior to the reorganization, these entities have historically
only paid foreign income taxes and have not paid United States Federal and state
income taxes.
The following pro forma adjustment to record an income tax benefit at the
Company's estimated effective tax rate has been reflected in the pro forma net
loss per share data presented for the year ended December 31, 1996 in the
accompanying Consolidated Statements of Operations to show the effects on the
Company's operations as if the relevant entities had been C Corporations during
all of the years presented.
Historical loss from continuing operations $(1,377,478)
Pro forma benefit for income taxes (127,331)
-----------
Pro forma loss from continuing operations (1,250,147)
Loss from discontinued operations, net (1,053,055)
-----------
Pro forma net loss $(2,303,202)
===========
30
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ACCOUNTING PRONOUNCEMENTS
Required for 1998 financial statements, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. This statement requires
that an enterprise (i) classify items of other comprehensive income by their
nature in financial statements and (ii) display the accumulated balance of other
comprehensive income separately from retained deficit and additional paid-in
capital in the equity section of the balance sheets. Comprehensive income is
defined as the change in equity during the financial reporting period of a
business enterprise resulting from non-owner sources. During the years ended
December 31, 1998, 1997 and 1996, the Company did not have any changes in its
equity resulting from such non-owner sources, and accordingly, comprehensive
income as set forth by SFAS No. 130 was equal to the net loss amounts presented
for the respective years in the accompanying Consolidated Statements of
Operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value depends on the intended
use of the derivative and the resulting designation. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not believe that the adoption of SFAS No. 133 will have a material
effect on its financial position or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
----------------------------
1998 1997
----------- -----------
Computer equipment $ 795,625 $ 783,814
Telephone and other office
equipment 431,118 431,618
Furniture and fixtures 540,831 507,275
Leasehold improvements 116,104 481,208
----------- -----------
1,883,678 2,203,915
Less accumulated depreciation
and amortization (1,177,317) (1,134,848)
----------- -----------
$ 706,361 $ 1,069,067
=========== ===========
3. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
-----------------------
1998 1997
--------- ---------
Investment in JNAI $ 357,139 $ 289,496
Debt issue costs -- 295,803
Other 81,844 37,870
--------- ---------
438,983 623,169
Less accumulated amortization -- (76,350)
--------- ---------
$ 438,983 546,819
========= =========
31
<PAGE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
Payroll and related costs $ 601,879 $ 367,318
Professional fees 260,707 180,748
State income taxes 165,693 97,673
Other 117,271 64,759
---------- ----------
$1,145,550 $ 710,498
========== ==========
5. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Capital lease obligations secured by furniture and equipment, with
principal and interest at 9% payable monthly, maturing
through June, 2002(1) $ 317,581 $ 408,100
Revolving credit facility with a bank, interest at prime paid
quarterly, outstanding borrowings repaid and credit facility
terminated in July, 1998(2) -- 8,872,410
Note payable to shareholder, with interest at The Wall Street
Journal Prime Rate (7.75% at December 31, 1998) payable
monthly, entire principal due in July, 2003(3) 2,400,000 --
----------- -----------
2,717,581 9,280,510
Less current portion (111,140) (9,024,619)
----------- -----------
$ 2,606,441 $ 255,891
=========== ===========
</TABLE>
(1) The Company acquired certain office furniture and phone systems equipment
by entering into financing arrangements that were accounted for as capital
leases. These capital lease obligations have initial terms of five years
and require monthly payments representing principal and interest.
(2) In July 1998, the Company repaid outstanding borrowings and terminated
future availability under a previously existing $10 million revolving
credit facility with a bank. The borrowings were repaid using proceeds from
the sale of the Company's Golf Centers subsidiary which closed on July 20,
1998. See Note 14.
(3) In July 1998, the Company issued an unsecured promissory note for $2.4
million payable to Jack Nicklaus, the principal stockholder of the Company
and Chairman of the Company's Board of Directors. The proceeds of the note
were used in connection with the settlement of certain claims associated
with a golf course development project.
In addition to the foregoing, the Company also had indebtedness that originated
and was repaid in full during 1998. In February 1998, the Company obtained a
secondary, short-term credit facility for an additional $5 million with the bank
that previously had provided the $10 million revolving credit facility. The
Company borrowed $5 million under this short-term facility and repaid all such
advances in full and terminated the facility in July 1998. The borrowings were
repaid using proceeds from the sale of Golf Centers. See Note 14.
32
<PAGE>
5. NOTES PAYABLE AND CAPITAL LEASES - (Continued)
During July 1998, Jack Nicklaus advanced the Company $850,000 pursuant to the
terms of a subordinated short-term loan which was used as bridge financing for
the Company pending the closing of the sale of Golf Centers. The Company repaid
all such advances under the subordinated short-term loan in August 1998, using
proceeds from the sale of Golf Centers. See Note 14.
The following table sets forth the future minimum lease payments under capital
lease obligations, together with the present value of the net minimum lease
payments as of December 31, 1998.
CAPITAL LEASE
Years ending December 31: OBLIGATIONS
-----------------
1999 $ 135,212
2000 135,212
2001 81,829
2002 7,252
-----------------
Total minimum payments 359,505
Less amount representing interest(1) (41,924)
-----------------
Present value of minimum payments $ 317,581
=================
(1) Represents amount necessary to reduce the net minimum payments to present
value calculated at the Company's estimated incremental borrowing rate at
the inception of the respective obligations.
6. 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. 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. Neither the Class A Common Stock nor the Class B Common Stock have
cumulative voting rights.
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. There are
certain restrictions with respect to the transfer of Class B Common Stock. All
of the shares of Class B Common Stock are held by Nicklaus family members or by
entities controlled by or established for the benefit of such members ("Nicklaus
Family Members"). 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.
Class A Common Stock has no conversion rights. Class B Common Stock is
convertible into unregistered shares of 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 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 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. Upon the merger or consolidation of Golden Bear, holders of Class A
Common Stock and Class B Common Stock each 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.
33
<PAGE>
7. SHAREHOLDERS' DEFICIT AND LIQUIDITY
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Primarily as a result of losses
and costs incurred by the Company's Paragon subsidiary, the Company has incurred
operating losses which have resulted in a shareholders' deficit of approximately
$16.9 million and a working capital deficiency of approximately $17.1 million at
December 31, 1998. In addition, the Company incurred a net loss of approximately
$30.5 million and $24.7 million for the years ended December 31, 1998 and 1997,
respectively, which was primarily attributable to Paragon. This situation has
resulted in substantial claims and litigation against the Company (see Note 12).
Management's plans in regard to these matters include discontinuing the
Company's construction operations and reducing on-going expenses. In this
regard, the Company has formally approved the discontinuance of the construction
activities conducted by its Paragon subsidiary and is in the process of winding
down such operations. The Company is negotiating with certain project owners, as
well as construction vendors and subcontractors to expedite the completion of
the remaining projects and to minimize the costs associated with such
completion.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern and future working capital requirements are dependent on the Company's
ability to successfully complete such negotiations involving Paragon and on its
ability to achieve and maintain profitable operations in the future. Management
of the Company believes that such objectives are attainable. However, there is
no assurance that the Company will be successful in realizing these objectives,
or that the Company will generate sufficient cash flow from operations to meet
its future working capital requirements. To the extent that capital requirements
exceed available capital, the Company will be required to seek alternative
sources of financing to fund its operations. The Company has no existing credit
facility and there is no assurance that alternative financing will be available,
if at all, on satisfactory terms. If the Company is unable to obtain
satisfactory alternative financing, the Company may be required to delay or
reduce its future expenditures, sell additional assets to meet its obligations,
seek to renegotiate the terms of its obligations or curtail its operations.
There can be no assurance that any source of funds or other actions taken by the
Company will provide sufficient capital so as to enable the Company to remain a
going concern.
8. OPERATIONS OF JNAI
The apparel licensing activities of the Company in the Far East are conducted
through Jack Nicklaus Apparel International ("JNAI") and its various
partnerships. The Company serves as a 50% general partner and is generally
entitled to receive 50% of the cash distributions of the various partnerships'
operations. The Company's investment in JNAI is recorded on the equity method.
The joint venture agreement provides that JNAI shall continue until December 31,
2000, unless otherwise terminated prior to that date by the mutual consent of
both partners or by operation of law. However, the termination date set forth in
the joint venture agreement can be extended by mutual consent of both partners.
Upon termination of JNAI, its net remaining assets are to be distributed to its
two partners in the manner set forth in the joint venture agreement, which
generally provides for distributions of equal amounts.
The following is a condensed summary of the operating results of JNAI:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Licensing revenues $2,052,410 $2,927,236 $3,929,392
Operating expenses and other 439,576 755,052 818,877
Provision for income taxes 191,548 10,400 247,283
========== ========== ==========
Net income $1,421,286 $2,161,784 $2,863,232
========== ========== ==========
</TABLE>
34
<PAGE>
9. INCOME TAXES
The components of the provision for income taxes for the respective fiscal years
consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
State $ 175,625 $ 32,071 $ 62,246
Foreign 15,087 24,139 18,555
Deferred:
Federal (8,191,023) (8,244,808) (515,282)
State 116,520 (635,288) (23,718)
Change in valuation allowance 8,074,507 8,880,116 539,000
----------- ----------- -----------
Provision for income taxes $ 190,716 $ 56,230 $ 80,801
=========== =========== ===========
</TABLE>
A reconciliation of the difference between the expected provision for income
taxes on continuing operations using the statutory Federal tax rate and the
Company's actual provision is presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Provision using statutory Federal rate $(219,484) $ 378,330 $(440,870)
Non-deductible expenses 31,710 54,404 27,916
State income taxes 175,629 32,091 68,807
Foreign income taxes 15,087 24,139 11,994
Change in valuation allowance 187,774 (432,734) 412,954
--------- --------- ---------
$ 190,716 $ 56,230 $ 80,801
========= ========= =========
</TABLE>
The net deferred income tax asset is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 2,878,753 $ 802,738
Tax basis capitalized costs 132,413 132,413
Tax basis in property and equipment
in excess of book basis 82,533 82,533
Accruals not currently deductible 71,114 2,608,575
Net operating loss carryforwards 13,914,507 5,525,988
Foreign tax credit carryforwards 497,094 368,027
------------ ------------
17,576,414 9,520,274
------------ ------------
Deferred income tax liabilities:
Book basis in intangible assets over tax basis 7,526 7,526
Book basis of investment in JNAI
over tax basis 100,000 118,367
Deferred revenue (24,735) (24,735)
------------ ------------
82,791 101,158
------------ ------------
Net deferred income tax asset 17,493,623 9,419,116
Valuation allowance (17,493,623) (9,419,116)
------------ ------------
$ -- $ --
============ =============
</TABLE>
35
<PAGE>
9. INCOME TAXES - (CONTINUED)
At December 31, 1998, the Company had available Federal net operating loss
carryforwards of approximately $40.9 million which expire in the year 2018,
along with approximately $497,094 of foreign tax credit carryforwards which
expire in 2008.
In assessing the realizability of deferred tax assets, management must consider
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. At December 31, 1998 and 1997, the Company provided
a full valuation allowance to reserve for the net deferred tax asset balances
because management currently believes that the future realization of such
deferred tax assets is not more likely than not.
10. STOCK OPTIONS
A total of 675,000 shares of the Company's Class A Common Stock may be issued
under the Golden Bear 1996 Stock Option Plan ("Option Plan"), which was adopted
in July 1996. Options under the Option Plan are granted at an exercise price
equal to the fair market value of the Class A Common Stock at the date of grant
and generally have a term of ten years from the date of grant. Such options
generally become fully vested five years from the grant date although certain
options granted to employees on December 31, 1997 at an exercise price of $8.00
per share were exercisable one year after the date of grant and the options
granted to Jack Nicklaus pursuant to his employment agreement with the Company
vest immediately upon being granted.
A summary of stock option transactions for the fiscal years ended December 31,
1998, 1997 and 1996 is set forth in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 670,150 $ 12.61 383,688 $ 16.00 -- $ --
Options granted 20,000 4.00 383,150 9.92 404,500 16.00
Options exercised -- -- (3,150) 16.00 (20,812) 16.00
Options canceled/forfeited (467,475) 12.71 (93,538) 15.36 -- --
---------- ----------- ------------
Outstanding, end of year 222,675 11.64 670,150 12.61 383,688 16.00
========== =========== ============
Exercisable at year-end 91,935 $ 10.71 122,600 $ 13.28 16,688 $ 16.00
========== =========== ============
Available for future grants 428,363 -- 270,500
========== =========== ============
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR RANGE CONTRACTUAL EXERCISE EXERCISE
OF EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ------------------------------ ----------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 4.00 20,000 9.58 $ 4.00 -- $ ---
8.00 23,875 9.00 8.00 12,775 8.00
10.88 - 12.75 118,800 7.99 11.46 79,160 11.15
16.00 60,000 7.59 16.00 -- ---
-------- -------
222,675 8.14 11.64 91,935 10.71
======== =======
</TABLE>
36
<PAGE>
10. STOCK OPTIONS - (CONTINUED)
In connection with his employment agreement with the Company, Jack Nicklaus is
entitled to receive options to purchase 65,000 shares of Class A Common Stock
each year for a period of four years, commencing on August 1, 1997. Such
options, which are issued with an exercise price equal to the fair market value
of the Class A Common Stock on the date of grant, are immediately exercisable
upon grant and expire in 2006. The options that Mr. Nicklaus was entitled to
receive on August 1, 1998 were temporarily waived for 1998 and deferred pending
the resolution of certain shareholder claims. See Note 12.
The Option Plan also provides for options to be granted to each non-employee
director of Golden Bear on the first business day following the annual meeting
of shareholders of the Company. Each non-employee director is granted options
for the purchase of 1,000 shares of Class A Common Stock with an exercise price
equal to the fair market value of the Class A Common Stock on the date of grant,
which expire 10 years from the date of grant. No options were granted to
non-employee directors during 1998 because the Company did not hold an annual
meeting of shareholders during the year.
The Option Plan is administered by the Compensation Committee of the Company's
Board of Directors which is authorized to determine the provisions of future
grants, including selecting the recipients, exercise price, terms and vesting
schedules for such options.
The Company applies Accounting Principals Board Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for stock-based compensation
arrangements whereby no compensation costs attributable to stock options is
deducted in determining net income (loss). Had compensation costs for the
Company's Option Plan been determined pursuant to SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net loss and net loss per share would
have increased accordingly. Using the Black-Scholes option pricing model for all
options granted, the Company's pro forma net loss, pro forma net loss per share
and pro forma weighted average fair value of options granted, with related
assumptions, are as follows for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Pro forma net loss $ (31,096,020) $ (25,369,578)
Pro forma net loss per share - basic and diluted (5.65) (4.61)
Pro forma weighted average fair
value of options granted 2.95 7.26
Risk free interest rate 7.0% 7.0%
Expected lives 10 years 10 years
Expected volatility 55.0% 55.0%
Expected quarterly dividend rate 0.0% 0.0%
</TABLE>
11. RETIREMENT SAVINGS PLAN
The Company participates in a retirement savings plan ("Savings Plan") sponsored
by International. The Savings Plan operates as a defined contribution plan and
is qualified under Section 401(k) of the Internal Revenue Code. The Savings Plan
covers all employees who have completed one year of service. The Company matches
the employees' contributions, up to a maximum of $1,500 per employee per Savings
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 Savings Plan. All employees who have
completed one year of service and are employed at year-end are eligible for this
contribution. Company contributions to the Savings Plan were $29,068, $59,535
and $59,834 during the years ended December 31, 1998, 1997 and 1996,
respectively.
37
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its corporate executive and administrative office facilities
along with certain office equipment. The rent expense incurred under these
leases was approximately $0.7 million, $0.8 million and $0.6 million during the
years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments required under noncancelable operating lease
obligations are as follows:
MINIMUM
LEASE
Years ending December 31: PAYMENTS
--------------
1999 $ 706,567
2000 706,567
2001 706,567
2002 685,594
2003 668,088
Thereafter 1,725,894
--------------
$ 5,199,277
==============
CLAIMS AND ASSESSMENTS
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 related amounts due, together with additional damages,
totaling approximately $350,000. Simultaneous to this claim of arbitration, the
customer filed a counterclaim of arbitration against Paragon for alleged
construction defects in the renovation of its golf course. Although the customer
now claims its damages are in excess of $3.0 million, the initial claim
submitted by the customer in arbitration was for $750,000. The ultimate outcome
of this matter is not determinable at this time. Accordingly, no provision for
loss regarding this matter had been established at December 31, 1998. The
ultimate disposition of this matter is not expected to have a material effect on
the Company's financial position or results of operations.
In connection with the discontinuance of the construction business conducted by
Paragon and the winding down of such operations, the Company has been named in
numerous legal actions involving claims for damages and other amounts due to
certain project owners, construction vendors and subcontractors. While the
Company has entered into settlement negotiations with several claimants, the
ultimate outcome of such negotiations is not determinable at this time. Certain
of these claims, if determined adversely to the Company in the aggregate, could
have a material adverse effect on the Company's financial position and results
of operations. The Company has recorded construction contract loss reserves
which management believes are sufficient to cover the estimated losses on the
wind-down of its construction projects.
In May 1998, the Company conducted a comprehensive review of Paragon's
construction projects, focusing on the status of the projects, the costs
required to fully complete the jobs and the anticipated profitability or losses
of such projects. Attention was also directed toward determining contract
requirements and the related estimated costs of fulfilling those requirements.
As a result of the review, the Company found evidence that former management of
Paragon deliberately falsified records, misrepresented the status of
construction projects and made false statements about Paragon's revenues, costs
and profits to the Company's executive management and Board of Directors.
38
<PAGE>
12. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Based on the results of the review, it was necessary for the Company to
recognize additional costs and losses incurred on certain construction projects,
resulting in the restatement of the Company's financial statements included in
its Annual Report on Form 10-K for the year ended December 31, 1997 and its
Quarterly Report on Form 10-Q for the three months ended March 31, 1998, as
previously filed with the Securities and Exchange Commission.
As a result of the foregoing review and restatement of the Company's financial
statements, numerous purported class action lawsuits have been filed against the
Company and certain current and former officers and directors of the Company,
asserting various claims under the federal securities laws. On July 28, 1998,
individuals purporting to be shareholders of the Company filed a class action
lawsuit in the United States District Court for the Southern District of Florida
against the Company and certain of the Company's present and former officers and
directors.
Since the filing of this matter, nine additional lawsuits have been filed
against the Company and certain of its present and former officers and
directors. Eight of these lawsuits were filed in the United States District
Court for the Southern District of Florida and one was filed in the United
States District Court for the Eastern District of New York, though the court in
New York has entered an order transferring this action to the Southern District
of Florida. The District Court in Florida entered an order consolidating all of
the actions originally filed in the Southern District of Florida and all similar
actions which are transferred to or subsequently filed in the Southern District
of Florida and directed the plaintiffs to file a consolidated complaint.
On December 24, 1998, plaintiffs filed their First Consolidated Class Action
Complaint ("Consolidated Complaint") on behalf of themselves and all others who
purchased common stock of the Company from April 30, 1997 through July 27, 1998,
with the exception of the defendants and certain related or affiliated persons
or entities. The defendants named in the Consolidated Complaint are Golden Bear
Golf, Inc., Jack W. Nicklaus, Richard P. Bellinger, Jack P. Bates, Stephen S.
Winslett, John Boyd and Arthur Andersen LLP. The Consolidated Complaint alleges
that during the purported class period, the defendants violated Section 10(b)
and Rule 10b-5 promulgated thereunder and Section 20(a) of the Securities
Exchange Act of 1934 by making misrepresentations or omissions of material fact
in publicly filed documents and in other alleged public statements relating to
the Company's financial condition and that of its wholly-owned subsidiary,
Paragon Construction International, Inc. The plaintiffs are seeking an
unspecified amount of damages, interest, costs and attorneys' fees.
The Company intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicated. Any of such lawsuits, if
determined adversely to the Company, could have a material adverse effect on the
Company's financial position and results of operations. The Company's ultimate
liability with respect to any of the foregoing proceedings is not presently
determinable.
The Securities and Exchange Commission is conducting a private investigation to
determine whether the Company or certain of its current or former officers,
directors and employees have engaged in conduct in violation of certain
provisions of the Exchange Act and the rules and regulations thereunder. The
Company believes that such investigation is focused principally on the
recognition of additional costs and losses associated with the review of Paragon
construction projects and the Company's public statements and accounting systems
with respect thereto. The Company is cooperating in such investigation.
The Company is a party to various other legal proceedings which have arisen in
the ordinary course of its business. While the ultimate outcome of these matters
cannot be predicated with certainty, the Company does not believe that any
losses resulting from such other legal proceedings will have a material adverse
effect on the Company's financial position or results of operations.
39
<PAGE>
12. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
CONSTRUCTION CONTRACT WARRANTIES
Paragon's construction contracts generally provided for warranties that
obligated Paragon to remedy certain construction defects that may arise in the
ordinary course of providing such construction services. Such warranties, which
are customary in the construction industry, are usually effective for a period
of one year from the completion date of the respective projects. The Company's
management does not expect the costs associated with corrective action or
penalties incurred pursuant to these warranties, if any, to have a material
impact on its results of operations.
COMMITMENT UNDER CONSULTING AGREEMENT
In connection with the sale of Golf Centers, the Company retained certain
continuing obligations under a consulting agreement associated with one of the
golf centers that were included in the sale. Under the terms of the agreement,
the Company is obligated to pay consulting fees in the amount of $50,000 per
year, payable monthly in arrears over the remaining term of the agreement,
subject to certain termination options on the part of the Company if the golf
center does not achieve and maintain certain performance criteria. In addition,
the Company is obligated to pay bonus compensation of up to an additional
$25,000 per year, to the extent that the golf center achieves certain target
operating profit margins, as set forth in the agreement.
At December 31, 1998, the remaining term of the consulting agreement was
approximately 18 years. However, the Company is entitled to terminate the
agreement and its obligations thereunder, in the event that the golf center
achieves less than 90% of its targeted annual profitability, as defined in the
agreement. The targeted profitability levels are based on the average
performance over each two year period, starting one year after the April 1997
date that the golf center opened for business. The Company has recorded a
liability for the estimated amount of its obligation under this agreement.
40
<PAGE>
13. RELATED PARTY TRANSACTIONS
The balances included in the accompanying Consolidated Balance Sheets under the
caption "Due from International" consists of the net amounts owed to Golden Bear
Golf, Inc. and its subsidiaries. At December 31, 1998 and 1997, the Company had
net amounts due from International of $41,812 and $157,698, respectively. The
net amount due at December 31, 1998 was comprised primarily of related party
management fees attributable to personal endorsement services performed by Jack
Nicklaus. Substantially all of the balance due at December 31, 1997 was
comprised of commissions payable under a design services marketing agreement,
whereby the Company had marketed golf course designs for Nicklaus Design, a
division of International. Under the design services marketing agreement, the
Company generally had been entitled to 10% of the gross design fees collected by
Nicklaus Design for its role in marketing such design services. The Company
earned related party commissions in this capacity of approximately $1.3 million
each year during fiscal 1997 and 1996.
Effective January 1, 1998, the design services marketing agreement was
terminated in connection with an organizational realignment, pursuant to which
International assumed certain financial obligations of the Company to employees
and third parties formerly involved in the design marketing function, and the
Company secured an exclusive commitment from International to continue the
marketing of Paragon's construction services to Nicklaus Design clients and
prospects. The revised arrangement permits Paragon to utilize the services of
Nicklaus Design's sales staff as needed on an independent contract basis and to
obtain compensation from Nicklaus Design for design leads generated through
Paragon's construction marketing activities.
Effective December 18, 1998, the Company, International and Jack Nicklaus
(collectively, the "Company Affiliates") entered into an agreement with Weitz
Golf International LLC ("Weitz Golf"), pursuant to which the Company Affiliates
will provide certain technical and marketing assistance in connection with the
construction services offered by Weitz Golf, which include general contracting,
design-build and construction management. Under the agreement, the Company
agreed to no longer offer construction services independently during the term of
the agreement which expires on December 31, 2007. The Company is entitled to
receive 40% of the net profits, as defined, received by Weitz Golf pursuant to
the contracts it enters into during the term of the agreement. There were no
significant operations of Weitz Golf during 1998.
Subsequent to December 31, 1998, the Company's Board of Directors approved the
terms of a settlement with a former customer of Paragon, which included certain
potential obligations on the part of International. See Note 18.
Pursuant to the terms of a personal services management agreement, International
and Jack Nicklaus have retained the Company as the exclusive manager and
representative to market the personal endorsement services of Jack Nicklaus,
under which the Company is generally entitled to approximately 20% to 30% of the
personal endorsement fees received by Mr. Nicklaus. During fiscal 1998, 1997 and
1996, the Company earned related party management fees attributable to providing
such services of $571,749, $565,905 and $643,587, respectively.
Under the terms of an office sharing agreement, the Company had subleased its
corporate office facilities from International for the period from August 1,
1996 through July 31, 1997. The rent expense incurred under such sublease for
the seven months ended July 31, 1997 and the five months ended December 31, 1996
was $358,755 and $248,862, respectively. Effective August 1, 1997, the Company
entered into a separate lease agreement for its corporate office facilities
directly with the owner of such facilities.
In addition, the Company had maintained certain office space in Singapore
through October 31, 1997 that was shared with International. During the ten
months ended October 31, 1997, a total of $239,000 of costs associated with
maintaining such facilities was allocated to International. During the year
ended December 31, 1996, a total of $277,818 of such costs were allocated to
International. Effective November 1, 1997, the Company relocated its office
facilities in Singapore and entered into a lease for its new facilities that
were no longer shared with International. The Company subsequently terminated
this new lease effective April 1, 1998 and closed the office presence that it
had previously maintained in Singapore.
41
<PAGE>
13. RELATED PARTY TRANSACTIONS - (CONTINUED)
The Company has an office staff sharing agreement with International which
provides for the sharing of the services of certain specifically identified
office staff and personnel that can effectively serve the needs of both
organizations. Such agreement was established effective with the reorganization
of the Company on August 1, 1996. During the years ended December 31, 1998 and
1997, payroll and related costs associated with such shared employees were
allocated to International in the amounts of $111,000 and $458,964,
respectively. Such costs totaling $255,000 were allocated to International
during the five months ended December 31, 1996.
During fiscal 1997, the Company paid a $100,000 investment banking fee to
International for services rendered by Golden Bear Financial Services, a
division of International, in connection with negotiating the $10 million
revolving credit facility that the Company obtained during the year. The fee was
equal to 1% of the total facility commitment.
An analysis of the activity in "Due from International" is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 157,698 $ 843,235 $ 647,146
Related party commissions and fees 571,749 1,870,735 1,924,913
Reimbursement for shared employees 111,000 458,964 255,000
Reimbursement for Singapore office costs -- 239,000 277,818
Reimbursement of legal fees -- -- 209,000
Sublease of corporate office facilities -- (358,755) (248,862)
Investment banking fee -- (100,000) --
Payments received (798,635) (2,795,481) (2,221,780)
----------- ----------- -----------
Balance at end of year $ 41,812 $ 157,698 $ 843,235
=========== =========== ===========
</TABLE>
In the ordinary course of business, the Company purchases golf equipment
manufactured by Nicklaus Golf Equipment Company, L.C., a privately owned company
in which Jack Nicklaus has a 50% equity interest. Such equipment is currently
purchased primarily for promotional programs associated with the Company's
NICKLAUS FLICK GOLF SCHOOLS. Prior to the sale of the Company's Golf Centers
subsidiary, such equipment was also purchased for resale in the pro shops of the
Company's golf centers. During fiscal 1998 and 1997, the Company purchased such
golf equipment at a cost of $163,691 and $405,205, respectively. Such purchases
for fiscal 1996 were not significant to the Company's results of operations.
During the years ended December 31, 1998, 1997 and 1996, the Company paid
$93,243, $125,101 and $0, respectively, to Executive Sports International, a
privately held company owned in part by a member of the Nicklaus family, for
certain printing and graphics services.
In July 1998, Jack Nicklaus advanced $2.4 million to the Company evidenced by an
unsecured five-year promissory note. The loan proceeds were used by the Company
in connection with the settlement of certain claims associated with a golf
course development project.
During July 1998, Jack Nicklaus advanced the Company $850,000 pursuant to the
terms of a subordinated short-term loan which was used as bridge financing for
the Company pending the closing of the sale of Golf Centers. The Company repaid
all such advances under the subordinated short-term loan in August 1998, using
proceeds from the sale of Golf Centers.
In June 1996, Jack Nicklaus had advanced the Company approximately $1.6 million
and the Company issued a note payable to Jack Nicklaus for such amount. The
proceeds were used to fund the acquisition of a golf center. The note payable
was repaid in full in August 1996 from the proceeds of the Company's initial
public offering.
42
<PAGE>
13. RELATED PARTY TRANSACTIONS - (CONTINUED)
In June 1996, members of management and certain Nicklaus Family Members
purchased capital stock of Golf Centers for an aggregate price of $1.5 million,
of which $600,000 related to the shares purchased by members of management. For
financial statement reporting purposes, the fair value of the shares sold to
management at the date of issuance was deemed to be the estimated initial public
offering price of $15 per share which resulted in the recognition of
compensation expense in the amount of $3 million.
Accounts receivable at December 31, 1997 included $204,154 due from JNAI for
certain costs associated with a brand marketing research project that were
previously paid by the Company on behalf of JNAI.
14. DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS, INC.
On July 20, 1998, the Company sold all of the issued and outstanding stock of
its Golf Centers subsidiary to an unrelated party for cash consideration of
approximately $21.5 million resulting in a gain of approximately $1.0 million.
Through its Golf Centers subsidiary, the Company had been engaged in the
acquisition, ownership and operation of golf practice and instruction
facilities. As of the date of the sale, Golf Centers owned and operated a total
of 14 golf center facilities under the GOLDEN BEAR GOLF CENTER brand name. The
Company retained its licensing and franchising rights with respect to being able
to offer franchise opportunities to outside parties for the operation of golf
instruction and practice facilities. In this regard, Golf Centers distributed
certain of its assets and liabilities to the Company prior to the closing of the
sale.
In connection with the sale, the Company entered into a licensing agreement with
this licensee granting it the right to continue operating the acquired golf
centers under the GOLDEN BEAR GOLF CENTER brand name. The licensing terms
associated with seven facilities operated by this licensee prior to the
acquisition of Golf Centers were merged into the agreement governing the 14
acquired centers, pursuant to which the Company is entitled to receive minimum
annual licensing fees in the aggregate of $795,000 payable in equal quarterly
installments, along with certain additional incentive compensation based on the
achievement of certain defined target annual revenue levels by the licensed
facilities. The licensing agreement has a term that expires on December 31,
2008, although the licensee may elect to terminate the agreement effective
December 31, 2000.
All of the financial activities associated with the Golf Centers operations that
were sold have been classified as discontinued operations in the accompanying
Consolidated Financial Statements. The losses attributable to the operations
that were sold are included in the accompanying Consolidated Statements of
Operations as a component of the line item captioned, "Loss from discontinued
operations, net." Such losses were $(4,062,986), $(8,429,250) and $(1,905,957)
for the years ended December 31, 1998, 1997 and 1996, respectively. The
components of the net assets of the Golf Centers operations included in the
accompanying Consolidated Balance Sheet as of December 31, 1997, consist of the
following:
DECEMBER 31,
1997
-----------
Current assets $ 3,812,770
Property and equipment, net 23,510,655
Intangibles and other assets, net 6,777,646
-----------
Total assets 34,101,071
-----------
Current liabilities 3,039,585
Notes payable and capital leases, net of
current portion 7,550,784
-----------
Total liabilities 10,590,369
-----------
Net assets of discontinued operations $23,510,702
===========
43
<PAGE>
14. DISCONTINUED OPERATIONS - (CONTINUED)
PARAGON CONSTRUCTION INTERNATIONAL, INC.
On October 26, 1998, the Company's Board of Directors approved the
discontinuance of the Company's golf course construction operations conducted by
its Paragon subsidiary. Substantially all such projects have been completed and
the Company is no longer actively involved in pursuing construction projects
independent of its agreement with Weitz Golf. See Note 13. Paragon had been
involved in providing comprehensive golf course and other resort-related
construction services, including project management, shaping, renovation and
golf course construction. In addition to construction projects located within
the United States, Paragon's operations had included projects in numerous
countries abroad as well.
The financial activities associated with Paragon have been classified as
discontinued operations in the accompanying Consolidated Financial Statements.
The results of operations attributable to Paragon are included in the
accompanying Consolidated Statements of Operations as a component of the line
item captioned, "Loss from discontinued operations, net." The income (loss) from
such operations were $(26,521,886), $(17,326,058) and $852,902 for the years
ended December 31, 1998, 1997 and 1996, respectively.
The components of the net liabilities associated with Paragon's discontinued
operations included in the accompanying Consolidated Balance Sheets consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current assets $ 1,932,478 $14,178,651
Property and equipment, net 1,675,550 3,775,510
Other assets -- 227,487
----------- -----------
Total assets 3,608,028 18,181,648
----------- -----------
Current liabilities 17,485,446 18,740,014
Notes payable and capital leases, net of
current portion -- 2,097,022
----------- -----------
Total liabilities 17,485,446 20,837,036
----------- -----------
Net liabilities of discontinued operations $13,877,418 $ 2,655,388
=========== ===========
</TABLE>
15. SEGMENT REPORTING
With the sale of the Company's Golf Centers subsidiary and the discontinuance of
the construction operations conducted by its Paragon subsidiary, the Company
effectively consolidated all of its remaining operations into one operating
segment and eliminated the former "Consumer Division" designation formerly
associated with such remaining operations. Accordingly, all of the Company's
revenue generating activities are now conducted by one operating segment
encompassing the licensing and franchising 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. As the Company operates and tracks its results in one
operating segment, certain segment disclosure requirements are not applicable.
16. INTERNATIONAL OPERATIONS
The Company derives a portion of its revenues from foreign sources, primarily
through the apparel licensing activities of its JNAI unconsolidated joint
venture and through certain of its golf centers licensing and franchising
operations.
44
<PAGE>
16. INTERNATIONAL OPERATIONS - (CONTINUED)
Although JNAI conducts its operations in the United States, substantially all of
its revenues are received from licensees located in the Asia Pacific region,
primarily Japan and Korea. All of the revenues of JNAI's licensees are generated
in foreign currencies. The licensees pay their license fees to JNAI denominated
in their respective functional currencies which are then converted to U.S.
dollars based on the exchange rate on the date of payment. Fluctuations in the
foreign currency values of these currencies relative to the U.S. dollar could
have a material adverse effect on the Company's future profitability.
Furthermore, the Company is engaged in significant business activities in Japan
and Asia. To the extent that markets in these geographic areas are volatile and
unfavorably impact the Company's customers, such events could have an adverse
effect on the Company's operations in the region going forward.
The Company has several licensees that operate golf center facilities under the
tradenames JACK NICKLAUS GOLF CENTER and JACK NICKLAUS ACADEMY OF GOLF that are
located in the Pacific Rim and Europe. Such licensees generally remit their
licensing fees, which are based on a percentage of their revenues, to the
Company denominated in their respective local currencies.
Certain information with respect to the Company's net investment in, and net
equity in the earnings of JNAI, along with the foreign operations of its golf
centers licensing and franchising activities is set forth below.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Assets $ 411,870 $ 289,496 $ 328,604
========== ========== ==========
Revenues $ 832,647 $1,080,892 $1,431,616
========== ========== ==========
Contribution to operating income before
allocation of corporate overhead $ 767,312 $1,080,892 $1,431,616
========== ========== ==========
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31, 1998
and 1997 is presented below.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 2,981,085 $ 3,290,741 $ 2,457,879 $ 2,655,335
Operating income (loss) (111,922) 572,718 (583,471) 72,681
Income (loss) from continuing operations (301,556) 192,758 (829,160) 101,699
Loss from discontinued operations, net (6,957,403) (9,768,636) (8,401,979) (4,487,448)
Net loss (7,258,959) (9,575,878) (9,231,139) (4,385,749)
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ (0.06) $ 0.04 $ (0.15) $ 0.02
Loss from discontinued operations, net (1.26) (1.78) (1.53) (0.82)
----------- ----------- ----------- -----------
Net loss per share $ (1.32) $ (1.74) $ (1.68) $ (0.80)
=========== =========== =========== ===========
</TABLE>
45
<PAGE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - (Continued)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 2,842,501 $ 4,057,311 $ 2,882,717 $ 3,090,123
Operating income (loss) 151,242 1,065,657 785,011 (695,016)
Income (loss) from continuing operations 665,138 387,000 607,741 (603,373)
Loss from discontinued operations, net (2,267,780) (383,686) (244,326) (22,859,516)
Net income (loss) (1,602,642) 3,314 363,415 (23,462,889)
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ 0.12 $ 0.07 $ 0.11 $ (0.11)
Loss from discontinued operations, net (0.41) (0.07) (0.04) (4.15)
------------ ------------ ------------ ------------
Net income (loss) per share $ (0.29) -- $ 0.07 $ (4.26)
============ ============ ============ ============
</TABLE>
18. SUBSEQUENT EVENT
Pursuant to a special meeting of the Board of Directors of the Company held on
April 15, 1999, the Company's Board of Directors approved the terms of a
settlement with a former customer of Paragon. Paragon had been engaged by this
customer (the "Developer") to construct a golf course located in San Jose,
California ("California Project") and one located in Orlando, Florida ("Florida
Project"). Nicklaus Design, a division of International, designed both of the
golf course projects. In addition, the Florida Project is owned by a partnership
controlled by the Developer in which International has a 25% limited partner
interest.
After Paragon was unable to complete these projects, Paragon and the owners of
the projects entered into a Settlement Agreement and Release of Claims.
Subsequent to and notwithstanding the terms of this settlement, issues arose
regarding responsibility for certain cost overruns that were incurred in
connection with the construction of the golf courses. Based upon an assessment
of the potential risks and costs of litigation, the Company's Board of Directors
approved a revised settlement pursuant to which Paragon will agree to pay the
Developer certain of the amounts at issue.
With regard to the California Project, the Board of Directors authorized Paragon
to pay the Developer $785,436 in the form of a promissory note bearing interest
at an annual rate of 10%, payable in quarterly installments of principal and
interest over three years. With regard to the Florida Project, the Board of
Directors authorized Paragon to pay the Developer $496,171 evidenced by a
promissory note bearing interest at an annual rate of 10%, payable in quarterly
installments of principal and interest over five years. Mr. Nicklaus or
International may be required to guarantee these notes.
In connection with the settlement approved by the Company's Board of Directors,
International agreed to credit any payments to which it would otherwise be
entitled to for the design services performed by Nicklaus Design at these two
projects, against the respective notes payable to be issued by Paragon to the
Developer. To the extent that such payments are applied against the obligations
due to the Developer, Paragon will deliver notes in the amount of any such
credits to International with interest payable quarterly at an annual rate of 8%
and the entire principal payable at the maturity of the respective original
notes delivered to the Developer. Paragon has recorded a liability for the
amount of its obligations under the terms of the foregoing settlements.
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
47
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of March 26, 1999 with
respect to the directors and executive officers of the Company. A summary of the
background and experience of each of these individuals is set forth after the
table. The executive officers serve at the discretion of the Company's Board of
Directors.
Name Age Position with the Company
- ---- --- -------------------------
Jack W. Nicklaus 59 Chairman of the Board
Stephen S. Winslett 47 Senior Vice President, Chief
Financial Officer and Chief Operating
Officer
Roger E. Birk 68 Director
Richard F. Chapdelaine 74 Director
John F. McGovern 52 Director
JACK W. NICKLAUS has served as Chairman of the Company's Board of Directors
since the Company's inception. Mr. Nicklaus founded International, a predecessor
of the Company, in 1970 and has served as Chairman of its Board since inception.
His competitive career has spanned five decades, and includes 100 professional
tournament victories worldwide and a record 20 major-championship titles. He is
the only player in history to have won each of the game's majors at least twice
(six Masters, five PGA Championships, four U.S. Opens, three British Opens and
two U.S. Amateurs). Mr. Nicklaus has twice been named Golfer of the Century, in
1988 by GOLF magazine and in 1996 by GOLF MONTHLY (UK). He was also named winner
of the PGA Tour Player of the Year Award, has been the Tour's leading
money-winner eight times and runner-up six times. He has played on six Ryder Cup
teams, captained two other Ryder Cup teams, and in December 1998 served as
captain of the U.S. team in the President's Cup. In addition, Mr. Nicklaus has
been involved in the design of 166 courses in 26 countries. He was named Golf
Course Architect of the Year in 1993 by GOLFWORLD magazine and four of his most
recent designs were ranked in Golf Digest's list of the Best New Courses in
1998.
STEPHEN S. WINSLETT joined the Company in October 1997 as Senior Vice President
and Chief Financial Officer. In October 1998, Mr. Winslett was also appointed
Chief Operating Officer of the Company after the resignation of the Company's
President and Chief Executive Officer. In this capacity, Mr. Winslett is
responsible for all of the financial matters and operational activities of the
Company. Prior to his employment with the Company, Mr. Winslett was Vice
President of Finance and Administration for the North American operations of The
Albert Fisher Group PLC, a multinational corporation listed on the London Stock
Exchange.
ROGER E. BIRK, a private investor, has served as a member of the Company's Board
of Directors since October 1996. Mr. Birk served as the President of the Federal
National Mortgage Association ("Fannie Mae") from 1987 to 1992 and is currently
one of its Board members. Prior to his tenure at Fannie Mae, Mr. Birk served as
Chairman and a member of the Board of the International Securities Clearing
Corporation. He also served as Chairman of the Board and Chief Executive Officer
of Merrill Lynch & Company, Inc. from 1981 to 1984 and was named Chairman
Emeritus in 1985. In addition to Fannie Mae, Mr. Birk currently serves on the
Board of Directors of Penske Corporation, Wellpoint Health Networks, Inc.,
Mutual of America Capital and is a life trustee of the University of Notre Dame.
RICHARD F. CHAPDELAINE has served as a member of the Company's Board of
Directors since October 1996. In 1966, Mr. Chapdelaine founded Chapdelaine &
Company, a New York-based securities firm where he currently serves as Chairman
of the Board. Mr. Chapdelaine is also Chairman of the Board of Chapdelaine
Corporate Securities & Company, serves on the Board of Directors of Long Island
Savings Bank and is a former Board member of St. Francis Hospital.
48
<PAGE>
JOHN F. MCGOVERN has served as a member of the Company's Board of Directors
since October 1996. Mr. McGovern currently serves as the Executive Vice
President of Finance and Chief Financial Officer of Georgia-Pacific Corporation.
Mr. McGovern joined Georgia-Pacific Corporation in 1981 as Vice President of
Project Financing and progressed through several executive level positions until
his appointment to his current position in 1995.
In addition to the executive officers identified above, there were two
additional individuals who served as executive officers of the Company during
1998. Richard P. Bellinger served as the Company's President and Chief Executive
Officer and as a member of its Board of Directors from the Company's inception
in 1996 through the date of his resignation effective on August 31, 1998. In
addition, Thomas P. Hislop served as Senior Vice President of the Company and as
a member of its Board of Directors from the Company's inception through the date
of his resignation effective on October 30, 1998. In his capacity with the
Company, Mr. Hislop was responsible for the Company's marketing operations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors, executive officers and holders of in excess of 10% of the Company's
Class A Common Stock file initial reports of ownership and reports of changes in
ownership of the Company's Class A Common Stock and other equity securities with
the Securities and Exchange Commission and the NASDAQ Stock Market. Directors,
executive officers and greater than 10% shareholders are required to furnish the
Company with copies of all Section 16(a) forms that they file. Based upon a
review of the copies of such reports furnished to the Company and written
representations from the Company's directors and executive officers that no
other reports were required, the Company believes that during 1998, the
Company's directors, executive officers and greater than 10% shareholders
complied with all applicable Section 16(a) filing requirements, except as
follows. Mr. Nicklaus filed a report on Form 4 dated February 10, 1999 reporting
the purchase of 40,000 shares and 80,000 shares of the Company's Class A Common
Stock on October 30, 1998 and December 31, 1998, respectively, which shares had
previously been held by certain former executive officers of the Company.
49
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the annual
and long-term compensation paid or accrued by the Company during fiscal 1998,
1997 and 1996 to the Company's three most highly compensated executive officers
(collectively, the "named executives"), including two who no longer served as
executive officers at December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- -------------
SECURITIES ALL OTHER
NAME AND YEAR SALARY BONUS UNDERLYING COMPENSA-
PRINCIPAL POSITION (1) ($)(2) ($) OPTIONS (#) TION ($)(3)
- --------------------------------- ------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Richard P. Bellinger(4) 1998 283,333 --- --- 49,247
President and Chief 1997 450,000 --- 30,000 24,072
Executive Officer 1996 383,500 --- 96,000 15,397
Stephen S. Winslett(5) 1998 200,000 30,000 --- 7,167
Senior Vice President, 1997 38,889 --- 30,000 10,614
Chief Financial Officer and 1996 --- --- --- ---
Chief Operating Officer
Thomas P. Hislop(6) 1998 187,500 9,257 --- 21,551
Senior Vice President 1997 210,000 --- 18,400 12,282
1996 198,333 --- 32,000 12,207
</TABLE>
- ---------------------------------
(1) Prior to the reorganization of the Company on August 1, 1996, the above
named executives, with the exception of Mr. Winslett, were employees of
International and only a portion of their total compensation was allocated
to the Company. Only approximately 80% of the total salary earned by Mr.
Bellinger during the first seven months of fiscal 1996 is included in the
amount presented for his salary, with the remainder being charged to
International. Effective August 1, 1996, the Company entered into
employment agreements with Mr. Bellinger and Mr. Hislop as discussed below.
(2) Effective August 1, 1996, the Company entered into certain employment
agreements that provided for annual base salaries of $450,000 and $210,000
to be paid to Mr. Bellinger and Mr. Hislop, respectively. Effective January
1, 1998, the Compensation Committee of the Company's Board of Directors
authorized an increase in the annual base salaries of Mr. Bellinger and Mr.
Hislop to $500,000 and $250,000, respectively. In connection with certain
cost savings measures subsequently implemented by the Company, certain of
the Company's executive officers voluntarily authorized a temporary
reduction in their annual base salaries. Effective June 1, 1998, Messrs.
Bellinger and Hislop authorized reductions in their annual base salaries to
$300,000 and $200,000, respectively.
(3) The amounts included under the caption "All Other Compensation" represent
allowances for automobile related expenses, matching contributions made by
the Company under the Company's 401(k) plan and group term life insurance
premiums paid on behalf of the named executives. Such amounts also include
payments during 1998 of $33,333 and $12,500 to Mr. Bellinger and Mr.
Hislop, respectively, under certain consulting agreements that the Company
entered into pursuant to the resignations of these two executives during
the year. In addition, the amount presented for Mr. Winslett during 1997
includes $9,333 representing reimbursement of moving expenses incurred in
connection with his relocation to West Palm Beach, Florida.
(4) Mr. Bellinger resigned as the President and Chief Executive Officer of the
Company effective August 31, 1998. The annual base salary paid to him by
the Company during 1998 was pro-rated through the date of his resignation.
(5) Mr. Winslett's employment with the Company began on October 22, 1997 at an
annual base salary of $200,000. Effective January 1, 1999, the Compensation
Committee of the Company's Board of Directors authorized an increase in his
annual base salary to $230,000.
50
<PAGE>
(6) Mr. Hislop resigned as Senior Vice President of the Company effective
October 30, 1998. The annual base salary paid to him by the Company during
1998 was pro-rated through the date of his resignation.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to the named executives during fiscal 1998
under the Company's 1996 Stock Option Plan ("Option Plan").
FISCAL YEAR END OPTION VALUES
None of the stock options previously issued by the Company to the named
executives were exercised during fiscal 1998. Pursuant to the terms of their
respective resignation agreements with the Company, Mr. Bellinger and Mr. Hislop
agreed to waive any rights with respect to the exercise of stock options
previously granted to them by the Company. At December 31, 1998, Mr. Winslett
had a total of 30,000 unexercised stock options, of which 10,000 options were
exercisable. None of the options held by Mr. Winslett were in-the-money at
December 31, 1998.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees of the Company do not receive
fees or retainers for serving as directors. Each non-employee director is
entitled to receive $20,000 per year for his services as a director plus
reimbursement of travel expenses to board and committee meetings. Each
non-employee director is also entitled to receive $1,000 per quarter for his
participation on the Audit Committee and Compensation Committee of the Company's
Board of Directors. Pursuant to the Option Plan, non-employee directors are
automatically granted non-qualified options each year to purchase 1,000 shares
of the Company's Class A Common Stock on the first business day following the
Company's annual meeting of shareholders. Such options are granted with an
exercise price equal to the fair market value of the stock on the date of grant
and have a term of ten years. No options were granted to non-employee directors
during 1998 because the Company did not hold an annual meeting of shareholders
during the year.
During 1998, Mr. Nicklaus was paid a total of $52,083 by the Company,
representing payment of his base salary per his employment agreement during the
first five months of the fiscal year. In connection with certain cost savings
measures implemented by the Company, effective June 1, 1998, Mr. Nicklaus
voluntarily agreed to temporarily suspend the semi-monthly payment of his base
salary.
EMPLOYMENT AGREEMENTS
Upon the closing of the initial public offering of its Class A Common Stock, the
Company entered into employment agreements, effective August 1, 1996, with
Messrs. Nicklaus, Bellinger and Hislop.
The employment agreement with Mr. Nicklaus provides for an annual base salary of
$125,000, subject to annual increases as determined by the Compensation
Committee of the Company's Board of Directors, which is comprised entirely of
non-employee directors. Under the terms of the agreement, the Company has agreed
to 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. In addition to the time associated
with serving as the Chairman of the Board of the Company, Mr. Nicklaus is
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 is to be mutually agreed upon by the Company and Mr. Nicklaus on a
case-by-case basis. Effective June 1, 1998, certain of the Company's executive
officers voluntarily authorized a temporary reduction in their annual base
salaries as a cost savings measure, pursuant to which Mr. Nicklaus agreed to
temporarily suspend the semi-monthly payment of his base salary.
51
<PAGE>
Under the terms of his employment agreement, Mr. Nicklaus is also entitled to
receive options to purchase 65,000 shares of Class A Common Stock each year, for
a period of four years, commencing on August 1, 1997. The options are
immediately exercisable upon grant, expire in 2006 and have a per share 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 options that Mr. Nicklaus was entitled to receive on
August 1, 1998 were temporarily waived for 1998 and deferred pending the
resolution of certain shareholder claims.
The initial employment agreement with Mr. Bellinger provided for an annual base
salary for services provided to the Company of $450,000, subject to annual
increases as determined by the Compensation Committee of the Company's Board of
Directors. The employment agreement required that Mr. Bellinger dedicate at
least 80% of his business time to managing the affairs of the Company and
provided that the remainder of his business time could be spent on management of
other entities, including those controlled by Mr. Nicklaus. However, effective
January 1, 1998, this arrangement was modified to require that Mr. Bellinger
devote at least 90% of his business time to providing services to the Company,
at which date the Compensation Committee authorized an increase in his annual
base salary to $500,000. In connection with certain cost savings measures that
were subsequently implemented by the Company, Mr. Bellinger voluntarily
authorized a temporary reduction in his annual base salary to $300,000,
effective June 1, 1998. The terms of Mr. Bellinger's employment agreement
provided that his base salary along with any additional compensation payable to
him pursuant to such agreement would cease in the event he resigned.
Effective August 31, 1998, Mr. Bellinger resigned as the President and Chief
Executive Officer of the Company and from his capacity as a member of the
Company's Board of Directors. In connection with his resignation, the Company
entered into an agreement to retain Mr. Bellinger as an independent consultant
to the Company at an annual fee of $100,000 payable in semi-monthly installments
over the four-year term of such agreement. In addition, as part of the severance
arrangement, the Company agreed to provide health insurance benefits to Mr.
Bellinger and his family through January 31, 2000, and to continue to pay his
automobile allowance through June 30, 1999. Under the terms of his severance
arrangement, Mr. Bellinger agreed to waive his rights with respect to the
exercise of any stock options previously granted to him under the Company's
Option Plan.
Mr. Hislop's initial employment agreement provided for an annual base salary of
$210,000, subject to annual increases as determined by the Compensation
Committee. Effective January 1, 1998, the Compensation Committee authorized an
increase in his annual base salary to $250,000. Mr. Hislop subsequently
voluntarily authorized a temporary reduction in his annual base salary to
$200,000 effective June 1, 1998, pursuant to certain cost savings measures that
were being implemented by the Company. The terms of Mr. Hislop's employment
agreement provided that his base salary along with any additional compensation
payable to him pursuant to such agreement would cease in the event of his
resignation.
Effective October 30, 1998, Mr. Hislop resigned as Senior Vice President of the
Company and from his capacity as a member of the Company's Board of Directors.
In connection with his resignation, the Company entered into an agreement to
retain Mr. Hislop as an independent consultant to the Company at an annual fee
of $75,000 payable in semi-monthly installments over the two-year term of such
agreement. In connection with the terms of his severance arrangements, Mr.
Hislop agreed to waive his rights with respect to the exercise of any stock
options previously granted to him under the Company's Option Plan.
Mr. Winslett joined the Company on October 22, 1997 at an annual base salary of
$200,000, subject to annual increases as determined by the Compensation
Committee. In the event that his employment is terminated due to death,
disability or "wrongful termination," as defined, Mr. Winslett or his heirs will
be entitled to receive his annual base compensation and health insurance
benefits for himself and his family for a period of one year, together with a
pro-rata portion of the amount of any additional bonus compensation that he
would otherwise have been entitled to during the year of such termination. If a
wrongful termination occurs within one year of a "change of control," as
defined, the total compensation due, attributable to his base annual salary and
any additional bonus compensation, is payable in a lump sum within 30 days after
such termination, and Mr. Winslett will be entitled to receive health insurance
benefits for himself and his family for a period of one year.
52
<PAGE>
In addition to the offices of Senior Vice President and Chief Financial Officer
of the Company previously held by Mr. Winslett, he was also appointed Chief
Operating Officer of the Company in October 1998, after the resignation of the
Company's President and Chief Executive Officer. Effective January 1, 1999, the
Compensation Committee authorized an increase in Mr. Winslett's annual base
salary to $230,000. The Company's employment arrangement with Mr. Winslett also
provides for the payment of annual performance-based additional bonus
compensation equal to a percentage of his base salary, based on the achievement
of certain pre-established performance objectives. During fiscal 1998, Mr.
Winslett received a $30,000 discretionary bonus approved by the Compensation
Committee. His employment arrangement also contains certain provisions with
respect to confidentiality and non-competition.
53
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
March 26, 1999 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, director and named executive
officer listed below 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 Class B Common Stock is shared by certain of the parties identified
below. Consequently, such shares may be shown as beneficially owned by more than
one person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF
------------------------------------------ TOTAL VOTING
NUMBER OF NUMBER OF POWER OF
SHARES OF CLASS A SHARES OF CLASS B OUTSTANDING
COMMON STOCK COMMON STOCK COMMON
BENEFICIAL OWNER OWNED OWNED(2) STOCK(1)
- ------------------------------------------------- ------------------- ------------------- ---------------
<S> <C> <C> <C>
Jack W. Nicklaus(3)(5)(6) 240,000 2,760,000 91.7%
Golden Bear International, Inc.(4) --- 1,320,000 43.5%
Barbara B. Nicklaus and Northern Trust
Bank of Florida, N.A., as co-trustees(5) --- 573,600 18.9%
Richard P. Bellinger(6) 2,000 --- *
Stephen S. Winslett --- --- *
Thomas P. Hislop --- --- *
Roger E. Birk 7,500 --- *
Richard F. Chapdelaine 3,150 --- *
John F. McGovern 3,000 --- *
All directors and executive officers as
a group (7 persons)(3)(5)(6) 255,650 2,760,000 91.8%
</TABLE>
- -------------------------------------------------
* Represents less than 1% of the total.
(1) The calculation of the percent of total voting power of outstanding Common
Stock is based on the respective number of shares of Class A Common Stock
and Class B Common Stock outstanding as of March 26, 1999, at which date
there were 2,744,962 shares of Class A Common Stock and 2,760,000 shares of
Class B Common Stock outstanding. Each share of Class B Common Stock
entitles the holder to ten votes.
(2) The shares of Class B Common Stock are identical to the shares of Class A
Common Stock in all respects, except for voting rights, certain conversion
rights and transfer restrictions. While 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, each share of Class B Common Stock entitles the
holder to ten votes on each such matter, including the election of
directors. 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 the transfer to a
person who is not a Nicklaus Family Member, as defined, 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.
(3) Includes the 573,600 shares of Class B Common Stock held in family trusts
for the benefit of Mr. Nicklaus' children and the 1,320,000 shares of Class
B Common Stock owned of record by International.
54
<PAGE>
(4) Mr. Nicklaus is the Chairman of the Board and the beneficial owner of the
controlling interest in International and, accordingly, is deemed to
beneficially own all such shares.
(5) All 573,600 shares of Class B Common Stock are held by Mrs. Nicklaus and
Northern Trust Bank of Florida, N.A. as co-trustees of trusts for the
benefit of Mr. and Mrs. Nicklaus' children. Mrs. Nicklaus and Northern
Trust Bank of Florida, N.A. 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.
(6) During 1998, Mr. Nicklaus acquired an aggregate of 240,000 shares of Class
A Common Stock formerly held by certain former executive officers of the
Company. Such shares had been pledged to Mr. Nicklaus to secure loans made
by him to such individuals. These shares were also subject to shareholder
agreements with Mr. Nicklaus, granting him the right to vote the shares
until they were sold or otherwise transferred to a third party and imposing
certain limitations on the transfer of such shares. With respect to the
purchase of the shares, Mr. Nicklaus purchased a total of 120,000 shares
from Mr. Bellinger in exchange for discharging principal of $300,000 plus
accrued interest on the loan he previously had advanced to Mr. Bellinger,
and 40,000 shares each from Messrs. Hislop, Hesemann (former Senior Vice
President of the Company) and Bates (former Chief Financial Officer of the
Company) in exchange for discharging principal of $100,000 plus accrued
interest on the loans he had previously advanced to each of these
individuals.
55
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ARRANGEMENTS WITH INTERNATIONAL
Under the terms of a design services marketing agreement, the Company had
marketed golf course designs for Nicklaus Design, a division of International,
pursuant to which the Company generally had been entitled to commissions equal
to 10% of the gross design fees collected by Nicklaus Design for its role in
marketing such design services. Effective January 1, 1998, the design services
marketing agreement was terminated in connection with an organizational
realignment, pursuant to which International assumed certain financial
obligations of the Company to employees and third parties formerly involved in
the design marketing function, and the Company secured an exclusive commitment
from International to continue the marketing of construction services to
Nicklaus Design clients and prospects.
Effective December 18, 1998, the Company, International and Jack Nicklaus
(collectively, the "Company Affiliates") entered into an agreement with Weitz
Golf International LLC ("Weitz Golf"), pursuant to which the Company Affiliates
will provide certain technical and marketing assistance in connection with the
construction services offered by Weitz Golf, which include general contracting,
design-build and construction management. Under the agreement, the Company
agreed to no longer offer construction services independently during the term of
the agreement which expires on December 31, 2007. The Company is entitled to
receive 40% of the net profits, as defined, received by Weitz Golf pursuant to
the contracts it enters into during the term of the agreement. There were no
significant operations of Weitz Golf during 1998.
Pursuant to the terms of a personal services management agreement, International
and Jack Nicklaus have retained the Company as the exclusive manager and
representative to market the personal endorsement services of Mr. Nicklaus,
under which the Company is generally entitled to approximately 20% to 30% of the
personal endorsement fees received by Mr. Nicklaus. During fiscal 1998, the
Company earned management fees attributable to providing such services of
$571,749. At December 31, 1998, the Company had a net amount due from
International of $41,812, which was comprised primarily of the management fees
attributable to such personal endorsement services performed by Mr. Nicklaus.
The Company has an office staff sharing agreement with International which
provides for the sharing of the services of certain specifically identified
office staff and personnel that can effectively serve the needs of both
organizations. A total of $111,000 attributable to payroll and related costs
associated with such shared employees was allocated to International during
fiscal 1998.
Mr. Nicklaus provides services in various capacities to International and its
affiliates on an ongoing basis. During fiscal 1998, Mr. Nicklaus received a
salary from International for services rendered to International and its
affiliates. Additionally, under the terms of his employment agreement with the
Company, Mr. Bellinger was required to dedicate at least 90% of his business
time to managing the affairs of the Company during 1998 and the remainder of his
business time could be spent on management of other entities, including
International. During fiscal 1998, Mr. Bellinger received a salary of $68,333
for his services performed on behalf of International and its affiliates through
the effective date of his resignation with the Company. Concurrent with his
resignation from the Company on August 31, 1998, International entered into an
agreement to retain Mr. Bellinger as an independent consultant to International
and Jack Nicklaus at an annual fee of $100,000 payable in semi-monthly
installments over the four-year term of such agreement. During the last four
months of 1998, Mr. Bellinger earned consulting fees in this capacity
aggregating $33,000. Additionally, during fiscal 1998, Mr. Bellinger and Mr.
Hislop each were paid $61,000 by International representing deferred
compensation that had been accrued for services performed in previous years
prior to fiscal 1998. Such deferred compensation had been charged to the
operations of International in previous years, and accordingly, none of the
expense associated with such deferred compensation has been reflected in the
historical financial statements of the Company.
56
<PAGE>
Pursuant to a special meeting of the Board of Directors of the Company held on
April 15, 1999, the Company's Board of Directors approved the terms of a
settlement with a former customer of Paragon. Paragon had been engaged by this
customer (the "Developer") to construct a golf course located in San Jose,
California ("California Project") and one located in Orlando, Florida ("Florida
Project"). Nicklaus Design, a division of International, designed both of the
golf course projects. In addition, the Florida Project is owned by a partnership
controlled by the Developer in which International has a 25% limited partner
interest. After Paragon was unable to complete these projects, Paragon and the
owners of the projects entered into a Settlement Agreement and Release of
Claims. Subsequent to and notwithstanding the terms of this settlement, issues
arose regarding responsibility for certain cost overruns that were incurred in
connection with the construction of the golf courses. Based upon an assessment
of the potential risks and costs of litigation, the Company's Board of Directors
approved a revised settlement pursuant to which Paragon will agree to pay the
Developer certain of the amounts at issue.
With regard to the California Project, the Board of Directors authorized Paragon
to pay the Developer $785,436 in the form of a promissory note bearing interest
at an annual rate of 10%, payable in quarterly installments of principal and
interest over three years. With regard to the Florida Project, the Board of
Directors authorized Paragon to pay the Developer $496,171 evidenced by a
promissory note bearing interest at an annual rate of 10%, payable in quarterly
installments of principal and interest over five years. Mr. Nicklaus or
International may be required to guarantee these notes. In connection with the
settlement approved by the Company's Board of Directors, International agreed to
credit any payments to which it would otherwise be entitled to for the design
services performed by Nicklaus Design at these two projects, against the
respective notes payable to be issued by Paragon to the Developer. To the extent
that such payments are applied against the obligations due to the Developer,
Paragon will deliver notes in the amount of any such credits to International
with interest payable quarterly at an annual rate of 8% and the entire principal
payable at the maturity of the respective original notes delivered to the
Developer.
NICKLAUS GOLF EQUIPMENT COMPANY, L.C.
In the ordinary course of business, the Company purchases golf equipment
manufactured by Nicklaus Golf Equipment Company, L.C., a privately owned company
in which Jack Nicklaus has a 50% equity interest. Such equipment is currently
purchased primarily for promotional programs associated with the Company's
Nicklaus Flick Golf Schools. Prior to the sale of the Company's wholly-owned
Golf Centers subsidiary which closed on July 20, 1998, such equipment was also
purchased for resale in the pro shops of the Company's golf center facilities.
During fiscal 1998, the Company purchased such golf equipment at an aggregate
cost of $163,691.
EXECUTIVE SPORTS INTERNATIONAL
During the year ended December 31, 1998, the Company paid $93,243 to Executive
Sports International, a privately held company owned in part by a member of the
Nicklaus family, for certain printing and graphics services.
JACK NICKLAUS
In July 1998, Jack Nicklaus advanced $2.4 million to the Company evidenced by an
unsecured five-year promissory note. The loan proceeds were used by the Company
in connection with the settlement of certain claims associated with a golf
course development project.
During July 1998, Jack Nicklaus advanced the Company $850,000 pursuant to the
terms of a subordinated short-term loan which was used as bridge financing for
the Company pending the closing of the sale of Golf Centers. The Company repaid
all such advances under the subordinated short-term loan in August 1998, using
proceeds from the sale of Golf Centers.
57
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company are set forth in Part II,
Item 8 of this report.
(2) Financial Statement Schedule II, Valuation and Qualifying
Accounts for the Years Ended December 31, 1998, 1997 and 1996 is
submitted herein.
Separate Financial Statements of Subsidiary Not Consolidated -
Jack Nicklaus Apparel International, as of and for the Year
Ended December 31, 1998.
(3) Exhibits are set forth in the Index to Exhibits included
elsewhere herein.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of the
fiscal year ended December 31, 1998.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (2) above.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 14, 1999.
GOLDEN BEAR GOLF, INC.
By: /s/ Stephen S. Winslett
------------------------------------------------
Stephen S. Winslett
Senior Vice President, Chief Financial Officer
and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on May 14, 1999.
Signature Title
--------- -----
/s/ Jack W. Nicklaus Director and Chairman of the Board
- ----------------------------------------
Jack W. Nicklaus
/s/ Stephen S. Winslett Senior Vice President, Chief
- ---------------------------------------- Financial Officer and Chief
Stephen S. Winslett Operating Officer (Principal
Executive, Financial and Accounting
Officer)
/s/ Roger E. Birk Director
- ----------------------------------------
Roger E. Birk
/s/ Richard F. Chapdelaine Director
- -----------------------------------------
Richard F. Chapdelaine
/s/ John F. McGovern Director
- ------------------------------------------
John F. McGovern
59
<PAGE>
SCHEDULE II
GOLDEN BEAR GOLF, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------- -----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND AMOUNTS END
DESCRIPTION OF YEAR EXPENSES WRITTEN OFF OF YEAR
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts $ 106,649 $ 45,870 $ 956 $ 151,563
Valuation allowance for deferred
tax assets -- 539,000 -- 539,000
=========== =========== =========== ===========
$ 106,649 $ 584,870 $ 956 $ 690,563
=========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1997:
Allowance for uncollectible accounts $ 151,563 $ 80,250 $ 179,313 $ 52,500
Valuation allowance for deferred
tax assets 539,000 8,880,116 -- 9,419,116
=========== =========== =========== ===========
$ 690,563 $ 8,960,366 $ 179,313 $ 9,471,616
=========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1998:
Allowance for uncollectible accounts $ 52,500 $ 384,995 $ 156,807 $ 280,688
Valuation allowance for deferred
tax assets 9,419,116 8,074,507 -- 17,493,623
=========== =========== =========== ===========
$ 9,471,616 $ 8,459,502 $ 156,807 $17,774,311
=========== =========== =========== ===========
</TABLE>
60
<PAGE>
SEPARATE FINANCIAL STATEMENTS OF
SUBSIDIARY NOT CONSOLIDATED
JACK NICKLAUS APPAREL INTERNATIONAL
FINANCIAL STATEMENTS
TOGETHER WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
NOVEMBER 30, 1998
61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Joint Venture Partners of Jack Nicklaus Apparel International:
We have audited the accompanying balance sheet of Jack Nicklaus Apparel
International as of November 30, 1998 and the related statements of operations,
partners' equity and cash flows for the fiscal year 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Jack Nicklaus Apparel
International as of November 30, 1998 and the results of its operations and its
cash flows for the fiscal year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
April 20, 1999.
62
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
BALANCE SHEET
NOVEMBER 30,
1998
------------
ASSETS
CURRENT ASSETS:
Cash $145,227
Accounts receivable, net of allowance of $42,657 781,999
--------
Total current assets 927,226
INVESTMENT IN AFFILIATED COMPANY 49,863
--------
Total assets $977,089
========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,329
Accrued commissions 128,055
Accrued income taxes 60,517
Accrued liabilities 28,900
--------
Total current liabilities 262,801
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' EQUITY 714,288
--------
Total liabilities and partners' equity $977,089
========
The accompanying notes to the financial statements are an
integral part of this balance sheet.
63
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF OPERATIONS
FISCAL YEAR
ENDED
NOVEMBER 30,
1998
-------------
REVENUES $ 2,052,410
-------------
OPERATING EXPENSES:
Selling, general and administrative expenses 435,673
Write-off of other assets 59,650
Amortization 24,603
-------------
Total operating expenses 519,926
-------------
Operating income 1,532,484
GAIN ON FOREIGN CURRENCY TRANSACTIONS, net 64,385
-------------
Income before income taxes and equity
income in affiliated company 1,596,869
PROVISION FOR INCOME TAXES 191,548
-------------
Income before equity income in affiliated company 1,405,321
EQUITY INCOME IN AFFILIATED COMPANY 15,965
-------------
Net income $ 1,421,286
=============
The accompanying notes to the financial statements are an
integral part of this statement.
64
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF PARTNERS' EQUITY
TOTAL
-----------
BALANCE, November 30, 1997 $ 579,002
-----------
Net income 1,421,286
Distributions to partners (1,286,000)
-----------
BALANCE, November 30, 1998 $ 714,288
===========
The accompanying notes to the financial statements are an
integral part of this statement.
65
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF CASH FLOWS
FISCAL YEAR
ENDED
NOVEMBER 30,
1998
-------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,421,286
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of other assets 59,650
Amortization 24,603
Provision for uncollectible accounts 42,657
Equity income in affiliated companys (15,965)
Changes in assets and liabilities:
Accounts receivable 155,119
Accounts payable (274,089)
Accrued commissions 3,455
Accrued income taxes (71,368)
Accrued liabilities 8,900
-------------
Net cash provided by operating activities 1,354,248
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (1,286,000)
-------------
Net increase in cash 68,248
CASH, beginning of year 76,979
-------------
CASH, end of year $ 145,227
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ --
=============
Cash paid for income taxes $ 262,916
=============
The accompanying notes to the financial statements are an
integral part of this statement.
66
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Jack Nicklaus Apparel International ("JNAI") is a joint venture between Golden
Bear Apparel International, Inc. and another company. The joint venture was
formed on March 29, 1983 for the purpose of securing licensees and entering into
license agreements for the use of the name and likeness of Jack Nicklaus,
including the facsimile signature of JACK NICKLAUS and the GOLDEN BEAR
trademarks in connection with the manufacture, advertisement, promotion and sale
of wearing apparel and other products throughout the world, except the United
States, Mexico and Puerto Rico. JNAI licenses the JACK NICKLAUS and GOLDEN BEAR
trademarks under a sublicense agreement with Golden Bear Golf, Inc., which owns
all of the issued and outstanding capital stock of Golden Bear Apparel
International, Inc.
The joint venture agreement provides that any capital contributions required by
JNAI be made in equal amounts by each of its two partners. Additionally,
substantially all items of net income earned or net losses incurred by JNAI are
allocated to its two partners in equal shares. JNAI may set aside reasonable
cash reserves for working capital purposes and for the payment of the expenses
of the venture along with other obligations and contingencies. However, all
remaining funds of JNAI are required to be distributed at least annually to the
partners. Neither partner of JNAI may assign or otherwise transfer any of its
interest in JNAI without the consent of the other partner.
The joint venture agreement provides that JNAI shall continue until December 31,
2000, unless otherwise terminated prior to that date by the mutual consent of
both partners or by operation of law. However, the termination date set forth in
the joint venture agreement can be extended by mutual consent of both partners.
Upon termination of JNAI, its net remaining assets are to be distributed to its
two partners in the manner set forth in the joint venture agreement, which
generally provides for distributions of equal amounts.
Although JNAI conducts its operations in the United States, substantially all of
its revenues are received from licensees located in the Asia Pacific region,
primarily Japan and Korea. All of the revenues of JNAI's licensees are generated
in foreign currencies. The licensees pay their license fees to JNAI denominated
in their respective functional currencies which are then converted to 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 U.S. dollar could have a material
adverse effect on JNAI's future profitability. To the extent that the Asia
Pacific markets are volatile and unfavorably impact JNAI's customers, such
events could have an adverse effect on JNAI's operations in future periods.
CASH
Cash is comprised of funds on deposit in non-interest bearing checking accounts
with two banks.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Revenues are recognized based on the licensing agreements with licensees, which
generally provide that JNAI is entitled to a percentage of the sales of
qualifying apparel and other products as reported by the licensees. JNAI
collects its licensing fees from customers based on various predetermined
intervals of time throughout its fiscal year, as set forth in the respective
agreements with its licensees.
67
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (CONTINUED)
ACCRUED COMMISSIONS
Accrued commissions are payable to an officer of JNAI in lieu of fixed
compensation for certain marketing and other promotional services performed on
behalf of JNAI. Such commission are based on 33.3% of operating profits as
defined.
WRITE-OFF OF OTHER ASSETS
JNAI had previously incurred certain promotional costs totaling $110,713 in
connection with a specific licensing agreement which had been deferred and were
being amortized over the 36 month term of the related arrangement. Such costs,
net of accumulated amortization of $51,063, were written-off as of July 31, 1998
upon the termination of JNAI's agreement with the licensee, resulting in the
recognition of a $59,650 loss.
INCOME TAXES
For Federal income tax purposes, JNAI is treated as a partnership and
accordingly, the components of its taxable income or loss are allocated to the
two partners in accordance with the joint venture agreement, which generally
provides that such items are to be allocated in equal amounts to each partner.
As such, JNAI as an entity is not subject to Federal income taxes. However,
JNAI's licensees typically deduct amounts attributable to foreign income taxes
payable to their respective foreign taxing authorities from the licensing fees
otherwise due to JNAI. The partners of JNAI receive a pro-rata credit for such
foreign taxes paid against their taxable income for U.S. Federal income tax
purposes.
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.
Significant estimates made by management include the allowance for doubtful
accounts receivable. Actual results could differ from those estimates.
FOREIGN EXCHANGE INSTRUMENTS
JNAI is exposed to the impact of foreign currency fluctuations. Such exposure to
market risk is inherent in certain of JNAI's financial instruments which arise
from transactions entered into in the normal course of business. JNAI has
significant operations in Asia and as a result, its financial performance could
be affected by significant fluctuations in foreign exchange rates. To mitigate
potential adverse trends, JNAI has historically entered into various hedging
contracts to protect the value of its anticipated receipt of a portion of the
royalty payments denominated in Japanese Yen. It is JNAI's policy to enter into
such foreign currency hedging transactions only to the extent considered
necessary to protect the values of such royalties, and JNAI does not enter into
foreign currency transactions for speculative purposes. At November 30, 1998,
JNAI's notional outstanding amount for currency forward contracts was
approximately $256,600 maturing in February 1999. In December 1998, JNAI entered
into currency forward contracts with notional amounts of $329,058 and $261,478
maturing in July 1999 and August 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Cash, accounts receivable, accounts payable and
accrued liabilities are stated at cost which approximates fair value.
68
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (CONTINUED)
ACCOUNTING PRONOUNCEMENTS
Required for 1998 financial statements, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. This statement requires
that an enterprise (i) classify items of other comprehensive income by their
nature in financial statements and (ii) display the accumulated balance of other
comprehensive income separately from retained deficit and additional paid-in
capital in the equity section of the balance sheets. Comprehensive income is
defined as the change in equity during the financial reporting period of a
business enterprise resulting from non-owner sources. During the fiscal year
ended November 30, 1998, JNAI did not have any changes in its equity resulting
from such non-owner sources, and accordingly, comprehensive income as set forth
by SFAS No. 130 was equal to the net income presented in the accompanying
Statement of Operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value depends on the intended
use of the derivative and the resulting designation. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. JNAI does
not believe that the adoption of SFAS No. 133 will have a material effect on its
financial position or results of operations.
2. INVESTMENT IN AFFILIATED COMPANY
JNAI has a 30% equity interest in certain operations of JNJ, Inc. ("JNJ"), which
receives specific royalties from other licensees of JNAI in exchange for
providing certain marketing and advertising services. JNAI's net equity earnings
in the operations of JNJ for the fiscal year ended November 30, 1998 were not
material to the results of its operations.
3. RELATED PARTY TRANSACTIONS
Certain administrative functions are performed for JNAI by its partners for
which no amounts are charged to JNAI. Additionally, certain administrative
expenses of JNAI are paid directly by the partners. Management does not believe
the costs related to the administrative functions or administrative expenses are
material to the financial position or results of operations of JNAI.
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the nature of JNAI's operations may result in
claims for damages. In the opinion of management, there are no pending legal
proceedings that would have a material effect on JNAI's financial position or
results of operations.
69
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
2 Agreement and Plan of Reorganization (incorporated by reference
to Exhibit 2.1 to the Registrant's Registration Statement on
Form S-1, Commission File No. 0-21089).
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Commission File No. 0-21089).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit
3.3 to the Registrant's Registration Statement on Form S-1,
Commission File No. 0-21089).
4 Form of Class A Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1, Commission File No. 0-21089).
10.1 Form of Registration Rights Agreement (incorporated by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, Commission File No. 0-21089).
10.2 The Golden Bear Golf, Inc. 1996 Stock Option Plan (incorporated
by reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1, Commission File No. 0-21089).
10.3 Consulting Agreement, dated October 12, 1998, between Golden
Bear Golf, Inc. and Richard P. Bellinger.
10.4 Consulting Agreement, dated December 15, 1998, between Golden
Bear Golf, Inc. and Thomas P. Hislop.
10.5 Loan Agreement, dated July 13, 1998, between Golden Bear Golf,
Inc. and Jack W. Nicklaus.
10.6 Promissory Note in the amount of $2.4 million, dated July 13,
1998, issued by Golden Bear Golf, Inc. to Jack W. Nicklaus c/o
Golden Bear International, Inc.
10.7 Form of Indemnification Agreement between Golden Bear Golf,
Inc. and each of its Directors and Executive Officers
(incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1, Commission File No.
0-21089).
10.8 Amended and Restated Joint Venture Agreement, dated June 1,
1994 of Jack Nicklaus Apparel International, a joint venture
between Seaford Clothing Company and Golden Bear International,
Inc. (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1, Commission
File No. 0-21089).
10.9 Master Apparel Agreement, dated June 1, 1993, by and between
Golden Bear International, Inc., Hart Schaffner & Marx and
Hartmarx Corporation (incorporated by reference to Exhibit 10.9
to the Registrant's Registration Statement on Form S-1,
Commission File No. 0-21089).
10.10 Trademark License Agreement, dated June 7, 1996, between Golden
Bear International, Inc. and Golden Bear Golf, Inc.
(incorporated by reference to Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996).
70
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
10.11 Stock Purchase Agreement between Family Golf Centers, Inc. and
Golden Bear Golf, Inc., dated as of June 16, 1998 (incorporated
by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K, dated July 20, 1998).
10.12 Licensing Agreement between Family Golf Centers, Inc. and
Golden Bear Golf, Inc., dated as of July 20, 1998 (incorporated
by reference to Exhibit 2.2 to the Registrant's Current Report
on Form 8-K, dated July 20, 1998).
10.13 Referral, Participation and Noncompete Agreement, dated
December 18, 1998, by and among Jack Nicklaus, Golden Bear
International, Inc., Golden Bear Golf, Inc., The Weitz Company,
Inc. and Weitz Golf International, LLC.
10.14 Office Staff and Equipment Service Agreement, dated June 7,
1996, between Golden Bear International, Inc. and Golden Bear
Golf, Inc. (incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.15 Personal Services Management Agreement, dated June 7, 1996,
between Golden Bear Golf, Inc., Golden Bear International, Inc.
and Jack W. Nicklaus (incorporated by reference to Exhibit
10.12 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.16 Shareholders' Agreement, dated July 15, 1996, among Nicklaus
Family Members and Golden Bear Golf, Inc. (incorporated by
reference to Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996).
10.17 Shareholders' Agreement, dated July 15, 1996, among certain
executives of Golden Bear Golf, Inc., Jack W. Nicklaus and
Golden Bear Golf, Inc. (incorporated by reference to Exhibit
10.21 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (for SEC use only).
71
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.3 Consulting Agreement, dated October 12, 1998, between Golden
Bear Golf, Inc. and Richard P. Bellinger.
10.4 Consulting Agreement, dated December 15, 1998, between Golden
Bear Golf, Inc. and Thomas P. Hislop.
10.5 Loan Agreement, dated July 13, 1998, between Golden Bear Golf,
Inc. and Jack W. Nicklaus.
10.6 Promissory Note in the amount of $2.4 million, dated July 13,
1998, issued by Golden Bear Golf, Inc. to Jack W. Nicklaus c/o
Golden Bear International, Inc.
10.13 Referral, Participation and Noncompete Agreement, dated
December 18, 1998, by and among Jack Nicklaus, Golden Bear
International, Inc., Golden Bear Golf, Inc., The Weitz Company,
Inc. and Weitz Golf International, LLC.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (for SEC use only).
EXHIBIT 10.3
Mr. Richard P. Bellinger
October 12, 1998
October 12, 1998
Mr. Richard P. Bellinger
157 Commodore Drive
Jupiter, FL 33477
Re: CONSULTING AGREEMENT
Dear Dick:
This will confirm our mutual agreements and understandings regarding your
retention as an independent consultant to Golden Bear Golf, Inc. ("GB Golf"),
after the effective date of the resignation of your employment, as follows:
1.By this Agreement, GB Golf hereby retains your services during the term (as
set forth in section 5, below) as a consultant and independent contractor to
provide your personal knowledge, experience and expertise to the staff of GB
Golf and its subsidiary corporations on a non-exclusive basis. It is understood
that your services under this agreement will not require your full time and
attention, and that you will be free to accept other employment or business
opportunities during the term, provided that you notify the Board of Directors
of GB Golf at the time you agree to engage in such other activities and make
reasonable efforts to perform those services required by GB Golf under this
agreement within a mutually agreeable time frame. Duties delegated to you under
this agreement may include assisting the legal counsel and accounting firms
retained by the Company in connection with their preparation of the Company's
defense to litigation involving the Company and the Company's response to
investigative proceedings involving alleged securities law violations during the
term of your employment and other reasonable projects which utilize your
personal services to provide historical background or resolve operational issues
arising out of the business of GB Golf or its affiliates, including those
services set forth in the Cooperation Agreement annexed hereto as Schedule "1",
which Agreement shall be delivered simultaneously with the execution of this
Agreement. It is contemplated that your services will be rendered from your home
or the offices of GB Golf in Palm Beach County, Florida, provided however, that
your participation in off-site meetings and judicial or administrative
proceedings may require you to travel on reasonable advance notice, subject to
GB Golf's payment of your reasonable expenses for such travel as provided below.
<PAGE>
Mr. Richard P. Bellinger
October 12, 1998
2.As compensation for your services under this agreement, you will be entitled
to receive a consulting fee in the amount of one hundred thousand dollars
($100,000) per year, which fee will be paid in equal semi-monthly installments
at the time of payment of GB Golf's normal payroll to its employees. You will
not be required to record the time spent by you on work assigned to you under
this Agreement, and the agreed consulting fee will be paid in full as a retainer
for your services regardless of the number of hours actually devoted by you to
the business of GB Golf. We agree to make the payments due hereunder to Golf
Advice, Inc., provided, however, that such payments shall not relieve you of
your personal obligations hereunder.
3.As an independent contractor, you will be responsible for independently
managing your business under this Agreement, and for payment of all overhead and
general and administrative expenses incurred by you in performing services
hereunder unless otherwise expressly agreed to in advance by GB Golf with
respect to a particular project which requires substantial resources other than
your personal services and normal home office equipment and services. GB Golf
will pay any out-of-pocket expenses required for your business travel or third
party services if required in connection with services requested from you, and
you will not be required or permitted to incur any payment obligations for such
expenses on behalf of GB Golf or to obtain reimbursement for such expenses
without the prior express written consent of the person requesting you to
provide the services which require such expenses. You will be solely responsible
for timely reporting and payment of any and all taxes based upon the
compensation due to you under this Agreement including, but not limited to,
federal and state income taxes, and for meeting the requirements of workman's
compensation laws and any local occupational licensing ordinances applicable to
your consulting business.
4.You acknowledge that you will be acting as an independent contractor at all
times with respect to the duties delegated to you by GB Golf hereunder, and GB
Golf shall not be responsible for the methods or means utilized by you to
perform your duties or for any liabilities arising out of your actions, errors
or omissions in the performance of such duties. You agree that you shall not
represent yourself or hold yourself out to any party as an employee, agent,
partner or joint venturer with GB Golf with respect to any of the projects
assigned to you, nor shall you purport to otherwise act on behalf of GBI or its
affiliates unless expressly authorized to do so in writing by an officer of the
party giving such authorization.
5.The term of this agreement shall be for four (4) years, commencing on the
"Effective Date" of the resignation of your current employment under that
certain letter agreement of even date between you and GB Golf, unless otherwise
terminated as provided herein. Either party shall have the right to terminate
this Agreement on at least thirty (30) days prior written notice to the other
party in the event of a material breach by such other party, unless the breach
identified in such notice is cured within the thirty (30) day notice period. In
the event of any early termination of this agreement, you will have no
obligation to furnish any
<PAGE>
Mr. Richard P. Bellinger
October 12, 1998
further consulting services to GB Golf or its subsidiaries, and you will be
entitled to a final compensation payment for the month in which such termination
occurs prorated according to the number of days elapsed since your last regular
fee payment.
6.If any term, provision or section of this agreement is held unenforceable or
invalid under any applicable law or regulation by any court or competent
governmental authority having jurisdiction, the unenforceability or invalidity
of such term, provision or section shall not preclude the effectiveness of any
other term, provision or section unless the effectiveness thereof would result
in unjust enrichment or extreme hardship to either of the parties hereto or
would otherwise frustrate the basic intent of any material part of the bargain
represented hereby. This provision shall not prevent either party from seeking
reformation or rescission in any appropriate case in order to prevent an
inequitable application of this agreement.
7.This Agreement represents the entire agreement of the parties with respect to
the retention of consultant as an independent contractor to GB Golf after the
termination of his current employment and the agreed compensation for his
services in that capacity, supersedes all previous writings and communications,
and may be modified, enlarged or amended only by a writing signed by both
parties to this Agreement and any other parties to be charged with such
modification, enlargement or amendment.
8.The parties hereto agree that the specific terms and details of this Agreement
are strictly confidential and that each party will make every effort to ensure
that such information is not disclosed to any outside persons or entities
without the prior consent of the other party. Notwithstanding the foregoing, the
parties acknowledge that GB Golf may be required to make financial disclosures
regarding this agreement as required under applicable securities laws and
regulations, and that such disclosures shall not be deemed a violation of this
section. You agree that you will maintain the confidentiality of information
provided to or generated or obtained by you in connection with your consulting
services under this agreement, including information privileged from disclosure,
confidential business information and other non-public information concerning GB
Golf and its affiliates disclosed to or reviewed with you as a consultant,
unless required to do so by subpoena, court order, deposition, or as otherwise
required by law; provided, however, that you shall give the Company sufficient
notice of any deposition subpoena or court order in order to allow the Company
to oppose or object to same. Without the prior written consent of the Board of
Directors of GB Golf, you will not disclose, nor attempt to disclose any such
information to any person, unless required to do so by subpoena, court order,
deposition, or otherwise as required by law; provided, however, that you shall
give the Company sufficient notice of any deposition subpoena or court order in
order to allow the Company to oppose or object to same, or to use such
information for any business or personal purposes. You acknowledge that GB Golf
and its affiliates may be irreparably harmed by a violation of this section, and
that GB Golf will be entitled to obtain restraining orders and other injunctive
relief to prevent or limit the effects of any violation pending arbitration and
to recover the expenses of any such action from you, including attorneys' fees.
9.This agreement shall be construed and enforced in accordance with the internal
laws of the State of Florida without regard to conflicts of laws rules which
might otherwise be applied. The
<PAGE>
Mr. Richard P. Bellinger
October 12, 1998
parties agree, except as otherwise expressly set forth herein, that all disputes
involving the construction or enforcement of this agreement shall be resolved by
binding arbitration before a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") and the
Federal and Florida Arbitration Acts. The parties agree that the location of any
such arbitration shall be North Palm Beach, Florida, unless otherwise agreed at
the time the dispute is submitted to the AAA. In accordance with the Federal and
Florida Arbitration Acts, any party may apply to any court of competent
jurisdiction to compel arbitration in accordance with this subsection or to
enforce any award rendered by the arbitrator in a proceeding conducted hereunder
in accordance with its terms. Unless otherwise agreed in writing by the parties,
legal action to compel any arbitration involving the construction or enforcement
of this agreement may be brought by either party in that State or Federal Court
having subject matter jurisdiction over the cause which is located in Palm Beach
County, Florida, and each of the parties to this agreement hereby agrees to
submit to the personal jurisdiction of such Courts regardless of the domicile of
such party at the time such action is filed.
10.This Agreement shall terminate and be of no further force or effect in the
event that the Company files a voluntary petition under any Chapter of the
United States Bankruptcy Code or similar insolvency law with any jurisdiction or
proposes a dissolution or liquidation or Company has filed against it any
petition under any Chapter of the United States Bankruptcy Code, or similar
insolvency laws of any jurisdiction, and such petition is not dismissed within
one hundred and eighty (180) days.
We trust that the foregoing letter accurately reflects your understanding of our
agreement regarding your retention as a consultant to GB Golf. Please sign and
return one counterpart of this letter as evidence of your understanding of the
above points of agreement and your agreement to be bound thereby. We look
forward to continuing our working relationship in the future under the terms
outlined above.
ACCEPTED AND AGREED TO:
Richard P. Bellinger
Date:
EXHIBIT 10.4
Mr. Thomas P. Hislop
December 15, 1998
December 15, 1998
Mr. Thomas P. Hislop
19100 S.E. County Line Road
Tequesta, FL 33469
Re: CONSULTING AGREEMENT
Dear Tom:
This will confirm our mutual agreements and understandings regarding your
retention as an independent consultant to Golden Bear Golf, Inc. ("GB Golf"),
after the effective date of the resignation of your employment, as follows:
1.By this Agreement, GB Golf hereby retains your services during the term (as
set forth in section 5, below) as a consultant and independent contractor to
provide your personal knowledge, experience and expertise to the staff of GB
Golf and its subsidiary corporations on a non-exclusive basis. It is understood
that your services under this agreement will not require your full time and
attention, and that you will be free to accept other employment or business
opportunities during the term, provided that you notify the Board of Directors
of GB Golf at the time you agree to engage in such other activities and make
reasonable efforts to perform those services required by GB Golf under this
agreement within a mutually agreeable time frame. Duties delegated to you under
this agreement may include assisting the legal counsel and accounting firms
retained by the Company in connection with their preparation of the Company's
defense to litigation involving the Company and the Company's response to
investigative proceedings involving alleged securities law violations during the
term of your employment and other reasonable projects which utilize your
personal services to provide historical background or resolve operational issues
arising out of the business of GB Golf or its affiliates, including those
services set forth in the Cooperation Agreement annexed hereto as Schedule "1",
which Agreement shall be executed and delivered simultaneously with the
execution of this Agreement. It is contemplated that your services will be
rendered from your home or the offices of GB Golf in Palm Beach County, Florida,
provided however, that your participation in off-site meetings and judicial or
administrative proceedings may require you to travel on reasonable advance
notice, subject to GB Golf's payment of your reasonable expenses for such travel
as provided below.
2.As compensation for your services under this agreement, you will be entitled
to receive a consulting fee in the amount of seventy-five thousand dollars
($75,000) per year, which fee will
<PAGE>
Mr. Thomas P. Hislop
December 15, 1998
be paid in equal semi-monthly installments at the time of payment of GB Golf's
normal payroll to its employees. You will not be required to record the time
spent by you on work assigned to you under this Agreement, and the agreed
consulting fee will be paid in full as a retainer for your services regardless
of the number of hours actually devoted by you to the business of GB Golf.
3.As an independent contractor, you will be responsible for independently
managing your business under this Agreement, and for payment of all overhead and
general and administrative expenses incurred by you in performing services
hereunder unless otherwise expressly agreed to in advance by GB Golf with
respect to a particular project which requires substantial resources other than
your personal services and normal home office equipment and services. GB Golf
will pay any out-of-pocket expenses required for your business travel or third
party services if required in connection with services requested from you, and
you will not be required or permitted to incur any payment obligations for such
expenses on behalf of GB Golf or to obtain reimbursement for such expenses
without the prior express written consent of the person requesting you to
provide the services which require such expenses. You will be solely responsible
for timely reporting and payment of any and all taxes based upon the
compensation due to you under this Agreement including, but not limited to,
federal and state income taxes, and for meeting the requirements of workman's
compensation laws and any local occupational licensing ordinances applicable to
your consulting business.
4.You acknowledge that you will be acting as an independent contractor at all
times with respect to the duties delegated to you by GB Golf hereunder, and GB
Golf shall not be responsible for the methods or means utilized by you to
perform your duties or for any liabilities arising out of your actions, errors
or omissions in the performance of such duties. You agree that you shall not
represent yourself or hold yourself out to any party as an employee, agent,
partner or joint venturer with GB Golf with respect to any of the projects
assigned to you, nor shall you purport to otherwise act on behalf of GB Golf or
its affiliates unless expressly authorized to do so in writing by an officer of
the party giving such authorization.
5.The term of this agreement shall be for two (2) years, commencing on the
"Effective Date" of the resignation of your current employment under that
certain letter agreement of even date between you and GB Golf, unless otherwise
terminated as provided herein. Either party shall have the right to terminate
this Agreement on at least thirty (30) days prior written notice to the other
party in the event of a material breach by such other party, unless the breach
identified in such notice is cured within the thirty (30) day notice period. In
the event of any early termination of this agreement, you will have no
obligation to furnish any further consulting services to GB Golf or its
subsidiaries, and you will be entitled to a final compensation payment for the
month in which such termination occurs prorated according to the number of days
elapsed since your last regular fee payment.
6.If any term, provision or section of this agreement is held unenforceable or
invalid under any applicable law or regulation by any court or competent
governmental authority having jurisdiction, the unenforceability or invalidity
of such term, provision or section shall not preclude the effectiveness of any
other term, provision or section unless the effectiveness thereof
<PAGE>
Mr. Thomas P. Hislop
December 15, 1998
would result in unjust enrichment or extreme hardship to either of the parties
hereto or would otherwise frustrate the basic intent of any material part of the
bargain represented hereby. This provision shall not prevent either party from
seeking reformation or rescission in any appropriate case in order to prevent an
inequitable application of this agreement.
7.This Agreement represents the entire agreement of the parties with respect to
the retention of consultant as an independent contractor to GB Golf after the
termination of his current employment and the agreed compensation for his
services in that capacity, supersedes all previous writings and communications,
and may be modified, enlarged or amended only by a writing signed by both
parties to this Agreement and any other parties to be charged with such
modification, enlargement or amendment.
8.The parties hereto agree that the specific terms and details of this Agreement
are strictly confidential and that each party will make every effort to ensure
that such information is not disclosed to any outside persons or entities
without the prior consent of the other party. Notwithstanding the foregoing, the
parties acknowledge that GB Golf may be required to make financial disclosures
regarding this agreement as required under applicable securities laws and
regulations, and that such disclosures shall not be deemed a violation of this
section. You agree that you will maintain the confidentiality of all non-public
information provided to, or generated or obtained by, you in connection with
your consulting services under this agreement, including information privileged
from disclosure, confidential business information and other non-public
information concerning GB Golf and its affiliates disclosed to, or reviewed
with, you as a consultant, unless required to do so by subpoena, court order,
deposition, or otherwise as required by law; provided, however, that you shall
give the Company sufficient notice of any deposition subpoena or court order in
order to allow the Company to oppose or object to same. Without the prior
written consent of the Board of Directors of GB Golf, you will not disclose, nor
attempt to disclose any such information to any person, unless required to do so
by subpoena, court order, deposition, or otherwise as required by law; provided,
however, that you shall give the Company sufficient notice of any deposition
subpoena or court order in order to allow the Company to oppose or object to
same, or to use such information for any business or personal purposes. You
acknowledge that GB Golf and its affiliates may be irreparably harmed by a
violation of this section, and that GB Golf will be entitled to obtain
restraining orders and other injunctive relief to prevent or limit the effects
of any violation pending arbitration and to recover the expenses of any such
action from you, including attorneys' fees.
9.This agreement shall be construed and enforced in accordance with the internal
laws of the State of Florida without regard to conflicts of laws rules which
might otherwise be applied. The parties agree, except as otherwise expressly set
forth herein, that all disputes involving the construction or enforcement of
this agreement shall be resolved by binding arbitration before a single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") and the Federal and Florida Arbitration Acts.
The parties agree that the location of any such arbitration shall be North Palm
Beach, Florida, unless otherwise agreed at the time the dispute is submitted to
the AAA. In accordance with the Federal and Florida Arbitration Acts, any party
may apply to any court of competent jurisdiction to compel arbitration
<PAGE>
Mr. Thomas P. Hislop
December 15, 1998
in accordance with this subsection or to enforce any award rendered by the
arbitrator in a proceeding conducted hereunder in accordance with its terms.
Unless otherwise agreed in writing by the parties, legal action to compel any
arbitration involving the construction or enforcement of this agreement may be
brought by either party in that State or Federal Court having subject matter
jurisdiction over the cause which is located in Palm Beach County, Florida, and
each of the parties to this agreement hereby agrees to submit to the personal
jurisdiction of such Courts regardless of the domicile of such party at the time
such action is filed.
10.This Agreement shall terminate and be of no further force or effect in the
event that Company files a voluntary petition under any Chapter of the United
States Bankruptcy Code or similar insolvency law with any jurisdiction or
proposes a dissolution or liquidation or Company has filed against it any
petition under any Chapter of the United States Bankruptcy Code, or similar
insolvency laws of any jurisdiction, and such petition is not dismissed within
one hundred and eighty (180) days.
We trust that the foregoing letter accurately reflects your understanding of our
agreement regarding your retention as a consultant to GB Golf. Please sign and
return one counterpart of this letter as evidence of your understanding of the
above points of agreement and your agreement to be bound thereby. We look
forward to continuing our working relationship in the future under the terms
outlined above.
ACCEPTED AND AGREED TO:
Thomas P. Hislop
Date:
EXHIBIT 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of JULY 13, 1998, by and among GOLDEN BEAR
GOLF, INC., a Florida Corporation ("Borrower") and JACK W. NICKLAUS (the
"Lender"), provides:
ARTICLE I
RECITALS AND PURPOSE OF LOAN
Subject to the terms and conditions hereinafter set forth, the Lender
agrees to lend to Borrower and Borrower agrees to borrow from the Lender, an
amount not exceeding U.S. $2,400,000.00, the proceeds of which shall be used as
set forth herein.
ARTICLE II
DEFINITIONS
The terms defined in this Article II shall for all purposes of this
Agreement have the meanings herein specified unless the context expressly or by
necessary implication otherwise requires:
"Agreement" shall mean this Loan Agreement and all written amendments
thereto.
"Borrower" shall mean Golden Bear Golf, Inc., a Florida corporation.
"Business Day" shall mean any day other than Saturday, Sunday or other
day on which commercial banks in the state of Florida are authorized or required
to close under applicable laws.
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"Closing Date" shall mean JULY 13, 1998.
"Event of Default" shall mean an event specified in /section/11.1
hereof.
"Loan" shall mean the Loan to Borrower hereunder.
"Loan Documents" shall mean collectively this Agreement, the Note, and
such additional agreements, consents, environmental indemnification agreement,
documents and instruments as may be executed pursuant to this Agreement or in
connection herewith.
"Maximum Loan Outstanding" shall mean $2,400,000.00.
"Note" shall mean the Note of Borrower evidencing the Loan.
"Person" shall mean a corporation, association, partnership,
organization, business, division, individual or government or political
subdivision thereof or any governmental agency.
"Project" shall mean the residential real estate project described on
Exhibit "A" hereto.
ARTICLE III
THE LOAN
3.1 AMOUNT. The Lender agrees, on the terms and subject to the
conditions of this Agreement, to make the Loan to Borrower in
the aggregate principal amount not to exceed U.S. $2,400,000.00.
3.2 ADVANCE PROCEDURE. Lender shall fund the entire Loan Proceeds to
Great Expectations, LLC in accordance with an Agreement dating
JULY 13, 1998.
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3.3 NOTE. The Loan shall be evidenced by the Note, dated as of the
Closing Date in the face principal amount of U.S. $2,400.000.00
payable to the order of the Lender.
3.4 PROCEEDS. The proceeds of the Loan shall be utilized solely in
connection with the Project.
3.5 PREPAYMENT. Prepayment shall be remitted at any time without
penalty.
ARTICLE IV
THIS SECTION INTENTINALLY DELETED.
ARTICLE V
THIS SECTION INTENTINALLY DELETED
ARTICLE VI
PROFIT PARTICIPATION
6.1 DESCRIPTION. Lender is receiving a profit participation in a
certain residential real estate project described in the
Agreement. As long as there is no event of default by Borrower
hereunder, the first $2,400,000.00 of any distributions to
Lender shall be applied to the principal of the Loan. If the
Loan has been satisfied, the distributions (up to a total of
$2,400,000) shall be paid to Borrower.
ARTICLE VII
CONDITIONS OF LENDING
The obligation of the Lender to make the Loan hereunder is subject to
the accuracy of the representations and warranties contained in Article VIII,
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to the performance by the Borrower of its obligations to be performed hereunder
and to the satisfaction of the following further conditions:
7.1 LOAN ADVANCE.
(a) The representations and warranties set forth in Article
VIII shall be true and correct in all material respects
on and as of the date of the Loan advance with the same
effect as though such representations and warranties had
been made on and as of such date.
(b) Borrower shall be in compliance with all the terms and
provisions set forth herein on its part to be observed
or performed, no Event of Default nor any event which
upon notice or lapse of time or both would constitute
such an Event of Default, shall have occurred and be
continuing.
7.2 CLOSING CONDITIONS. The following conditions shall be satisfied
prior to funding of the Loan, as applicable:
(a) At Closing, the Borrower shall have delivered to the
Lender a duplicate original of this Agreement executed
by Borrower.
(b) At Closing, the Borrower shall have delivered to the
Lender the Note, executed by Borrower.
(c) At closing and thereafter as determined by Lender, the
Borrower shall have executed and delivered to the Lender
such other Loan Documents (if any) as may be appropriate
under the terms of this Agreement, all in form and
substance acceptable to Lender, including, but not
limited to, the Environmental Indemnification Agreement
executed by Borrower.
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(d) At Closing, the Borrower, shall have delivered to the
Lender copies of corporate resolutions adopted by the
Board of Directors of the Borrower, and certified by its
secretary, duly authorizing the execution, delivery and
performance of this Agreement, the Note and the other
Loan Documents and all transactions and documents
contemplated hereby and thereby.
(e) As determined by Lender, the Borrower shall have
delivered to the Lender true copies of all third party
consents and required governmental approvals, if any,
necessary to the execution, delivery and performance of
this Agreement, the Note, and the other Loan Documents
and the transactions contemplated hereby or thereby.
(f) No event shall have occurred and be continuing which
constitutes an Event of Default, or which would
constitute an Event of Default but for a requirement
that notice be given or that a period time elapse, or
both.
All legal matters incident to the Loan, and all advances thereof, and
all documents and instruments to be delivered hereunder or pursuant hereto or
thereto, shall in all events be satisfactory in form and substance to counsel
for the Lender.
ARTICLE VIII
GENERAL REPRESENTATIONS AND WARRANTIES
Borrower represents and warrant to the Lender, as of the date of this
Agreement (unless otherwise specified) and as of the date of each advance of the
Loan that:
8.1 INCORPORATION, QUALIFICATION, PROPERTIES. Borrower is a Florida
corporation duly organized, existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) entitled
to own its respective properties and carry on its business as
now conducted and presently contemplated, and (iii) qualified to
do business in each jurisdiction in which it does business.
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8.2 CORPORATE AUTHORITY. Borrower has the necessary corporate power
to enter into, and has taken all necessary corporate action to
authorize, the execution, delivery and performance of, this
Agreement, and all transactions and Loan Documents contemplated
hereby and thereby.
8.3 BINDING EFFECT AND ENFORCEABILITY. This Agreement constitutes,
and all other Loan Documents, when issued and delivered pursuant
hereto for value received, will constitute, legal, valid and
binding obligations of the Borrower, enforceable against
Borrower in accordance with the terms thereof.
8.4 NO CORPORATE OR CONTRACT VIOLATION. There is no provision of law
or in the charter or by-laws of Borrower and, no provision of
any existing mortgage, contract, lease, indenture or agreement
binding on it or any of its properties which would be
contravened by the making and delivery of this Agreement, or any
of the other Loan Documents, or by the performance or observance
of any of the terms hereof or thereof.
8.5 APPROVALS. The execution, delivery and performance of this
Agreement, and the transactions contemplated hereby, do not
require any approval or consent of, or filing or registration
with, any governmental or any other agency or authority, or
stockholders, or of any other party, or, if any such approval is
require, the same has been obtained.
8.6 TRUE STATEMENTS. Neither this Agreement or any written statement
or certificate furnished by the borrower to the Lender in
connection with the Loan, contains any untrue statement of
material fact or omit disclosure of a material fact necessary to
make the statement contained therein or herein not misleading.
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8.7 TAX RETURNS. The Borrower has filed on a timely basis all
required federal tax returns and all state and other tax returns
and all assessments and other governmental charges (other than
those presently payable without penalty or interest and those
being contested in good faith by appropriate proceedings) due
from the Borrower has been paid.
8.8 USE OF PROCEEDS. No part of the proceeds of any Loan hereunder
will be used, directly or indirectly, for the purpose of
purchasing, carrying or trading in any margin security within
the meaning of applicable regulations of the Board of Governors
of the Federal Reserve System, or for the purpose of purchasing
or carrying or trading in any securities under such
circumstances as to involve a violation of such regulations
including, without limitation, Regulations G,T, U and X of such
Board, or for any purpose other than as set forth in Article I
hereof. If requested by the Lender, the Borrower will furnish to
the Lender a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in Regulation U.
The foregoing warranties and representations shall be deemed to be
continuing and shall survive the execution and delivery of this Agreement.
ARTICLE IX
AFFIRMATIVE COVENANTS
Until payment in full of the Loan and the Note, unless the Lender shall
otherwise consent in writing, the Borrower agrees that it will:
9.1 TAXES. Duly pay and discharge all taxes, assessments and
governmental charges upon it or against its properties prior to
the date on which penalties attach thereto.
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9.2 CORPORATE FRANCHISES. Duly observe and conform to all valid
requirements of any governmental authority relative to the
conduct of its businesses and to its properties and assets and
maintain and keep in force all leases, franchises, licenses and
permits necessary to the lawful and proper conduct of its
businesses.
9.3 INSURANCE. Keep its properties and assets in good repair,
maintain insurance on its property in such amounts and against
such risks as is reasonably required.
9.4 FINANCIAL INFORMATION. Promptly upon their becoming available,
Borrower will deliver to Lender copies of all financial
information relating to Borrower as may be reasonable required
by Lender.
9.5 ACCESS TO PREMISES AND RECORDS. Maintain financial records in
accordance with generally accepted accounting principles, and
permit representatives of the Lender to have access to such
financial records and the premises of the Borrower at reasonable
times and to make such excerpts from such records as such
representatives deem necessary, which excerpts shall remain
confidential.
9.6 LITIGATION AND OTHER NOTICES. Give the Lender prompt written
notice of the following:
(a) Any Event of Default and any event which with notice or
lapse of time or both would constitute an Event of
Default;
(b) All events of default or any event that would become an
event of default upon notice or lapse of time or both
under any of the terms or provisions of any note, or of
any other evidence of indebtedness;
(c) The occurrence of any claim, demand, action, suit, or
proceeding against the Borrower whether or not such
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claim is considered by the Borrower to be covered by
insurance; including any lien claims in connection with
the construction described herein; and
(d) Levy of an attachment, execution or other process
against any of the property or assets, real or personal,
of the Borrower.
9.7 MAINTENANCE OF PROPERTY. Maintain all of its properties and
assets in good condition, repair and working order.
9.8 COMPLIANCE WITH LAWS. Comply in all material respects with all
laws and governmental regulations of the United States of
America and all political subdivisions thereof applicable to it
and its business, including, without limitation, air and water
pollution, safety, health and discrimination.
9.9 FINANCIAL INFORMATION. Borrower shall provide its in-house
financial reports requested by Lender, including income and
expense reports, as well as copies of any federal and state tax
filing.
9.10 PROJECT. Provide such information with respect to the Project as
is requested by Lender from time to time.
ARTICLE X
NEGATIVE COVENANTS
The Borrower agrees that until payment in full of the Loan and the Note,
without the prior written consent of the Lender, the Borrower shall not:
10.1 AGREEMENTS. Enter into any agreement containing any provision
that would be violated or breached by the performance of the
Borrower' obligations under this Agreement, the Note, or any
instrument or document to be delivered hereunder or in
connection herewith.
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ARTICLE XI
EVENTS OF DEFAULT
11.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default hereunder and under the
Loan Documents:
(a) The Borrower shall fail to make any payment of principal
or interest with respect to the Note on the due date
thereof, whether at maturity, by notice of intention to
prepay or otherwise;
(b) The Borrower shall breach or fail to perform any term,
covenant, warranty or agreement contained or referred to
herein or in any of the Loan Documents;
(c) The Borrower shall breach any other term, covenant,
warranty or agreement herein or in any other Loan
Document;
(d) Any material representation or warranty of the Borrower
herein, or of the Borrower in any Loan Document or in
any certificate delivered hereunder or thereunder shall
prove to have been untrue at the time it was made in any
material respect;
(e) Borrower shall (i) voluntarily commence any proceeding
or file any petition seeking relief under Title ll of
the United States Code or any other federal, state or
foreign bankruptcy, insolvency or similar law, (ii)
consent to the institution of, or fail to controvert in
a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or
consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for Borrower
or for a substantial part of its property, (iv) file and
answer admitting the material allegations of a petition
filed against it in any such proceeding, (v)
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make a general assignment for the benefit of creditors,
(vi) become unable, admit in writing its inability or
fail generally to pay its debts as they become due, or
(vii) take corporate action for the purpose of effecting
any of the foregoing;
(f) An involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of
competent jurisdiction seeking (i) relief in respect of
Borrower, or of a substantial part of its property,
under Title 11 of the united States Code or any other
federal, state or foreign bankruptcy, insolvency or
similar law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator or similar official for
Borrower, or for a substantial part of its property or
(iii) the winding-up or liquidation of Borrower; and
such proceeding or petition shall continue undismissed
for sixty (60) days or an order or decree approving or
ordering any of the foregoing shall continue unstayed
and in effect for 30 days; or
(g) Borrower shall suffer any final judgment to be entered
against it or them which is not provided for in full
within sixty (60) days by insurance, bond, payment or
otherwise to Lender's satisfaction, or any writ of
attachment or execution or any similar process to be
issued or levied against a substantial part of its or
their property, which is not provided for prior to
attaching; or
(h) Any event of default by Borrower in connection with any
other Loan or obligation of Borrower.
11.2 REMEDIES. Upon the occurrence of any such Event of Default under
item 11.1 (a) above, there shall be a "Grace Period" of ten (10)
days after any such payment is due. Upon the occurrence of any
such Event of Default under items 11.1 (b) through (e) there
shall be a Grace Period of
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fifteen (15) days from notice of any such default; provided that
if any such Event of Default cannot practically be cured within
such fifteen (15) day period, the time to cure such breach shall
be extended as long as the defaulting party is proceeding to
effect a cure as expeditiously as practicable, but in no event
shall the Grace Period exceed forty-five (45) calendar days from
such notice.
Upon the occurrence of an Event of Default, and the expiration of the
Grace Period as set forth herein, the full amount of the disbursed and unpaid
principal of and accrued interest on the Notes and all other obligations
hereunder shall become automatically due and payable, in full, immediately
without additional demand or notice and, at the election of lender, Borrower
shall be deemed to be in default under the Purchase Agreement and all Loan
Documents.
11.3 CROSS-DEFAULT. An Event of Default hereunder shall constitute an
event of default under the documents evidencing and/or securing
the Loan.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 NOTICES. All written notices hereunder to either party hereto
shall be sent by telefax or by commercial delivery service
(including Federal Express and similar carriers) or by certified
or registered mail, postage prepaid, or delivered in person
addressed to the party for whom intended at the address
specified on the signature pages hereto. Any party shall have
the right to change its address for notice by giving notice
hereunder, including the right to specify a person to whose
attention notices shall be directed, and shall also have the
right by giving notice hereunder to require that copies of any
notice be given to additional persons or addresses.
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12.2 TERM OF AGREEMENT. This Agreement shall continue in force and
effect so long as any Loan, the Note or any obligation of the
Borrower for any interest or other expense hereunder or
thereunder or under any other Loan Document shall be
outstanding.
12.3 NO WAIVER. No failure or delay by the Lender in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies
herein provided are cumulative and not exclusive of any rights
or remedies otherwise provided by law.
12.4 SEAL, JURISDICTION. This Agreement and the Note shall be deemed
to be contracts made under seal and shall be construed in
accordance with and governed by the laws of the State of
Florida.
12.5 EXPENSE, TAXES. (a) The Borrower agrees to pay on demand all
intangible taxes payable by Lender in connection with the Note,
documentary stamps, taxes, fees, filing fees, recording fees,
and out-of-pocket expenses of the Lender, including, without
limitation the reasonable fees and expenses of the Lender's
counsel, in connection with the preparation and negotiation of
this Agreement, the Loan, the Note and the other Loan Documents
and the enforcement or defense of any thereof including
enforcement or defense arising in bankruptcy proceedings.
(b) If the Lender shall retain or engage at any time an
attorney or attorney's to collect or enforce or protect
its interest with respect to this Agreement, the Loan,
the Note or the other Loan Documents, the Borrower shall
pay all of the costs and expenses of such collection,
enforcement or protection, including
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reasonable fees of attorney's, and the Lender may take
judgment for all such amounts.
12.6 CHANGE, WAIVERS, ETC. Neither this Agreement, the Notes or the
other Loan Documents nor any provision hereof or thereof, may be
changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the Lender.
12.7 SINGULAR AND PLURAL. Terms in the singular number shall include
the plural and those in the plural shall include the singular.
12.8 USE OF DEFINED TERMS. All terms defined in this Agreement shall
have the defined meanings when used in the Notes, and the other
Loan Documents and in certificates, reports or other documents
made or delivered pursuant hereto or thereto, unless the context
shall otherwise require.
12.9 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Lender and
their respective successors and assigns, provided that the
borrower may not assign or transfer their rights or obligations
hereunder without the prior written consent of the Lender, any
such assignment being void.
12.10 HEADINGS. Headings or captions have been inserted for
convenience only and shall not be construed as limiting or
affecting in any way the provisions of this Agreement.
12.11 ACCOUNTING TERMS. Except as otherwise specifically provided, all
accounting terms used herein shall have the meanings customarily
given thereto in accordance with generally accepted accounting
principles ("GAAP").
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12.12 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto
and thereto were upon the same instrument.
12.13 ESTOPPEL CERTIFICATES. Borrower, within ten (10) days after
request by Lender, will furnish Lender with a statement, duly
acknowledged and certified, setting forth the amount of the Loan
and the offsets or defenses thereto, if any.
12.14 FURTHER ASSURANCES. Borrower agrees to do or cause to be done
all such further reasonable acts and things, and to execute and
deliver or cause to be executed and delivered all such
additional conveyances, assignments, agreements and instruments
as Lender may at any time reasonably request in connection with
the administration or enforcement of this Agreement and the
other Loan Documents or in order better to assure, perfect and
confirm unto Lender its rights, powers and remedies under this
Agreement and under the other Loan Documents. Nothing contained
in this paragraph shall be construed as obligating Borrower to
provide or to cause to be provided any collateral or security
for the Loan other than as expressly contemplated by the
provisions of this Agreement.
12.15 INDEMNIFICATION OF LENDER. Borrower shall indemnify Lender, its
directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and reasonable
expenses (including, without limitation, all expenses of
litigation or preparation therefor whether or not Lender is a
party thereto) which any of them may pay or incur arising out of
or relating to this Agreement, the other Loan Documents, the
transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan
hereunder. The obligations of the borrower under this paragraph
shall survive the termination of this Agreement.
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12.16 FACSIMILE. The parties agree that this agreement may be
transmitted between them by facsimile machine. The parties
intend that faxed signatures constitute original signatures and
that a faxed agreement containing the signatures (original or
faxed) of all parties is binding on the parties.
12.17 PUBLIC DISCLOSURE. Neither party shall make any public release
of information regarding the maters contemplated herein except
as otherwise required by law or as otherwise agreed to by the
parties.
12.18 ATTORNEYS' FEES AND COSTS. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding, including
those related to appeals, in addition to any other relief to
which it or they may be entitled.
12.19 WAIVER OF TRAIL BY JURY. Borrower and Lender hereto hereby
knowingly, voluntarily and intentionally waive the right either
may have to a trial by jury in respect to any action,
proceeding, litigation or counterclaim based hereon, or arising
out of, under or in connection with the Agreement, or any course
of conduct, course of dealing, actions or statements (whether
verbal or written) of either party in connection herewith.
12.20 GOVERNING LAW, VENUE AND JURISDICTION. This Agreement and all
transactions contemplated by this Agreement shall be governed by
and construed and enforced in accordance with the internal laws
of the State of Florida without regard to principles of
conflicts of laws. The parties acknowledge that a substantial
portion of
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negotiations and anticipated performance of this Agreement
occurred or shall occur in Palm Beach County, Florida, and that,
therefore, each of the parties irrevocably and unconditionally
(a) agrees that any suit, action or other legal proceeding
arising out of or relating to this Agreement shall be brought in
the courts of record of the State of Florida in Palm Beach
County; (b) consents to the jurisdiction of each such court in
any such suit, action or proceedings; and (c) waives any
objection which it may have to the laying of venue of any such
suit, action or proceeding in any of such court.
12.21 SUBORDINATION AGREEMENTS. Lender agrees to enter into such
reasonable Subordination Agreements as may be required from time
to time by institutional lenders providing financing to
Borrower.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.
BORROWER:
GOLDEN BEAR GOLF, INC.
BY:
--------------------------------------
Name:
Title:
LENDER:
----------------------------------------
Jack W. Nicklaus
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EXHIBIT 10.6
PROMISSORY NOTE
$2,400,000.00 North Palm Beach, Florida
July 13, 1998
FOR VALUE RECEIVED, GOLDEN BEAR GOLF, INC., a Florida corporation,
having its principal address at 11780 U. S. Highway One, North Palm Beach,
Florida 33408 (the "Maker") promises to pay to the order of Jack W. Nicklaus c/o
Golden Bear International, Inc., 11780 U. S. Highway One, North Palm Beach,
Florida 33408 (the "Payee") or such other place as the Holder hereof may
designate in writing (the legal holder from time to tome of this Note, including
Payee as the initial holder, hereinafter referred to as "Holder"), the principal
sum of TWO MILLION FOUR HUNDRED THOUSAND DOLLARS (2,400,000.00), or so much
thereof as may be advanced to or for the benefit of Maker by Holder (hereinafter
referred to as "Principal Indebtedness"), together with interest thereon at the
"Interest Rate" hereinafter set forth, in accordance with the provisions
hereinafter set forth.
1. INTEREST RATE. Interest shall be computed at the "The Wall Street
Journal Prime Rate" as hereinafter defined, adjusted as of any change in such
rate. For purposes hereof, "The Wall Street Journal Prime Rate" shall be the
prime rate publicized in the "Money Rates" Section of the Wall Street Journal.
In the event such Prime Rate is no longer publicized, Holder shall utilize an
appropriate substitute index.
2. TERMS OF PAYMENT. Maker shall pay to Holder on the first day of each
calendar month after the date hereof to and including the Maturity Date
(hereinafter defined) (such payment dates being hereinafter referred to as
"monthly payment dates") interest on the Principal Indebtedness from time to
time outstanding, at the Interest Rate, for the immediately preceding calendar
month. Interest shall be calculated and applied on the basis of a 360-day year
consisting of twelve 30-day months, except that interest for any partial month
shall be calculated and applied on the basis of a 360-day year and the actual
number of days in such partial month during which Principal Indebtedness is
outstanding.
On July 1, 2003 (the "Maturity Date"), Maker shall pay to Holder the
entire Principal Indebtedness then remaining unpaid, together with accrued and
unpaid interest thereon at the Interest Rate and any other charges due under
this Note, the Loan Agreement (hereinafter defined) and any other documents
evidencing or pertaining to the advancement or disbursement of the Principal
Indebtedness (collectively, the "Loan Documents"). The period from and including
the date hereof to the Maturity Date will be referred to, hereinafter, as the
"Term."
3. PREPAYMENT. Maker may pay the Principal Indebtedness in whole or in
part at any time without premium or penalty.
4. LOAN AGREEMENT. This Note is issued pursuant to a "Loan Agreement" of
even date between Maker and Payee.
<PAGE>
5. LOCATION AND MEDIUM OF PAYMENTS. The sums payable under this Note or
under the Loan Agreement shall be paid to Holder at its principal address
hereinabove set forth, or at such other place as Holder may from time to time
hereafter designate to Maker in writing, in legal tender of the United States of
America.
6. ACCELERATION OF MATURITY. At the option of Holder, which may be
exercised at any time after one or more of the following events (each being an
"Event of Default") shall have occurred, the whole of the Principal
Indebtedness, together with all interest and other charges due under any of the
Loan Documents, shall immediately become due and payable ("Acceleration of
Maturity"): (a) if any payment of any installment of the Principal Indebtedness,
and/or interest or of any other sum due hereunder is not received by Holder
within ten (10) calendar days following the date when such payment was due; or
(b) if a default or an Event of Default shall occur under the Loan Agreement or
any other of the Loan Documents, which is not cured within any applicable grace
period after notice afforded therein, if any.
7. LATE CHARGES; INTEREST FOLLOWING EVENT OF DEFAULT. If any payment due
under this Note, the Loan Agreement or any other Loan Document, is not paid
within fifteen (15) calendar days of the date due, without regard to any cure or
grace period, Maker shall pay, and Holder shall be entitled to collect, a late
payment charge for each month or fraction hereof during which such payment is
not made when due and for each month thereafter that such sum remains unpaid,
equal to the lesser of five percent (5%) of such late payment or the maximum
amount permitted by law, for the purpose of defraying the expense incurred by
Holder in handling and processing such delinquent payment, and such amount shall
be secured by the Loan Documents.
In addition to any late payment charge which may be due under this Note,
Maker shall pay interest on all sums due hereunder at a rate (the "Default
Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per
annum, or (ii) the maximum rate permitted by law, from and after the first to
occur of the following events: if Holder elects to cause the Acceleration of
Maturity; if a petition under Title 11, United States Code, shall be filed by
Maker or if Maker shall seek or consent to the appointment of a receiver or
trustee for itself or for any of its property, file a petition seeking relief
under the bankruptcy or other similar laws of the United States, any state or
any jurisdiction, make a general assignment for the benefit of creditors, or be
unable to pay its debts as they become due; if a petition under Title 11, United
States Code shall be filed against Maker or if a court shall enter an order,
judgment or decree appointing, with or without the consent of Maker, a receiver
or trustee for it or for any of its property or approving a petition filed
against Maker which seeks relief under the bankruptcy or other similar laws of
the United States, any state or any jurisdiction, and any such petition, order,
judgment or decree shall remain in force, undischarged or unstayed, sixty days
after it is entered; or if all sums due hereunder are not paid on the Maturity
Date.
8. COLLECTION AND ENFORCEMENT COSTS. Maker, upon demand, shall pay
Holder for all costs and expenses, including without limitation reasonable
attorneys' fees,
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paid or incurred by Holder in collection with the collection of any sum due
hereunder, or in connection with enforcement of any of Holder's rights or
Maker's obligations under this Note, the Loan Agreement or any of the other Loan
Documents.
9. CONTINUING LIABILITY. The obligation of Maker to pay the Principal
Indebtedness, interest and all other sums due hereunder shall continue in full
force and effect and in no way shall be impaired, until the actual payment
thereof to Holder, or in case of any agreement or stipulation extending the time
or modifying the terms of payment above recited, Maker shall nevertheless
continue to be liable on this Note, as extended or modified by any such
agreement or stipulation, unless released and discharged in writing by Holder.
Maker acknowledges and agrees that Holder has no obligation to extend or modify
the terms hereof.
10. NO ORAL CHANGES; WAIVERS. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
a change is sought.
Maker and any future indorsers, sureties, and guarantors hereof, jointly
and severally, waive presentment for payment, demand, notice of nonpayment,
notice of dishonor, protest of any dishonor, notice of protest, and protest of
this Note, and all other notices in connection with the delivery, acceptance,
performance, default (except notice of acceleration and default), or enforcement
of the payment of this Note, and they agree that the liability of each of them
shall be unconditional without regard to the liability of any other party and
shall not be in any manner affected by an indulgence, extension of time,
renewal, waiver, or modification granted or consented to by the Holder; and
Maker and all future indorsers, sureties and guarantors hereof consent to any
and all extensions of time, renewals, waivers, or modifications that may be
granted by the Holder hereof with respect to the payment or other provisions of
this Note, and to the release of the collateral, or any part thereof, with or
without substitution, and agree that additional makers, indorsers, guarantors,
or sureties may become parties hereto without notice to them or affecting their
liability hereunder.
Holder shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by Holder, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event. The acceptance by Holder
of payment hereunder that is less than payment in full of all amounts due at the
time of such payment shall not without the express written consent of Holder:
(i) constitute a waiver of the right to exercise any of Holder's remedies at
that time or at any subsequent time, (ii) constitute an accord and satisfaction,
or (iii) nullify any prior exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof by reason of an
Event of Default hereunder, acceptance of a past due installment, or indulgences
granted from time to time shall be construed (i) as a novation of this Note or
as a reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right
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of Holder thereafter to insist upon strict compliance with the terms of this
Note, or (ii) to prevent the exercise of such right of acceleration or any other
right granted hereunder or by the laws of the State of Florida; and, to the
maximum extent permitted by law, Maker hereby expressly waives the benefit of
any statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing.
To the maximum extent permitted by law, Maker hereby waives and
renounces for itself, its heirs, successors and assigns, all rights to the
benefits of any moratorium, reinstatement, forbearance, stay, extension and
exemption now provided, or which may hereafter be provided, by the Constitution
and laws of the United States of America and of any state thereof, both as to
itself and in and to all of its property, real and personal, against the
enforcement and collection of the obligations evidenced by this Note.
Each Maker and indorser, guarantor or other party liable hereon, in any
litigation arising out of or relating to this Note in which Holder and any of
them shall be adverse parties, waives trial by jury.
11. BIND AND INURE. This Note shall bind and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, successors and
assigns.
12. APPLICABLE LAW. The provisions of this Note shall be construed and
enforceable in accordance with the laws of the State of Florida.
If any provision of this Note or the application hereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision relates to the payment of principal and/or
interest, then the Holder may, at its option, declare the entire indebtedness
evidenced hereby due and payable upon ninety (90) days prior written notice to
Maker.
13. USURY. It is hereby expressly agreed that if from any circumstances
whatsoever fulfillment of any provision of this Note, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
presently prescribed by any applicable usury statute or any other law, with
regard to obligations of like character and amount, then ipso facto the
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Note that is in
excess of the limit of such validity. In no event shall Maker be bound to pay
for the use, forbearance or detention of the money loaned pursuant hereto,
interest of more than the current legal limit; the right to demand any such
excess being hereby expressly waived by Holder.
14. NOTICE. Any notice, request, demand, statement or consent made
hereunder shall be in writing signed by the party giving such notice, request,
demand,
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statement or consent, and shall be deemed to have been properly given when
either delivered personally, delivered to a reputable overnight delivery service
providing a receipt or deposited in the United States Mail, postage prepaid and
registered or certified return receipt requested, at the address set forth
below, or at such other address within the continental United States of America
as may have theretofore been designated in writing. The effective date of any
notice given as aforesaid shall be the date of personal delivery, one (1)
business day after delivery to such overnight delivery service, or three (3)
business days after being deposited in the United States Mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Holder: c/o Golden Bear International, Inc.
11780 U. S. Highway One
North Palm Beach, Florida 33408
Attention: Mr. Jack P. Bates
If to Maker: 11780 U. S. Highway One
North Palm Beach, Florida 33408
Attention: Mr. Richard P. Bellinger
or Mr. Steve Winslett
15. TIME OF THE ESSENCE. Time is of the essence in this Note and the
other Loan Documents.
16. ATTORNEYS' FEES. Any reference to "attorney fees" in this document
includes but is not limited to the reasonable fees, charges and costs incurred
by Holder through its retention of legal counsel. Any reference to "attorney
fees" shall also include but not be limited to those attorneys or legal fees,
costs and charges incurred by Holder in the collection of any Principal
Indebtedness, the enforcement of any obligations hereunder or under any of the
Loan Documents, the defense of actions arising hereunder and the collection,
protection or setoff of any claim the Holder may have in a proceeding under
Title 11, United States Code. Attorneys fees provided for hereunder shall accrue
whether or not Holder has provided notice of an Event of Default or of an
intention to exercise its remedies for such Event of Default.
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed
instrument as of the day and year first above written.
MAKER:
GOLDEN BEAR GOLF, INC.
By:
----------------------------------------
Name: Richard Bellinger
Title: President
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EXHIBIT "A"
RESOLVED, that the Corporation enter into a settlement agreement with
Great Expectations, Ltd. ("GEL"), providing for the payment of two million five
hundred thousand dollars ($2,500,000) (the "Settlement Fund") to settle the
outstanding claims of GEL against the Corporation's subsidiary, Paragon
Construction International, Inc. ("Paragon"), arising out of construction
services provided by Paragon to that certain real estate project known as
Mansion Ridge in Monroe, New York (the "Project");
RESOLVED, that Jack Nicklaus provide two million four hundred thousand
dollars ($2,400,000) of the Settlement Fund on behalf of the Corporation and
provide the remaining one hundred thousand dollars ($100,000) of the Settlement
Fund for his own account;
RESOLVED, that in consideration of Jack Nicklaus' payment of the
Settlement Fund, GEL will provide the Corporation, Paragon, Jack Nicklaus and
their affiliates with releases from claims relating to the Project, and will
provide Jack Nicklaus with a profit participation in the portion of the Project
other than the golf course, which participation was offered by GEL as a
potential means of recoupment of the Settlement Fund and has been presented to
and reviewed by the Board;
RESOLVED, that that the Corporation agree to repay to Jack Nicklaus the
two million four hundred thousand dollars ($2,400,000) to be paid by him on
behalf the Corporation as its contribution to the Settlement Fund, which
agreement to repay will be represented by an unsecured five year balloon note in
favor of Jack Nicklaus bearing interest at the Wall Street Journal Prime,
payable monthly, and subordinated to the Corporation's senior debt;
RESOLVED, that the loan documents for the above borrowing from Jack
Nicklaus will provide that the first two million four hundred thousand dollars
($2,400,000) in distributions received by Jack Nicklaus from GEL on account of
his participation in the profits of the Project be applied against the
Corporation's obligations to repay the principal of such loan, and that if the
principal balance is repaid by the Corporation from other sources, any further
distributions will be paid to the Corporation up to the total amount of the
original loan;
RESOLVED, that Richard P. Bellinger, as President of the Corporation, be
authorized and directed to negotiate, execute and deliver the definitive
settlement agreement with GEL and a promissory note, loan agreement and such
other closing documents with Jack Nicklaus as may be necessary or prudent in
order to document the above transactions, to close on the loan from Jack
Nicklaus on the terms approved above, and obtain payment of the Settlement Fund
to GEL as soon as practicable;
RESOLVED, that the other officers of the Corporation are hereby
authorized and directed to take such actions as may reasonably be required in
order to carry out the foregoing resolutions and to complete the transactions
approved in these minutes.
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EXHIBIT 10.13
REFERRAL, PARTICIPATION AND NONCOMPETE AGREEMENT
This Referral, Participation and Noncompete Agreement ("AGREEMENT") is
made and entered into as of the 18th day of December, 1998, by and among (1)
Jack Nicklaus, an individual ("NICKLAUS"); (2) Golden Bear International, Inc.,
a Florida corporation ("GBI"); (3) Golden Bear Golf, Inc., a Florida corporation
("GBG"); (4) The Weitz Company, Inc., an Iowa corporation ("WEITZ"); and (5)
Weitz Golf International, L.L.C., an Iowa limited liability company ("WEITZ
GOLF").
RECITALS:
A. WHEREAS, Weitz has established Weitz Golf to act as general
contractor or construction manager or in such other construction capacity as
shall be designated by owners for golf related construction projects; and
B. WHEREAS, effective January 1, 1998, GBG secured a ten year exclusive
commitment from GBI to market GBG's (through its wholly-owned subsidiary,
Paragon Construction International, Inc.) golf course construction services to
Nicklaus Design clients and prospects, as set forth in that certain letter
agreement between GBI and GBG and Paragon Construction International, Inc. dated
as of July 1, 1998 ("COMMITMENT"); and
C. WHEREAS, GBG is willing to transfer its rights and opportunities
under such Commitment, to Weitz Golf, and GBI and Nicklaus are willing to affirm
and consent to such transfer and to the other agreements set forth herein, on
the terms and conditions hereinafter set forth.
NOW THEREFORE, for sufficient and valuable consideration the parties
agree as follows:
AGREEMENT
1. REFERRALS. Nicklaus, GBI and GBG (hereinafter collectively sometimes
referred to as "GOLDEN BEAR") will, for the term of this Agreement, exercise its
best efforts to recommend and refer exclusively to Weitz Golf the right and
opportunity to act as general contractor or construction manager or in such
other construction capacity as shall be designated by the owners (collectively
hereinafter referred to as a "CONSTRUCTION CAPACITY") of all golf related
construction projects (meaning, golf course construction and/or vertical
construction related to golf course construction) over which Golden Bear has the
right or opportunity to recommend or designate the entity to perform in a
Construction Capacity, including without limitation all new golf related
construction projects developed by GBI (Nicklaus Design) and "Bear's Best"
developments. Golden Bear will exercise its best efforts to assist Weitz Golf to
obtain a Construction Contract (as hereinafter defined) with respect thereto;
provided, that the performance by GBI of those activities for design clients as
reserved under paragraph 6(a) of this Agreement will not be deemed a violation
of this commitment, including without limitation the recommendation by
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Nicklaus Design of experienced golf course shapers capable of meeting its
shaping standards. In the event that GBI (Nicklaus Design) operates in a
geographic area not served by Weitz Golf, Golden Bear's agreement to promote
Weitz Golf in such area shall be subject to the prior good faith commitment of
Weitz Golf to extend the operation of its business to such area to meet the
reasonable requirements of GBI (Nicklaus Design) prospects.
2. CONSTRUCTION CONTRACTS. Weitz Golf will diligently attempt to
negotiate and enter into a construction contract (each a "Construction Contract"
and collectively the "CONSTRUCTION CONTRACTS") with respect to each Construction
Capacity opportunity referred to Weitz Golf pursuant to paragraph 1 above and
with respect to any other Construction Capacity opportunities developed
independently by Weitz Golf. Weitz Golf, in its sole discretion, may decline to
enter into a Construction Contract with respect to any potential golf related
construction project if the terms and conditions of such proposed Construction
Contract are not acceptable to Weitz Golf. If Weitz Golf declines to enter into
a proposed Construction Contract with respect to a Construction Capacity
opportunity referred to Weitz Golf pursuant to paragraph 1 above, Weitz Golf
shall give prompt notice of its decision to Golden Bear together with a written
statement of the basis of its decision, and Weitz Golf shall thereafter have no
right to act in a Construction Capacity with respect to the particular golf
related construction project involved in such proposed Construction Contract;
provided, however, that if the Construction Capacity opportunity relating to
such golf related construction project is thereafter again made available by the
project owner on terms and conditions which become known to Golden Bear and
which obviate the basis for rejection set forth in the Weitz Golf written
statement, then Golden Bear shall again exercise its best efforts to recommend
and refer such revised Construction Capacity opportunity exclusively to Weitz
Golf. Construction Contracts may be entered into and performed by a division of
Weitz to be designated the "Weitz Golf International Division", or by one or
more direct or indirect subsidiaries of Weitz including the name "Weitz Golf
International", all as determined by Weitz.
3. PARTICIPATION. Nicklaus and GBI will provide technical assistance to
Weitz Golf as reasonably requested by Weitz Golf from time to time, including
but not limited to the identification, location and purchase of specialized and
other equipment needed by Weitz Golf for the performance of the Construction
Contracts, providing access to historical cost data for golf related
construction projects, the identification of personnel with expertise in the
construction of golf courses which may be employed by Weitz Golf, and otherwise
generally with respect to golf course construction. Weitz Golf agrees to
consider the purchase or lease from GBG or any entity designated by Golden Bear,
of any such used equipment identified by Golden Bear, at its fair market value
and on customary market terms.
4. COORDINATING COMMITTEE. (a) Golden Bear shall designate two
representatives and Weitz shall designate three representatives to serve as
members ("MEMBERS") of a committee (the "COORDINATING COMMITTEE"), which shall
oversee the administration of this Agreement. The Coordinating Committee shall
meet not less frequently than quarterly, and on such other occasions as any
Member of the Coordinating Committee shall request. Each year the Coordinating
Committee shall receive and review the Annual Business Plan prepared by the
Managers of Weitz Golf, and each quarter the Coordinating Committee shall
receive and review
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the prior period's financial operating results.
(b) Members of the Coordinating Committee shall be natural persons. The initial
Members of the Coordinating Committee shall be Richard J. Oggero, Glenn H. De
Stigter and Jim Koepnick (the Weitz designees), and Stephen S. Winslett and Ira
C. Fenton (the Golden Bear designees). Either Weitz or Golden Bear may at any
time remove a Member of the Coordinating Committee designated by it, and fill
any vacancies in the positions it is entitled to designate.
(c) A quorum for a meeting of the Coordinating Committee shall consist of a
majority of its Members. At all meetings of the Coordinating Committee, a quorum
being present, the act of a majority of the Members present at the meeting shall
be the act of the Coordinating Committee, except for actions requiring unanimous
approval as hereinafter set forth. Any action to be taken at any meeting of the
Coordinating Committee may be taken without a meeting if the action is taken by
all of the Members and if one or more consents in writing describing the action
so taken shall be signed by each Member and included in the minutes or filed
with the Company's records reflecting the action taken. Any such written action
shall be effective when the last Member signs the consent, unless the consent
specifies a different effective date. Members may participate in and hold a
meeting by means of conference telephone or similar communications equipment by
means of which all Members participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and presence in person
at such meeting, except where a Member participates in the meeting for the
express purpose of objecting to the transaction of business.
(d) Notwithstanding the foregoing, the following actions shall require unanimous
approval of all Members of the Coordinating Committee:
(i) the amendment of this Agreement;
(ii) a change in the number of Members of the Coordinating Committee;
(iii) the merger or consolidation of Weitz Golf with another entity,
other than another entity controlled directly or indirectly by
Weitz;
(iv) any action which may result in or lead to a material change in
the nature of the business of Weitz Golf; or
(v) the extension of the term of this Agreement.
5. REFERRAL AND PARTICIPATION FEE; NO PARTNERSHIP. (a) For the period
beginning on October 1, 1998 and ending December 31, 2007, Weitz Golf shall pay
to GBG with respect to each Construction Contract entered into by Weitz Golf
during such period, a fee (the "REFERRAL AND PARTICIPATION FEE") of forty
percent (40%) of the Net Profits, as hereinafter defined, received by Weitz Golf
pursuant to such Construction Contracts. For the period beginning on January 1,
2008 and until the expiration or earlier termination of this Agreement, Weitz
Golf shall pay the Referral and Participation Fee earned with respect to each
Construction Contract entered into by
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Weitz Golf during such period to such person or entity as may be designated by
Nicklaus and approved by GBI, subject to the limitations of paragraph 8 of this
Agreement (the "DESIGNATED SUCCESSOR"). The Referral and Participation Fee shall
be paid within 60 days after the close of each fiscal quarter of Weitz Golf
during the term of this Agreement.
(b) "NET PROFITS" shall mean cumulative net income before income taxes as
determined (except as hereinafter provided) under generally accepted accounting
principles, and received by Weitz Golf through the fiscal quarter pursuant to
Construction Contracts as reflected in the Weitz Golf consolidated financial
statements. Net Profits received by Weitz Golf pursuant to Construction
Contracts shall be determined after first deducting interest on any loans
provided by Weitz to Weitz Golf, and a bonding capacity fee paid to Weitz of
0.5% of the principal sum of any bonds or other credit paper provided in
connection with the Construction Contracts (to be charged as a job cost if
possible), and Weitz and Weitz Golf overhead allocable to the Construction
Contracts, all as determined under the standard procedures used by Weitz in
allocating interest on related party receivables from and in allocating overhead
to its several business units. Such standard procedures are attached as EXHIBIT
A. Provided, however, that notwithstanding the foregoing allocation of Weitz
overhead costs for Weitz administrative services, if an identified Weitz
administrative service is instead directly provided or otherwise obtained by
Weitz Golf at its own cost then that Weitz administrative service cost will be
excluded from the Weitz overhead costs otherwise allocable to the Construction
Contracts.
(c) Golden Bear shall not be responsible for any loss incurred by Weitz Golf.
Weitz Golf does not guarantee the receipt of any Net Profits with respect to the
Construction Contracts. Weitz Golf and Golden Bear are separate and independent
contractors under this Agreement and are not partners for any purpose under this
Agreement.
(d) The parties acknowledge that GBI will not receive any compensation for
marketing or technical services provided to Weitz Golf under this Agreement, and
that GBI shall retain its independent rights and obligations to review and
approve on an impartial basis any construction work provided to a design client
by Weitz Golf in accordance with the standards imposed by Nicklaus Design's
design agreement. It is understood that Nicklaus Design shall not be required to
incur any travel, entertainment, promotional or other out-of-pocket expenses for
business development under this Agreement in addition to those business
development expenses normally expended to promote its design business unless
such expenses are paid or reimbursed by Weitz Golf and/or GBG under such
procedures as may be agreed by the parties from time to time.
6. SPECIAL NATURE OF RELATIONSHIP; AGREEMENTS NOT TO COMPETE. (a) Golden
Bear acknowledges that Weitz Golf will be engaged in obtaining Construction
Contracts with persons or entities with whom Golden Bear has a relationship, and
that Weitz Golf is depending on the development and continuation of such client
relationships. Golden Bear further acknowledges that its services to be rendered
hereunder are of a special and unusual character that have a unique value to
Weitz Golf, the loss of which cannot be adequately compensated by damages in an
action at law. Because of the unique value to Weitz Golf of the services of
Golden Bear for which Weitz Golf has contracted hereunder, and as a material
inducement to Weitz Golf to enter into this Agreement, Golden Bear and each of
its constituents agrees and covenants that during
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the term of this Agreement he or it will not, directly or indirectly, for his or
its own account or as a partner, participant, joint venturer, employee, agent,
principal, consultant, representative, salesman, independent contractor,
advisor, shareholder, officer, director, trustee, or the like, enter into,
engage in, contribute his or its knowledge to, participate in, or cause others
to engage in the business of acting in a Construction Capacity in connection
with golf related construction projects. Weitz Golf acknowledges and agrees that
the foregoing restriction does not include golf course design, and in no way
restricts the right of GBI to engage in the business of golf course design,
including: (i) to consult with clients regarding the availability of services
from other construction service providers where requested, (ii) assist clients
in the review of bids and contract proposals received from other providers as
required under GBI (Nicklaus Design) standard form of design agreement, and
(iii) work with other construction service providers who are contracted to
perform work on GBI (Nicklaus Design) projects in the event that Weitz Golf was
not retained to perform such services. In the event of a breach or threatened
breach by Golden Bear of this paragraph 6(a), Weitz Golf shall be entitled to an
injunction restraining Golden Bear and each of its constituents from such
breach. Nothing herein shall be construed as prohibiting Weitz Golf from
pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages.
(b) As a material inducement to Golden Bear to enter into this
Agreement, Weitz agrees and covenants that during the term of this Agreement it
will act in a Construction Capacity in connection with golf related construction
projects only through Weitz Golf, or a subsidiary of Weitz Golf, except, with
respect only to the state of Arizona, that Weitz may act in a Construction
Capacity with respect to golf related construction projects not designed by
Golden Bear. In the event of a breach or threatened breach by Weitz of this
paragraph 6(b), Golden Bear shall be entitled to an injunction restraining Weitz
from such breach. Nothing herein shall be construed as prohibiting Golden Bear
from pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages.
7. MUTUAL INDEMNITY. (a) Golden Bear agrees to indemnify and hold Weitz
and Weitz Golf harmless from and against any and all loss, claim, liability,
debt, obligation, or expense, including attorneys fees, arising out of or in
connection with the acts, omissions or business operations of Golden Bear or any
of them.
(b) Weitz and Weitz Golf agree to indemnify and hold Golden Bear
harmless from and against any and all loss, claim, liability, debt, obligation,
or expense, including attorneys fees, arising out of or in connection with the
acts, omissions or business operations of Weitz or Weitz Golf.
8. ASSIGNMENT. This Agreement may not be assigned by any party without
the consent of all other parties, which consent, however, shall not be withheld
unreasonably. Notwithstanding the preceding sentence, (a) Weitz and/or Weitz
Golf may assign this Agreement to any business entity controlled by Weitz or to
any other business entity whose financial net worth is, and whose construction
expertise is generally reputed to be, at least equal to that of Weitz, and whose
business and marketing activities do not conflict with the golf course design
business of GBI, and (b) Golden Bear may assign its rights to receive Referral
and Participation
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Fees under this Agreement to any business entity controlled by Nicklaus.
9. TERMINATION. (a) This Agreement shall terminate on December 31, 2018,
unless terminated earlier as hereinafter provided. This Agreement may be
terminated at any time by agreement of Weitz and two of the Golden Bear
constituents.
(b) This Agreement shall, at the option of Golden Bear, terminate upon receipt
by Weitz of written notice of termination from Golden Bear which states one or
more of the following grounds for termination: (i) the material breach of this
Agreement by Weitz or Weitz Golf which has not been cured within 90 days of
notice of such breach previously sent to Weitz or Weitz Golf by Golden Bear, or
(ii) the insolvency or bankruptcy of Weitz or Weitz Golf, or (iii) the entry of
any order of any court which has not been revoked within 30 days of such entry,
suspending or terminating the right of Weitz or Weitz Golf to perform under this
Agreement, or (iv) the quality of services provided by Weitz Golf falls below
the standards established by GBI (Nicklaus Design) for recommendation of
contractors to clients which has not been cured within 90 days of notice of such
breach previously sent to Weitz or Weitz Golf by GBI (Nicklaus Design), or (v)
the inability of Weitz Golf to generate a reasonable level (as determined by
Golden Bear in its sole discretion) of Referral and Participation Fees within a
reasonable period of time (not less than eighteen months from the date of this
Agreement).
(c) This Agreement shall, at the option of Weitz, terminate upon receipt by
Golden Bear of written notice of termination from Weitz which states one or more
of the following grounds for termination: (i) the material breach of this
Agreement by Golden Bear or any of them which has not been cured within 90 days
of notice of such breach previously sent to Golden Bear by Weitz, or (ii) the
insolvency or bankruptcy of Golden Bear or any of them, or (iii) the entry of
any order of any court which has not been revoked within 30 days of such entry,
suspending or terminating the right of any of Golden Bear to perform under this
Agreement, or (iv) the dissolution or cessation of the ongoing business of Weitz
Golf, or (v) the inability of Golden Bear to generate a reasonable level (as
determined by Weitz in its sole discretion) of referred Construction Contracts
within a reasonable period of time (not less than twelve months from the date of
this Agreement).
(d) Upon termination of this Agreement, the parties shall nonetheless continue
performance under this Agreement as to any Construction Contracts not yet
completed. However, except as necessary to complete such Construction Contracts
and except with respect only to the state of Arizona, in the event of a
termination of this Agreement by Golden Bear under clauses 9(b)(i), 9(b)(ii) or
9(b)(iv), or in the event of a termination of this Agreement by Weitz under
clause 9(c)(iv) , Weitz agrees not to engage in the business of acting in a
Construction Capacity in connection with golf related construction projects for
a period of twelve (12) months following termination of this Agreement.
10. IOWA LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of Iowa, excluding the choice
of law rules of said state.
11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement embodies the entire
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Agreement and understanding of the undersigned in respect of the subject matter
addressed herein. Any amendment to the Agreement must be in writing and signed
by the undersigned. There are no restrictions, promises, representations,
warranties, covenants, or understandings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings with respect to the subject matter hereof.
12. MEDIATION; LEGAL PROCEEDING COSTS AND EXPENSES; WAIVER OF JURY
TRIAL; WAIVER OF PUNITIVE DAMAGES. The parties agree to engage in good faith
mediation under the auspices of a professional mediator and to share the cost of
such professional mediator with respect to any dispute arising under this
Agreement prior to the commencement of any arbitration or litigation proceeding.
In the event any party enforces the terms of this Agreement through legal
proceedings of any type, including arbitration, the prevailing party shall be
awarded reasonable attorney fees, court costs and other costs incurred related
to such legal proceedings, in addition to any damages or other relief to which
the prevailing party may be entitled. All parties waive (if and to the extent
permitted by applicable law) the right to trial by jury with respect to any
dispute among them not involving a third party who is entitled to and demands
trial by jury. All parties waive all rights to punitive or exemplary damages
with respect to any matter under this Agreement.
13. WAIVER. Any party may, at its option, waive in writing any or all of
the terms herein contained. Any waiver of any part of this Agreement shall not
constitute a waiver of any other part; nor shall a waiver of any breach of this
Agreement, or any part of it, constitute a waiver of any succeeding breach or a
waiver of any other part of this Agreement.
14. SEVERABILITY. In case any of the foregoing provisions may be held
invalid, the same shall be deemed to be severable and shall not defeat the
remaining provisions; and a court or arbitrator having power to make such
adjudication is further authorized to modify any provisions hereof which may be
deemed unduly restrictive to the end that such restrictions, as modified, shall
be reasonable and valid.
15. 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.
16. NOTICES. Any notice or other communication required or permitted
hereunder shall be sufficiently given if mailed or sent by registered or
certified mail, postage prepaid, or by facsimile transmission or telex
immediately confirmed in writing sent by registered mail or certified mail,
postage prepaid, addressed,
<TABLE>
<CAPTION>
in the case of Golden Bear to: or in the case of Weitz or Weitz Golf to:
<S> <C>
President, Golden Bear International, Inc. and President, The Weitz Company, Inc.
President, Golden Bear Golf, Inc. and 400 Locust Street, Suite 300
Jack Nicklaus Des Moines, IA 50309
11780 U.S. Highway One
</TABLE>
-7-
<PAGE>
North Palm Beach, FL 33408
17. HEADINGS. Headings in this Agreement are for the convenience of the
parties and shall have no substantive effect.
18. EQUITY PURCHASE OPTION. Weitz hereby grants to GBG the right and
option, at GBG's sole election, to convert Golden Bear's Referral and
Participation Fee interest into a 49% equity interest in Weitz Golf upon payment
to Weitz of an amount equal to the greater of (a) $490 or (b) 49% of the
positive depreciated book value of any construction equipment owned by Weitz
Golf, such that thereafter Weitz will own 51% and GBG will own 49% of Weitz
Golf. If this equity purchase option right is exercised, GBG's ownership of the
49% equity interest shall continue until December 31,2007. As of January 1, 2008
GBG shall assign such 49% equity interest to the Designated Successor in
exchange for the same purchase price amount originally paid by GBG, and the
Designated Successor shall thereafter own such 49% of Weitz Golf. Such equity
purchase option right may be exercised only in full by GBG and only at any time
during a period commencing on the date of this Agreement and continuing for a
period of twenty-four (24) months thereafter. This equity purchase option right
shall in any event expire on the second anniversary date of this Agreement if
not exercised prior to that date. If this equity purchase option right is
exercised, the Referral and Participation Fee shall thereafter be reduced to
zero, and Weitz Golf may thereafter use the name "Golden Bear" in its name.
19. ACKNOWLEDGMENT. GBI and Nicklaus specifically consent and agree to
the provisions of Section 18. GBI acknowledges that the formation of Weitz Golf
under the terms of this Agreement meets the terms and conditions of the
Commitment.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
___________________________________ Golden Bear International, Inc.
Jack Nicklaus
By:_________________________________
The Weitz Company, Inc. Title:______________________________
By: ___________________________ Golden Bear Golf, Inc.
Title: ___________________________
By:_________________________________
Weitz Golf International, L.L.C. Title:______________________________
By: ___________________________
Title: ___________________________
-8-
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Golden Bear Golf, Inc. is the 100% shareholder of the following subsidiaries,
all of which are incorporated under the laws of the State of Florida:
Paragon Construction International, Inc.
Golden Bear Apparel International, Inc.
Golden Bear Club Services, Inc.
GBRS Corp.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed registration statement on Form S-8 (File No. 333-05581).
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
May 14, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDEN BEAR
GOLF, INC.'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,168,118
<SECURITIES> 0
<RECEIVABLES> 1,907,471
<ALLOWANCES> (280,688)
<INVENTORY> 0
<CURRENT-ASSETS> 3,063,519
<PP&E> 1,883,678
<DEPRECIATION> (1,177,317)
<TOTAL-ASSETS> 5,884,413
<CURRENT-LIABILITIES> (20,168,402)
<BONDS> (2,717,581)
0
0
<COMMON> (55,050)
<OTHER-SE> 16,945,480
<TOTAL-LIABILITY-AND-EQUITY> (5,884,413)
<SALES> 0
<TOTAL-REVENUES> (11,385,040)
<CGS> 0
<TOTAL-COSTS> 11,435,033
<OTHER-EXPENSES> 595,549
<LOSS-PROVISION> 384,995
<INTEREST-EXPENSE> 398,556
<INCOME-PRETAX> 645,542
<INCOME-TAX> 190,716
<INCOME-CONTINUING> 836,258
<DISCONTINUED> 29,615,467
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,451,725
<EPS-PRIMARY> 5.53
<EPS-DILUTED> 5.53
</TABLE>
