SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
GOLDEN BEAR GOLF, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: Class A
Common Stock, Par Value $.01 Per Share
(2) Aggregate number of securities to which transaction applies: 2,504,962
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): $.75
(4) Proposed maximum aggregate value of transaction: $1,878,722
(5) Total fee paid: $376
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid: $376
(2) Form, Schedule or Registration No.: Schedule 13E-3
(3) Filing Party: Golden Bear Golf, Inc.
(4) Date Filed: April 12, 2000
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INFORMATION STATEMENT
GOLDEN BEAR GOLF, INC.
We are sending this Information Statement on ___________ to the holders
of record of our Class A Common Stock as of ______, 2000 in connection with the
merger of GB Golf Corp., one of our wholly-owned subsidiaries, with and into
Golden Bear Golf, Inc., with Golden Bear as the surviving corporation of the
merger. On _________, 2000, we consummated the merger pursuant to the terms of
an Agreement and Plan of Merger dated as of _________, 2000 by and among GB Golf
and us. We entered into the merger agreement pursuant to the terms of a court
approved settlement agreement.
On ____________, 2000, the owners of our outstanding Class B Common
Stock converted all of their shares of Class B Common Stock into shares of our
Class A Common Stock and approved the merger by written consent in lieu of a
meeting. The approval of the merger by those shareholders was sufficient to
approve the merger under the provisions of the Florida Business Corporation Act
and our Articles of Incorporation and Bylaws. No action by the other holders of
our Class A Common Stock is required to approve or consummate the merger, and we
are not seeking any approval from you. We do not require and will not seek the
approval of the settlement agreement or the merger by non-affiliated
shareholders.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUIRED TO SEND US A
PROXY.
Pursuant to the terms of the merger agreement, holders of our Class A
Common Stock are entitled to receive 1 share of Class A common stock of the
surviving corporation for every 114,000 shares of our Class A Common Stock they
held on the effective date of the merger. However, because we will not issue any
fractional shares of the surviving corporation stock in the merger, any holder
of less than 114,000 shares of our Class A Common Stock on the effective date
will receive, in lieu of any fractional shares of the surviving corporation
stock, a cash amount equal to $0.75 per share of Class A Common Stock. We have
received an opinion from our financial advisor that the terms of the merger are
fair to you from a financial point of view. As provided by the terms of the
court approved settlement agreement, we have structured the merger so that only
the former holders of our Class B Common Stock will continue to hold shares of
stock in the surviving corporation.
In order to receive your cash payment for your shares after the merger,
you must deliver a properly completed Letter of Transmittal together with the
certificates representing your shares of Class A Common Stock to First Union
National Bank, as paying agent, by mail, hand delivery, or overnight courier in
the manner set forth in the Letter of Transmittal.
This Information Statement also constitutes your notice of the
availability to you of appraisal rights pursuant to Section 607.1302 of the
Florida Business Corporation Act. If you do not wish to accept the cash payment
you are entitled to receive in the merger, you have the right, if properly
perfected, to seek a judicial appraisal of the "fair value" of your shares of
Class A Common Stock, which could be less than or greater than the cash payment
you would otherwise receive pursuant to the terms of the merger.
This Information Statement also forms a part of a Schedule 13e-3 that
we have filed with the Securities and Exchange Commission with respect to the
merger.
ALL OF OUR DIRECTORS, OTHER THAN MR. NICKLAUS, WHO DID NOT VOTE,
APPROVED THE MERGER.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Information Statement is __________.
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TABLE OF CONTENTS
PAGE
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SUMMARY TERM SHEET.............................................................i
FORWARD LOOKING STATEMENTS.....................................................1
INTRODUCTION...................................................................1
SPECIAL FACTORS................................................................2
Background and Purpose of the Merger..................................2
Determination of the Board of Directors; Fairness of
the Transaction.....................................................4
Opinion of Financial Advisor..........................................4
THE MERGER.....................................................................8
The Merger............................................................8
Effective Time........................................................9
Articles of Incorporation and By-laws.................................9
Directors and Officers................................................9
Conversion of Securities..............................................9
Closing of Stock Transfer Records.................................... 9
Surrender of Stock Certificates......................................10
Payment for Shares...................................................10
Conditions...........................................................10
Expenses ............................................................10
Source and Amount of Funds...........................................11
Material Federal Income Tax Consequences.............................11
Accounting Treatment.................................................13
INTERESTS OF CERTAIN PERSONS IN OUR SECURITIES AND THE MERGER.................13
APPRAISAL RIGHTS..............................................................13
PLANS FOR GOLDEN BEAR AND GB GOLF FOLLOWING THE MERGER........................16
MARKET PRICE AND DIVIDEND INFORMATION.........................................18
SELECTED FINANCIAL DATA.......................................................19
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION............................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................21
INFORMATION REGARDING GOLDEN BEAR.............................................27
Business ............................................................27
Properties...........................................................34
Legal Proceedings....................................................34
INFORMATION REGARDING GB GOLF.................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................35
INDEX TO FINANCIAL STATEMENTS................................................F-1
AGREEMENT AND PLAN OF MERGER.................................................A-1
OPINION OF MORGAN STANLEY & CO. INCORPORATED.................................B-1
SELECTED PROVISIONS OF THE FLORIDA BUSINESS CORPORATION ACT..................C-1
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SUMMARY TERM SHEET
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Companies..................................... Golden Bear Golf, Inc., a Florida corporation, and GB Golf
Corp., a Florida corporation and a wholly-owned subsidiary
of Golden Bear. SEE "INFORMATION REGARDING GOLDEN BEAR"
and "INFORMATION REGARDING GB GOLF."
Purpose....................................... We are effecting the merger to comply with the terms of a
court-approved settlement agreement so that the holders of
our Class A Common Stock other than holders affiliated
with Jack W. Nicklaus, our Chairman, will receive cash for
their securities. SEE "THE MERGER--BACKGROUND AND
PURPOSE OF THE MERGER."
Transaction................................... A statutory merger of GB Golf with and into Golden Bear
under the Florida Business Corporation Act. Golden Bear
will survive the merger. SEE "THE MERGER--THE MERGER
AGREEMENT" and "APPENDIX A - MERGER AGREEMENT."
Consideration................................. Each issued and outstanding share of Golden Bear's Class A
Common Stock will be converted into approximately 0.00000877 of a
share of the Class A Common Stock of the surviving
corporation of the merger. However, no fractional shares
will be issued and cash will be paid in lieu of fractional
shares. If you would otherwise receive a fractional share as
a result of the merger you will instead receive $0.75 for
each share of Class A Common Stock you owned on the
effective date of the merger. SEE "THE MERGER--THE MERGER
AGREEMENT."
Fairness Opinion.............................. We have received an opinion from Morgan Stanley & Co.
Incorporated, our financial advisor, that the $0.75 cash
consideration that we will pay to you in the merger is fair
from a financial point of view to the holders of our Class A
Common Stock, other than Mr. Nicklaus and his affiliates.
SEE "THE MERGER--OPINION OF FINANCIAL ADVISOR" and
"APPENDIX B-OPINION OF MORGAN STANLEY & CO. INCORPORATED."
Source and Amount of
Funds and Expenses............................ We estimate that we will pay approximately $1.9 million to
holders of our Class A Common Stock who will receive
cash in the merger. We will fund these amounts from cash
on hand. SEE "THE MERGER-BACKGROUND AND PURPOSE" and
"--SOURCE AND AMOUNT OF FUNDS." We will pay all expenses
incurred in the merger. SEE "THE MERGER--EXPENSES."
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Effect........................................ As a result of the merger you will receive cash in the
amount of $0.75 for each share of Class A Common Stock
you held on the effective date and Golden Bear will revert
to private ownership. Holders of our Class A Common
Stock who are affiliated with Mr. Nicklaus will continue to
hold shares of stock in the surviving corporation of the
merger, and those shares will represent 100% of the
outstanding equity interests of the surviving corporation
after the merger. SEE "THE MERGER--THE MERGER
AGREEMENT" and "PLANS FOR GOLDEN BEAR AND GB GOLF AFTER
THE MERGER."
Shareholder Approval ......................... The Nicklaus-affiliated shareholders converted all of their
shares of our Class B Common Stock into shares of our
Class A Common Stock on ___________, 2000 and
approved the merger by written consent in lieu of a meeting
as permitted by Florida law. Their shares represented ___%
of the vote entitled to vote on the merger and accordingly no
further action by our shareholders is required to approve the
merger. We are not seeking your proxy or your approval of
the merger. SEE "THE MERGER--BACKGROUND AND PURPOSE TO
THE MERGER."
Appraisal Rights.............................. Pursuant to the terms of the settlement agreement, we have
agreed to provide you with appraisal rights with respect to
your Class A Common Stock under the applicable sections
of the Florida Business Corporation Act. If you properly
perfect these rights these provisions will permit you to have
the "fair value" of your Class A Common Stock judicially
determined and paid to you instead of the $0.75 per share
paid in the merger. In order to perfect your rights you must
fully comply with the statutory procedures of Florida law.
SEE "APPRAISAL RIGHTS" and "APPENDIX C-SELECTED
PROVISIONS OF THE FLORIDA BUSINESS CORPORATION ACT."
Conditions to the Merger...................... It is a condition to the merger that the merger and the
settlement agreement be approved by the United States
District Court for the Southern District of Florida. The
Court approved the merger and settlement agreement on
March 28, 2000. The merger is also subject to other
customary conditions. SEE "THE MERGER--THE MERGER
AGREEMENT" and "APPENDIX A-MERGER AGREEMENT."
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FORWARD LOOKING STATEMENTS
This Information Statement contains forward-looking statements that are
being made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based
largely on our expectations and are subject to a number of risks and
uncertainties, including but not limited to, those risks associated with:
o the outcomes of the pending lawsuits against us and the
resolution of outstanding issues with vendors, course owners
and developers including the outcome and costs associated with
the on-going Securities and Exchange Commission investigation;
o contingent liabilities;
o economic conditions generally;
o changes in interest rates, and the availability, cost and
terms of financing;
o competition;
o risks associated with licensing activities including the risks
associated with the operations of our licensees;
o changes in business strategy or development plans; and
o other factors discussed elsewhere in this Information
Statement and in the documents that we file with the
Securities and Exchange Commission.
Many of these factors are beyond our control. Our actual results could
differ materially from any forward-looking statements. In light of these risks
and uncertainties, we can not assure you that the forward- looking information
contained in this Information Statement will, in fact, occur. We do 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 we file with the Securities and Exchange Commission.
INTRODUCTION
Since its formation, Golden Bear, together with our wholly-owned
subsidiaries, has been 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 of golf practice and instruction facilities. Through our various
operating units, we have provided products and services primarily under the
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR brand names.
Golden Bear was formed on June 7, 1996 to enter into an exchange
agreement that we consummated on August 1, 1996, simultaneously with the closing
of our initial public offering of our Class A Common Stock. Parties to the
exchange agreement included a number of our affiliates as well as Golden Bear
International, Inc., a privately owned company controlled by Jack Nicklaus,
Chairman of our Board of Directors. Pursuant to the exchange agreement, we
acquired all of the outstanding common stock of the other constituent companies
of the reorganization (except Golden Bear International) in exchange for shares
of our Class A and Class B Common Stock. In addition, we acquired specified
assets and assumed specified liabilities of Golden Bear International in
exchange for shares of our Class B Common Stock. We accounted for the
transaction on a historical cost basis in a manner similar to a pooling of
interests as we and the constituent companies to the reorganization had common
stockholders and management. We have no equity interest in Golden Bear
International.
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During 1998, we sold our wholly-owned subsidiary Golden Bear Golf
Centers, Inc. and discontinued the construction operations conducted by our
wholly-owned subsidiary Paragon Construction International, Inc. As a
consequence of the termination of these activities, our remaining businesses
include:
o licensing of branded products under the names
o NICKLAUS,
o JACK NICKLAUS and
o GOLDEN BEAR
o operating the NICKLAUS FLICK GAME IMPROVEMENT, and
o generating marketing fees related to Mr. Nicklaus' personal
endorsements.
In addition, on December 18, 1998, we entered into an agreement with
Weitz Golf International LLC, a newly formed construction company, pursuant to
which we provide marketing assistance in connection with the construction
activities Weitz Golf offers. To date, we have not generated any revenues from
these activities.
As of December 31, 1999, we had 2,744,962 shares of our Class A Common
Stock and 2,760,000 shares of our Class B Common Stock issued and outstanding.
As a consequence of the conversion of our Class B Common Stock into Class A
Common Stock in connection with the merger, as of ________, 2000 we had
_________ shares of Class A Common Stock and no shares of Class B Common Stock
issued and outstanding. Our Class A Common Stock is traded on the NASD's OTC
Bulletin Board under the symbol "JACK.OB" On December 23, 1999, the last trading
day prior to our announcement of the terms of the settlement and merger, the
last reported sales price of our Class A Common Stock was $0.50. On ________,
2000, the last reported sales price of our Class A Common Stock was $_____.
SPECIAL FACTORS
BACKGROUND AND PURPOSE OF THE MERGER
Based on a comprehensive review of construction projects of our
wholly-owned subsidiary, Paragon Construction International, Inc. it was
necessary for us to restate the financial statements for the year ended December
31, 1997 that we had previously filed with the Securities and Exchange
Commission. Following our announcement that our financial statements needed to
be restated, a number of class action complaints were filed against us and
certain of our present and former officers and directors and the former
president of one of our subsidiaries. One of the class action complaints also
named Arthur Andersen LLP, our certified public accountants ("Andersen"), as a
defendant. Those class actions were transferred to Judge Daniel T. K. Hurley of
the United States District Court for the Southern District of Florida and that
court entered an order consolidating the actions, designating class
representatives and appointing class counsel pursuant to the provisions of the
Private Securities Litigation Reform Act.
On December 24, 1998, the plaintiffs filed their first Consolidated
Class Action Complaint, naming as defendants Golden Bear, Jack W. Nicklaus,
Richard P. Bellinger, Jack P. Bates, Stephen S. Winslett, John Boyd, and
Andersen. The Consolidated Complaint alleged claims for violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. The Consolidated Complaint asserted claims on behalf of
a class consisting of all persons, excluding the defendants and certain related
persons and entities, who purchased shares of our Class A Common Stock during
the period from April 30, 1997 through and including July 27, 1998.
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On December 22, 1999, the parties entered into a settlement agreement
relating to the consolidated actions. In connection with the settlement, the
plaintiffs filed a motion to allow the filing of their Second Amended
Consolidated Complaint on behalf of a class of all persons, excluding the
defendants, who purchased shares of our Class A Common Stock from the date of
our public offering, August 1, 1996, through and including July 27, 1998. The
Amended Consolidated Complaint included allegations of securities law violations
under Sections 11, 12(2) and 15 of the Securities Act of 1933, Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as
common law claims.
Under the terms of the settlement agreement, we established a
settlement fund in the amount of $3.5 million to settle the class action
litigation. We were responsible for contributing $2.5 million to the settlement
fund; this amount was provided by our insurer. Pursuant to the settlement
agreement, Andersen also agreed to contribute $1 million to the settlement fund.
Additionally, we agreed to take the steps necessary to effectuate the
transaction which is the subject of this Information Statement resulting in
consideration payable to the public holders of shares of our Class A Common
Stock of $0.75 in cash per share.
In connection with our entry into the settlement agreement, we also
entered into a settlement with Andersen to resolve our claims against it. We had
previously advised Andersen of our belief that Andersen violated its duty of
care in connection with the professional services it provided to us and that our
losses, in part, resulted from that failure of due care. Andersen vigorously
denied a failure of due care on its part and vigorously denied that any of our
losses resulted from anything Andersen did or failed to do. Notwithstanding the
foregoing, in order to avoid protracted litigation, the parties entered into a
settlement. Pursuant to the settlement, Andersen agreed to pay us $3.8 million
in cash and waive approximately $750,000 in receivables due to Andersen from us.
On January 13, 2000 the United States District Court for the Southern
District of Florida granted preliminary approval of the settlement and on March
28, 2000, the court approved the terms of the settlement and entered a final
order and judgment. The court, in its order, adjudged that the settlement
agreement is fair, reasonable and adequate to the class.
The purpose of the merger transaction is to comply with the terms of
the settlement agreement requiring that holders of our Class A Common Stock
other than the former holders of our Class B Common Stock will receive cash for
their securities.
On ____________, 2000, the owners of our outstanding Class B Common
Stock converted all of their shares of Class B Common Stock into shares of our
Class A Common Stock and approved the merger by written consent in lieu of a
meeting. The approval of the merger by those shareholders was sufficient to
approve the merger under the provisions of the Florida Business Corporation Act
and our Articles of Incorporation and Bylaws. No action by the other holders of
our Class A Common Stock is required to approve or consummate the merger, and we
are not seeking any approval from you. We do not require and will not seek the
approval of the settlement agreement or the merger by our non-affiliated
shareholders.
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DETERMINATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTION
On December 20, 1999 our Board of Directors held a special meeting at
which Morgan Stanley & Co. Incorporated, our financial advisor, made a
presentation concerning the fairness of the cash consideration to be received by
the public shareholders of Class A Common Stock in the merger and delivered
their oral opinion that the amount of the cash consideration to be offered in
the merger as provided for in the settlement agreement was fair from a financial
point of view to those of our shareholders who will receive cash in the merger.
Following Morgan Stanley's presentation and the delivery of their oral opinion
all of our directors (other than Mr. Nicklaus who was not in attendance and did
not vote) determined that the terms of the settlement and the contemplated
merger are fair to holders of our Class A Common Stock and approved the terms of
the merger and the merger agreement.
In reaching its conclusions with respect to the fairness of the merger
to those of our shareholders who will receive cash in the merger our Board of
Directors considered, among other factors, the following:
o the presentation by, and the opinion of, the investment
banking firm of Morgan Stanley delivered at the meeting of the
Board of Directors;
o the proposed terms of the settlement agreement which were
negotiated on an arms-length basis with the plaintiffs in the
litigation;
o the recent trading price of our Class A Common Stock and our
financial condition, results of operations, prospects and
businesses; and
o the current industry, economic and market conditions.
Our Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination that the terms of the merger are fair
to holders of our Class A Common Stock. Our Board of Directors did not retain
any unaffiliated representative to act solely on behalf of unaffiliated security
holders for purposes of negotiating the terms of the settlement agreement or the
merger. However, a non-employee director designated by the Board did meet with
counsel for the plaintiffs in the class action litigation who negotiated on
behalf of the non-Nicklaus affiliated shareholders. Plaintiffs' counsel
independently employed consultants and met with Morgan Stanley in connection
with counsels' participation in the negotiations which resulted in the
settlement agreement and the consideration to be paid to non-Nicklaus affiliated
shareholders in the merger.
OPINION OF FINANCIAL ADVISOR
The full text of the written opinion of Morgan Stanley, which sets
forth the assumptions made, matters considered and limitations of the reviews
undertaken, is attached as Appendix B and is incorporated herein by reference. A
copy of the opinion is also available for inspection at our executive offices.
We urge you to read the opinion carefully in its entirety. Morgan Stanley's
opinion is directed only to the fairness of the merger price to you, from a
financial point of view, and does not address any other aspect of the
transaction. The following discussion is qualified in its entirety by reference
to the full text of the opinion.
INTRODUCTION
Morgan Stanley acted as our financial advisor in connection with the
settlement agreement and the merger, and assisted our Board in its examination
of the fairness, from a financial point of view, of the consideration to be paid
to the holders of our Class A Common Stock that will receive cash in the merger.
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Morgan Stanley is one of the nation's largest investment banking and financial
advisory firms and has provided valuation and financial advisory services to
clients for over 60 years. The Board of Directors selected Morgan Stanley as our
financial advisor based upon their experience, ability and reputation.
On December 20, 1999, Morgan Stanley delivered its oral opinion to our
Board to the effect that, as of that date, the consideration to be paid by us to
the holders of our Class A Common Stock that will receive cash in the merger is
fair, from a financial point of view.
In arriving at its fairness opinion, Morgan Stanley reviewed, among
other items, the following information concerning us: our public financial
statements included in our Annual Reports on SEC Form 10- K for the fiscal years
ended December 31, 1998, 1997 and 1996 and our quarterly reports on SEC Form
10-Q for the periods ended March 31, June 30 and September 30, 1999; and certain
other internal operating reports and cash flow schedules prepared by our
management. Morgan Stanley also reviewed our historical stock market prices and
trading volume and the terms of the settlement agreement.
Morgan Stanley also reviewed industry and financial information, which
included, among other items, financial and stock market data relating to
publicly held companies and trading indexes which Morgan Stanley deemed relevant
for comparative purposes to us, and selected minority buy-out or "going private"
transactions which have occurred since May 1996. All industry information and
data on public companies and trading indexes used in Morgan Stanley's analysis
were obtained from regularly published industry and investment sources. In
addition, Morgan Stanley held discussions with our senior management regarding
past, current, and projected operations. Morgan Stanley also took into account
its assessment of general economic, market and financial conditions, as well as
its experience in securities and business valuation, in general, and with
respect to similar transactions, in particular. Morgan Stanley also met
independently with the attorneys representing the plaintiffs in the class action
litigation and considered the views of class counsel in connection with
rendering its opinion.
In performing its analysis and rendering its opinion with respect to
the merger, Morgan Stanley relied upon the accuracy and completeness of all
information provided to it, whether obtained from public or private sources,
including our management, and did not attempt to independently verify any such
information. Morgan Stanley noted that nothing came to its attention in the
course of its analysis to make Morgan Stanley believe that it is not reasonable
to rely on the information described above, including the schedules and reports
of our management. Morgan Stanley's opinion further assumes that information
supplied and representations made by our management regarding us and the
background and terms of the merger are substantially accurate. Morgan Stanley's
opinion is necessarily based upon market, economic, financial and other
conditions as they existed and could be evaluated as of December 20, 1999. We
did not place any limitation upon Morgan Stanley with respect to the procedures
followed or factors considered in rendering its opinion.
SUMMARY
In preparing its opinion to our Board, Morgan Stanley performed a
variety of financial and comparative analyses regarding our valuation including
(i) a "sum-of-the-parts" valuation of five identified "pockets of value" and
(ii) a review of recent minority buy-out or "going private" transactions. In
addition, Morgan Stanley conducted other studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
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"SUM-OF-THE-PARTS" ANALYSIS. Morgan Stanley performed a theoretical
"sum-of-the-parts" analysis of five identified "pockets of value," calculating
the value of each "pocket" using a methodology Morgan Stanley deemed
appropriate. The five "pockets of value" identified were our:
o existing and ongoing business,
o costs associated with liquidating our discontinued operations,
o net operating loss carryover as it may be applied to our
future earnings,
o referral fees that we may receive from Weitz Golf, and
o proceeds from our settlement with Andersen.
ONGOING BUSINESS. Morgan Stanley valued our ongoing business using a
comparable company analysis and a discounted cash flow analysis. In the
comparable company analysis, Morgan Stanley selected a set of publicly traded
companies based on comparability to us. Although none of the companies selected
was exactly similar to us, these companies share many of our operating
characteristics and are affected by many of the same economic forces. The value
of our ongoing business was derived from the rate at which those companies are
capitalized in the market. Using publicly available information, Morgan Stanley
analyzed historical financial performance, stock prices and resulting valuation
multiples for the following golf-related companies: Ashworth, Cutter & Buck,
Hartmax, Sport-Haley, Family Golf Centers, Calloway Golf, Adams Golf, Teardrop
Golf, Coastcast, Aldila, Golf Trust of America and National Golf Properties.
Morgan Stanley compared our projected financial performance for the
year 2000 with the projected financial performance of the comparable companies
for the year 2000. Comparative statistics revealed per share ratios of price to
projected year 2000 earnings of from 2.2x to 14.9x, with a mean of 8.0x for
apparel companies, 10.4x for golf equipment companies and a total mean of 9.2x.
Based upon a ratio of 7.0x to 8.0x and management estimates of our year
2000 earnings, Morgan Stanley valued our ongoing business at approximately $3.2
million to $3.7 million, or $0.58 to $0.67 per share.
Morgan Stanley also performed a discounted cash flow analysis of the
projected free cash flows of our ongoing business. Free cash flow was defined as
cash that is available to either reinvest in new business or to distribute to
investors. The projected free cash flows are discounted to the present at a rate
which reflects the relative risk associated with these flows as well as the
rates of return which investors could expect to realize on alternate investment
opportunities.
Our projected free cash flows were based on projected revenues, net
income, working capital and capital expenditure requirements over the next five
years. Morgan Stanley discounted the resulting projected free cash flows at
weighted average rates of 13% to 14%. The discount range reflects among other
things, industry risks, our relatively small capitalization and the current
rates of return required by equity and debt investors generally. The analysis
resulted in a control price or the price a fully informed buyer would pay for
all of our common stock, without consideration of risks associated with our
contingent liabilities. The analysis yielded an aggregate control price range of
$5.2 million to $5.6 million or $0.99 to $1.02 per share.
As indicated, the foregoing did not take into consideration or deduct
any amounts for our contingent liabilities based on the fact that such
liabilities are at this time impossible to quantify.
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DISCONTINUED OPERATIONS. Morgan Stanley valued the liquidation costs of
our discontinued operations by calculating the net present value of the net
negative cash outflows over the next five years from the liquidation of the
assets and the repayment of the liabilities of our discontinued operations. For
these purposes Morgan Stanley used the same discount rates of 13% to 14% as for
our ongoing business. Using these rates, Morgan Stanley calculated an implied
net negative valuation of $7.0 million to $7.5 million for the liquidation costs
associated with our discontinued operations, or $(1.27) to $(1.36) per share.
NET OPERATING LOSSES. Morgan Stanley valued our Net Operating Loss
("NOL") carryover by discounting the amount of our NOL carryover to present
value at discount rates of 14% to 15%. In addition to the factors outlined
above, the higher discount rates for our NOL carryover reflects Morgan Stanley's
judgement that our NOL carryover would be of benefit primarily to equity holders
and consequently require a higher level of financial return. Assuming
management's base case projection of taxable earning and range of long-term
growth rates from 3% to 5%, the discounted valuation analysis yielded a
valuation of our NOL carryover of $600,000 to $700,000, or $0.11 to $0.13 per
share. However, it was noted that the NOL carryover is not transferable, may
only be utilized by the existing company and that any benefit from the NOL
carryover can only be derived if significant earnings in the entity are
generated in the future.
WEITZ GOLF. Morgan Stanley valued the stream of payments we expect to
receive from Weitz Golf in connection with our relationship with Weitz Golf by
discounting the expected payment stream to present value. Morgan Stanley applied
discount rates ranging from 19% to 20% to reflect the higher rate of risk
related to non-control investments in start-up companies, the higher risks
associated with the construction business and to reflect the fact that no
significant payments are expected until 2001. These discount rates implied a
present valuation of the payments of $1.7 million to $2.0 million, or $0.31 to
$0.37 per share. However, it was noted that to date, there were no cumulative
net profits from the operations of Weitz Golf and there is no assurance that net
profits will be generated in the future.
CLAIMS AGAINST ANDERSEN. Morgan Stanley valued the proceeds that we
would realize from the settlement of our claims against Andersen at their cash
value after giving effect to anticipated transaction and legal costs and
payables. These claims were valued at $4.0 million, or $0.73 per share.
Adding together the "sum-of-the-parts" as described above, Morgan
Stanley concluded that our total valuation was between $2.8 million and $4.2
million, or $0.51 to $0.76 per share, before considering and without taking into
account our contingent liabilities. Based upon the "sum-of-the-parts" analysis,
it is Morgan Stanley's opinion that the valuation implied by the cash merger
consideration is fair from a financial point of view.
COMPARABLE TRANSACTIONS ANALYSIS. Morgan Stanley also reviewed 38
publicly announced minority buy-out or "going private" transactions that had
been completed or were in the process of completion from May 1996 through the
date of their presentation to the Board. The median premium that was offered
over the trading price of the subject company before the announcement date of
the acquisition was 21.8%. The cash merger consideration of $0.75 per share
represents a premium of approximately 50% over the trading price of our Class A
Common Stock prior to the announcement of the merger. Based on the comparable
transactions analysis, it is Morgan Stanley's view that the valuation implied by
the merger consideration is fair from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth
7
<PAGE>
above, without considering the analyses as a whole, could create an incomplete
view of the process underlying Morgan Stanley's fairness opinion. In arriving at
its fairness opinion, Morgan Stanley considered the results of all such analyses
taken as a whole. Furthermore, in arriving at its fairness opinion, Morgan
Stanley did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. No company or transaction used in the
above analyses as a comparison is identical to us or the merger. The analyses
were prepared solely for purposes of Morgan Stanley providing its opinion to our
Board as to the fairness of the consideration to be received by the holders of
our Class A Common Stock that will receive cash in the merger from a financial
point of view, and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses are based upon numerous factors or events beyond
our control, its advisors or any other person, and are inherently uncertain.
Actual future results may be materially different from those forecasts. Further,
as indicated, the amounts discussed were before consideration of and without
reduction for amounts attributable to our contingent liabilities. The impact of
such contingent liabilities are not currently quantifiable but could have a
material adverse impact on us and our future results.
FEE AND OTHER INFORMATION
Our Board of Directors retained Morgan Stanley under an engagement
letter dated May 13, 1999. As compensation for its services as financial advisor
to us in connection with the settlement and the merger, we agreed to pay Morgan
Stanley a fee of $150,000. No portion of the fee payable to Morgan Stanley was
contingent upon the conclusion reached in its opinion. In addition, we have
agreed to reimburse Morgan Stanley for its reasonable out-of-pocket expenses,
including the fees and expenses of its legal counsel, and to indemnify Morgan
Stanley against certain liabilities, including liabilities under the federal
securities laws, relating to, arising out of or in connection with its
engagement.
THE MERGER
The following discussion is a summary of the material provisions of the
merger. This summary and all other discussions of the terms of the merger and
the merger agreement included elsewhere in this Information Statement are
qualified in their entirety by reference to the full text of the merger
agreement, a copy of which is attached hereto as Appendix A and incorporated in
this Information Statement by reference.
THE MERGER
Pursuant to the merger agreement, upon our filing of Articles of Merger
with the Florida Secretary of State, we merged with GB Golf in accordance with
the applicable provisions of the Florida Business Corporation Act. The merger
will have the effects specified under Section 607.1106 of the Florida Business
Corporation Act. GB Golf does not have any assets or conduct any business other
than as may be necessary for it to satisfy its obligations under the merger
agreement.
8
<PAGE>
EFFECTIVE TIME
The merger became effective upon the filing of the Articles of Merger
in accordance with Florida law.
ARTICLES OF INCORPORATION AND BYLAWS
The merger agreement provides that the Articles of Incorporation and
Bylaws of Golden Bear immediately prior to the merger will be the Articles of
Incorporation and Bylaws of the surviving corporation.
DIRECTORS AND OFFICERS
The merger agreement provides that the members of GB Golf's Board of
Directors immediately prior to the merger will be the members of the Board of
Directors of the surviving corporation after the merger, until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the Articles of Incorporation and the
Bylaws of the surviving corporation. Additionally, the officers of GB Golf
immediately prior to the merger will be officers of the surviving corporation
after the merger, until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Articles of Incorporation and the Bylaws of the surviving corporation.
Our current outside directors will not continue to serve as directors of the
surviving corporation after the merger.
CONVERSION OF SECURITIES
The merger agreement provides that, at the effective time of the merger
each share of our Class A Common Stock outstanding immediately prior to merger,
other than those held by GB Golf or any of its subsidiaries will, without any
action on the part of any holder thereof, be automatically converted into
approximately .00000877 of a share of the Class A common stock of the surviving
corporation. However, no fractional shares will be issued in the merger and,
accordingly, any shareholder who is entitled to receive less than 1 share of
surviving corporation common stock (i.e. any shareholder owning less than
114,000 shares of Class A Common Stock on the effective date of the merger) will
instead receive cash in the amount of $0.75 (without interest thereon) for each
share of our Class A Common Stock outstanding on the date of the merger, subject
only to the right to seek an appraisal of their shares granted herein.
As a result of the merger, if you have not perfected your appraisal
rights under the Florida Business Corporation Act, you will cease to have any
rights with respect to your shares, except the right to receive the cash payment
due to you upon surrender of your share certificates as described below under
the caption "The Merger -- Surrender of Stock Certificates."
In accordance with the terms of the settlement, the exchange ratio for
the merger was selected to insure that the former holders of our Class B Common
Stock will not receive cash in the merger.
CLOSING OF STOCK TRANSFER RECORDS
We will make no transfers of shares of our Class A Common Stock on our
stock transfer books after the close of business on the day prior to the date of
the merger.
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<PAGE>
SURRENDER OF STOCK CERTIFICATES
We have appointed First Union National Bank as paying agent to process
the surrender of Class A Common Stock certificates and to make the cash payments
provided for by the merger agreement. Pursuant to the settlement agreement, we
will make the settlement fund available to the paying agent in order to pay the
cash amounts due to the holders of our Class A Common Stock.
A Letter of Transmittal will be provided to you with instructions for
use in effecting the surrender of your stock certificates in exchange for the
cash payment due to you pursuant to the merger. In order to receive your cash
payment you must complete the Letter of Transmittal (or a facsimile thereof) and
deliver it with your stock certificate and any other documentation required by
the Letter of Transmittal to the paying agent in the manner set forth in the
Letter of Transmittal.
Upon your surrender of your stock certificate to the paying agent
together with a duly executed Letter of Transmittal and any other documentation
required by the Letter of Transmittal, the paying agent will pay you the cash
payment due to you under the terms of the merger.
YOU WILL CHOOSE THE METHOD BY WHICH YOU DELIVER YOUR LETTER OF
TRANSMITTAL, STOCK CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS TO THE PAYING
AGENT, AND THAT DELIVERY WILL BE AT YOUR RISK. IF YOU SEND YOUR LETTER OF
TRANSMITTAL, STOCK CERTIFICATES AND OTHER DOCUMENTS BY MAIL, WE RECOMMEND THAT
YOU SEND THEM BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED.
YOU SHOULD NOT MAIL YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT
THE LETTER OF TRANSMITTAL.
PAYMENT FOR SHARES
Pursuant to the settlement agreement, we have established an escrow
account at First Union National Bank, the paying agent for the merger, with
sufficient funds to complete the merger transaction.
CONDITIONS
Our obligations to effect the merger were subject to the satisfaction
or waiver, prior to the effective date of the merger, of the following:
o no statute or rule or injunction shall prevent the merger,
o all governmental approvals required to consummate the merger
have been received, and
o the settlement agreement shall have received the final
approval of the United States District Court for the Southern
District of Florida.
EXPENSES
We estimate that we will pay approximately $1.9 million to holders of
our Class A Common Stock as consideration for the merger. The merger agreement
provides that we will also bear all expenses incurred in connection with the
merger. We will pay the paying agent reasonable and customary compensation for
its services and will reimburse the paying agent for its reasonable
out-of-pocket expenses.
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<PAGE>
We estimate that the amounts required and the expenses we will incur in
connection with the merger are as follows:
Aggregate merger consideration..................................... $1,878,722
Legal fees and expenses(1)......................................... 200,000
Other professional fees and expenses............................... 180,000
Printing, mailing and distribution expenses........................ 100,000
Paying agent fees and expenses..................................... 8,000
SEC filing fees.................................................... 376
Miscellaneous fees and expenses.................................... 132,902
-----------
Total.............................................................. $ 2,500,000
===========
- ------------------------
(1) Including fees paid to plaintiffs' counsel in connection with the agreement
in the settlement to effect the merger transaction, but not the fees paid in
connection with the overall settlement or the establishment or the
settlement fund.
SOURCE AND AMOUNT OF FUNDS
We will provide all amounts required to make the cash payments to the
holders of our Class A Common Stock, whether pursuant to the merger or in
connection with their exercise of dissenters' appraisal rights. We will fund
these amounts from cash on hand which includes the amounts received on the
settlement of our claims against others. See "Legal Proceedings."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States
federal income tax consequences of the merger to persons who are holders of our
Class A Common Stock (including the consequences of their receipt of any cash
amounts pursuant to the exercise of appraisal rights). This summary is for your
general information only and deals only with holders who hold their shares of
Class A Common Stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986. Your tax treatment will vary depending upon your
particular situation, and this summary does not purport to deal with all aspects
of taxation that may be relevant to you in light of your particular investment
or tax circumstances, or to certain shareholders that are subject to special
treatment under the federal income tax laws, including, without limitation:
o life insurance companies,
o certain financial institutions,
o broker-dealers,
o shareholders holding our Class A Common Stock
o as part of a conversion transaction,
o as part of a hedge or hedging transaction, or
o as a position in a straddle for tax purposes,
o tax-exempt organizations,
o foreign corporations,
o foreign partnerships and
o persons who are not citizens or residents of the United
States.
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<PAGE>
In addition, this discussion may not apply to you if you received your shares of
Class A Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation.
We do not intend to seek a ruling from the Internal Revenue Service
with respect to any of these tax consequences, and we can not assure you that
future changes in applicable law or administration and judicial interpretations
thereof will not adversely affect the tax consequences discussed herein or that
there will not be differences of opinion as to the interpretation of applicable
law. In addition, the summary below does not consider the effect of any foreign,
state, local or other tax laws that may be applicable to you.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
The receipt by you of cash in cancellation of your Class A Common Stock
pursuant to the merger (or any cash amounts you received pursuant to the
exercise of your appraisal rights) will be a taxable transaction for federal
income tax purposes. In general, for federal income tax purposes, you will
recognize gain or loss equal to the difference between your adjusted tax basis
in your Class A Common Stock converted in the merger and the amount of cash you
receive for those shares. You must determine your gain or loss separately for
each "block" of your Class A Common Stock that is converted to cash in the
merger. For these purposes we use the term "block" to mean all shares of Class A
Common Stock that you acquired at the same cost in a single transaction.
Your gain or loss generally will be capital gain or loss and will be
long-term gain or loss if, on the date of the merger, you have held your shares
for more than one year. Net capital gain recognized by an individual upon the
sale of, or otherwise attributable to, a capital asset that has been held for
more than one year will generally be subject to tax at a rate not to exceed 20%.
Capital gain recognized from the sale of, or otherwise attributable to, a
capital asset held for one year or less will be subject to tax at the ordinary
income tax rates. In addition, if you are a corporate taxpayer, the capital gain
you recognize will continue to be subject to tax at the ordinary corporate
income tax rates applicable to you. The deductibility of capital losses is
subject to certain limitations.
Our payment to you in connection with the merger may be subject to
"backup withholding" at a 31% rate. Backup withholding generally applies if you:
o fail to furnish us with your social security number or other
taxpayer identification number,
o furnish us with an incorrect identification number,
o fail to report interest or dividends properly, or
o under certain circumstances, fail to provide a certified
statement, signed under penalties of perjury, that:
o the identification number you provided is your
correct number and
o you are not subject to backup withholding.
Backup withholding is not an additional tax but merely an advance tax payment,
for which you may obtain a refund to the extent it results in an overpayment of
tax. Any amounts that we withhold from you under the backup withholding rules
generally will be allowed as a refund or a credit against your United States
federal income tax liability, if you furnish the required information to the
IRS. You should know that, in addition
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<PAGE>
to backup withholding, certain penalties apply for failure to furnish us with
correct information and for failure to include the reportable payments in your
income.
This discussion of backup withholding may not apply to shares of Class
A Common Stock that you acquired pursuant to certain compensation arrangements
with us. Additionally, certain persons generally are exempt from backup
withholding, including corporations and financial institutions. We urge you to
consult with your own tax advisor as to your qualifications for exemption from
backup withholding and the procedure for obtaining that exemption.
ACCOUNTING TREATMENT
The merger will be accounted for (under generally accepted accounting
principles) as a purchase of the Class A Common Stock from non-Nicklaus
affiliated shareholders by the surviving company. This means that the historical
cost basis of our assets and liabilities will be carried forward with the
aggregate cost, including expenses, of the stock purchase being accounted for as
a charge to shareholder's equity.
INTERESTS OF CERTAIN PERSONS IN OUR SECURITIES AND THE MERGER
On __________, 2000, Jack Nicklaus and members of his family converted
all of the shares of our Class B Common Stock that they beneficially owned into
an equal number of shares of our Class A Common Stock. As of _________, 2000
those shareholders beneficially owned, in the aggregate ________ shares of our
Class A Common Stock constituting approximately ___% of our Class A Common Stock
and no shares of our Class B Common Stock. Pursuant to the terms of the merger,
the shares of Class A Common Stock held by Mr. Nicklaus and his family will
remain outstanding and will, following the merger, constitute 100% of the
outstanding capital stock.
To our knowledge there are no contracts, arrangements, understandings
or relationships in connection with the merger or our Class A Common Stock other
than the merger agreement, the settlement agreement, the order of the United
States District Court for the Southern District of Florida approving the
settlement and our agreement with the paying agent.
For a discussion of certain transactions between us and our affiliates
see "Certain Relationships and Related Transactions" below.
APPRAISAL RIGHTS
Pursuant to the terms of the settlement agreement, we have agreed to
make available to each holder of our Class A Common Stock who does not wish to
receive the cash payment to which he or she would otherwise be entitled under
the terms of the merger, appraisal rights consistent with the provisions of
Section 607.1320 of the Florida Business Corporation Act. If you wish to dissent
from the merger and you properly perfect your appraisal rights you will be
entitled to have the "fair value" of your shares of Class A Common Stock
judicially determined as of the day prior to the date on which the former
holders of our Class B Common Stock converted their shares into our Class A
Common Stock and authorized us to consummate the merger. We will then pay you
that judicially determined "fair value" in exchange for your shares.
In order to perfect your appraisal rights, you must fully comply with
the statutory procedures of Sections 607.1301, 607.1302 and 607.1320 of the
Florida Business Corporation Act summarized below.
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<PAGE>
Those sections are attached as Appendix C to this Information Statement. We urge
you to read those sections in their entirety and to consult with your legal
advisors. We caution you that the failure on your part to adhere strictly to the
requirements of Florida law in any regard will result in the forfeiture of your
appraisal rights.
To exercise your appraisal rights, you must file with us a written
notice of your election to dissent within twenty days from the date of this
Information Statement. YOU WILL FORFEIT YOUR APPRAISAL RIGHTS IF YOU DO NOT FILE
YOUR ELECTION TO DISSENT WITHIN THE TWENTY-DAY PERIOD.
Your election to dissent must state:
o your name and address,
o the number shares as to which you dissent and
o a demand for payment of the fair value of your shares.
If you file an election to dissent:
o you must deposit the certificate(s) representing your shares
with us when you file your election,
o you will be entitled only to payment pursuant to the procedure
set forth in the Florida Business Corporation Act and
o you will not be entitled to vote or to exercise any other
rights of a shareholder of Golden Bear.
You may withdraw your notice of election at any time before we make an
offer to purchase your shares as described below. If you withdraw your notice of
election, you will lose your right to pursue appraisal rights, and you will
again have the rights you had prior to the filing of your notice of election.
If you make a demand to us as described in this section:
o we may restrict the transfer of your shares from the date you
file your election,
o within ten days after the period in which you may file your
notice of election to dissent expires, we will make a written
offer to you to pay for your shares at a specified price that
we deem to be the fair value of those shares and
o we will deliver to you with our offer our:
o balance sheet as of the latest available date and
o profit and loss statement for the twelve-month period
ended on the date of the balance sheet that we
provide you.
We intend to offer to purchase the shares held by any shareholder that
properly perfects his or her appraisal rights for an amount equal to $0.75 per
share, which is the same amount that we have agreed to pay to shareholders
pursuant to the terms of the merger agreement.
After we make our offer to you, you will have thirty days to accept it.
If you accept it within that thirty-day period we will pay you for your shares
within ninety days of the date of our offer. When we pay you the agreed value
you will cease to have any further interest in your shares.
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<PAGE>
If we do not offer to purchase your shares, or if you do not accept our
offer within thirty days from the day we make it, then you will have sixty days
from the effective date of the merger to demand that we file an action in any
court of competent jurisdiction in Palm Beach County, Florida, to determine the
fair value of your shares. We will have thirty days from the day we receive your
demand to initiate the action. We may also commence the action on our own
initiative at any time within the sixty-day period described above. If we do not
initiate the action within the above-prescribed period, you may do so in our
name.
The court may appoint one or more appraisers to receive evidence and
recommend a decision on the question of fair value. If you have properly
perfected your appraisal rights you will be made a party to the proceedings as
an action against your shares, regardless of where you reside. We will serve you
with a copy of the initial pleading, and, if you are a proper party to the
proceeding, you will be entitled to a judgment against us for the amount of the
fair value of your shares. If the court decides, in its discretion, you will
also be entitled to an allowance for interest at any rate that the court may
find fair and equitable. We will pay you the amount found to be due to you
within ten days after the final determination of the proceedings, at which time
you will cease to have any interest in your shares.
The costs and expenses of the proceeding are determined by the court.
The expenses will include reasonable compensation for, and expenses of, any
appraisers, but will generally exclude the fees and expenses of counsel for, and
experts employed by, any party. Generally, the costs and expenses of the
proceeding will be assessed against us. However, if we make an offer to pay for
your shares and the court finds that your refusal to accept our offer was
arbitrary, vexatious or not in good faith, all or any part of those costs and
expenses may be apportioned and assessed against you and any other dissenting
shareholders who rejected our offer.
If the court determines that the value of your shares materially
exceeds the amount that we offered to pay for your shares then the court may, in
its discretion, award to you a sum that the court determines to be reasonable
compensation to any expert that you employed in the proceeding.
Your successful assertion of your appraisal rights is dependent upon
your compliance with all of the requirements described above. If you do not
comply with any of those requirements you may fail to perfect your appraisal
rights and lose the opportunity to be paid for your shares in an appraisal.
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE FLORIDA LAW RELATING
TO DISSENTERS' APPRAISAL RIGHTS WE URGE YOU TO CONSULT YOUR OWN LEGAL ADVISER IF
YOU ARE CONSIDERING DISSENTING FROM THE OFFER.
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PLANS FOR GOLDEN BEAR AND GB GOLF FOLLOWING THE MERGER
In the future, we expect to carry on our ongoing business and to
continue to attempt to increase our revenues, decrease costs associated with
litigation and public company reporting and resolve outstanding business issues.
We will be a private company owned entirely by Mr. Nicklaus and his family
members. As a consequence of the merger, the Nicklaus affiliated shareholders
will receive all of the potential benefits that result from owning our entire
equity interest. These benefits include:
o absolute discretion with regard to our future conduct and
business,
o the benefits of any profits we generate and
o any increase in our value.
Similarly, Nicklaus affiliated shareholders will bear the risk of any decrease
in our value and liability for any future claims made against us.
Our Class A Common Stock is currently registered under the Securities
Exchange Act of 1934, which requires that we furnish certain information to our
shareholders and to the SEC and comply with the SEC's proxy rules in connection
with meetings of our shareholders. The SEC will terminate the registration of
our Class A Common Stock upon our application to the SEC if our Class A Common
Stock is not listed on a national securities exchange and if there are fewer
than 300 holders of record of the Class A Common Stock. We intend to terminate
the registration of our Class A Common Stock under the Securities Exchange Act
of 1934, which would substantially reduce the information that we must furnish
to our shareholders and to the SEC. It would also render certain provisions of
the Securities Exchange Act inapplicable to us, including:
o requirements that we file periodic reports and financial
statements with the SEC,
o requirements of the SEC's Rule 13e-3 with respect to "going
private" transactions,
o requirements that our officers, directors and ten-percent
shareholders file certain reports concerning their ownership
of our equity securities and
o provisions that we may recapture any profit that those
officers, directors and stockholders realize through purchases
and sales of our equity securities within any six-month
period.
We believe that reverting to private ownership will eliminate the
substantial general and administrative costs attendant to our status as a
reporting company under the Securities Exchange Act of 1934. In addition to the
time our management spends and the legal, accounting and other expenses we incur
in the preparation of our annual and other periodic reports are considerable.
These costs include:
o the preparation and review of our periodic reports to the SEC,
o legal and accounting fees relating to those reports,
o the annual fees we pay our transfer agent,
o directors' fees and
o costs associated with communications with shareholders.
These costs do not include the salaries and time of our employees who devote
attention to these matters. Additionally, we believe that required public
disclosures under the Securities Exchange Act of 1934 may give our competitors
certain information and insights about our operations which may help them
compete against us.
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Except as disclosed in this section and elsewhere in this Information
Statement we have no other present plans or proposals that relate to or would
result in:
o the acquisition by any person of more of our securities, or
the disposition of any of our securities,
o any extraordinary corporate transaction involving us, such as
a merger, reorganization, liquidation or sale or transfer of a
material amount of our assets,
o any material change in our present dividend policy or
indebtedness or capitalization,
o any other material change in our corporate structure or
business or
o any change in our Articles of Incorporation or Bylaws or any
other actions which may impede the acquisition of control of
us by any person.
GB Golf's directors immediately prior to the effective time of the
merger will be the directors of the surviving company of the merger.
Additionally, the executive officers of GB Golf immediately prior to the
effective time will be the officers of the surviving company after the merger
until their successors are duly elected or appointed and qualified. Our outside
directors will no longer serve as directors of the surviving company.
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MARKET PRICE AND DIVIDEND INFORMATION
We issued our Class A Common Stock, in our initial public offering on
August 1, 1996. Our Class A Common Stock was traded on the NASDAQ Stock Market
under the symbol "JACK" until July 28, 1998, at which time the NASD suspended
trading of our stock. Effective on August 18, 1998, the NASD delisted our stock
from trading on the NASDAQ Stock Market. Our Class A Common Stock resumed
trading on the over-the-counter bulletin board under the symbol "JACK.OB"
effective on August 20, 1998. The following table sets forth (i) for the period
from January 1, 1998 to July 28, 1998, the high and low sales prices per share
of the Class A Common Stock as reported by the NASDAQ Stock Market and (ii) for
the period from August 20, 1998 through December 31, 1999, the high and low bid
quotation per share of our Class A Common Stock.
<TABLE>
<CAPTION>
2000 1999 1998
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0-13/16 $0-1/2 $3-1/2 $0-9/16 $10-1/8 $6-1/4
Second Quarter 1-1/2 0-3/4 9-1/2 5
Third Quarter(1) 1-1/4 0-5/8 5-3/8 0-3/4
Fourth Quarter 0-15/16 0-7/16 1-1/4 0-3/8
- ----------------------------------------
<FN>
(1) For the period from July 28, 1999 until August 20, 1999 the NASD suspended trading in our Class A Common Stock and,
accordingly, no sales were reported during that period.
</FN>
</TABLE>
As of the close of business on March 22, 2000, 2,744,962 shares of our
Class A Common Stock were outstanding and we had approximately 606 registered
shareholders of record.
All of the outstanding shares of our Class B Common Stock prior to
conversion on ______, 2000 were beneficially owned by members of the family of
Jack Nicklaus, Chairman of our Board of Directors, which includes: (i) Jack
Nicklaus, Barbara Nicklaus and their estates, guardians, conservators,
committees or attorneys-in-fact; (ii) each lineal descendant of Jack Nicklaus
and Barbara Nicklaus and their respective guardians, conservators, committees or
attorneys-in-fact; (iii) each entity controlled by such family members; and (iv)
each trustee, in its capacity, as such, of each trust established for the
benefit of such family members.
We have not declared any cash dividends on our Class A Common Stock or
Class B Common Stock since our initial public offering. Moreover, we currently
intend to retain any earnings to finance the operations our business and do not
anticipate paying any cash dividends in the foreseeable future.
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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" and the Consolidated Financial Statements, including the Notes
thereto, included in this Information Statement. In 1998, we sold our Golden
Bear Golf Centers subsidiary and discontinued our Paragon subsidiary's
construction operations. Accordingly, we have reclassified those operations and
the financial activities associated with them as discontinued operations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------
STATEMENT OF OPERATIONS: (Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $ 11,238 $ 11,385 $ 12,873 $ 10,792 $ 9,604
-------- -------- -------- -------- --------
Operating costs and expenses:
Operating expenses 6,923 7,722 7,691 6,458 6,366
Compensation recorded on sale of shares
to management(1) -- -- -- 3,000 --
Corporate administration 4,031 3,394 3,458 2,598 2,486
Depreciation and amortization 270 319 417 221 134
-------- -------- -------- -------- --------
Total operating costs and expenses 11,225 11,435 11,566 12,277 8,986
-------- -------- -------- -------- --------
Operating income (loss) 14 (50) 1,307 (1,485) 618
-------- -------- -------- -------- --------
Other income (expense) 4,654 (595) (194) 188 (1)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes 4,668 (645) 1,113 (1,297) 617
Provision for income taxes 49 191 57 81 --
-------- -------- -------- -------- --------
Income (loss) from continuing operations 4,619 (836) 1,056 (1,378) 617
Gain on sale of business segment -- 969 -- -- --
Income (loss) from discontinued
operations, net 3,195 (30,585) (25,755) (1,053) 617
-------- -------- -------- -------- --------
Net income (loss) $ 7,814 $(30,452) $(24,699) $ (2,431) $ 1,234
======== ======== ======== ======== ========
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ 0.84 $ (0.15) $ 0.19 $ (0.34) $ 0.21
Income (loss) from discontinued
operations, net 0.58 (5.38) (4.68) (0.26) 0.20
-------- -------- -------- -------- --------
Net income (loss) per share $ 1.42 $ (5.53) $ (4.49) $ (0.60) $ 0.41
======== ======== ======== ======== ========
Pro forma earnings per share - basic
and diluted(2):
Income (loss) from continuing operations $ (0.31) $ 0.26
Income (loss) from discontinued
operations, net (0.26) 0.20
-------- --------
Net income (loss) per share $ (0.57) $ 0.46
======== ========
Weighted average common shares outstanding 5,505 5,505 5,505 4,040 3,000
======== ======== ======== ======== ========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
1999(3) 1998 1997 1996 1995
----------------------------------------------------------------
BALANCE SHEET DATA (AT YEAR-END): (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $(2,883) $(17,105) $(12,442) $20,593 $ 368
Total assets 6,783 5,884 28,898 39,829 2,681
Long-term debt 2,484 2,606 256 --- ---
Shareholders' equity (deficit) (9,076) (16,890) 13,561 38,254 1,030
<FN>
(1) Represents compensation deemed to have been received by certain executives in connection with their purchase of
shares in Golf Centers.
(2) Pro forma earnings per share assumes pro forma income tax benefits of $127,000 and $135,000 included for the
years ended December 31, 1996 and 1995, respectively, to show the effects on our operations as if the relevant
entities comprising us had been C Corporations for income tax purposes for all of the years presented.
(3) See discussion regarding liquidity and shareholders' deficit in the notes to financial statements included
elsewhere in this Information Statement.
</FN>
</TABLE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information presents the
condensed balance sheet of the Company as if the merger had occurred at December
31, 1999, adjusting for and giving effect to the repurchase of 2,504,962 shares
of Class A Common Stock and other related costs and the payment of accrued legal
and filing fees associated with the merger. You should read this together with
the financial statements and accompanying notes of the Company included
elsewhere in this Information Statement. The pro forma amounts in the table
below are presented for your information and do not necessarily indicate what
the financial position of the Company would have been had the merger occurred at
December 31, 1999 or what the financial position of the Company will be after
the merger.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------------
ADJUSTMENTS-
INCREASE
HISTORICAL (DECREASE) PRO FORMA
--------------------------------------------
<S> <C> <C> <C>
Unaudited pro forma total assets $ 6,783,016 $ (2,500,000) $ 4,283,016
Unaudited pro forma total liabilities 15,859,189 (184,912) 15,674,277
Unaudited pro forma shareholder's deficit (9,076,173) (2,315,088) (11,391,261)
Unaudited pro forma total liabilities and
shareholder's deficit 6,783,016 (2,500,000) 4,283,016
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of
operations for the years ended December 31, 1999, 1998 and 1997. This discussion
and analysis should be read in conjunction with the Selected Financial Data and
the accompanying audited Consolidated Financial Statements, and the related
Notes thereto, which are included elsewhere in this Information Statement.
OVERVIEW
We sold the stock of our wholly-owned Golf Centers subsidiary on July
20, 1998 and formally approved the discontinuance of the construction operations
conducted by our subsidiary, Paragon Construction International, Inc., on
October 26, 1998. Accordingly, the operations and financial activity associated
with such businesses have been reclassified as discontinued operations. We are
focused on our core businesses, which include the licensing of NICKLAUS, JACK
NICKLAUS and GOLDEN BEAR branded products throughout the world, the operation of
the NICKLAUS FLICK GAME IMPROVEMENT and managing the personal endorsement
services provided by Jack Nicklaus. In addition, we continue to be involved in
golf course construction through an agreement we entered into on December 18,
1998 with Weitz Golf International LLC, a construction company focused on
building golf courses and clubhouses nationally and internationally. Under the
terms of the agreement, Golden Bear, Golden Bear International and Jack Nicklaus
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, we are entitled to receive fees based on the
cumulative profitability of Weitz Golf's operations and we will not offer
construction services directly during the term of the agreement. We are entitled
to receive 40% of the cumulative net profits, as defined, earned by Weitz Golf
pursuant to the contracts it enters into during the term of the agreement. There
were no cumulative net profits from the operations of Weitz Golf through
December 31, 1999.
In connection the restatement of our financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 1997 and our
Quarterly Report on Form 10-Q for the three months ended March 31, 1998,
numerous class action lawsuits were filed against us and certain of our current
and former officers and directors, asserting various claims under the federal
securities laws. On December 22, 1999, the parties to such lawsuits entered into
a settlement agreement. Under the terms of the settlement agreement, we
established a settlement fund in the amount of $3.5 million to settle the class
action litigation. We contributed $2.5 million to the settlement fund, which
amount was funded by our insurer. Pursuant to the settlement agreement, Andersen
also contributed $1.0 million to the settlement fund. In addition, we have taken
the steps to acquire all the shares held by public shareholders at a cash price
of $0.75 per share. The price for the publicly held shares was the result of
negotiations between us and attorneys for the class action plaintiffs and has
the approval of a committee of independent directors. An investment banking firm
provided an opinion that the consideration to be received by holders of our
Common Stock, other than Jack Nicklaus and his family, pursuant to the
settlement agreement, is fair from a financial point of view to such holders.
The settlement agreement was approved by the United States District Court during
a final hearing on March 28, 2000.
The SEC has also advised us that it is conducting a private
investigation to determine whether Golden Bear or certain of our current or
former officers, directors and employees have engaged in conduct
21
<PAGE>
in violation of certain provisions of the Securities Exchange Act of 1934 and
the rules and regulations thereunder. We believe that such investigation is
focused principally on the recognition of additional costs and losses associated
with the review of Paragon construction projects and our public statements and
accounting systems with respect thereto. We are cooperating in such
investigation. However, we are unable to predict the outcome or the additional
expense which may be incurred in connection with the investigation.
DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS, INC.
In 1998, we sold the stock of our wholly-owned Golf Centers subsidiary.
In connection with the sale, we 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. We retained our
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 us 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.
In 1998, our Board of Directors approved the discontinuance of the
construction operations conducted by Paragon. All such projects have been
completed or terminated and we are no longer actively involved in pursuing
construction projects independent of our 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. The financial activity and operations associated with
Paragon have been classified as discontinued operations. With respect to the
construction operations formerly conducted by Paragon, we have entered into
agreements to settle certain of the claims asserted against us related to
certain of our former construction projects. Such claims involved certain
project owners, as well as construction vendors and subcontractors associated
with Paragon's discontinued construction operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Total revenues were $11.2 million during the year ended December 31,
1999, compared to $11.4 million for the comparable period of 1998. The $0.2
million decrease in total revenues during the current year was attributable to
decreased revenue from marketing and endorsement fees and tuition, offset in
part by increased licensing activities and income from our Jack Nicklaus Apparel
International joint venture.
Licensing and other revenues increased by $0.5 million during 1999, due
primarily to an increase in licensing activities, partially offset by a decline
in marketing and endorsement revenue. Income from the operations of JNAI
increased by $0.2 million during the current year.
Revenues attributable to our golf instruction operations decreased by
$0.4 million during the year ended December 31, 1999. The decline in golf
instruction revenue is primarily attributable to lower enrollment in the
executive instruction programs, which target high-end corporate outing type
functions,
22
<PAGE>
partially offset by an increase in enrollment for resort instruction programs,
which target consumers that have significant disposable income.
Operating expenses were $6.9 million and $7.7 million for fiscal 1999
and 1998, respectively. As a percentage of total revenues, operating expenses
were 62% and 68% during the years ended December 31, 1999 and 1998,
respectively. This $0.8 million decrease in operating expense was primarily
attributable to lower cost of sales for the golf instruction division and
reductions in the marketing division's personnel- related costs, business
promotion and advertising.
Corporate administration expenses were $4.0 million and $3.4 million
for the years ended December 31, 1999 and 1998, respectively. Although we
effected a reduction in our ongoing overhead costs in connection with the
discontinuance of Golf Centers and Paragon, such reductions were offset by
increased costs incurred for legal and professional fees associated with the
shareholder claims and the SEC investigation. Legal related expenses for these
matters totaled $1,207,229 and $299,323 during the years ended December 31, 1999
and 1998, respectively.
Charges for depreciation and amortization expense were approximately
$0.3 million for fiscal 1999 and 1998.
We had a net operating income of approximately $14,000 during the year
ended December 31, 1999, compared to an operating loss of $50,000 during the
prior year.
We earned interest income of $0.1 million during the year ended
December 31,1999, primarily comprised of earnings on cash reserves. For the
comparable period of the prior year, interest income was not material to our
results of operations. Interest expense for fiscal 1999 decreased to $23,780
compared to $0.4 million for fiscal 1998, due primarily to decreased levels of
indebtedness outstanding under our revolving credit facility and short-term
credit facility during the current year.
Other income of $4.6 million for the year ended December 31, 1999
includes amounts due to us related to a favorable settlement of a dispute
involving our independent certified public accountants. For the comparable
period of the prior year our other expense of $0.2 million was due primarily to
the termination of a joint venture arrangement.
We have sufficient net operating loss carryforwards and other tax
benefits to absorb substantially all of our Federal income tax liabilities,
however, certain of our operations are subject to state and foreign income
taxes. The tax provision for 1999 and 1998 comprised amounts incurred with
respect to state and foreign income taxes.
The income from discontinued operations, for the year ended December
31, 1999, is primarily the result of a favorable settlement with regard to
litigation involving Paragon's insurance carrier that had provided certain
performance and payment bonds for several of Paragon's construction projects. In
addition, we reached settlements with regard to our claims with certain project
vendors and owners.
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 1998 was
23
<PAGE>
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 our golf instruction operations. We received $1.3
million in related party commissions during 1997 under a design services
marketing agreement with Golden Bear 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 our 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 our
customers in those regions. Income from the operations of JNAI decreased by $0.4
million during 1998 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 our golf instruction operations increased by $1.2
million during the year ended December 31, 1998, due primarily to expansion of
our 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.
We 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
1998 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 1998 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 were $3.4 million and $3.5 million
for the years ended December 31, 1998 and 1997, respectively. The reduction in
ongoing overhead costs were due to the sale of Golf Centers and discontinuance
of the construction operations of Paragon. 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 our 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 our 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
our revolving credit facility and short-term credit facility during 1998. 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 we had invested capital and participated in the operating results of such
venture.
Although we have sufficient net operating loss carryforwards and other
tax benefits to absorb substantially all of our Federal income tax liabilities,
certain of our 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.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had a working capital deficit of $2.9
million, including cash and cash equivalents of $1.4 million.
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, previously incurred by our Paragon subsidiary, we have incurred
operating losses which have resulted in a shareholders' deficit of approximately
$9.1 million and a working capital deficiency of approximately $2.9 million at
December 31, 1999. The circumstances surrounding the losses previously incurred
by Paragon have resulted in substantial claims and litigation against us.
Management's actions in regard to these matters included discontinuing our
construction operations in 1998 and reducing ongoing expenses.
The Company's 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 we
be unable to continue as a going concern. Our continuation as a going concern
and future working capital requirements are dependent on our ability to
successfully complete negotiations involving Paragon and on our ability to
achieve and maintain profitable operations in the future. Our management
believes that such objectives are attainable. However, there is no assurance
that we will be successful in realizing these objectives, or that we will
generate sufficient cash flow from operations to meet our future working capital
requirements. To the extent that capital requirements exceed available capital,
we will be required to seek alternative sources of financing to fund its
operations. We have no existing credit facility and there is no assurance that
alternative financing will be available, if at all, on satisfactory terms. If we
are unable to obtain satisfactory alternative financing, we may be required to
delay or reduce our future expenditures, sell additional assets to meet our
obligations, seek to renegotiate the terms of our obligations or curtail our
operations. There can be no assurance that any source of funds or other actions
taken by us will provide sufficient capital so as to enable us to remain a going
concern.
In connection with our settlement of the class action lawsuit brought
by shareholders, we will take the steps necessary to acquire all the shares held
by public shareholders at a cash price of $0.75 per share. The price for the
publicly held shares was the result of negotiations between us and attorneys for
the class action plaintiffs and has the approval of a committee of independent
directors. An investment banking firm provided an opinion, that the
consideration to be received by holders of our Common Stock, other than Jack
Nicklaus and his family, pursuant to the repurchase of the shares from the
public shareholders through the use of cash on hand and the net proceeds of our
legal settlements disclosed in the notes to financial statements included
elsewhere in this Information Statement is fair from a financial point of view.
CURRENCY FLUCTUATIONS
Although substantially all of our contracts are denominated in United
States dollars, fluctuations in the value of foreign currencies relative to the
United States dollar could impact our results of operations. A substantial
portion of the revenues of our 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 our profitability.
Royalty payments received by us or by JNAI relating to foreign licensing
arrangements are converted to United States dollars based on the exchange rate
at the time of payment.
25
<PAGE>
Our JNAI joint venture has entered into futures contracts during 1999
and 1998 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 our results of operations, we do not currently
engage in hedging activities with respect to currency fluctuations, but may do
so in the future.
INFLATION
We do 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 our revenues or profitability. Although higher rates of
inflation have been experienced in a number of foreign countries in which we do
business, we do not believe that such rates have had a material effect on our
revenues or profitability.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or a liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of FASB Statement No. 133." SFAS 137 deferred the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000. Our
management believes the impact of adopting this statement will not have a
material impact upon our results of operations of financial position.
MARKET RISK
We are exposed to the impact of interest rate changes. Such exposure to
market risk is inherent in certain of our financial instruments which arise from
transactions entered into in the normal course of business. We are subject to
interest rate risk on our outstanding note payable to a shareholder and on any
future financing requirements. The amount outstanding totals $2.4 million and
bears interest at the Wall Street Journal prime rate of 8.5% at December 31,
1999. Our current fixed rate indebtedness consists of certain capital lease
obligations requiring monthly payments of principal and interest, with terms
maturing through 2002.
YEAR 2000
As of the date of this Information Statement, all of our systems are
operating and we have not experienced and do not expect to experience any
material Year 2000 issues. At this time, we are unaware of any third party Year
2000 issues that would materially affect our financial condition.
26
<PAGE>
INFORMATION REGARDING GOLDEN BEAR
BUSINESS
GENERAL. Golden Bear, together with our wholly owned subsidiaries, is
engaged in the development, marketing and management of golf-related businesses
including:
o the licensing, distribution and sale of golf-related consumer
products,
o the operation of golf instructional schools and
o the licensing of golf practice and instruction facilities.
Through our various operating units, we have provided products and
services in over 40 countries, primarily under the NICKLAUS, JACK NICKLAUS and
GOLDEN BEAR brand names. We were formed on June 7, 1996 to enter into an
exchange agreement which we consummated on August 1, 1996 simultaneously with
the closing of our initial public offering of our Class A Common Stock. Parties
to the plan of reorganization included, among others, our affiliates, Golden
Bear Golf Centers, Inc., Paragon Construction International, Inc. and Golden
Bear International, Inc., a privately owned company controlled by Jack Nicklaus.
Pursuant to the exchange agreement, we acquired all of the outstanding common
stock of Golden Bear Golf Centers and Paragon in exchange for shares of our
Class A and Class B Common Stock. In addition, we acquired certain assets and
assumed certain liabilities of Golden Bear International in exchange for shares
of our Class B Common Stock. We accounted for the transaction on a historical
cost basis in a manner similar to a pooling of interests as Golden Bear, Golden
Bear Golf Centers and Paragon had common stockholders and management. We have no
equity interest in Golden Bear International. During 1998, we sold Golden Bear
Golf Centers and discontinued Paragon's construction operations. Accordingly,
the operations and financial activity associated with such businesses have been
reclassified as discontinued operations. Our continuing businesses include:
o the licensing of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR
branded products throughout the world,
o the operation of the NICKLAUS FLICK GAME IMPROVEMENT and
o the generation of marketing fees related to Jack Nicklaus'
personal endorsements.
In addition, on December 18, 1998, we entered into a joint venture
agreement with Weitz Golf, a newly formed construction company, pursuant to
which we will provide marketing assistance in connection with the construction
activities offered by Weitz Golf.
Our principal executive offices are located at 11780 U.S. Highway One,
North Palm Beach, Florida 33408 and our telephone number is (561) 626-3900.
LICENSING. We manage Jack Nicklaus' brands and marketing relationships.
Our 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. We currently license these Jack
Nicklaus brands to more than 15 companies that distribute products in over 25
countries. The largest markets for our branded products currently are:
27
<PAGE>
o the United States,
o Korea and
o Japan.
Our licensed product categories include:
o men's and women's sportswear,
o men's tailored clothing,
o neckwear,
o luggage,
o socks,
o head wear,
o belts,
o small leather goods,
o eyewear,
o furniture,
o calendars and
o various forms of artwork and commemoratives.
Our licensing of apparel in the Far East is conducted exclusively
through Jack Nicklaus Apparel International, 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 and the rest of
Asia. Pursuant to such arrangements, the joint venture receives from 3% to 5% of
royalty fees from the Japan partnership's Nicklaus' product sales and
approximately 4% to 5% of royalty fees from the rest of Asia partnership's
Nicklaus' product sales.
The following table sets forth our principal licensees and products:
28
<PAGE>
<TABLE>
<CAPTION>
LICENSED LICENSEE
LICENSEE PRODUCTS BRANDS TERRITORIES SINCE
- -------- -------- ------ ----------- -----
<S> <C> <C> <C> <C>
Hart, Schaffner & Marx, Slacks, sportscoats, JACK NICKLAUS United States 1969
a business unit of blazers, woven dress
Hartmarx Corporation shirts
Trans-Apparel Group, a Men's and women's NICKLAUS North America 1990
business unit of shirts, slacks, shorts, GOLDEN BEAR Europe
Hartmarx Corporation blazers, socks,
sweatshirts,
outerwear, rainwear,
headwear
The Rockport Casual and dress JACK NICKLAUS Worldwide 1992
Corporation shoes, golf shoes GOLDEN BEAR
Brookville Corporation Neckwear NICKLAUS United States 1995
Drexel Heritage, Inc. Furniture NICKLAUS North America 1997
Jack Nicklaus Apparel Men's and womens' JACK NICKLAUS Japan 1973
International ("JNAI"): sportswear NICKLAUS Southeast Asia
Partnership with GOLDEN BEAR Australia
Hartmarx Corporation South Africa
South America
JNAI/FE: Men's and womens' JACK NICKLAUS Thailand 1973
Partnership between sportswear and NICKLAUS Indonesia
JNAI and Kosugi accessories GOLDEN BEAR Korea
Sangyo to license Jack Malaysia
Nicklaus brands in Asia Singapore
Philippines
JNJ: Men's, womens' and JACK NICKLAUS Japan 1995
Partnership between children's sports- NICKLAUS
JNAI and Kosugi wear, hats, ties, GOLDEN BEAR
Sangyo to serve as gloves, belts, MUIRFIELD
master apparel licensee luggage, casual and
in Japan business bags and
eyewear
</TABLE>
29
<PAGE>
GOLF CENTERS AND ACADEMIES. We license our 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. As of the beginning of
1998, we had one unaffiliated licensee that operated seven GOLDEN BEAR GOLF
CENTERS. On July 20, 1998, we sold Golden Bear 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, we 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 we are
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. Pursuant to the agreement, in the year ended
December 31, 1999, the licensee paid us $795,000. 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. We are aware that the
licensee has experienced financial difficulties during 1999 and there is no
assurance that we will continue to receive licensing fees under the agreement.
Set forth below is a list of our existing domestic licensees and the
location of the golf practice and instruction facilities operated by them.
<TABLE>
<CAPTION>
LICENSEE GROUP LOCATION OF FACILITIES
- ------------------------------------ -----------------------------------------------------------------------
<S> <C> <C>
Family Golf Centers, Inc. Henrietta, NY Pittsburg, 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
Pittsburg, PA El Segundo, CA
Moreno Valley, CA Carrollton, TX
Beaverton, OR
KRIM & Associates, LLC Albany, NY
</TABLE>
30
<PAGE>
We have also 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, we have 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, we
have granted a site specific license giving the site licensee the right to open
a single golf center or golf academy at a specific location. We generally have
granted our foreign licensees an exclusive radius around the site of each
facility. Our foreign licensees currently have eight operating facilities
located in Japan, England, Spain and Australia. We intend to continue to support
our existing licensee network.
MARKETING. We have 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 our marketing access to high-end golf consumers. We have
established such marketing partnerships involving Mr. Nicklaus' personal
endorsement with, among others:
o Lincoln-Mercury, a division of Ford Motor Company,
o Textron,
o Golf Magazine and
o Maxfli.
These partnerships generally increase our exposure and reinforce the
image of Mr. Nicklaus in our target markets. We receive a percentage of all
revenues Mr. Nicklaus receives for his personal endorsement services that we
obtain through our marketing efforts. Our percentage is equal to:
o 30% of all such revenues under any contract or arrangement
existing as of our reorganization on August 1, 1996 or any
renewal thereof and
o no less than 20% of all such revenues received under any new
contract or arrangement.
We receive 100% of any revenues associated with strategic marketing
alliances. We have established marketing alliances with companies such as:
o VISA,
o Pepsi and
o Citigroup.
Our marketing and licensing strategy is to:
o expand the worldwide sales of our products;
o selectively expand our licensed product lines;
o work with existing licensees to maximize brand advertising and
promotional exposure and
o develop new licensing relationships for product categories
that are appropriate for Jack Nicklaus brands.
There is no assurance that these strategies will be successful or our
objectives achieved.
31
<PAGE>
NICKLAUS FLICK GAME IMPROVEMENT. We operate golf schools principally
under the NICKLAUS FLICK GAME IMPROVEMENT 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. We have developed a
proprietary teaching methodology that includes instruction workbooks and also
utilizes computerized video technology to provide enhanced swing analysis. The
NFGI offers more than 130 golf instruction programs including several specialty
programs targeted at women, corporations and special alumni groups. NFGI
currently operates as an independent contractor at four resort clubs located in
the United States and Mexico. The target market for the NFGI retail schools is
consumers who have significant disposable income. We started a moderately priced
golf school program under the NICKLAUS FLICK FAULTS & CURES brand name in 1997
and commenced operation of a premium priced golf school exclusively for women
under the program name of FOR WOMEN ONLY in 1998. We currently market retail
schools principally through:
o direct response media advertising;
o direct mail programs targeted at NFGI graduates and high net
worth golfers;
o word-of-mouth referrals and
o telemarketing.
The NFGI teaching faculty currently is comprised of 30 teaching
professionals selected by Jim Flick. Most of the instructors are independent
contractors and their agreements with NFGI are negotiated annually. In addition
to its regular one, two and three-day consumer packages, NFGI 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.
OTHER OPERATIONS
WEITZ GOLF INTERNATIONAL. We 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,
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, we are entitled to receive
fees based upon the cumulative profitability of Weitz Golf's operations and
agreed to no longer offer construction services directly during the term of the
agreement.
JACK NICKLAUS INTERNATIONAL GOLF CLUB. The Jack Nicklaus International
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. There currently are approximately 100 participating clubs. Members
enjoy reciprocal playing and guest privileges at each of the participating
clubs. The current membership fee is $295 per year. There is no membership fee
to the participating clubs and each participating club is permitted to impose a
direct charge for golf playing privileges extended to Golf Club members.
32
<PAGE>
COMPETITION. Our competition varies among our business lines. The
consumer markets for goods and services in which our marketing and licensing
operations compete are extremely competitive. Our products and services compete
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 us to
remain competitive in these marketplaces, we must effectively maintain and
promote the unique brand image of our services and our licensed products and
establish strong marketing relationships with manufacturers and distributors of
products which enhance that brand image. We and our licensees compete with a
number of manufacturers and marketers of sporting goods, recreational products,
apparel and other consumer products and services. Many of these competitors have
substantially greater resources than us and our licensees. In addition, these
competitors have 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. At December 31, 1999 we had 39 employees. We have no
collective bargaining agreements covering any of our employees, have not
experienced any material labor disruption and are unaware of any efforts or
plans to organize our employees. We consider our relations with our employees to
be satisfactory.
INTELLECTUAL PROPERTY RIGHTS. We license the NICKLAUS, JACK NICKLAUS
and GOLDEN BEAR brand names from Golden Bear International. The public
identification of these brands, which we believe are well recognized and well
regarded by consumers, has been historically developed the public identification
of these brands 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. We have obtained the exclusive royalty-free rights from Golden Bear
International 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 we and
our licensees currently sell products or services. Subject to the approval of
Golden Bear International, we also have the right to obtain the registration of
additional trademarks and service marks for the future expansion of our
businesses. Additionally, we have the right to utilize certain customer lists,
trade secrets, know-how, and certain copyrighted materials necessary or useful
in the conduct of our business, including certain intellectual property.
GOVERNMENTAL REGULATION. Our former golf center operations and our golf
course construction activities were 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 we believe that we are and have 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 we are not aware. Accordingly, we can
not assure you that future compliance with such requirements will not have a
material adverse effect on our financial condition.
We are also subject to the Federal Occupational Safety and Health Act
and other laws and regulations affecting the safety and health of employees.
Further, we are subject to the Fair Labor Standards Act and various state laws
governing such matters as minimum wage requirements, overtime and other
33
<PAGE>
working conditions and citizenship requirements. We are also subject to foreign
immigration, labor, safety and environmental laws in those jurisdictions where
it performs services.
PROPERTIES
Our 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. We consider our executive and
administrative offices to be adequate and suitable for our current needs.
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,
1999.
Based on a comprehensive review we conducted of Paragon's construction
projects, it was necessary for us to restate certain financial statements we had
previously filed with the SEC. Following our announcement that our financial
statements needed to be restated, a number of class action complaints were filed
against us and certain of our present and former officers and directors and the
former president of one of our subsidiaries. One of the class action complaints
also named Andersen as a defendant. Those class actions were transferred to the
United States District Court for the Southern District of Florida and that court
entered an order consolidating the actions, designating class representatives
and appointing class counsel pursuant to the provisions of the Private
Securities Litigation Reform Act.
On December 24, 1998, plaintiffs filed the first Consolidated Class
Action Complaint, naming as defendants Golden Bear, Jack W. Nicklaus, Richard P.
Bellinger, Jack P. Bates, Stephen S. Winslett , John Boyd and Andersen. The
Consolidated Complaint alleged claims for violations of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
The Consolidated Complaint asserted claims on behalf of a class consisting of
all persons, excluding the defendants and certain related persons or entities,
who purchased shares of our Class A Common Stock during the period from April
30, 1997 through and including July 27, 1998.
On December 22, 1999, the parties entered into a settlement agreement
relating to the consolidated actions. In connection with the settlement,
plaintiffs filed a motion to allow the filing of their Second Amended
Consolidated Complaint on behalf of a class of all persons, excluding the
defendants, who purchased shares of our Class A Common Stock from the date of
our public offering, August 1, 1996, through and including July 27, 1998. The
Amended Consolidated Complaint includes allegations of securities law violations
under Sections 11, 12(2) and 15 of the Securities Act of 1933, Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, as well as common law claims.
34
<PAGE>
Under the terms of the settlement agreement, we established a
settlement fund in the amount of $3.5 million to settle the class action
litigation. We contributed $2.5 million to the settlement fund, this amount was
funded by our insurance carrier. Pursuant to the settlement agreement, Andersen
also contributed $1.0 million to the settlement fund. In addition, we agreed to
take the steps necessary to effectuate the terms of the merger described in this
Information Statement which will result in consideration payable to the public
holders of our Class A Common Stock of $0.75 in cash per share. The price for
the publicly held shares was the result of negotiations between us and attorneys
for the class action plaintiffs and has the approval of a committee of
independent directors. Morgan Stanley provided an opinion, that the
consideration to be received by holders of our Common Stock, other than Jack
Nicklaus and his family, pursuant to the settlement agreement is fair from a
financial point of view to such holders. The settlement agreement was approved
by the United States District Court at a final hearing on March 28, 2000. In
connection with our execution of the settlement agreement, we also entered into
an agreement with Andersen resolving our claims against it relating to services
provided by Andersen. Pursuant to that agreement, Andersen paid us $3.8 million
in cash and waived approximately $750,000 of receivables associated with work
rendered by it for us.
The SEC has also advised us that it is conducting a private
investigation to determine whether we or certain of our 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. We believe that the investigation is focused principally
on the recognition of additional costs and losses associated with Paragon's
former construction projects and our public statements and accounting systems
with respect thereto. We are cooperating in the investigation. However, we are
unable to predict the outcome or the additional expenses which may be incurred
in connection with the investigation.
We are also a party to various other legal proceedings which have
arisen in the ordinary course of our business. The ultimate outcome of these
matters cannot be predicted with certainty and these legal proceedings could
result in additional losses that could have a material adverse effect on the
Company's financial position or results of operation.
INFORMATION REGARDING GB GOLF
GB Golf is a Florida corporation that we incorporated on January 12,
2000. It is a wholly-owned subsidiary. GB Golf does not have any assets or
conduct any business other than as may be necessary for it to satisfy its
obligations under the merger agreement. GB Golf's principal executive offices
are located at 11780 U.S. Highway One, North Palm Beach, Florida 33408 and its
telephone number is (561) 626-3900.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GOLDEN BEAR INTERNATIONAL. Golden Bear, Golden Bear International and
Jack Nicklaus (collectively, the "Company Affiliates") have an agreement with
Weitz Golf, pursuant to which the Company Affiliates provide 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, we no longer offer construction services
independently during the term of the agreement which expires on December 31,
2007. We are entitled to receive 40% of the cumulative net profits, as defined,
received by Weitz Golf pursuant to the contracts it enters into during the term
of the agreement. There were no cumulative net profits from the operations of
Weitz Golf through December 31, 1999.
35
<PAGE>
Pursuant to the terms of a personal services management agreement,
Golden Bear International and Jack Nicklaus have retained us as the exclusive
manager and representative to market the personal endorsement services of Mr.
Nicklaus, under which we are generally entitled to approximately 20% to 30% of
the personal endorsement fees received by Mr. Nicklaus. During fiscal year 1999,
we earned management fees attributable to providing such services of $217,550.
At December 31, 1999, we had a net amount due from Golden Bear International of
$58,826, which was comprised primarily of the management fees attributable to
such personal endorsement services performed by Mr. Nicklaus.
We have an office staff sharing agreement with Golden Bear
International that 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 $32,850 attributable to payroll and
related costs associated with such shared employees was allocated to Golden Bear
International during fiscal 1999.
Mr. Nicklaus provides services in various capacities to Golden Bear
International and its affiliates on an ongoing basis. During fiscal 1999, Mr.
Nicklaus received a salary from Golden Bear International for services rendered
to Golden Bear International and its affiliates.
On April 15, 1999, we entered into a settlement agreement with a former
customer of Paragon. Paragon had been engaged by this customer to construct a
golf course located in San Jose, California and one located in Orlando, Florida.
Nicklaus Design, a division of Golden Bear International, designed both of the
golf course projects. In addition, the Florida project is owned by a partnership
controlled by the customer in which Golden Bear 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, we agreed to a
revised settlement pursuant to which Paragon will agree to pay the customer
certain of the amounts at issue.
With regard to the California project, Paragon issued to the customer a
promissory note in the amount of $785,436 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, Paragon issued to the customer a
promissory note in the amount of $496,171 bearing interest at an annual rate of
10%, payable in quarterly installments of principal and interest over five
years. Golden Bear International guaranteed these notes. In connection with the
settlement, Golden Bear 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 customer. During 1999, Paragon paid $63,223 and $189,622 to
the customer related to the Florida project and California project,
respectively. During 1999, Paragon paid a total of $11,000 in interest pursuant
to such obligations due to Golden Bear International.
NICKLAUS GOLF EQUIPMENT COMPANY, L.C. In the ordinary course of
business, we purchase 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 purchased primarily for promotional programs
associated with our NICKLAUS FLICK GAME IMPROVEMENT. During fiscal 1999, we
purchased such golf equipment at an aggregate cost of $21,312.
36
<PAGE>
EXECUTIVE SPORTS INTERNATIONAL. During the years ended December 31,
1999, 1998, and 1997, we procured certain printing and graphic services totaling
$90,647, $93,243 and $125,101, respectively, from Executive Sports
International, a privately held company owned in part by a member of the
Nicklaus family. In 1999, we entered into a marketing and support agreement with
Executive Sports International in connection with the promotion, marketing, sale
and operation of NICKLAUS FLICK GAME IMPROVEMENT'S Executive Golf Programs and
other group golf school and clinic programs. Under the marketing and support
agreement, Executive Sports International earned a management fee of $87,000,
commissions of $90,925 and was reimbursed for expenses of $49,000 during 1999.
37
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GOLDEN BEAR GOLF, INC.: Page
<S> <C>
Report of Independent Certified Public Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1999,
1998 and 1997.......................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............. F-6
Notes to Consolidated Financial Statements............................................................. F-8
FINANCIAL STATEMENT SCHEDULE OF GOLDEN BEAR GOLF, INC.:
Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1999, 1998 and
1997................................................................................................... F-26
FINANCIAL STATEMENTS OF JACK NICKLAUS APPAREL INTERNATIONAL:
Report of Independent Certified Public Accountants..................................................... F-27
Balance Sheet as of November 30, 1999.................................................................. F-28
Statement of Operations for the Year Ended November 30, 1999........................................... F-29
Statement of Partners' Equity for the Year Ended November 30, 1999..................................... F-30
Statement of Cash Flows for the Year Ended November 30, 1999........................................... F-31
Notes to Financial Statements.......................................................................... F-32
</TABLE>
F-1
<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, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
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
previously 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,
1999 and raises substantial doubt about the Company's ability to continue as a
going concern. Management's 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,
March 28, 2000.
F-2
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,397,027 $ 1,168,118
Accounts receivable, net of allowances of $195,748 in 1999 and
$280,688 in 1998 398,241 1,626,783
Due from International 58,826 41,812
Prepaid expenses and other current assets 3,898,718 226,806
---------------- ----------------
Total current assets 5,752,812 3,063,519
PROPERTY AND EQUIPMENT, net 428,855 706,361
OTHER ASSETS, net 601,349 438,983
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS --- 1,675,550
---------------- ----------------
Total assets $ 6,783,016 $ 5,884,413
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,188,860 $ 2,083,702
Accrued liabilities 1,096,858 1,145,550
Deferred revenue 1,095,301 1,275,042
Current portion of notes payable and capital leases 121,565 111,140
Net current liabilities of discontinued operations 5,133,611 15,552,968
---------------- ----------------
Total current liabilities 8,636,195 20,168,402
---------------- ----------------
NET NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 4,738,500 ---
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 2,484,494 2,606,441
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' 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 (49,988,166) (57,802,423)
---------------- ----------------
Total shareholders' deficit (9,076,173) (16,890,430)
---------------- ----------------
Total liabilities and shareholders' deficit $ 6,783,016 $ 5,884,413
================ ================
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these balance sheets.
F-3
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES:
Golf instruction revenues $ 5,339,284 $ 5,805,416 $ 4,604,638
Licensing and other revenues 4,680,195 4,297,232 5,316,387
Income from operations of JNAI 951,392 710,643 1,080,892
Related party commissions and fees 267,550 571,749 1,870,735
--------------- --------------- ---------------
Total revenues 11,238,421 11,385,040 12,872,652
--------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Operating expenses 6,923,078 7,721,909 7,691,115
Corporate administration 4,031,742 3,393,675 3,457,733
Depreciation and amortization 270,048 319,449 416,910
--------------- --------------- ---------------
Total operating costs and expenses 11,224,868 11,435,033 11,565,758
--------------- --------------- ---------------
Operating income (loss) 13,553 (49,993) 1,306,894
--------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 108,845 45,096 110,695
Interest expense (23,781) (398,556) (91,032)
Other 4,569,233 (242,089) (213,821)
--------------- --------------- ---------------
Total other income (expense) 4,654,297 (595,549) (194,158)
--------------- --------------- ---------------
Income (loss) from continuing operations
before income taxes 4,667,850 (645,542) 1,112,736
PROVISION FOR INCOME TAXES 48,768 190,716 56,230
--------------- --------------- ---------------
Income (loss) from continuing operations 4,619,082 (836,258) 1,056,506
Gain on sale of business segment --- 969,405 ---
Income (loss) from discontinued operations, net 3,195,175 (30,584,872) (25,755,308)
--------------- --------------- ---------------
Net income (loss) $ 7,814,257 $(30,451,725) $ (24,698,802)
=============== =============== ===============
EARNINGS PER SHARE - BASIC AND DILUTED:
Income (loss) from continuing operations $ 0.84 $ (0.15) $ 0.19
Income (loss) from discontinued operations, net 0.58 (5.38) (4.68)
--------------- --------------- ---------------
Net income (loss) per share $ 1.42 % (5.53) $ (4.49)
=============== =============== ===============
Weighted average common shares outstanding 5,504,962 5,504,962 5,505,200
=============== =============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
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)
Net income --- --- --- 7,814,257 7,814,257
----------- ----------- ------------- -------------- --------------
BALANCE, December 31, 1999 $27,450 $27,600 $40,856,943 $(49,988,166) $ (9,076,173)
=========== =========== ============= ============== ==============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-5
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net income (loss) $ 7,814,257 $ (30,451,725) $ (24,698,802)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Loss on disposal of assets 29,160 --- ---
Depreciation and amortization 270,048 319,449 416,910
Provision for uncollectible accounts 109,835 384,995 80,250
Net (income) loss from discontinued operations (3,195,175) 29,615,467 25,755,308
Changes in assets and liabilities:
Accounts receivable 1,118,707 (510,011) (132,590)
Due from International (17,014) 115,886 685,537
Prepaid expenses and other current assets (3,671,912) 77,309 (177,935)
Other assets (162,366) 107,836 (227,234)
Accounts payable (894,842) 1,185,738 131,914
Accrued liabilities (48,692) 435,052 264,530
Deferred revenue (179,741) 615,226 296,576
----------------- ---------------- ----------------
Net cash provided by operating activities 1,172,265 1,895,222 2,394,464
----------------- ---------------- ----------------
NET CASH USED IN DISCONTINUED OPERATIONS: (810,132) (16,388,357) (17,151,881)
----------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,702) (88,053) (116,542)
Proceeds from sale of property and equipment --- 131,310 ---
Proceeds from sale of business segment --- 21,505,622 ---
----------------- ---------------- ----------------
Net cash provided by (used in) investing activities (21,702) 21,548,879 (116,542)
----------------- ---------------- ----------------
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 (111,522) (90,519) (77,079)
Proceeds from exercise of stock options --- --- 50,400
Repurchase and retirement of common stock --- --- (43,813)
----------------- ---------------- ----------------
Net cash (used in) provided by financing activities (111,522) (6,562,929) 8,801,918
----------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 228,909 492,815 (6,072,041)
CASH AND CASH EQUIVALENTS, beginning of year 1,168,118 675,303 6,747,344
----------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year $ 1,397,027 $ 1,168,118 $ 675,303
================= ================ ================
</TABLE>
(Continued)
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-6
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<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
Discontinued operations:
Notes payable, capital lease and other obligations issued
in connection with the acquisition of golf centers $ --- $ --- $ 3,074,000
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 $ 562,937 $ 1,951,500 $ 938,012
Cash paid for income taxes $ 106,656 $ 140,186 $ 376,485
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-7
<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. With the
disposition of such operations, the Company is focused on its core businesses,
which include the licensing of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR branded
products throughout the world, the operation of the NICKLAUS FLICK GAME
IMPROVEMENT 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 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. International is primarily involved in golf course design and
consulting, along with the development of residential communities and daily fee
golf courses.
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.
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 golf center licensing arrangements generally have initial terms of
three to five years, with options to renew. Licensing 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. Such royalty fees are based upon
licensees' adjusted gross revenues, as defined, and are recognized as revenues
when earned. 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. Pursuant to the agreement,
the Company received licensing fees of $795,000 from this licensee during the
year ended December 31, 1999 and
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
accordingly, the Company recognized licensing fees in this amount. 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.
During 1999, the licensee experienced financial difficulties and there is no
assurance that the Company will continue to receive the licensing fees under the
agreement.
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. 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, licensing 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, amounts owed under consulting agreement (See
Note 12), and recorded amounts for claims and assessments against the Company.
Actual results could differ from those estimates.
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, 1999 was
$206,059 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
F-9
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
files a consolidated Federal income tax return that includes the operations of
the Company and its subsidiaries. A valuation allowance was established to
offset the Company's net deferred tax assets as of December 31, 1999 and 1998
because management currently believes that the future realization of such
deferred tax assets is not more likely than not. See Notes 7 and 9.
EARNINGS (LOSS) PER SHARE
Income (loss) per share in the accompanying Consolidated Statements of
Operations is computed by dividing the net income (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 181,175, 222,675 and 670,150 shares of common stock were not included
in computing earnings per share for the years ended December 31, 1999, 1998 and
1997, respectively, because their effects were anti-dilutive for the respective
years.
ACCOUNTING PRONOUNCEMENTS
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, 1999, 1998 and 1997, 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 income (loss) amounts presented for the respective years in the accompanying
Consolidated Statements of Operations.
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value. SFAS No. 133, which requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the effective date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. Management believes the
impact of adopting this statement will not have a material impact upon the
Company's results of operations of financial position.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Computer equipment $ 816,034 $ 795,625
Telephone and other office equipment 285,295 431,118
Furniture and fixtures 204,582 540,831
Leasehold improvements 36,893 116,104
----------------- -----------------
1,342,804 1,883,678
Less accumulated depreciation and amortization (913,949) (1,177,317)
----------------- -----------------
$ 428,855 $ 706,361
================= =================
</TABLE>
F-10
<PAGE>
3. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
---------------------------------------
1999 1998
----------------- -----------------
Investment in JNAI $ 533,805 $ 357,139
Other 67,544 81,844
----------------- -----------------
$ 601,349 $ 438,983
================= =================
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------------------------
1999 1998
----------------- ----------------
Payroll and related costs $ 393,407 $ 601,879
Professional fees 405,868 260,707
State income taxes 10,000 165,693
Other 287,583 117,271
----------------- ----------------
$ 1,096,858 $ 1,145,550
================= ================
5. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Capital lease obligations secured by furniture and equipment, with
principal and interest at 9% payable monthly, maturing
through June, 2002(1) $ 206,059 $ 317,581
Note payable to shareholder, with interest at The Wall Street Journal
Prime Rate (8.50% at December 31, 1999) payable
monthly, entire principal due in July, 2003(2) 2,400,000 2,400,000
----------------- ----------------
2,606,059 2,717,581
Less current portion (121,565) (111,140)
----------------- ----------------
$ 2,484,494 $ 2,606,441
================= ================
</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 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.
F-11
<PAGE>
5. NOTES PAYABLE AND CAPITAL LEASES - (CONTINUED)
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, 1999.
CAPITAL LEASE
Years ending December 31: OBLIGATIONS
-----------------
2000 $ 135,212
2001 81,829
2002 7,252
-----------------
Total minimum payments 224,293
Less amount representing interest(1) (18,234)
-----------------
Present value of minimum payments $ 206,059
=================
(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.
The company has agreed to take the steps necessary to acquire all the shares
held by public shareholders subsequent to December 31, 1999 (See Note 12).
F-12
<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, previously incurred by the Company's Paragon subsidiary, the Company
has incurred operating losses which have resulted in a shareholders' deficit of
approximately $9.1 million and a working capital deficiency of approximately
$2.9 million at December 31, 1999. The circumstances surrounding the losses
previously incurred by Paragon have resulted in substantial claims and
litigation against the Company (See Note 12). Management's actions in regard to
these matters included discontinuing the Company's construction operations in
1998 and reducing ongoing expenses.
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. As of March 29, 2000, the
joint venture agreement has not been extended beyond December 31, 2000.
The following is a condensed summary of the operating results of JNAI:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
-----------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Licensing revenues $ 2,644,833 $ 2,052,410 $ 2,927,236
Operating expenses and other 404,448 439,576 755,052
Provision for income taxes 337,601 191,548 10,400
--------------- --------------- --------------
Net income $ 1,902,784 $ 1,421,286 $ 2,161,784
=============== =============== ==============
</TABLE>
F-13
<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,
-----------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Current:
State $ 10,000 $ 175,629 $ 32,091
Foreign 38,768 15,087 24,139
Deferred:
Federal (2,894,959) (8,191,023) (8,244,808)
State --- 116,520 (635,288)
Change in valuation allowance 2,894,959 8,074,503 8,880,096
--------------- --------------- --------------
Provision for income taxes $ 48,768 $ 190,716 $ 56,230
=============== =============== ==============
</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,
-----------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Provision using statutory Federal rate $ 1,587,069 $ (219,484) $ 378,330
Non-deductible expenses 92,658 31,710 54,404
State income taxes 10,000 175,629 32,091
Foreign income taxes 38,768 15,087 24,139
Change in valuation allowance (1,679,727) 187,774 (432,734)
--------------- --------------- --------------
$ 48,768 $ 190,716 $ 56,230
=============== =============== ==============
</TABLE>
The net deferred income tax asset is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 66,554 $ 2,878,753
Tax basis capitalized costs --- 132,413
Tax basis in property and equipment
in excess of book basis 82,533 82,533
Accruals not currently deductible 229,304 71,114
Net operating loss carryforwards 19,234,307 13,914,507
Foreign tax credit carryforwards 851,149 497,094
--------------- ---------------
20,463,847 17,576,414
--------------- ---------------
Deferred income tax liabilities:
Book basis in intangible assets over tax basis --- 7,526
Book basis of investment in JNAI
over tax basis 100,000 100,000
Deferred revenue (24,735) (24,735)
--------------- ---------------
75,265 82,791
--------------- ---------------
Net deferred income tax asset 20,388,582 17,493,623
Valuation allowance (20,388,582) (17,493,623)
--------------- ---------------
$ --- $ ---
=============== ===============
</TABLE>
F-14
<PAGE>
9. INCOME TAXES - (CONTINUED)
At December 31, 1999, the Company had available a Federal net operating loss
carryforward of approximately $33.1 million which expires in the year 2018,
along with a foreign tax credit carryforward of $851,149 which expires 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, 1999 and 1998, 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,
1999, 1998 and 1997 is set forth in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------- -------------------------
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 222,675 $ 11.64 670,150 $ 12.61 383,688 $ 16.00
Options granted --- --- 20,000 4.00 383,150 9.92
Options exercised --- --- --- --- (3,150) 16.00
Options canceled/forfeited (41,500) 14.62 (467,475) 12.71 (93,538) 15.36
----------- ----------- ------------
Outstanding, end of year 181,175 10.96 222,675 11.64 670,150 12.61
=========== =========== ============
Exercisable at year-end 107,968 $ 10.72 91,935 $ 10.71 122,600 $ 13.28
=========== =========== ============
Available for future grants 469,863 428,363 ---
=========== =========== ============
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at December 31, 1999:
<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 8.58 $ 4.00 500 $ 4.00
8.00 23,875 8.00 8.00 18,348 8.00
10.88 - 12.75 107,300 6.99 11.46 89,120 11.32
16.00 30,000 6.59 16.00 --- ---
----------- -----------
181,175 7.24 10.93 107,968 10.72
=========== ===========
</TABLE>
F-15
<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, 1999 and 1998 were waived 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 1999 or 1998.
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 Principles 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 changed accordingly. Using the Black-Scholes option pricing model for all
options granted, the Company's pro forma net income (loss), pro forma net income
(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, 1999
and 1998.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Pro forma net income (loss) $ 7,591,250 $ (31,096,020)
Pro forma net income (loss) per share--
basic and diluted $ 1.38 $ (5.65)
Pro forma weighted average fair
value of options granted --- 2.95
Risk-free interest rate --- 7.0%
Expected lives --- 10 years
Expected volatility --- 55.0%
Expected quarterly dividend rate --- 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 $31,911, $29,068
and $59,535 during the years ended December 31, 1999, 1998 and 1997,
respectively.
F-16
<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, $0.7 million and $0.8 million during the
years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments required under noncancelable operating lease
obligations are as follows:
MINIMUM
LEASE
Years ending December 31: PAYMENTS
----------------
2000 $ 706,567
2001 706,567
2002 685,594
2003 668,088
2004 668,088
Thereafter 1,057,806
----------------
$ 4,492,710
================
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 Company intends
to vigorously defend this claim, but 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, 1999. 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. In 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.
F-17
<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 Andersen. 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.
On December 22, 1999, the parties entered into a Settlement Agreement relating
to the consolidated actions. The Settlement Agreement was approved by the United
States District Court during the final hearing on March 28,2000. In connection
with the settlement, the plaintiffs filed a motion to allow the filing of their
Second Amended Consolidated Complaint on behalf of a class of all persons,
excluding the defendants, who purchased shares of the Company's Class A Common
Stock from the date of the Company's public offering, August 1, 1996 through and
including July 27, 1998. The Amended Consolidated Complaint includes allegations
of securities law violations under Sections 11, 12(2) and 15 of the Securities
Act of 1933, Sections 10(b) and 20(a) of the Securities Act and Rule 10b-5, as
well as common law claims. Under the terms of the Settlement Agreement, the
Company has established a settlement fund in the amount of $3.5 million to
settle the class action litigation. The Company contributed $2.5 million to the
settlement fund, this amount was funded by the Company's insurance carrier.
Pursuant to the Settlement Agreement, Andersen also contributed $1.0 million to
the settlement fund.
In connection with the Company's entry into the Settlement Agreement, the
Company also entered into a settlement with Andersen to settle the Company's
claims against it. The Company had previously advised Andersen of the belief
that Andersen violated its duty of care in connection with the professional
services it provided the Company and that the Company's losses, in part,
resulted from the failure of due care. Andersen has vigorously denied a failure
of due care on its part and has vigorously denied that any of the Company's
losses resulted from anything Andersen did or failed to do. Notwithstanding
their position, in order to avoid protracted litigation in which their position
would be fully developed and resolved, the Company entered into a settlement
agreement with Andersen. Pursuant to the settlement, Andersen agreed to pay the
Company $3.8 million in cash and waive approximately $750,000 in receivables due
to Andersen from the Company. The Company has included $4.6 million in Other
Income for the year ended December 31, 1999.
F-18
<PAGE>
12. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
In addition, the Company has agreed to take the steps necessary to acquire all
the shares held by public shareholders at a cash price of $0.75 per share. The
price for the publicly held shares was the result of negotiations between the
Company and attorneys for the class action plaintiffs and has the approval of a
committee of independent directors. An investment banking firm provided an
opinion, that the consideration to be received by holders of the Company's
Common Stock, other than Jack Nicklaus and his family, pursuant to the
Settlement Agreement is fair from a financial point of view to such holders.
The Company has not given effect to the proposed repurchase of the outstanding
shares held by the public shareholders in the accompanying financial statements.
The following unaudited financial information gives pro forma effect to the
proposed repurchase had it occurred as of December 31, 1999:
AS OF DECEMBER 31,
1999
------------------
Unaudited pro forma total assets $ 4,594,134
Unaudited pro forma total liabilities 15,674,277
------------------
Unaudited pro forma shareholder's deficit $ (11,080,143)
==================
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 also a party to various other legal proceedings that have arisen
in the ordinary course of its business. The ultimate outcome of these matters
cannot be predicted with certainty and these legal proceedings could result in
additional losses that may have a material adverse effect on the Company's
financial position or results of operations.
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.
F-19
<PAGE>
12. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
At December 31, 1999, the remaining term of the consulting agreement was
approximately 17 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.
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, 1999 and 1998, the Company had
net amounts due from International of $58,826 and $41,812, respectively. The net
amounts due at December 31, 1999 and 1998 were comprised primarily of related
party management fees attributable to personal endorsement services performed by
Jack Nicklaus.
In 1997, the Company had a design services agreement with International pursuant
to which 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
during fiscal 1997. 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.
In 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 agreed to 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 cumulative net profits, as defined, received by Weitz Golf pursuant
to the contracts it enters into during the term of the agreement. There were no
cumulative net profits from the operations of Weitz Golf through December 31,
1999.
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 1999, 1998 and
1997, the Company earned related party management fees attributable to providing
such services of $217,550, $571,749 and $565,905, 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 was $358,755. 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. The Company
subsequently terminated this lease effective April 1, 1998 and closed the office
that it had previously maintained in Singapore.
The Company has an office staff sharing agreement with International that
provides for sharing services of certain specifically identified office staff
and personnel that can effectively serve the needs of both organizations. This
agreement was established effective with the reorganization of the Company on
August 1, 1996. During the years
F-20
<PAGE>
13. RELATED PARTY TRANSACTIONS - (CONTINUED)
ended December 31, 1999, 1998 and 1997, payroll and related costs associated
with such shared employees were allocated to International in the amounts of
$32,850, $111,000 and $458,964, respectively.
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,
-----------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of year $ 41,812 $ 157,698 $ 843,235
Related party commissions and fees 217,550 571,749 1,870,735
Reimbursement for shared employees 32,850 111,000 458,964
Reimbursement for Singapore office costs --- --- 239,000
Sublease of corporate office facilities --- --- (358,755)
Investment banking fee --- --- (100,000)
Payments received (233,386) (798,635) (2,795,481)
----------------- ----------------- -----------------
Balance at end of year $ 58,826 $ 41,812 $ 157,698
================= ================= =================
</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 GAME IMPROVEMENT. 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 1999, 1998 and 1997, the Company purchased
such golf equipment at a cost of $21,312, $163,691 and $405,205, respectively.
During the years ended December 31, 1999, 1998 and 1997, the Company procured
certain printing and graphic services totaling $90,647, $93,243 and $125,101,
respectively, from Executive Sports International ("ESI"), a privately held
company owned in part by a member of the Nicklaus family. In 1999, the Company
entered into a marketing and support agreement with ESI in connection with the
promotion, marketing, sale and operation of NICKLAUS FLICK GAME IMPROVEMENT'S
Executive Golf Programs and other group golf school and clinic programs. Under
the marketing and support agreement, ESI earned a management fee of $87,000,
commissions of $90,925 and was reimbursed for student travel and amenities of
$49,000 during 1999.
In 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. Jack Nicklaus also 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.
On April 15, 1999, the Company entered into a settlement agreement 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
F-21
<PAGE>
13. RELATED PARTY TRANSACTIONS - (CONTINUED)
assessment of the potential risks and costs of litigation, the Company agreed to
a revised settlement pursuant to which Paragon agreed to pay the Developer
certain of the amounts at issue.
With regard to the California Project, Paragon issued to the Developer a
promissory note in the amount of $785,436 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, Paragon issued to the Developer a
promissory note in the amount of $496,171 bearing interest at an annual rate of
10%, payable in quarterly installments of principal and interest over five
years. International guaranteed these notes. In connection with the settlement,
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. During 1999, Paragon paid $63,223 and $189,622 to the Developer
related to the Florida Project and California Project, respectively. During
1999, Paragon paid a total of $11,000 in interest pursuant to such obligations
due to International.
14. DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS
The Company sold the stock of its wholly-owned Golf Centers subsidiary on July
20, 1998. 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. 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.
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, "Income (loss) from discontinued operations, net." The income
(loss) from such operations was $3,037,172, $(26,521,886) and $(17,326,058) for
the years ended December 31, 1999, 1998 and 1997, respectively. The net income
for the current year is primarily attributable to a favorable settlement with
regard to litigation involving the Company's insurance carrier that previously
provided certain construction related bonds for several of Paragon's
construction projects. In addition, the Company reached favorable settlements
with regard to its claims against certain project owners. In connection with a
settlement with Paragon's bonding company, Jack Nicklaus individually guaranteed
payment of a note payable which has a remaining balance of $850,000 as of
December 31, 1999.
F-22
<PAGE>
14. DISCONTINUED OPERATIONS - (CONTINUED)
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,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets $ 60,844 $ 1,932,478
Property and equipment, net 131,999 1,675,550
--------------- ---------------
Total assets 192,843 3,608,028
--------------- ---------------
Current liabilities 5,194,455 17,485,446
Notes payable and capital leases 4,870,499 ---
--------------- ---------------
Total liabilities 10,064,954 17,485,446
--------------- ---------------
Net liabilities of discontinued operations $ 9,872,111 $ 13,877,418
=============== ===============
</TABLE>
15. SEGMENT REPORTING
All of the Company's revenue generating activities are conducted by one
operating segment encompassing the licensing of NICKLAUS, JACK NICKLAUS and
GOLDEN BEAR branded products throughout the world, the operation of the NICKLAUS
FLICK GAME IMPROVEMENT 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 operations. 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
activities is set forth below.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Assets $ 541,019 $ 411,870 $ 289,496
=============== ============== ===============
Revenues $ 1,183,308 $ 832,647 $ 1,080,892
=============== ============== ===============
Contribution to operating income before
Allocation of corporate overhead $ 1,183,308 $ 767,312 $ 1,080,892
=============== ============== ===============
</TABLE>
F-23
<PAGE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31, 1999
and 1998 is presented below.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Total revenues $ 2,843,331 $ 3,829,319 $ 1,871,571 $ 2,694,200
Operating income (loss) (519,089) 454,706 (293,887) 371,823
Income (loss) from continuing operations (558,716) 439,728 (106,125) 4,844,195
Income (loss) from discontinued operations --- 201,235 234,146 2,759,794
Net income (loss) (558,716) 640,963 128,021 7,603,989
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ (0.10) $ 0.08 $ (0.02) $ 0.88
Income (loss) from discontinued
operations --- 0.04 0.04 0.50
-------------- --------------- --------------- --------------
Net income (loss) per share $ (0.10) $ 0.12 $ 0.02 $ 1.38
============== =============== =============== ==============
</TABLE>
<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) 72,682
Income (loss) from continuing operations (301,556) 192,758 (829,160) 101,700
Loss from discontinued operations, net (6,957,403) (9,768,636) (8,401,979) (4,487,449)
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>
F-24
<PAGE>
18. SUBSEQUENT EVENT
On March 28, 2000, the United States District Court approved the Settlement
Agreement related to the Company's shareholder lawsuits. See Note 12.
F-25
<PAGE>
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, 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
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
YEAR ENDED DECEMBER 31, 1999:
Allowance for uncollectible accounts $ 280,688 $ 109,835 $ 194,775 $ 195,748
Valuation allowance for deferred
Tax assets 17,493,623 2,894,959 --- 20,388,582
</TABLE>
F-26
<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, 1999 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 auditing standards generally accepted
in the United States. 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, 1999 and the results of its operations and its
cash flows for the fiscal year then ended, in conformity with accepted
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 28, 2000.
F-27
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
BALANCE SHEET
AS OF NOVEMBER 30, 1999
ASSETS
CURRENT ASSETS:
Cash $ 100,400
Accounts receivable 1,438,141
-----------------
Total current assets 1,538,541
INVESTMENT IN AFFILIATED COMPANY 49,863
-----------------
Total assets $ 1,588,404
=================
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 42,462
Accrued commissions 232,078
Accrued income taxes 188,119
Accrued liabilities 44,166
Deferred revenue 13,627
-----------------
Total current liabilities 520,452
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' EQUITY 1,067,952
-----------------
Total liabilities and partners' equity $ 1,588,404
=================
The accompanying notes to the financial statements are an integral
part of this statement.
F-28
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1999
REVENUES $ 2,644,833
OPERATING EXPENSES 404,448
-------------------
Income before provision for income taxes 2,240,385
PROVISION FOR INCOME TAXES 337,601
-------------------
Net income $ 1,902,784
===================
The accompanying notes to the financial statements are an integral
part of this statement.
F-29
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1999
BALANCE, November 30, 1998 $ 714,288
Net income 1,902,784
Distributions to partners (1,549,120)
--------------
BALANCE, November 30, 1999 $ 1,067,952
==============
The accompanying notes to the financial statements are an integral
part of this statement.
F-30
<PAGE>
JACK NICKLAUS APPAREL INTERNATIONAL
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,902,784
Changes in assets and liabilities:
Accounts receivable (656,142)
Accounts payable (2,867)
Accrued commissions 75,123
Accrued income taxes 127,602
Accrued liabilities 44,166
Deferred revenue 13,627
-------------------
Net cash provided by operating activities 1,504,293
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (1,549,120)
-------------------
Net decrease in cash (44,827)
CASH, beginning of year 145,227
-------------------
CASH, end of year $ 100,400
===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ ---
===================
Cash paid for income taxes $ 257,041
===================
</TABLE>
The accompanying notes to the financial statements are an integral
part of this statement.
F-31
<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.
As of March 28, 2000, the joint venture agreement has not been extended beyond
December 31, 2000. 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 a non-interest bearing checking
account.
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.
F-32
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (CONTINUED)
CONCENTRATION OF CREDIT RISK
JNAI's credit risks consist primarily of accounts receivable with its two
primary licensees, JNJ, Inc.("JNJ")and Kolon, Inc ("Kolon"). The Company
performs periodic credit evaluations of its customers' financial condition and
provides allowances for doubtful accounts as required based upon factors
surrounding the credit risk of specific customers, historical trends and other
information. JNJ and Kolon represented $1.3 million and $1.1 million,
respectively, of JNAI's revenues for the fiscal year ended November 30, 1999.
Amounts due from JNJ and Kolon, totaled $0.7 million and $0.7 million,
respectively, as of November 30, 1999.
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 commissions are based on 33.3% of operating profits as
defined.
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 estimates of collectability of
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 earned royalty payments denominated in
Japanese Yen. JNAI's policy is to enter into such foreign currency hedging
transactions only to the extent considered necessary to protect the values of
such royalties. JNAI does not enter into foreign currency transactions for
speculative purposes.
The Company's accounting policies for these instruments are based on the
Company's designation of such instruments as hedging transactions. The criteria
the Company uses for designating an instrument as a hedge include the
instrument's effectiveness in risk reduction and one-to-one matching of
derivative instruments to underlying transactions. Gains and losses on currency
forward contracts that are designated and effective as hedges of anticipated
transactions, for which a firm commitment has been attained, are deferred and
recognized in income in the same period that the underlying transactions are
settled. Gains and losses on currency forward contracts that are designated and
effective as hedges of existing transactions are recognized in income in the
same period as losses and gains on the underlying transactions are recognized
and generally offset. Gains and losses on any instruments not meeting the above
criteria would be recognized in income in the applicable period.
F-33
<PAGE>
In November 1999, the partners of JNAI, entered into currency forward contracts
on behalf of JNAI. The notional amounts were $433,541 maturing in January 2000
and $295,626 maturing in February 2000. In December 1999, the partners of JNAI
entered into currency forward contracts in amounts of $465,224 and $332,683
maturing in July 2000 and August 2000, 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.
ACCOUNTING PRONOUNCEMENT
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 year ended November 30, 1999, the Company did not have any changes in
its equity resulting from such non-owner sources. Accordingly, comprehensive
income as set forth by SFAS No. 130 was equal to the net income (loss) amounts
presented for the accompanying Statement of Operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or a liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the effective date of FASB Statement No. 133." SFAS 137 deferred the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
Management believes the impact of adopting this statement will not have a
material impact upon the Company's results of operations of financial position.
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, 1999 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.
F-34
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 12, 2000 (the
"Agreement"), by and between Golden Bear Golf, Inc., a Florida corporation
("Golden Bear"), and GB Golf Corp., a Florida corporation ("GB Golf").
W I T N E S S E T H:
WHEREAS, Golden Bear was named as a defendant in certain class action
lawsuits filed against it and certain of its present and former officers and
directors and the former president of one of its subsidiaries, which lawsuits
were subsequently consolidated into a single action (the "Consolidated Action")
before the United States District Court for the Southern District of Florida
(the "Court");
WHEREAS, the Board of Directors of Golden Bear has determined that it
is in the best interest of Golden Bear and its shareholders for Golden Bear to
effect the settlement of the Consolidated Action;
WHEREAS, on December 22, 1999, the parties to the Action entered into a
settlement agreement relating to the Consolidated Action, pursuant to which
Golden Bear agreed to effect a corporate transaction in which the shareholders
of Golden Bear, other than Jack Nicklaus or his family and other than the holder
of any Dissenting Shares (as defined in Section 2.3 below), will receive the
cash sum of $0.75 per share in exchange for the shares of the Class A Common
Stock of Golden Bear (the "Class A Common Stock");
WHEREAS, Golden Bear is entering into this Agreement in order to comply
with the terms of the settlement agreement so that holders of Class A Common
Stock, other than Jack Nicklaus or his family and other than the holder of any
Dissenting Shares, will receive cash for their securities in accordance with the
terms of the settlement agreement;
WHEREAS, the Board of Directors of Golden Bear has determined that it
is in the best interest of Golden Bear and its shareholders to effect the
corporate transaction contemplated by the settlement agreement through the
merger of GB Golf with and into Golden Bear (the "Merger") with Golden Bear as
the surviving corporation of the Merger (the "Surviving Corporation");
WHEREAS, pursuant to this Agreement in the Merger (a) each outstanding
share of the Class A Common Stock of Golden Bear (the "Class A Common Stock")
will be converted automatically into approximately .00000877 of a share of the
Class A Common Stock of the Surviving Corporation (the "Surviving Corporation
Stock"), with any shareholder who is not entitled to receive at least one whole
share of Surviving Corporation Stock as a result of the Merger receiving cash in
lieu of fractional shares and (b) all of the outstanding shares of the common
stock of GB Golf ("GB Golf Common Stock") outstanding immediately prior to the
Merger will be canceled;
WHEREAS, GB Golf is a wholly-owned subsidiary of Golden Bear organized
for the sole purpose of consummating the Merger;
WHEREAS, Golden Bear and GB Golf are entering into this Agreement to
set forth the terms and conditions of the Merger; and
A-1
<PAGE>
WHEREAS, the respective obligations of the parties to effect the Merger
are subject to the condition that the settlement agreement shall have received
the final approval of the Court;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and intending to be legally bound, the parties hereto agree as
follows:
1. MERGER
1.1 THE MERGER.
(a) GENERALLY. On the Effective Date (as defined in Section 1.2 below),
GB Golf will be merged with and into Golden Bear under the terms of this
Agreement and in accordance with the provisions of the Florida Business
Corporation Act (the "FBCA"), and the separate corporate existence of GB Golf
will cease and Golden Bear shall continue as the Surviving Corporation. The
Merger shall have the effects as provided by the FBCA.
(b) ARTICLES OF INCORPORATION AND BY-LAWS. The articles of
incorporation of Golden Bear as in effect immediately prior to the Merger shall
be the articles of incorporation of the Surviving Corporation (the "Articles of
Incorporation"). The By-laws of Golden Bear in effect immediately prior to the
Merger shall be the By-laws of the Surviving Corporation (the "By-laws").
(c) BOARD OF DIRECTORS AND EXECUTIVE OFFICERS. After the Merger, the
Board of Directors and executive officers of the Surviving Corporation shall be
identical to the Board of Directors and executive officers of GB Golf
immediately prior to the Effective Date. The directors and executive officers of
the Surviving Corporation shall hold office subject to the Articles of
Incorporation and By-laws and until their respective successors have been
elected and qualified.
1.2 EFFECTIVE DATE. Subject to the satisfaction or waiver of the
conditions precedent set forth in Section 3 of this Agreement, the parties shall
cause the Merger to become effective as soon as practicable following the
satisfaction or waiver of such conditions by filing Articles of Merger (the
"Articles of Merger") with the Secretary of State of the State of Florida with
respect to the Merger. The date on which the Articles of Merger are so filed or,
if so provided by the Court in its approval of the settlement agreement, at such
other time as is permissible in accordance with the FBCA and specified in the
Articles of Merger, shall for all purposes hereunder be the effective date of
the Merger (the "Effective Date").
2. CONVERSION OF STOCK; DISSENTING SHARES
2.1 CANCELLATION OF CLASS A COMMON STOCK. On the Effective Date and as
a result of the Merger, each issued and outstanding share of Class A Common
Stock, other than Dissenting Shares, shall, by virtue of the Merger and without
further action by the holder thereof, cease to be an issued and outstanding
share of Class A Common Stock and shall become and be converted into an amount
of a fully paid and non-assessable share of Surviving Corporation Stock equaling
the quotient of 1 divided by 114,000.
2.2 CANCELLATION OF GB GOLF COMMON STOCK. On the Effective Date and as
a result of the Merger, each share of the common stock, par value $.01 per share
of GB Golf issued and outstanding immediately prior to the Effective Date, shall
be canceled and extinguished without any payment or other
A-2
<PAGE>
consideration made with respect thereto and such shares will be deemed to be
authorized but unissued shares of the Surviving Corporation.
2.3 DISSENTING SHARES. The holder of any Dissenting Share shall have
the rights, subject to the limitations, provided by applicable law. A
"Dissenting Share" shall mean any share of Class A Common Stock for which the
holder thereof has perfected the right to seek appraisal rights under Florida
law.
2.4 STOCK CERTIFICATES.
(a) At or after the Effective Date, holders of a certificate or
certificates formerly evidencing issued and outstanding shares of Class A Common
Stock (other than holders of any Dissenting Shares) shall be required to
exchange their existing certificates for one or more certificates representing
the number of shares of Surviving Corporation Stock or cash, as applicable, into
which such shares were converted by virtue of the Merger. Subject to the terms
and conditions hereof, at or prior to the Effective Time, the Surviving
Corporation shall appoint an exchange agent to effect the exchange of shares of
Class A Common Stock for shares of Surviving Corporation Stock or cash, as the
case may be, in accordance with the provisions of this Section 2 (the "Exchange
Agent") and shall deposit, or cause to be deposited, with the Exchange Agent
certificates representing shares of Surviving Corporation Stock and cash for
conversion of shares of Class A Common Stock in accordance with the provisions
of this Section 2 (such certificates, together with any dividends or
distributions with respect thereto, being herein referred to as the "Exchange
Fund"). As soon as practicable after the Effective Date, the Surviving
Corporation shall deliver to each record holder of Class A Common Stock a form
of letter of transmittal which, among other matters, shall specify how such
shareholder shall receive the shares of Surviving Corporation Stock or cash, as
applicable, payable as a result of the Merger. Commencing immediately after the
Effective Time and until the appointment of the Exchange Agent shall be
terminated, as soon as practicable after surrender to the Exchange Agent of a
properly executed letter of transmittal and any certificates which immediately
prior to the Effective Date shall have represented any then issued and
outstanding shares of Class A Common Stock, the Exchange Agent shall cause to be
distributed to the person in whose name such Class A Common Stock shall have
been registered either (i) certificates registered in the name of such person
representing the shares of Surviving Corporation Stock into which such shares of
Class A Common Stock shall have been converted on the Effective Date or (ii) a
check payable to such person representing the payment of cash in lieu of
fractional shares determined in accordance with Section 2.5 hereof. After the
appointment of the Exchange Agent shall be terminated, any such holder may
surrender any such executed letter of transmittal and certificate to the
Surviving Corporation subject to any applicable escheat laws and unclaimed
property laws. Notwithstanding the foregoing provisions of this Section 2.4,
risk of loss and title to such certificates formerly representing shares of
Class A Common Stock shall pass only upon proper delivery of such certificates
to the Exchange Agent, and neither the Exchange Agent nor any party hereto shall
be liable to a holder of shares of Class A Common Stock for any Surviving
Corporation Stock or dividends or distributions thereon delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law
or to a transferee pursuant to Section 2.6 hereof.
(b) No dividends or other distributions declared after the Effective
Date with respect to shares of Class A Common Stock and payable to the holders
of record thereof after the Effective Date shall be paid with respect to Class A
Common Stock converted into Surviving Corporation Stock in the Merger until such
properly executed letter of transmittal and any unsurrendered certificates
representing such shares of Class A Common Stock are surrendered as provided
herein. Upon the surrender of such letter of transmittal and any such
outstanding certificates, however, there shall be paid to the record holder of
the certificates of
A-3
<PAGE>
Surviving Corporation Stock issued in exchange for the shares of Class A Common
Stock (but not with respect to any fractional shares of Surviving Corporation
Stock for which cash is to be paid in lieu thereof), the aggregate amount of
dividends and distributions, if any, which theretofore became payable in respect
of the shares of Surviving Corporation Stock into which such Class A Common
Stock is converted, subject in any case to any applicable escheat laws and
unclaimed property laws. No interest shall be payable on or in respect of the
payment of such dividends or cash in lieu of fractional shares on surrender of
outstanding certificates.
(c) The Surviving Corporation and the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Class A Common Stock such amounts as the
Surviving Corporation or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the United States Internal
Revenue Code of 1986, as amended (the "Code"), or any provision of state, local
or foreign tax law applicable to the making of such payment. To the extent that
amounts are so withheld by the Surviving Corporation or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holders of the shares of Class A Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation or
the Exchange Agent.
(d) No party to this Agreement shall be liable to any person or entity
in respect of any amounts paid or delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) In the event any certificate or certificates formerly representing
shares of Class A Common Stock shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such certificate
or certificates to be lost, stolen or destroyed, and if required by the
Surviving Corporation and the Exchange Agent, the posting by such person of a
bond in such amount as the Surviving Corporation may reasonably require as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the consideration deliverable in respect thereof as
determined in accordance with this Article 2.
2.5 CASH IN LIEU OF FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement to the contrary, no certificates or script
representing fractional shares of Surviving Corporation Stock shall be issued
upon the conversion of shares of Class A Common Stock in the Merger unless the
beneficial owner of such Class A Common Stock immediately prior to the Effective
Date would otherwise be entitled to receive at least one whole share of
Surviving Corporation Stock upon conversion of all shares of Class A Common
Stock beneficially owned by such person immediately prior to the Effective Date.
In lieu of any fractional shares, there shall be paid to each beneficial owner
of shares of Class A Common Stock who is not entitled to receive at least one
whole share of Surviving Corporation Stock in accordance with this Section 2 an
amount in cash (without interest) equal to $0.75 per share of Class A Common
Stock. Other than fractional shares issued to a holder of at least one whole
share of Surviving Corporation Stock in accordance with the preceding sentence,
no dividend or distribution of the Surviving Corporation shall relate to any
fractional share otherwise issuable pursuant to the terms hereof and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of the Surviving Corporation.
2.6 ISSUANCE OTHER THAN TO RECORD OWNER. If any cash or certificate
representing shares of Surviving Corporation Stock is to be paid to or issued in
a name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of the payment or issuance thereof that
A-4
<PAGE>
the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer to the person designated to receive such shares and
that the person requesting such exchange shall pay to the Surviving Corporation
any transfer or other taxes required by reason of the issuance of a certificate
representing shares of Surviving Corporation Stock, or the payment of cash in
lieu of fractional shares, in any name other than that of the registered holder
of the certificate surrendered, Surviving Corporation Stock.
2.7 NO FURTHER TRANSFERS OF CLASS A COMMON STOCK. After the Effective
Date, there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Class A Common Stock which
were outstanding immediately prior to the Effective Date. If, after the
Effective Date, certificates formerly representing such shares are presented to
the Surviving Corporation, they shall be canceled and exchanged for cash or
certificates representing the shares of Surviving Corporation Stock, as the case
may be, to which the holder thereof is entitled, as provided in this Section 2,
subject, however, to any applicable escheat laws and unclaimed property laws.
2.8 CANCELLATION OF OPTIONS. Pursuant to the Merger, at the Effective
Date, each outstanding option to purchase shares of Class A Common Stock under
Golden Bear's stock option plans shall be canceled and extinguished without any
payment or other consideration made with respect thereto.
2.9 SOLE RIGHTS; CONTINUITY OF RIGHTS AND PREFERENCE. On the Effective
Date, the each beneficial owner of shares of Class A Common Stock outstanding
immediately prior to the Effective Date shall cease to have any rights with
respect to such shares of Class A Common Stock and their sole rights on and
following the Effective Date shall be with respect to the shares of Surviving
Corporation Stock or cash, as the case may be, into which their shares of Class
A Common Stock shall have been converted by virtue of the Merger, or to perfect
such alternative rights, if any, as they may have as a holder of Dissenting
Shares as provided under Florida law.
3. CONDITIONS. The obligations of the parties hereto to consummate the
Merger and the other transactions contemplated hereby are subject to the
satisfaction of each of the following conditions:
3.1 COURT APPROVAL. All approvals, waivers and authorizations of,
filings and registrations with, and notifications to, the Court required for
consummation of the Merger shall have been obtained or made and shall be in full
force and effect and all applicable waiting periods shall have expired.
3.2 INFORMATION STATEMENT. An Information Statement relating to the
Merger (the "Information Statement") conforming with the rules and regulations
of the Securities and Exchange Commission (the "SEC") shall have been declared
effective by the SEC under the Securities Exchange Act of 1934, as amended and
no stop order suspending the effectiveness of the Information Statement shall
have been issued by the SEC and no proceeding for that purpose shall have been
initiated by the SEC and not concluded or withdrawn.
3.3 NO INJUNCTION OR PROCEEDING. No preliminary or permanent
injunction, temporary restraining order or other decree of a court, legislature
or other agency or instrumentality of federal, state or local government (a
"Governmental Entity") shall be in effect, no statute, rule or regulation shall
have been enacted by a Governmental Entity and no action, suit or proceeding by
any Governmental Entity shall have been instituted or threatened, which
prohibits the consummation of the Merger or materially challenges the
transactions contemplated hereby.
A-5
<PAGE>
3.4 CONSENTS. Other than filing the Articles of Merger, all consents,
approvals and authorizations of and filings with Governmental Entities, required
for the consummation of the transactions contemplated hereby, shall have been
obtained or effected or filed.
3.5 OTHER APPROVALS. All other consents and approvals and the
satisfaction of all other requirements that are necessary for the consummation
of the Merger and other transactions contemplated by this Agreement shall have
been obtained.
3.6 DEPOSIT OF EXCHANGE FUND. Golden Bear shall have deposited, or
shall have caused to be deposited, with the Exchange Agent all certificates and
cash amounts necessary to be included in the Exchange Fund.
4. TERMINATION; AMENDMENT
4.1 TERMINATION OF AGREEMENT. This Agreement may be terminated by
Golden Bear at any time before the Effective Date in the event that the
satisfaction of any of the conditions set forth in Section 3 is or becomes
impossible (other than as a result of failure of Golden Bear to comply with its
obligations under this Agreement or the settlement agreement). Such termination
shall be effected by written authorization of the Board of Directors of Golden
Bear whereupon this Agreement shall be terminated and there shall be no
liability hereunder on account of such termination on the part of Golden Bear,
GB Golf or their respective directors, officers, employees, agents or
shareholders.
4.2 AMENDMENT. This Agreement may be amended or modified in any respect
at any time by mutual written agreement of the parties; provided, however, that
if such amendment or modification is subsequent to the approval of the
settlement agreement by the Court, any such subsequent amendment or modification
shall be approved by the Court.
5. MISCELLANEOUS
5.1 SUCCESSORS. This Agreement shall be binding on the respective
successors of the Golden Bear and GB Golf.
5.2 COUNTERPARTS. This Agreement may be executed in one or more
counterparts.
5.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
5.4 NO THIRD PARTY BENEFICIARIES. Except as provided in Article 2,
nothing in this Agreement is intended to confer upon any person or entity not a
party to this Agreement any rights or remedies under or by reason of this
Agreement.
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IN WITNESS WHEREOF, the Boards of Directors of the parties hereto have
approved this Agreement and the duly authorized officers of each have executed
this Agreement on their behalf as of the date first above written.
GOLDEN BEAR GOLF, INC.
By: /S/STEPHEN S. WINSLETT
------------------------------------
Stephen S. Winslett
Senior Vice President, Chief Financial
Officer and Chief Operating Officer
GB GOLF CORP.
By:/S/STEPHEN S. WINSLETT
------------------------------------
Stephen S. Winslett
President
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APPENDIX B
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
March 27, 2000
Special Committee of the Board of Directors
Golden Bear Golf, Inc.
12870 U.S. Highway #1
North Palm Beach, CA 10877
Members of the Special Committee of the Board:
We understand that Golden Bear Golf, Inc. ("GBG" or the "Company") and Silvio
Pietroluongo, on behalf of himself and all others similarly situated, ("Class
Action Plaintiff") propose to enter into an Stipulation of Settlement
(substantially in the form of the draft dated February 14, 2000) (the
"Settlement Agreement"), which provides, among other things, for the
commencement by the Company of a corporate transaction in which the public
shareholders, other than Jack Nicklaus and his family, will receive the cash sum
of $0.75 per share in exchange for their shares of common stock, par value $0.01
per share (the "Common Stock"), of the Company. The terms and conditions of this
arrangement are more fully set forth in the Settlement Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Common Stock, other than Jack Nicklaus and his family,
pursuant to the Settlement Agreement is fair from a financial point of view to
such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the
Common Stock;
(vi) compared the financial performance of the Company and the
prices and trading activity of the Common Stock with that of
certain other comparable publicly-traded companies and their
securities;
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(vii) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions;
(viii) participated in discussions among representatives of the
Company and the Class Action Plaintiff and their legal
advisors;
(ix) reviewed a draft dated February 14, 2000 of the Settlement
Agreement and certain related documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets. We have acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with this
transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors of the Company only, and may not be used for
any other purpose without our prior written consent.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock, other
than Jack Nicklaus and his family, pursuant to the Settlement Agreement is fair
from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /S/ PAUL J. TAUBMAN
---------------------------------
Paul J. Taubman
Managing Director
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APPENDIX C
SELECTED PROVISIONS OF THE FLORIDA BUSINESS CORPORATION ACT
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.--
The following definitions apply to /section/ 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of the
shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the shareholders'
vote authorizing the proposed action was taken, the date on which the
corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.--
(1) Any shareholder of a corporation has the right to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been
entitled to vote on action taken, except for the applicability
of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his or her shares;
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2. Altering or abolishing the voting rights pertaining to any
of his or her shares, except as such rights may be affected by
the voting rights of new shares then being authorized of any
existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of
any of his or her shares, when such exchange, cancellation, or
reclassification would alter or abolish the shareholder's
voting rights or alter his or her percentage of equity in the
corporation, or effecting a reduction or cancellation of
accrued dividends or other arrearages in respect to such
shares;
4. Reducing the stated redemption price of any of the
shareholder's redeemable shares, altering or abolishing any
provision relating to any sinking fund for the redemption or
purchase of any of his or her shares, or making any of his or
her shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any
of the shareholder's preferred shares which had theretofore
been cumulative;
6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of
the shareholder's preferred shares upon voluntary or
involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph (1)(e)
has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in his
or her name. In that event, the shareholder's rights shall be determined as if
the shares as to which he or she has dissented and his or her other shares were
registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section does
not apply with respect to a plan of merger or share exchange or a proposed sale
or exchange of property, to the holders of shares of any class or series which,
on the record date fixed to determine the shareholders entitled to vote at the
meeting of shareholders at which such action is to be acted upon or to consent
to any such action without a meeting, were either registered on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her shares
under this section may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
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607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.--
(1)(a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of /section/ 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for his
or her shares if the proposed action is effectuated, and
2. Not vote his or her shares in favor of the proposed action.
A proxy or vote against the proposed action does not
constitute such a notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of /section/ 607.1301, 607.1302, and 607.1320 to each
shareholder simultaneously with any request for the shareholder's written
consent or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the corporation
shall give written notice of such authorization or consent or adoption of the
plan of merger, as the case may be, to each shareholder who filed a notice of
intent to demand payment for his or her shares pursuant to paragraph (1)(a) or,
in the case of action authorized by written consent, to each shareholder,
excepting any who voted for, or consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address, the number, classes, and series of
shares as to which he or she dissents, and a demand for payment of the fair
value of his or her shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the proposed
corporate action. Any shareholder filing an election to dissent shall deposit
his or her certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
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(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders may
file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts the
same, payment for his or her shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper
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parties to the proceeding are entitled to judgment against the corporation for
the amount of the fair value of their shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall have such power and
authority as is specified in the order of their appointment or an amendment
thereof. The corporation shall pay each dissenting shareholder the amount found
to be due him or her within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed value
thereof or pursuant to payment of the judgment entered therefor, as provided in
this section, may be held and disposed of by such corporation as authorized but
unissued shares of the corporation, except that, in the case of a merger, they
may be held and disposed of as the plan of merger otherwise provides. The shares
of the surviving corporation into which the shares of such dissenting
shareholders would have been converted had they assented to the merger shall
have the status of authorized but unissued shares of the surviving
corporation.
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