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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 333-9441
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COBBLESTONE GOLF GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7997 954391248
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NO.)
ORGANIZATION)
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Escondido Consulting, Inc. California 95-4287458
Cobblestone Texas, Inc. Texas 33-0586820
Pecan Grove Golf Club, Inc. Texas 76-0419898
Foothills Holding Company, Inc. Nevada 33-0597846
Bellows Golf Group, Inc. Arizona 75-2321399
Carmel Mountain Ranch Golf Club, Inc. California 33-0571226
OVLC Management Corp. California 33-0556136
OVLC Financial Corp. California 33-0556137
CSR Golf Group, Inc. Texas 75-2560373
Lakeway Golf Clubs, Inc. Texas 74-2738449
Woodcrest Golf Club, Inc. Texas 75-2563494
Virginia Golf Country Club, Inc. Virginia 54-1732348
Ocean Vista Land Company California 95-1968275
Golf Course Inns of America, Inc. California 95-2582278
Oceanside Golf Management Corp. California 33-0586045
Whispering Palms Country Club Joint Venture California 95-6485317
Lakeway Clubs, Inc. Texas 74-2751365
The Liquor Club at Pecan Grove, Inc. Texas 74-2062932
TGFC Corporation Texas 01-1766263
C-RHK, Inc. California 33-0677567
CEL Golf Group, Inc. Georgia 58-2192268
SWC Golf Club, Inc. Texas 76-0504558
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CALIFORNIA 92014
(619) 794-2602
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MR. JAMES A. HUSBAND
CHIEF EXECUTIVE OFFICER
COBBLESTONE HOLDINGS, INC.
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CALIFORNIA 92014
(619) 794-2602
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
ELIZABETH A. BLENDELL, ESQ.
ANDREW D. HUTTON, ESQ.
LATHAM & WATKINS
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
11 1/2% SERIES B SENIOR NOTES DUE 2003
FOR ALL OUTSTANDING 11 1/2% SERIES A SENIOR NOTES DUE 2003
OF
COBBLESTONE GOLF GROUP, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON OCTOBER 29,
1996 UNLESS EXTENDED.
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Cobblestone Golf Group, Inc. ("Cobblestone" or the "Company") is hereby
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 11 1/2%
Series B Senior Notes due 2003 (the "Exchange Notes"), which exchange has been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a registration statement of which this Prospectus is a part
(the "Registration Statement"), for each $1,000 principal amount of its
outstanding 11 1/2% Series A Senior Notes due 2003 (the "Private Notes"), of
which $70,000,000 in aggregate principal amount was issued on June 4, 1996 and
is outstanding as of the date hereof. The form and terms of the Exchange Notes
are the same as the form and terms of the Private Notes except that (i) the
exchange will have been registered under the Securities Act, and, therefore,
the Exchange Notes will not bear legends restricting the transfer thereof and
(ii) holders of the Exchange Notes will not be entitled to certain rights of
holders of the Private Notes under the Registration Rights Agreement (as
defined in "The Exchange Offer--Registration Rights Agreement"), which rights
will terminate upon the consummation of the Exchange Offer. The Exchange Notes
will evidence the same indebtedness as the Private Notes (which they replace)
and will be entitled to the benefits of an indenture dated as of June 4, 1996
governing the Private Notes and the Exchange Notes. The Private Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes."
See "The Exchange Offer" and "Description of Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at
the rate of 11 1/2% per annum and the interest thereon will be payable semi-
annually in arrears on June 1 and December 1 of each year, commencing December
1, 1996. The Exchange Notes will bear interest from and including the date of
issuance of the Private Notes (June 4, 1996). Holders whose Private Notes are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
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SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED PRIVATE
NOTES NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER 29,
1996, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). TENDERS OF PRIVATE NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM
PRINCIPAL AMOUNT OF PRIVATE NOTES BEING TENDERED FOR EXCHANGE. PRIVATE
NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES OF $1,000. IN THE EVENT
THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT ACCEPT FOR
EXCHANGE ANY PRIVATE NOTES, THE COMPANY WILL PROMPTLY RETURN ALL
PREVIOUSLY TENDERED PRIVATE NOTES TO THE HOLDERS THEREOF.
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The date of this Prospectus is October 2, 1996.
<PAGE>
The Exchange Notes will be senior unsecured general obligations of the
Company and will rank pari passu in right of payment to all other senior
indebtedness of the Company, including borrowings under the New Credit
Facility (as defined in "Description of New Credit Facility"). The Exchange
Notes will be effectively subordinated to any secured indebtedness of the
Company to the extent of any collateral therefor. The New Credit Facility
provides for an aggregate availability of $50 million, all of which was
available at June 30, 1996, and is secured by substantially all of the
Company's assets, including the capital stock of the Company's existing and
future Subsidiaries (as defined), and is guaranteed by Holdings and such
Subsidiaries, which guarantees are secured by substantially all of Holdings'
and such Subsidiaries' assets. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") by all of the Company's existing
and future Subsidiaries (the "Guarantors"). The Guarantees will be senior
unsecured general obligations of the Guarantors and will rank equally and
without preference ("pari passu") in right of payment to all other senior
indebtedness of the Guarantor's, including the Guarantor's guarantees of
borrowings under the New Credit Facility. As of June 30, 1996, the Company and
the Guarantors on a consolidated basis had outstanding $92.1 million of senior
indebtedness (including trade payables and capitalized lease obligations),
$7.5 million of which was secured indebtedness. The Indenture and the New
Credit Facility contain certain covenants which restrict the ability of the
Company and its Subsidiaries to incur additional indebtedness. See "Risk
Factors--Restrictive Covenants and Financial Ratios Under New Credit
Facility," "Description of Notes" and "Description of New Credit Facility."
On or after June 1, 1999, the Company may redeem the Exchange Notes, in
whole or in part, at the redemption prices set forth herein, plus Liquidated
Damages (as defined in "The Exchange Offer--Liquidated Damages"), if any, to
the date of redemption. Notwithstanding the foregoing, at any time on or
before June 1, 1999, the Company may, at its option and subject to certain
requirements, use the net cash proceeds from one or more Public Equity
Offerings or issuances of Qualified Capital Stock to Strategic Investors (each
as defined in "Description of Notes--Certain Definitions") to redeem all of
the Exchange Notes originally issued at a redemption price equal to 110.5% of
the principal amount thereof, plus Liquidated Damages, if any, to the date of
redemption. In addition, upon a Change of Control (as defined in "Description
of Notes--Certain Covenants"), each holder of Exchange Notes will have the
right to require the Company to repurchase all or any part of such Holder's
Exchange Notes at a price equal to 101% of the principal amount thereof, plus
Liquidated Damages, if any, to the date of purchase.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided that the holder
is acquiring the Exchange Notes in the ordinary course of its business and is
not participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Company believes that none of the
registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Notes will develop. To the
extent that a market for the Notes does develop, the market value of the Notes
will depend on market conditions (such as yields on
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alternative investments), general economic conditions, the Company's financial
condition and certain other factors. Such conditions might cause the Notes, to
the extent that they are traded, to trade at a significant discount from face
value. See "Risk Factors--Absence of Public Market."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has indicated its intention to make this
Prospectus (as it may be amended or supplemented) available to any broker-
dealer for use in connection with any such resale for a period of 180 days
after the Expiration Date. See "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL DECEMBER 31, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be
issued in exchange for the global note only in accordance with the terms and
conditions set forth in the Indenture. See "Description of Notes--Book Entry,
Delivery and Form."
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SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Market data used throughout this Prospectus were obtained from
internal Company surveys and industry publications, including publications by
the National Golf Foundation, a non-profit industry organization ("NGF"). The
industry publications consulted generally indicate that the information
contained therein has been obtained from sources believed to be reliable.
Unless otherwise stated in this Prospectus or the context otherwise requires,
references to "Holdings" include Cobblestone Holdings, Inc., the Company, and
each of the Company's Subsidiaries and references to the "Company" include the
Company and each of its Subsidiaries. Unless otherwise indicated, references to
a fiscal year mean the twelve months ended September 30 of the year indicated.
THE COMPANY
Cobblestone is one of the leading golf course owners and operators in the
United States, with a current portfolio of 22 golf properties including both
private country clubs and public (or daily fee) courses. The Company's courses
are concentrated in clusters near metropolitan areas in the Sunbelt states
(including Arizona, California and Texas) which have large golfing populations
and attractive climates. This clustering strategy enables the Company to
efficiently manage its portfolio of courses and improve the profitability of
its courses by sharing many administrative functions and capitalizing on joint
marketing opportunities and economies of scale.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from initiation fees and membership
dues at private country clubs, greens fees, food and beverage concessions, golf
cart rentals, retail merchandise sales, driving range fees and lodging fees.
The Company owns and operates 16 courses, leases four courses (subject to long-
term leases in excess of 20 years, including extension options), leases one
driving range and pro shop facility and manages one additional course. The
Company's portfolio includes nine private country clubs, eight public
facilities and five semi-private facilities.
There are approximately 15,000 golf courses in the United States, which
generate approximately $15 billion in annual revenue. The ownership and
operation of golf courses in the United States is highly fragmented, with less
than 5% of golf courses owned and operated by multi-course management
companies. The Company believes that the majority of golf course operators,
including real estate developers and municipalities, are generally involved in
golf course management because the golf course is an important component of
their development or community, but that such operators frequently do not have
professional golf course management experience. As a result, owners are often
interested in selling the golf facilities to third-party operators such as the
Company. These owners frequently place significant emphasis on experience and
reputation for quality management in selecting an owner/operator, and the
Company believes that its reputation in these areas has provided it with a
steady supply of attractive acquisition opportunities.
The Company believes certain demographic characteristics of the United States
will increase the demand for golf in the future, thereby benefitting golf
course operators. The Company believes that total rounds played will increase
as the golfing population ages. The highest golf participation rates (defined
as the percentage of individuals within a given demographic segment who played
golf during the survey year) are found among individuals aged 18 to 49, which
had average participation rates of approximately 13.6% in 1995, as compared to
11.6% for the population as a whole. However, individuals over 50 played a
substantially greater number of rounds of golf per year relative to individuals
in younger age brackets. Accordingly, assuming that golf participation rates
remain at current levels, the Company believes that these 18 to 49 year old
golfers will increase the number of rounds played per year as they age. See
"Risk Factors--Factors Affecting Golf Participation" and "Business-- Industry
Overview." The Company believes that, despite recent golf course
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construction in some of its markets, golf course construction in its markets
generally has been constrained as a result of several factors, including the
lack of capital available for real estate development, the significant land
required to build a golf course and related facilities (approximately 150
acres) and increasing environmental regulation, particularly with regard to the
availability of water in Arizona and California, two of the Company's primary
markets.
The Company's strategy is to grow its revenue and cash flows by (i)
continuing to improve the financial performance of its existing courses and
(ii) acquiring courses located in attractive markets which management believes
will benefit from the Company's golf course management expertise. Key elements
of the Company's operating strategy include:
. INCREASING MEMBERSHIP REVENUES/IMPROVING UTILIZATION OF THE
FACILITIES. The Company increases its golf-related revenue through
several means, including (i) increasing membership through aggressive
marketing and innovative membership programs, (ii) raising membership
dues and greens fees to market levels, (iii) implementing premium prices
for prime time play and discounting prices for less utilized times (e.g.,
twilight play), (iv) starting golfers on both the first and tenth tee
simultaneously, thereby increasing the number of rounds played per day
and (v) booking tournaments into less popular time slots. At its private
courses, the Company positions the golf course and related facilities as
an integral social center of the surrounding community in order to
attract non-golfing members. The Company frequently offers a number of
ancillary services in an effort to appeal to every member of the
household, such as meeting, tennis and fitness facilities for those who
do not play golf.
. CONTROLLING OPERATING COSTS. As its golf course portfolio has grown, the
Company has improved its cash flow margins by consolidating
administrative functions, capitalizing on its increased buying power and,
within clusters, sharing certain services and capital equipment. In
addition, the Company closely monitors its course level operations in
order to manage expenses.
. UPGRADING GOLF COURSE AND RELATED FACILITIES. Following its acquisition
of a golf course, the Company generally upgrades or improves a facility
in order to enhance its appeal to customers and members and to generate
additional revenues and cash flow. Where appropriate, the Company adds
additional courses (including nine hole additions) to existing facilities
to increase capacity and invests in major clubhouse renovations to
support increased dues and fees. These expenditures are generally non-
recurring. In addition, the Company implements strategic capital
expenditure programs which enable it to reduce course level operating
costs and improve the efficiency of the operations, such as improving the
irrigation system and acquiring more efficient maintenance equipment.
. APPEAL TO CORE GOLFING POPULATION. The Company targets core golfers
(defined by the NGF to be golfers who play more than eight rounds per
year). These golfers represent approximately 46% of the golfers in the
United States but play approximately 87% of the total rounds. The Company
believes that core golfers represent a stable demand for golf and are
generally more willing to make a significant investment in a golf club
membership and pay higher greens fees than the golfing population as a
whole. These golfers also tend to spend more time at a golf facility and
therefore generate higher ancillary revenues.
Key elements of the Company's acquisition strategy include:
. CLUSTERING OF COURSES. The Company seeks to acquire golf courses in
clusters near densely populated metropolitan markets. This strategy
enables the Company to more efficiently manage its portfolio of courses
and to improve the profitability of its courses by sharing many
administrative expenses and capital equipment and by capitalizing on
joint marketing opportunities and economies of scale.
. FOCUS ON PRIVATE COUNTRY CLUBS AND HIGH-END DAILY FEE COURSES. The
Company focuses on acquiring private country clubs and high-end daily fee
courses which attract core golfers in middle and
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upper income brackets who are less price sensitive than the typical public
course player. Revenue and cash flows of private country clubs are
generally more stable and predictable than those of public courses because
the receipt of membership dues is independent of the level of course
utilization. In addition, private courses have an easily identifiable
target population which permits a highly-focused marketing effort,
particularly if the course is part of a larger residential development.
The Company's daily fee courses typically command higher greens fees than
the average municipal course in its markets and provide the golfer a
higher level of service and better playing conditions than do standard
municipal courses.
. REPUTATION WITH REAL ESTATE DEVELOPERS. The Company has focused on
acquiring courses from developers who have built golf courses primarily
as an enhancement to their residential real estate developments. The
Company believes that its experience and reputation for quality
management provide it with a steady supply of attractive acquisition
opportunities from developers seeking third party owner/operators to
professionally manage the facilities.
. FOCUS ON FAVORABLE GOLF MARKETS. The Company targets golf courses in
markets with characteristics which it believes are favorable to golf
course ownership and management. For example, the Company concentrates on
acquiring courses convenient to metropolitan areas with dense populations
but with relatively few golf courses in relation to the size of the
golfing population. In addition, the Company focuses on markets with a
high number of playable days per year, enabling the Company to maximize
revenue and course utilization and thereby capitalize on the operating
leverage inherent in golf course management.
CORPORATE BACKGROUND
The Company is a wholly-owned subsidiary of Cobblestone Holdings, Inc.
("Holdings"). The Company was formed in 1992 by Brentwood Golf Partners, L.P.
(the "Partnership"), a partnership organized by Brentwood Associates
("Brentwood"), and James A. Husband, to build a leading golf course ownership
and management company. See "Certain Relationships and Related Transactions."
In its approximately four years of operation, the Company has become one of the
leading golf course management companies in the United States. Mr. Husband, the
Company's President and Chief Executive Officer, has more than 20 years
experience in the golf industry, and prior to joining the Company, had been
Chairman and Chief Executive Officer of GolfCorp. (a subsidiary of Club
Corporation International), which he founded and built into one of the largest
public-course management companies in the United States.
Founded in 1972, Brentwood is a private investment firm specializing in
private equity and growth-oriented venture capital investments. Other than the
Partnership, Holdings' stockholders include The Northwestern Mutual Life
Insurance Company and Wilmington Interstate Corporation, an indirect wholly-
owned subsidiary of The Hillman Company. See "Principal Stockholders."
The Company is incorporated in Delaware; its executive offices are located at
3702 Via de la Valle, Suite 202, Del Mar, California, 92014; and its telephone
number is (619) 794-2602.
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[CORPORATE STRUCTURE CHART]
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* Except as otherwise noted, all Subsidiaries are wholly-owned.
7
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THE EXCHANGE OFFER
The Exchange Offer.......... The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that are
properly tendered and accepted. The Company will
issue Exchange Notes on or promptly after the
Expiration Date. As of the date hereof, there is
$70,000,000 aggregate principal amount of Private
Notes outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a
broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
provided that the holder is acquiring Exchange
Notes in the ordinary course of its business and
is not participating, and had no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for
its own account in exchange for Private Notes,
where such Private Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Notes. See "The Exchange Offer--Resale of the
Exchange Notes."
Registration Rights The Private Notes were sold by the Company on
Agreement................... June 4, 1996 (the "Closing Date") to Donaldson,
Lufkin & Jenrette Securities Corporation and BA
Securities, Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement, dated May 29,
1996, by and among the Company and the Initial
Purchasers (the "Purchase Agreement"). The
Initial Purchasers subsequently sold the Private
Notes to third parties. See "The Exchange Offer--
Purpose of the Exchange Offer." Pursuant to the
Purchase Agreement, the Company and the Initial
Purchasers entered into a Registration Rights
Agreement, dated as of May 29, 1996 (the
"Registration Rights Agreement"), which grants
the holders of the Private Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such rights, which will
terminate upon the consummation of the Exchange
Offer. The holders of the Exchange Notes will not
be entitled to any exchange or registration
rights with respect to the Exchange Notes. See
"The Exchange Offer--Termination of Certain
Rights."
Expiration Date.............
The Exchange Offer will expire at 5:00 p.m., New
York City time, on October 29, 1996, unless the
Exchange Offer is extended by the Company in its
sole discretion for up to an additional ten
business days, in which case the term "Expiration
Date" shall mean the latest date and time to
which the Exchange Offer is extended. See
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"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Accrued Interest on the
Exchange Notes and the The Exchange Notes will bear interest from and
Private Notes............... including the date of issuance of the Private
Notes (June 4, 1996). Holders whose Private Notes
are accepted for exchange will be deemed to have
waived the right to receive any interest accrued
on the Private Notes. See "The Exchange Offer--
Interest on the Exchange Notes."
Conditions to the Exchange Unless waived by the Company, the Exchange Offer
Offer....................... is subject to the condition that, in the
reasonable judgment of the Company, it does not
violate applicable law, rules or regulations or
an applicable interpretation of the staff of the
Commission. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of
Private Notes being tendered for exchange. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes
and any other required documentation to Norwest
Bank Minnesota, National Association, as exchange
agent (the "Exchange Agent"), at the address set
forth herein. By executing the Letter of
Transmittal, the holder will represent to and
agree with the Company that, among other things,
(i) the Exchange Notes to be acquired by such
holder of Private Notes in connection with the
Exchange Offer are being acquired by such holder
in the ordinary course of its business, (ii) such
holder has no arrangement or understanding with
any person to participate in a distribution of
the Exchange Notes, (iii) that if such holder is
a broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such
holder will comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of
the staff of the Commission set forth in no-
action letters (see "The Exchange Offer--Resale
of Exchange Notes"), (iv) such holder understands
that a secondary resale transaction described in
clause (iii) above and any resales of Exchange
Notes obtained by such holder in exchange for
Private Notes acquired by such holder directly
from the Company should be covered by an
effective registration statement containing the
selling securityholder information required by
Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result
of market-making activities or other trading
activities, such holder will be required to
acknowledge in the Letter of Transmittal that
such holder will
9
<PAGE>
deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--
Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Notes in
the Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender
on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering such owner's Private
Notes, either make appropriate arrangements to
register ownership of the Private Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time
and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery Holders of Private Notes who wish to tender their
Procedures.................. Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the Subject to the satisfaction or waiver of the
Exchange Notes............. conditions to the Exchange Offer, Holdings will
accept for exchange any and all Private Notes
that are properly tendered in the Exchange Offer
prior to the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered within five business days following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Withdrawal Rights........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations............. Based upon an opinion of counsel to the Company,
the Company has determined that the exchange of
Private Notes for Exchange Notes will be treated
as a "non-event" for federal income tax purposes
because the Exchange Notes will not be considered
to differ materially in kind or extent from the
Private Notes. As a result, no material federal
income tax consequences will result to holders
exchanging Private Notes for Exchange Notes. See
"Certain Federal Income Tax Considerations."
Exchange Agent.............. Norwest Bank Minnesota, National Association is
serving as the Exchange Agent in connection with
the Exchange Offer.
10
<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to the entire aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture. For further
information and for definitions of certain capitalized terms used below, see
"Description of Notes."
Maturity Date............... June 1, 2003.
Interest Payment Dates...... June 1 and December 1 of each year, commencing
December 1, 1996.
Optional Redemption......... On or after June 1, 1999, the Company may redeem
the Exchange Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption. Notwithstanding
the foregoing, at any time on or before June 1,
1999, the Company may, at its option and subject
to certain requirements, use the net cash pro-
ceeds from one or more Public Equity Offerings or
issuances of Qualified Capital Stock to Strategic
Investors to redeem up to an aggregate 25% of the
principal amount of the Exchange Notes originally
issued, at a redemption price equal to 110.5% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of redemption. See "Description of
Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of Exchange
Notes will have the right to require the Company
to repurchase all or any part of such holder's
Exchange Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of purchase. There can be no assurance that
the Company will have the financial resources
necessary to repurchase the Exchange Notes upon a
Change of Control.
Guarantees.................. The Exchange Notes will be fully and uncondition-
ally guaranteed on a senior unsecured basis by
each of the Guarantors. The Guarantees will rank
pari passu to the Guarantors' guarantees of the
New Credit Facility.
Ranking..................... The Exchange Notes will be senior unsecured gen-
eral obligations of the Company and will rank
pari passu in right of payment to all other se-
nior indebtedness of the Company, including
borrowings under the New Credit Facility. The Ex-
change Notes will be effectively subordinated to
any secured indebtedness of the Company to the
extent of any collateral therefor. The New Credit
Facility provides for an aggregate availability
of $50 million, all of which was available at
June 30, 1996, and is secured by substantially
all of the Company's assets, including the capi-
tal stock of the Company's existing and future
Subsidiaries, and is guaranteed by Holdings and
11
<PAGE>
such Subsidiaries, which guarantees are secured
by substantially all of Holdings' and such Sub-
sidiaries' assets. The Guarantees will be senior
unsecured general obligations of the Guarantors
and will rank pari passu in the right of payment
to all other senior indebtedness of the Guaran-
tors, including the Guarantor's guarantees of
borrowings under the New Credit Facility. As of
June 30, 1996, the Company and the Guarantors on
a consolidated basis had outstanding $92.1 mil-
lion of senior indebtedness (including trade
payables and capitalized lease obligations), $7.5
million of which was secured indebtedness. The
Indenture permits the Company and its Subsidiar-
ies to incur additional indebtedness, including
senior and secured indebtedness, subject to cer-
tain limitations.
Certain Covenants...........
The Indenture contains covenants that will, among
other things, limit the ability of the Company
and its Subsidiaries to (i) make restricted pay-
ments, (ii) incur additional indebtedness and is-
sue disqualified capital stock, (iii) create
liens, (iv) enter into agreements that would re-
strict the Subsidiaries' ability to make distri-
butions, loans and other payments to the Company,
(v) enter into consolidations or mergers or sell
all, or substantially all, of their assets,
(vi) make asset sales and (vii) enter into trans-
actions with affiliates. See "Description of
Notes--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders of the Private Notes in evaluating the Exchange Offer.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The consolidated financial data set forth below with respect to the Company's
statements of operations for each of the years in the three-year period ended
September 30, 1995 are derived from the consolidated financial statements that
have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus. The statement of operations data for the
nine months ended June 30, 1995 and 1996 and the balance sheet data at June 30,
1996 are derived from unaudited financial statements which contain all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the nine months
ended June 30, 1996 are not necessarily indicative of the results that are
expected for the entire year ended September 30, 1996. The selected financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements and notes thereto included herein.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues.......... $ 6,507 $ 24,893 $ 49,863 $ 32,946 $ 43,716
Course-level operating
expenses(2)................ 4,184 16,818 34,427 22,924 30,451
General and administrative
expenses................... 1,620 1,997 2,517 1,808 2,596
Depreciation and
amortization expense....... 825 3,469 6,145 4,207 5,353
-------- -------- -------- -------- --------
Income (loss) from
operations................. (122) 2,609 6,774 4,007 5,316
Interest expense, net....... (530) (3,515) (8,019) (5,541) (7,840)
Gain on insurance
settlement................. -- -- 747 -- --
Minority interest........... (195) -- -- -- --
-------- -------- -------- -------- --------
Loss before income taxes and
extraordinary item......... (847) (906) (498) (1,534) (2,524)
Provision for income taxes.. 6 72 208 33 137
-------- -------- -------- -------- --------
Loss before extraordinary
item....................... (853) (978) (706) (1,567) (2,661)
Extraordinary item.......... -- (428) -- -- (3,521)
-------- -------- -------- -------- --------
Net loss.................... $ (853) $ (1,406) $ (706) $ (1,567) $ (6,182)
======== ======== ======== ======== ========
OTHER OPERATING DATA:
EBITDA(3)................... $ 703 $ 6,078 $ 12,919 $ 8,214 $ 10,669
Net cash provided by (used
in) operating activities... 154 1,883 2,294 2,437 (187)
Net cash used in investing
activities................. (25,454) (32,970) (57,020) (53,599) (12,931)
Net cash provided by
financing activities....... 26,659 31,027 54,247 50,624 14,139
Golf facility
investments(4)............. 41,212 34,623 55,643 51,017 11,480
Cumulative golf facility
investments(5)............. 41,212 75,835 131,478 126,852 142,958
Number of golf
properties(6).............. 7 12 19 19 21
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------
<S> <C>
BALANCE SHEET DATA:
Cash........................................................... $ 1,841
Total assets................................................... 158,030
Total long-term debt and capital leases........................ 77,536
Total liabilities.............................................. 92,107
Total stockholder's equity..................................... 65,923
</TABLE>
(Footnotes appear on the following page)
13
<PAGE>
- --------------------
(1) The Company acquired or leased seven courses in fiscal 1993, an additional
five in fiscal 1994, an additional seven in fiscal 1995 and an additional
one in the nine months ended June 30, 1996 (fiscal 1996). The Company also
entered into a management contract to operate one course in the nine months
ended June 30, 1996. The Company's results of operations include the
results of acquired courses from their dates of acquisition and not for any
periods prior to acquisition. As a result, the Company's historical results
of operations for any particular period do not generally represent the full
revenue and cash flow generating capability of its golf course portfolio as
of the end of such period. The Company's results of operations for the year
ended September 30, 1995 include the results of three courses for six
months, one course for seven months, three courses for ten months and 12
courses for the full fiscal year.
(2) Course-level operating expenses include cost of golf course operations
(e.g., salaries, taxes, utilities), cost of food and beverages and cost of
pro shop sales.
(3) EBITDA represents net income before interest expense, income taxes,
extraordinary item, gain on insurance settlement, minority interest and
non-cash charges of depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income as a measure of the Company's
operating results or to operating cash flow as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Private Membership Clubs; Accounting Treatment of Initiation
Fees."
(4) Golf facility investments consist of the aggregate purchase price
(including cash and principal amount of promissory notes) paid by the
Company to acquire its golf course portfolio, including non-recurring
upgrade capital expenditures.
(5) Cumulative since the Company's formation in October 1992.
(6) Of such 21 properties at June 30, 1996, 16 courses were owned by the
Company, three courses were operated under long-term leases, one driving
range/pro shop facility was leased and one course was managed by the
Company pursuant to a management contract. In addition, the Company entered
into a long- term lease with respect to a course subsequent to June 30,
1996. See "Business--Recently Completed Acquisitions."
14
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to the other information contained in this Offering Memorandum before
making an investment in any of the Exchange Notes offered hereby. The Company
believes that this Prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act. Discussions containing such
forward-looking statements may be found in the material set forth under
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business," as
well as within the Prospectus generally. In addition, when used in this
Prospectus, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
in the future could differ materially from those described in the forward-
looking statements as a result of the risk factors set forth below and the
matters set forth in the Prospectus generally. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances. The Company cautions the reader, however, that this list of
risk factors may not be exhaustive.
LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of June 30, 1996, the Company had
consolidated long-term debt and capital lease obligations of $77.5 million and
stockholder's equity of $65.9 million, resulting in a debt-to-equity ratio of
approximately 1.2 to 1. The Company's earnings were insufficient to cover its
fixed charges for each of the fiscal years ended September 30, 1993, 1994 and
1995 and for the nine months ended June 30, 1996. See Note (7) to Selected
Consolidated Financial Information. In addition, as of June 30, 1996, the
Company had an additional $50 million of borrowing availability under the New
Credit Facility. See "Consolidated Capitalization" and "Description of New
Credit Facility."
The Company's high degree of leverage may (i) have an adverse effect on its
ability to obtain additional financing to fund working capital, capital
expenditures or other purposes, (ii) make the Company more vulnerable to
extended economic downturns, (iii) restrict the Company's ability to make
acquisitions, exploit new technologies or potential business opportunities,
and (iv) limit the Company's flexibility to respond to changing economic
conditions.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the current level of operations and
anticipated growth, the Company believes that cash flow from operations,
together with available borrowings under the New Credit Facility and other
sources of liquidity, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures and scheduled
payments of principal and interest on its indebtedness, including the Notes.
There can be no assurance, however, that the Company's business will generate
sufficient cash flow from operations or that future working capital borrowings
will be available in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or make necessary capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
The Company is continually involved in the investigation and evaluation of
potential golf course acquisitions and at any time may be discussing possible
transactions, conducting due diligence investigations or otherwise pursuing
acquisition opportunities. Since its inception in October 1992, the Company
has made acquisitions for an aggregate purchase price of approximately $142.9
million, including upgrade capital expenditures. The Company historically has
financed its acquisitions through a combination of the borrowings under bank
credit facilities, seller-provided financing, internally-generated cash flow
and the issuance of equity securities. The Company's future growth and
financial success will be dependent upon a number of factors,
15
<PAGE>
including, among others, its ability to identify acceptable acquisition
candidates, consummate the acquisitions of such golf facilities on favorable
terms, promptly and profitably improve the financial performance of acquired
properties and integrate them into the Company's operations and attract and
retain customers and members. Managing this growth and integrating acquired
businesses requires a significant amount of management time and skill. There
can be no assurance (i) that the Company will be effective in managing its
future growth or in assimilating acquisitions, or (ii) that any failure to
manage growth or assimilate an acquisition will not have a material adverse
effect on the Company's business, operating results or financial condition. In
addition, the Company has generally been able to implement significant
increases in initiation fees, membership dues and greens fees to market levels
following acquisition of a golf facility. The Company believes that any
subsequent increases in initiation fees, membership dues and greens fees at
acquired courses are likely to occur on a smaller magnitude.
The Company's ability to execute its growth strategy depends to a significant
degree on its ability to obtain additional long-term debt and equity capital.
Other than the New Credit Facility, the Company has no commitments for
additional borrowings or sales of equity, and there can be no assurance that
the Company will be successful in consummating any such future financing
transactions on terms favorable to the Company or that any such acquisition
will not result in the incurrence of additional indebtedness. The Company's
ability to repay the Notes or any other indebtedness at maturity may depend on
refinancing, which could be adversely affected if the Company does not have
access to the capital markets for the sale of additional debt or equity through
public offerings or private placements on terms acceptable to the Company.
Factors which could affect the Company's access to the capital markets, or the
cost of such capital, include changes in interest rates, general economic
conditions, the perception in the capital markets of the Company's business,
results of operations, leverage, financial condition and business prospects. In
addition, the New Credit Facility and the covenants with respect to the Notes
significantly restrict the Company's ability to incur additional indebtedness.
See "Description of Notes."
COMPETITION
The Company intends to continue to acquire golf courses in order to expand
its operations and increase its portfolio. There can be no assurance that
suitable golf course acquisition opportunities will be available or that,
because of competition from other purchasers or other reasons, the Company will
be able to consummate acquisitions on satisfactory terms or to obtain necessary
acquisition financing. In addition, the acquisition of golf courses may become
more expensive in the future if demand for properties increases.
The Company competes for the purchase, lease and management of golf courses
with several national and regional golf course companies. Several of the
Company's national competitors have larger staffs and more golf courses
currently owned, leased or under management than does the Company. In addition,
several of the national competitors and certain of the smaller, regional
companies have significantly greater capital resources than the Company.
Golf courses are also subject to competition for players and members from
other golf courses located in the same geographic areas. The number and quality
of golf courses in a particular area could have a material effect on the
revenue of a golf course. The availability of sufficient acreage often limits
the number of competing courses, particularly in metropolitan areas. However,
the parts of Arizona and Texas in which many of Cobblestone's existing
properties are clustered have significant open land available, and there has
been continued construction of both public and private golf facilities in those
areas. The Company carefully evaluates these and other factors before acquiring
a golf course, and tailors its marketing strategy to fit the demographic and
competitive characteristics of the community. In addition, revenue will be
affected by a number of factors including the demand for golf and the
availability of other forms of recreation.
RELIANCE ON KEY PERSONNEL
The success of the Company is dependent upon the experience and abilities of
its senior management as well as its ability to attract and retain qualifi ed
golf course general managers and superintendents. Key senior
16
<PAGE>
management include James A. Husband, who is responsible for the Company's
strategic planning, Gary L. Dee, who manages the Company's operations, and
Joseph H. Champ, who oversees the Company's acquisition strategy. There is
significant competition in the golf course management industry for qualified
personnel, and there can be no assurance that the Company will be able to
retain its existing senior management or golf course personnel or recruit new
personnel to support its acquisition plans. In particular, James "Bob" Husband
has 22 years of industry experience in all phases of the Company's business,
ranging from operations to acquisitions. He was founder, Chairman and CEO of a
company that ultimately became CCA Golf Corp. which became a subsidiary of
Club Corporation of America (now known as Club Corporation International). The
loss of Mr. Husband as CEO could have an adverse impact on the future
performance of the Company. See "Management."
LIMITED OPERATING HISTORY; VARIABILITY OF QUARTERLY OPERATING RESULTS AND NET
LOSSES
Since its organization in October 1992, the Company has been in an early
development stage in which its activities have been concentrated on the
acquisition, lease and management of its golf course properties. Seasonal
weather conditions as well as the timing of new course purchases or leases may
cause the Company's results of operations to vary significantly from quarter
to quarter and the second half (April through September) of the Company's
fiscal year generally accounts for a greater portion of the Company's
operating revenue and operating income than does the first half. The Company
has experienced net losses since its inception. Net losses for the fiscal
years ended September 30, 1993, 1994 and 1995 were approximately $0.9 million,
$1.4 million and $0.7 million, respectively, and net losses for the nine
months ended June 30, 1996 were $6.2 million. There can be no assurance that
the Company's future operations will generate operating income or net income
or sufficient cash flow to pay its obligations. See "Selected Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
Substantially all of the Company's operating income is generated by its
Subsidiaries. As a result, the Company will rely on cash received from its
Subsidiaries to provide a portion of the funds necessary to meet its debt
service obligations, including the payment of principal and interest on the
Notes. However, the Guarantors have guaranteed the Company's obligations under
the New Credit Facility on a senior secured basis, and the capital stock of,
and substantially all of the assets of, the Guarantors were pledged to secure
the obligations of the Company and such Subsidiaries under the New Credit
Facility and other secured obligations. Although the Notes are guaranteed on a
senior unsecured basis by the Guarantors, in the event of a default under the
New Credit Facility (or any other secured indebtedness), the lenders
thereunder would be entitled to a claim on the assets securing such
indebtedness which is prior to any claim of the holders of the Notes.
Accordingly, there may be insufficient assets remaining after payment of prior
secured claims (including claims of lenders under the New Credit Facility) to
pay amounts due on the Notes. The Indenture also limits the ability of the
Company and its Subsidiaries to incur additional indebtedness and to enter
into agreements that would restrict the ability of any Subsidiary to make
distributions, loans or other payments to the Company. However, these
limitations are subject to certain exceptions. See "--Fraudulent Transfer
Risks," "Description of Notes" and "Description of New Credit Facility."
RESTRICTIVE COVENANTS AND FINANCIAL RATIOS UNDER NEW CREDIT FACILITY
The New Credit Facility contains covenants which limit the ability of the
Company to, among other things, (i) incur indebtedness or issue guarantees,
(ii) create or permit to exist liens, or enter into negative pledge
agreements, (iii) make investments, including by purchase of assets or equity
interests, unless the Company meets certain financial tests and after such
investment provides the lenders thereunder with liens on the assets acquired
and secured guarantees of any new Subsidiary, (iv) pay dividends or make
distributions (other than dividends to the Company), repurchase equity
interests or prepay or redeem the Notes, (v) make asset sales or merge or
consolidate with other entities, (vi) enter into transactions with affiliates,
or (vii) amend certain agreements, including the Indenture or the Notes. In
addition, under the New Credit Facility, the Company is required to comply
with certain financial covenants, including net worth, minimum interest and
fixed charge
17
<PAGE>
coverage ratios and maximum Funded Debt (as defined in the New Credit
Facility) to Adjusted EBITDA and Bank Debt (as defined in the New Credit
Facility) to Adjusted EBITDA ratios (calculated as provided therein). Under
the New Credit Facility, the occurrence of certain events (including, without
limitation, failure to make payments when due, breach of covenants or
representations and warranties, default under other indebtedness or
obligations, bankruptcy, dissolution or insolvency, change of control, the
occurrence of a material adverse change and material judgments) in certain
cases after notice and/or grace periods would constitute an event of default
permitting the acceleration of the indebtedness and exercise of remedies,
including foreclosure on the security interests granted to secure such
indebtedness. The limitations imposed on the Company by the New Credit
Facility are substantial, and failure to comply with such limitations or the
occurrence of any event of default could have a material adverse effect on the
Company. See "Description of New Credit Facility."
ENVIRONMENTAL REGULATION; LEASES WITH MUNICIPALITIES
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when
such substances are released, may adversely affect the ability of a property
owner to sell such real estate or to pledge such property as collateral for a
loan. See "Business--Governmental Regulation."
The Company's leases with municipalities at the Saticoy and Escondido
courses are subject to provisions which restrict the Company's ability to
increase greens fees and other charges. Such restrictions may have an adverse
effect on the Company's ability to increase revenue and improve operating cash
flow at those courses. It is probable that any new leases with municipalities
will also include similar restrictions.
FACTORS AFFECTING GOLF PARTICIPATION
The success of efforts to attract and retain members at a private country
club and the number of rounds played at a public golf course have historically
been dependent upon discretionary spending by consumers, which may be
adversely affected by general and regional economic conditions, particularly
those that affect southern California, Phoenix, Dallas and Houston. See
"Business--Summary of Golf Course Portfolio." Golf participation has increased
significantly since 1970. Although the Company believes that demographic
trends indicate that it is well positioned to grow its business and improve
its financial performance, a decrease in the number of golfers or their rates
of participation or in consumer spending on golf could have an adverse effect
on the Company's financial condition and results of operations.
FACTORS AFFECTING COURSE CONDITIONS
General turf grass conditions must be satisfactory to attract play on the
Company's courses. Severe weather or other factors, including disease, could
cause unexpected problems with turf grass conditions at any golf course or at
courses located in the same geographic region. Turf grass conditions at each
of the Company's golf courses also depend to a large extent on the quality and
quantity of available water. The availability of sufficient water is affected
by various factors, many of which are not under the Company's control. The
Company believes that it has access to sufficient water to operate its courses
in the manner in which they are currently operated. However, there can be no
assurance that certain conditions, including weather, government regulation or
environmental concerns, which could adversely affect the supply of water to a
particular golf course, may not arise in the future.
The Company operates golf courses in four states and has experienced natural
conditions which are beyond its control (such as periods of extraordinarily
dry, wet, hot or cold weather, or unforeseen natural events such as storms,
hurricanes, fires, floods or earthquakes). These conditions may occur at any
time and may have a
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significant impact on the condition and availability of one or more golf
courses for play and on the number of customers a golf course can attract.
Except for fire insurance, the Company does not carry insurance against the
effect of such conditions, which the Company believes to be consistent with
standard practice in the industry. However, the occurrence or re-occurrence of
any such conditions may require increased capital expenditures by the Company
to the extent the Company is not insured and could have a material adverse
effect on the Company's financial condition and results of operations.
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (defined as (i) the voting power of the direct or
indirect stockholders of Holdings immediately prior to the Issue Date dropping
to less than 50% or (ii) any person or group obtaining greater voting power
than Brentwood and James A. Husband, collectively, as more fully described in
"Description of Notes--Certain Covenants--Repurchase of Notes at the Option of
the Holder Upon a Change in Control"), each holder of Notes will have certain
rights to require the Company to repurchase all or a portion of such holder's
Notes. See "Description of Notes." If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
repurchase price for all Notes tendered by the holders thereof. In addition, a
Change of Control would constitute a default under the New Credit Facility.
The Company's repurchase of Notes as a result of the occurrence of a Change of
Control is restricted by the New Credit Facility and may be prohibited or
limited by, or create an event of default under, the terms of other agreements
relating to borrowings which the Company may enter into from time to time,
including other agreements relating to secured indebtedness. As of the date
hereof, the Company's repurchase of Notes as a result of a Change of Control
would not result in a default under any other senior indebtedness (other than
the New Credit Facility). If the Company's obligations under the New Credit
Facility were accelerated due to a default thereunder, the lenders thereunder
would have a priority claim on the proceeds from the sale of the collateral
securing the New Credit Facility. See "--Corporate Structure; Effects of Asset
Encumbrances."
FRAUDULENT TRANSFER RISKS
The obligations of the Company under the Notes may be subject to review
under state or Federal fraudulent transfer laws in the event of the bankruptcy
or other financial difficulty of the Company. Under those laws, if a court, in
a lawsuit by an unpaid creditor or representative of creditors of the Company,
such as a trustee in bankruptcy or the Company as debtor in possession were to
find that at the time the Company issued the Notes, it either (i) was
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted
unreasonably small capital, or (iv) intended to incur or believed that it
would incur debts beyond its ability to pay as such debts matured, such court
could avoid the Notes and the Company's obligations thereunder, and direct the
return of any amounts paid thereunder to the Company or to a fund for the
benefit of its creditors. Moreover, regardless of the factors identified in
the foregoing clauses (i) through (iv), the court could avoid the Notes and
direct such repayment if it found that such Notes were issued with actual
intent to hinder, delay, or defraud the Company's creditors.
The Company's obligations under the Notes will be guaranteed by the
Guarantors, and the Guarantees may also be subject to review under federal or
state fraudulent transfer law. If a court were to determine that at the time a
Guarantor became liable under its Guarantee, it satisfied any of clauses (i)
through (iv) in the foregoing paragraph, or if such Guarantee was incurred
with actual intent to hinder, delay or defraud such Guarantor's creditors, the
court could avoid the Guarantee and direct the repayment of amounts paid
thereunder.
To the extent any Guarantees were avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the Notes would cease to have
any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Guarantor whose Guarantee was not avoided or
held unenforceable. In such event, the claims of the holders of the Notes
against the issuer of an invalid Guarantee would be subject to the prior
payment of all liabilities and preferred stock claims of such Guarantor. There
can be no assurance that, after providing for all prior claims and preferred
stock interests, if any, there would be sufficient assets to satisfy the
claims of the holders of the Notes relating to any voided portions of any of
the Guarantees.
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The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
ABSENCE OF PUBLIC MARKET
There is currently no established trading market for the Notes and the
Company does not intend to apply for listing of the Notes on any securities
exchange or on any automated dealer quotation system. The Company has been
advised by the Initial Purchasers that they presently intend to make a market
in the Notes, but the Initial Purchasers are under no obligation to do so, and
any such market-making may be discontinued at any time without notice, at the
sole discretion of the Initial Purchasers. Accordingly, no assurance can be
given as to the prices or liquidity of, or trading markets for, the Notes. The
liquidity of any market for the Notes will depend upon the number of holders
of the Notes, the interest of securities dealers in making a market in the
Notes, prevailing interest rates, the market for similar securities and other
factors, including general economic conditions and the financial condition and
performance of, and prospects for, the Company. The absence of an active
market for the Notes could adversely affect the market price and liquidity of
the Notes. Although the Company does not intend to list the Notes on any
securities exchange or to seek approval for quotation of the Notes through any
automated quotation system, the Notes are expected to be eligible for trading
in the Private Offerings, Resales and Trading through Automatic Linkages
("PORTAL") market of the National Association of Securities Dealers, Inc.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Private Notes could be adversely affected due to
the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on the Closing Date to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently sold the Private Notes to "qualified institutional buyers"
("QIBs"), as defined in Rule 144A under the Securities Act ("Rule 144A"), in
reliance on Rule 144A. As a condition to the sale of the Private Notes, the
Company and the Initial Purchasers entered into the Registration Rights
Agreement on May 29, 1996. Pursuant to the Registration Rights Agreement, the
Company agreed that, unless the Exchange Offer is not permitted by applicable
law or Commission policy, it would file with the Commission a registration
statement under the Securities Act (a "Registration Statement") with respect
to the Exchange Notes within 60 days after the Closing Date and use its best
efforts to cause such Registration Statement to become effective under the
Securities Act within 120 days after the Closing Date. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement. The Registration Statement is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchanges Private Notes for Exchange
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement with any person to
participate, in a distribution of the Exchange Notes, will be allowed to
resell Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in the distribution of the
Exchange Notes or is a broker-dealer, such holder cannot rely on the position
of the staff of the Commission enumerated in certain no-action letters issued
to third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities.
Pursuant to the Registration Rights Agreement, the Company has agreed to make
this Prospectus, as it may be amended or supplemented from time to time,
available to broker-dealers for use in connection with any resale for a period
of 180 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral
multiples of $1,000.
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The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $70,000,000 in aggregate principal amount
of the Private Notes are outstanding and registered in the name of Cede & Co.,
as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer.
There will be no fixed record date for determining registered holders of the
Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
October 29, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer for up to an additional ten business days, in which case the
term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the
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significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 11 1/2% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
June 1 and December 1 of each year, commencing December 1, 1996. Holders of
Exchange Notes will receive interest from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Private
Notes from the date of initial delivery to the date of exchange for Exchange
Notes. Holders of Private Notes that are accepted for exchange will be deemed
to have waived the right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be made by a
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member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), compliance with conditions, acceptance and withdrawal of tendered
Private Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Private Notes not properly tendered or any Private
Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Private
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Private Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of
Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Company should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will receive Exchange Notes for
such holder's own account in exchange for Private Notes that were acquired as
a result of market-making activities or other trading activities, such holder
will be required to acknowledge in the Letter of Transmittal that such holder
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will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
setting forth the name and address of the holder, the certificate number(s)
of such Private Notes and the principal amount of Private Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or a facsimile thereof), together with the
certificate(s) representing the Private Notes in proper form for transfer
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
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To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify
the Private Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Private Notes) and (iii) be signed by the holder
in the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "The Exchange Offer--Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer not violate applicable law, rules, regulations or interpretation of the
Staff) is not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders,
(ii) extend the Exchange Offer and retain all Private Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of
holders to withdraw such Private Notes (see "--Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Private Notes that have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a prospectus supplement that
will be distributed to the registered holders of the Private Notes, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
LIQUIDATED DAMAGES
If (a) the Company fails to file the Registration Statement or a shelf
registration statement covering resale of the Private Notes (a "Shelf
Registration Statement") on or before the date specified for such filing, (b)
neither of such registration statements is declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Registration Statement becomes
effective, and the Company fails to consummate the Exchange Offer within 45
days of the earlier of the effectiveness of the Registration Statement or the
Effectiveness Target Date, or (d) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Private Notes during the period specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d)
above, a "Registration Default"), the Company is required to pay as liquidated
damages ("Liquidated Damages"), to each holder of Private Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Private Notes held by such holder. Upon a Registration Default,
Liquidated Damages will accrue at the rate specified above until such
Registration Default is cured, and the amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Private
Notes for each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.25 per week per
$1,000 principal amount of Private Notes. All accrued Liquidated Damages will
be paid by the Company on June 1 and December 1 of each year and on each other
payment date provided in the Indenture including, without limitation, whether
upon redemption, maturity (by acceleration or otherwise), purchase upon
26
<PAGE>
a change of control or purchase upon a sale of assets to the holders of
Private Notes by wire transfer of immediately available funds or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the payment of Liquidated
Damages will cease. The filing and effectiveness of the Registration Statement
of which this Prospectus is a part and the consummation of the Exchange Offer
within the time periods specified above will eliminate all rights of the
holders of Private Notes eligible to participate in the Exchange Offer to
receive the Liquidated Damages described in this section. Based on the total
principal amount of Private Notes currently outstanding, the amount of
Liquidated Damages that would be payable during the first 90-day period
following a Registration Default would be $19,388.83.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A and (iii) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 180 days
after the Expiration Date.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company,
27
<PAGE>
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
28
<PAGE>
THE OFFERINGS
On the Closing Date, the Company consummated the offering (the "Senior Note
Offering") of $70,000,000 aggregate principal amount of the Private Notes. The
Senior Note Offering was conducted concurrently with, and was conditioned
upon, the offering by Holdings (the "Unit Offering," and together with the
Senior Note Offering, the "Offerings") of 86,000 units, each consisting of
$1,000 principal amount at maturity of its 13 1/2% Series A Senior Zero-Coupon
Notes due 2004 (the "Zero-Coupon Notes") and one share (collectively, the
"Shares") of common stock, par value $.01 per share, of Holdings ("Holdings
Common Stock").
THE RECAPITALIZATION
In connection with the closing of the Unit Offering, Holdings issued
additional shares of its capital stock to its existing shareholders, pro rata,
pursuant to a recapitalization to eliminate the necessity of issuing
fractional shares of Holdings Common Stock to purchasers of the Units (the
"Recapitalization").
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive in exchange Private Notes in like
principal amount, the terms of which are identical to the Exchange Notes
except that (i) the exchange will have been registered under the Securities
Act, and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof and (ii) holders of the Exchange Notes will not be entitled
to certain rights of holders of the Private Notes under the Registration
Rights Agreement, which rights will terminate upon the consummation of the
Exchange Offer. The Private Notes surrendered in exchange for Exchange Notes
will be retained by the Company and the Exchange Offer will not result in any
increase in the indebtedness of the Company.
29
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of June 30, 1996, the unaudited
consolidated capitalization of the Company. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
See "The Offerings," "The Recapitalization" and "Selected Consolidated
Financial Information."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................ $ 1,841
========
Long-term debt:
New Credit Facility(1)................................. --
11 1/2% Series A Senior Notes due 2003................. $ 70,000
Capital lease obligations.............................. 1,267
Other indebtedness (2)................................. 6,269
--------
Total long-term debt................................. 77,536
Stockholder's equity:
Parent's equity........................................ 6
Additional paid-in capital............................. 75,064 (3)
Accumulated deficit.................................... (9,147)
--------
Total stockholder's equity........................... 65,923
--------
Total capitalization............................... $143,459
========
</TABLE>
- ---------------------
(1) Concurrently with the closing of the Offerings, the Company entered into
the New Credit Facility under which the Company has the ability to borrow
up to $50 million aggregate principal amount, consisting of $45 million
under a reducing revolving credit facility and up to $5 million under a
revolving working capital facility. No borrowings were outstanding under
the New Credit Facility as of June 30, 1996. See "Description of New
Credit Facility."
(2) Excludes the deferred purchase price on golf courses acquired of $1.2
million. The amounts are payable upon the achievement of operating
milestones at the acquired courses.
(3) Reflects Holdings' contribution to the Company of the net proceeds from
the Unit Offering.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The consolidated financial data set forth below with respect to the
Company's statements of operations for each of the years in the three-year
period ended September 30, 1995 and with respect to the balance sheets at
September 30, 1994 and 1995, are derived from the consolidated financial
statements that have been audited by Ernst & Young LLP, independent auditors,
which are included elsewhere in this Prospectus. The balance sheet data at
September 30, 1993 are derived from audited financial statements not included
in this Prospectus. The statement of operations data for the nine months ended
June 30, 1995 and 1996 and the balance sheet data at June 30, 1996 are derived
from unaudited financial statements which contain all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary
for a fair presentation of the financial position and results of operations
for such periods. Operating results for the nine months ended June 30, 1996
are not necessarily indicative of the results that are expected for the entire
year ended September 30, 1996. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and the notes thereto included herein. Separate financial
statements for the Guarantors are not included in this Prospectus because the
Company has determined that such financial statements would not be material to
investors.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues.......... $ 6,507 $ 24,893 $ 49,863 $ 32,946 $ 43,716
Course-level operating
expenses(2)................ 4,184 16,818 34,427 22,924 30,451
General and administrative
expenses................... 1,620 1,997 2,517 1,808 2,596
Depreciation and
amortization expense....... 825 3,469 6,145 4,207 5,353
-------- -------- -------- -------- --------
Income (loss) from
operations ................ (122) 2,609 6,774 4,007 5,316
Interest expense, net....... (530) (3,515) (8,019) (5,541) (7,840)
Gain on insurance
settlement................. -- -- 747 -- --
Minority interest........... (195) -- -- -- --
-------- -------- -------- -------- --------
Loss before income taxes and
extraordinary item......... (847) (906) (498) (1,534) (2,524)
Provision for income taxes.. 6 72 208 33 137
-------- -------- -------- -------- --------
Loss before extraordinary
item....................... (853) (978) (706) (1,567) (2,661)
Extraordinary item.......... -- (428) -- -- (3,521)
-------- -------- -------- -------- --------
Net loss.................... $ (853) $ (1,406) $ (706) (1,567) (6,182)
======== ======== ======== ======== ========
OTHER OPERATING DATA:
EBITDA(3)................... $ 703 $ 6,078 $ 12,919 $ 8,214 $ 10,669
Net cash provided by (used
in) operating activities... 154 1,883 2,294 2,437 (187)
Net cash used in investing
activities................. (25,454) (32,970) (57,020) (53,599) (12,931)
Net cash provided by
financing activities....... 26,659 31,027 54,247 50,624 14,139
Golf facility
investments(4)............. 41,212 34,623 55,643 51,017 11,480
Cumulative golf facility
investments(5)............. 41,212 75,835 131,478 126,852 142,958
Number of golf
properties(6).............. 7 12 19 19 21
Ratio of earnings to fixed
charges(7)................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT
------------------------ JUNE 30,
1993 1994 1995 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash......................................... $ 1,359 $ 1,299 $ 821 $ 1,841
Total assets................................. 46,258 86,097 146,990 158,030
Total long-term debt and capital leases...... 14,412 45,301 86,918 77,536
Total liabilities............................ 19,885 54,635 103,620 92,107
Total stockholder's equity................... 26,373 31,462 43,370 65,923
</TABLE>
(Footnotes appear on the following page)
31
<PAGE>
- ---------------------
(1) The Company acquired or leased seven courses in fiscal 1993, an
additional five in fiscal 1994, an additional seven in fiscal 1995 and an
additional one in the nine months ended June 30, 1996 (fiscal 1996). The
Company also entered into a management contract to operate one course in
the nine months ended June 30, 1996. The Company's results of operations
include the results of acquired courses from their dates of acquisition
and not for any periods prior to acquisition. As a result, the Company's
historical results of operations for any particular period do not
generally represent the full revenue and cash flow generating capability
of its golf course portfolio as of the end of such period. The Company's
results of operations for the year ended September 30, 1995 include the
results of three courses for six months, one course for seven months,
three courses for ten months and 12 courses for the full year.
(2) Course-level operating expenses include cost of golf course operations
(e.g., salaries, taxes, utilities), cost of food and beverages and cost
of pro shop sales.
(3) EBITDA represents net income before interest expense, income taxes,
extraordinary item, gain on insurance settlement, minority interest and
non-cash charges of depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. However, EBITDA should not
be considered as an alternative to net income as a measure of the
Company's operating results or to operating cash flow as a measure of
liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Private Membership Clubs; Accounting
Treatment of Initiation Fees."
(4) Golf facility investments consist of the aggregate purchase price
(including cash and principal amount of promissory notes) paid by the
Company to acquire its golf course portfolio, including non-recurring
upgrade capital expenditures.
(5) Cumulative since the Company's formation in October 1992.
(6) Of such 21 properties at June 30, 1996, 16 courses were owned by the
Company, three courses were operated under long-term leases, one driving
range/pro shop facility was leased and one course was managed by the
Company pursuant to a management contract. In addition, the Company
entered into a long term lease with respect to a course subsequent to
June 30, 1996. See "Business--Recently Completed Acquisitions."
(7) In calculating the ratio of earnings to fixed charges, earnings consist
of loss before income taxes and extraordinary item plus fixed charges.
Fixed charges consist of interest expense and amortization of debt
issuance costs. The ratio of earnings to fixed charges was less than 1.0
to 1.0 for each of the Company's last three fiscal years and for the nine
months ended June 30, 1995 and June 30, 1996. Earnings available for
fixed charges were thus inadequate to cover fixed charges. The amount of
the coverage deficiencies for the years ended September 30, 1993,
September 30, 1994 and September 30, 1995, were $846,102, $906,461 and
$497,812, respectively. The amount of the coverage deficiencies for the
nine months ended June 30, 1995 and June 30, 1996 were $1,534,186 and
$2,524,518, respectively. On a pro forma basis, the amount of coverage
deficiencies for the year ended September 30, 1995 was $1,321,223 and for
the nine-months ended June 30, 1996 was $449,229.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Information" as well as the consolidated
financial statements of the Company and notes thereto contained elsewhere in
this Prospectus.
INTRODUCTION
The Company owns and operates 16 courses, leases four courses, leases one
driving range and pro shop facility and manages one additional course. Since
its inception in October 1992, the Company has acquired or leased seven
courses in fiscal 1993, five in fiscal 1994, seven in fiscal 1995 and one in
the nine months ended June 30, 1996. The Company also entered into a
management agreement to operate one course in the nine months ended June 30,
1996. In addition, the Company entered into a long term lease with respect to
a course subsequent to June 30, 1996. See "Business--Recently Completed
Acquisitions." The Company's audited financials include the results of
acquired courses from their dates of acquisition but not any period prior to
such acquisition. As a result, the Company's historical financials for any
particular period do not generally represent the full revenue and cash flow
generating capability of its golf course portfolio as of the end of such
period. At June 30, 1996, 19 of the Company's facilities had been owned or
leased by the Company for the prior twelve months.
The Company's portfolio includes nine private country clubs, eight public
facilities and five semi-private facilities. The Company seeks to achieve
continued growth in revenue and operating cash flow by continuing to improve
the financial performance of its existing courses and acquiring courses
located in attractive markets which management believes will benefit from the
Company's golf course management expertise. The Company's business consists
primarily of operating golf courses and related facilities, with revenues
generated from several golf and non-golf related activities. "Golf revenues"
primarily include initiation fees and membership dues at private country clubs
and semi-private courses, greens fees, golf cart rentals and driving range
fees. "Non-golf revenues" primarily include food and beverage concessions,
retail merchandise sales and lodging fees. Golf revenues tend to produce
higher operating income margins than non-golf revenues.
SEASONALITY
Seasonal weather conditions reduce the playing season at certain of the
Company's golf courses. As a result the second half of the Company's fiscal
year tends to account for a greater portion of the Company's operating revenue
and EBITDA than does the first half. This seasonal pattern, as well as the
timing of new course purchases or leases, may cause the Company's results of
operations to vary significantly from quarter to quarter.
CAPITAL INVESTMENT PROGRAMS
The Company frequently implements capital investment programs at its courses
in order to upgrade the facilities and complement its marketing strategy.
These programs generally consist of improvements to the golf course (e.g.
replacement of greens, remodeling, addition of nine holes) and related
facilities. These programs require up-front capital expenditures intended to
generate additional revenue and cash flow once the programs are complete.
During the last 21 months, the Company has invested approximately $21.2
million to upgrade its facilities. For example, at Morgan Run Resort and Club
(located in Rancho Santa Fe, CA), the Company has invested approximately $9.4
million to remodel the clubhouse, the lodge and eighteen of the twenty-seven
holes at the facility. As a result, portions of this facility were closed from
December 1994 until April 1996. The Company completed this capital project in
April 1996, and as a result, expects to generate incremental revenues and cash
flows from this facility in the future.
PRIVATE MEMBERSHIP CLUBS; ACCOUNTING TREATMENT OF INITIATION FEES
The Company's private clubs generate revenues from initiation fees, monthly
membership dues and ancillary services such as golf carts, driving range, food
and beverage and lessons. As a club increases its membership base, the monthly
membership dues stream represents a significant percentage of its revenues and
profitability as there are no fixed cost increases and limited variable costs
associated with these incremental membership dues. During periods in which a
club is substantially increasing its members, initiation fees will represent a
greater percentage of revenues.
33
<PAGE>
The Company has designed its membership programs to maximize the long-term
profitability of its clubs. A key component of this strategy is structuring
the initiation fee to have a club's members make a meaningful investment in
the club. As a result, at five of the Company's private clubs, the Company has
designed a program under which a new member will make an initial minimum
deposit of at least 25% of the initiation fee upon joining a club, with the
remaining balance to be paid in equal monthly installments over a five-year
period pursuant to a note secured by the membership. The Company has full
recourse against the member under the note.
The Company recognizes as revenue the amount of the deposit plus the amount
of the note, less a provision for doubtful accounts at the time the membership
is sold. These promissory notes generally do not bear market interest rates
and are recorded at net present value using the effective interest method. The
Company periodically reviews the collectibility of these receivables and
provides an appropriate allowance for credit losses. As a result, as of June
30, 1996, the Company has estimated a reserve of $1.6 million for possible
future bad debts. For fiscal 1995 and the nine months ended June 30, 1996,
non-cash initiation fees constituted approximately 8.4% and 2.7%,
respectively, of revenues. See "--Sources of Revenue--Golf Related Revenue--
Initiation Fees."
SOURCES OF REVENUE
The following summarizes the primary components of the Company's revenue:
GOLF RELATED REVENUE
Membership Dues. The Company's private country clubs generate a significant
percentage of their revenue from the collection of monthly membership dues
from the members. These monthly membership dues (which vary by facility)
generally represent a stable and predictable source of income because they are
independent of golf course (or other facilities) utilization, do not vary
seasonally and are derived from a loyal customer base. The Company typically
offers several different memberships, including golf and non-golf programs.
For fiscal 1995, the Company had $13.5 million in revenue from membership
dues, representing approximately 27% of total fiscal 1995 revenue.
Initiation Fees. The Company also generates a significant percentage of its
revenue from initiation fees received from new members. For fiscal 1995, the
Company had $9.6 million in revenue from initiation fees, representing
approximately 19% of total fiscal 1995 revenue. See "--Private Membership
Clubs; Accounting Treatment of Initiation Fees."
Daily Greens Fees. The Company derives revenue at public courses, semi-
private and private clubs (guest greens fees) from the payment of daily greens
fees. At public courses, these fees range from $11 to $100. At those private
courses where a daily fee is required, the fee ranges from $30 to $75. For
fiscal 1995, the Company had $9.2 million in revenue from greens fees,
representing approximately 18% of total fiscal 1995 revenue.
Golf Cart Rentals. At all of the Company's golf courses, golf carts are
available for rent for fees ranging from $9 to $12. For fiscal 1995, the
Company had $5.6 million in revenue from golf cart rentals, representing
approximately 11% of total fiscal 1995 revenue.
Driving Range Fees. The Company operates a driving range at 17 of its golf
facilities. For fiscal 1995, the Company had $1.0 million in revenue from
driving range fees, representing approximately 2% of total fiscal 1995
revenue.
NON-GOLF RELATED REVENUES
Food and Beverage Sales. The Company's golf facilities offer food and
beverage concessions (ranging from snack bars to dining rooms, catering and
meeting and banquet facilities). For fiscal 1995, the Company had $7.0 million
in revenue from food and beverage sales, representing approximately 14% of
total fiscal 1995 revenue. Gross operating margin from food and beverage sales
was 63% for fiscal 1995. The Company has no plans to make significant changes
to its food and beverage operations.
34
<PAGE>
Pro Shop Sales. At each of the Company's golf courses, the Company operates
a retail pro shop. For fiscal 1995, the Company had $3.3 million in revenue
from pro shop sales, representing approximately 7% of total fiscal 1995
revenue. Gross operating margin from pro shop sales was 33% for fiscal 1995.
The Company has no plans to make significant changes to its pro shop
operations.
Lodging Fees. The Company operates an 89-room lodge at Morgan Run Resort and
Club and a four-room lodge at Stonebridge Country Club (located in McKinney,
TX). For fiscal 1995, the Company had $0.7 million in revenue from lodging
fees, representing approximately 1% of total fiscal 1995 revenue. Gross
operating margin from lodging fees was 61% for fiscal 1995. The Company does
not intend to pursue additional lodging facility acquisitions unless they are
in conjunction with golf course facility acquisitions.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Operating Revenue. Operating revenue increased to $43.7 million for the nine
months ended June 30, 1996 from $32.9 million for the comparable period, an
increase of $10.8 million or 33%. Of this increase, $5.9 million is
attributable to the effect of a full nine months of operations of the seven
courses acquired in the nine months ended June 30, 1995 and approximately $1.6
million is associated with the operation of Morgan Run Resort & Club which had
been closed for a significant portion of the comparable period. The addition
of nine holes at The Trophy Club (located in Trophy Club, TX) and a new
clubhouse at Pecan Grove Plantation Country Club (located in Richmond, TX)
during 1996 contributed $0.7 million of additional operating revenue at each
of the two clubs. The remaining $2.6 million is attributable to increased
revenue from the Company's other facilities.
Course-level Operating Expenses. Course-level operating expenses, which
include costs of golf course operations (e.g., salaries, taxes and utilities),
costs of food and beverage and costs of pro shop sales increased to $30.5
million for the nine months ended June 30, 1996 from $22.9 million for the
comparable period, an increase of $7.5 million or 33%. Course-level operating
expenses attributable to courses acquired in the nine months ended June 30,
1995 but owned for all of the nine month period ended June 30, 1996 accounted
for $4.3 million of this increase. Of the remaining $3.2 million,
approximately $0.9 million is attributable to costs associated with the
operation of Morgan Run Resort and Club (located in Rancho Santa Fe, CA), a
significant portion of which had been closed for most of the nine months ended
June 30, 1995, and approximately $0.4 million is attributable to increased
operating lease expense from the sale/leaseback of Carmel Mountain Ranch
Country Club (located in San Diego, CA) during the nine months ended June 30,
1996. In addition, operating the new nine holes at The Trophy Club and the new
clubhouse at Pecan Grove Plantation Country Club contributed $0.3 million and
$0.7 million, respectively, to course-level operating expenses. The remaining
$0.9 million is attributable to increased operating expenses at the Company's
other facilities.
General and Administrative Expenses. General and administrative expenses
primarily consist of corporate salaries and related expenses and legal and
accounting fees. General and administrative expenses increased to $2.6 million
for the nine months ended June 30, 1996 from $1.8 million for the comparable
period, an increase of $0.8 million or 44%. The increase in expense was
related to additional overhead to support the Company's expanded operations.
General and administrative expenses as a percentage of operating revenue was
6% for the nine months ended June 30, 1996 and 1995.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased to $5.4 million for the nine months ended June 30, 1996 from $4.2
million in the comparable period, an increase of $1.1 million or 27%. Of this
increase, approximately $0.9 million is attributable to the effect of a full
nine months of operations of the seven courses acquired in the nine months
ended June 30, 1995.
Income from Operations. Income from operations increased to $5.3 million in
the nine months ended June 30, 1996 from $4.0 million in the comparable
period, due primarily to the factors described above. Income from operations
as a percentage of operating revenue was 12% in the nine months ended June 30,
1996 and 1995.
Interest Expense, Net. Interest expense, net, increased to $7.8 million for
the nine months ended June 30, 1996 from $5.5 million for the comparable
period, an increase of $2.3 million due to the increase in the level of
35
<PAGE>
outstanding bank debt resulting from a full nine months of interest charges on
debt incurred to finance acquisitions during the nine months ended June 30,
1995.
Provision for Income Taxes. The Company recorded a $0.1 million provision
for income taxes, which reflects the fact that certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net Loss. Net loss increased to $6.2 million for the nine months ended June
30, 1996 from $1.6 million for the nine months ended June 30, 1995 primarily
due to an extraordinary loss related to the write-off of previously deferred
issuance costs related to the debt that was paid off in June of 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1994
Operating Revenues. Operating revenues increased to $49.9 million in fiscal
1995 from $24.9 million in fiscal 1994, an increase of $25.0 million or
100.3%. Of this increase, $18.2 million is attributable to the addition of
seven courses during fiscal 1995. The remaining $6.8 million increase is
attributable to the effect of a full year of operation of the five courses
acquired in fiscal 1994 and increased revenues from the Company's other
courses.
Course-level Operating Expenses. Course-level operating expenses increased
to $34.4 million in fiscal 1995 from $16.8 million in fiscal 1994, an increase
of $17.6 million or 104.7%. Of this increase, $11.9 million is attributable to
course-level operating expenses for the seven courses acquired by the Company
in fiscal 1995. Course-level operating expenses attributable to courses
acquired in fiscal 1994 but owned for all of fiscal 1995 accounted for $3.9
million of this increase. Of the remaining $1.8 million increase,
approximately $0.4 million is attributable to increased operating lease
expense from the sale/leaseback of Carmel Mountain Ranch Country Club (located
in San Diego, CA) during 1995 and approximately $0.8 million is attributable
to costs associated with the operation of Morgan Run Resort and Club (located
in Rancho Santa Fe, CA), portions of which had been closed for most of fiscal
1994.
General and Administrative Expenses. General and administrative expenses
increased to $2.5 million in fiscal 1995 from $2.0 million in fiscal 1994, an
increase of $0.5 million or 26.1%. This increase is primarily attributable to
added personnel costs and other costs associated with the acquisition of seven
courses during fiscal 1995. General and administrative expenses as a
percentage of operating revenues were 5.0% in fiscal 1995, a decrease from
8.0% in fiscal 1994.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $6.1 million in fiscal 1995 from $3.5 million in fiscal
1994, an increase of $2.7 million or 77.2%. Of this increase, $1.4 million is
attributable to the addition of seven courses during fiscal 1995 and $0.6
million is attributable to the inclusion of the five courses acquired during
fiscal 1994 for a full fiscal year.
Income from Operations. Income from operations increased to $6.8 million in
fiscal 1995 from $2.6 million in fiscal 1994, primarily due to the factors
described above. Income from operations as a percentage of operating revenues
was 13.6% in fiscal 1995, an increase from 10.5% in fiscal 1994.
Interest Expense, Net. Interest expense, net, increased to $8.0 million in
fiscal 1995 from $3.5 million in fiscal 1994, an increase of $4.5 million or
128.1%, due to the increase in the level of outstanding bank debt related to
expansion through the addition of seven new courses during fiscal 1995.
Provision for Income Taxes. The Company recorded a $0.2 million provision
for income taxes, which reflects the fact that certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net loss. Net loss decreased to $0.7 million in fiscal 1995 from $1.4
million in fiscal 1994, primarily due to the factors described above and a
$0.7 million gain on insurance settlement, representing recoveries associated
with a fire at Pecan Grove Plantation C.C. in fiscal 1995.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1993
Operating Revenues. Operating revenues increased to $24.9 million in fiscal
1994 from $6.5 million in fiscal 1993, an increase of $18.4 million or 282.5%.
Of this increase, $8.7 million is attributable to the addition
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of five courses during fiscal 1994. The remaining $9.7 million increase is
attributable to the effect of a full year of operation of the seven courses
acquired in fiscal 1993.
Course-level Operating Expenses. Course-level operating expenses increased
to $16.8 million in fiscal 1994 from $4.2 million in fiscal 1993, an increase
of $12.6 million or 302.0%. Of this increase, $5.6 million is attributable to
course-level operating expenses for the five courses acquired by the Company
in fiscal 1994. Course-level operating expenses attributable to courses
acquired in 1993 but owned for all of fiscal 1994 accounted for $7.0 million
of this increase.
General and Administrative Expenses. General and administrative expenses
increased to $2.0 million in fiscal 1994 from $1.6 million in fiscal 1993, an
increase of $0.4 million or 23.3%. This increase is primarily attributable to
added personnel costs and other costs associated with the acquisition of five
courses during fiscal 1994. General and administrative expenses as a
percentage of operating revenues was 8.0% in fiscal 1994, a decrease from
24.9% in fiscal 1993.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $3.5 million in fiscal 1994 from $0.8 million in fiscal
1993, an increase of $2.6 million or 320.3%. Of this increase, $1.1 million is
attributable to the addition of five courses during fiscal 1994 and $1.2
million is attributable to the inclusion of the seven courses acquired during
fiscal 1993 for a full fiscal year.
Income from Operations. Income from operations increased to $2.6 million in
fiscal 1994 from a loss of $0.1 million in fiscal 1993, primarily due to the
factors described above. Income from operations as a percentage of operating
revenues was 10.5% in fiscal 1994.
Interest Expense, Net. Interest expense, net, increased to $3.5 million in
fiscal 1994 from $0.5 million in fiscal 1993, an increase of $3.0 million or
563.7%, due to the increase in the level of outstanding bank debt related to
expansion through the addition of five new courses during fiscal 1994.
Provision for Income Taxes. The Company recorded a $71,931 provision for
income taxes, which reflects the fact that certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net loss. Net loss increased to $1.4 million in fiscal 1994 from $0.9
million in fiscal 1993, primarily due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are to fund debt service and maintenance
capital expenditures at its existing facilities (such as landscaping and
purchasing golf cart fleets). The Company also implements one-time upgrade and
renovation capital expenditures at its existing facilities in order to enhance
its appeal to customers and members and to generate additional revenues and
cash flow. Examples of these expenditures are the addition of courses
(including nine hole additions) to existing facilities to increase capacity
and major clubhouse renovations to support increased dues and fees. These
expenditures are generally of a non-recurring nature. In addition, the Company
implements strategic capital expenditure programs which enable it to reduce
course level operating costs and improve the efficiency of operations, such as
improving the irrigation system, acquiring more efficient maintenance
equipment and other programs which enhance the marketability and/or reduce the
operating expenses of existing facilities. As part of its business strategy,
the Company will require cash to continue to acquire, lease or manage
additional golf courses and the related facilities and to complete any
targeted renovations. The Company expended $12.9 million on acquisitions and
capital improvements during the nine months ended June 30, 1996. As of June
30, 1996, the Company had approximately $3.0 million of long-term commitments
for one-time capital expenditures with respect to one recently acquired golf
course. The Company's capital expenditures budget for fiscal 1996 is $8.0
million, excluding acquisitions and related capital expenditures.
Based upon the current level of operations and anticipated growth, the
Company believes that cash flow from operations, together with available
borrowings under the New Credit Facility and other sources of liquidity, will
be adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal and interest
on its indebtedness, including the Notes. There can be no assurance, however,
that the Company's business will generate sufficient cash flow from operations
or that future
37
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working capital borrowings will be available in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make
necessary capital expenditures.
The Company intends to fund these expenditures primarily with operating cash
flow and borrowings under the New Credit Facility. The New Credit Facility
provides for borrowings of up to $50.0 million, of which $45.0 million is
available to fund future acquisitions of golf courses and capital expenditures
at such courses and certain capital improvements at existing courses, and
$5.0 million of which is available for general working capital purposes. The
total borrowing availability under the $45.0 million portion of the New Credit
Facility will decrease over the term of the facility beginning September 30,
1998. The New Credit Facility provides that the Company may not make any
acquisitions or upgrade capital expenditures when Funded Debt plus certain
projected upgrade capital expenditures is greater than 6.5x of Adjusted EBITDA
(each as defined in the New Credit Facility), with certain adjustments for
notes receivable, reducing over time. This 6.5x Funded Debt to Adjusted EBITDA
test is reduced in subsequent years. The New Credit Facility also imposes
other limitations on the ability of the Company with respect to borrowings. In
addition, as of June 30, 1996, the Company had $1.8 million of cash on hand to
meet its working capital and other needs. See "Description of New Credit
Facility" and "Consolidated Capitalization."
Historically, the Company has financed its operations through borrowings
under the Old Credit Facility and equity contributions by its stockholders. As
of June 30, 1996, the Partnership and Holdings' other stockholders have
invested a total of $46.3 million of equity to fund the expansion of the
Company and its golf course portfolio. In addition, proceeds of the Unit
Offering were contributed by Holdings to the Company as equity, increasing the
total equity raised by the Company and Holdings since inception to
approximately $75.1 million.
For the nine month period ended June 30, 1996, net cash used by operating
activities was $0.2 million versus $2.4 million provided from operations in
the prior comparable period. The primary component of this change is the
payment of accrued property taxes, income taxes and other accounts payable.
The Company generated $2.3 million, $1.9 million and $0.2 million of cash from
operations in fiscal 1995, 1994 and 1993, respectively. During fiscal 1995,
changes in notes receivable and accounts receivable resulted in a $5.2 million
use of funds. Approximately $4.2 million is attributable to increases in notes
receivable, and the remainder is due to increases in accounts receivable. See
"--Private Membership Clubs; Accounting Treatment of Initiation Fees." In
fiscal 1994, the largest non-cash charges were depreciation and amortization
and the loss resulting from the Company's early retirement of debt
obligations. In fiscal 1993, non-cash charges of depreciation and amortization
and increases in accounts payable, accrued liabilities and deferred reserves
contributed to net cash provided by operating activities.
During the nine month period ended June 30, 1996, net cash used in investing
activities was $12.9 million versus $53.6 million in the prior comparable
period. Expenditures for the nine months ended June 30, 1996 consisted of $6.7
million in capital expenditures and $6.2 million in acquisition expenditures
related to the acquisition of Eagle Crest Golf Club (located in Escondido, CA)
which was acquired on June 28, 1996. The acquisition was funded with proceeds
from the Offerings. In the nine months ended June 30, 1995 and fiscal 1995,
the Company expended $41.2 million on the acquisition of a total of seven
facilities. In addition, the Company expended $17.7 million and $7.7 million
in fiscal 1995 and fiscal 1994, respectively, for one-time upgrades at courses
designed to generate increased revenues and cash flows. The Company expended
over $23.9 million in fiscal 1994 on the acquisition of five facilities. In
fiscal 1993, the Company expended $19.7 million to acquire eight facilities
and expended $5.8 million on improvements to those facilities.
During the nine month period ended June 30, 1996, net cash provided by
financing activities was $14.1 million versus $50.6 million in the prior
comparable period. The Company used $92.5 million of the $107.0 million in
proceeds from long term debt and equity investments to pay-off its bank
revolver and pay financing fees associated with the New Credit Facility and
the Offerings. At June 30, 1996, the Company had no borrowings under its $50
million bank facility. The Company relied upon bank borrowings of
$33.6 million, $37.6 million and $46.3 million to finance its expansion in the
nine months ended June 30, 1995, fiscal 1995 and fiscal 1994, respectively.
Holdings contributed to the Company $12.6 million of the proceeds of a private
placement of equity securities in March 1995. The Company also relies upon
capital leases when consistent with its financing objectives. In fiscal 1993,
the Company received $26.7 million in equity financing from the Partnership.
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BUSINESS
GENERAL
The Company is one of the leading golf course owners and operators in the
United States, with a current portfolio of 22 golf properties including both
private country clubs and public (or daily fee) courses. The Company's courses
are concentrated in clusters near metropolitan areas in the Sunbelt states
(including Arizona, California and Texas) which have large golfing populations
and attractive climates. This clustering strategy enables the Company to
efficiently manage its portfolio of courses and improve the profitability of
its courses by sharing many administrative functions and capitalizing on joint
marketing opportunities and economies of scale.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from initiation fees and dues at
private country clubs and semi-private courses, greens fees, food and beverage
concessions, golf cart rentals, retail merchandise sales, driving range fees
and lodging fees. The Company owns and operates 16 courses, leases four
courses (subject to long-term leases in excess of 20 years, including
extension options), leases one driving/range and pro shop facility and manages
one additional course. The Company's portfolio includes nine private country
clubs, eight public facilities and five semi-private facilities.
There are approximately 15,000 golf courses in the United States, which
generate approximately $15 billion in annual revenue. The ownership and
operation of golf courses in the United States is highly fragmented, with less
than 5% of golf courses owned and operated by multi-course management
companies. The Company believes that the majority of golf course operators,
including real estate developers and municipalities, are generally involved in
golf course management because the golf course is an important component of
their development or community, but that such operators do not have
professional golf course management experience. As a result, owners are often
interested in selling the golf facilities to third-party operators such as the
Company. These owners frequently place significant emphasis on experience and
reputation for quality management in selecting an owner/operator, and the
Company believes that its reputation in these areas has provided it with a
steady supply of attractive acquisition opportunities.
INDUSTRY OVERVIEW
There are three general types of golf courses: daily fee courses, private
country clubs and resort courses. Approximately two-thirds of the courses in
the United States are public, or daily fee, courses, and approximately one-
third are private country club or resort courses. Public courses derive
revenue primarily from greens fees, golf cart rentals, retail (pro shop) sales
and food and beverage sales. Because the majority of golf course operating
costs are fixed, revenue and operating profit are generally maximized at
public courses by generating the maximum number of golf rounds played. Private
courses derive revenue primarily from initiation fees, monthly membership
dues, guest greens fees and food and beverage sales. Revenue and operating
profit are maximized at private courses by maximizing the number of membership
sales and the associated monthly dues cash flow stream. In addition, certain
semi-private courses offer limited access to the golf facilities to the public
in order to maximize revenue.
The Company believes certain demographic characteristics will increase the
demand for golf in the future, thereby benefitting golf course operators.
Accordingly, the Company believes that total rounds played will increase as
the golfing population ages. The highest golf participation rates are found
among individuals aged 18 to 49, which had average participation rates of
approximately 13.6% in 1995, as compared to 11.6% for the population as a
whole. However, individuals over 50 played a substantially greater number of
rounds of golf per year relative to individuals in other age brackets.
Accordingly, assuming that golf participation rates of 18 to 49 year old
golfers remain at current levels, the Company believes that these 18 to 49
year old golfers will increase
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the number of rounds played per year as they age. See "Risk Factors--Factors
Affecting Golf Participation." The following table summarizes the breakdown of
all golfers during 1995 by certain key demographic categories:
<TABLE>
<CAPTION>
ANNUAL
NUMBER OF GOLF AVERAGE
GOLFERS % OF TOTAL PARTICIPATION IN ROUNDS % OF TOTAL
AGE GROUP (YEARS) (IN THOUSANDS) GOLFERS CATEGORY PER GOLFER ROUNDS
----------------- -------------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
12-17 2,001 8.0% 8.6% 13.9 5.7%
18-29 5,263 21.0 12.1 11.8 12.7
30-39 6,748 27.0 15.2 13.3 18.3
40-49 4,762 19.0 13.0 17.1 16.6
50-59 2,694 10.8 11.1 25.3 13.9
60-64 933 3.7 9.2 38.4 7.3
65+ 2,621 10.5 7.8 47.8 25.5
</TABLE>
According to the NGF, the 25.0 million golfers in the United States played
approximately 490 million rounds of golf during 1995. A substantial majority
of these rounds were played by core golfers (those that play more than eight
rounds per year). Core golfers represented approximately 46% of total golfers
in 1995 but played approximately 87% of the total rounds. The Company targets
these core golfers. The following table summarizes the breakdown of the core
and other golfers during 1995:
<TABLE>
<CAPTION>
NUMBER OF
GOLFERS ROUNDS PLAYED
(IN THOUSANDS) (IN MILLIONS) ROUNDS/GOLFER
--------------- -------------- -------------
<S> <C> <C> <C>
Core Golfers................. 11,581 425.5 36.7
Other Golfers................ 13,431 64.7 4.8
</TABLE>
Core golfer participation is also more constant across age categories. The
following table summarizes core golfer participation in 1995 by age category:
<TABLE>
<CAPTION>
NUMBER OF
CORE GOLFERS PERCENTAGE OF
AGE GROUP (YEARS) (IN THOUSANDS) CORE GOLFERS
----------------- -------------- -------------
<S> <C> <C>
18-29 2,126 18.4%
30-39 2,908 25.1
40-49 2,256 19.5
50-59 1,631 14.1
60-64 675 5.8
65+ 1,985 17.1
</TABLE>
The Company believes that, despite recent golf course construction in some
of its markets, golf course construction in its markets generally has been
constrained as a result of several factors, including the lack of capital
available for real estate development, the significant land required to build
a golf course and related facilities (approximately 150 acres) and increasing
environmental regulation, particularly with regard to the availability of
water in Arizona and California, two of the Company's primary markets.
BUSINESS STRATEGY
The Company's strategy is to grow its revenue and cash flow by (i) improving
operations and financial performance of its existing portfolio golf courses by
increasing revenue, controlling operating costs and selectively upgrading the
facilities and (ii) identifying and acquiring courses which will benefit from
the Company's management expertise. Key elements of the Company's operating
strategy include:
INCREASE REVENUE
Attracting New Members. The Company aggressively markets its courses within
the local community in order to increase memberships at its private clubs. The
Company positions the golf course and related facilities
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as an integral social center of the surrounding community by hosting social,
educational and recreational events, in order to attract non-golfing members.
In order to attract these "social" members, the Company often provides
facilities for community events and charitable organizations, as well as
swimming, tennis and fitness facilities, particularly at those courses that
are part of a real estate development. The Company also tailors the membership
program to the facility, including offering multiple types of memberships
(e.g., senior, junior, weekday golf only, tennis, swimming, social, etc.). For
example, at the Hills of Lakeway, the Company created a new category of
membership called the "Premier Sports Membership," which allows the member to
use the facility for social purposes and limited golf play. This membership
entitles the member to 12 rounds of golf a year at non-prime tee times for a
reduced guest fee. The Premier Sports Membership is designed to appeal to the
occasional golfer who wants to join a private country club without paying the
full initiation fee and membership dues typically associated with such clubs.
Maximizing Tee Time Utilization. The Company seeks to increase revenue by
expanding the capacity of its public facilities. The Company frequently
implements several simple measures, such as opening seven days a week, opening
earlier in the morning or starting golfers on both the first and tenth holes
simultaneously. The Company also attempts to schedule tournament play into
less popular tee times; provide incentives for members of semi-private courses
to play on weekdays, thereby opening up prime weekend time for fully-priced
public play; and charge premium prices for prime tee times while discounting
prices for less utilized times (e.g., twilight play). For example, at Carmel
Mountain Ranch, the tournament salesperson has financial incentives to
schedule tournaments during non-prime tee times (e.g., weekend afternoon),
thereby increasing course utilization while minimizing inconvenience to
regular weekend golfers.
Market Positioning. The Company undertakes a comprehensive review of local
competition, identifying market rates for initiation fees and membership dues,
greens fees, guest and cart fees, private cart policies, and other key revenue
generators. In many cases, the Company is able to increase revenue merely by
raising prices to reflect market conditions and the course improvements
implemented by the Company's management. For example, at Morgan Run, the
Company has raised monthly dues from $195 to $300 over two years, resulting in
an increase in annual membership dues revenue of approximately $400,000.
Appeal to Core Golfing Population. The Company targets core golfers in its
markets (defined by the NGF to be golfers who play more than eight rounds per
year). These golfers represent approximately 46% of the golfers in the United
States but play approximately 87% of the rounds. The Company believes that
core golfers represent a stable demand for golf and are generally more willing
to make a significant investment in a golf club membership and pay higher
greens fees than the golfing population as a whole. These golfers also tend to
spend more time at a golf facility and therefore generate higher ancillary
revenues.
Facilities Upgrades. Following its acquisition of a golf course, the Company
generally upgrades or improves the facility in order to significantly improve
its appeal to customers and members. Where appropriate, the Company adds
additional courses (including nine hole additions) to existing facilities to
increase course capacity and utilization and invests in major clubhouse
renovations to support increased dues and fees. These expenditures are
generally non-recurring. For example, the Company re-engineered the water flow
at Woodcrest Country Club so that heavy rains would not soak certain areas of
the course. In the past, a heavy rain could close Woodcrest for thirty days or
more, but since the re-engineering, rain has not closed the course for more
than four consecutive days. Additionally, in November 1994 the Company
completed the addition of nine holes to The Trophy Club, bringing the facility
to 36 holes. The Company believes that this addition increases golf membership
capacity from 900 to 1,200 members.
Focus on Non-Golf Operations. The Company also focuses significant effort on
non-golf operations. The Company offers non-golf memberships where additional
facilities (such as swimming, tennis or fitness facilities) are available,
promotes merchandise sales, provides on-course concessions to boost food and
beverage sales, and offers catering and meeting and banquet facilities for
members.
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REDUCE OPERATING COSTS
Reducing Administrative Overhead. The Company continually seeks
opportunities to improve its margins by consolidating administrative functions
and eliminating duplicative personnel at its courses in order to reduce
operating costs. For example, after acquiring Pecan Grove, the Company reduced
the general and administrative staff, thereby reducing operating expenses by
approximately $75,000 per year.
Economies of Scale. As a multi-course operator, the Company is able to
achieve overhead and operating savings not available to owners of individual
properties. For example, the Company employs regional marketing staffs to
serve the courses in a cluster group, and is often able to eliminate an
accounting position at the course level by substituting a corporate controller
who has responsibility for multiple courses. In addition, insurance policies
for many properties, particularly those that are part of a geographical
cluster, can be consolidated under a master insurance policy. The Company's
volume purchasing ability also enables it to achieve savings not available to
smaller buyers in the purchase of almost all retail merchandise and
maintenance equipment.
Facilities Upgrades. In addition to implementing facilities improvements in
order to generate increased revenues, the Company also makes capital versus
operating expense decisions based on known economic trade-offs. The Company
attempts to identify strategic opportunities to invest relatively small
amounts of capital in maintenance equipment in order to improve the facility
and simultaneously reduce labor or other operating expenses. For example, at
Carmel Mountain Ranch, the Company invested approximately $100,000 to upgrade
the irrigation control system, resulting in a better maintained course and the
realization of approximately $30,000 in annual operating savings.
Managing Water Costs. At many of its courses, water is a significant
component of operating costs. The Company ensures that its irrigation systems
are as efficient as possible, and explores alternatives to reduce the cost of
water. For example, where possible, the Company uses treated effluent water or
constructs wells, rather than utilize more expensive municipal water for
course irrigation. For example, concurrently with the closing of the
acquisitions of Foothills and Ahwatukee, the Company acquired additional water
rights that allow the Company to use wells to provide substantially all the
required water for such courses.
ACQUISITIONS
The Company is continually involved in the investigation and evaluation of
potential golf course acquisitions and at any time may be discussing possible
transactions, conducting due diligence investigations or otherwise pursuing
acquisition opportunities. The Company's growth strategy is partly driven by
its ability to expand its portfolio of courses.
The Company conducts extensive due diligence when considering acquisition
candidates in order to evaluate the potential financial performance of a given
golf course. The principal criteria considered in the evaluation include
course location, the population size and demographics of the surrounding area,
the number of tourists visiting a market per year and the number of rounds of
golf played by these tourists, course condition, reputation among customers
and/or members, current operating efficiency and local competition.
During the evaluation of a potential acquisition, the Company considers
carefully the ease of access to the course, the conditions and appeal of the
immediately surrounding land, the proximity of the competition and the
climatic conditions which affect both potential revenue as well as the cost of
maintaining the course. The population base of the surrounding metropolitan
area must be large enough to support both the potential acquisition as well as
its competition. If the acquisition candidate is a resort-oriented course, the
Company also evaluates the size of and trends in the tourist population. The
demographic make-up of the population must be such that a sufficient number
and density of golfers are present. In its evaluation of the operating
potential of a course, the Company looks for correctable operational
deficiencies, potential facility improvements which can be made with a
moderate amount of capital investment and which have a high likelihood of
enhancing revenue and reducing costs, as well as deficiencies in the course's
position and reputation in the market which can benefit from a cohesive
marketing program. The competition is evaluated by examining the condition and
appeal of the
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<PAGE>
local courses, the position and reputation in the local market and the likely
potential clientele, and finally, the price points at which the competition
operates. In addition, prior to acquiring a given course, the Company meets
with private club members or forms public course focus groups to discuss the
potential acquisition and major anticipated changes in order to ensure a
smooth transition in ownership.
In addition to the criteria outlined above, the Company incorporates
specific analyses which are dependent upon whether the course is private or
public. At a private course, the set of considerations revolves around the
type of members the course targets, and the potential to increase dues or
offer valuable additional facilities such as banquet rooms, meeting rooms,
tennis, fitness facilities and child-care in order to expand membership. At a
daily fee course, a course may be significantly improved by adjusting greens
fees to market level, by adding amenities such as golf cart rental facilities,
improving the pro shop, implementing marketing programs or by promoting
tournament play.
The following summarizes the primary components of the Company's acquisition
strategy:
Clustering of Courses. The Company seeks to acquire courses in its existing
geographic clusters, or to form new clusters near densely populated
metropolitan markets. The clustering strategy is designed to facilitate
management and marketing and improve the profitability of each course because
of the ability to share administrative and operating expenses. In addition,
clustering allows the Company to operate facilities with fewer on-site
management personnel by consolidating several course-level management jobs or
eliminating them altogether in favor of a single regional or headquarters
position. For example, a cluster provides cross-marketing opportunities such
as exchanging play privileges, advertising multiple properties in a single
campaign and promoting tournament play at a course within the cluster.
Focus on Private Country Clubs and High-End Daily Fee Courses. The Company
focuses on acquiring private country clubs and high-end daily fee courses
which attract core golfers in middle and upper-income brackets who are less
price sensitive than the typical public course player. Revenue and cash flows
of private country clubs are generally more stable and predictable than those
of public courses because the receipt of membership dues is independent of the
level of course utilization. In addition, private courses have an easily
identifiable target population which enables a targeted and efficient
marketing effort, particularly if the course is part of a larger residential
development. The typical Cobblestone daily fee course commands higher greens
fees than the average municipal course in its market.
Reputation with Real Estate Developers. Cobblestone has focused on acquiring
courses from real estate developers who have built golf courses primarily as
an enhancement to their residential real estate developments. The Company
believes that its experience and reputation for quality management provide it
with a steady supply of attractive acquisition opportunities from developers
seeking third party owner/operators to professionally manage the facilities.
Focus on Favorable Golf Markets. The Company targets golf courses in markets
with characteristics which it believes are favorable to golf course ownership
and management. For example, the Company concentrates on acquiring courses
convenient to metropolitan areas with dense populations but relatively few
golf courses in relation to the size of the golfing population. In addition,
the Company focuses on markets with a high number of playable days per year,
enabling the Company to maximize revenue and course utilization and thereby
capitalize on the operating leverage inherent in golf course management.
To date, the Company primarily has targeted acquisitions in the Sunbelt
markets. Maximizing revenue is an important component of profitability due to
the high fixed cost nature of golf course operation, and these markets
typically have minimal weather risks and a high number of playable days per
year (i.e. high capacity). For instance, the number of playable days in
Southern California averages approximately 350, as compared to approximately
200 in the upper Midwest. Thus, average rounds played per course in the
Arizona and California markets are substantially greater than the national
average of approximately 33,000 rounds. Additionally, greens fee pricing in
these markets tends to be higher than the national average because of
shortages of supply relative
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<PAGE>
to demand and the impact of tourists on pricing. Seasonal tourists have fairly
inelastic demand because greens fees represent only a relatively small portion
of overall vacation expenses. Furthermore, age demographics in the Sunbelt
markets and the abundance of retirees with ample leisure time contribute to a
high demand for golf.
RECENTLY COMPLETED ACQUISITIONS
The Company recently completed two acquisitions as a part of its ongoing
acquisition strategy. On June 28, 1996, the Company acquired Eagle Crest Golf
Club in the San Diego, California area. Eagle Crest is a daily fee golf
facility with an 18-hole David Rainville-designed course, as well as a
clubhouse, food and beverage facilities and pro shop. Eagle Crest is located
in a master plan development which is expected to include over 700 single
family homes at completion. In addition, on July 1, 1996, the Company entered
into a 15 year lease of the Sweetwater Country Club near Houston, Texas.
Sweetwater is a private country club with a 36-hole Roger Packard-designed
course, as well as a clubhouse, food and beverage facilities, pro shop, indoor
and outdoor swimming pools, fitness center (including indoor basketball and
squash courts) and both indoor and outdoor tennis courts.
MARKETING/MEMBERSHIP PROGRAMS
The Company's marketing programs are designed to capitalize on the economies
of scale provided by its clustering strategy. Marketing efforts for daily fee
properties primarily consist of co-op advertising directed at maximizing tee-
time utilization. Special promotions such as junior programs and special event
sales are geared toward attracting new customers and maximizing utilization at
off-peak hours. The Company also utilizes on-line reservation systems to
create greater accessibility for its customers, including allowing a customer
to reserve a tee-time at any of the Company's public courses within a cluster
through a central reservation number. Additionally, the Company has created an
interactive web-site on the Internet that enables customers to e-mail tee-time
requests within a given cluster market.
Private country club marketing programs are implemented by professional
sales personnel focusing on goal-oriented sales plans. Proactive membership
sales efforts are targeted at local developers, realtors and corporations
within specific cluster markets together with more traditional member referral
sales programs. The Company also uses its initiation fee structure to target
residents of its golf communities. This initiation fee structure allows
members to make a meaningful investment in the club while amortizing the
payment of the balance of the membership fee over a five-year period. The
Company also strives to increase other private club revenues by positioning
the club as a center of social and recreational activity for the entire
family. For example, the Company provides extensive activities calendars to
ensure a wide range of activities and increased participation from family
members in all areas of the club.
COMPETITION
The Company competes for members and players with existing golf courses.
Where the Company's courses are membership courses which are part of a housing
development project, competition is often limited. At those courses where
there is significant competition from other golf courses, the Company believes
that it competes less on the basis of price than on the overall quality of its
facilities, which is a function of customer service, the quality and the state
of maintenance of the facilities as well as available amenities.
The Company believes it and its management enjoy a favorable reputation in
the industry. The Company principally competes for the acquisition of golf
courses on a national level with a small number of national golf course
management companies, which include National Golf Properties, Inc. (a
publicly-traded real estate investment trust) and Club Corporation
International and for the lease and/or management of golf courses on a
national level with American Golf Corporation and Club Corporation
International. The Company also competes on a local level with several
smaller, regional companies.
44
<PAGE>
SUMMARY OF GOLF COURSE PORTFOLIO
Market and Design Data. The following tables set forth certain information
regarding the Company's golf course properties, including a description of
each course, a summary of the facilities and services available and a
comparison of operations data for each course.
<TABLE>
<CAPTION>
DATE
ACQUIRED
TYPE OF GOLF COURSE BY
COURSE NAME LOCATION OPERATION TYPE OF COURSE ARCHITECT COBBLESTONE(1)
- ----------------------- ------------------- --------- -------------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
Southern California
Courses
Balboa Park G.C. San Diego, CA Leased (2) William Park Bell 3/93
Carmel Mountain Ranch
C.C. San Diego, CA Leased 18 Hole public Ron Fream 7/93
Morgan Run Resort and
Club Rancho Santa Fe, CA Owned 27 Hole semi-private David Rainville/Jay Morish 6/93
El Camino C.C. Oceanside, CA Owned 18 Hole private William Park Bell 6/93
Red Hawk G.C. Temecula, CA Managed 18 Hole public Ron Fream 10/95
Saticoy Regional G.C. Ventura, CA Leased 9 Hole municipal George Thomas 3/93
The Vineyard at
Escondido Escondido, CA Leased 18 Hole municipal David Rainville 12/93(3)
Eagle Crest Golf Club Escondido, CA Owned 18 Hole public David Rainville 6/96
Phoenix Courses
Ahwatukee C.C. Phoenix, AZ Owned 18 Hole semi-private Gary Panks 7/94
The Lakes at Ahwatukee Phoenix, AZ Owned 18 Hole public Gary Panks 7/94
The Foothills G.C. Phoenix, AZ Owned 18 Hole public Tom Weiskopf/Jay Morish 1/93
Red Mountain Ranch C.C. Mesa, AZ Owned 18 Hole semi-private Pete Dye 12/94
Texas-Austin Courses
Hills of Lakeway(4) Austin, TX Owned 18 Hole private Jack Nicklaus 3/95
Live Oak Golf Course(4) Austin, TX Owned 18 Hole semi-private Leon Howard 3/95
Yaupon Golf Course(4) Austin, TX Owned 18 Hole semi-private Leon Howard 3/95
Texas-Dallas Courses
Stonebridge C.C. Mc Kinney, TX Owned 18 Hole private Pete Dye 12/94
The Ranch C.C. Mc Kinney, TX Owned 18 Hole private Arthur Hills 12/94
The Trophy Club Trophy Club, TX Owned 36 Hole private Ben Hogan/Arthur Hills 12/93
Woodcrest C.C. Dallas, TX Owned 18 Hole private Don January 3/93
Other Courses
Brandermill C.C. Richmond, VA Owned 18 Hole private Gary Player 2/95
Pecan Grove Plantation
C.C. Richmond, TX Owned 27 Hole private Carlton Gipson 2/94
Sweetwater C.C. Sugar Land, TX Leased 36 Hole private Roger Packard 7/96
</TABLE>
- ---------------------
(1) Represents the date acquired by Cobblestone or, if different, the date
Cobblestone commenced operations of the courses.
(2) The Company operates a driving range, pro shop and golf cart rental
facility in connection with an 18-hole public course operated by the City
of San Diego.
(3) The Vineyard at Escondido was constructed by the Company and commenced
operations in December 1993.
(4) The Company owns a tennis facility (the World of Tennis) and a golf
practice and instruction facility (the Academy of Golf) which are
components of these Austin facilities.
45
<PAGE>
Facilities and Services
<TABLE>
<CAPTION>
DRIVING FOOD & FITNESS
COURSE NAME RANGE CARTS CLUBHOUSE BEVERAGE PRO SHOP POOL TENNIS LODGING CENTER
- ----------------------- ------- ----- --------- -------- -------- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Southern California
Courses
Balboa Park G.C. Yes Yes Yes Yes Yes
Carmel Mountain Ranch
C.C. Yes Yes Yes Yes Yes
Morgan Run Resort and
Club Yes Yes Yes Yes Yes Yes Yes Yes Yes
El Camino C.C. Yes Yes Yes Yes Yes Yes Yes Yes
Red Hawk G.C. Yes Yes Yes Yes
Saticoy Regional G.C. Yes Yes Yes Yes
The Vineyard at
Escondido Yes Yes Yes Yes Yes
Eagle Crest Golf Club Yes Yes Yes Yes Yes
Phoenix Courses
Ahwatukee C.C. Yes Yes Yes Yes Yes
The Lakes at Ahwatukee Yes Yes Yes
The Foothills G.C. Yes Yes Yes Yes Yes
Red Mountain Ranch C.C. Yes Yes Yes Yes Yes Yes Yes Yes
Texas-Austin Courses
Hills of Lakeway Yes Yes Yes Yes Yes Yes Yes Yes
Live Oak Golf Course Yes Yes Yes Yes Yes
Yaupon Golf Course Yes Yes Yes
Texas-Dallas Courses
Stonebridge C.C. Yes Yes Yes Yes Yes Yes Yes Yes Yes
The Ranch C.C. Yes Yes Yes Yes Yes Yes Yes
The Trophy Club Yes Yes Yes Yes Yes Yes Yes
Woodcrest C.C. Yes Yes Yes Yes Yes Yes
Other Courses
Brandermill C.C.,
Richmond, VA Yes Yes Yes Yes Yes Yes Yes
Pecan Grove Plantation
C.C., Richmond, TX Yes Yes Yes Yes Yes Yes Yes Yes
Sweetwater C.C., Sugar
Land, TX Yes Yes Yes Yes Yes Yes Yes Yes
</TABLE>
ORGANIZATIONAL STRUCTURE
The Company generally owns and operates each of its facilities through a
separate subsidiary. All of the Company's subsidiaries are directly or
indirectly wholly-owned except for (i) Cobblestone Texas, Inc., (which owns
and operates The Trophy Club) which is 95% owned by the Company and 5% owned
by a former owner, (ii) Ocean Vista Land Company, (which is a holding company
whose sole assets are (a) 100% of the capital stock of Oceanside Golf
Management Corp., which owns and operates El Camino Country Club, and (b) a
50% equity interest in Whispering Palms Country Club Joint Venture, which owns
and operates Morgan Run Resort and Club) which is 96% owned by the Company and
4% owned by former owners, and (iii) Golf Course Inns of America Inc., (which
is a holding company whose sole asset is a 50% equity interest in Whispering
Palms Country Club Joint Venture) which is 96% owned by the Company and 4%
owned by former owners.
46
<PAGE>
Golf Course Holdings. The following table sets forth certain information
regarding the ownership and operational structure of the Company.
<TABLE>
<CAPTION>
NAME OF ENTITY GOLF COURSE/CLUB
-------------- ----------------
<C> <S>
Cobblestone Holdings, Inc.................... None
Cobblestone Golf Group, Inc.................. Balboa Park G.C.; Saticoy
Regional G.C.; Eagle Crest G.C.;
Redhawk G.C. (Management
Contract)
Escondido Consulting, Inc.................... The Vineyard at Escondido G.C.
Cobblestone Texas, Inc....................... The Trophy Club
Pecan Grove Golf Club, Inc................... Pecan Grove Plantation C.C.
The Liquor Club at Pecan Grove, Inc.......... None
Foothills Holding Company, Inc............... Red Mountain Ranch Country Club;
Ahwatukee C.C.; The Lakes at
Ahwatukee
Bellows Golf Group, Inc...................... The Foothills G.C.
Carmel Mountain Ranch Golf Club, Inc......... Carmel Mountain Ranch C.C.
OVLC Management Corp......................... None
Ocean Vista Land Company..................... None
Golf Course Inns of America, Inc............. None
Oceanside Golf Management Corp............... El Camino C.C.
Whispering Palms Country Club Joint Venture.. Morgan Run Resort and Club
OVLC Financial Corp.......................... None
CSR Golf Group, Inc.......................... Stonebridge C.C.; The Ranch C.C.
Lakeway Golf Clubs, Inc...................... The Hills of Lakeway; Live Oak
G.C.; Yaupon G.C.
Woodcrest Golf Club, Inc..................... Woodcrest C.C.
Virginia Golf Country Club, Inc.............. Brandermill C.C.
Lakeway Clubs, Inc........................... None
TGFC Corporation............................. None
C-RHK, Inc................................... None
CEL Golf Group, Inc.......................... None
SWC Golf Club, Inc........................... Sweetwater, C.C.
</TABLE>
EMPLOYEES
As of June 30, 1996 the Company employed approximately 1,538 persons. The
Company believes that its employee relations are good. None of the Company's
employees are represented by a labor union.
GOVERNMENTAL REGULATION
Environmental Matters. Operations at the Company's golf courses involve the
use and storage of various hazardous materials such as herbicides, pesticides,
fertilizers, motor oil and gasoline. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removing such hazardous substances that are
released on or in its property and for remediation of its property. Such laws
often impose liability regardless of whether a property owner or operator knew
of, or was responsible for, the release of hazardous materials. In addition,
the presence of such hazardous substances, or the failure to remediate the
surrounding soil when such substances are released, may adversely affect the
ability of a property owner to sell such real estate or to pledge such
property as collateral for a loan. Prior to acquiring golf courses, it is the
Company's practice to commission preliminary environmental assessments ("Phase
I assessments") to evaluate the environmental condition of, and potential
environmental liabilities associated with, such properties. Phase I
assessments generally consist of an investigation of environmental conditions
at the subject property (not including soil or groundwater sampling or
analysis), as well as a review of available information regarding the site and
conditions at other sites in the vicinity. The Phase I assessments have not
revealed any environmental liability that the Company's management believes
would have a material adverse effect on the Company's business, assets or
results of operation, and the Company believes that it is in material
compliance with all
47
<PAGE>
environmental laws, ordinances and regulations applicable to its properties
and operations. No assurance, however, can be given that the Phase I
assessments reveal all potential environmental liabilities or that such
environmental liabilities, whether or not material, may not arise in the
future.
General. The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's golf course personnel receive the federal minimum wage, and
increases in the minimum wage would increase the Company's labor costs. There
is currently an initiative to raise the minimum wage in California to $5.00
per hour effective March 1, 1997, and to $5.75 per hour effective March 1,
1998. The initiative will be voted upon in November 1996. Also, the Federal
minimum wage will increase from $4.25 per hour to $4.75 per hour on October 1,
1996 and again to $5.15 per hour on September 1, 1997. Employers must pay the
higher of the Federal or State minimum wage. The Company will attempt to
offset increases in the minimum wage through pricing and other cost control
efforts; however, there can be no assurance that the Company will be able to
pass such additional costs on to its customers and members. In addition, the
Company is subject to certain state "dram-shop" laws, which provide a person
injured by an intoxicated individual the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
individual. The Company is also subject to the Americans with Disabilities Act
of 1990, which, among other things, may require certain minor renovations to
various clubhouses at the Company's properties to meet federally mandated
access and use requirements. The cost of these renovations is not expected to
be material to the Company. The Company believes it is operating in
substantial compliance with applicable laws and regulations governing its
operations.
LEGAL PROCEEDINGS; INSURANCE
From time to time, lawsuits are filed against the Company in the ordinary
course of business. The Company is not a party to any litigation that, in the
judgment of management after consultation with counsel, is likely to have a
material adverse effect on the Company or its business. The Company carries
property and casualty insurance and insurance under umbrella policies in such
amounts and with such coverages as the Company believes to be adequate.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of September 1, 1996, and
a brief account of the business experience of each person who is a director or
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James A. Husband........ 46 Director, President and Chief Executive Officer
Stefan C. Karnavas...... 33 Vice President, Chief Financial Officer, Treasurer and Secretary
Gary L. Dee............. 48 Vice President, Operations
Joseph H. Champ......... 38 Vice President, Acquisitions
Andrew Crosson.......... 36 Vice President, Acquisitions
Norm Goodmanson......... 47 Vice President, Development
Robert S. West, Jr. .... 53 Vice President, Golf Operations
Thomas Delaney, Jr. .... 38 Vice President, Design & Construction
Frederick J. Warren..... 57 Director
David H. Wong........... 32 Director
P.L. Davies III......... 34 Director
Martin R. Reid.......... 53 Director
John M. Sullivan........ 61 Director
</TABLE>
JAMES A. HUSBAND founded the Company in October 1992. From October 1992 to
the present, Mr. Husband has served as the Company's President and Chief
Executive Officer and as a Director. Mr. Husband has 20 years of golf course
operations and acquisitions experience. Prior to founding the Company and
since April 1, 1977, Mr. Husband was a founder, Chairman and Chief Executive
Officer of a company which ultimately became known as CCA GolfCorp, which
became the public golf operations subsidiary of Club Corporation of America
(now known as Club Corporation International). Mr. Husband has been a Class A
member of the PGA of America since 1977 and was a PGA Tour member in 1978 and
1979. While at GolfCorp, Mr. Husband served on the Board of Directors of
ClubCorp of America. Mr. Husband graduated from California State University in
Northridge in 1972 with a Bachelor of Science degree in Business
Administration.
STEFAN C. KARNAVAS joined the Company as Vice President, Chief Financial
Officer, Treasurer and Secretary in April 1996. Prior to joining the Company
and since August 1993, Mr. Karnavas was Treasurer and Director of Development
of Horizon Cellular Telephone Company, L.P. ("Horizon"). From December 1992 to
August 1993, he served as Horizon's Assistant Treasurer. From April 1991 to
December 1992, he was Horizon's Manager of Mergers and Acquisitions. Prior to
that time, he was a Senior Loan Officer at Fidelity Bank.
GARY L. DEE has served as Vice President, Operations of the Company since
November 1992. Mr. Dee has 18 years of golf course operations experience. From
February 1989 to November 1992, Mr. Dee was the Director of Operations for the
PGA Tour Public Golf, Inc. Prior to this position, Mr. Dee was a general
manager for the PGA tour at the TPC at Piper Glen in Charlotte, North
Carolina, from 1988-1989 and was a principal in GolfTexas, a golf facility
development and management company from 1986-1988. Mr. Dee also served as a
golf management professional at various facilities from 1974-1986. Mr. Dee
graduated from Drake University in 1972 with a Bachelor of Science in
management.
JOSEPH H. CHAMP has served as Vice President, Acquisitions of the Company
since December 1993. From August 1993 to December 1993, Mr. Champ was Vice
President, Acquisitions for National Golf Properties, Inc., a real estate
investment trust. From September 1992 to August 1993, Mr. Champ was Vice
President of Acquisitions (Western Region) at American Golf Corporation. Prior
to joining American Golf, Mr. Champ was
49
<PAGE>
vice president of real estate and business development for Interstate Hotels
Corporation from January 1990 to August 1992 and was a director of development
at Aircoa Hospitality Services, Inc. from 1987 to January 1990.
ANDREW CROSSON has served as Vice President, Acquisitions of the Company
since October 1992. From 1988 to 1992, Mr. Crosson was the head of the
Development and Acquisitions Department for GolfCorp, a subsidiary of Club
Corporation International. Mr. Crosson graduated from the University of Utah
in 1986.
NORM GOODMANSON has served as Vice President, Development of the Company
since June 1993. Mr. Goodmanson has over 25 years of experience in the golf
course industry. From January 1988 to June 1993, Mr. Goodmanson served as Vice
President of Development at CCA GolfCorp.
ROBERT S. WEST, JR. has served as Vice President, Golf Operations since
December 1993. From 1989 to 1993, Mr. West served as a Regional Manager with
Golf Enterprises, Inc. In addition to being involved in the golf business for
30 years and a PGA professional for 25 years, Mr. West owned and operated his
own golf course, retail golf clothing store and worked as an operations
consultant for several other courses. Additionally, from 1972 to 1980 Mr. West
served as the Director of Golf and was Tournament Chairman at Walt Disney
World in Orlando, Florida.
THOMAS L. DELANEY, JR. has served as Vice President, Design & Construction
of the Company since November 1993. Prior to joining the Company, Mr. Delaney
worked in the real estate development industry as a construction manager for a
variety of commercial projects, including the Aventine Complex, a $250 million
multi-use development in La Jolla, California. Mr. Delaney received his
Bachelor of Building Construction degree from the University of Florida in
1984 and his MBA from the Wharton School at the University of Pennsylvania in
May 1993.
FREDERICK J. WARREN has served as Chairman of the Board of the Company since
October 1992. He is presently a general partner of Brentwood Golf Partners,
L.P., Brentwood Buyout Management Partners, L.P. and Brentwood Buyout
Partners, L.P. and has been with Brentwood since co-founding it in 1972. Mr.
Warren is a director of Horizon Cellular Telephone Company, L.P., Rental
Service Corporation, Tuboscope Vetco International (a provider of oilfield-
related inspection and coating services) ("Tuboscope") and Digital Sound
Corporation.
DAVID H. WONG has served as a director of the Company since October 1992. He
is presently a general partner of Brentwood Golf Partners, L.P., Brentwood
Buyout Management Partners, L.P. and Brentwood Buyout Partners, L.P. Mr. Wong
is a director of Cardinal Business Media, Inc. ("Cardinal") and Horizon
Finance Corporation. Prior to joining Brentwood in July 1989, he attended
Stanford Business School from September 1987 to June 1989 and worked in the
investment banking division of Dillon, Read & Co., Inc. from August 1985 to
August 1987.
P.L. DAVIES III has served as a director of the Company since February 1995.
He is presently Managing Principal of Cambria Group, LLC, a private equity
investment firm. From January 1995 to December 1995, Mr. Davies served as a
Principal of Fremont Group, Inc. Mr. Davies also serves on the board of
Lakeside Corporation. Prior to joining Fremont, Mr. Davies was a Principal at
Brentwood from April 1993 to December 1994 and held a variety of positions at
Bechtel Group, Inc. from 1987 to 1993.
MARTIN R. REID has served as director of the Company since January 1994. He
is presently Chairman of the Board and Chief Executive Officer of Rental
Service Corporation and has held such position since September 1995. From June
1994 to September 1995, Mr. Reid was Chairman of the Board and Chief Executive
Officer of Acme Holdings, Inc., which filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code on July 13, 1995. Since October 1990,
Mr. Reid has been a director of Tuboscope. Mr. Reid also served as Chief
Executive Officer of Tuboscope from May 1991 to October 1993. Mr. Reid has
been a General Partner in MDR Associates, a private investment concern, since
November 1990. From September 1986 to June 1990, he was Chief Executive
Officer of Eastman Christensen Co., a provider of oil and gas drilling
50
<PAGE>
systems. Mr. Reid was also Vice Chairman of Eastman Christensen Co. from
August 1989 to June 1990. Prior to September 1986, he was Senior Vice
President of Operations of Norton Christensen, the predecessor to Eastman
Christensen Co.
JOHN M. SULLIVAN has served as a director of the Company since September
1993. He is presently a director of The Scotts Company (a producer of lawncare
products) and Cardinal. From October 1987 to January 1993, Mr. Sullivan was
Chairman of the Board and Chief Executive Officer of Prince Holdings, Inc. (a
sportsgear and apparel company) ("Prince"). Prior to that and since September
1984, Mr. Sullivan was President of Prince and Vice President of Chesebrough-
Pond's, Inc.
DIRECTOR COMPENSATION
Neither Holdings nor the Company pays any fees or remuneration to their
directors for service on their respective board of directors or any board
committee, but Holdings and the Company reimburse directors for their out-of-
pocket expenses incurred in connection with attending meetings of the board.
In addition, in connection with becoming a director, each of Messrs. Davies,
Reid and Sullivan was offered the opportunity to acquire shares (or options to
purchase shares) of Holdings' capital stock.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's President and Chief Executive Officer and the four
other most highly compensated executive officers of the Company who earned
more than $100,000 (salary and bonus) (the "Named Executive Officers") for all
services rendered in all capacities to Holdings and the Company during the
fiscal year ended September 30, 1995:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
FISCAL ALL OTHER LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) PAYOUTS(2)
- --------------------------- ------ -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
James A. Husband......... 1995 $223,144 $135,638 $21,459 $370,000
(President and Chief
Executive Officer)
Steven L. Holmes(3)...... 1995 134,601 68,527 9,416 74,000
(Vice President,
Treasurer, Secretary and
Chief Financial Officer)
Gary L. Dee.............. 1995 120,556 60,458 10,812 37,000
(Vice
President/Operations)
Joseph H. Champ.......... 1995 127,652 65,352 9,898 55,500
(Vice
President/Acquisitions)
Robert S. West, Jr....... 1995 106,859 55,072 9,428 14,800
(Vice President/Golf
Operations)
</TABLE>
- ---------------------
(1) Represents (i) car allowance, (ii) dollar value of health benefits and
(iii) 401(k) matching contributions by the Company. The respective amounts
paid for Messrs. Husband, Holmes, Dee, Champ and West are as follows: (A)
car allowance: $16,560, $5,867, $8,207, $5,867 and $5,867; (B) health
benefits: $4,683, $3,336, $2,283, $3,336 and $3,336; and (C) 401(k)
matching contributions: $216, $213, $322, $695 and $225.
(2) Represents the dollar value of all the shares of Holdings Common Stock as
to which ownership vested in the fiscal year ended September 30, 1995. See
"Principal Stockholders."
(3) In April 1996, Mr. Holmes resigned his positions at the Company.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH BRENTWOOD ASSOCIATES
Corporate Development and Administrative Services Agreement. Pursuant to a
Corporate Development and Administrative Services Agreement, dated as of
September 30, 1992, as amended, between Brentwood Buyout Partners, L.P.
("BBP") (an affiliate of Brentwood Associates) and the Company (the "Brentwood
Agreement"), BBP has agreed to assist in the corporate development activities
of the Company by providing services to the Company, including (i) assistance
in analyzing, structuring and negotiating the terms of investments and
acquisitions, (ii) researching, identifying, contacting, meeting and
negotiating with prospective sources of debt and equity financing, (iii)
preparing, coordinating and conducting presentations to prospective sources of
debt and equity financing, (iv) assistance in structuring and establishing the
terms of debt and equity financing and (v) assistance and advice in connection
with the preparation of the Company's financial and operating plans. Pursuant
to the Brentwood Agreement, BBP is entitled to receive (i) a service fee in an
amount equal to 1% per annum of the aggregate amount of debt and equity
investment in the Company of or by BBP or any person or entity associated with
BBP, which is payable semi-annually in advance, (ii) financial advisory fees
equal to 1.5% of all amounts paid by the Company in connection with any
acquisition, payable at the closing of any such acquisition and (iii)
reimbursement of its reasonable fees and expenses incurred from time to time
(a) in performing the services rendered thereunder and (b) in connection with
any investment in, financing of, or sale, distribution or transfer of any
interest in the Company by BBP or any person or entity associated with BBP.
For the Company's fiscal year ended September 30, 1995, BBP was paid
compensation of $1,112,472 (including reimbursement of fees and expenses)
pursuant to the Brentwood Agreement.
TRANSACTIONS WITH JAMES A. HUSBAND
In connection with the formation of the Company in September 1992, Balboa
Park Management Co., Inc. ("Balboa"), a corporation owned by James A. Husband,
contributed to the Company the lease of the Balboa Park facility, associated
leasehold improvements and other assets, including driving range equipment,
golf carts, golf shop inventory and accounts receivable in exchange for (i)
25,292 shares of Series A Preferred Stock of Holdings and (ii) $235,270 in
cash, of which 25,292 shares and $160,270 have been paid. The consideration
paid to Balboa in exchange for the lease of the Balboa Park facility and the
associated assets acquired from Balboa was determined by the Company and
Balboa to represent the fair market value of such lease and assets. In
addition, if one of the Company's facilities meets certain financial
performance targets in a specified time frame, Mr. Husband shall receive the
remaining $75,000 from the Company.
The lease of the Balboa facility originally was acquired by Balboa in
January 1988 at no initial cost. However, rent is currently payable based upon
specified percentages of gross revenue, subject to a minimum rental floor.
In addition, in connection with the formation of the Company, Mr. Husband
contributed shares of stock representing his 50% interest in Escondido
Consulting, Inc. ("Escondido"), a corporation that held the lease of the
Escondido facility, associated contract rights, permits and other assets in
exchange for 29,813 shares of Series A Preferred Stock of Holdings.
Simultaneously, Escondido redeemed a portion of Mr. Husband's shares by
issuing him a subordinated promissory note in the principal amount of
$250,000, upon which interest accrues at a rate of 5% per annum and is payable
in arrears on the last date of each calendar quarter commencing December 31,
1992 and continuing through October 19, 1999. The Company also acquired the
remaining shares of Escondido from the other shareholder for $400,000 cash. In
all cases, the consideration paid for shares of Escondido stock was determined
by the Company, Mr. Husband and Escondido's other shareholder to represent the
fair market value of such stock.
Escondido was formed in 1990 by Mr. Husband and a partner. The lease of the
Escondido facility was acquired by Escondido in August 1990 at no initial
cost. However, rent is currently payable based upon specified percentages of
gross revenue, subject to a minimum rental floor.
In connection with the formation of the Company, Mr. Husband also agreed to
bring to the Company all future opportunities to acquire golf facilities of
which he became aware, including his then-existing options to acquire a
portion of the entity which owned the Foothills Country Club and to acquire
the leasehold interest in the Saticoy Regional Golf Club, as well as his
opportunity to acquire all or a portion of the entity which owned both El
Camino Country Club and an interest in Morgan Run Resort and Club. Mr. Husband
subsequently assigned all of such rights to the Company for no additional
consideration, and the Company completed such acquisitions.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The information in the following table sets forth, as of June 30, 1996,
certain information regarding the beneficial ownership of Holdings Common
Stock and Series A Preferred Stock by: (i) each person who to the knowledge of
the Company owns 5% or more of Holdings' outstanding voting stock, (ii) each
person who is a director or named executive officer of the Company and (iii)
all directors and officers of the Company as a group. The Company is a wholly-
owned subsidiary of Holdings. The following table assumes no other changes in
beneficial ownership since June 30, 1996.
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK PERCENTAGE PERCENTAGE
-------------- ---------------- OF TOTAL OF ALL
NUMBER OF NUMBER OF VOTING OUTSTANDING
BENEFICIAL OWNER(1) SHARES % SHARES % POWER STOCK
------------------- --------- ---- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brentwood Golf Partners, 1,075,081 62.5% 3,928,729 75.3% 72.1% 72.1%
L.P.(2)................
11150 Santa Monica
Blvd.
Suite 1200
Los Angeles, California
90025
James A. Husband(3)(4).. 137,648 8.0% 55,106 1.1% 2.8% 2.8%
Stefan C. Karnavas...... 909 * -- -- * *
Gary L. Dee(4).......... 13,937 * -- -- * *
Joseph H. Champ(4)...... 18,179 1.1% -- -- * *
Robert S. West, Jr.(4).. 4,848 * -- -- * *
P.L. Davies III(5)(6)... 24,445 1.4% 80,470 1.5% 1.5% 1.5%
Martin R. Reid(6)....... 5,745 * 12,119 * * *
John M. Sullivan(6)..... 9,066 * 24,238 * * *
The Northwestern Mutual
Life Insurance 116,053 6.7% 424,167 8.1% 7.8% 7.8%
Company(7).............
720 E. Wisconsin Avenue
Milwaukee, Wisconsin
53202
HLH Trust(8)............ 81,234 4.7% 296,916 5.7% 5.4% 5.4%
1800 Grant Building
Pittsburgh,
Pennsylvania 16219
All directors and
officers as a group (13
persons)(2)............ 1,331,133 77.4% 4,100,662 78.6% 78.2% 78.2%
</TABLE>
- ---------------------
* Less than 1%
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Holdings Common Stock
or Series A Preferred Stock owned by such beneficial owners.
(2) Frederick J. Warren and David H. Wong, directors of the Company, are
general partners of the general partner of Brentwood Golf Partners, L.P.,
and as such may be deemed to beneficially own the shares of stock held by
Brentwood Golf Partners, L.P.
(3) Includes 25,293 shares of Series A Preferred Stock owned of record by
Balboa Park Management Co., Inc., a corporation controlled by Mr. Husband.
See "Certain Relationships and Related Transactions--Transactions with
James A. Husband."
(4) Includes shares of Holdings Common Stock that are subject to vesting based
on continued employment, subject to acceleration of the vesting of a
portion of such shares if performance targets are met. Unvested shares are
subject to repurchase by Holdings at their initial purchase price. The
number of shares indicated assumes that all shares are vested.
53
<PAGE>
(5) Includes 485 shares of Holdings Common Stock purchasable pursuant to
options held by Mr. Davies exercisable within 60 days of the date of the
Prospectus. Other than such 485 shares, the shares of Holdings Common
Stock beneficially owned by Mr. Davies are owned of record by Pacific Golf
Enterprises, L.P., a limited partnership of which Mr. Davies is general
partner.
(6) Includes shares of Holdings Common Stock that are subject to vesting based
on continued service as a director over a period of time. Unvested shares
are subject to repurchase by Holdings at their initial purchase price. The
number of shares indicated assumes that all shares are vested.
(7) Does not include any shares owned by Brentwood Golf Partners, L.P., of
which the Northwestern Mutual Life Insurance Company is a limited partner
but as to which it has no voting or dispositive power.
(8) Includes 14,919 shares of Holdings Common Stock and 54,536 shares of
Series A Preferred Stock owned by a trust for the benefit of Henry L.
Hillman (the "HLH Trust"), and 66,316 shares of Holdings Common Stock and
242,381 shares of Series A Preferred Stock owned by Wilmington Interstate
Corporation ("Wilmington Interstate"). Wilmington Interstate is a Delaware
private investment company indirectly owned by The Hillman Company, a
Pittsburgh, Pennsylvania firm engaged in diversified investments and
operations, which is controlled by the HLH Trust. The trustees of the HLH
Trust are Henry L. Hillman, Elsie Hilliard Hillman and C. G. Grefenstette
(the "HLH Trustees"). The HLH Trustees share voting power and dispositive
power of the stock of The Hillman Company. Does not include 19,900 shares
of Holdings Common Stock and 72,715 shares of Series A Preferred Stock
owned by four irrevocable trusts for the benefit of members of the Hillman
family, as to which shares the HLH Trustees disclaim beneficial ownership.
Does not include 14,919 shares of Holdings Common Stock and 54,536 shares
of Series A Preferred Stock owned by Venhill Limited Partnership
("Venhill"), as to which shares the HLH Trustees disclaim beneficial
ownership. Venhill is a Delaware limited partnership, of which the limited
partners are trusts for the benefit of members of the Hillman family.
Howard B. Hillman, a step-brother of Henry L. Hillman, is the general
partner of Venhill. Does not include any shares owned by Brentwood Golf
Partners, L.P., of which the HLH Trust, Wilmington Interstate and the four
irrevocable trusts for the benefit of members of the Hillman family are
limited partners, and as to which they disclaim beneficial ownership.
54
<PAGE>
DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes and the
Guarantees in respect thereof. The Senior Notes will be issued pursuant to an
indenture (the "Indenture") dated as of June 4, 1996, by and among the
Company, the Guarantors and Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"). The form and terms of the Exchange Notes will be the
same as the form and terms of the Private Notes except that (i) the exchange
will be registered under the Securities Act, and hence the Exchange Notes will
not bear legends restricting the transfer thereof, and (ii) holders of the
Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. For purposes of this
summary, the term the "Company" refers to Cobblestone Golf Group, Inc.,
exclusive of its subsidiaries. The terms of the Indenture will also be
governed by certain provisions contained in the Trust Indenture Act of 1939,
as amended. The following summarizes all material provisions of the Indenture
only, does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Indenture. Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to them in
the Indenture. Wherever particular provisions of the Indenture are referred to
in this summary, such provisions are incorporated by reference as a part of
the statements made and such statements are qualified in their entirety by
such reference. A copy of the form of Indenture is available upon request.
GENERAL
The Notes are senior, unsecured, general obligations of the Company, limited
in aggregate principal amount to $70.0 million. The Notes rank pari passu in
right of payment with all existing and future unsubordinated indebtedness of
the Company (including borrowings under the New Credit Facility) and rank
senior in right of payment to all existing and future subordinated
indebtedness of the Company. The Notes are guaranteed on a senior basis by all
present and future Subsidiaries of the Company (the "Guarantors"). The term
"Subsidiaries" as used in this "Description of Notes," however, does not
include Unrestricted Subsidiaries. The Guarantees are senior, unsecured,
general obligations of the Guarantors and rank pari passu in right of payment
with all existing and future unsubordinated indebtedness of the respective
Guarantors (including their guarantees of borrowings under the New Credit
Facility) and rank senior in right of payment to all existing and future
subordinated indebtedness of the respective Guarantors. Borrowings under the
New Credit Facility are secured by substantially all of the Company's assets,
including the capital stock of the Company's existing and future Subsidiaries
and are guaranteed by Holdings and such Subsidiaries, which guarantees are
secured by substantially all of Holdings' and such Subsidiaries' assets. The
Notes and the Guarantees will, to the extent of such collateral, be
effectively subordinated to such borrowings and to any other secured
indebtedness of the Company and the Guarantors, as applicable, to the extent
of the collateral secured thereby. As of June 30, 1996, the Company and the
Guarantors had outstanding $92.1 million of senior indebtedness on a
consolidated basis (including trade payables and capitalized lease
obligations), $7.5 million of which is secured indebtedness. See "Risk
Factors--Leverage and Ability to Service Debt" and "--Corporate Structure;
Effects of Asset Encumbrances." The Notes will be issued only in fully
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
The Notes will mature on June 1, 2003. The Notes will bear interest at the
rate per annum stated on the cover page hereof from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on June 1 and December 1 of each year,
commencing December 1, 1996, to the persons in whose names such Notes are
registered at the close of business on the May 15 or November 15 immediately
preceding such Interest Payment Date. Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
Principal of, premium and Liquidated Damages, if any, and interest on the
Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for
such purpose, which office or agency shall be maintained in the Borough of
Manhattan, The City of New York. At the option of the Company, payment of
interest may be made by check mailed to the Holders
55
<PAGE>
of the Notes at the addresses set forth upon the register of Holders of Notes.
No service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Until
otherwise designated by the Company, the Company's office or agency will be
the corporate trust office of the Trustee.
OPTIONAL REDEMPTION
Except as set forth below, the Company will not have the right to redeem any
Notes prior to June 1, 1999. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 1999 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period commencing June 1 of the years
indicated below, in each case together with Liquidated Damages and accrued and
unpaid interest thereon, if any, to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999........................................................... 105.750%
2000........................................................... 103.833%
2001........................................................... 101.917%
2002 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, until June 1, 1999, upon one or more Public
Equity Offerings or issuances of Qualified Capital Stock to Strategic
Investors, up to $17.5 million aggregate principal amount of the Notes may be
redeemed at the option of the Company within 120 days of such Public Equity
Offering or issuance to Strategic Investors, with the Net Cash Proceeds
thereof in the case of such an offering by the Company, or from such proceeds
invested by Holdings in Qualified Capital Stock in the case of such an
offering by Holdings, at 110.5% of the principal amount, together with
Liquidated Damages and accrued and unpaid interest, if any, to the date of
redemption; provided, however, that immediately following each such redemption
not less than $52.5 million aggregate principal amount of the Notes is
outstanding.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after
the date of redemption, interest will cease to accrue on the Notes called for
redemption, unless the Company defaults in the payment thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an offer by the Company (the "Change of Control Offer"), to
require the Company to repurchase all or any part of such Holder's Notes
(provided, however, that the principal amount of such Notes must be $1,000 or
an integral multiple thereof) on a date (the "Change of Control Purchase
Date") that is no later than 90 days after the occurrence of such Change of
Control, at a cash price (the "Change of Control Purchase Price") equal to
101% of the principal amount thereof, together with Liquidated
56
<PAGE>
Damages and accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer shall be made within 30 days
following a Change of Control and shall remain open for 20 Business Days
following its commencement (the "Change of Control Offer Period"). Upon
expiration of the Change of Control Offer Period, the Company shall purchase
all Notes or portions thereof properly tendered in response to the Change of
Control Offer. If required by applicable law, the Change of Control Purchase
Date and the Change of Control Offer Period may be extended as so required;
however, if so extended, it shall nevertheless constitute an Event of Default
if the Change of Control Purchase Date does not occur within 90 days of the
Change of Control (or within 120 days of the Change of Control if, during any
such extension beyond 90 days following the Change of Control, the Company is
diligently pursuing all commercially reasonable steps to consummate the Change
of Control Offer as promptly as practicable).
As used herein, a "Change of Control" means (i) the Investor Group is no
longer the "beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate normally entitled to vote in the election
of directors, managers, or trustees, as applicable, of the Company and (ii)
any "person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more of the total voting power
in the aggregate outstanding normally entitled to vote in elections of
directors of the Company than is owned collectively by Brentwood and James A.
Husband.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent Cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes or portions thereof so tendered and (iii) deliver to
the Trustee Notes so accepted together with an Officers' Certificate listing
the Notes or portions thereof being purchased by the Company. The Paying Agent
will promptly mail to the Holders of Notes so accepted payment in an amount
equal to the Change of Control Purchase Price (together with Liquidated
Damages, if any, and accrued and unpaid interest), and the Trustee will
promptly authenticate and mail or deliver to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered. Any Notes
not so accepted will be promptly mailed or delivered by the Company to the
Holder thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Purchase Date.
The Company's ability to repurchase Notes upon a Change of Control may be
limited by, among other factors, the financial resources of the Company at the
time of repurchase. The New Credit Facility prohibits the Company from
purchasing any Notes prior to their stated maturity and also will provide that
certain Change of Control events would constitute a default thereunder. In
addition, any future credit or other borrowing agreements may contain similar
restrictions. See "Risk Factors--Limitations on Repurchase of Notes." If a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Notes, the Company could seek the consent of its lender(s) to
such purchase or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws.
Limitation on Restricted Payments
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, immediately prior thereto or after giving effect to
such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio in paragraph (a) of the covenant "Limitation on
Incurrence of Additional
57
<PAGE>
Indebtedness and Disqualified Capital Stock," or (3) the aggregate amount of
all Restricted Payments made by the Company, the Guarantors and their
Subsidiaries, including after giving effect to such proposed Restricted
Payment, from and after the Issue Date, would exceed the sum of (a) the amount
determined by subtracting (i) 2.0 times the aggregate Consolidated Fixed
Charges of the Company and its consolidated Subsidiaries for the period (taken
as one accounting period), commencing on the first day of the first full
fiscal quarter commencing after the Issue Date, to and including the last day
of the fiscal quarter ended immediately prior to the date of each such
calculation (the "Computation Period") from (ii) Consolidated EBITDA of the
Company and its Consolidated Subsidiaries for the Computation Period, plus (b)
100% of the aggregate Net Cash Proceeds received by the Company from the sale
of its Qualified Capital Stock (other than (i) to a Subsidiary or Unrestricted
Subsidiary of the Company and (ii) to the extent applied in connection with a
Qualified Exchange, but including the Net Cash Proceeds received by the
Company upon the exercise, exchange or conversion of securities into Qualified
Capital Stock other than in connection with a Qualified Exchange) after the
Issue Date and on or prior to the date of such Restricted Payment. The full
amount of any Restricted Payment made pursuant to the immediately following
paragraph (other than clause (w), (x) or (y) thereof), however, will be
deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (3) of the immediately preceding
sentence.
Notwithstanding the foregoing, the provisions in the immediately preceding
paragraph will not prohibit (r) dividends by the Company to Holdings to the
extent promptly applied by Holdings to pay (i) liquidated damages due on the
Zero-Coupon Notes, (ii) amounts due in respect of Capital Stock of Holdings
required to be repurchased upon the exercise of "put" rights held prior to the
Issue Date by lenders under the Old Credit Facility and (iii) reasonable
general and administrative expenses of Holdings not to exceed $250,000 in any
consecutive four-quarter period, (s) Investments by the Company or any
Guarantor in Unrestricted Subsidiaries in an aggregate amount not to exceed
the sum of (i) $5.0 million and (ii) to the extent not otherwise applied to a
Restricted Payment, 100% of the aggregate Net Cash Proceeds received by the
Company from the sale of its Qualified Capital Stock after the Issue Date
(other than (i) to a Subsidiary or Unrestricted Subsidiary of the Company and
(ii) to the extent applied in connection with a Qualified Exchange, but
including the Net Cash Proceeds received by the Company upon the exercise,
exchange or conversion of securities into Qualified Capital Stock other than
in connection with a Qualified Exchange), (t) repurchases of Capital Stock
from employees, officers and directors of the Company or its Subsidiaries (or
payments to Holdings for such a purpose) upon the death, disability or
termination of employment in an aggregate amount to all employees not to
exceed $300,000 per year or $2.1 million in the aggregate on and after the
Issue Date, (u) payments by Ocean Vista Land Company of dividends on its
preferred stock outstanding prior to the Issue Date, in accordance with the
terms thereof, (v) Investments in non-wholly-owned Subsidiaries of the Company
not to exceed $5.0 million in the aggregate, (w) payments to Holdings under
the Tax Sharing Agreement, (x) payments of up to $1.25 million in the
aggregate to repurchase Capital Stock of Subsidiaries held by minority
stockholders outstanding prior to the Issue Date and not beneficially owned by
the Company or any of its Affiliates, (y) a Qualified Exchange, or (z) the
payment of any dividend on Qualified Capital Stock within 60 days after the
date of its declaration if such dividend could have been made on the date of
such declaration in compliance with the foregoing provisions. Notwithstanding
any other provision hereof, the foregoing clauses (r)(iii), (s), (x) and (z)
will not be deemed to permit the respective Restricted Payments otherwise
contemplated to be made pursuant thereto if, immediately prior thereto or
after giving effect to such Restricted Payment on a pro forma basis, a Default
or an Event of Default shall have occurred or be continuing.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any consensual restriction on the ability of any
Subsidiary of the Company to pay dividends or make other distributions to, or
to pay any obligation to, or otherwise to transfer assets or property to, or
make or pay loans or advances to, the Company or any Subsidiary of the
Company, except (a) restrictions imposed by the Notes, the Indenture, the
Zero-Coupon Notes and the indenture pursuant to which the Zero-Coupon Notes
are issued, (b) customary provisions restricting subletting or
58
<PAGE>
assignment of any lease (including a Capitalized Lease Obligation), (c)
restrictions imposed by applicable law, (d) existing restrictions under
Indebtedness outstanding, (e) restrictions under any Acquired Indebtedness not
incurred in violation of the Indenture or under any agreement relating to any
property, asset, or business acquired by the Company or any of its
Subsidiaries, which restrictions existed at the time of acquisition, were not
put in place in connection with or in anticipation of such acquisition and are
not applicable to any person, other than the person acquired, or to any
property, asset or business, other than the property, assets and business so
acquired, (f) restrictions with respect solely to a Subsidiary of the Company
imposed pursuant to a binding agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary, provided, such restrictions apply solely to the Capital
Stock or assets of such Subsidiary, (g) restrictions pursuant to the New
Credit Facility (h) restrictions pursuant to Indebtedness, other than
Subordinated Indebtedness, incurred in compliance with clause (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" (including refinancings permitted to be incurred under clause
(c) thereof), (i) Liens specified under "Permitted Liens" other than clauses
(b), (c) and (e) thereof and (j) in connection with and pursuant to permitted
Refinancings, replacements of restrictions that are not more restrictive than
those being replaced and do not apply to any other person or assets than those
that would have been covered by the restrictions in the Indebtedness so
refinanced.
Limitations on Liens
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
incur, suffer to exist or become effective any Lien upon any of its property
or assets, whether now owned or hereafter acquired, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless
all payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligation is no longer secured by a Lien, provided, however, that Permitted
Liens may be created or incurred or may exist or become effective without any
requirement that all payments under the Indenture and the Notes be equally and
ratably secured.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth below in this covenant, the
Company and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur,
become directly or indirectly liable with respect to (including as a result of
an Acquisition), extend the maturity of, or otherwise become responsible for,
contingently or otherwise (individually and collectively, to "incur" or, as
appropriate, an "incurrence"), any Indebtedness or any Disqualified Capital
Stock from and after the Issue Date. Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence of Indebtedness or Disqualified Capital
Stock and (ii) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Cash Flow Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro
forma basis to such incurrence of such Indebtedness or Disqualified Capital
Stock and, to the extent set forth in the definition of Consolidated Cash
Flow Ratio, the use of proceeds thereof, would be no greater than 6 to l
for Incurrence Dates prior to June 1, 1998 and no greater than 5 to 1
thereafter (the "Debt Incurrence Ratio"), then the Company and the
Guarantors may incur such Indebtedness or Disqualified Capital Stock,
provided, however, that Indebtedness incurred by a Guarantor shall be
subordinated in right of payment to such Guarantor's Guarantee of the
Senior Notes, except for Non-recourse Purchase Money Indebtedness of such
Guarantor and Indebtedness of such Guarantor in the form of a guarantee
which is in respect of Indebtedness of the Company that is pari passu in
right of payment with the Senior Notes, in which case that guarantee may be
pari passu in right of payment with such Guarantor's Guarantee of the
Notes;
(b) the Company and the Guarantors may incur Indebtedness evidenced by
the Notes and the Guarantees and represented by the Indenture up to the
amounts specified therein as of the Issue Date;
59
<PAGE>
(c) the Company and the Guarantors may incur Refinancing Indebtedness
with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clauses (a) and (b) of this covenant or which is
outstanding on the Issue Date after giving effect to the implementation of
the New Credit Facility;
(d) the Company and the Guarantors may incur Permitted Indebtedness;
(e) the Company and the Guarantors may incur Indebtedness pursuant to the
New Credit Facility on or after the Issue Date up to an aggregate amount
outstanding (including any Indebtedness issued to Refinance, refund or
replace such Indebtedness) at any time of $50.0 million, plus accrued
interest, fees incurred in connection with the New Credit Facility and such
additional amounts as may be deemed to be outstanding in the form of
Interest Swap and Hedging Obligations with lenders party to the New Credit
Facility, reduced by the amount of any such Indebtedness permanently
retired with Net Cash Proceeds from any Asset Sale (other than a sale of
Assets to Be Disposed of) or assumed by a transferee in an Asset Sale; and
(f) the Company and the Guarantors may incur Indebtedness on or after the
Issue Date up to an aggregate amount outstanding (including any
Indebtedness issued to Refinance, refund or replace such Indebtedness) at
any time of $7.5 million.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company and the Guarantors will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation and including upon any sale or other transfer or issuance of any
Capital Stock of any Subsidiary of the Company or any sale and leaseback
transaction, whether by the Company or a Subsidiary or through the issuance,
sale or transfer of Capital Stock by a Subsidiary of the Company (an "Asset
Sale"), unless (l)(a) within 405 days after the date of such Asset Sale, the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
optional redemption of the Notes in accordance with the terms of the Indenture
or to the repurchase of the Notes pursuant to an irrevocable, unconditional
offer by the Company (the "Asset Sale Offer") to repurchase Notes at a
purchase price (the "Asset Sale Offer Price") of 100% of principal amount,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date
of payment, made within 360 days of such Asset Sale or (b) within 360 days of
such Asset Sale, the Asset Sale Offer Amount is (i) invested (or committed,
pursuant to a binding commitment subject only to reasonable, customary closing
conditions, to be invested, and in fact is so invested, within an additional
90 days) in fixed assets and real property which in the good faith judgment of
the Board constitute or are a part of a Related Business of the Company, or in
100% of the issued and outstanding Capital Stock of a person the assets of
which are principally comprised of such fixed assets and real property, or
(ii) used to retire Indebtedness outstanding under the New Credit Facility,
except with respect to the use of proceeds from the sale of Assets to Be
Disposed of, and to permanently reduce the amount of such Indebtedness
permitted to be incurred in compliance with paragraph (e) of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock" (including that in the case of a revolver or similar arrangement that
makes credit available, such commitment is so reduced by such amount), (2)
with respect to any transaction or related series of transactions of
securities, property or assets with an aggregate fair market value in excess
of $1.0 million, at least 85% of the consideration for such Asset Sale
(excluding the amount of (A) any Indebtedness (other than Notes) that is
required to be repaid or assumed (and is either repaid or assumed by the
transferee of the related assets) by virtue of such Asset Sale and which is
secured by a Lien on the property or assets sold and (B) property received by
the Company or any such Subsidiary from the transferee that within 30 days of
such Asset Sale is converted into Cash or Cash Equivalents) consists of Cash
or Cash Equivalents, (3) no Default or Event of Default shall have occurred
and be continuing at the time of, or would occur after giving effect, on a pro
forma basis, to, such Asset Sale, and (4) the Board of Directors of the
Company determines in good faith that the Company or such Subsidiary, as
applicable, receives fair market value for such Asset Sale. The Indenture will
provide that an Asset Sale Offer may be deferred until the accumulated Net
Cash Proceeds from Asset Sales
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not applied to the uses set forth in (1)(b) above (or committed for use as
permitted thereunder) exceeds $10.0 million and that each Asset Sale Offer
shall remain open for 20 Business Days following its commencement (the "Asset
Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Company shall apply the Asset Sale Offer Amount, plus an amount equal to
accrued and unpaid interest, to the purchase of all Notes properly tendered
(on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Notes so tendered) at the Asset Sale Offer Price (together with
accrued and unpaid interest). If required by applicable law, the Asset Sale
Offer Period may be extended as so required; however, if so extended it shall
nevertheless constitute an Event of Default if within 90 days of its
commencement the Asset Sale Offer is not consummated or the properly tendered
Notes are not purchased pursuant thereto (or within 120 days of the
commencement of the Asset Sale Offer if, during any such extension beyond 90
days following the commencement, the Company is diligently pursuing all
commercially reasonable steps to consummate the Asset Sale Offer or to
purchase properly tendered Notes pursuant thereto as promptly as practicable).
Notwithstanding clause (1)(a) above, if an Asset Sale Offer is commenced and
securities of the Company ranking pari passu in right of payment with the
Notes are outstanding at the date of commencement thereof, the terms of which
provide that a substantially similar offer must be made with respect thereto,
then the Asset Sale Offer shall be made concurrently with such other offer,
and securities of each issue which the holders of securities of such issue
elect to have purchased will be accepted pro rata in proportion to the
aggregate principal amount thereof; provided, that in so repurchasing such
other securities the Company is in compliance with the provisions of
"Limitation on Restricted Payments." In addition, notwithstanding the
foregoing provisions of the prior paragraph:
(i) the Company and its Subsidiaries may (A) convey, sell, lease,
transfer, assign or otherwise dispose of assets in the ordinary course of
business or (B) exchange assets for assets in a Related Business, provided,
however, in the case of this clause (B) that (1) the Company, prior to the
consummation of any such proposed exchange or series of related exchanges
having a fair market value in excess of $2.5 million, obtains a written
favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm
of national reputation, (2) no Default or an Event of Default shall have
occurred and be continuing and (3) after giving effect to such proposed
exchange on a pro forma basis, either (x) the Company is permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio in paragraph (a) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock" or (y) the
Company's Debt Incurrence Ratio is no greater than it was immediately prior
to such proposed exchange;
(ii) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
the limitation on mergers, sales or consolidations provisions in the
Indenture;
(iii) the Company and its Subsidiaries may (A) sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary, as applicable,
or (B) abandon such property if it cannot, through reasonable efforts, be
sold; and
(iv) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets to the Company or any of its wholly
owned Subsidiaries.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of its Subsidiaries
or Unrestricted Subsidiaries will be permitted after the Issue Date to enter
into any contract, agreement, arrangement or transaction with any Affiliate
(an "Affiliate Transaction"), or any series of related Affiliate Transactions
unless (1) the terms of such
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Affiliate Transaction are fair and reasonable to the Company, such Subsidiary
or such Unrestricted Subsidiary, as the case may be, and no less favorable to
the Company, such Subsidiary or such Unrestricted Subsidiary, as the case may
be, than could have been obtained in comparable arm's length transaction with
a non-Affiliate, (2) involving consideration to either party in excess of $1.0
million, unless such transaction is evidenced by an Officers' Certificate
addressed and delivered to the Trustee stating that the terms of such
Affiliate Transaction are fair and reasonable to the Company, such Subsidiary
or such Unrestricted Subsidiary, as the case may be, and no less favorable to
the Company, such Subsidiary or such Unrestricted Subsidiary, as the case may
be, than could have been obtained in comparable arm's length transaction with
a non-Affiliate, and (3) involving consideration to either party in excess of
$5.0 million, unless the Company, prior to the consummation thereof, obtains a
written favorable opinion as to the fairness of such transaction to the
Company from a financial point of view from an independent investment banking
firm of national reputation. The foregoing restriction will not apply to (1)
pro rata dividends or distributions paid in cash on any class of Capital Stock
and not prohibited under "Limitation on Restricted Payments," (2) payments to
Holdings made in accordance with the Tax Sharing Agreement, (3)
indemnification payments on behalf of directors, officers or employees of the
Company or a Guarantor made or incurred by such persons in such capacities (4)
payments made in accordance with the Brentwood Agreement as in effect on the
Issue Date, so long as no Event of Default shall have occurred and be
continuing (5) repurchases of Capital Stock not prohibited under clause (t) of
the "Limitation on Restricted Payments" covenant and (6) transactions between
the Company and any Wholly Owned Subsidiary Guarantor of the Company or
between Wholly Owned Subsidiary Guarantors of the Company.
Limitation on Lines of Business
Neither the Company nor any of its Subsidiaries or Unrestricted Subsidiaries
will directly or indirectly engage to any substantial extent in any line or
lines of business activity other than a Related Business.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey
or transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons, unless (i) either (a) the
Company is the continuing entity or (b) the resulting, surviving or transferee
entity is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection
with the Notes and the Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; and (iii) other than in the case of a transaction solely
between the Company and any wholly owned Guarantor, immediately after giving
effect to such transaction on a pro forma basis, the consolidated surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set
forth in paragraph (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets in accordance with the foregoing, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named therein as such,
and the Company shall be released from the obligations under the Notes and the
Indenture except with respect to any obligations that arise from, or are
related to, such transaction.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that from and after the Issue Date, the Company and
the Guarantors will not sell, and will not permit any of their Subsidiaries to
issue or sell, any shares of Capital Stock of any Subsidiary of the Company to
any person other than the Company or a wholly owned Subsidiary of the Company.
The Indenture
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provides that all of the Capital Stock of a Subsidiary of the Company may be
sold if such Asset Sale complies with the covenant "Limitation on Sale of
Assets and Subsidiary Stock." In such case, that Subsidiary will be released
from its obligations under its Guarantee in respect of the Notes and the
Indenture.
Future Subsidiary Guarantors
The Indenture provides that all present and future direct or indirect
Subsidiaries of the Company jointly and severally will guarantee irrevocably
and unconditionally all principal, Liquidated Damages and premium, if any, and
interest on the Senior Notes on a senior basis.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not the Company or Holdings is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, each of the Company and Holdings shall deliver to the Trustee, to each
Holder and to prospective purchasers of Notes identified to the Company by an
Initial Purchaser, within 15 days after it is or would have been required to
file such with the Commission, (i) annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission, if the Company and Holdings were subject
to the requirements of Section 13 or 15(d) of the Exchange Act, including,
with respect to annual information only, a report thereon by the Company's and
Holdings' certified independent public accountants as such would be required
in such reports to the Commission, and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required; and (ii) all reports that would be
required to be filed with the Commission on Form 8-K. In addition, the Company
has agreed that, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request for so long as any Notes
remain outstanding. However, the Commission does not generally accept for
filing any Exchange Act reports submitted by registrants that are not subject
to the reporting requirements of that Act. Furthermore, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on the Notes as and when the same becomes
due and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the principal, or premium, if
any, on the Notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
payment of the Change of Control Purchase Price or the Asset Sale Offer Price,
or otherwise, (iii) the making by the Company or any of its Subsidiaries of a
Restricted Payment not permitted by the Indenture, (iv) the failure by the
Company or any Guarantor to observe or perform any other covenant or agreement
contained in the Notes or the Indenture and, subject to certain exceptions,
the continuance of such failure for a period of 60 days after written notice
is given to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the Notes
outstanding, (v) certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Significant Subsidiaries, (vi) a default
in any Indebtedness of the Company or any of its Subsidiaries with an
aggregate principal amount in excess of $5.0 million (a) resulting from the
failure to pay principal at maturity or (b) as a
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result of which the maturity of such Indebtedness has been accelerated prior
to its stated maturity, (vii) final unsatisfied judgments not covered by
insurance aggregating in excess of $5.0 million, at any one time rendered
against the Company or any of its Subsidiaries and not stayed, bonded or
discharged within 90 days, and (viii) except as permitted by the Indenture and
the Notes, the cessation of effectiveness of any Guarantee in any material
respect or the finding by any judicial proceeding that any Guarantee is
unenforceable or invalid in any material respect or the denial or
disaffirmation by any Guarantor in writing of its obligations under its
Guarantee. The Indenture provides that if a Default occurs and is continuing,
the Trustee must, within 90 days after the occurrence of such default, give to
the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (v) above, relating to the Company or any
Significant Subsidiary), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given
by Holders) (an "Acceleration Notice"), may declare all principal, determined
as set forth below, and accrued interest thereon to be due and payable
immediately. In the event a declaration of acceleration resulting from an
Event of Default described in clause (vi) above has occurred and is
continuing, such declaration of acceleration shall be automatically annulled
if such default is cured or waived or the holders of the Indebtedness which is
the subject of such default have rescinded their declaration of acceleration
in respect of such Indebtedness within 60 days thereof and the Trustee has
received written notice of such cure, waiver or rescission and no other Event
of Default described in clause (vi) above has occurred that has not been cured
or waived within 60 days of the declaration of such acceleration in respect of
such Indebtedness. If an Event of Default specified in clause (v), above,
relating to the Company or any Significant Subsidiary occurs, all principal
and accrued interest thereon and Liquidated Damages, if any, will be
immediately due and payable on all outstanding Notes without any declaration
or other act on the part of the Trustee or the Holders. The Holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of or interest on any Note not yet cured,
or a default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding Note
affected. Subject to the provisions of the Indenture relating to the duties of
the Trustee, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders, unless such Holders have offered to the Trustee reasonable
security or indemnity. Subject to all provisions of the Indenture and
applicable law, the Holders of a majority in aggregate principal amount of the
Notes at the time outstanding will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and
the Indenture shall cease to be of further effect as to all outstanding Notes
and Guarantees, except as to (i) rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust funds; (ii) the Company's obligations
with respect to such Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an
office or agency for payment and money for security payments held in trust;
(iii) the rights, powers, trust, duties, and immunities of the Trustee, and
the Company's obligations in connection therewith; and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are
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described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. legal tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Notes, and
the holders of Notes must have a valid, perfected, exclusive security interest
in such trust; (ii) in the case of the Legal Defeasance, the Company shall
have delivered to the Trustee a written opinion of counsel in the United
States reasonably acceptable to Trustee confirming that (A) the Company has
received from, or there has been published by the Internal Revenue Service, a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the holders of such
Notes will not recognize income, gain or loss for Federal income tax purposes
as a result of such Legal Defeasance and will be subject to Federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee a written
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the holders of such Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such Covenant Defeasance
and will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation
of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of such Notes over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and (vii) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company and
the Guarantors under the Indenture will be revived, and no such defeasance
will be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Guarantors and
the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders
of not less than a majority in aggregate principal amount of the Notes at the
time outstanding, the Company, the Guarantors and the Trustee are permitted to
amend or supplement the Indenture or any supplemental indenture or modify the
rights of the Holders; provided, that no such modification may, without the
consent of each Holder affected thereby: (i) change the Stated Maturity of or
the Change of Control Purchase Date or the Asset Sale Offer Period on any
Note, or reduce the principal amount thereof or the rate (or extend the time
for payment) of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which, any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or reduce the Change of
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Control Purchase Price or the Asset Sale Offer Price or alter the redemption
provisions or the provisions of the "Repurchase of Notes at the Option of the
Holder Upon a Change of Control" covenant in a manner adverse to the Holders,
or (ii) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, or (iii) change the ranking
of the Notes or the Guarantees to anything other than pari passu in right of
payment to all unsubordinated Indebtedness of the Company or the applicable
Guarantor or (iv) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Note affected thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no individual who serves as a direct or indirect
stockholder, partner, employee, officer or director, as such, past, present or
future of the Company, the Guarantors or any successor entity shall have any
personal liability in respect of the obligations of the Company or the
Guarantors under the Indenture or the Notes by reason of his or her status as
such stockholder, partner, employee, officer or director.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of any person existing at the
time such person becomes a subsidiary of such person or is merged or
consolidated into or with such person or one of its subsidiaries, and not
incurred in connection with or in anticipation of, such merger or
consolidation or of such person becoming a subsidiary of such person.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
any of the Guarantors, (ii) any spouse, immediate family member, or other
relative who has the same principal residence of any person described in
clause (i) above, and (iii) any trust in which any person described in clause
(i) or (ii) above has a beneficial interest. For purposes of this definition,
the term "control" means the power to direct the management and policies of a
person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise, provided, that a
beneficial owner of 10% or more of the total voting power normally entitled to
vote in the election of directors, managers or trustees, as applicable, shall
for such purposes be deemed to constitute control. Notwithstanding the
foregoing, the term Affiliate shall not include Subsidiary Guarantors.
"Assets to Be Disposed of" means assets identified in an Officers'
Certificate at the time of an Acquisition as assets the Company or the
acquiring Subsidiary intends to dispose of within 180 days of such
Acquisition.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a)
the product of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"beneficial owner" for purposes of the definition of Change of Control has
the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act
(as in effect on the Issue Date), whether or not applicable, except that a
"person" shall be deemed to have "beneficial ownership" of all shares that any
such person has the right
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to acquire, whether such right is exercisable immediately or only after the
passage of time or (unless not within the control of such person) upon the
occurrence of certain events.
"Brentwood" means Brentwood Golf Partners, L.P. and/or any of its
Affiliates.
"Brentwood Agreement" means the Corporate Development and Administrative
Services Agreement dated September 30, 1992 between the Company and Brentwood
Buyout Partners, L.P., as amended as of the Issue Date.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any person, any capital stock of such
person and shares, interests, participations or other ownership interests
(however designated) of any person and any rights (other than debt securities
convertible into corporate stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such person if such person is a corporation and each
general and limited partnership interest of such person if such person is a
partnership.
"Capitalized Lease Obligation" means rental obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million and commercial paper issued by others rated
at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at
least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing within one year after the date of acquisition and (iii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"Consolidated Cash Flow Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of consolidated Indebtedness of such person on the
Transaction Date to (b) the aggregate amount of Consolidated EBITDA of such
person (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of) during the Reference Period;
provided, however, that for purposes of such calculation, (i) Acquisitions
which occurred during the Reference Period or subsequent to the Reference
Period and on or prior to the Transaction Date shall be assumed to have
occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the Consolidated Cash Flow Ratio shall be
assumed to have occurred on the first day of the Reference Period and (iii)
the incurrence of any Indebtedness or issuance of any Disqualified Capital
Stock during the Reference Period or subsequent to the Reference Period and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of such Reference Period.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense (including any
accelerations thereof) and (iii) Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid,
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accrued, or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations) of
such person and its Consolidated Subsidiaries during such period, including
(i) original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations,
and (iii) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and currency
and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period, (b) one-third of rental expense for such period
attributable to operating leases of such person and its Consolidated
Subsidiaries, and (c) the amount of dividends accrued or payable by such
person or any of its Consolidated Subsidiaries in respect of Disqualified
Capital Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Company to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP and (y)
interest expense attributable to any Indebtedness represented by the guarantee
by such person or a Subsidiary of such person of an obligation of another
person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including without limitation any gain from the sale
or other disposition of assets outside the ordinary course of business or from
the issuance or sale of any Capital Stock), (b) the net income, if positive,
of any person, other than a wholly owned Consolidated Subsidiary, in which
such person or any of its Consolidated Subsidiaries has an interest, except to
the extent of the amount of any dividends or distributions actually paid in
cash to such person or a wholly owned Consolidated Subsidiary of such person
during such period, but in any case not in excess of such person's pro rata
share of such person's net income for such period, (c) the net income or loss
of any person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (d) the net income, if positive, of
any of such person's Consolidated Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated for financial
statement reporting purposes with the financial statements of such person in
accordance with GAAP.
"Consolidated Tangible Net Worth" of any person at any date means the total
assets of such person and its Consolidated Subsidiaries, as would be shown on
the consolidated balance sheet of such person prepared in accordance with
GAAP, less (a) the total liabilities appearing on such balance sheet, and (b)
intangible assets. For purposes hereof, "intangible assets" means the value
(net of any applicable reserves), as shown on or reflected in such balance
sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and
goodwill; (ii) organizational and development costs; and (iii) unamortized
debt discount and expense, less unamortized premium.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Capital Stock other than any common stock with no special rights
and no preference, privileges, or redemption or repayment provisions.
"Existing Assets" means assets of the Company and its Subsidiaries existing
at the Issue Date (other than cash, Cash Equivalents or inventory held for
resale in the ordinary course of business) and including proceeds of any sale
of such assets and assets acquired in whole or in part with proceeds from the
sale from any such assets.
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"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such person, (i) in respect
of borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 90 days past their original due
date, or for which adequate reserves have been established while such amounts
are being contested in good faith) those incurred in the ordinary course of
its business that would ordinarily constitute a trade payable to trade
creditors, (iv) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (v) in respect of Capitalized Lease Obligations,
or (vi) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit; (b) all net obligations of such
person under Interest Swap and Hedging Obligations; (c) all liabilities of
others of the kind described in the preceding clauses (a) and (b) that such
person has guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any Capital Stock; (d) all
obligations secured by a Lien to which the property or assets (including,
without limitation, leasehold interests and any other tangible or intangible
property rights) of such person are subject, whether or not the obligations
secured thereby shall have been assumed by or shall otherwise be such person's
legal liability, provided, that the amount of such obligations shall be
limited to the lesser of the fair market value of the assets or property to
which such Lien attaches and the amount of the obligation so secured; and (e)
any and all deferrals, renewals, extensions, refinancings and refundings
(whether direct or indirect) of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding clauses (a),
(b), (c) or (d), or this clause (e), whether or not between or among the same
parties.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition by such person (whether for cash, property, services,
securities or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other person or any agreement to make any such
acquisition; (b) the making by such person of any deposit with, or advance,
loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property from another
person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) other than the Guarantees of
the Notes, the entering into by such person of any guarantee of, or other
credit support or contingent obligation with respect to, Indebtedness or other
liability of such other person; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. The
Company shall be deemed to make an "Investment" in an amount equal to the fair
market value of the net assets of any person (or, if neither the Company nor
any of its Subsidiaries has theretofore made an Investment in such person, in
an amount equal to the Investments being made), at the time that such person
is designated an Unrestricted Subsidiary or, if such designation is made
pursuant to clause (i)(c) of the definition of Unrestricted Subsidiary, in an
amount equal to the sum of the Investments being made and the consideration
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paid by the Company and its Subsidiaries to effect such Acquisition
(excluding, for this purpose only, Qualified Capital Stock of the Company
issued in connection therewith). Any property transferred to an Unrestricted
Subsidiary from the Company or a Subsidiary of the Company, shall be deemed an
"Investment" valued at its fair market value at the time of such transfer.
"Investor Group" means any one or more of the stockholders of Holdings
immediately prior to the Issue Date and any one or more Affiliates of such
persons.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and
by the Company and its Subsidiaries in respect of an Asset Sale plus, in the
case of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible
or exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary),
expenses (including, without limitation, the fees and expenses of legal
counsel and investment banking fees and expenses) incurred in connection with
such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any of its respective Subsidiaries in the current
or next succeeding taxable year of sale in connection with such Asset Sale.
"New Credit Facility" means the credit agreement to be dated as of June 4,
1996 by and among the Company, Holdings, Bank of America NT & SA, individually
and as agent, and certain financial institutions, providing for (A) an
aggregate $45.0 million reducing revolving loan facility, and (B) an aggregate
$5.0 million working capital revolving credit facility, including any related
notes, guarantees, collateral documents, instruments and agreements executed
in connection therewith, as such credit agreement and/or related documents may
be amended, restated, supplemented, renewed, replaced or otherwise modified
from time to time whether or not with the same agent, trustee, representative
lenders or holders, and, subject to the proviso to the next succeeding
sentence, irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "New Credit
Facility" shall include agreements in respect of Interest Swap and Hedging
Obligations with lenders party to the New Credit Facility and shall also
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to the New Credit Facility and all
refundings, refinancings and replacements of the New Credit Facility,
including any agreement (i) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one or more
of the Company and its Subsidiaries and their respective successors and
assigns, or (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, provided, however, that on the date such
Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock."
"Non-recourse Purchase Money Indebtedness" means Indebtedness of the Company
or its Subsidiaries to the extent that (i) under the terms thereof or pursuant
to law, no personal recourse may be had against the Company or its
Subsidiaries for the payment of the principal of or interest or premium on
such Indebtedness (or such portion), and enforcement of obligations on such
Indebtedness (or such portion) (except with respect to fraud, willful
misconduct, misrepresentation, misapplication of funds, reckless damage to
assets and undertakings with respect to environmental matters or construction
defects) is limited only to recourse against interests in specified assets and
property (the "Subject Assets"), accounts and proceeds arising therefrom, and
rights under purchase agreements or other agreements with respect to such
Subject Assets; (ii) such Indebtedness is incurred in connection with the
acquisition of such Subject Asset for the business of the Company or such
Subsidiaries, including Indebtedness assumed which Indebtedness existed at the
time of the acquisition of such Subject Asset; (iii) such Indebtedness was
incurred at the time of such acquisition of such Subject Asset; and (iv) no
proceeds from the sale of Existing Assets were used to acquire such Subject
Asset.
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"Permitted Indebtedness" means any of the following:
(a) the Company and the Guarantors may incur Indebtedness in respect of
Capitalized Lease Obligations and Non-recourse Purchase Money Indebtedness
in the ordinary course of business, in amounts and for the purposes
customary in the Company's industry; provided, however, that the aggregate
principal amount outstanding of such Indebtedness (including any
Indebtedness issued to Refinance, refund or replace such Indebtedness)
shall at no time exceed $10.0 million;
(b) the Company may incur Indebtedness to any wholly owned Subsidiary
Guarantor, and any Subsidiary Guarantor may incur Indebtedness to any
wholly owned Subsidiary Guarantor or to the Company; provided, that such
obligations shall be subordinated in all respects to the Company's or such
Guarantor's obligations pursuant to its Guarantee of the Company's
obligations pursuant to the Indenture and the Notes and
(c) Indebtedness outstanding on the Issue Date after giving effect to the
New Credit Facility.
"Permitted Liens" means any of the following
(a) Liens existing on the Issue Date (including Liens in favor of the
Trustee arising under the Indenture and Liens securing Indebtedness
permitted to be incurred pursuant to the New Credit Facility in compliance
with paragraph (e) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"), after giving effect to the
implementation of the New Credit Facility, and any extension, renewal,
replacement or refinancing, in whole or in part, of any such Lien so long
as (1) the amount of security is not increased thereby, (2) the aggregate
amount secured by such Lien after such extension, renewal, replacement or
refinancing does not exceed (after deduction of reasonable and customary
fees and expenses incurred in connection therewith) the aggregate amount
secured thereby prior thereto and (3) the Indebtedness secured by such
Lien, if any, is permitted under the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock;"
(b) Liens for taxes, assessments or other governmental charges or claims
not yet due or which are being contested in good faith and by appropriate
proceedings by a person if adequate reserves or other appropriate
provisions with respect thereto are maintained on the books of such person
to the extent required in accordance with GAAP;
(c) statutory Liens of carriers, warehousemen, mechanics, landlords,
materialmen, repairmen or other like Liens arising by operation of law and
Liens on deposits made to obtain the release of such Liens if (i) the
underlying obligations are not overdue for a period of more than 60 days or
(ii) such Liens are being contested in good faith and by appropriate
proceedings by such person and adequate reserves with respect thereto are
maintained on the books of such person in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
in connection with any borrowing of money or any commitment to loan any
money or to extend any credit), leases, statutory obligations, surety and
appeal bonds and other obligations of a like nature, and pledges or
deposits in connection with workers' compensation, unemployment insurance
and other types of social security legislation, in each case made or
incurred in the ordinary course of business consistent with industry
practices;
(e) easements, rights-of-ways, zoning and similar restrictions and other
similar encumbrances or title defects which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from
the value of the property subject thereto (as such property is used by such
person) or interfere with the ordinary conduct of the business of such
person; provided, that any such Liens are not incurred for the benefit of
any borrowing of money or any commitment to loan any money or to extend any
credit;
(f) Liens arising by operation of law in connection with judgments to the
extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(g) Liens securing Non-recourse Purchase Money Indebtedness permitted to
be incurred under the Indenture, provided, that each such Lien relates only
to the property which is subject to such Non-recourse Purchase Money
Indebtedness;
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(h) any customary retention of title by the lessor under a Capitalized
Lease Obligation incurred in compliance with the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock;"
(i) Liens that secure Acquired Indebtedness, provided, in each case, that
such Liens do not secure any other property or assets and were not put in
place in connection with or in anticipation of such acquisition, merger or
consolidation, and any extension, renewal, replacement or refinancing, in
whole or in part, of any such Lien so long as (1) the amount of security is
not increased thereby, (2) the aggregate amount secured by such Lien after
such extension, renewal, replacement or refinancing does not exceed (after
deduction of reasonable and customary fees and expenses incurred in
connection therewith) the aggregate amount secured thereby prior thereto
and (3) the Indebtedness secured by such Lien, if any, is permitted under
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock;"
(j) Liens that secure Indebtedness incurred pursuant to clause (a) of the
"Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" covenant, provided that (i) after giving effect on a pro-
forma basis to such Incurrence and the use of proceeds thereof, the Debt
Incurrence Ratio is no greater than 5 to 1 and (ii) that the aggregate
amount secured by any such Lien does not exceed the aggregate amount of
such Indebtedness; and
(k) Liens that secure Indebtedness incurred under the New Credit Facility
either (i) pursuant to clause (e) of the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock" and/or (ii)
pursuant to clause (a) of the "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" covenant, provided that (i)
after giving effect on a pro forma basis to such Incurrence and the use of
proceeds thereof, the Debt Incurrence Ratio is no greater than 5 to 1.
"Public Equity Offering" means an underwritten offering of common stock of
the Company or Holdings pursuant to an effective registration statement under
the Securities Act after which the common stock of the Company or Holdings, as
applicable, is listed on a national securities exchange or quoted on the
Nasdaq National Market.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Qualified Exchange" means any defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the
Company issued on or after the Issue Date with the Net Cash Proceeds received
by the Company from the substantially concurrent sale of Qualified Capital
Stock.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination
is to be made pursuant to the terms of the Notes or the Indenture; provided,
however, that the Consolidated Fixed Charges of such person, to the extent
such person has been in existence for a shorter period than four full fiscal
quarters, shall be computed on an annualized basis.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing) the lesser of (i) the principal amount or, in
the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, however, that (A) such Refinancing Indebtedness of
any Subsidiary of the Company shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B) Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness
or Disqualified Capital Stock to be so refinanced at the time of such
Refinancing and (y) in all respects, be no less subordinated, if applicable,
to the rights of Holders of the
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Notes than was the Indebtedness or Disqualified Capital Stock to be refinanced
and (C) such Refinancing Indebtedness shall have no installment of principal
(or redemption payment) scheduled to come due earlier than the scheduled
maturity of any installment of principal of the Indebtedness or Disqualified
Capital Stock to be so refinanced which was scheduled to come due prior to the
Stated Maturity.
"Related Business" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the Company are materially related
businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than (a) in Cash Equivalents, (b) intercompany notes to
the extent permitted under "Permitted Indebtedness," (c) Investments in
existence on the Issue Date and (d) Investments in wholly owned Subsidiary
Guarantors (including Investments as a direct result of which the surviving
entity is or becomes the Company or a direct wholly owned Subsidiary
Guarantor).
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock
of such person or any Subsidiary of such person, (b) any payment on account of
the purchase, redemption or other acquisition or retirement for value of
Capital Stock of such person or any Subsidiary of such person, (c) any
purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Capital Stock of
an issuer to the extent payable solely in shares of Qualified Capital Stock of
such issuer; (ii) any dividend, distribution or other payment to the Company
or to any of its Subsidiaries by the Company or any of its Subsidiaries,
provided, however, that such payment by a Subsidiary which is not wholly owned
by the Company and/or its wholly owned Subsidiaries shall constitute a
"Restricted Payment" to the extent not paid on a pro rata basis in accordance
with its organizational documents as in effect on the later of the Issue Date
and the time such person first became a Subsidiary of the Company; or (iii)
loans or advances to any Subsidiary Guarantor the proceeds of which are used
by such Subsidiary Guarantor in a Related Business activity of such Subsidiary
Guarantor.
"Significant Subsidiary," with respect to any person, means a Subsidiary of
such person which, as of the end of such person's most recent fiscal quarter,
had a Consolidated Tangible Net Worth equal to at least 5% of the Consolidated
Tangible Net Worth of such person as of such date.
"Stated Maturity," when used with respect to any Note, means June 1, 2003.
"Strategic Investors" means any person whose principal line of business
activity is a Related Business and (a) whose total market capitalization is in
excess of $500.0 million as measured by the sum of the aggregate principal
dollar amount of its Indebtedness and the aggregate dollar value of its
Capital Stock (as measured by the per share price of its Capital Stock
multiplied by the number of outstanding shares of such Capital Stock) or (b)
in the case of a person without publicly traded Capital Stock whose private
market value, as determined by the Board of Directors of the Company
consistent with advice obtained from an independent, nationally recognized
investment banking firm, is in excess of $500.0 million.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary that is subordinated in right of payment to the Notes or, if
applicable, a Guarantee in respect thereof in any respect, or has a stated
maturity on or after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such person,
by such person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) a partnership in which a person or a
subsidiary of such person is, at the date of determination, a
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general partner of such partnership and in which such person or a subsidiary
of such person has a majority of the economic interests or (iii) any other
person (other than a corporation) in which such person, one or more
Subsidiaries of such person, or such person and one or more Subsidiaries of
such person, directly or indirectly, at the date of determination thereof has
at least majority ownership interest. Notwithstanding the foregoing, an
Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any
Subsidiary of the Company.
"Tax Sharing Agreement" means any agreements between the Company and
Holdings pursuant to which the Company may make payments to Holdings with
respect to the Company's Federal, state, or local income or franchise tax
liabilities where the Company is included in a consolidated, unitary or
combined return filed by Holdings; provided, however, that the payment by the
Company under such agreement may not exceed the liability of the Company for
such taxes if it had filed its income tax returns as a separate company.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, however, that such subsidiary shall
not engage, to any substantial extent, in any line or lines of business
activity other than a Related Business, and immediately prior thereto and
after giving pro forma effect to such designation (i) either (a) the Company
could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence
Ratio in paragraph (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," (b) such subsidiary, at the time
of designation, has no assets or (c) such subsidiary is designated an
"Unrestricted Subsidiary" at the time of Acquisition by the Company or its
Subsidiaries and (ii) there would not exist a Default or Event of Default. The
Board of Directors of the Company may designate any Unrestricted Subsidiary to
be a Subsidiary, provided, that (i) no Default or Event of Default is existing
or will occur as a consequence thereof and (ii) immediately after giving
effect to such designation, on a pro forma basis, the Company could incur at
least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio in paragraph
(a) of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock." Each such designation shall be evidenced by
filing with the Trustee a certified copy of the resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered notes in global form (the "Global
Securities"). Each Global Security will be deposited on the Issue Date of the
Exchange Notes, with, or on behalf of, The Depository Trust Company (the
"Depositary"), and registered in the name of Cede & Co., as nominee of the
Depositary. Interests in Global Exchange Notes will be available for purchase
only by "qualified institutional buyers," as defined in Rule 144A under the
Securities Act ("QIBs").
Exchange Notes that are (i) originally issued to or transferred to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, who are not QIBs or to any other persons who
are not QIBs or (ii) issued as described below under "Certificated
Securities," will be issued in registered form (the "Certificated
Securities"). Upon the transfer to a QIB of Certificated Securities, such
Certificated Securities will, unless the Global Security has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Security representing the principal amount of Exchange Notes being
transferred. For a description of the restrictions on the transfer of
Certificated Securities, see "Plan of Distribution."
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The Depositary holds securities that its participants
("Participants") deposit with Depositary. The Depositary also facilitates the
settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-
entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities
74
<PAGE>
brokers and dealers, banks, trust companies, clearing corporations, and
certain other organizations. The Depositary is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the Depositary's system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The Rules applicable to the
Depositary and its Participants are on file with the Commission.
The issuance of Exchange Notes under the Depositary's system must be made by
or through Direct Participants, which will receive a credit for the Exchange
Notes on the Depositary's records. The ownership interest of each QIB that
purchases an Exchange Note ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Exchange Notes, except in the
event that use of the book-entry system for the Exchange Notes is
discontinued.
To facilitate subsequent transfers, all Exchange Notes deposited by
Participants with the Depositary are registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of Exchange Notes
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Exchange Notes; the Depositary's records reflect only
the identity of the Direct Participants to whose accounts such Exchange Notes
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Exchange Notes are being redeemed, the Depositary's practice is to determine
by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Exchange Notes. Under its usual procedures, the Depositary mails an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, interest and premium payments on the Exchange Notes will be made
to the Depositary. The Depositary's practice is to credit Direct Participants
accounts on payable date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on payable date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility
of such Participant and not of the Depositary, Agent or the Company, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal and interest to the Depositary is the
responsibility of the Company or Agent, disbursement of such payments to
Direct Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Exchange Notes
purchased or tendered, through its Participant, to any Tender Agent, and shall
effect delivery of such Securities by causing the Direct Participant to
75
<PAGE>
transfer the Participant's interest in the Exchange Notes, on the Depositary's
records, to the Tender Agent. The requirement for physical delivery of
Exchange Notes in connection with an optional tender or a mandatory purchase
will be deemed satisfied when the ownership rights in the Exchange Notes are
transferred by Direct Participants on the Depositary's records and followed by
a book-entry credit of rendered Securities to the Tender Agent's account.
The Depository may discontinue providing its services as securities
depository with respect to the Exchange Notes at any time by giving reasonable
notice to the Company or its Agent. Under such circumstances, in the event
that a successor securities depository is not obtained, Certificated
Securities are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Securities will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Certificated Securities
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Exchange Notes in definitive form under the Indenture, then, upon surrender
by the Depositary of its Global Security, Certificated Securities will be
issued to each person that the Depositary identifies as the beneficial owner
of the Exchange Notes represented by the Global Note. In addition, subject to
certain conditions, any person having a beneficial interest in a Global
Security may, upon request to the Trustee, exchange such beneficial interest
for Certificated Securities. Upon any such issuance, the Trustee is required
to register such Certificated Securities in the name of such person or persons
(or the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related Exchange Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Exchange Notes to
be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder and under
the rules and procedures governing their respective obligations.
Same-Day Funds Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the registered holder of the
Global Note. With respect to Certificated Securities, the Company will make
all payments of principal, premium, if any, interest and Liquidated Damages,
if any, by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address. Secondary trading in
long-term notes and debentures of corporate issuers is generally settled in
clearing-house or next-day funds. In contrast, the Exchange Notes represented
by the Global Note are expected to be eligible to trade in the PORTAL market
and to trade in the Depositary's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such Exchange Notes will,
therefore, be required by the Depositary to be settled in immediately
available funds. The Company expects that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
76
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
Simultaneously with the consummation of the Offerings, the Company entered
into credit agreement dated as of June 4, 1996 (the "New Credit Facility")
with a syndicate of financial institutions for whom Bank of America NT & SA is
acting as agent. The New Credit Facility provides for (i) a six-year reducing
revolving credit facility with aggregate availability of $45 million (the
"Reducing Revolver Commitment") and (ii) a $5 million six-year working capital
revolving credit facility (the "Working Capital Revolver"). The following
description is a summary of the material terms and conditions of the New
Credit Facility. This summary does not purport to be a complete description of
the New Credit Facility and is subject to the detailed provisions of the loan
agreement and various related documents entered into in connection with the
New Credit Facility.
Borrowings under the New Credit Facility will be secured by substantially
all of the assets of the Company and its Subsidiaries, including their equity
interests, and by the stock of the Company and are guaranteed by such
Subsidiaries and by Holdings. Borrowings under the Reducing Revolver
Commitment may be used to fund future acquisitions of golf courses and to fund
upgrade capital expenditures at such courses and certain capital improvements
at existing courses. Borrowings under the Working Capital Revolver may be used
for maintenance, capital expenditures and other general corporate purposes,
including working capital and certain dividends to Holdings. In addition, the
New Credit Facility provides that the Company may not make any acquisitions or
upgrade capital expenditures, when Funded Debt plus certain projected upgrade
capital expenditures are initially greater than 6.5x of Adjusted EBITDA (each
such term as defined in the New Credit Facility), calculated as provided
therein.
Amounts borrowed will bear interest at rates, selected at the Company's
option from time to time, based on a base rate or the Eurodollar rate, in each
case plus a fluctuating percentage based on the Company's ratio of Funded Debt
plus certain projected upgrade capital expenditures to Adjusted EBITDA (each
such term as defined in the New Credit Facility), calculated as provided
therein.
Beginning on September 30, 1998, the Reducing Revolver Commitment will
reduce quarterly, with annual reductions of approximately $4.4 million in
1998, approximately $12.1 million in 1999, approximately $15.4 million in
2000, approximately $15.4 million in 2001 and approximately $7.7 million in
2002. In addition, the New Credit Facility provides for mandatory prepayments
of (i) all net proceeds of certain asset sales, subject to certain exceptions,
(ii) all net proceeds of certain debt issuances, subject to certain exceptions
and (iii) 50% of the net proceeds from certain equity issuances. Such
mandatory prepayments will be applied first to permanently reduce the Reducing
Revolver Commitment (and outstanding loans) and secondly to permanently reduce
the Working Capital Revolver (and outstanding loans).
The obligations of the lenders under the New Credit Facility to advance
funds are subject to certain conditions customary in secured credit
facilities. In addition, the Company is subject to certain customary
affirmative and negative covenants contained in the New Credit Facility,
including without limitation covenants that restrict, subject to specified
exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the
granting of liens, (v) prepayment or repurchase of other indebtedness, (vi)
the granting of guarantees, (vii) the payments of dividends and other
restricted payments, (viii) certain upgrade capital expenditures and (ix)
modifications of certain material agreements. Certain of these covenants may
be more restrictive than those in favor of holders of the Notes as described
herein and as set forth in the Indenture. In addition, the New Credit Facility
requires that the Company maintain certain specified financial covenants,
including minimum interest and fixed charge coverage ratios, a minimum net
worth and maximum Funded Debt plus certain upgrade capital expenditures to
Adjusted EBITDA and Bank Debt to Adjusted EBITDA ratios (calculated as
provided therein).
The New Credit Facility provides for customary events of default, including
without limitation events of default relating to (i) failure to pay principal,
interest or fees, (ii) breach of covenants, representations or warranties,
(iii) cross default to other indebtedness (including the Senior Notes) or
material contracts, (iv) bankruptcy, (v) change in control, (vi) material
adverse effect and (vii) material judgments. The occurrence of any of such
events of default could result in acceleration of the Company's obligations
under the New Credit Facility and foreclosure on the collateral securing such
obligations, which would have material adverse results to holders of the
Notes.
77
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service ("the Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought with respect to the Exchange Offer. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER OF
PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a "non-
event" for federal income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the Private Notes. As a
result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Company has agreed that for
a period of up to 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
78
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, Los Angeles, California. Certain partners of
Latham & Watkins, members of their respective families, related persons and
others have an indirect interest, through Brentwood, in less than 1% of the
outstanding stock of Holdings, but do not have the power to vote or dispose of
such interests.
EXPERTS
The consolidated financial statements of Cobblestone Golf Group, Inc. as of
September 30, 1994 and 1995 and for each of the three years in the period
ended September 30, 1995, the statements of operations of the Lakeway Country
Club for the year ended December 31, 1993 and 1994 and for the three months
ended March 31, 1995, the combined statements of operations of the Stonebridge
Country Club and the Ranch Country Club for the year ended December 31, 1993
and the eleven and a half months ended December 31, 1994, the statements of
operations of the Brandermill Country Club for the year ended December 31,
1994 and the two months ended February 28, 1995, the statements of operations
of the Pecan Grove Country Club for the year ended December 31, 1993 and the
month ended January 31, 1994, the statement of operations of the Ocean Vista
Land Company for the five months ended May 31, 1993, and the statement of
operations of the Saticoy Regional Golf Course for the two and a half months
ended March 12, 1993, appearing in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Sweetwater Golf Partnership as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Brandermill Country Club, L.P. at December 31,
1993, and for the year then ended, included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in
the Registration Statement. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. As a result of the
Exchange Offer, the Company will become subject to the informational
requirements of the Exchange Act. The Registration Statement (and the exhibits
and schedules thereto), as well as the periodic reports and other information
filed by the Company with the Commission, may be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
6061-2511. Copies of such materials may be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois at the prescribed rates. The Commission also
maintains a web site (located at http://www.sec.gov) that contains reports,
proxy and information statements and
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<PAGE>
other information regarding registrants that file electronically with the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Notes, without cost to the Trustee or such
registered holders, copies of all reports and other information that would be
required to be filed by the Company with the Commission under the Exchange
Act, whether or not the Company is then required to file reports with the
Commission. As a result of this Exchange Offer, the Company will become
subject to the periodic reporting and other informational requirements of the
Exchange Act. In the event that the Company ceases to be subject to the
informational requirements of the Exchange Act, the Company has agreed that,
so long as any Notes remain outstanding, it will file with the Commission (but
only if the Commission at such time is accepting such voluntary filings) and
distribute to holders of the Notes copies of the financial information that
would have been contained in such annual reports and quarterly reports,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations," that would have been required to be filed with the
Commission pursuant to the Exchange Act. However, the Commission does not
generally accept for filing any Exchange Act reports submitted by registrants
that are not subject to the reporting requirements of that Act. The Company
will also furnish such other reports as it may determine or as may be required
by law.
The principal address of the Company is 3702 Via de la Valle, Suite 202, Del
Mar, California 92104, and the Company's telephone number is (619) 794-2602.
80
<PAGE>
COBBLESTONE GOLF GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Cobblestone Golf Group, Inc.
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Consolidated Balance Sheets--September 30, 1994 and 1995 and June 30,
1996 (unaudited)....................................................... F-3
Consolidated Statements of Operations--for the years ended September 30,
1993, 1994 and 1995, and for the nine months ended June 30, 1995 and
1996 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity--for the years ended
September 30, 1992, 1993, 1994, and 1995, and for the nine months ended
June 30, 1996 (unaudited).............................................. F-5
Consolidated Statements of Cash Flows--for the years ended September 30,
1993, 1994 and 1995, and for the nine months ended June 30, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements--September 30, 1995 and June
30, 1996 (unaudited)................................................... F-7
Financial Statements of Sweetwater Golf Partnership
Report of Independent Accountants....................................... F-20
Balance Sheet--December 31, 1994, December 31, 1995 and June 30, 1996
(unaudited)............................................................ F-21
Statement of Operations--For the three years ended December 31, 1995,
and the six months ended June 30, 1995 and 1996 (unaudited)............ F-22
Statement of Partners' Capital (Deficit)--For the two years ended
December 31, 1995, and the six months ended June 30, 1996 (unaudited).. F-23
Statement of Cash Flows--For the three years ended December 31, 1995,
and the six months ended June 30, 1995 and 1996 (unaudited)............ F-24
Notes to Financial Statements........................................... F-26
Financial Statements of Lakeway Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-30
Statements of Operations--For the years ended December 31, 1993 and 1994
and for the three months ended March 31, 1995.......................... F-31
Note to Statements of Operations........................................ F-32
Combined Financial Statements of Stonebridge Country Club and The Ranch
Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-33
Statements of Operations--For the year ended December 31, 1993 and the
eleven and a half months ended December 15, 1994....................... F-34
Notes to Statements of Operations....................................... F-35
Financial Statements of Brandermill Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-36
Statements of Operations--For the year ended December 31, 1994 and the
two months ended February 28, 1995..................................... F-37
Note to Statements of Operations........................................ F-38
Financial Statements of Brandermill Country Club
Report of Independent Auditors.......................................... F-39
Balance Sheet--December 31, 1993........................................ F-40
Statement of Operations for the year ended December 31, 1993............ F-41
Statement of Partners' Deficit for the year ended December 31, 1993..... F-42
Statement of Cash Flows for the year ended December 31, 1993............ F-43
Summary of Accounting Policies.......................................... F-44
Notes to Financial Statements........................................... F-45
Financial Statements of Pecan Grove Plantation Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-47
Statements of Income--For the year ended December 31, 1993 and the month
ended
January 31, 1994....................................................... F-48
Notes to Statements of Income........................................... F-49
Financial Statements of Ocean Vista Land Company
Report of Ernst & Young LLP, Independent Auditors....................... F-51
Statement of Income--For the five months ended May 31, 1993............. F-52
Note to Statement of Income............................................. F-53
Financial Statements of Saticoy Regional Golf Course
Report of Ernst & Young LLP, Independent Auditors....................... F-54
Statement of Operations--For the two and a half months ended March 12,
1993................................................................... F-55
Note to Statement of Operations......................................... F-56
Unaudited Pro Forma Consolidated Financial Information.................... F-57
Unaudited Pro Forma Consolidated Statement of Operations--for the year
ended September 30, 1995............................................... F-58
Notes to Unaudited Pro Forma Consolidated Statement of Operations--for
the year ended September 30, 1995...................................... F-59
Unaudited Pro Forma Consolidated Statement of Operations--for the nine
months ended June 30, 1996............................................. F-60
Notes to Unaudited Pro Forma Consolidated Statement of Operations--for
the nine months ended June 30, 1996.................................... F-61
Unaudited Pro Forma Consolidated Balance Sheet--June 30, 1996........... F-62
Notes to Unaudited Pro Forma Consolidated Balance Sheet--June 30, 1996.. F-63
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying consolidated balance sheets of Cobblestone
Golf Group, Inc. as of September 30, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency) and cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cobblestone
Golf Group, Inc. at September 30, 1994 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
December 8, 1995
F-2
<PAGE>
COBBLESTONE GOLF GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1994 1995 1996
----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,298,671 $ 820,608 $ 1,841,057
Accounts receivable, net of
allowance for doubtful accounts
of $67,000 and $76,000 at
September 30, 1994 and 1995 and
$162,000 at June 30, 1996
(unaudited)..................... 1,261,015 2,542,122 2,469,851
Current portion of notes
receivables, net................ -- 862,922 1,592,206
Inventory........................ 723,102 1,439,063 1,950,223
Prepaid expenses and other
current assets.................. 283,463 585,398 452,747
----------- ------------ ------------
Total current assets........... 3,566,251 6,250,113 8,306,084
Property, equipment and leasehold
interests, net................... 73,734,237 128,000,304 138,161,490
Notes receivable, net............. -- 3,315,393 3,745,263
Intangible assets, net of
accumulated amortization of
$508,000 and $910,000 at
September 30, 1994 and 1995 and
$831,000 at June 30, 1996
(unaudited)...................... 4,603,066 4,190,860 3,969,931
Other assets, net................. 4,193,215 5,233,473 3,847,212
----------- ------------ ------------
$86,096,769 $146,990,143 $158,029,980
=========== ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 1,182,439 $ 2,788,114 $ 1,349,985
Accrued payroll and related
expenses........................ 835,426 1,092,232 1,686,971
Accrued interest expense......... 154,576 628,344 670,833
Accrued property taxes........... 520,667 1,038,856 675,330
Deferred revenue................. 965,890 1,221,305 1,967,909
Current portion of long-term debt
and capital lease obligations... 895,406 1,686,275 441,552
Current portion of deferred
purchase price.................. -- 441,427 248,329
Income taxes payable............. -- 842,241 7,196
Other current liabilities........ 269,450 479,541 495,619
----------- ------------ ------------
Total current liabilities...... 4,823,854 10,218,335 7,543,724
Long-term debt and capital lease
obligations...................... 44,194,386 85,013,950 77,094,527
Note payable to
stockholder/officer.............. 211,310 217,754 222,971
Deferred purchase price........... -- 1,108,573 924,692
Long-term deferred revenue........ 790,000 2,777,481 2,481,326
Deferred income taxes............. 4,184,000 3,877,000 3,458,583
Minority interest................. 431,675 407,175 380,984
Commitments
Stockholders' equity:
Redeemable preferred stock, $.01
par value
Authorized shares--450,000
Issued and outstanding shares--
343,625 and 430,757 at
September 30, 1994 and 1995 and
430,757 at June 30, 1996
(unaudited)
Liquidation preference of
$43,075,700 at September 30,
1995 and June 30, 1996.......... 3,436 4,307 4,307
Common stock, $.01 par value:
Authorized shares--200,000
Issued and outstanding shares--
109,090 and 134,829 at
September 30, 1994 and 1995 and
134,829 at June 30, 1996
(unaudited)..................... 1,091 1,348 1,348
Paid-in capital.................. 33,715,908 46,328,923 75,064,620
Accumulated deficit.............. (2,258,891) (2,964,703) (9,147,102)
----------- ------------ ------------
Total stockholders' equity........ 31,461,544 43,369,875 65,923,173
----------- ------------ ------------
$86,096,769 $146,990,143 $158,029,980
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
COBBLESTONE GOLF GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
YEAR ENDED SEPTEMBER 30, 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Green fees, cart
rental fees, practice
facility fees, dues
and initiation fees.. $3,778,299 $18,512,784 $38,043,441 $24,721,671 $31,760,988
Food and beverage
revenues............. 1,553,739 3,677,988 7,034,407 5,015,078 6,886,496
Pro shop sales........ 617,958 1,758,423 3,311,062 2,368,947 3,403,735
Other................. 557,109 943,559 1,473,869 840,037 1,664,652
---------- ----------- ----------- ----------- -----------
Total operating
revenues........... 6,507,105 24,892,754 49,862,779 32,945,733 43,715,871
Operating expenses:
Golf course
operations........... 3,520,135 14,341,609 29,591,886 19,527,270 25,860,509
Cost of food and
beverage............. 531,252 1,312,960 2,613,295 1,850,041 2,331,328
Cost of pro shop
sales................ 132,704 1,163,546 2,221,330 1,546,929 2,259,311
General and
administrative....... 1,620,166 1,996,991 2,517,423 1,807,678 2,595,799
Depreciation and
amortization......... 825,245 3,468,357 6,144,430 4,206,584 5,353,224
---------- ----------- ----------- ----------- -----------
Total operating
expenses........... 6,629,502 22,283,463 43,088,364 28,938,502 38,400,171
---------- ----------- ----------- ----------- -----------
Income (loss) from oper-
ations................. (122,397) 2,609,291 6,774,415 4,007,231 5,315,700
Interest expense, net... (529,720) (3,515,752) (8,019,072) (5,541,417) (7,840,218)
Gain on insurance
settlement............. -- -- 746,845 -- --
Minority interest....... (193,985) -- -- -- --
---------- ----------- ----------- ----------- -----------
Loss before income taxes
and extraordinary
item................... (846,102) (906,461) (497,812) (1,534,186) (2,524,518)
Provision for income
taxes.................. 6,400 71,931 208,000 32,569 137,480
---------- ----------- ----------- ----------- -----------
Loss before extraordi-
nary item.............. (852,502) (978,392) (705,812) (1,566,755) (2,661,998)
Extraordinary item...... -- (427,997) -- -- (3,520,401)
---------- ----------- ----------- ----------- -----------
Net loss................ $ (852,502) $(1,406,389) $ (705,812) $(1,566,755) $(6,182,399)
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COBBLESTONE GOLF GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK TOTAL
---------------- -------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- ------- ------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1992................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Series A
preferred stock for
cash, net of issuance
costs of $623,075..... 254,178 2,542 -- -- 24,792,183 -- 24,794,725
Issuance for Series A
preferred stock for
assets and for
ownership interest in
consolidated
subsidiary............ 4,547 45 -- -- 380,755 -- 380,800
Issuance of Series B
preferred stock for
cash, net of issuance
costs of $54,180...... 20,000 200 -- -- 1,945,620 -- 1,945,820
Issuance of common
stock for cash........ -- -- 104,250 1,043 103,207 -- 104,250
Net loss............... -- -- -- -- -- (852,502) (852,502)
-------- ------- ------- ------ ----------- ----------- -----------
Balance at September 30,
1993................... 278,725 2,787 104,250 1,043 27,221,765 (852,502) 26,373,093
Issuance of Series A
preferred stock for
cash.................. 64,900 649 -- -- 6,489,351 -- 6,490,000
Issuance of common
stock for cash........ -- -- 4,840 48 4,792 -- 4,840
Net loss............... -- -- -- -- -- (1,406,389) (1,406,389)
-------- ------- ------- ------ ----------- ----------- -----------
Balance at September 30,
1994................... 343,625 3,436 109,090 1,091 33,715,908 (2,258,891) 31,461,544
Issuance of Series A
preferred stock for
cash, net of $83,376
in issuance costs..... 87,132 871 -- -- 8,628,953 -- 8,629,824
Issuance of common
stock for cash........ -- -- 25,739 257 3,984,062 -- 3,984,319
Net loss............... -- -- -- -- -- (705,812) (705,812)
-------- ------- ------- ------ ----------- ----------- -----------
Balance at September 30,
1995................... 430,757 4,307 134,829 1,348 46,328,923 (2,964,703) 43,369,875
Contribution of capital
by Holdings............ -- -- -- -- 28,735,697 -- 28,735,697
Net loss (unaudited)... -- -- -- -- -- (6,182,399) (6,182,399)
-------- ------- ------- ------ ----------- ----------- -----------
Balance at June 30, 1996
(unaudited)............ 430,757 $ 4,307 134,829 $1,348 $75,064,620 $(9,147,102) $65,923,173
======== ======= ======= ====== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COBBLESTONE GOLF GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $ (852,502) $ (1,406,389) $ (705,812) $ (1,566,755) $(6,182,399)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amor-
tization.............. 830,652 3,840,186 6,728,092 4,455,167 5,983,262
Gain on insurance set-
tlement............... -- -- (746,845) -- --
Loss on disposal of as-
sets.................. -- -- 322,834 -- --
Loss on early extin-
guishment of debt..... -- 427,997 -- -- 3,520,401
Provision for doubtful
accounts.............. -- 12,084 2,125,458 803,207 (395,741)
Minority interest...... 193,985 -- -- -- --
Changes in assets and
liabilities:
Notes and accounts re-
ceivable.............. (252,133) (804,047) (7,321,947) (3,205,657) (691,142)
Inventory.............. (53,317) (246,253) (229,801) (213,426) (502,160)
Intangible assets...... (338,791) -- -- -- --
Prepaid expenses and
other assets.......... (340,936) 3,784 (57,476) (8,045) 89,959
Accounts payable,
accrued liabilities
and deferred revenue.. 967,139 55,511 2,179,909 2,173,005 (2,009,547)
------------ ------------ ------------ ------------ -----------
Net cash provided by
(used in) operating ac-
tivities............... 154,097 1,882,873 2,294,412 2,437,496 (187,367)
INVESTING ACTIVITIES
Acquisitions, net of
cash acquired.......... (19,691,733) (23,924,305) (41,245,470) (41,245,470) (6,289,391)
Additions to property,
equipment and leasehold
interests.............. (5,761,983) (7,708,037) (17,716,295) (13,436,525) (6,641,993)
Insurance proceeds...... -- -- 1,941,917 1,122,963 --
Due to affiliate........ -- (699,356) -- -- --
Intangibles and other
assets................. -- (638,305) -- -- --
------------ ------------ ------------ ------------ -----------
Net cash used in invest-
ing activities......... (25,453,716) (32,970,003) (57,019,848) (53,559,032) (12,931,384)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 72,532 46,338,471 37,560,573 33,560,573 78,300,000
Debt issuance costs and
other debt-related
costs.................. -- (4,008,901) (2,118,618) (2,066,533) (2,995,310)
Principal payments on
long-term debt and cap-
ital leases............ (258,417) (17,797,900) (1,219,252) (824,049) (89,524,208)
Payments on deferred
purchase price......... -- -- -- -- (376,979)
Proceeds from sale and
leaseback.............. -- -- 7,410,527 7,410,527 --
Proceeds from issuance
of stock and capital
contributions.......... 26,844,795 6,494,840 12,614,143 12,543,752 28,735,697
------------ ------------ ------------ ------------ -----------
Net cash provided by fi-
nancing activities..... 26,658,910 31,026,510 54,247,373 50,624,270 14,139,200
Net increase (decrease)
in cash and cash equiv-
alents................. 1,359,291 (60,620) (478,063) (497,266) 1,020,449
Cash and cash equiva-
lents at beginning of
period................. -- 1,359,291 1,298,671 1,298,671 820,608
------------ ------------ ------------ ------------ -----------
Cash and cash equiva-
lents at end of peri-
od..................... $ 1,359,291 $ 1,298,671 $ 820,608 $ 801,405 $ 1,841,057
============ ============ ============ ============ ===========
SUPPLEMENTARY
DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the pe-
riod for:
Interest............... $ 549,956 $ 3,595,926 $ 6,464,811 $ 4,799,672 $ 6,583,722
============ ============ ============ ============ ===========
Income taxes........... $ 800 $ 55,264 $ 48,417 $ 32,569 $ 1,393,137
============ ============ ============ ============ ===========
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Preferred stock issued
for acquisitions....... $ 380,800 $ -- $ -- $ -- $ --
============ ============ ============ ============ ===========
Capital leases entered
into................... $ 1,049,122 $ 2,342,870 $ 2,395,859 $ 1,303,001 $ 2,308,347
============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING TO THE NINE
MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Cobblestone Golf Group, Inc. (the "Company"), a Delaware corporation, was
incorporated on August 10, 1992. The Company is a wholly-owned subsidiary of
Cobblestone Holdings, Inc. ("Holdings"). Holdings is controlled by Brentwood
Golf Partners, L.P., a partnership organized by Brentwood Associates and the
Company's President. The Company owns and operates golf courses in the United
States, with a current portfolio of 20 golf properties including private
country clubs, semi-private clubs and public (or daily fee) courses. The
Company's courses are concentrated in clusters near metropolitan areas in the
Sunbelt states (including Arizona, California and Texas) which have large
golfing populations and attractive climates.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from membership fees and dues at
private country clubs, greens fees, food and beverage services, golf cart
rentals, retail merchandise sales, driving range fees and lodging fees. The
Company owns 16 courses, leases three courses (subject to long-term leases in
excess of 20 years, including extension options), leases one driving range and
pro shop facility and manages one additional course. The Company's portfolio
includes eight private country clubs, eight public facilities and five semi-
private facilities.
Seasonal weather conditions as well as the timing of new course purchases or
leases may cause the Company's results of operations to vary significantly
from quarter to quarter. The second half (April through September) of the
Company's fiscal year tends to account for a greater portion of the Company's
operating revenue and operating income than does the first half.
Principles of Consolidation
The Company has acquired certain golf facilities through its wholly-owned
and majority-owned subsidiaries. The consolidated financial statements include
the accounts of the Company and such subsidiaries. Intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and time deposits with original
maturities of less than 90 days.
Concentration of Credit Risk
Management places the Company's cash investments with what they consider to
be high credit-quality financial institutions and routinely assesses the
financial strength of these institutions. Management believes no significant
concentration of credit risk exists with respect to these cash investments.
Concentration of credit risk with respect to accounts receivable is limited
due to the geographic dispersion of golf courses and the large number of golf
course members and others from whom the receivables are to be collected.
Inventories
Inventories are carried at lower of cost (first-in, first-out) or market.
F-7
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Property, Equipment and Leasehold Interests
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets
which are generally as follows:
<TABLE>
<S> <C>
Depreciable land improvements................................ 20 years
Buildings and improvements................................... 30 years
Equipment, furniture and fixtures............................ 3 to 10 years
</TABLE>
Leasehold improvements, equipment recorded under capital leases and property
and equipment related to leased facilities are depreciated and amortized using
the straight-line method over the shorter of the lease term or the estimated
useful lives of the related assets. Costs associated with the acquisition of
leasehold interests in golf facilities have been capitalized and are amortized
over the remaining life of the related lease (4 to 35 years).
Golf course facility construction in progress is carried at cost. All costs
associated with, or allocable to golf course facility construction in progress
are capitalized until construction is completed.
Intangible Assets
Costs in excess of net assets of businesses acquired are amortized over 20
years which is consistent with the depreciation of land improvements. Other
intangible assets are amortized over their estimated useful lives (5 to 14
years).
Debt Issuance Cost
Costs associated with the issuance of long-term debt are capitalized and
amortized over the term of the related debt using the interest method. Such
costs and related accumulated amortization included in other assets totaled
$3,721,404 and $307,725, respectively, at September 30, 1994, $5,840,022 and
$1,168,155, respectively, at September 30, 1995, and $3,441,148 and $89,930,
respectively, at June 30, 1996.
Fair Value of Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments, the Company calculates the fair value of financial instruments
and includes this additional information in the notes to financial statements
when the fair value is different than the carrying value of those financial
instruments. When the fair value reasonably approximates the carrying value,
no additional disclosure is made. The Company uses quoted market prices and
management's estimates to calculate these fair values.
Revenue and Deferred Revenue
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees for the amount of the deposit and the amount of the note
receivable, less the provision for doubtful accounts and imputed interest, at
the time the membership is sold.
Long-term deferred revenue relates to the Company's obligation to provide
memberships to residential developers of properties adjacent to the golf
facility and is recognized when individual homeowners apply for membership.
Reliance on Estimates
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and
F-8
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of ("SFAS 121"), effective for fiscal years beginning after
December 15, 1995. SFAS 121 requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company believes,
based on current circumstances, the effect of adopting SFAS 121 will not have
a material effect on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), effective for
fiscal years beginning after December 15, 1995. SFAS 123 established the fair
value-based method of accounting for stock-based compensation arrangements
under which compensation cost is determined using the fair value of the stock
option at the grant date and the number of options vested, and is recognized
over the periods in which the related services are rendered. The Company has
elected to continue with the current intrinsic value-based method, as allowed
by SFAS 123, and will disclose the pro forma effect of adopting the fair value
based method in future fiscal years beginning with the fiscal year ending
September 30, 1997.
Interim Financial Information
The financial statements for the nine months ended June 30, 1995 and 1996
are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the financial position and the operating results and cash flows
for the interim periods. Results for the interim periods are not necessarily
indicative of results to be expected for the entire year.
2. ACQUISITIONS
Since inception, the Company has acquired the property and equipment or
leasehold interest in twenty golf course facilities in transactions that have
been recorded under the purchase method of accounting. Accordingly, the
acquired facilities have been reported in the consolidated financial
statements of the Company since the date of the respective acquisitions.
The 1993 acquisitions include: The Golf Course Construction and Lease
Agreement for The Vineyard at Escondido acquired in October, 1992 (lease
effective December 1993), The Foothills Golf Course acquired in January, 1993,
Balboa Park Municipal Golf Course, Saticoy Regional Golf Course and Woodcrest
Country Club acquired in February, 1993, Morgan Run Resort and Club and El
Camino Country Club acquired in June, 1993, and Carmel Mountain Ranch Country
Club acquired in July, 1993.
The 1994 acquisitions include: The Club at Trophy Club acquired in December,
1993, Pecan Grove Country Club acquired in January, 1994, and Ahwatukee
Country Club and The Lakes at Ahwatukee acquired in June, 1994.
F-9
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The 1995 acquisitions include: The Ranch Country Club and Stonebridge
Country Club acquired in December, 1994, Red Mountain Ranch Country Club
acquired in January, 1995, The Hills of Lakeway, Live Oak Golf Course, Yaupon
Golf Course and Brandermill Country Club acquired in March, 1995.
In conjunction with the purchase of The Hills of Lakeway, the Company is
required to pay a deferred purchase price equal to the greater of $4,150 per
membership or 25% of Initiation Fees, as defined, collected for the first
three hundred memberships sold.
A summary of the aggregate acquisition costs and allocation of the purchase
price to the assets and liabilities assumed is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Total acquisition costs:
Cash paid and acquisition related costs.. $19,691,733 $23,924,305 $41,245,470
Long-term debt and assumption of liabili-
ties.................................... 16,888,762 2,325,934 7,379,667
Minority interest........................ 401,379 344,175 --
----------- ----------- -----------
$36,981,874 $26,594,414 $48,625,137
=========== =========== ===========
Allocated to assets as follows:
Current assets........................... $ 747,428 $ 152,452 $ 775,622
Property, equipment and leasehold inter-
ests.................................... 34,488,661 26,441,962 47,849,515
Other assets............................. 1,745,785 -- --
----------- ----------- -----------
$36,981,874 $26,594,414 $48,625,137
=========== =========== ===========
</TABLE>
The following pro forma results for acquisitions consummated through
September 30, 1995 assume the acquisitions occurred at the beginning of the
fiscal year prior to the year in which the facility was acquired. The
unaudited pro forma results have been prepared utilizing the historical
financial statements of the Company and the acquired business.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating revenues....................... $23,481,269 $47,043,151 $54,407,767
Net loss................................. $ (910,992) $(1,158,708) $(1,153,012)
</TABLE>
This pro forma information is not necessarily indicative of the actual
results that would have been achieved had the acquisitions occurred at the
beginning of the fiscal year prior to the year in which the facility was
acquired, nor is it necessarily indicative of future results.
In October, 1995, the Company entered into a management agreement for the
Red Hawk Golf Club. Cash paid and acquisition related costs totaled $40,843
and are included as leasehold interest in the accompanying consolidated
financial statements.
In June, 1996, the Company acquired the Eagle Crest Golf Club for $6,195,718
in cash and acquisition related costs and assumed liabilities totaling
$87,756. Allocation of these costs were $6,273,682 to property and equipment
and $9,792 to current assets. The pro-forma effect of this acquisition on the
Company's interim results of operation is not material.
In July, 1996, the Company entered into a fifteen year lease of the
Sweetwater Country Club. Cash paid and acquisition related costs through June
30, 1996 are $52,830 and are included in other assets in the accompanying
consolidated financial statements.
F-10
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
3. NOTES RECEIVABLE
Notes receivable consists of promissory notes made by golf club members for
the payment of initiation fees. The notes carry below market or no interest
rates, amortize monthly and generally have a term of five years. Management
periodically analyzes the collectability of the notes receivable and reserves
for the portion that is doubtful of being collected. The notes are secured by
the underlying golf club membership and the Company has full recourse against
the member. The Company's notes receivable balance was composed of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Gross receivables $ 7,538,182 $ 8,265,386
Less allowance for uncollectable accounts (2,117,000) (1,633,616)
Less valuation allowance for imputed interest........ (1,242,867) (1,294,301)
----------- -----------
4,178,315 5,337,469
Current portion...................................... 862,922 1,592,206
----------- -----------
$ 3,315,393 $ 3,745,263
=========== ===========
</TABLE>
4. PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS
Property, equipment and leasehold interests consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
JUNE 30,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land................................. $ 8,458,701 $ 14,258,104 $ 15,147,752
Land improvements.................... 43,471,346 74,172,889 82,463,650
Buildings and improvements........... 15,041,211 26,558,329 29,974,231
Equipment, furniture and fixtures.... 6,689,814 12,777,828 16,407,849
Golf course facility construction in
progress............................ 1,059,305 6,009,124 5,085,718
Leasehold interests.................. 2,799,714 2,799,714 2,840,556
----------- ------------ ------------
77,520,091 136,575,988 151,919,756
Less accumulated depreciation and am-
ortization.......................... (3,785,854) (8,575,684) (13,758,266)
----------- ------------ ------------
Property, equipment and leasehold in-
terests, net........................ $73,734,237 $128,000,304 $138,161,490
=========== ============ ============
</TABLE>
Land improvements include $10,848,847, $21,214,449, and $23,392,707 at
September 30, 1994 and 1995, and June 30, 1996 respectively, of nondepreciable
golf course improvements consisting of tees, fairways, roughs, trees, greens,
bunkers and sandtraps.
F-11
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
8% note payable, due monthly through
2007................................. $ 315,592 $ 301,104 $ 286,611
Variable rate note payable, effective
interest rate 11.02%, due monthly,
secured by the assets of The Vineyard
at Escondido......................... 6,067,673 5,978,847 5,807,725
10% imputed interest note payable
January 2000......................... -- 179,380 174,970
10% imputed interest note payable, due
monthly beginning January 1996...... -- 2,693,873 --
11 1/2% Series A Senior Notes due
2003................................. -- -- 70,000,000
Bank term loan........................ 35,683,851 71,444,424 --
Bank revolving credit agreement....... 500,000 2,300,000 --
Capital lease obligations, due at var-
ious dates through 2000.............. 2,522,676 3,802,597 1,266,773
----------- ----------- -----------
45,089,792 86,700,225 77,536,079
Less current portion.................. 895,406 1,686,275 441,552
----------- ----------- -----------
$44,194,386 $85,013,950 $77,094,527
=========== =========== ===========
</TABLE>
During 1994, certain loans were repaid in advance of maturity. Costs
associated with the early retirement of such loans amounted to $427,997 and
were recorded as an extraordinary item in the consolidated statement of
operations.
In 1994, the Company entered into a credit agreement (the "Credit
Agreement") with a consortium of banks. The Credit Agreement, amended in 1995,
provides for a $5 million revolving credit facility to be used primarily for
working capital and an $85 million term loan facility used for refinancing
existing debt, acquisitions and certain capital expenditures.
The revolving credit facility expires September 30, 2001 at which time any
outstanding unpaid principal is payable in full. The revolving credit facility
provides that borrowings bear interest, which is payable quarterly, at the
Eurodollar rate or a Floating Rate, as defined, plus spreads ranging from 1%
to 4% depending upon the extent of utilization by the Company (9.875% and
9.550% at September 30, 1995, respectively) and requires a non-use fee on the
unused portion equal to 1/2% per annum. The term loan facility provides that
borrowings are payable based on certain specified percentages (ranging from
9.813% to 9.875% as of September 30, 1995, respectively) in 20 quarterly
installments commencing December 1996 and ending September 2001.
The Credit Agreement requires mandatory reductions or prepayments of
principal as a result of certain events and provides for voluntary
prepayments. The Credit Agreement contains numerous covenants which, among
other things, require the Company to maintain defined leverage and interest
coverage ratios, as well as a minimum consolidated net worth and limits the
incurrance of debt, capital expenditures and payment of dividends. Borrowings
under the Credit Agreement are secured by substantially all assets of the
Company except for certain real property in Escondido, California and
equipment under capital leases. In addition, stock of CGGI and subsidiaries
has been pledged to the lenders. Holdings has guaranteed the borrowings under
the Credit Agreement.
F-12
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
In conjunction with the Credit Agreement, Holdings issued warrants to
purchase 20,000 shares of Holdings' Series A preferred stock at $100 per share
and 5,472 shares of Holdings' common stock at $1 per share. As of September
30, 1995, all warrants had been exercised.
Pursuant to the terms of the Credit Agreement and to reduce the impact of
interest-rate changes on future interest expense, the Company entered into
interest rate swap agreements during 1994 with one of the lender banks ("the
Bank"). The agreements effectively convert $20 million of the Company's
floating rate long-term debt to a fixed rate basis without an exchange of the
underlying principal amounts. At September 30, 1995 the Company was obligated
to pay a fixed rate of 5.72% on $10 million and 6.13% on $10 million and to
receive the three-month LIBOR (6.00% and 5.87%, respectively, at September 30,
1995). The rate is reset every three months and the swap agreements expire in
March and April 1997, respectively. The differential to be paid or received is
accrued and recognized as an adjustment to interest expense related to the
debt. The related amount payable to, or receivable from, the Bank is included
in other liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. In June 1996, the swap agreements were
sold without a resulting significant gain or loss.
In conjunction with a purchase of two adjacent golf course facilities in
1995 (the "Clubs"), the Company issued a $3,500,000 non-interest bearing
promissory note (the "Note"). Interest on the Note has been imputed at a rate
of 10% and monthly principal payments on the Note are payable in an amount
equal to 50% of Initiation Fees (as defined) collected by the Clubs after
January 1, 1996. Any unpaid principal on the Note is payable on the earlier of
December 14, 2006 or upon the sale by the holder of the Note of a certain
number of residential homes in the communities adjacent to the golf courses.
Maturities of long-term debt (exclusive of capital lease obligations) for
each of the five years in the period ending September 30, 2000, are as
follows: 1996--$350,889; 1997--$7,778,119; 1998--$9,352,990; 1999--
$11,675,086; 2000--$13,738,176; thereafter--$40,002,368.
On June 4, 1996, the Company and Holdings completed two contemporaneous high
yield bond offerings (the "Offerings") totaling approximately $100 million.
The Company offered $70 million aggregate principal amount 11 1/2% senior
notes due 2003. Holdings offered 86,000 Units, each consisting of $1,000
principal amount at maturity of 13 1/2% senior zero-coupon notes due 2004 and
one share of common stock, par $.01 per share, of Holdings. The net proceeds
of the offering by Holdings were $28.7 million and were contributed as equity
to the Company.
Concurrent with the Offerings, the Company repaid the bank term loan and the
bank revolving credit agreement of $77.4 million and $4.6 million,
respectively, and repaid obligations under capital leases totaling $4.1
million. The Company also paid the Note which had a balance of $2.9 million at
June 4, 1996 which resulted in a gain on early retirement of debt of $0.4
million. This gain and a $3.9 write-off of unamortized loan fees related to
the bank term loan and bank revolving credit agreement of have been recorded
as extraordinary items in the consolidated statement of operations.
In addition, on June 4, 1996 the Company obtained a new $50 million a bank
facility (the "New Credit Facility"), consisting of a $45 million bank
revolver for future acquisitions and capital projects and a $5 million working
capital facility to fund short term operating needs. The New Credit Facility
has terms similar to the Credit Agreement described above. There were no
borrowings under the New Credit Facility at June 30, 1996. The New Credit
Facility is secured by substantially all of the Company's assets, including
the capital stock of the Company's existing and future subsidiaries, and is
guaranteed by Holdings and such subsidiaries. The guarantees are secured by
substantially all of Holdings' and such subsidiaries' assets.
F-13
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company intends to file an offer to exchange the debt issued in June,
1996 ("Private Notes") for notes that have been registered under the
Securities Act of 1933 (the "Exchange Notes"). Upon completion of this
exchange offer, the Exchange Notes will be fully and unconditionally
guaranteed by all of the Company's existing and future subsidiaries
("Guarantors"). These guarantees will be senior unsecured obligations of the
Guarantors and will rank pari passu in right of payment to all other senior
indebtedness of the Guarantors, including the Guarantor's guarantees of
borrowings under the New Credit Facility. See Note 10 for Condensed Combined
Financial Information of Guarantors.
6. STOCKHOLDERS' EQUITY
The Company has two classes of preferred stock, Series A preferred stock and
Series B preferred stock. Both series have priority upon liquidation over the
Company's common stock, but have equal priority with respect to each other.
Both series are also entitled to vote along with the common stock on the basis
of one vote per share of preferred stock. Shares of Series A preferred stock
are redeemable by the Company at any time, at the discretion of the Board of
Directors, for the purchase price of $100 per share. Shares of Series B
preferred stock are redeemable by the Company at any time, at the discretion
of the Board of Directors, for the purchase price of $100 per share. At
September 30, 1995 and June 30, 1996 there were 410,757 shares of Series A
preferred stock outstanding and 20,000 shares of Series B preferred stock
outstanding.
Holdings, the Company's sole stockholder, has redeemable preferred stock
that provides for mandatory redemption upon the sale, consolidation or merger
of Holdings with or into another corporation, the sale of all or substantially
all of Holdings' assets, or the sale or exchange of stock representing 80% of
the voting power of the stock of Holdings. At September 30, 1995 and June 30,
1996, the redemption value of Holdings' redeemable preferred stock was $43
million.
Holdings' only asset is its investment in the Company. The assets of the
Company have not been pledged or assigned to satisfy Holdings' obligation, if
any, under the redemption features of its preferred stock.
7. INCOME TAXES
Income taxes are provided for in accordance with the provisions of SFAS No.
109, Accounting for Income Taxes. Under this method, the Company recognizes
deferred tax assets and liabilities for the expected future tax effects of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities, as well as operating loss carryforwards.
F-14
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The significant components of the Company's deferred tax assets and
liabilities are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accounting basis in excess of tax basis of golf
properties........................................ $(4,184,000) $(4,184,000)
Depreciation....................................... (224,000) (472,000)
----------- -----------
Total deferred tax liabilities....................... (4,408,000) (4,656,000)
Deferred tax assets:
Net operating loss carryforwards................... 767,000 --
Reserve for notes receivable....................... -- 1,062,000
Deferred gain on sale and leaseback................ -- 320,000
Accrued liabilities................................ 298,000 262,000
Other, net......................................... -- 63,000
----------- -----------
Total deferred tax assets............................ 1,065,000 1,707,000
Valuation allowance for deferred tax assets.......... (841,000) (928,000)
----------- -----------
Net deferred tax assets.............................. 224,000 779,000
----------- -----------
Net deferred tax liabilities......................... $ 4,184,000 $ 3,877,000
=========== ===========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1994 1995
------- ---------
<S> <C> <C>
Current:
Federal............................................... $ -- $ 307,000
State................................................. 71,931 208,000
------- ---------
71,931 515,000
Deferred:
Federal............................................... -- (307,000)
State................................................. -- --
------- ---------
-- (307,000)
------- ---------
Total provision......................................... $71,931 $ 208,000
======= =========
</TABLE>
The following is a reconciliation of the actual tax provision (benefit) to
the expected tax provision (benefit) computed by applying the statutory federal
income tax rate to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision at statutory rate....... $(296,136) $(467,060) $(174,234)
State income tax provision, net of federal
tax benefit................................. 4,160 46,755 135,200
Permanent differences........................ -- -- 177,938
Increase in valuation allowance.............. 319,076 435,000 87,000
Other........................................ (20,700) 57,236 (17,904)
--------- --------- ---------
Total provision for income taxes............. $ 6,400 $ 71,931 $ 208,000
========= ========= =========
</TABLE>
F-15
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
8. COMMITMENTS
In March 1995, the Company entered into a sale and leaseback transaction for
one of its golf course facilities. The Company received proceeds of
approximately $7.4 million and entered into a lease for fifteen years with two
five year renewal options. Minimum rent was $60,939 and $61,975 per month at
September 30, 1995 and June 30, 1996, respectively, and is subject to annual
increases based upon changes in the Consumer Price Index. The deferred gain on
the sale and leaseback transaction of $499,000 is being amortized over the
term of the lease. The Company recorded $407,000 and $559,000 of rent expense
for the year ended September 30, 1995 and the nine months ended June 30, 1996,
respectively, related to the lease.
The Company also leases three other golf facilities from the city or county
in which the facility is located. The leases expire in the years 1997, 2016
and 2029. The Company recorded an aggregate of $99,000, $138,000 and $639,000
in rent expense related to leased golf course facilities for the years ended
September 30, 1993, 1994 and 1995, respectively and $362,968 and $772,175 for
the nine months ended June 30, 1995 and 1996, respectively.
The Company leases certain golf carts and maintenance equipment under
capital leases with terms of two to five years. Included in equipment,
furniture and fixtures in the accompanying consolidated balance sheets is
equipment under capital leases totaling $3,393,842, $5,806,693 and $1,065,070
at September 30, 1994 and 1995 and June 30, 1996, respectively. Accumulated
amortization of equipment under capital leases totaled $588,859, $1,490,214
and $385,736 at September 30, 1994 and 1995 and June 30, 1996, respectively.
Future minimum lease payments at September 30, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING SEPTEMBER 30, LEASES LEASES
-------------------------- ---------- -----------
<S> <C> <C>
1996................................................. $1,655,582 $ 919,971
1997................................................. 1,202,848 815,265
1998................................................. 844,007 797,265
1999................................................. 569,326 797,265
2000................................................. 283,503 797,265
Thereafter........................................... -- 8,579,018
---------- -----------
Total minimum lease payments....................... 4,555,266 $12,706,049
===========
Amount representing interest......................... 752,669
----------
Present value of net minimum lease payments.......... 3,802,597
Current portion...................................... 1,335,386
----------
$2,467,211
==========
</TABLE>
In accordance with certain purchase agreements, the Company is required to
maintain the respective golf courses in good condition and make various
capital improvements. As of September 30, 1995, the Company had commitments to
build an additional nine holes at two facilities with an estimated aggregate
cost of approximately $5.5 million.
F-16
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS
In connection with the formation of the Company, an officer of the Company
contributed his interests in the leases of two golf course facilities in
exchange for 55,105 shares of Series A preferred stock, $160,270 cash and a
$250,000 note due in 1999. The officer also contributed his options to acquire
certain other golf course facilities at no cost to the Company.
An affiliate of the majority stockholder of Holdings provides investment
banking and consulting services to the Company. The Company is obligated to
pay a service fee to the affiliate semi-annually in advance in an amount equal
to 1% per annum of the affiliate's debt and equity investment in the Company
and to reimburse the reasonable fees and costs incurred by the affiliate in
providing services to the Company. The Company paid $677,255, $809,522 and
$1,076,416 in fees to the affiliate pursuant to these obligations during the
year ended September 30, 1993, 1994 and 1995; and $915,694 and $325,066 for
the nine months ended June 30, 1995 and 1996, respectively.
10. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTORS
The following condensed financial information presents the balance sheets as
of September 30, 1994 and 1995 and statements of operations and cash flows for
each of the three years in the period ended September 30, 1995 for the
Guarantors on a combined basis. Such amounts are included in the Company's
audited financial statements for the periods presented. The combined
statements of operations for the subsidiary Guarantors do not include any
allocations of corporate operating expenses totaling $1,576,637, $2,386,197
and $2,929,548 for the years ended September 30, 1993, 1994 and 1995,
respectively. The unallocated corporate operating expenses for the nine months
ended June 30, 1995 and 1996 totaled $2,273,125 and $2,883,697, respectively.
In addition, interest income, net of $91,223 for the year ended September 30,
1993 and interest expense, net of $2,011,058 and $6,639,367 for the years
ended September 30, 1994 and 1995, respectively, have not been allocated to
the subsidiaries. The unallocated interest expense, net for the nine months
ended June 30, 1995 and 1996 totaled $4,300,141 and $6,800,882, respectively.
Notes 1 through 9 should be read in conjunction with the Condensed Combined
Financial Information.
Condensed Combined Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER JUNE 30,
30, 1994 30, 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets......................... $ 2,936,370 $ 5,512,367 $ 6,579,300
Property, equipment and leasehold
interests, net........................ 71,680,522 125,996,831 135,892,801
Other assets, net...................... 1,642,861 4,446,697 4,757,499
----------- ------------ ------------
$76,259,753 $135,955,895 $147,229,600
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................... $ 4,099,233 $ 8,350,043 $ 5,926,856
Due to parent.......................... 59,385,325 99,634,531 110,602,643
Long-term debt and capital lease
obligations........................... 8,010,535 11,268,170 7,068,634
Other Liabilities...................... 1,432,985 4,510,983 4,009,973
Stockholders' Equity................... 3,331,675 12,192,168 19,621,494
----------- ------------ ------------
$76,259,753 $135,955,895 $147,229,600
=========== ============ ============
</TABLE>
F-17
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Condensed Combined Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total operating
revenues............... $5,845,336 $23,843,456 $48,699,588 $32,174,498 $42,753,544
Total operating
expenses............... 4,460,458 19,054,377 39,198,998 26,006,694 34,715,528
---------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. 1,384,878 4,789,079 9,500,590 6,167,804 8,038,016
Other expenses, net..... (814,928) (1,504,694) (640,097) (1,241,242) (1,033,967)
---------- ----------- ----------- ----------- -----------
Loss before income taxes
and extraordinary
item................... 569,950 3,284,385 8,860,493 4,926,562 7,004,049
Provision for income
taxes.................. 6,400 74,931 208,000 32,569 137,480
---------- ----------- ----------- ----------- -----------
Loss before
extraordinary item..... 563,550 3,209,454 8,652,493 4,893,993 6,866,569
Extraordinary item...... -- (427,997) -- -- 425,277
---------- ----------- ----------- ----------- -----------
Net loss................ $ 563,550 $ 2,781,457 $ 8,652,493 $ 4,893,993 $ 7,291,846
========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
COBBLESTONE GOLF GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Condensed Combined Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... $ 615,009 $ 4,858,188 $ 9,903,023 $ 7,118,003 $ 9,460,552
INVESTING ACTIVITIES
Additions to property,
equipment and leasehold
interests.............. (5,542,657) (7,536,497) (17,534,884) (13,290,698) (6,231,521)
Insurance proceeds...... -- -- 1,941,917 1,122,963 --
Due to affiliate........ -- (699,356) -- -- --
----------- ------------ ------------ ------------ -----------
Net cash used in
investing activities... (5,542,657) (8,235,853) (15,592,967) (12,167,735) (6,231,521)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 72,532 10,154,620 -- -- --
Debt issuance costs and
other debt related
costs.................. -- (721,278) -- -- --
Principal payments on
long-term debt and
capital leases......... (258,417) (17,797,900) (1,219,252) (824,049) (7,479,785)
Payments on deferred
purchase price......... -- -- -- -- (376,979)
Proceeds from sale and
leaseback.............. -- -- 7,410,527 7,410,527 --
Increase (decrease) in
amounts due to parent,
net.................... 5,503,480 12,281,028 (996,264) (1,675,784) 4,678,721
----------- ------------ ------------ ------------ -----------
Net cash provided by
financing activities... 5,317,595 3,916,470 5,195,011 4,910,694 (3,178,043)
Net increase in cash and
cash equivalents....... 389,947 538,805 (494,933) (139,038) 50,988
Cash and cash
equivalents at
beginning of period.... -- 389,947 928,752 928,752 433,819
----------- ------------ ------------ ------------ -----------
Cash and cash
equivalents at end of
period................. $ 389,947 $ 928,752 $ 433,819 $ 789,714 $ 484,807
=========== ============ ============ ============ ===========
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Sweetwater Golf Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' capital (deficit) and of cash flows present fairly,
in all material respects, the financial position of Sweetwater Golf
Partnership (the Partnership), formerly a division of Sugarland Properties
Incorporated (SPI) known as Sweetwater Country Club (the Division), at
December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As disclosed in the financial statements, there are extensive transactions
and relationships between the Partnership and SPI. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
On July 1, 1996, essentially all of the assets and ongoing operations of the
Partnership were sold to a third party for approximately $12,100,000. The
third party also assumed certain current liabilities and the liability for
refundable member security deposits. In July 1996, the Partnership repaid the
notes payable and substantially all remaining current liabilities. The
partners intend to distribute the remaining net assets of the Partnership and
liquidate the Partnership.
PRICE WATERHOUSE LLP
Houston, Texas
July 26, 1996
F-20
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 269,024 $ 586,971 $ 639,602
Restricted cash....................... 361,024 365,281 2,698
Accounts receivable................... 912,099 984,355 1,081,436
Inventories........................... 281,299 206,470 220,144
Prepaid and other assets, net......... 149,388 108,030 57,974
----------- ----------- -----------
Total current assets................ 1,972,834 2,251,107 2,001,854
Clubhouse, golf course and related
facilities, net of accumulated
depreciation........................... 20,947,134 17,656,030 17,571,980
Deferred loan costs, net of accumulated
amortization........................... 57,999 -- --
----------- ----------- -----------
$22,977,967 $19,907,137 $19,573,834
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities:
Notes payable......................... $ 7,955,965 $ 7,923,604 $ 7,852,080
Accounts payable...................... 273,265 159,163 163,035
Accrued interest expense.............. 36,939 37,193 33,571
Accrued property taxes................ 402,518 407,404 192,577
Other current liabilities............. 230,050 404,739 187,081
Deferred revenues..................... 424,257 457,068 651,315
----------- ----------- -----------
Total current liabilities........... 9,322,994 9,389,171 9,079,659
Advances from SPI, net.................. 7,378,179 7,263,652 7,156,899
Refundable member security deposits..... 6,260,601 6,102,651 6,075,638
----------- ----------- -----------
Total liabilities................... 22,961,774 22,755,474 22,312,196
Partners' capital (deficit)............. 16,193 (2,848,337) (2,738,362)
----------- ----------- -----------
$22,977,967 $19,907,137 $19,573,834
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Membership dues....... $3,747,747 $3,889,271 $ 4,095,820 $2,007,058 $2,203,573
Initiation fees and
other................ 894,773 929,432 896,941 330,386 453,019
Food and beverage..... 1,687,086 1,723,432 1,891,668 830,856 930,196
Golf.................. 1,181,294 1,353,683 1,411,782 666,097 735,898
Merchandise........... 657,663 715,716 756,831 368,307 345,812
Other................. 722,795 598,397 555,339 279,204 296,414
---------- ---------- ----------- ---------- ----------
8,891,358 9,209,931 9,608,381 4,481,908 4,964,912
---------- ---------- ----------- ---------- ----------
Operating expenses:
Food and beverage..... 1,961,955 1,984,340 2,055,792 952,418 1,006,622
Golf.................. 1,589,170 1,750,181 1,955,559 995,622 1,002,050
Depreciation and
amortization......... 946,138 968,062 1,009,127 501,089 531,865
Merchandise........... 540,904 580,596 618,694 313,590 291,657
Property taxes........ 354,664 402,686 407,614 194,000 203,700
Membership............ 251,039 223,713 229,399 120,377 108,652
General and
administrative....... 1,570,385 1,560,970 1,608,071 764,362 767,935
Other................. 1,092,439 992,955 1,043,782 559,947 547,410
---------- ---------- ----------- ---------- ----------
8,306,694 8,463,503 8,928,038 4,401,405 4,459,891
---------- ---------- ----------- ---------- ----------
Income from operations.. 584,664 746,428 680,343 80,503 505,021
Loss on disposal of
assets................. 2,700,000
Interest expense........ 614,314 709,964 844,873 425,962 395,046
---------- ---------- ----------- ---------- ----------
Net income (loss)....... $ (29,650) $ 36,464 $(2,864,530) $ (345,459) $ 109,975
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
SUGARLAND FIRST COLONY
PROPERTIES SPORTS
INCORPORATED PROPERTIES, INC. TOTAL
------------ ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993...... $ -- $ -- $ --
Capital contribution.............. 1,000 1,000
Net income for the period August
19 through December 31, 1994
(see Note 2)..................... 15,041 152 15,193
----------- -------- -----------
Balance at December 31, 1994...... 15,041 1,152 16,193
Net loss for 1995................. (2,835,885) (28,645) (2,864,530)
----------- -------- -----------
Balance at December 31, 1995...... (2,820,844) (27,493) (2,848,337)
Net income for the six month
period ended June 30, 1996
(unaudited)...................... 108,875 1,100 109,975
----------- -------- -----------
Balance at June 30, 1996
(unaudited)...................... $(2,711,969) $(26,393) $(2,738,362)
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- --------- ----------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss).... $ (29,650) $ 36,464 $(2,864,530) $ (345,459) $ 109,975
Adjustments to
reconcile net income
(loss) to net cash
provided by
operating
activities:
Loan on disposal of
assets............ 2,700,000
Depreciation and
amortization...... 946,138 968,062 1,009,127 501,089 531,865
Provision for
doubtful
accounts.......... 23,903 17,092 11,725 795 2,905
Gain on disposal of
equipment......... (12,190) (2,733)
Changes in:
Operating accounts
with SPI.......... (331,494) (12,554) (114,527) (17,011) (106,753)
Accounts
receivable........ (6,204) (44,007) (83,981) (24,684) (99,986)
Inventories........ (16,751) (59,989) 74,829 40,790 (13,674)
Prepaid expenses
and other assets.. 1,604 (226,607) (75) (49,245) 343
Accounts payable
and accrued
liabilities....... 1,059 26,616 65,727 (202,675) (432,235)
Deferred revenues.. 178,177 (129,444) 32,811 106,105 194,247
Security deposits.. (164,789) (203,369) (157,950) (60,568) (27,013)
--------- --------- ----------- ------------ ------------
Net cash provided
(used) by
operating
activities...... 601,993 360,074 670,423 (50,863) 159,674
--------- --------- ----------- ------------ ------------
Cash flows from
investing activities:
Capital
expenditures........ (293,839) (464,417) (318,591) (139,542) (398,102)
Restricted cash,
net................. (361,024) (4,257) 327,248 362,583
Proceeds from sale of
fixed assets........ 2,733
--------- --------- ----------- ------------ ------------
Net cash used by
investing
activities...... (293,839) (825,441) (320,115) 187,706 (35,519)
--------- --------- ----------- ------------ ------------
Cash flows from financ-
ing activities:
Advances from SPI,
net................. 555,207 187,334
Proceeds from capital
contribution........ 1,000
Repayment of notes
payable............. (701,689) (549,094) (32,361) (71,524)
Proceeds from notes
payable............. 1,902 654,135 39,134
--------- --------- ----------- ------------ ------------
Net cash provided
(used) by financing
activities............ (144,580) 293,375 (32,361) 39,134 (71,524)
--------- --------- ----------- ------------ ------------
Net increase (decrease)
in cash............... 163,574 (171,992) 317,947 175,977 52,631
Cash at beginning of
period................ 277,442 441,016 269,024 269,024 586,971
--------- --------- ----------- ------------ ------------
Cash at end of period.. $ 441,016 $ 269,024 $ 586,971 $ 445,001 $ 639,602
========= ========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF CASH FLOWS
(continued)
Supplemental disclosure of noncash transactions:
During 1994, the Partnership restructured a capital lease into an operating
lease resulting in the disposal of equipment with a net book value of $68,364
in lieu of the reduction of the remaining related note payable of $83,307.
Also during 1994, the Partnership refinanced its outstanding debt
commitments with various institutions, aggregating $7,343,799, with Texas
Commerce Bank.
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Sweetwater Golf Partnership (the Partnership), formerly a division of
Sugarland Properties Incorporated (SPI) known as Sweetwater Country Club (the
Division), was formed on August 19, 1994 as discussed further in Note 2. The
Partnership owns and operates the clubhouse, golf course and related
facilities of the Sweetwater Country Club (the Club) located on 380 acres of
land in Sugar Land, Texas. The Club extends credit for merchandise and
services provided to its members who principally reside in Sugar Land and the
greater Houston Area. The Club commenced operations in June 1983.
On July 1, 1996, essentially all of the assets and ongoing operations of the
Partnership were sold to a third party for approximately $12,100,000. The
third party also assumed certain current liabilities and the liability for
refundable member security deposits. In July 1996, the Partnership repaid the
notes payable and substantially all remaining current liabilities. The
partners intend to distribute the remaining net assets of the Partnership and
liquidate the Partnership.
CLUBHOUSE, GOLF COURSE AND RELATED FACILITIES
Project development costs, including financing expenses, ad valorem taxes
and preoperating management fees incurred during the construction period of
the clubhouse, golf course and related facilities, were capitalized.
The clubhouse building, other buildings and improvements and land
development costs are depreciated using the straight-line method over 30
years. Furniture, fixtures and equipment are recorded at cost and are
depreciated using the straight-line method over their estimated useful lives
which range from three to eight years.
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). Since the
clubhouse, golf course and related facilities were written down to their sales
value at December 31, 1995 (see Note 4), adoption of SFAS 121 had no material
effect on the Partnership's financial position or results of operations.
RESTRICTED CASH
Restricted cash consists of cash deposited in an escrow bank account for the
payment of property taxes.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on a first-in, first-out basis.
DEFERRED LOAN COSTS
Legal fees and other loan costs incurred in connection with the August 1994
refinancing of the Partnership's mortgages were capitalized and are being
amortized over the term of the related loans. For the year ended December 31,
1994 and 1995 and the six months ended June 30, 1996, amortization expense
relating to these costs equaled $41,429, $99,432 and $41,714, respectively.
MEMBERSHIP FEES AND DEPOSITS
Various membership classes are offered at the Club, all of which require
either a refundable security deposit or a nonrefundable initiation fee.
Refundable security deposits are recorded as liabilities when received;
nonrefundable initiation fees are recognized as income when received.
F-26
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The by-laws of the Club outline the conditions under which refundable
security deposits are to be returned to members. For resigning members, these
conditions include 30 days' written notice, full payment of unpaid dues and
charges and the existence of a full membership complement in the resigning
member's class of membership. Upon existence of these conditions, one
resigning member's security deposit will be refunded for each new member
admitted. Notwithstanding these conditions, all membership deposits are
refundable to members 30 years from the date their respective membership
applications became effective.
INCOME TAXES
The Partnership is not subject to income tax as the individual partners are
responsible for reporting their pro rata share of the Partnership's taxable
income or loss. However, the Partnership's tax return is subject to
examination by the Internal Revenue Service. Consequently, the individual
partners' tax returns are subject to adjustment for any findings resulting
from such an examination.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has determined that the fair value of the Partnership's financial
instruments is equivalent to the carrying amount of such instruments as
presented or disclosed in the financial statements.
ESTIMATES
The preparation of the Partnership's financial statements requires
management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent asset and
liabilities at the date of the financial statements and the related reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. The Partnership's management believes that
the estimates made in connection with these financial statements are
reasonable.
NOTE 2--CHANGE IN STRUCTURE OF ORGANIZATION:
The Partnership, a Texas general partnership, was established and assumed
ownership of the Division from SPI on August 19, 1994. SPI owns a 99%
interest, and First Colony Sports Properties, Inc., a wholly-owned subsidiary
of SPI, owns a 1% interest in the Partnership. Therefore, common control by
SPI continues to exist; additionally, virtually no change in the operations of
the Club, or in the basis of accounting for its assets and liabilities, has
occurred as a result of this change in the structure of the organization.
NOTE 3--INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Merchandise.................................... $211,209 $139,889 $154,831
Food and beverage.............................. 70,090 66,581 65,313
-------- -------- --------
$281,299 $206,470 $220,144
======== ======== ========
</TABLE>
F-27
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--CLUBHOUSE, GOLF COURSE AND RELATED FACILITIES:
The clubhouse, golf course and related facilities are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Clubhouse building...... $10,330,357 $ 10,330,357 $ 10,330,357
Other buildings and
improvements........... 5,324,690 5,589,539 5,585,868
Land development........ 5,052,767 4,809,365 4,819,660
Furniture, fixtures and
equipment.............. 3,543,220 3,300,780 3,566,244
----------- ------------ ------------
24,251,034 24,030,041 24,302,129
Accumulated
depreciation........... (9,972,182) (10,342,293) (10,698,431)
----------- ------------ ------------
14,278,852 13,687,748 13,603,698
Land.................... 1,293,794 1,293,794 1,293,794
Golf course land........ 5,374,488 5,374,488 5,374,488
----------- ------------ ------------
20,947,134 20,356,030 20,271,980
Loss on disposal of
assets................. (2,700,000) (2,700,000)
----------- ------------ ------------
$20,947,134 $ 17,656,030 $ 17,571,980
=========== ============ ============
</TABLE>
On July 1, 1996, the partnership sold all of its operating assets to an
unrelated party. Under the terms of the sale, the price paid for the
clubhouse, golf course and related facilities was determined to be
substantially lower than their net book value at December 31, 1995;
accordingly, these assets were written down at December 31, 1995 to reflect
their sales value.
During 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996,
depreciation expense amounted to $923,924, $926,633, $909,695, $451,375 and
$482,152, respectively. Accumulated depreciation was reduced by $512,217 and
$539,584 in connection with the retirement of certain fixed assets during 1994
and 1995, respectively, and by $126,014 for the six months ended June 30,
1996.
NOTE 5--NOTES PAYABLE:
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Texas Commerce Bank, interest at prime
plus 1.75% payable monthly, principal
due August 24, 1996, secured by
substantially all of the Partnership's
assets.................................. $6,609,614 $6,609,614 $6,609,614
Texas Commerce Bank, interest at prime
plus 1.75% payable monthly, principal
reduced by monthly instalment payments
of $11,860, remaining principal due
August 24, 1996, secured by a second
lien on substantially all of the
Partnership's assets.................... 1,340,880 1,313,432 1,242,272
Other notes, various interest rates,
payable monthly, secured by equipment... 5,471 558 194
---------- ---------- ----------
$7,955,965 $7,923,604 $7,852,080
========== ========== ==========
</TABLE>
F-28
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--ADVANCES FROM SPI, NET:
Advances from SPI, net are noninterest-bearing, unsecured and consist mainly
of reimbursable costs that are incurred by one party on behalf of the other in
addition to SPI's funding of cumulative working capital shortfalls. Management
of SPI has represented that repayment of these advances will not be required
within the next year, and accordingly, these obligations have been classified
as long-term on the balance sheet.
F-29
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of operations of Lakeway Country
Club for the years ended December 31, 1993 and 1994, and for the three months
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements of operations based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statements of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the results of operations of Lakeway Country
Club for the years ended December 31, 1993 and 1994, and for the three months
ended March 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
July 3, 1996
F-30
<PAGE>
LAKEWAY COUNTRY CLUB
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------- THREE MONTHS ENDED
1993 1994 MARCH 31, 1995
---------- ---------- ------------------
<S> <C> <C> <C>
Operating revenues:
Green fees, cart rentals and
practice facility fees............ $4,592,525 $4,905,610 $1,250,549
Food and beverage.................. 589,293 621,563 152,099
Pro shop........................... 629,669 616,394 157,022
Other.............................. 389,195 376,833 50,812
---------- ---------- ----------
Total operating revenues............. 6,200,682 6,520,400 1,610,482
Operating expenses
Golf course and tennis center
operations........................ 3,548,790 3,650,040 865,257
Cost of food and beverage.......... 201,363 210,908 51,714
Cost of pro shop sales............. 436,529 425,400 108,345
General and administrative......... 1,783,988 1,627,991 307,572
Depreciation....................... 601,218 580,573 173,971
---------- ---------- ----------
Total operating expenses............. 6,571,888 6,494,912 1,506,859
---------- ---------- ----------
Income (loss) from operations........ (371,206) 25,488 103,623
Interest income, net................. 20,890 15,293 6,356
---------- ---------- ----------
Net income (loss).................... $ (350,316) $ 40,781 $ 109,979
========== ========== ==========
</TABLE>
See accompanying notes.
F-31
<PAGE>
LAKEWAY COUNTRY CLUB
NOTE TO STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THREE MONTHS ENDED MARCH 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
In 1991, the Federal Depository Insurance Corporation ("FDIC") took
possession of the assets of Lakeway Company. On January 31, 1995, Hillwood
Development Company ("Hillwood") purchased Lakeway Company from the FDIC.
In April 1995, Cobblestone Holdings, Inc. ("Cobblestone") purchased Live Oak
Golf Course, Yaupon Golf Course, The Hills of Lakesway Golf Course and their
related assets and a tennis center and its related assets from Hillwood. The
assets purchased by Cobblestone were only a portion of Lakeway Company. These
assets are being referred to as Lakeway Country Club (the "Company") herein.
Lakeway Country Club is located north of Austin, Texas near Lake Travis.
The accompanying statements of operations reflect the results of operations
from the assets acquired by Cobblestone. The statements of operations for the
years ended December 31, 1993 and 1994, and for the three month period ended
March 31, 1995 are not necessarily indicative of those that would have been
achieved by the Company had it operated on a stand-alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which is recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight line over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
Lakeway Country Club records income tax expense as if it would file tax
returns on a stand alone basis. No provision for income taxes has been made
due to the availability of the net operating loss carryforward to offset
taxable income.
F-32
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the combined statements of operations of Stonebridge Country
Club, Inc. and The Ranch Country Club, Inc. for the year ended December 31,
1993 and the eleven and one-half months ended December 15, 1994. These
statements of operations are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the combined results of operations of
Stonebridge Country Club, Inc. and The Ranch Country Club, Inc. in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
June 21, 1996
F-33
<PAGE>
STONEBRIDGE COUNTRY CLUB, INC.
THE RANCH COUNTRY CLUB, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN
AND ONE-
HALF
MONTHS
ENDED
YEAR ENDED DECEMBER
DECEMBER 31, 15,
1993 1994
------------ -----------
<S> <C> <C>
Operating revenues
Green fees, cart rental fees, practice facility
fees, dues and initiation fees.................... $3,319,483 $ 3,611,663
Food and beverage revenues......................... 1,149,343 1,151,130
Pro shop sales..................................... 672,279 658,308
Other.............................................. 344,256 189,881
---------- -----------
Total operating revenues............................. 5,485,361 5,610,982
Operating expenses:
Golf course operations............................. 1,451,871 1,551,028
Cost of food and beverage.......................... 1,553,489 1,543,889
Cost of pro shop sales............................. 1,262,266 1,145,852
General and administrative......................... 1,952,595 2,726,511
Depreciation and amortization...................... 104,532 104,530
---------- -----------
Total operating expenses............................. 6,324,753 7,071,810
---------- -----------
Net loss............................................. $ (839,392) $(1,460,828)
========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE>
STONEBRIDGE COUNTRY CLUB, INC.
THE RANCH COUNTRY CLUB, INC.
NOTES TO COMBINED STATEMENTS OF OPERATIONS
DECEMBER 31, 1993 AND THE ELEVEN AND ONE HALF MONTHS ENDED DECEMBER 15, 1994
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Stonebridge Country Club, Inc. and The Ranch Country Club, Inc. (the
"Companies") own and operate two private country clubs. The Companies' main
activities include golf, tennis, swimming and dining. In December 1994,
Cobblestone Golf Group, Inc. purchased substantially all of the assets of the
Companies. Therefore, the accompanying statements of operations reflect the
results of operations from the assets acquired by Cobblestone. The statements
of operations for the years ended December 31, 1993 and the eleven and one
half months ended December 15, 1994 are not necessarily indicative of those
that would have been achieved by the Company had it operated on a stand-alone
basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which is recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets.
2. INCOME TAXES
As a result of the Company's net loss, the accompanying statements of
operations does not include any provision for income taxes. The Company has
recorded a valuation allowance on its deferred tax assets since the
realization of such assets is uncertain.
F-35
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of operations of Brandermill
Country Club, L.P. for the year ended December 31, 1994 and the two months
ended February 28, 1995. These statements of operations are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these statements of operations based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statements of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the results of operations of Brandermill
Country Club, L.P. for the year ended December 31, 1994 and the two months
ended February 28, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-36
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31, FEBRUARY 28,
1994 1995
------------ ------------
<S> <C> <C>
Operating revenues:
Membership dues and initiation fees................. $2,194,861 $359,939
Food and beverage................................... 647,297 50,872
Pro shop sales...................................... 693,820 46,646
Other............................................... 24,465 4,299
---------- --------
Total operating revenues.............................. 3,560,443 461,756
Operating expenses:
Golf course, tennis and swimming pool operations.... 776,614 52,373
Cost of food and beverage........................... 806,432 95,872
Cost of pro shop sales.............................. 701,161 63,862
General and administrative.......................... 710,676 119,563
Depreciation........................................ 83,308 13,885
---------- --------
Total operating expenses.............................. 3,078,191 345,555
Income from operations................................ 482,252 116,201
Interest expense, net................................. (486,794) (72,574)
---------- --------
Net income (loss)..................................... $ (4,542) $ 43,627
========== ========
</TABLE>
See accompanying notes.
F-37
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 AND TWO MONTHS ENDED FEBRUARY 28, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Brandermill Country Club, L.P. ("BCC"), a limited partnership, owns and
operates a private country club in Midlothian, Virginia. The club's main
activities include golf, tennis, swimming and dining.
In March 1995, BCC sold its land, inventory, receivables, and other selected
assets to Cobblestone Golf Group, Inc. The accompanying statements of
operations reflect the results of operations from the assets acquired by
Cobblestone. The statements of operations for the years ended December 31,
1993 and 1994, and for the three month period ended March 31, 1995 are not
necessarily indicative of those that would have been achieved by the Company
had it operated on a stand-alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees for the amount of the deposit and the amount of the note
receivable at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
Under the provisions of the Internal Revenue Code, partnerships are not
subject to income taxes. For income tax purposes, any income or losses
realized are taxable to the individual partners.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
Brandermill Country Club, L.P.
Richmond, Virginia
We have audited the balance sheet of Brandermill Country Club, L.P. as of
December 31, 1993, and the related statements of operations, partners'
deficit, and cash flows for the year then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brandermill Country Club,
L.P. at December 31, 1993, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Richmond, Virginia
April 12, 1994
F-39
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Current assets
Cash............................................................ $ 96,312
Accounts receivable (Note 2).................................... 55,166
Prepaids and other assets....................................... 2,580
-----------
Total current assets............................................. 154,058
-----------
Property and equipment, net of accumulated depreciation (Notes 1
and 2).......................................................... 1,415,609
-----------
Other assets..................................................... 440
-----------
$ 1,570,107
===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable................................................ $55,271
Current maturities of long-term debt (Note 2)................... 53,670
Other liabilities............................................... --
-----------
Total current liabilities........................................ 108,941
Long-term debt, less current maturities (Note 2)................. 4,541,874
-----------
Total liabilities................................................ 4,650,815
-----------
Commitments (Note 3).............................................
-----------
Partners' deficit
General partner................................................. (323,416)
Limited partners................................................ (2,757,292)
-----------
Total partners' deficit.......................................... (3,080,708)
-----------
$ 1,570,107
===========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-40
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
REVENUES
<S> <C>
Membership dues.................................................... $1,976,682
Initiation fees.................................................... 217,936
Golf course revenue................................................ 398,084
Other income....................................................... 20,657
----------
Total revenues..................................................... 2,613,359
----------
OPERATING EXPENSES
Management fees (Note 4)........................................... 1,038,933
Depreciation and amortization...................................... 131,137
Repairs and maintenance............................................ 199,012
Supplies........................................................... 112,182
Utilities and telephone............................................ 124,344
Insurance.......................................................... 45,703
Rent (Note 3)...................................................... 88,913
Real estate tax.................................................... 46,242
Other expenses..................................................... 292,140
----------
Total operating expenses............................................ 2,078,606
----------
Operating income.................................................... 534,753
INTEREST EXPENSE, NET............................................... 517,407
----------
NET INCOME.......................................................... $ 17,346
==========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-41
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1992...... $(322,054) $(2,749,949) $(3,072,003)
Distributions to partners................. (4,071) (21,980) (26,051)
Net income for the year................... 2,709 14,637 17,346
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1993...... $(323,416) $(2,757,292) $(3,080,708)
========= =========== ===========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-42
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 17,346
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization...................................... 131,137
Decrease in accounts receivable.................................... 6,834
Decrease in prepaids and other assets.............................. --
Increase (decrease) in accounts payable............................ (22,773)
Other.............................................................. (12,826)
--------
Net cash provided by operating activities............................ 119,718
--------
INVESTING ACTIVITIES
Purchase of property and equipment.................................. (47,500)
--------
Net cash absorbed by investing activities............................ (47,500)
--------
FINANCING ACTIVITIES
Payments on long-term debt.......................................... (47,866)
Distributions to partners........................................... (26,051)
--------
Net cash absorbed by financing activities............................ (73,917)
--------
INCREASE (DECREASE) IN CASH.......................................... (1,699)
CASH, beginning of year.............................................. 98,011
--------
CASH, end of year.................................................... $ 96,312
========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-43
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<C> <S>
NATURE OF Brandermill Country Club, L.P. ("BCC"), a limited
BUSINESS partnership, owns and operates a private country club
in Midlothian, Virginia. The club's main activities
include golf, tennis, swimming and dining.
OTHER ASSETS Other assets consist primarily of deferred financing
costs related to the note payable to Crestar Bank,
and are being amortized over the term of the note,
(five years).
PROPERTY AND Property and equipment is stated at cost.
EQUIPMENT Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Cost of betterments,
renewals and major replacements are capitalized. At
the time properties are retired or otherwise disposed
of, the related costs and allowances for depreciation
are eliminated from the accounts and any gain or loss
on disposition is reflected in income.
Depreciation is computed using accelerated methods
over the estimated useful lives of the assets.
INCOME TAXES BCC is a partnership and, consequently, each partner
will report their proportional share of the income,
losses and credits on their individual tax return.
SUPPLEMENTAL DISCLOSURE Cash payments for interest amounted to $518,310 for
OF CASH FLOW INFORMATION the year ended December 31, 1993.
</TABLE>
See accompanying independent auditors' report.
F-44
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Land............................................................... $ 349,099
Buildings.......................................................... 823,579
Land improvements.................................................. 309,030
Furniture and fixtures............................................. 163,050
Machinery and equipment............................................ 151,331
Tennis courts...................................................... 29,070
Landscaping........................................................ 34,438
Shuffleboard courts................................................ 1,492
Parking lots....................................................... 10,229
----------
1,871,318
Less accumulated depreciation...................................... 455,709
----------
Net property and equipment......................................... $1,415,609
==========
</TABLE>
2. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Note payable to Crestar Bank (Crestar), with interest at 11%,
collateralized by property and equipment with a book value of
approximately $1,416,000 at December 31, 1993, a first security
interest in accounts receivable, and personal guarantees of the
limited partners, due in 59 monthly installments (amortized on a
25-year basis) through March 1, 1995, with the final installment
equal to an amount to pay the loan in full due on April 1, 1995
(See below)..................................................... $4,595,544
Less current maturities.......................................... 53,670
----------
$4,541,874
==========
</TABLE>
On January 28, 1994, the Partnership entered into a new note agreement with
NationsBank in the principal amount of $5,550,000; proceeds of which were used
primarily to pay off the Crestar note. The new note bears interest at 7.70%.
Principal and interest are payable by the Partnership in monthly installments
of $45,757 through February 1997, on which date the entire remaining principal
balance is due.
Amounts maturing under the new note during each of its remaining years are as
follows: 1994--$110,552; 1995--$129,085; 1996--$139,531; 1997--$5,170,832.
3. COMMITMENTS
BCC leases certain equipment under operating leases expiring at various dates
through 1998. Future minimum rental payments required that have initial or
remaining noncancelable terms in excess of one year as of December 31, 1993 are
approximately $61,521 in 1994; $58,514 in 1995; $58,514 in 1996; $43,952 in
1997; and $39,601 in 1998. Total rental expense amounted to $88,913 for the
year ended December 31, 1993.
See accompanying independent auditors' report.
F-45
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1993 BCC paid $1,038,933 to East West
Partners of Virginia, Inc., a related entity to BCC, for management and
administrative fees. This amount relates primarily to salary and employee
benefit costs incurred by employees of East West.
See accompanying independent auditors' report.
F-46
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of income for Pecan Grove
Plantation Country Club, Inc. (the "Club") for the year ended December 31,
1993 and the month ended January 31, 1994. These statements of income are the
responsibility of the Club's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of income are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the statements of income referred to above present fairly,
in all material respects, the results of operations of Pecan Grove Plantation
Country Club, Inc. for the year ended December 31, 1993 and the month ended
January 31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-47
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Operating revenues:
Green fees, cart rental fees, practice facility
fees, dues and initiation fees..................... $2,282,397 $182,064
Food and beverage revenues.......................... 408,847 20,067
Pro shop sales...................................... 283,230 5,980
Other............................................... 26,522 1,177
---------- --------
Total operating revenues.............................. 3,000,996 209,288
Operating expenses:
Golf course operations.............................. 2,380,405 171,304
Cost of food and beverage........................... 177,772 7,151
Cost of pro shop sales.............................. 265,547 11,606
Depreciation and amortization....................... 79,295 6,125
---------- --------
Total operating expenses.............................. 2,903,019 196,186
Income from operations................................ 97,977 13,102
Provision for income taxes............................ 25,404 4,000
---------- --------
Net income............................................ $ 72,573 $ 9,102
========== ========
</TABLE>
See accompanying notes.
F-48
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB
NOTES TO STATEMENTS OF INCOME
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Pecan Grove Plantation Country Club (the "Company") is located in Richmond,
Texas, and consists of a 27-hole private golf course, driving range, tennis
courts, pool, clubhouse and pro shop. In February, 1994 the Company sold its
land, inventory, receivables, and other selected assets to Cobblestone Golf
Group, Inc.
The accompanying statements of income reflect the results of operations from
the assets acquired by Cobblestone Golf Group, Inc.. The statements of
operations for the year ended December 31, 1993 and for the month ended
January 31, 1994 are not necessarily indicative of those that would have been
achieved by the Company had it operated on a stand alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The statements of income have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the statements of income and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
The provision (benefit) for income taxes at January 31, 1994 and December
31, 1993 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Current:
Federal........................................ $20,882 $3,280
State.......................................... 4,522 720
Deferred:
Federal........................................ -- --
State.......................................... -- --
------- ------
$25,404 $4,000
======= ======
</TABLE>
See accountants' review report.
F-49
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB
NOTES TO STATEMENTS OF INCOME--(CONTINUED)
2. INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates and the statutory federal income
tax rates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Tax at federal rate..... $ 35,174 $ 4,717
State income tax, net of
federal tax benefits... 2,939 469
Benefit of graduated
rates.................. (12,709) (1,186)
-------- -------
$ 25,404 $ 4,000
======== =======
</TABLE>
See accountants' review report.
F-50
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statement of income of Ocean Vista Land
Company for the five months ended May 31, 1993. This statement of income is
the responsibility of Ocean Vista Land Company's management. Our
responsibility is to express an opinion on this statement of income based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of income referred to above presents fairly,
in all material respects, the results of operations of Ocean Vista Land
Company for the five months ended May 31, 1993, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-51
<PAGE>
OCEAN VISTA LAND COMPANY
STATEMENT OF INCOME
FIVE MONTHS ENDED MAY 31, 1993
<TABLE>
<S> <C>
Operating revenues:
Green fees, cart rental fees, practice facility fees,
dues and initiation fees......................................... $1,815,550
Food and beverage revenues........................................ 482,836
Other............................................................. 260,631
----------
Total operating revenues............................................ 2,559,017
Operating expenses:
Golf course operations............................................ 619,879
Cost of food and beverage......................................... 483,235
General and administrative........................................ 1,020,490
----------
Total operating expenses............................................ 2,123,604
----------
Net income.......................................................... $ 435,413
==========
</TABLE>
See accompanying notes.
F-52
<PAGE>
OCEAN VISTA LAND COMPANY
NOTE TO STATEMENT OF INCOME
FIVE MONTHS ENDED MAY 31, 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Ocean Vista Land Company owns and operates the El Camino Country Club ("El
Camino") and Whispering Palms Lodge and Country Club ("Whispering Palms"). El
Camino is located in Oceanside, California, and consists of an 18-hole private
golf course, driving range, tennis courts, pool, clubhouse and pro shop.
Whispering Palms is located in Rancho Santa Fe, California, and consists of a
27-hole semi-private golf course, lodge, tennis courts, swimming pool,
clubhouse and pro shop.
In June 1993, Cobblestone Golf Group, Inc. purchased substantially all of
the stock of Ocean Vista Land Company.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation at the time the membership is sold.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The effective rate for income tax differs from the statutory rate as a
result of the change in deferred taxes related to the write off of notes
receivable and investments.
F-53
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statement of operations of Saticoy Regional
Golf Course for the two and a half months ended March 12, 1993. This statement
of operations is the responsibility of Saticoy Regional Golf Course's
management. Our responsibility is to express an opinion on this statement of
operations based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of operations is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of operations presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of Saticoy
Regional Golf Course for the two and a half months ended March 12, 1993, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-54
<PAGE>
SATICOY REGIONAL GOLF COURSE
STATEMENT OF OPERATIONS
FOR THE TWO AND A HALF MONTHS ENDED MARCH 12, 1993
<TABLE>
<S> <C>
Operating revenues:
Green fees, golf cart and range revenue............................ $ 77,538
Food and beverage.................................................. 7,249
Pro shop sales..................................................... 4,050
Other.............................................................. 4,205
--------
Total operating revenues............................................. 93,042
Operating expenses:
Golf course operations............................................. 43,302
Cost of food and beverage.......................................... 4,415
Cost of pro shop sales............................................. 3,911
General and administrative......................................... 21,687
Depreciation....................................................... 15,824
--------
Total operating expenses............................................. 89,139
Income from operations............................................... 3,903
Interest expense, net................................................ (14,499)
--------
Net income (loss).................................................... $(10,596)
========
</TABLE>
See accompanying notes.
F-55
<PAGE>
SATICOY REGIONAL GOLF COURSE
NOTES TO STATEMENT OF OPERATIONS
FOR THE TWO AND HALF MONTHS ENDED MARCH 12, 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Saticoy Regional Golf Course (the "Company") is a public golf course located
in Ventura, California. The facility consists of a 9-hole municipal golf
course, driving range, and pro shop.
In March of 1993, Cobblestone Golf Group, Inc. acquired the leasehold
interest in the operations of the Company.
REVENUE
Operating revenue is recognized when received.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated using the straight-line method
over the estimated useful lives of the asset.
INCOME TAXES
As a result of the Company's net loss, the accompanying statement of
operations does not include any provision for income taxes. The Company has
recorded a valuation allowance on its deferred tax assets since the
realization of such assets is uncertain.
F-56
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of the
Company presents the uanudited pro forma consolidated statements of operations
for the year ended September 30, 1995, and the nine months ended June 30,
1996, and the unaudited pro forma consolidated balance sheet at June 30, 1996.
The pro forma combined consolidated statements of operations for the year
ended September 30, 1995, and the nine months ended June 30, 1996, have been
adjusted to give effect to (i) the Company's acquisition of Red Mountain Ranch
Country Club (completed in January, 1995), the Hills of Lakeway (completed in
March, 1995), Live Oak Golf Course (completed in March, 1995), Brandermill
Country Club (completed in March, 1995), Yaupon Golf Course (completed in
March, 1995), The Ranch Country Club (completed in December, 1994),
Stonebridge Country Club (completed in December, 1994), (ii) the Company's
acquisition of Eagle Crest Country Club (completed in June, 1996), and
Sweetwater Country Club (completed in July, 1996), in each case as if such
transactions had occurred on October 1, 1994. The pro forma consolidated
balance sheet at June 30, 1996, has been adjusted to give effect to the
acquisition of Sweetwater Country Club, which occurred after June 30, 1996.
Pro forma adjustments relating to the 1995 Acquisitions and the 1996
Acquisitions are referred to herein collectively as the "Pro Forma Acquisition
Adjustments."
The pro forma as adjusted consolidated statements of operations for the year
ended September 30, 1995 and for the nine months ended June 30, 1996, give
additional effect to (i) the issuance by the Company of $70,000,000 aggregate
principal amount of its 11 1/2% Series A Senior Notes due 2003, (ii) the
issuance by Holdings of 86,000 units, each consisting of $1,000 principal
amount at maturity of its 13 1/2% Series A Senior Zero-Coupon Notes due 2004
and one share of its common stock, for $352.04 per unit, and the contribution
by Holdings to the Company of the net proceeds of $28.7 million, (iii) the
increase in interest expense as a result of the increase in indebtedness, (iv)
the write-off of the unamortized loan fees, in each case as if such
transactions had occurred on the first day of the period presented. The pro
forma adjustments relating to the transactions referred to in clauses (i)
through (iv) are referred to herein collectively as the "Pro Forma Offering
Adjustments."
The Pro Forma Acquisition Adjustments and Pro Forma Offering Adjustments
represent the Company's determination of all adjustments necessary to present
fairly the Company's pro forma results of operations and financial position
and are based upon available information and certain assumptions considered
reasonable under the circumstances. The pro forma consolidated financial
information presented herein does not purport to present what the Company's
financial position or results of operations would actually have been had such
events leading to the Pro Forma Acquisition Adjustments and Pro Forma Offering
Adjustments in fact occurred on the date or at the beginning of the periods
indicated or to project the Company's financial position or results of
operations for any future date or period.
The pro forma consolidated financial information should be read in
conjunction with the historical Consolidated Financial Statements of the
Company and the Notes thereto and management's discussion thereof contained
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto.
F-57
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1995 1996 ACQUISITIONS PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS (7) ACQUISITIONS (8) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- ---------------- ---------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating reve-
nues:
Green fees, cart
rental fees,
practice
facility fees,
dues and
initiation
fees............ $38,043,441 $4,263,175 $ 7,766,082 $ -- $50,072,698 $ -- $50,072,698
Food and beverage
revenues........ 7,034,407 857,275 2,074,500 -- 9,966,182 -- 9,966,182
Pro shop sales... 3,311,062 705,421 840,810 -- 4,857,293 -- 4,857,293
Other............ 1,473,869 172,703 557,146 -- 2,203,718 -- 2,203,718
----------- ---------- ----------- ---------- ----------- ----------- -----------
Total operating
revenues......... 49,862,779 5,998,574 11,238,538 -- 67,099,891 -- 67,099,891
Operating
expenses:
Golf course
operations...... 29,591,886 2,313,558 2,967,097 -- 34,872,541 -- 34,872,541
Cost of food and
beverage........ 2,613,295 799,046 2,124,723 -- 5,537,064 -- 5,537,064
Cost of pro shop
sales........... 2,221,330 717,656 681,019 -- 3,620,005 -- 3,620,005
General and
administrative.. 2,517,423 2,329,720 3,623,606 1,168,375 (1) 9,639,124 -- 9,639,124
Depreciation and
amortization.... 6,144,430 422,824 1,084,719 (597,704)(2) 7,054,269 -- 7,054,269
----------- ---------- ----------- ---------- ----------- ----------- -----------
Total operating
expense.......... 43,088,364 6,582,804 10,481,164 570,671 60,723,003 -- 60,723,003
----------- ---------- ----------- ---------- ----------- ----------- -----------
Income (loss) from
operations....... 6,774,415 (584,230) 757,374 (570,671) 6,376,888 -- 6,376,888
Interest expense,
net.............. (8,019,072) (209,452) (844,873) (339,586)(3) (9,412,983) 968,027 (4) (8,444,956)
Loss on disposal
of assets........ -- -- (2,700,000) 2,700,000 (6) -- -- --
Gain on insurance
settlement....... 746,845 -- 746,845 -- 746,845
----------- ---------- ----------- ---------- ----------- ----------- -----------
Loss before income
taxes and
extraordinary
item............. (497,812) (793,682) (2,787,499) 1,789,743 (2,289,250) 968,027 (1,321,223)
Provision for
income taxes..... 208,000 -- -- -- 208,000 -- 208,000
----------- ---------- ----------- ---------- ----------- ----------- -----------
Loss before
extraordinary
item............. (705,812) (793,682) (2,787,499) 1,789,743 (2,497,250) 968,027 (1,529,223)
Extraordinary
item............. -- -- -- -- -- (2,998,986)(5) (2,998,986)
----------- ---------- ----------- ---------- ----------- ----------- -----------
Net loss.......... $ (705,812) $ (793,682) $(2,787,499) $1,789,743 $(2,497,250) $(2,030,959) $(4,528,209)
=========== ========== =========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-58
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AT SEPTEMBER
30, 1995
(1) Represents operating lease payments related to Sweetwater Country Club
assuming the lease on the property was acquired at the beginning of the
period.
(2) Represents the elimination of the historical depreciation and amortization
of 1995 and 1996 Acquisitions of $422,824 and $1,084,719, respectively,
and the Company's estimate for depreciation and amortization of $664,959,
and $244,880, respectively, assuming the property, equipment and leasehold
interests acquired were stated at fair market value at the beginning of
the period.
(3) Represents the net effect from the elimination of historical interest
expense for the 1995 and 1996 Acquisitions of $209,452 and $844,873,
respectively, and the effect on interest expense from the borrowings
required to fund the 1995 and 1996 Acquisitions as if the transactions
were consummated at the beginning of the period of $788,974 and $604,937,
respectively.
(4) Represents the net effect from the elimination of historical interest
expense of $9,447,651 assuming all existing debt was repayed by the use of
offering proceeds at the beginning of the period and the effects on
interest expense related to the debt offering of $8,479,624.
(5) Represents the write-off of the unamortized loan fees.
(6) Represents the elimination of the loss on disposal of assets related to
Sweetwater Country Club.
(7) The following is a summary of revenue and net income (loss) for the 1995
Acquisitions:
<TABLE>
<CAPTION>
REVENUE NET INCOME (LOSS)
---------- -----------------
<S> <C> <C>
Red Mountain Ranch C.C..................... $ 593,062 $ (52,877)
Stonebridge C.C. and The Ranch C.C. (a).... 1,084,880 (908,984)
Brandermill C.C............................ 1,308,264 142,351
The Hills of Lakeway, Live Oak Golf Course
and Yaupon Golf Course (a)................ 3,012,368 25,828
---------- ---------
$5,998,574 $(793,682)
========== =========
</TABLE>
(a) Facilities were acquired as part of the same acquisition. Therefore,
amounts are combined.
(8) The following is a summary of revenue and net income (loss) for the 1996
Acquisitions:
<TABLE>
<CAPTION>
REVENUE NET INCOME (LOSS)
----------- -----------------
<S> <C> <C>
Eagle Crest Golf Club...................... $ 1,630,157 $ 76,631
Sweetwater C.C............................. 9,608,381 (2,864,530)
----------- -----------
$11,238,538 $(2,787,899)
=========== ===========
</TABLE>
F-59
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1996 ACQUISITIONS PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS(5) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Green fees, cart rental
fees, practice
facility fees, dues
and initiation fees... $31,760,988 $6,094,034 $ -- $37,855,022 $ -- $37,855,022
Food and beverage
revenues.............. 6,886,496 1,723,726 -- 8,610,222 -- 8,610,222
Pro shop sales......... 3,403,735 618,550 -- 4,022,285 -- 4,022,285
Other.................. 1,664,652 393,791 -- 2,058,443 -- 2,058,443
----------- ---------- --------- ----------- ---------- -----------
Total operating
revenues............... 43,715,871 8,830,101 -- 52,545,972 -- 52,545,972
Operating expenses:
Golf course
operations............ 25,860,509 2,884,921 -- 28,745,430 -- 28,745,430
Cost of food and
beverage.............. 2,331,328 1,667,628 -- 3,998,956 -- 3,998,956
Cost of pro shop
sales................. 2,259,311 495,186 -- 2,754,497 -- 2,754,497
General and
administrative........ 2,595,799 1,913,122 876,281 (1) 5,385,202 -- 5,385,202
Depreciation and
amortization.......... 5,353,224 921,659 (737,998)(2) 5,636,885 -- 5,536,885
----------- ---------- --------- ----------- ---------- -----------
Total operating
expense................ 38,400,171 7,882,516 138,283 46,420,970 -- 46,420,970
Income (loss) from
operations............. 5,315,700 947,585 (138,283) 6,125,002 -- 6,125,002
Interests expenses,
net.................... (7,840,218) (604,786) 151,083(3) (8,293,921) 1,719,690(4) (6,574,231)
----------- ---------- --------- ----------- ---------- -----------
Income (loss) before
income taxes and
extraordinary item..... (2,524,518) 342,799 12,800 (2,168,919) 1,719,690 (449,229)
Provision for income
taxes.................. 137,480 -- -- 137,480 -- 137,480
----------- ---------- --------- ----------- ---------- -----------
Income (loss) before
extraordinary item..... (2,661,998) 342,799 12,800 (2,306,399) 1,719,690 (586,709)
Extraordinary items..... (3,520,401) -- -- (3,520,401) 3,520,401 --
----------- ---------- --------- ----------- ---------- -----------
Net income (loss)....... $(6,182,399) $ 342,799 $ 12,800 $(5,826,800) $5,240,091 $ (586,709)
=========== ========== ========= =========== ========== ===========
</TABLE>
See accompanying notes.
F-60
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AT JUNE 30,
1996
(1) Represents operating lease payments related to Sweetwater Country Club
assuming the lease on the property was acquired at the beginning of the
period.
(2) Represents the elimination of the historical depreciation and amortization
of 1996 Acquisitions of $921,659 and the Company's estimate for
depreciation and amortization of $183,661 assuming the property, equipment
and leasehold interests acquired were stated at fair market value at the
beginning of the period.
(3) Represents the net effect from the elimination of historical interest
expense for the 1996 Acquisitions of $604,786 and the effect on interest
expense from the borrowings required to fund the 1996 Acquisitions as if
the transactions were consummated at the beginning of the period of
$453,703.
(4) Represents the net effect from the elimination of historical interest
expense of $7,369,575 assuming all existing debt was repayed by the use of
offering proceeds at the beginning of the period and the effects on
interest expense related to the debt offering of $5,649,885.
(5) The following is a summary of revenue and net income for the 1996
Acquisitions:
<TABLE>
<CAPTION>
REVENUE NET INCOME
---------- ----------
<S> <C> <C>
Eagle Crest Golf Club.............................. $1,356,437 $ 97,479
Sweetwater C.C..................................... 7,473,664 245,320
---------- --------
$8,830,101 $342,799
========== ========
</TABLE>
F-61
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996
<TABLE>
<CAPTION>
SWEETWATER
HISTORICAL C.C. PRO FORMA PRO FORMA AS
COMPANY (1) ACQUISITION ACQUISITION ADJUSTMENTS ADJUSTED
------------ ----------- ----------------------- ------------
DEBITS (CREDITS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 1,841,057 $ 642,300 $ (176,393)(3) $ 2,306,964
Accounts receivable,
net................... 2,469,851 1,081,436 (1,081,436)(3) 2,469,851
Current portion of
notes receivable,
net................... 1,592,206 -- -- 1,592,206
Inventory.............. 1,950,223 220,144 (34,278)(3) 2,136,089
Prepaid expenses and
other current assets.. 452,747 57,974 (44,015)(3) 466,706
------------ ----------- ------------ ------------
Total current assets.... 8,306,084 2,001,854 (1,336,122) 8,971,816
Property, equipment and
leasehold interest,
net.................... 138,161,490 17,571,980 (17,571,980)(2) 138,161,490
Notes receivable, net... 3,745,263 -- -- 3,745,263
Intangibles assets,
net.................... 3,969,931 -- -- 3,969,931
Other assets, net....... 3,847,212 -- -- 3,847,212
------------ ----------- ------------ ------------
$158,029,980 $19,573,834 $(18,908,102) $158,695,712
============ =========== ============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY/PARTNERS'
CAPITAL
Current liabilities:
Accounts payable....... 1,349,985 163,035 163,035 (4) $ 1,349,985
Accrued payroll and
related expenses...... 1,686,971 -- -- 1,686,971
Accrued interest
expense............... 670,833 -- -- 670,833
Accrued property
taxes................. 675,330 -- -- 675,330
Deferred revenue....... 1,967,909 651,315 179,570 (4) 2,439,654
Current portion of
long-term debt and
capital lease
obligations........... 441,552 -- -- 441,552
Current portion of
deferred purchase
price................. 248,329 -- -- 248,329
Income taxes payable... 7,196 -- -- 7,196
Other current
liabilities........... 495,619 413,229 219,242 (4) 689,606
------------ ----------- ------------ ------------
Total current
liabilities............ 7,543,724 1,227,579 561,847 8,209,456
Long term debt, security
deposits and capital
lease obligations...... 77,094,527 13,927,718 13,927,718 (4) 77,094,527
Note payable to
stockholder/officer.... 222,971 -- -- 222,971
Deferred purchase
price.................. 924,692 -- -- 924,692
Long-term deferred
revenue................ 2,481,326 -- -- 2,481,326
Deferred income taxes... 3,458,583 -- -- 3,458,583
Minority interest....... 380,984 -- -- 380,984
Commitments
Stockholders'
equity/partners'
capital
Redeemable preferred
stock................. 4,307 -- -- 4,307
Common stock........... 1,348 -- -- 1,348
Paid in capital........ 75,064,620 7,157,899 7,157,899 (5) 75,064,620
Retained earnings
(accumulated
deficit).............. (9,147,102) (2,739,362) (2,739,362)(5) (9,147,102)
------------ ----------- ------------ ------------
Total stockholders'
equity/partners'
capital................ 65,923,173 4,418,537 4,418,537 65,923,173
------------ ----------- ------------ ------------
$158,029,980 $19,573,834 $ 18,908,102 $158,695,712
============ =========== ============ ============
</TABLE>
See accompanying notes.
F-62
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996
(1) The purchase method of accounting has been used in preparing the Unaudited
Pro Forma Consolidated Financial Statements of Holdings with respect to
the Sweetwater C. C. acquisition. Purchase accounting values have been
assigned to the Sweetwater C. C. acquisition on a preliminary basis in the
Pro Forma Acquisition Adjustments. Management expects the final purchase
accounting valuation to be completed before September 30, 1996.
(2) The Sweetwater C. C. acquisition was made by the Company by entering into
a 15 year operating lease. As such, the historical cost of the golf course
facilities has been eliminated.
(3) Elimination of assets not acquired.
(4) Elimination of liabilities not assumed.
(5) Elimination of equity.
F-63
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE NOTES OFFERED HEREBY TO ANY PERSON IN ANY JURISDIC-
TION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 15
The Exchange Offer....................................................... 21
The Offerings............................................................ 29
The Recapitalization..................................................... 29
Use of Proceeds.......................................................... 29
Consolidated Capitalization.............................................. 30
Selected Consolidated Financial Information.............................. 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 39
Management............................................................... 49
Certain Relationships and Related Transactions........................... 52
Principal Stockholders................................................... 53
Description of Notes..................................................... 55
Description of New Credit Facility....................................... 77
Certain Federal Income Tax Considerations................................ 78
Plan of Distribution..................................................... 78
Legal Matters............................................................ 79
Experts.................................................................. 79
Available Information.................................................... 79
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL DECEMBER 31, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE
NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF COBBLESTONE GOLF GROUP, INC.]
COBBLESTONE GOLF GROUP, INC.
OFFER TO EXCHANGE
11 1/2% SERIES B SENIOR NOTES
DUE 2003
FOR ALL OUTSTANDING
11 1/2% SERIES A SENIOR NOTES
DUE 2003
----------------
PROSPECTUS
----------------
OCTOBER 2, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation and its Certificate of Incorporation
and Bylaws provide for indemnification of its officers and directors to the
fullest extent permitted by law. Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL") eliminates the liability of a corporation's
directors to a corporation or its stockholders, except for liabilities related
to breach of duty of loyalty, actions not in good faith, and certain other
liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection
with actions, suits or proceedings brought against them by a third party or in
the right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
Escondido Consulting, Inc., Carmel Mountain Ranch Golf Club, Inc., OVLC
Management Corp., OVLC Financial Corp., Ocean Vista Land Company, Golf Course
Inns of America, Inc., Oceanside Golf Management Corp. and C-RHK, Inc. are
California corporations and their Articles of Incorporation and Bylaws provide
for indemnification of their officers and directors to the fullest extent
permitted by law. Section 204(10) of the California General Corporation Law
(the "CGCL") eliminates the liability of a corporation's directors for
monetary damages to the fullest extent permissible under California law.
Pursuant to Section 204(11) of the CGCL, a California corporation may
indemnify Agents (as defined in Section 317 of the CGCL), subject only to the
applicable limits set forth in Section 204 of the CGCL with respect to actions
for breach of duty to the corporation and its shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the
CGCL), to the maximum extent permitted by the CGCL, in connection with any
proceeding arising by reason of the fact that such person is or was such a
director or officer, against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in any such proceeding.
Cobblestone Texas, Inc., Pecan Grove Golf Club, Inc., CSR Golf Group, Inc.,
Lakeway Golf Clubs, Inc., Woodcrest Golf Club, Inc., Lakeway Clubs, Inc., The
Liquor Club at Pecan Grove, Inc., TGFC Corporation and SWC Golf Club, Inc. are
Texas corporations and their Certificates of Incorporation and Bylaws provide
for indemnification of their officers and directors to the fullest extent
permitted by law. Article 2.02A(16) of the Texas Business Corporation Act (the
"TBCA") empowers a corporation to indemnify directors, officers, employees and
agents of the corporation and to purchase and maintain liability insurance for
those persons. Article 2.02-1 of the TBCA permits a corporation to indemnify a
person who was, is or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director only if it is
determined that the person conducted himself in good faith, reasonably
believed that his official conduct was unlawful.
Under Article 2.02-1 of the TBCA, a corporation shall indemnify a director
or officer against reasonable expenses incurred by him in connection with a
proceeding in which he is a named defendant or respondent because he is or was
a director or officer if he has been wholly successful, on the merits or
otherwise, in the defense of the proceeding, and, in addition, such
indemnification may be ordered in a proper case by a court of law. In
addition, a corporation may indemnify and advance expenses to persons who are
not or were not officers, employees or agents of the corporation but who are
or were serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise to the same extent that it may indemnify and advance expenses to
directors under this article. The statute provides that a corporation may
purchase and maintain insurance on behalf of a director, officer, employee
II-1
<PAGE>
or agent of the corporation or a person who is or was serving at the request
of the corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another enterprise, against
any liability asserted against him in such capacity or arising out of such
status, whether or not the corporation would have the power to indemnify him
against that liability under this article.
Foothills Holding Company, Inc. is a Nevada corporation and its Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent now or hereafter permitted by law. Section 78.751 of the general
corporation law of Nevada (the "Nevada Law") permits a corporation to
indemnify any of its directors, officers, employees and agents against costs
and expenses arising from claims, suits and proceedings if such person acted
in good faith and in a manner reasonably believed to be in or not opposed to
the best interests of the corporation. No indemnification may be made in
respect of claims as to which such person is found liable for negligence or
misconduct in the performance of his duty to the corporation unless the court
determines that, notwithstanding the determination of liability,
indemnification would be appropriate. The indemnification provisions of the
Nevada Law expressly do not exclude any other rights a person may have to
indemnification under any bylaw, among other things.
Bellows Golf Group, Inc. is an Arizona corporation and its Bylaws provide
for mandatory indemnification of directors and officers to the fullest extent
now or hereafter permitted by law. Section 10-851 of the Arizona Business
Corporation Act permits a corporation to indemnify a director against
liability incurred in connection with a proceeding brought because such
individual is or was a director if such person's conduct was in good faith,
such individual reasonably believed, in the case of conduct in an official
capacity with the corporation, that the conduct was in its best interests and,
in all other cases, that the conduct was at least not opposed to the best
interests of the corporation and, in criminal proceedings, such individual had
no reasonable cause to believe the conduct was unlawful. Subject to certain
exceptions, no indemnification may be made in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable
to the corporation or in connection with any other proceeding charging
improper personal benefit to the director, whether or not involving action in
the director's official capacity, in which the director was adjudged liable on
the basis that personal benefit was improperly received by the director.
Virginia Golf Country Club, Inc. is a Virginia corporation and its Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent now or hereafter permitted by law. Section 13.1-697 of the Virginia
Stock Corporation Act permits a corporation to indemnify a director against
liability incurred in connection with a proceeding brought because such
individual is or was a director if such person conducted himself in good
faith, such individual believed, in the case of conduct in an official
capacity with the corporation, that the conduct was in its best interests and,
in all other cases, that the conduct was at least not opposed to the best
interests of the corporation and, in criminal proceedings, such individual had
no reasonable cause to believe the conduct was unlawful. Subject to certain
exceptions, no indemnification may be made in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable
to the corporation or in connection with any other proceeding charging
improper personal benefit to the director, whether or not involving action in
the director's official capacity, in which the director was adjudged liable on
the basis that personal benefit was improperly received by the director. The
indemnification provisions of the Virginia Law do not exclude any other rights
a person may have to indemnification under any bylaw, among other things.
CEL Golf Group, Inc. is a Georgia corporation and its Bylaws provide for
mandatory indemnification of directors and officers to the fullest extent now
or hereafter permitted by law. Section 14-2-851 of the Georgia Business
Corporation Code permits a corporation to indemnify a director against
liability incurred in a proceeding brought because such individual is or was a
director if such person acted in a manner he believed in good faith to be in
or not opposed to the best interests of the corporation and, in criminal
proceedings, such individual had no reasonable cause to believe his conduct
was unlawful. Subject to certain exceptions, no indemnification may be made in
connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation or in connection with any
other proceeding in which the director was adjudged liable on the basis that
personal benefit was improperly received by him.
II-2
<PAGE>
The Company and its subsidiaries maintain a liability insurance policy under
which officers and directors are generally indemnified against losses and
liability (including costs, expenses, settlements and judgments) incurred by
them in such capacities, individually or otherwise, other than specified
excluded losses. The insurance policy will pay on behalf of the Company or any
subsidiary all covered losses for which the Company or any subsidiary grants
indemnification of each officer or director as permitted by law which the
officer or director becomes legally obligated to pay on account of an
indemnifiable claim. The policy would generally cover, in addition to other
liabilities, liabilities arising under the federal securities law; however,
the subject of loss may not include any claim or claims arising out of or as a
result of the filing of a registration statement under the Securities Act of
1933 or any liability under Section 16(b) of the Securities Exchange Act of
1934.
In addition, the Company has entered into an indemnification agreement (an
"Indemnification Agreement") with each of its directors to provide its
directors with protection against losses and liabilities beyond those provided
by the Company's bylaws and liability insurance policy. The Indemnification
Agreement provides for indemnification of a director for certain costs and
expenses for which such director becomes legally obligated to pay in
connection with certain threatened, pending or completed claims, actions,
suits or proceedings if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is set
forth in the Index to Exhibits on page E-1 and is incorporated herein by
reference.
(b) Financial Statement Schedules:
Report of Independent Auditors.
Schedule II. Valuation and Qualifying Accounts.
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, each Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means.
II-3
<PAGE>
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement; (i) to
include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cobblestone Golf Group, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on September 26, 1996.
COBBLESTONE GOLF GROUP, INC.
/s/ Stefan C. Karnavas
By: _________________________________
Stefan C. Karnavas
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
*
- -------------------------------------- Chief Executive Officer and September 26, 1996
James A. Husband Director (Principal
Executive Officer)
*
- -------------------------------------- Director September 26, 1996
David B. Wong
*
- -------------------------------------- Director September 26, 1996
Frederick J. Warren
*
- -------------------------------------- Director September 26, 1996
P.L. Davies III
*
- -------------------------------------- Director September 26, 1996
Martin R. Reid
*
- -------------------------------------- Director September 26, 1996
John M. Sullivan
/s/ Stefan C. Karnavas
- -------------------------------------- Chief Financial Officer September 26, 1996
Stefan C. Karnavas (Principal Financial and
Accounting Officer)
*Power of Attorney by
/s/ Stefan C. Karnavas
- --------------------------------------
Stefan C. Karnavas
Chief Financial Officer (Principal
Financial and Accounting Officer)
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on September 26, 1996.
ESCONDIDO CONSULTING, INC. WOODCREST GOLF CLUB, INC.
COBBLESTONE TEXAS, INC. VIRGINIA GOLF COUNTRY CLUB, INC.
PECAN GROVE GOLF CLUB, INC. OCEAN VISTA LAND COMPANY
FOOTHILLS HOLDING COMPANY, INC. GOLF COURSE INNS OF AMERICA, INC.
BELLOWS GOLF GROUP, INC. OCEANSIDE GOLF MANAGEMENT CORP.
CARMEL MOUNTAIN RANCH GOLF CLUB, INC. THE LIQUOR CLUB AT PECAN GROVE, INC.
OVLC MANAGEMENT CORP. LAKEWAY CLUBS, INC.
OVLC FINANCIAL CORP. TGFC CORPORATION
CSR GOLF GROUP, INC. C-RHK, INC.
LAKEWAY GOLF CLUBS, INC. CEL GOLF GROUP, INC.
SWC GOLF CLUB, INC.
/s/ Stefan C. Karnavas
By: _________________________________
Stefan C. Karnavas
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
*
- -------------------------------------- Chief Executive Officer and September 26, 1996
James A. Husband Director (Principal
Executive Officer)
*
- -------------------------------------- Director September 26, 1996
David B. Wong
*
- -------------------------------------- Director September 26, 1996
Frederick J. Warren
/s/ Stefan C. Karnavas
- -------------------------------------- Chief Financial Officer September 26, 1996
Stefan C. Karnavas (Principal Financial and
Accounting Officer)
*Power of Attorney by
/s/ Stefan C. Karnavas
- --------------------------------------
Stefan C. Karnavas
Chief Financial Officer (Principal
Financial and Accounting Officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on September 26, 1996.
WHISPERING PALMS COUNTRY CLUB JOINT
VENTURE
/s/ Stefan C. Karnavas
By: _________________________________
Stefan C. Karnavas
Managing Member (Principal
Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
*
- ------------------------------------- Managing Member September 26, 1996
Gary L. Dee
*
- ------------------------------------- Managing Member (Principal September 26, 1996
James A. Husband Executive Officer)
/s/ Stefan C. Karnavas
- ------------------------------------- Managing Member (Principal September 26, 1996
Stefan C. Karnavas Financial and Accounting
Officer)
*Power of Attorney by
/s/ Stefan C. Karnavas
- -------------------------------------
Stefan C. Karnavas
Managing Member (Principal
Financial and Accounting Officer)
</TABLE>
II-7
<PAGE>
COBBLESTONE GOLF GROUP, INC.
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the consolidated financial statements of Cobblestone Golf
Group, Inc. (the "Company") as of September 30, 1994 and 1995, and for each of
the three years in the period ended September 30, 1995, and have issued our
report thereon dated December 8, 1995, included elsewhere in this Registration
Statement. Our audits also included the financial statement schedule listed in
Item 21(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Diego, California
December 8, 1995
S-1
<PAGE>
COBBLESTONE GOLF GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
YEAR EXPENSES ACCOUNTS ACQUISITIONS DEDUCTIONS YEAR
------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1993
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $ -- $ -- $ -- $55,000 $ -- $ 55,000
======= ======= ========== ======= ======= ==========
YEAR ENDED SEPTEMBER 30,
1994
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $55,000 $68,797 $ -- $ -- $56,797 $ 67,000
======= ======= ========== ======= ======= ==========
YEAR ENDED SEPTEMBER 30,
1995
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $67,000 $58,550 $ -- $ -- $49,550 $ 76,000
Allowance for
uncollectable notes
receivable........... -- -- 2,117,000 -- -- 2,117,000
Valuation allowance
for imputed
interest............. -- -- 1,242,867 -- -- 1,242,867
------- ------- ---------- ------- ------- ----------
Total................... $67,000 $58,550 $3,359,867 $ -- $49,550 $3,435,867
======= ======= ========== ======= ======= ==========
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
3.1 Certificate of Incorporation of Cobblestone Golf Group,
Inc.+..................................................
3.2 Bylaws of Cobblestone Golf Group, Inc.+.................
3.3 Articles of Incorporation of Escondido Consulting,
Inc.+..................................................
3.4 Bylaws of: Escondido Consulting, Inc., Carmel Mountain
Ranch Golf Club, Inc., OVLC Management Corp., OVLC
Financial Corp., Ocean Vista Land Company, Golf Course
Inns of America, Inc., Oceanside Golf Management Corp.,
C-RHK, Inc.+...........................................
3.5 Articles of Incorporation of Cobblestone Texas, Inc.+...
3.6 Bylaws of Cobblestone Texas, Inc.+......................
3.7 Articles of Incorporation of Pecan Grove Golf Club,
Inc.+..................................................
3.8 Bylaws of Pecan Grove Golf Club, Inc.+..................
3.9 Articles of Incorporation of The Liquor Club at Pecan
Grove, Inc.+...........................................
3.10 Bylaws of The Liquor Club at Pecan Grove, Inc.+.........
3.11 Articles of Incorporation of Foothills Holding Company,
Inc.+..................................................
3.12 Bylaws of Foothills Holding Company, Inc.+..............
3.13 Articles of Incorporation of Bellows Golf Group, Inc.+..
3.14 Bylaws of Bellows Golf Group, Inc.+.....................
3.15 Articles of Incorporation of Carmel Mountain Ranch Golf
Club, Inc.+............................................
3.16 Articles of Incorporation of OVLC Management Corp.+.....
3.17 Articles of Incorporation of Ocean Vista Land Company+..
3.18 Articles of Incorporation of Golf Course Inns of
America, Inc.+.........................................
3.19 Articles of Incorporation of Oceanside Golf Management
Corp.+.................................................
3.20 Articles of Incorporation of OVLC Financial Corp.+......
3.21 Articles of Incorporation of CSR Golf Group, Inc.+......
3.22 Bylaws of CSR Golf Group, Inc.+.........................
3.23 Articles of Incorporation of Lakeway Golf Clubs, Inc.+..
3.24 Bylaws of Lakeway Golf Clubs, Inc.+.....................
3.25 Articles of Incorporation of Woodcrest Golf Club,
Inc.+..................................................
3.26 Bylaws of Woodcrest Golf Club, Inc.+....................
3.27 Articles of Incorporation of Virginia Golf Country Club,
Inc.+..................................................
3.28 Bylaws of Virginia Golf Country Club, Inc.+.............
3.29 Articles of Incorporation of Lakeway Clubs, Inc.+.......
3.30 Bylaws of Lakeway Clubs, Inc.+..........................
3.31 Articles of Incorporation of TGFC Corporation+..........
3.32 Bylaws of TGFC Corporation+.............................
3.33 Articles of Incorporation of C-RHK, Inc.+...............
3.34 Certificate of Incorporation of CEL Golf Group, Inc.+...
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
3.35 Bylaws of CEL Golf Group, Inc.+.........................
3.36 Amended and Restated Joint Venture Agreement of
Whispering Palms Country Club Joint Venture+ ..........
3.37 Articles of Incorporation of SWC Golf Club, Inc.+.......
3.38 Bylaws of SWC Golf Club, Inc.+..........................
4.1 Indenture, dated as of June 4, 1996, among Cobblestone
Golf Group, Inc. and Norwest Bank Minnesota, National
Association, as trustee, relating to $70,000,000
aggregate principal amount of 11 1/2% Senior Notes due
2003+..................................................
4.2 Specimen Certificate of 11 1/2% Senior Notes due 2003
(included in Exhibit 4.1 hereto)+......................
5.1 Form of Opinion of Latham & Watkins regarding the
validity of the Exchange Notes+........................
8.1 Form of Opinion of Latham & Watkins regarding certain
federal income tax matters.............................
10.1 Second Amended and Restated Credit Agreement, dated as
of June 4, 1996, among Cobblestone Golf Group, Inc.,
Cobblestone Holdings, Inc., Bank of America NT & SA, as
agent and the various lending institutions thereto+....
10.2 Purchase Agreement, dated as of May 29, 1996, among
Cobblestone Golf Group, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and BA Securities,
Inc.+..................................................
10.3 Registration Rights Agreement, dated as of May 29, 1996,
among Cobblestone Golf Group, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and BA Securities,
Inc.+..................................................
10.4 Form of Indemnification Agreement+......................
10.5 Lease dated as of July 1, 1996 by and between National
Golf Operating Partnership, L.P., as Landlord, and
Cobblestone Golf Group, Inc., as tenant................
10.6 Letter Agreement dated as of July 1, 1996 by and between
National Golf Operating Partnership, L.P. and
Cobblestone Golf Group, Inc............................
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges+...............................................
21.1 Subsidiaries of Cobblestone Golf Group, Inc.+...........
23.1 Consent of Latham & Watkins (included in its opinions
filed as Exhibit 5.1 and Exhibit 8.1)..................
23.2 Consent of Ernst & Young, LLP...........................
23.3 Consent of Price Waterhouse, LLP........................
23.4 Consent of BDO Seidman, LLP.............................
24.1 Powers of Attorney of Registrants (included on signature
page to this Registration Statement on Form S-4)+......
25.1 Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 of Norwest Bank
Minnesota, National Association+.......................
99.1 Letter of Transmittal...................................
99.2 Notice of Guaranteed Delivery...........................
99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute
Form W-9+ .............................................
</TABLE>
- ---------------------
+Previously filed.
<PAGE>
EXHIBIT 8.1
FORM OF OPINION OF LATHAM & WATKINS
[LATHAM & WATKINS LETTERHEAD]
, 1996
--------------
Cobblestone Golf Group, Inc.
3702 Via de la Valle, Suite 202
Del Mar, California 92014
Re: Cobblestone Golf Group, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies/Gentlemen:
You have requested our opinion concerning the material federal income tax
consequences of the exchange of $1,000 principal amount of 11 1/2% Series B
Senior Notes due 2003 of Cobblestone Golf Group, Inc., a Delaware corporation
(the "Company"), for 11 1/2% Series A Senior Notes due 2003 of the Company,
pursuant to the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission (the "Commission") on August 2, 1996, as amended by
Amendment No. 1 filed with the Commission on September 17, 1996 and Amendment
No. 2 filed with the Commission on September 27, 1996 (collectively, the
"Registration Statement"). Capitalized terms used but not otherwise defined
herein shall have the meanings assigned to them pursuant to the Registration
Statement.
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, the material federal income tax
consequences as a result of the exchange offer and otherwise applicable to
holders are accurately set forth under the heading "Certain Federal Income Tax
Considerations" in the Registration Statement. No opinion is expressed to any
matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement may
affect the conclusion stated herein.
<PAGE>
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement and to the reference of our firm under the heading
"Certain Federal Income Tax Considerations."
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 10.5
EXECUTION ORIGINAL
================================================================================
SWEETWATER COUNTRY CLUB
CITY OF SUGAR LAND
FORT BEND COUNTY
TEXAS
L E A S E
NATIONAL GOLF OPERATING PARTNERSHIP, L.P.
Landlord
and
COBBLESTONE GOLF GROUP, INC.
Tenant
Dated as of July 1, 1996
================================================================================
<PAGE>
SWEETWATER COUNTRY CLUB
CITY OF SUGAR LAND
FORT BEND COUNTY
TEXAS
LEASE
-----
THIS LEASE ("Lease"), dated for reference purposes only July 1, 1996,
-----
is entered into by and between NATIONAL GOLF OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership ("Landlord"), and COBBLESTONE GOLF GROUP, INC., a
--------
Delaware corporation ("Tenant"). This Lease consists of the Basic Lease
------
Provisions, the Detailed Lease Provisions and Exhibits A through M, all of which
--------------------
are incorporated herein by this reference. Capitalized terms used herein have
the meanings assigned to such terms in Exhibit A.
---------
BASIC LEASE PROVISIONS
1. Facility: Means the Leased Property consisting of two 18-hole golf
courses, clubhouse, maintenance building, driving range, practice areas,
athletic center, swimming pools, tennis courts, and related facilities
located on the Land. The Facility shall also be referred to herein as the
"Club."
----
2. Commencement Date: July 1, 1996.
3. Initial Term: Fifteen (15) years commencing on the Commencement Date.
4. Extended Term: Two five-year terms (See Section 2.2 of the Detailed Lease
-----------
Provisions) (each, an ("Extended Term").
-------------
5. Initial Base Rent: Means $1,168,375.
6. Fiscal Year: Means the 12-month period from January 1 through December 31
of each year of the Term, or the applicable portions of the first and last
Fiscal Years.
7. Annual Base Rent: Means, with respect to the Fiscal Year commencing on the
Commencement Date, the Initial Base Rent. On January 1, 1997, the Annual
Base Rent shall be increased to $1,198,333. On January 1, 1998, and on
January 1 of each following Fiscal Year through and including January 1,
2001, the Annual Base Rent shall be equal to the Annual Base Rent
applicable to the immediately preceding Fiscal Year multiplied by the
annual percentage increase in the Consumer Price Index ("CPI") from the
---
immediately preceding Fiscal Year; provided, however, the CPI increase in
Annual Base Rent for any Fiscal Year pursuant to the terms of this Section
-------
7 shall not exceed five percent per annum. The Annual Base Rent for the
-
Fiscal Year commencing on January 1, 2002, and continuing for each Fiscal
Year for the balance of the Term of this Lease shall be
2
<PAGE>
the amount of the Annual Base Rent for Fiscal Year ending December 31,
2001, with no CPI increase. The Annual Base Rent for each Extended Term
shall be as provided in Section 2.2 of the Detailed Lease Provisions.
-----------
8. Applicable Percentage:
With respect to Course Revenue, means:
For the first Fiscal Year: 16%
For the second Fiscal Year: 17%
For the third Fiscal Year: 18%
For the fourth Fiscal Year: 19%
For the fifth Fiscal Year and for each Fiscal Year
throughout the Term: 20%
With respect to Other Revenue, means 5% for each Fiscal Year
throughout the Term.
9. Additional Rent: Means the amount, if any, by which (a) the sum of:
(i) all Course Revenue for any Fiscal Year multiplied by the
Applicable Percentage of Course Revenue; plus
(ii) all Other Revenue for any Fiscal Year multiplied by the
Applicable Percentage of Other Revenue
exceeds (b) the Annual Base Rent for such Fiscal Year. (See Section 3.3 of
-----------
the Detailed Lease Provisions.)
10. Address for Payments:
Landlord:
National Golf Operating Partnership, L.P.
c/o National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, California 90404
(See Section 3.1 of the Detailed Lease Provisions.)
-----------
11. Addresses for Notices:
Tenant:
Cobblestone Golf Group, Inc.
3702 Via de la Valle
Del Mar, California 92014
Attn: Mr. Joseph H. Champ
Vice President of Acquisitions
3
<PAGE>
With a Copy to:
Page & Addison
15770 Dallas Parkway, 5th Floor
Dallas, Texas 75248
Attn: Randolph D. Addison, Esq.
Landlord:
National Golf Operating Partnership, L.P.
c/o National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, California 90404
Attn: Scott S. Thompson, Esq.
General Counsel
(See Section 26.8 of the Detailed Lease Provisions.)
------------
12. Within 45 days after the end of each Fiscal Year of the Term (commencing
after the end of the third Fiscal Year), Tenant shall fund the Capital
Improvement Account by an amount calculated as 2% of the Total Revenue for
such Fiscal Year. Tenant hereby grants to Landlord a security interest in
the Capital Improvement Account. Tenant shall keep the Capital Improvement
Account and all funds therein separate from Tenant's other accounts and
funds. Tenant and Landlord shall enter into a separate agreement between
themselves and the depository bank to effectuate such security interest.
Tenant may submit an annual detailed budget for capital improvements or
capital replacements (collectively, "Capital Expenditures") it proposes to
--------------------
make to the Leased Property, which budget will be subject to approval by
Landlord not to be unreasonably withheld or delayed (the "Approved Cap Ex
---------------
Budget"). Tenant shall only use funds from the Capital Improvement Account
------
to fund Capital Expenditures to the Facility. Tenant may withdraw funds
from Capital Improvement Account only: (i) to the extent consistent with
the Approved Cap Ex Budget preserving line item integrity on a per project
basis within 125% of the amount specified or (ii) as otherwise approved in
writing by Landlord, which approval shall not to be unreasonably withheld
or delayed. Tenant shall provide Landlord with such information as
Landlord may reasonably request to confirm the application of funds as
provided in this Section 12. Tenant shall cause all amounts in the Capital
----------
Improvement Account to be expended prior to the expiration of the Term or
the earlier termination of this Lease. Tenant shall pay to Landlord 150%
of any unused amounts remaining in the Capital Improvement Account upon the
expiration of the Term or earlier termination of this Lease.
13. Reference is made to that certain Purchase and Sale Agreement and Joint
Escrow Instructions by and between Sweetwater Golf
4
<PAGE>
Partnership, a Texas general partnership ("Seller"), acting by and through
------
its Managing Partner, Sugarland Properties Incorporated, a Texas
corporation ("SPI"), and Landlord, dated as of April 16, 1996 (the
---
"Purchase Agreement"). Tenant acknowledges that SPI (or its affiliate) is
-------------------
developing single-family residential lots on land adjacent to or
surrounding the Leased Property as part of the master-planned community
commonly known as "First Colony" (the "First Colony Development") and that
------------------------
as part of Landlord's purchase of the Leased Property from Seller, Seller
has imposed on Landlord certain restrictions and covenants with respect to
the operation, management and maintenance of the Leased Property, all as
more fully set forth in Sections 14, 15, 16, 17, 18, 19, 20, 21, 22, 23,
------------------------------------------------
24, 25 and 26 of these Basic Lease Provisions (the "Operating Covenants").
------ -- -------------------
Tenant acknowledges that it has reviewed and understands the Purchase
Agreement and agrees to operate, manage and maintain the Leased Property in
accordance with the Operating Covenants and the terms and conditions of the
Detailed Lease Provisions of this Lease. The term "Closing Date" as used
------------
herein shall mean the date upon which the closing under the Purchase
Agreement occurs (the "Closing"). This Lease and the terms and conditions
-------
herein shall not be effective until the Closing has occurred.
14. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, during the entire Term of this Lease, Tenant shall operate the
Leased Property: (a) as a golf course facility and country club (including
(i) related recreational and athletic uses and (ii) guest cottages,
sometimes referred to as "clubdominiums," for guests and members of the
country club) all in accordance with rules, regulations and bylaws as may
be promulgated by Landlord and Tenant (and their successors and assigns) in
accordance with this Lease from time to time, and for no other purpose or
purposes without the prior written approval of Landlord; (b) in accordance
with the terms and conditions of that certain Declaration of Covenants,
Conditions, and Restrictions for Sweetwater Country Club, a copy of which
is attached hereto as Exhibit F and incorporated herein by this reference
---------
(the "CC&Rs"); and (c) with such standards and quality of service
-----
comparable with presently existing, non-equity country clubs in the greater
Houston area (provided that such non-equity country clubs continue to
maintain golf membership fees and dues comparable to the Club).
15. In addition to the requirements set forth in Articles 13 and 14 of the
----------- --
Detailed Lease Provisions, for a period commencing on the Commencement Date
and continuing until the fifth anniversary of the Commencement Date, Tenant
shall comply with the insurance and restoration requirements set forth in
Section 10 of the CC&Rs.
16. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant hereby expressly recognizes and agrees
5
<PAGE>
to assume all obligations to hold the tournaments, banquets, meetings and
other functions scheduled to take place at the Leased Property after the
Commencement Date, as listed on Exhibit G attached hereto and incorporated
---------
herein by this reference (the "Booked Contracts"). Tenant agrees to
----------------
execute any customary assignment or assumption instrument to evidence
Tenant's assumption of the Booked Contracts and all deposits and advance
payments for the Booked Contracts shall be paid to Tenant upon the Closing
Date.
17. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant hereby expressly recognizes and agrees to assume all of the
obligations of SPI under that certain Golf Car Lease Agreement by and
between SPI and Golf Car Systems, Inc. dated as of October 2, 1989, as
amended by that certain amendment dated February 10, 1992, as further
amended by that certain amendment dated June 29, 1994, a copy of which is
attached hereto as Exhibit H (as amended, the "Golf Car Lease") provided
--------- --------------
that Landlord shall pass through to Tenant any credit received by Landlord
from Seller for the difference in cost that Tenant would have been able to
lease golf cars under its own lease and the cost to lease golf cars under
the Golf Car Lease (the "Golf Cart Credit"). Tenant agrees to execute any
----------------
customary assignment or assumption instrument to evidence Tenant's
assumption of the Golf Car Lease. The Golf Cart Credit is estimated to be
approximately $75,000 provided that the final Golf Cart Credit amount shall
be verified and paid to Tenant upon the Closing Date.
18. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, as of the Commencement Date, Tenant may elect to enter into a
contract with Club Card or other vendor ("Collector") for the collection of
---------
"Seller's Receivables" (as defined below) and shall itself or shall cause
--------------------
Collector to use commercially reasonable efforts to collect all such
Seller's Receivables for a period commencing on the Commencement Date and
continuing for 60 days thereafter. All such amounts collected by Tenant
(or Collector) shall be applied first to the oldest amounts owed by such
member. All of Seller's Receivables collected by Tenant (or Collector)
during such 60 day period shall be paid to Seller within 80 days after the
Commencement Date. Tenant shall be responsible for the set-up costs
associated with inputing each of the accounts into Tenant's or Collector's
computer system; provided, however, Landlord shall reimburse Tenant in the
amount of $9,000 (the "Accounts Receivable Set Up Fee") for such costs
------------------------------
incurred by Tenant provided Landlord receives a credit from Seller in the
amount of the Accounts Receivable Set Up Fee. The term "Seller's
--------
Receivables" shall mean collectively: all charges related to or arising
-----------
from the operation of the Leased Property that were incurred at any time
within 65 days prior to the Commencement Date (e.g., monthly dues (except
for monthly dues billed but related to use after the Commencement Date),
unpaid amounts with respect
6
<PAGE>
to tournaments, banquets and other functions to be held at the Leased
Property before the Commencement Date, unpaid credit card receivables and
other accounts of Seller, uncollected or delinquent initiation fees,
membership dues, or charges incurred prior to the Commencement Date;
provided, however, all such amounts shall only be deemed "Seller's
Receivables" for a period of 60 days after the Commencement Date and
thereafter shall be the property of Tenant and treated as Course Revenue
hereunder. All other accounts receivable not included in Seller's
Receivables shall be the property of Tenant and treated as Course Revenue
hereunder.
19. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant acknowledges that pursuant to Section 5.4 of the Purchase
Agreement, Landlord has agreed to grant to SPI certain easements in
connection with the development of single family homes adjacent to the
Leased Property (defined herein and in Section 5.4 of the Purchase
Agreement as "Future Easements"). Tenant agrees to reasonably cooperate
----------------
and join with Landlord (if necessary) in the granting of such Future
Easements (substantially in the form attached hereto as Exhibit I) and
---------
hereby consents to the granting of such Future Easements in accordance with
Section 5.4 of the Purchase Agreement.
20. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant shall design, develop and construct the capital improvement
items set forth on Exhibit J of this Lease (collectively, the "Initial
--------- -------
Capital Improvements") and in accordance with the time periods set forth
--------------------
in Exhibit J and in the Purchase Agreement regarding the amounts to be
---------
spent within the first and second years after the Commencement Date.
Tenant shall submit to Landlord (a) plans for the design, development and
construction of the Initial Capital Improvements for Landlord's prior
approval (not to unreasonably withheld or delayed) thereof (the "Plans")
-----
and (b) a budget to fund such design, development and construction for
Landlord's prior approval thereof (the "Budget"); provided, however: (i)
------
the Budget shall include an expenditure of at least $1,000,000, of which at
least $700,000 shall be expended for Visible Capital Improvements (as
defined in the Purchase Agreement) and no more than $300,000 shall be
expended for Capital Equipment (as defined in the Purchase Agreement) and
Non-Visible Capital Improvements (as defined in the Purchase Agreement);
and (ii) the Budget shall not include any overhead fees, general and
administrative costs, nor any other similar fees, costs or charges payable
to Tenant or any of its Affiliates in connection with the design,
development or construction of the Initial Capital Improvements, except as
set forth below. The Budget may include a reasonable fee (without mark-up)
for the actual time and expenses devoted by a project manager overseeing
the construction of the Initial Capital Improvements; provided that such
fee shall be the lesser of (a) the actual fees and costs incurred by Tenant
or
7
<PAGE>
(b) $25,000. Tenant also agrees that within one year after the
Commencement Date, at least $600,000 shall be expended for Visible Capital
Improvements, Capital Equipment and Non-Visible Capital Improvements. Upon
Tenant submitting to Landlord invoices, receipts, advance deposit requests
or other documents evidencing costs and expenditures in accordance with the
Budget and accompanied by appropriate waivers or releases of mechanics' and
materialmen's liens, Landlord shall pay to Tenant the amount of such costs
and expenditures provided that Landlord's total payments for the Initial
Capital Improvements shall not exceed $1,000,000 ("Landlord's Contribution
-----------------------
Amount"). All costs and expenses required or necessary to complete the
------
Initial Capital Improvements in excess of Landlord's Contribution Amount
shall be paid by Tenant. As of the date of any payment by Landlord, the
Annual Base Rent then in effect shall be increased by an amount equal to
ten percent (10%) of the amount of such payments made by Landlord, and
Landlord shall deliver to Tenant written notice of this increased amount of
the Annual Base Rent. Any additional Base Rent owing for the remainder of
the month in which the Annual Base Rent was increased as provided above
shall be payable with the next monthly installment of Base Rent. To the
extent not inconsistent with this Section 20 of the Basic Lease Provisions,
----------
the construction of such Initial Capital Improvements shall be governed by
the provisions of Sections 10.3 and 10.4 of the Detailed Lease Provisions.
----------------------
Any changes or additions to the Initial Capital Improvements which, in the
aggregate, cause the Budget for the Initial Capital Improvements to exceed
the total amount set forth in Exhibit J attached hereto shall be subject to
---------
Landlord's prior written approval, not to be unreasonably withheld.
21. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, and without the prior approval of the majority of the full golf
memberships at the Facility, no formal or structured reciprocity program
will be implemented or extended to members of any other country club of
golf course owned, controlled or managed by Tenant within a 50 mile radius
of the Leased Property.
22. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, during the Term of this Lease, Tenant shall assume the payment of
any refund obligations with respect to the refundable security deposits
listed on and in accordance with Exhibit K hereto that are or become due
---------
and payable during the Initial Term and, if extended by Tenant pursuant to
Section 2.2 of the Detailed Lease Provisions of this Lease, each Extended
-----------
Term.
23. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant acknowledges that Landlord has granted to SPI certain
membership option rights as set forth in Section 13.17.4 of the Purchase
Agreement. Specifically, Tenant hereby assumes the obligation to grant SPI
the option
8
<PAGE>
("Membership Option") to purchase up to 10 non-transferable, full dues
-----------------
paying golf, tennis or athletic memberships (each, a "Full Membership) at
---------------
the Golf Club at the then prevailing initiation fee for each Full
Membership at the time of SPI's exercise of the respective Membership
Option; provided that the initiation fee for each membership shall not
exceed $10,000. Tenant agrees that the Membership Option shall remain in
effect from the Commencement Date until the date 30 days after the date
Landlord provides notice to SPI that the Club has 960 or more Full
Memberships. In order for Landlord to provide such notice to SPI, Tenant
shall provide notice to Landlord of the date the Golf Club has 960 or more
Full Memberships.
24. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, Tenant acknowledges that Landlord has granted to Seller certain
"developer privileges" as set forth in Section 13.17.5 of the Purchase
Agreement. Specifically, for a period of five years after the Commencement
Date, Tenant hereby assumes the obligation to grant to Seller's development
managers ("Managers") membership privileges at the Club ("Developer
-------- ---------
Privileges"); provided that: (i) the Developer Privileges shall be extended
----------
only for weekday and non-holiday usage; (ii) the Developer Privileges shall
expire on the earlier of the date of the completion of the First Colony
Development or the fifth anniversary of the Commencement Date; (iii) the
Managers shall be entitled to weekend and holiday usage provided they pay
the customary fees and charges for such usage; (iv) the Developer
Privileges are personal to the respective Manager and may not be
transferred or otherwise hypothecated; (v) the number of Managers entitled
to the Developer Privileges shall not exceed 10 Managers; and (vi) the
Developer Privileges shall be exercised in accordance with the then
existing rules, regulations and bylaws of the Club (provided that the
Manager shall not be required to be accompanied by a member of the Club
while exercising the Developer Privileges).
25. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, during each of the first five Fiscal Years of the Lease, Tenant
shall install at its sole cost and expense at least one or more evergreen
trees (excluding fir trees) at the Leased Property provided that the annual
expenditure for such trees shall not be less than $7,500 in the aggregate.
26. Notwithstanding any provision set forth in this Lease and any Exhibits
hereto, for a period of five (5) years after the Commencement Date, Tenant
shall not assign, sublet or otherwise transfer this Lease or the leasehold
created hereby to American Golf Corporation ("AGC") or any "subsidiary" (as
--- ----------
defined below) of AGC. A "subsidiary" of AGC means: (i) any entity that
----------
AGC directly or indirectly owns, or has the right to vote, at least 20% of
the beneficial interests in such entity or if through other agreements
(e.g., management
9
<PAGE>
agreement) has the right to control the policies of such other entity; and
(ii) any entity controlled by AGC through one or more tiers of
subsidiaries.
27. Seller has agreed to give Landlord various purchase price credits in
connection with the Closing under the Purchase Agreement in the total
amount of $213,954 for the following items: (a) $63,335 for missing golf
course equipment; (b) $127,000 for irrigation repairs; (c) $10,000 for the
relocation of an irrigation line; and (d) $13,619 for water heater repairs
(as such amounts may be adjusted and finalized at Closing) (collectively,
the "Capital Credit Amount"). Landlord agrees to pay the Capital Credit
---------------------
Amount to Tenant upon the Commencement Date provided that: (i) the Capital
Credit Amount shall be used only for making physical capital improvements
to the Leased Property within the first 18 months of the Term; and (ii) the
construction of such capital improvements shall be governed by the terms
and conditions of Section 20 of these Basic Lease Provisions (provided that
----------
no adjustment to the Annual Base Rent shall be made). Tenant shall include
in its first Annual Course Statement, a detailed report as to the physical
capital improvements made by Tenant with reasonable supporting
documentation as to the expenditure amounts.
28. All income and expense prorations set forth in the closing statement
executed by Seller and Landlord in connection with the Closing under the
Purchase Agreement shall be passed through to Tenant in accordance with
Section 3.8 of the Detailed Lease Provisions of this Lease.
-----------
29. Upon the Commencement Date, Landlord shall sell and convey to Tenant the
professional shop merchandise, food and beverage consummables and athletic
shop merchandise (collectively, the "Inventories") purchased by Landlord
-----------
from Seller in connection with Landlord's purchase of the Leased Property.
Tenant shall pay to Landlord upon the Commencement Date the amount of
approximately $185,866 for the Inventories (pro shop merchandise of
$106,444; food and beverage consummables of $31,881; and athletic shop
merchandise of $47,541) which final amount shall be verified upon the
Closing Date.
30. Landlord acknowledges that as of the Commencement Date, a storm drain is
located beneath the swimming facility at the Leased Property (the "Storm
-----
Drain"). Landlord agrees that all repairs to the Storm Drain shall be, at
-----
Tenant's election, at Landlord's cost and expense; provided that: (i) the
Annual Base Rent then in effect shall be increased in accordance with
Section 20 of these Basic Lease Provisions with respect to all costs and
----------
expenses incurred by Landlord for the repair of the Storm Drain; and (ii)
Landlord's Contribution Amount shall be increased by the amount of such
costs and expenses incurred by Landlord.
10
<PAGE>
31. At the written request of Tenant, Landlord agrees to reasonably assert and
pursue with reasonable due diligence, against Seller, on Tenant's behalf
but at Tenant's cost and expense, all of Landlord's rights under the
Purchase Agreement arising from Seller's representations, warranties,
guaranties and indemnifications under the Purchase Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
NATIONAL GOLF OPERATING COBBLESTONE GOLF GROUP, INC.,
PARTNERSHIP, L.P., a Delaware corporation
a Delaware limited partnership
By: NATIONAL GOLF PROPERTIES, INC.,
a Maryland corporation, its
general partner
By: /s/ Scott S. Thory? By: /s/ James H. Champ
------------------------- -------------------------------
Its: Chief Leasing Officer Its: Vice President
------------------------ ------------------------------
"Landlord" "Tenant"
LIST OF ATTACHMENTS AND EXHIBITS:
- --------------------------------
Detailed Lease Provisions
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Other Leased Properties
Exhibit D Operating Standards
Exhibit E Landlord's Personal Property
Exhibit F Declaration of CC&Rs
Exhibit G Booked Contracts
Exhibit H Golf Car Lease
Exhibit I Form of Future Easements
Exhibit J Initial Capital Improvements
Exhibit K Refundable Security Deposits
Exhibit L Form of Landlord's Consent
Exhibit M Bylaw Amendments
11
<PAGE>
DETAILED LEASE PROVISIONS
ARTICLE 1 - LEASED PROPERTY
---------------------------
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant rents from Landlord all of Landlord's
rights and interest in and to the following real property, improvements and
related rights (collectively the "Leased Property"):
---------------
(a) the land described in Exhibit B attached hereto (collectively, the
---------
"Land");
----
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on site and off
site), parking areas, driving ranges, roadways, cart paths, bridges,
lakes, irrigation systems, and course markers presently situated upon
the Land, but not including any Tenant Improvements (collectively, the
-----------------
"Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements (collectively, the "Related Rights");
--------------
(d) all personal property, if any, owned by Landlord and located on
the Leased Property, which personal property is described in Exhibit E
---------
attached hereto ("Landlord's Personal Property"); and
----------------------------
(e) any other property conveyed to Landlord pursuant to the terms of
the Purchase Agreement (as defined in Section 13 of the Basic Lease
----------
Provisions) including, but not limited to, all property, included in
the term "Property" as defined therein.
--------
ARTICLE 2 - TERM
----------------
2.1 Term. The Term of this Lease shall commence on the Commencement
----
Date.
2.2 Extended Term. Landlord grants to Tenant the right to extend the
-------------
Term of this Lease for the Extended Terms provided for in Section 4 of the Basic
---------
Lease Provisions commencing upon the expiration of the Initial Term or the first
Extended Term, as the case may be. Subject to the provisions contained in this
Section 2.2, the Term of the Lease shall be automatically extended upon the
- -----------
expiration of the Initial Term or the first Extended Term, as the case may be,
unless Tenant gives written notice to Landlord of Tenant's election to terminate
the Lease as of the Initial Term or the first Extended Term, as the case may be,
at least 180 days prior to the termination of such Term. However, the Term will
only be extended if at the time of the commencement of the applicable Extended
Term no Event of Default shall have occurred and be
1
<PAGE>
continuing. During each Extended Term, all of the terms and conditions of this
Lease shall continue in full force and effect, as the same may be amended,
supplemented or modified; provided, however, the Annual Base Rent during each
Extended Term shall be increased (but not decreased) at the commencement of each
Extended Term to an amount equal to 80% of the following sum: (a) the aggregate
Base Rent plus the Additional Rent payable under this Lease for the 24 complete
calendar months immediately prior to the commencement of the respective Extended
Term, divided by (b) two.
ARTICLE 3 - RENT
----------------
3.1 Rent. Tenant will pay to Landlord in lawful money of the United
----
States of America the Base Rent and Additional Rent during the Term. Payments
of Base Rent and Additional Rent shall be paid at Landlord's address set forth
in the Basic Lease Provisions or at such other place or to such other Person as
Landlord from time to time may designate in writing. If any payment owing
hereunder shall otherwise be due on a day that is not a Business Day, such
payment shall be due on the next succeeding Business Day.
3.2 Base Rent. Tenant shall pay Base Rent to Landlord in advance on
---------
the first day of each calendar month; provided, however, that the first monthly
-----------------
installment shall be payable on the Commencement Date and the first and last
month's payments shall be prorated as to any partial month.
3.3 Additional Rent. In addition to the Base Rent, Tenant shall pay
---------------
to Landlord Additional Rent in quarterly installments as provided in Section
-------
3.3.1.
- -----
3.3.1 Quarterly Calculation and Payment of Additional Rent.
----------------------------------------------------
Tenant shall calculate and pay Additional Rent for each Fiscal Quarter.
The amount of the Additional Rent for the Second, Third and Fourth Fiscal
Quarters shall account for any interim reconciliations made with respect to
prior Fiscal Quarters in such Fiscal Year as certified by Tenant to
Landlord as provided by this Section 3.3.1, but subject to a final
-------------
reconciliation as provided by Section 3.3.2. Such Additional Rent shall be
-------------
paid to Landlord, together with an Officer's Certificate setting forth the
calculation thereof, within 30 days after the end of each Fiscal Quarter.
3.3.2 Annual Reconciliation. Within 60 days after the end of
---------------------
each Fiscal Year, or after the expiration or termination of the Lease,
Tenant shall deliver to Landlord an Officer's Certificate setting forth (i)
the Course Revenue and the Other Revenue for the Fiscal Year just ended,
and (ii) a comparison of the amount of Additional Rent actually paid during
such Fiscal Year versus the amount of Additional Rent actually owing on the
basis of the annual calculation of the Course Revenue and the Other
Revenue. If the Additional Rent for such Fiscal Year exceeds the sum of
the quarterly payments
2
<PAGE>
previously paid by Tenant, Tenant shall pay such deficiency to Landlord
along with such Officer's Certificate. If the Additional Rent for such
Fiscal Year is less than the amount previously paid by Tenant, Landlord
shall, at Tenant's option, either (i) remit to Tenant its check in an
amount equal to such difference, or (ii) grant Tenant a credit against the
payment of Additional Rent next coming due. The amount of the
reconciliation payment, whether in favor of Landlord or Tenant, shall bear
interest at a rate equal to the rate payable on 90-day U.S. Treasury Bills
as of January 1 of the year following the close of such Fiscal Year until
the amount of such difference shall be paid or otherwise discharged.
3.3.3 Record-keeping. Tenant shall utilize an accounting system
--------------
for the Leased Property in accordance with its usual and customary
practices and in accordance with accrual basis accounting principles
(applied on a basis consistent with the Other Leased Properties, if any)
which will accurately record all Course Revenue and Other Revenue. Tenant
shall utilize cash basis accounting principles in accounting for the
amounts to be deposited into the Capital Improvement Account. Tenant shall
retain reasonably adequate records for each Fiscal Year conforming to such
accounting system until at least five years after the expiration of such
Fiscal Year (and in any event until the reconciliation described in Section
-------
3.3.2 above for such Fiscal Year has been made).
-----
3.3.4 Audits. Landlord, at its own expense except as provided
------
hereinbelow, shall have the right from time to time directly or through its
accountants to audit the information set forth in the Officer's Certificate
referred to in Section 3.3.2 and in connection with such audits to examine
-------------
Tenant's books and records with respect thereto (including supporting data,
sales tax returns and Tenant's work papers). If any such audit discloses a
deficiency in the payment of Additional Rent, Tenant shall forthwith pay to
Landlord the amount of the deficiency, as finally agreed or determined,
together with interest at the Overdue Rate from the date when said payment
should have been made to the date of payment thereof; provided, however,
-----------------
that as to any audit that is commenced more than 12 months after the date
Course Revenue or Other Revenue for any Fiscal Year is reported by Tenant
to Landlord, the deficiency, if any, with respect to such Course Revenue or
Other Revenue shall bear interest as permitted herein only from the date
such determination of deficiency is made unless such deficiency is the
result of gross negligence or willful misconduct on the part of Tenant. If
any such audit discloses that the Course Revenue or Other Revenue actually
received by Tenant for any Fiscal Year exceeds the Course Revenue or Other
Revenue reported by Tenant by more than five percent, Tenant shall pay the
reasonable cost of such audit and examination. Landlord shall not conduct
more than two audits in any calendar year; provided that for
3
<PAGE>
purposes of such limitation any audit in which there were discrepancies in
excess of $5,000 shall not count towards such limitation.
3.4 Additional Charges. In addition to the Base Rent and Additional
------------------
Rent, (1) Tenant shall also pay and discharge when due and payable all other
amounts, liabilities, obligations and Impositions which Tenant assumes or agrees
to pay under this Lease, and (2) in the event of any failure on the part of
Tenant to pay any of those items referred to in clause (1) above, Tenant shall
also pay and discharge every fine, penalty, interest and cost which may be added
for non-payment or late payment of such items (the items referred to in clauses
(1) and (2) above being referred to herein collectively as the "Additional
----------
Charges"). Except as otherwise provided in this Lease, including Article 12,
- ------- ----------
all Additional Charges shall be due and payable 30 days after either Landlord or
the applicable third party who may be billing Tenant therefor shall deliver an
invoice to Tenant therefor. To the extent that Tenant pays any Additional
Charges to Landlord pursuant to any requirement of this Lease, Tenant shall be
relieved of its obligation to pay such Additional Charges to the entity to which
they would otherwise be due.
3.5 Late Payment of Rent. Tenant hereby acknowledges that late
--------------------
payment by Tenant to Landlord of Base Rent, Additional Rent or Additional
Charges will cause Landlord to incur costs not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Leased Property and other expenses of a
similar or dissimilar nature. Accordingly, if any installment of Base Rent,
Additional Rent or Additional Charges (but only as to those Additional Charges
which are payable directly to Landlord) shall not be paid within five Business
Days after its due date, Tenant will pay Landlord on demand, as Additional
Charges, a late charge equal to the lesser of five percent of such installment
or $1,000. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. In addition, if any installment of Base Rent, Additional
Rent or Additional Charges (but only as to those Additional Charges which are
payable directly to Landlord) shall not be paid on its due date, the amount
unpaid shall bear interest, from the due date of such installment to the date of
payment thereof, computed at the Overdue Rate on the amount of such installment,
and Tenant will pay such interest to Landlord on demand, as Additional Charges.
The payment of said late charge or such interest shall not constitute a waiver,
nor excuse or cure, of any default under this Lease, nor prevent Landlord from
exercising any other rights and remedies available to Landlord.
4
<PAGE>
3.6 Net Lease. The Rent shall be paid absolutely net to Landlord
---------
and, except as expressly provided in Section 4.7, Article 14 and Article 15,
----------- ---------- ----------
without notice or demand and without set-off, counterclaim, recoupment,
abatement, suspension, deferment, deduction or defense, so that this Lease shall
yield to Landlord the full amount of the installments of Base Rent, Additional
Rent and Additional Charges throughout the Term, all as more fully set forth in
Article 5.
- ---------
3.7 Marketing Programs.
------------------
3.7.1 Tenant Conflicts. Landlord and Tenant recognize that
----------------
Tenant currently has a potential conflict of interest with respect to the
operation of the Leased Property in that Tenant or its affiliates own or
operate other courses which compete with the Leased Property and Tenant or
its affiliates may in the future acquire the ownership or operation of
other courses which compete with the Leased Property. Subject to Tenant's
compliance with this Section 3.7, Landlord acknowledges this potential
-----------
conflict of interest and agrees that it does not constitute a breach or
default of any term, condition, representation or warranty under the Lease.
Provided, however, Tenant agrees that it shall operate the Leased Property
on an arm's-length basis with respect to other courses owned or operated by
Tenant or its affiliates ("Tenant's Properties").
-------------------
3.7.2 Approval of Joint Usage Programs. Subject to Landlord's
--------------------------------
prior written approval, Section 21 of the Basic Lease Provisions and the
----------
provisions of this Section 3.7, Tenant may have the Leased Property
-----------
participate in joint usage programs involving the Leased Property and
properties of the Tenant other than the Leased Property (collectively,
"Programs") that Tenant may sponsor from time to time. Landlord agrees
---------
that it will not unreasonably withhold or delay its consent to such
Programs if Landlord is reasonably satisfied that such Programs would not
adversely affect the amount of Additional Rent to be payable hereunder nor
otherwise adversely affect the Leased Property relative to Tenant's
Properties. Tenant agrees as a condition to any such consent by Landlord
to such Programs, that Landlord may require Tenant to provide to Landlord
during the duration of such Programs such information (including rounds
played and average green fees) regarding the Tenant Properties included in
such Programs and located within 20 miles of the Leased Property as
Landlord may reasonably request to monitor that there are no discriminatory
impacts of the Programs approved.
3.7.3 Landlord Conflicts. Landlord and Tenant recognize that
------------------
Landlord or its affiliates may in the future acquire the ownership or
operation of other courses which compete with the Leased Property.
Landlord agrees that in granting or withholding its consent under this
Section 3.7, it
-----------
5
<PAGE>
shall base its decision with respect to such consents solely on the basis
of what is best for the Leased Property.
3.8 Income/Expense Prorations. Income and expense items received or
-------------------------
paid with respect to the period in which the Term commences or terminates shall
be adjusted and prorated between Landlord and Tenant as of the date of the
commencement or expiration of the Term or earlier termination of this Lease, as
applicable.
ARTICLE 4 - IMPOSITIONS
-----------------------
4.1 Payment of Impositions. Subject to Section 4.7 and Section
---------------------- ----------- -------
16.10, Tenant will pay, or cause to be paid, all Impositions before any fine,
- -----
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible. All payments of Impositions
shall be subject to Tenant's right of contest pursuant to the provisions of
Article 12. Upon request, Tenant shall promptly furnish to Landlord copies of
- ----------
official receipts, if available, or other satisfactory proof evidencing such
payments, such as cancelled checks.
4.2 Information and Reporting. Landlord shall give prompt notice to
-------------------------
Tenant of all Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge, but Landlord's failure to give any such notice shall in no
way diminish Tenant's obligations hereunder to pay such Impositions. Landlord
and Tenant shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. In the event any
applicable governmental authorities classify any property covered by this Lease
as personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property.
4.3 Assessment Challenges. In addition to Tenant's rights under
---------------------
Article 12, Tenant may, upon notice to Landlord, at Tenant's option and at
- ----------
Tenant's sole cost and expense, protest, appeal, or institute such other
proceedings as Tenant may deem appropriate to effect a reduction of real estate
or personal property assessments and Landlord, at Tenant's expense as aforesaid,
shall fully cooperate with Tenant in such protest, appeal, or other action.
4.4 Prorations. Impositions imposed in respect of the tax-fiscal
----------
period during which the Term commences or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. If any Imposition may, at the
option of
6
<PAGE>
the taxpayer, lawfully be paid in installments (whether or not interest shall
accrue on the unpaid balance of such Imposition), Tenant may elect to pay in
installments, in which event Tenant shall pay all installments (and any accrued
interest on the unpaid balance of the Imposition) that are due during the Term
hereof before any fine, penalty, premium, further interest or cost may be added
thereto.
4.5 Refunds. If any refund shall be due from any taxing authority in
-------
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default
shall be applied as provided in Article 16.
----------
4.6 Utility Charges. Tenant shall pay or cause to be paid prior to
---------------
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Leased Property during the
Term.
4.7 Reassessments Upon Transfer. Notwithstanding any other provision
---------------------------
in this Lease to the contrary, Landlord shall pay all incremental increases in
the Impositions under this Lease arising solely from (a) Landlord's sale,
disposition or other transfer of the Leased Property after the date of this
Lease or (b) a change of control in Landlord after the date of this Lease.
4.8 Assessment Districts. Neither party shall voluntarily consent to
--------------------
or agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Leased Premises into a special assessment district or
other taxing jurisdiction unless the other party shall have consented thereto,
which consent shall not be unreasonably withheld.
ARTICLE 5 - TENANT WAIVERS
--------------------------
5.1 No Termination, Abatement, Etc. Except as otherwise specifically
-------------------------------
provided in this Lease, (i) Tenant, to the extent permitted by law, shall remain
bound by this Lease in accordance with its terms and shall neither take any
action without the consent of Landlord to modify, surrender or terminate the
same, nor be entitled to any abatement, deduction, deferment or reduction of
Rent, or set-off against the Rent by reason of, and (ii) the respective
obligations of Landlord and Tenant shall not be otherwise affected by reason of:
(a) any damage to, or destruction of, any Leased Property or any
portion thereof from whatever cause or any taking of the Leased Property or any
portion thereof;
(b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of the Leased Property, or any portion thereof, the interference
with such use by any Person or by reason
7
<PAGE>
of eviction by paramount title (other than as provided in Section 5.3);
-----------
(c) any claim which Tenant has or might have against Landlord or by
reason of any default or breach of any warranty by Landlord under this Lease or
any other agreement between Landlord and Tenant;
(d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Landlord or any assignee or transferee of Landlord; or
(e) for any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Tenant from any such obligations as a matter
of law.
Except as otherwise specifically provided in this Lease, Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law (i) to modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (ii) to entitle Tenant to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Tenant hereunder. The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
5.2 Condition of the Leased Property. Tenant acknowledges that it
--------------------------------
has examined or otherwise has knowledge of the condition of the Leased Property
prior to the execution and delivery of this Lease. Regardless, however, of any
inspection made by Tenant of the Leased Property and whether or not any patent
or latent defect or condition was revealed or discovered thereby, Tenant is
leasing the Leased Property "as is" in its present condition. Tenant waives and
releases any claim or action against Landlord in respect of the condition of the
Leased Property including any defects or adverse conditions latent or patent,
matured or unmatured, known or unknown by Tenant or Landlord as of the date
hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER
OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE
DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO
(i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY
DEFECT, LATENT OR PATENT, (iv) VALUE, (v) COMPLIANCE WITH SPECIFICATIONS, (vi)
LOCATION, (vii) USE, (viii) CONDITION, (ix) MERCHANTABILITY, (xii) QUALITY,
(xiii) DESCRIPTION, (xiv) DURABILITY, (xv) OPERATION, (xvi) THE
8
<PAGE>
EXISTENCE OF ANY HAZARDOUS MATERIAL, (xvii) COMPLIANCE OF THE LEASED PROPERTY
WITH ANY LAW (INCLUDING ENVIRONMENTAL LAWS) OR LEGAL REQUIREMENTS OR (xviii)
LANDLORD'S TITLE THERETO. TENANT ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN
INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR
DEFICIENCY IN THE LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS
BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 5.2 HAVE
-----------
BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY,
ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR
HEREAFTER IN EFFECT OR ARISING OTHERWISE.
5.3 Tenant's Rights Against Landlord.
--------------------------------
(a) Nothing in this Section 5 shall relieve Landlord from liability
---------
for monetary damages to the extent resulting from the negligence or act of
Landlord, or Landlord's employees, authorized agents, contractors or any Person
(other than Tenant) whose claim arose under Landlord. In addition, if and to
the extent Tenant has any claim against Landlord for a breach of this Lease or
otherwise, including any alleged interference by Landlord, Tenant may pursue
such claim against Landlord and this Lease shall not be interpreted to preclude
such relief including, if appropriate under applicable law, injunctive relief.
Nothing in this Section 5.3(a) shall grant to Tenant any right to terminate this
--------------
Lease not specifically provided for in Section 5.3(b) or any other Section of
--------------
this Lease.
(b) If Landlord, its employees or authorized agents or any Person
(other than Tenant) whose claim arose under Landlord interferes with Tenant's
use of the Leased Property so as to materially deprive Tenant of the benefits of
this Lease, then Tenant shall be permitted to give Landlord a notice of
termination of this Lease, which notice shall be effective if, other than as a
result of Unavoidable Delays, Landlord shall fail to cause such interference to
cease and such failure is not cured by Landlord within a period of 30 days after
receipt by Landlord of written notice thereof from Tenant, unless such failure
cannot with due diligence be cured within a period of 30 days, in which case
Tenant shall not have any right of termination if Landlord proceeds promptly and
with due diligence to cause such interference to cease.
ARTICLE 6 - OWNERSHIP OF PROPERTY
---------------------------------
6.1 Leased Property. Tenant acknowledges that the Leased Property is
---------------
the property of Landlord and that Tenant has only the right to the exclusive
possession and use of the Leased Property during the Term of and upon the terms
and conditions of this Lease.
9
<PAGE>
6.2 Landlord's Personal Property. If Landlord has provided any
----------------------------
Landlord's Personal Property (as described in Exhibit E), Tenant shall maintain
---------
such Property in the same manner as Tenant maintains Tenant's Personal Property.
Upon the loss, destruction, or obsolescence of any of the Landlord's Personal
Property, Tenant shall replace such property with Tenant's Personal Property,
which such property shall be owned by Tenant during the remainder of the Term.
Upon the expiration or sooner termination of this Lease, Tenant shall be
obligated to leave at the Facility at no cost to Landlord and free of any liens
or encumbrances: (i) any Landlord's Personal Property; and (ii) any replacements
of Landlord's Personal Property (the "Replacement Property"), provided that the
--------------------
Replacement Property shall be high-quality equipment in good working order and
condition and shall be reasonably comparable in quality and quantity to the
property provided to Tenant by Landlord at the Commencement Date.
Notwithstanding Section 6.4, at the expiration or sooner termination of this
-----------
Lease, Landlord shall not be obligated to purchase from Tenant the Replacement
Property and the Replacement Property shall be conveyed to Landlord by Tenant at
no cost to Landlord.
6.3 Tenant's Personal Property. Tenant may (and shall as provided
--------------------------
below), at its expense, install, affix or assemble or place on any parcels of
the Land or in any of the Leased Improvements, any items of Tenant's Personal
Property, and Tenant may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Tenant shall
provide and maintain during the entire Lease Term all such Tenant's Personal
Property as shall be necessary in order to operate the Facility in compliance
with all applicable Legal Requirements and Insurance Requirements and otherwise
in accordance with customary practice in the industry for the Primary Intended
Use and in accordance with its past practices.
6.4 Purchase of Tenant's Personal Property. Subject to Section 6.2,
-------------------------------------- -----------
upon the expiration or sooner termination of this Lease, Landlord shall have the
right (but not the obligation) to purchase from Tenant all, but not less than
all, of tangible Tenant's Personal Property (which shall not include software):
(i) if owned by Tenant and not subject to any secured financing
entered into in good faith by Tenant with an unaffiliated Person, at
the fair market value thereof (subject to Section 6.2);
-----------
(ii) if owned by Tenant, but subject to such secured financing, at
the greater of the fair market value thereof or the amount of the debt
owing under such financing (subject to Section 6.2); and
-----------
(iii) if leased by Tenant in good faith from an unaffiliated Person,
and the applicable lease provides for termination of the lease as to
such Property upon the payment of a given sum, at the greater of the
fair market
10
<PAGE>
value thereof or the amount of the payment so provided; provided,
---------
however, that at Tenant's option and if the lessor will permit
--------
Landlord to assume the obligations under the applicable lease with
respect to such property (separate from the obligations under a master
lease if in effect), Tenant shall, upon the request of Landlord,
assign the applicable lease (or portion thereof) to Landlord;
provided, further, however, that if Landlord's purchase right arises because of
- --------------------------
a termination of this Lease as a result of an Event of Default, the fair market
value under clauses (i) through (iii) above shall be deemed to be the
depreciated net book value of Tenant's Personal Property. Landlord may elect to
purchase Tenant's Personal Property by giving notice to Tenant not later than,
as the case may be, 60 days prior to the expiration of this Lease or 60 days
after the termination of this Lease upon any Event of Default. Tenant shall
transfer title to such property by a bill of sale without warranty (except as to
ownership free of liens) upon concurrent payment in cash by Landlord; provided,
---------
however, if Landlord has any unpaid damages resulting from any Event of Default,
- --------
Landlord may make payment by delivery of a receipt for an offset against such
damages to the extent of any cash payment otherwise owed by Tenant to Landlord.
6.5 Removal of Personal Property. All items of Tenant's Personal
----------------------------
Property not removed by Tenant within 14 days following the expiration or
earlier termination of this Lease shall be considered abandoned by Tenant and
may, at Landlord's discretion and without any obligation, be appropriated, sold,
destroyed or otherwise disposed of by Landlord without first giving notice
thereof to Tenant and without any payment to Tenant and without any obligation
to account therefor. Tenant shall, at its expense, restore the Leased Property
to the condition required by Section 9.1, including repair of all damage to the
-----------
Leased Property caused by the removal of Tenant's Personal Property, whether
effected by Tenant or Landlord. Landlord shall not be responsible for any loss
or damage to Tenant's Personal Property, or any other property of Tenant, by
virtue of Landlord's removal thereof at any time subsequent to the 14-day period
provided for herein.
6.6 Landlord's Waivers. Any lessor of Tenant's Personal Property
------------------
may, upon notice to Landlord and during reasonable hours, enter the Facility and
take possession of any of Tenant's Personal Property without liability for
trespass or conversion. Landlord shall, upon the request of Tenant, execute and
deliver to Tenant "landlord's waivers" as may be reasonable and customary in
connection with the financing or leasing of personal property. Such "landlord's
waiver" shall limit to 30 days the amount of time the lessor or lender has to
enter upon the Leased Premises after notice from Landlord that the Term has
expired or otherwise terminated. If Tenant requests a "landlord's waiver,"
Tenant shall attempt to secure from any financing source or lessor the right on
the part of
11
<PAGE>
Landlord to cure the defaults of Tenant and to use any such Property upon
providing such cure.
6.7 Water Rights
------------
6.7.1 Landlord Rights. To the extent Landlord has any Water Rights
---------------
by virtue of its ownership of the Leased Property or to the extent Landlord
otherwise acquires Water Rights specifically for use by the Leased Property,
Landlord agrees to assign, transfer or otherwise make such Water Rights
available to Tenant during the Term at Landlord's cost for Tenant to have full
utilization of the Water Rights for the operation and maintenance of the Leased
Property. Landlord makes no assurances whatsoever as to the existence,
quantity, priority or price of any Water Rights owned by Landlord. Landlord
shall have no obligation to acquire or expend funds to maintain the ownership of
any Water Rights.
6.7.2 Tenant Rights. To the extent as of the Commencement Date,
-------------
Tenant owns any rights for the supply or transportation of water to the Leased
Property (the "Tenant's Original Water Rights"), Tenant shall, through the Term
------------------------------
and subject to the provisions of this Section 6.7, maintain and hold Tenant's
-----------
Original Water Rights on a first priority basis for the benefit of the Leased
Property. If and solely to the extent that Tenant's Original Water Rights
provide resources in excess of what is needed to properly serve the Leased
Property, Tenant may use Tenant's Original Water Rights for other purposes as it
determines consistent with any restrictions under applicable law or the terms of
Tenant's Original Water Rights. During the Term, Tenant may sell or exchange
Tenant's Original Water Rights if, prior to doing so, Tenant secures Replacement
Water Rights. Upon the expiration or sooner termination of this Lease, Tenant
shall, within 10 days after request made by Landlord, transfer to Landlord or
its designee for no consideration Tenant's Original Water Rights (to the extent
still owned by Tenant) and all Replacement Water Rights. Upon the expiration or
sooner termination of this Lease, to the extent Tenant had sold or exchanged
Tenant's Original Water Rights during the Term, Tenant shall deliver to Landlord
or its designee Replacement Water Rights that are not less favorable in any
material respect to the holder of such Water Rights than the quantity, price and
priority of Tenant's Original Water Rights.
6.8 Liquor License. It is contemplated that Tenant or SWC will
--------------
obtain the necessary or required liquor licenses (collectively, the "Liquor
------
License") to serve the Facility. Tenant shall take whatever steps are
- -------
commercially necessary to keep the Liquor License in effect during the Term.
Upon the expiration of the Term or earlier termination of this Lease, Tenant
shall transfer the Liquor License to Landlord (or its designee), subject to
applicable law, for a purchase price of $1.00; provided, however, Landlord shall
pay all costs and expenses with respect to the transfer of the Liquor License to
Landlord. Tenant shall cooperate in all respects with Landlord (and its
designee) in order to affect an orderly transfer of the Liquor License to
Landlord (or
12
<PAGE>
its designee) including, without limitation, completing all application forms,
providing such information and documents as may be required by applicable
governmental agencies, and appearing and testifying at any public hearings in
connection with the transfer of the Liquor License to Landlord (or its
designee).
ARTICLE 7 - USE OF LEASED PROPERTY
----------------------------------
7.1 Use. After the Commencement Date and during the Term, Tenant
---
shall use or cause to be used the Leased Property and the improvements thereon
for its Primary Intended Use and for such other uses as may be necessary or
incidental to such use. Tenant shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Landlord, which
consent shall not be unreasonably withheld. No use shall be made or permitted
to be made of the Leased Property, and no acts shall be done, which will cause
the cancellation of any insurance policy covering the Leased Property or any
part thereof, nor shall Tenant sell or otherwise provide to patrons, or permit
to be kept, used or sold in or about the Leased Property any article which may
be prohibited by law or by the standard form of fire insurance policies, or any
other insurance policies required to be carried hereunder, or fire underwriters
regulations. Tenant shall, at its sole cost, comply with all of the
requirements pertaining to the Leased Property or other improvements of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Tenant's Personal Property. Landlord and Tenant acknowledge that Landlord has
acquired the Leased Property subject to the terms of the Existing Instruments
and that Tenant will be obligated to perform all obligations under the Existing
Instruments during the Term.
7.2 Specific Prohibited Uses. Tenant shall not use or occupy or
------------------------
permit the Leased Property to be used or occupied, nor do or permit anything to
be done in or on the Leased Property, in a manner which would (i) violate or
fail to comply with any law, rule or regulation or Legal Requirement or the
Existing Instruments, (ii) subject to Article 10, cause structural injury to any
----------
of the Improvements or (iii) constitute a public or private nuisance or waste.
Tenant shall not allow any Hazardous Material to be located in, on or under the
Leased Property, or any adjacent property, or incorporated in the Facility or
any improvements thereon except in compliance with applicable law (including any
Environmental Law). Tenant shall not allow the Leased Property to be used as a
landfill or a waste disposal site, or a manufacturing, distribution or disposal
facility for any Hazardous Materials. Tenant shall neither suffer nor permit
the Leased Property or any portion thereof, including Tenant's Personal
Property, to be used in such a manner as (i) might reasonably tend to impair
Landlord's title thereto or to any portion thereof, or (ii) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Leased
13
<PAGE>
Property or any portion thereof, or (iii) is in material violation of any
applicable Environmental Law.
7.3 Membership Matters, Fees and Charges.
------------------------------------
7.3.1 Membership Plan. All memberships shall be sold, transferred,
---------------
resigned, converted, modified, upgraded or terminated pursuant to the terms and
conditions of a membership plan as may be modified by Tenant as provided herein
("Membership Plan") to be established and implemented by Tenant within ninety
---------------
(90) days after the Commencement Date and in accordance with the requirements of
this Article 7. The Membership Plan shall set forth all matters relating to the
---------
sale and classification of memberships, including initiation fees, dues, and
other membership charges as periodically established by Tenant, and the rules,
regulations, bylaws, policies and procedures pertaining to memberships
(collectively, "Membership Documents"); provided that: (a) no memberships shall
--------------------
be sold, transferred, resigned, converted, modified, upgraded or terminated that
would adversely affect the long-term value of the Leased Property (e.g., the
Membership Plan shall prohibit the sale of non-dues or artificially low dues
paying lifetime memberships); and (b) within 12 months after the Commencement
Date (or such reasonable extended time period as approved by Landlord) and
except to the extent prohibited by law or as a result of the adjudication of a
contractual right, Tenant shall amend the bylaws of the Club in accordance with
the proposed changes set forth on Exhibit M attached hereto (the "Bylaw
--------- -----
Amendments"); provided, that the Bylaw Amendments may be reasonably modified as
- ----------
approved by Landlord. Tenant shall obtain Landlord's approval, which shall not
be unreasonably withheld or delayed, prior to the implementation of the
Membership Plan or Membership Documents or any material change to the existing
Membership Plan or Membership Documents if the Membership Plan or Membership
Documents (or proposed changes thereto) would: (i) adversely affect the long-
term value of the Leased Property; (ii) restrict, interfere with or discourage
or have the effect of restricting, interfering with, or discouraging
participation in the Transfer Program (defined in Section 7.3.2); or (iii)
-------------
create or increase any liability of Landlord to pay refunds to members. Tenant
shall provide any information reasonably requested by Landlord regarding the
proposed Membership Plan or material changes to the Membership Plan or the
Membership Documents. If Landlord fails to approve or disapprove of the
proposed Membership Plan (or proposed changes thereto) within 30 days after
receipt thereof, the Membership Plan (or proposed change) shall be deemed
approved by Landlord. Any disputes between Landlord and Tenant with respect to
the Membership Plan shall be resolved pursuant to Section 26.22. Tenant will
-------------
protect, indemnify, save harmless and defend Landlord from any Claims (as
defined in Section 21.1) imposed upon or incurred by or asserted against
------------
Landlord in connection with the sale by Tenant during the Term of new
memberships at the Leased Property or the transfer, resignation, conversion,
modification, upgrade or termination (each during the Term) of the existing
memberships at the Leased Property (excluding Landlord's obligation to assume
and
14
<PAGE>
honor the existing memberships at the expiration of the Term or termination of
the Lease).
7.3.2 Refundable Security Deposits. Seller has represented to
----------------------------
Landlord that Seller (or its predecessor) previously sold certain memberships
(each a "Refundable Membership") pursuant to a refundable security deposit
---------------------
program (the "Refundable Deposit Program") whereby the member (each a
--------------------------
"Refundable Deposit Member") is entitled to receive a refund of the initiation
- --------------------------
deposit (referred to as a "security deposit") paid by such member (the "Refund
------
Payment") subject to certain conditions. Tenant acknowledges that Seller has
- -------
previously implemented a transfer program ("Transfer Program") whereby a
----------------
Refundable Deposit Member may resign and sell such membership in return for
paying a transfer fee to the Club ("Transfer Fee") and waiving the right to
------------
receive a Refund Payment under the Refundable Deposit Program. Tenant hereby
agrees that the Membership Plan shall: (i) require the continuation of the
Transfer Program, which shall include the establishment of reasonable terms and
conditions (including reasonable Transfer Fees) subject to the Landlord's
approval (not to be unreasonably withheld) to encourage members holding
Refundable Memberships to resign and sell such memberships under the Transfer
Program in return for waiving the right to receive the respective Refund
Payment; (ii) be actively implemented and managed (without warranty) with the
intent to eliminate or significantly reduce the obligation to make Refund
Payments under the Refundable Deposit Program (collectively, the "Refund
------
Obligation") over the Initial Term ; (iii) prohibit the sale of memberships
- ----------
pursuant to the Refundable Deposit Program or any similar membership program
that would have the effect of creating refunds similar to the Refundable Deposit
Program; and (iv) not have the effect of increasing the Refund Obligation.
Tenant shall actively monitor the results under the Transfer Program and include
in the Annual Course Statements to be provided to Landlord pursuant to Section
-------
23.5, a detailed list of the Refundable Deposit Members who have resigned during
- ----
the previous year and the Refundable Deposit Members who have transferred their
memberships under the Transfer Program during the previous year.
7.3.3 Deposit Account.
---------------
(a) Upon the Commencement Date, Landlord shall deposit the amount of
Two Hundred Fifty Thousand Dollars ($250,000) (the "Deposit Amount") into an
--------------
interest-bearing account reasonably acceptable to Landlord and Tenant (the
"Deposit Account") to be established and maintained in order to provide a source
- ----------------
of funds for making Refund Payments after the expiration of the Initial Term (or
an Extended Term). The Deposit Amount shall be invested by Landlord in
instruments intended to maximize return over a 15-year investment time frame
while preserving principal.
(b) In addition to, and separate from, the obligation to pay Base
Rent, Additional Rent and Additional Charges, Tenant shall also pay to Landlord
annual rent ("Deposit
-------
15
<PAGE>
Rent") equal to: (i) the Applicable Rate (defined below) multiplied by (ii) the
- ----
Deposit Amount. The Deposit Rent shall be paid in advance in quarterly
installments upon the commencement of each Fiscal Quarter. The "Applicable
----------
Rate" means, with respect to the Fiscal Year commencing on the Commencement
Date, the annual rate of 9.75%. On January 1, 1997, the Applicable Rate shall
be increased to 10% and on January 1 of each following Fiscal Year through and
including January 1, 2001, the Applicable Rate shall be equal to the Applicable
Rate for the immediately preceding Fiscal Year multiplied by the annual
percentage increase in the CPI from the immediately preceding Fiscal Year. The
obligation to pay Deposit Rent shall continue until the earlier of the
expiration of the Term or the satisfaction of the Refund Obligation. The
Deposit Rent shall be paid to Landlord in the same manner as the Base Rent is
paid pursuant to Article 3 and shall be subject to the requirements of Sections
--------- --------
3.1 and 3.5; provided, however, the Deposit Rent shall not be included within
- --- ---
the calculation of Base Rent and shall not be deemed to be part of Base Rent.
(c) If the Refund Obligation is satisfied on or prior to the
expiration of the Term: (i) the Deposit Amount shall be paid to Landlord; and
(ii) any remaining amounts in the Deposit Account shall be paid to Tenant.
(d) If the Refund Obligation is not satisfied on or prior to the
expiration of the Term and Tenant does not extend the Term pursuant to Section
-------
2.2, the Deposit Amount and all interest thereon shall be paid to Landlord.
- ---
(e) If the Refund Obligation is not satisfied on or prior to the
expiration of the Initial Term and Tenant extends the Term pursuant to Section
-------
2.2, during each Extended Term, Refund Payments may be made out of the Deposit
- ---
Account upon the written request of Tenant; provided, however, the payment of
the Refund Payments shall be made first from the accrued interest on the Deposit
Amount and thereafter payments shall be made from the Deposit Amount. During
the Initial Term, no Refund Payments shall be made from the funds held in the
Deposit Account. If the funds in the Deposit Account are insufficient to pay
the Refund Payments during an Extended Term, Tenant shall continue to be
obligated to make such payments during the Extended Term.
(f) If the Lease is terminated prior to the expiration of the Term,
the Deposit Amount and all interest thereon shall be paid to Landlord.
(g) The following is an example to illustrate how a Refund Payment
would be made from the Deposit Account. The following assumptions are made for
this example: (i) a Refundable Deposit Member resigns during the Initial Term
and does not transfer the membership under the Transfer Program; (ii) the Refund
Payment owed to such member is $8,000 and is due during the second year of the
first Extended Term; (iii) upon the payment of the Refund Payment to such
Refundable Deposit Member, the Refund
16
<PAGE>
Obligation is fully satisfied; and (iv) at the time the Refund Payment is made,
the outstanding balance in the Deposit Account is $750,000 (the Deposit Amount
plus accrued interest of $500,000). Upon the written request of Tenant,
Landlord shall pay the $8,000 Refund Payment to the Refundable Deposit Member
(out of the accrued interest in the Deposit Account), the Deposit Amount
($250,000) shall be paid to Landlord, and the balance in the Deposit Account
($492,000) shall be paid to Tenant.
7.3.4 Miscellaneous Charges. Tenant shall not establish: (i) any
---------------------
fees, rates and other charges relating to goods and services provided at the
Leased Property that would have the effect of re-classifying items included
within the definition of Course Revenue as items included within the definition
of Other Revenue; or (ii) procedures that would disproportionately allocate the
revenue received from combined goods and services to Other Revenue.
7.4 Landlord to Grant Easements, Etc. Landlord shall, from time to
--------------------------------
time so long as no Event of Default has occurred and is continuing, at the
request of Tenant and at Tenant's cost and expense (but subject to the approval
of Landlord, which approval shall not be unreasonably withheld or delayed): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate (which Certificate, if
contested by Landlord, shall not be binding on Landlord) stating that such
grant, release, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Tenant on the Leased Property and does
not reduce its value or usefulness for the Primary Intended Use. Landlord shall
not grant, release, dedicate or execute any of the foregoing items in this
Section 7.4 without obtaining Tenant's approval, which approval shall not be
- -----------
unreasonably withheld or delayed. Notwithstanding anything to the contrary,
Landlord shall execute and grant any easement agreement required to be executed
by Landlord in favor of Seller or its assigns pursuant to the Purchase
Agreement.
ARTICLE 8 - HAZARDOUS MATERIALS
-------------------------------
8.1 Representations. Tenant hereby represents and warrants to
---------------
Landlord that it has disclosed to Landlord all material information with respect
to the environmental conditions of the Leased Property that Tenant obtained
prior to the Commencement Date. Landlord hereby represents and warrants to
Tenant that it
17
<PAGE>
has disclosed to Tenant all material information with respect to the
environmental conditions of the Leased Property that Landlord obtained prior to
the Commencement Date.
8.2 Remediation. If Tenant becomes aware of the presence of any
-----------
Hazardous Material in a quantity sufficient to require remediation or reporting
under any Environmental Law in, on or under the Leased Property or if Tenant,
Landlord, or the Leased Property becomes subject to any order of any federal,
state or local agency to investigate, remove, remediate, repair, close,
detoxify, decontaminate or otherwise clean up the Leased Property, Tenant shall,
at its sole expense, but subject to the last sentence of Section 8.3 and Section
----------- -------
8.6, carry out and complete any required investigation, removal, remediation,
- ---
repair, closure, detoxification, decontamination or other cleanup of the Leased
Property. If Tenant fails to implement and diligently pursue any such repair,
closure, detoxification, decontamination or other cleanup of the Leased Property
in a timely manner, Landlord shall have the right, but not the obligation after
written notification to Tenant and Tenant's failure to cure as provided herein
to carry out such action and to recover all of the reasonable costs and expenses
from Tenant as Additional Charges. The obligations of Tenant under this Section
-------
8.2 are subject to and limited by the last sentence of Section 8.3 and by
- --- -----------
Section 8.6.
- -----------
8.3 Tenant's Indemnification of Landlord. Tenant shall pay, protect,
------------------------------------
indemnify, save, hold harmless and defend Landlord and any Facility Mortgagee
from and against all liabilities, obligations, claims, damages (including
punitive damages), penalties, causes of action, demands, judgments, costs and
expenses (including reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against Landlord or
the Leased Property by reason of any Environmental Law (irrespective of whether
there has occurred any violation of any Environmental Law) in respect of the
Leased Property howsoever arising, without regard to fault on the part of
Tenant, including (a) liability for response costs and for costs of removal and
remedial action incurred by the United States Government, any state or local
governmental unit to any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to any Environmental Law, (b)
liability for costs and expenses of abatement, investigation, removal,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any Environmental Law, (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity, or (d) by reason of
a breach of the representation and warranty in Section 8.1. Notwithstanding the
-----------
foregoing or any other provision of this Lease (including, without limitation,
Section 5.2, Section 8.2, Section 8.5, Section 8.6 and Article 23), Tenant shall
- ----------- ----------- ------------------------ ----------
not be liable, or otherwise be required to indemnify Landlord, for any matters,
events or conditions: (i)
18
<PAGE>
that occurred, existed or arose prior to the Commencement Date; (ii) that arise
after the Commencement Date through no act or omission on the part of Tenant or
Tenant's employees, authorized agents, subtenant's or contractors, nor through
any breach by Tenant of any of the terms of this Lease; or (iii) caused by
Landlord, or its agents, contractors or employees; provided, that the foregoing
shall not relieve Tenant of its obligation to operate the Leased Property in
compliance with Environmental Laws including Tenant's obligation to maintain,
repair, remove or replace any underground storage tanks installed by Tenant or
at the direction of Tenant.
8.4 Survival of Indemnification Obligations. Tenant's and Landlord's
---------------------------------------
obligations and/or liabilities under this Article 8 arising during the Term
---------
hereof shall survive any termination of this Lease.
8.5 Environmental Violations at Expiration or Termination of Lease.
--------------------------------------------------------------
Notwithstanding any other provision of this Lease (except the last sentence of
Section 8.3 and Section 8.6), if, at a time when the Term would otherwise
- ----------- -----------
terminate or expire, a violation of any Environmental Law has been asserted by
Landlord and has not been resolved in a manner reasonably satisfactory to
Landlord, or has been acknowledged by Tenant to exist or has been found to exist
at the Leased Property or has been asserted by any governmental authority and
failure to have completed all action required to correct, abate or remediate
such a violation of any Environmental Law materially impairs the leasability of
the Leased Property upon the expiration of the Term, then, at the option of
Landlord, the Term shall be automatically extended with respect to the Leased
Property beyond the date of termination or expiration and this Lease shall
remain in full force and effect under the same terms and conditions beyond such
date with respect to the Leased Property until the earlier to occur of (i) the
completion of all remedial action in accordance with applicable Environmental
Laws or (ii) 12 months beyond such expiration or termination date; provided,
--------
that Tenant may, upon any such extension of the Term, terminate the Term by
paying to the Landlord such amount as is necessary in the reasonable judgment of
Landlord to complete or perform such remedial action.
8.6 Landlord's Indemnification of Tenant. Landlord shall pay,
------------------------------------
protect, indemnify, save, hold harmless and defend Tenant from and against all
liabilities, obligations, claims, damages (including punitive damages),
penalties, causes of action, demands, judgments, costs and expenses (including
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Tenant or the Leased Property by
reason of any Environmental Law (irrespective of whether there has occurred any
violation of any Environmental Law) in respect of any matter, condition, or
event that (i) arose, existed or occurred prior to the Commencement Date,
without regard to fault on the part of Landlord or (ii) was caused by Landlord,
or its agents, contractors or employees, including (a) liability for
19
<PAGE>
response costs and for costs of removal and remedial action incurred by the
United States Government, any state or local governmental unit or any other
Person, or damages from injury to or destruction or loss of natural resources,
including the reasonable costs of assessing such injury, destruction or loss,
incurred pursuant to any Environmental Law, (b) liability for costs and expenses
of abatement, investigation, removal, remediation, correction or clean-up,
fines, damages, response costs or penalties which arise from the provisions of
any Environmental Law, or (c) liability for personal injury or property damage
arising under any statutory or common-law tort theory, including damages
assessed for the maintenance of a public or private nuisance or for carrying on
of a dangerous activity; provided, however: (i) the foregoing shall not relieve
Tenant of its obligation to operate the Leased Property in compliance with
Environmental Laws including Tenant's obligation to maintain, repair, remove or
replace any underground storage tanks installed by Tenant or at the direction of
Tenant; and (ii) nothing herein shall create in favor of Tenant a right of set-
off to be applied against the payment of Rent hereunder.
ARTICLE 9 - MAINTENANCE AND REPAIR
----------------------------------
9.1 Tenant's Sole Obligation. Subject to Unavoidable Delays, Tenant,
------------------------
at its expense, will keep the Leased Property and Tenant's Personal Property in
good order, repair and appearance (whether or not the need for such repairs
occurs as a result of Tenant's use, any prior use, the elements or the age of
the Leased Property, or any portion thereof) and maintain the Leased Property in
accordance with any applicable Legal Requirements, and, except as otherwise
provided in Article 14, with reasonable promptness, make all necessary and
----------
appropriate repairs thereto of every kind and nature, whether interior or
exterior, structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Lease (concealed or otherwise). Subject to
Unavoidable Delays, Tenant shall maintain the Leased Premises in accordance with
the Operating Standards set forth in Exhibit D; provided, however, that Tenant
--------- ------------------
may make such modifications to such Operating Standards as Tenant may reasonably
determine to be appropriate for the prudent management of the Leased Property or
as may be appropriate to comply with Legal Requirements. Nothing in this
Article 9 shall obligate Tenant to make any capital improvements or replacements
- ---------
to the Leased Property if the Leased Property can be repaired to the standard
required by this Section 9.1.
-----------
9.2 Waiver of Statutory Obligations. Landlord shall not under any
-------------------------------
circumstances be required to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Tenant hereby waives, to
the extent permitted
20
<PAGE>
by law, the right to make repairs at the expense of Landlord pursuant to any law
in effect at the time of the execution of this Lease or hereafter enacted.
9.3 Mechanic's Liens. Nothing contained in this Lease and no action
----------------
or inaction by Landlord shall be construed as (i) constituting the consent or
request of Landlord expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof; or (ii) giving Tenant any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property, in either case, in such
fashion as would permit the making of any claim against Landlord in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Landlord in the Leased Property, or any portion thereof.
9.4 Surrender of Leased Property. Unless the Lease shall have been
----------------------------
terminated pursuant to the provisions of Article 14, Tenant shall, upon the
----------
expiration or prior termination of the Term, vacate and surrender the Leased
Property to Landlord in the condition in which the Leased Property was
originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease and
except for ordinary wear and tear (subject to the obligation of Tenant to
maintain the Leased Property in good order and repair during the entire Term of
the Lease).
ARTICLE 10 - TENANT'S IMPROVEMENTS
----------------------------------
10.1 Tenant's Right to Construct. During the Term of this Lease,
---------------------------
Tenant may make alterations, additions, changes and/or improvements to the
Leased Property (individually, a "Tenant Improvement," and collectively, "Tenant
------------------ ------
Improvements"). Except as otherwise agreed to by Landlord in writing, any such
- ------------
Tenant Improvement shall be made at Tenant's sole expense and shall become the
property of Landlord upon termination of this Lease. Unless made on an
emergency basis to prevent injury to Person or property, Tenant will submit
plans for any Tenant Improvement with a value of more than $500,000 in the first
Fiscal Year (and increased by four percent per annum for each subsequent Fiscal
Year) to Landlord for Landlord's prior approval, such approval not to be
unreasonably withheld or delayed. The construction and installation of any
Tenant Improvements shall be subject to the terms and conditions set forth in
the Existing Instruments.
10.2 Scope of Right. Subject to Section 10.1 and the terms and
-------------- ------------
conditions set forth in the Existing Instruments, at Tenant's cost and expense,
Tenant shall have the right to:
21
<PAGE>
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need that
Tenant requires to construct any Tenant Improvement;
(b) demolish, remove or otherwise dispose of any of the Leased
Improvements;
(c) erect upon the Leased Property such Tenant Improvements as Tenant
deems desirable;
(d) make additions, alterations, changes and improvements in any
Tenant Improvement so erected;
(e) raze and demolish any Tenant Improvement together with the right
to salvage therefrom; and
(f) engage in any other lawful activities that Tenant determines are
necessary or desirable for the development of the Leased Property in
accordance with its Primary Intended Use;
provided, however, Tenant shall not make any Tenant Improvement which would, in
- -----------------
Landlord's reasonable judgment, impair in any material respect the value or
Primary Intended Use of the Leased Property without Landlord's prior written
consent.
10.3 Cooperation of Landlord. Landlord shall cooperate with Tenant
-----------------------
and take such actions, including the execution and delivery to Tenant of any
applications or other documents, reasonably requested by Tenant in order to
obtain any governmental approvals sought by Tenant to construct any Tenant
Improvement within 10 Business Days following the later of (a) the date Landlord
receives Tenant's request, or (b) the date of delivery of any such application
or document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there is a cost to Landlord, such cost shall be reimbursed by Tenant),
and will not cause Landlord to be in violation of any law, ordinance or
regulation.
10.4 Commencement of Construction. Tenant agrees that:
----------------------------
(a) Tenant shall diligently seek all governmental approvals relating
to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant Improvement,
Tenant shall diligently prosecute any such construction to completion
in accordance with applicable insurance requirements and the laws,
rules and regulations of all governmental bodies or agencies having
jurisdiction over the Leased Property;
22
<PAGE>
(c) Landlord shall have the right at any time and from time to time
to post and maintain upon the Leased Property such notices as may be
necessary to protect Landlord's interest from mechanics' liens,
materialmen's liens or liens of a similar nature;
(d) Tenant shall not suffer or permit any mechanics' liens or any
other claims or demands arising from the work of construction of any
Tenant Improvement to be enforced against the Leased Property or any
part thereof, and Tenant agrees to hold Landlord and said Leased
Property free and harmless from all liability from any such liens,
claims or demands, together with all costs and expenses in connection
therewith; and
(e) All work shall be performed in a good and workmanlike manner.
10.5 Rights in Tenant Improvements. Notwithstanding anything to the
-----------------------------
contrary in this Lease, all Tenant Improvements constructed pursuant to Section
-------
10.1, and any and all subsequent additions thereto and alterations and
- ----
replacements thereof, shall be the sole and absolute property of Tenant during
the Term of this Lease. Upon the expiration or early termination of this Lease,
all such Tenant Improvements shall become the property of Landlord. Without
limiting the generality of the foregoing, Tenant shall be entitled to all
federal and state income tax benefits associated with any Tenant Improvement
during the Term of this Lease.
ARTICLE 11 - LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
---------------------------------------------------------
11.1 Liens. Subject to the provisions of Article 12 relating to
----- ----------
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense, any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the Rent, not including,
however:
(a) this Lease;
(b) the matters, if any, that existed as of the Commencement Date and
which are consented to in writing by Landlord;
(c) restrictions, liens and other encumbrances which are consented to
in writing by Landlord, or any easements granted pursuant to the
provisions of Section 7.4 of this Lease;
-----------
(d) liens for those taxes of Landlord, if any, which Tenant is not
required to pay hereunder;
(e) subleases permitted by Article 24;
----------
23
<PAGE>
(f) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable or
are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article
-------
12;
--
(g) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (provided that such liens are in the process
-------------
of being contested as permitted by Article 12) or not yet due; and
----------
(h) any liens which are the responsibility of Landlord pursuant to
the provisions of Article 24 or liens arising from the acts of
----------
Landlord's employees or authorized agents or any Person (other than
Tenant) whose claim arose under Landlord.
11.2 Encroachments and Other Title Matters. Excepting any matters
-------------------------------------
granted or created by Landlord, if any of the Leased Improvements shall, at any
time, encroach upon any property, street or right-of-way adjacent to the Leased
Property, or shall violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or shall impair the rights of others under any easement or right-
of-way to which the Leased Property is subject, or the use of the Leased
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a lease or reservation of
any oil, gas, water or other minerals, then promptly upon the request of
Landlord or at the behest of any Person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to contest the existence of any such encroachment, violation or
impairment), shall protect, indemnify, save harmless and defend Landlord from
and against all losses, liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including reasonable attorneys' fees and
expenses) based on or arising by reason of any such encroachment, violation or
impairment and in such case, in the event of an adverse final determination,
either (i) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment, whether the same shall affect Landlord or Tenant; or (ii) make such
changes in the Leased Improvements, and take such other actions, as Tenant in
the good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation or encroachment. Tenant's obligations under
this Section 11.2 shall be in addition to and shall in no way discharge
------------
24
<PAGE>
or diminish any obligation of any insurer under any policy of title or other
insurance and Tenant shall be entitled to a credit for any sums recovered by
Landlord under (i) any such policy of title or other insurance, or (ii) any suit
or action against any Person involved in said matter. If Landlord is a
necessary party to any such action, Tenant shall, at Tenant's expense and with
such indemnification as Landlord shall reasonably request, have the right to
pursue claims against Landlord's title insurance or any other Person involved in
said matter.
ARTICLE 12 - PERMITTED CONTESTS
-------------------------------
Tenant, on its own or on Landlord's behalf (or in Landlord's name) but
at Tenant's expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, the amount or validity or application, in
whole or in part, of any Imposition or any Legal Requirement or Insurance
Requirement or any lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Section 11.1, provided that:
------------ -------------
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of
such proceedings shall suspend the collection thereof from Landlord
and from the Leased Property, and neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in
any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be subject
to criminal or material civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in this
Section 12(b), however, shall permit Tenant to delay compliance with
-------------
any requirement of an Environmental Law to the extent such non-
compliance poses an immediate threat of injury to any Person or to the
public health or safety or of material damage to any real or personal
property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security, if
any, as may be demanded by Landlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of the affected Leased
Property or the Rent by reason of such non-payment or noncompliance,
provided, however, the provisions of this Article 12 shall not be
----------------- ----------
construed to permit Tenant to contest the payment of Rent (except as
to contests concerning the method of computation or the basis of levy
of any Imposition or the basis for the assertion of any other claim)
or any other sums payable by Tenant to Landlord hereunder;
25
<PAGE>
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage required by
Article 13 shall be maintained; and
----------
(f) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties
accrued thereon, or comply with the applicable Legal Requirement or
Insurance Requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save
Landlord harmless against any liability, cost or expense of any kind that may be
imposed upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE 13 - INSURANCE
----------------------
13.1 General Insurance Requirements. During the Term of this Lease,
------------------------------
Tenant shall at all times keep the Leased Property, and all property located in
or on the Leased Property, including all Tenant's Personal Property and any
Tenant Improvements, insured with the kinds and amounts of insurance described
below. This insurance shall be written by companies authorized to do insurance
business in the State in which the Leased Property is located. The policies
must name Landlord as an "Additional Insured." Losses shall be payable to
Landlord and/or Tenant as provided in Article 14. In addition, the policies
----------
shall name as an additional insured the holder of any mortgage, deed of trust or
other security agreement securing any indebtedness or any other Landlord's
Encumbrance placed on the Leased Property in accordance with the provisions of
Article 24 ("Facility Mortgage") by way of a standard form of mortgagee's loss
- ---------- -----------------
payable endorsement. Any loss adjustment shall require the written consent of
Landlord, Tenant, and each Facility Mortgagee, not to be unreasonably withheld.
Evidence of insurance shall be deposited with Landlord and, if requested, with
any Facility Mortgagee(s). The policies on the Leased Property, including the
Leased Improvements, Fixtures, Tenant's Personal Property and any Tenant
Improvements, shall insure against the following risks:
13.1.1 All Risk. Loss or damage by all risks perils including
--------
but not limited to, fire, vandalism, malicious mischief and extended
coverages, including but not limited to, sprinkler leakage, in an amount
not less than 100% of the then Full Replacement Cost thereof.
26
<PAGE>
13.1.2 Liability. Claims for personal injury or property damage
---------
under a policy of comprehensive general liability insurance with amounts
not less than $10,000,000 per occurrence and in the aggregate.
13.1.3 Flood. Flood (when the Leased Property is located in
-----
whole or in material part in a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable properties
in the area; provided however, that Tenant shall not be required to
----------------
participate in the National Flood Insurance Program.
13.1.4 Worker's Compensation. Adequate worker's compensation
---------------------
insurance coverage for all Persons employed by Tenant on the Leased
Property in accordance with the requirements of applicable federal, state
and local laws.
13.1.5 Other Insurance. Such other insurance on or in
---------------
connection with any of the Leased Property as Landlord or any Facility
Mortgagee may reasonably require, which at the time is usual and commonly
obtained in connection with properties similar in type of building size and
use to the Leased Property and located in the geographic area where the
Leased Property is located; provided however, that Landlord shall bear the
-------- -------
cost of any such coverage requested under this Section 13.1.5.
--------------
13.2 Replacement Cost. In the event either party believes that the
----------------
Full Replacement Cost of the insured property has increased or decreased at any
time during the Term, it shall have the right to have such Full Replacement Cost
redetermined by the fire insurance company which is then carrying the largest
amount of fire insurance carried on the Leased Property (the "Impartial
---------
Appraiser"). The party desiring to have the Full Replacement Cost so
- ---------
redetermined shall forthwith, on receipt of such determination by such Impartial
Appraiser, give written notice thereof to the other party hereto. The
determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Tenant shall forthwith increase, or may decrease, the amount
of the insurance carried pursuant to this Section 13.2, as the case may be, to
------------
the amount so determined by the Impartial Appraiser. Each party shall pay one-
half of the fee, if any, of the Impartial Appraiser.
13.3 Waiver of Subrogation. Landlord and Tenant waive their
---------------------
respective right of recovery against the other to the extent damage or liability
is insured against under a policy or policies of insurance. All insurance
policies carried by either party covering the Leased Property including
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party (including any
Facility Mortgagee). The parties hereto agree that their policies will include
such waiver clause or endorsement so long as the same are obtainable without
extra cost, and in the event of such an extra
27
<PAGE>
charge the other party, at its election, may pay the same, but shall not be
obligated to do so.
13.4 Form Satisfactory, Etc. All of the policies of insurance
-----------------------
referred to in Section 13.1 shall be written in a form reasonably satisfactory
------------
to Landlord and by insurance companies rated not less than A-X by A.M. Best's
Insurance Guide. In addition, all insurance carried by Tenant hereunder shall
have deductible amounts which are reasonably acceptable to Landlord. Tenant
shall pay all premiums for the policies of insurance referred to in Section 13.1
------------
and shall deliver certificates thereof to Landlord prior to their effective date
(and with respect to any renewal policy, at least 10 days prior to the
expiration of the existing policy). In the event Tenant fails to satisfy its
obligations under this Section 13.4, Landlord shall be entitled, but shall have
------------
no obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon written demand as Additional
Charges. Each insurer mentioned in Section 13.1 shall agree, by endorsement on
------------
the policy or policies issued by it, or by independent instrument furnished to
Landlord, that it will give to Landlord 30 days' written notice before the
policy or policies in question shall be altered, allowed to expire or cancelled.
Each such policy shall also provide that any loss otherwise payable thereunder
shall be payable notwithstanding (i) any act or omission of Landlord or Tenant
which might, absent such provision, result in a forfeiture of all or a part of
such insurance payment, (ii) the occupation or use of the Leased Property for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by any Facility
Mortgagee pursuant to any provision of a mortgage, note, assignment or other
document evidencing or securing a loan upon the happening of an event of default
therein or (iv) any change in title to or ownership of the Leased Property.
13.5 Change in Limits. In the event that Landlord shall at any time
----------------
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 13.1.2 is either
--------------
excessive or insufficient (but only if the liability insurance limit is not less
than $3,000,000 per person or per occurrence), the parties shall endeavor to
agree on the proper and reasonable limits for such insurance to be carried; and
such insurance shall thereafter be carried with the limits thus agreed on until
further changed pursuant to the provisions of this Section 13.5. Notwithstanding
------------
the foregoing, the deductibles for such insurance or the amount of such
insurance which is self-retained by Tenant shall be as reasonably determined by
Tenant so long as Tenant can reasonably demonstrate to Landlord its ability to
satisfy such deductible or amount of such self-retained insurance.
13.6 Blanket Policy. Notwithstanding anything to the contrary
--------------
contained in this Article 13, Tenant's obligations to carry the insurance
----------
provided for herein may be brought within the
28
<PAGE>
coverage of a so-called blanket policy or policies of insurance carried and
maintained by Tenant; provided, however, that the coverage afforded Landlord
-----------------
will not be reduced or diminished or otherwise be different from that which
would exist under a separate policy meeting all other requirements of this Lease
by reason of the use of such blanket policy of insurance, and provided further
that the requirements of this Article 13 are otherwise satisfied. The amount of
----------
the total insurance shall be specified either (i) in each such "blanket" or
umbrella policy or (ii) in a written statement, which Tenant shall deliver to
Landlord and Facility Mortgagee, from the insurer thereunder. A certificate of
each such "blanket" or umbrella policy shall promptly be delivered to Landlord
and Facility Mortgagee. If requested by Landlord, Tenant shall provide Landlord
with a certified copy of the "blanket" or umbrella insurance policy.
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS
----------------------------------------------
14.1 Insurance Proceeds. All proceeds of insurance payable by reason
------------------
of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 shall (i) if
----------
greater than $500,000, be paid to Landlord and held by Landlord and (ii) if less
than such amount, be paid to Tenant and held by Tenant. All such proceeds shall
be held in trust and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or any
portion thereof.
14.1.1 Disbursement of Proceeds. Any proceeds held by Landlord
------------------------
or Tenant shall be paid out by Landlord or Tenant from time to time for the
reasonable costs of such reconstruction or repair; provided, however, that
-------- -------
Landlord shall disburse proceeds subject to the following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the restoration
shall have been approved by Landlord, which approval shall not be
unreasonably withheld or delayed and (B) appropriate waivers of
mechanics' and materialmen's liens shall have been filed;
(ii) at the time of any disbursement, subject to Article 12, no
----------
mechanics' or materialmen's liens shall have been filed against any of
the Leased Property and remain undischarged, unless a satisfactory
bond shall have been posted in accordance with the laws of the State;
(iii) disbursements shall be made as requested by Tenant, not more
frequently than monthly, upon not less than 15 days' notice in an
amount not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence of the stage
of completion, the estimated total cost of completion and
29
<PAGE>
performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B) waivers
of liens, (C) a satisfactory bringdown of title insurance and (D)
other evidence of cost and payment so that Landlord and Facility
Mortgagee can verify that the amounts disbursed from time to time are
represented by work that is completed, in place and free and clear of
mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by the president or a vice president of
Tenant, describing the work for which payment is requested, stating
the cost incurred in connection therewith, stating that Tenant has not
previously received payment for such work and, upon completion of the
work, also stating that the work has been fully completed and complies
with the applicable requirements of this Lease; and
(v) to the extent actually held by Landlord and not by a Facility
Mortgagee, (1) the proceeds shall be held in a separate account and
shall not be commingled with Landlord's other funds, and (2) interest
shall accrue on funds so held at the money market rate of interest and
such interest shall constitute part of the proceeds.
14.1.2 Excess Proceeds. Any excess proceeds of insurance
---------------
remaining after the completion of the restoration or reconstruction of the
Leased Property (or in the event neither Landlord nor Tenant is required or
elects to repair and restore) shall be paid to Landlord and Tenant in like
proportions to the value of Landlord's interests in the Leased Property and
Tenant's interest in Tenant's Personal Property and the Tenant
Improvements, or any portion thereof, as determined under Article 13, upon
----------
completion of any such repair and restoration except as otherwise
specifically provided below in this Article 14. All salvage resulting from
----------
any risk covered by insurance shall belong to Landlord.
14.2 Reconstruction Covered by Insurance.
-----------------------------------
14.2.1 Destruction Rendering Facility Unsuitable for its Primary
---------------------------------------------------------
Use. If during the Term the Leased Property is totally or partially
---
destroyed from a risk covered by the insurance described in Article 13 and
----------
the Facility thereby is rendered Unsuitable For Its Primary Intended Use,
Tenant shall diligently restore the Facility to substantially the same
condition as existed immediately before the damage or destruction;
provided, however, if the Facility cannot be fully repaired or restored
within a 12-month period from the date of the damage or destruction to
substantially the same condition as existed immediately before the damage
or destruction, then Tenant may terminate this Lease by giving
30
<PAGE>
Landlord written notice of such termination within 60 days after the date
of such damage or destruction, and the effective date of such termination
shall be 30 days following such notice of termination; provided, however,
if Landlord notifies Tenant in writing within 15 days of Landlord's receipt
of Tenant's notice of termination that Landlord intends to restore the
Facility to substantially the same condition as existed immediately before
the damage and destruction and Landlord diligently commences and prosecutes
such restoration and completes such restoration within 12 months after the
date of the damage or destruction, then Tenant's election to terminate the
Lease shall be deemed rescinded and the Lease shall remain in full force
and effect. Notwithstanding Section 14.4 below, in the event Landlord
------------
elects to restore the Facility as provided in the immediately preceding
sentence, during the period from the date of Tenant's notice of termination
through the date the restoration of the Facility is completed, the Base
Rent shall be deemed to be zero and Tenant's payment of Rent shall consist
only of the payment of Additional Rent in accordance with Section 9 of the
---------
Basic Lease Provisions and the Additional Charges as required by the
Detailed Lease Provisions. Upon any such termination of the Lease by
Tenant or upon Landlord's election to restore the Facility as provided in
this section, Landlord shall be entitled to retain all insurance proceeds,
grossed up by Tenant to account for the deductible or any self-insured
retention; provided, further, that Tenant shall be entitled to retain or
receive all insurance proceeds relating to Tenant's Personal Property and
the Tenant Improvements.
14.2.2 Destruction Not Rendering Facility Unsuitable for its
-----------------------------------------------------
Primary Use. If during the Term, the Leased Property is totally or
------------
partially destroyed from a risk covered by the insurance described in
Article 13, but the Facility is not thereby rendered Unsuitable For Its
----------
Primary Intended Use, Tenant shall diligently restore the Facility to
substantially the same condition as existed immediately before the damage
or destruction; provided, however, Tenant shall not be required to restore
-----------------
Tenant's Personal Property and/or any Tenant Improvements if failure to do
so does not adversely affect the amount of Additional Rent payable
hereunder. Such damage or destruction shall not terminate this Lease;
provided further, however, if Tenant and Landlord cannot within 12 months
-------------------------
after said damage obtain all necessary governmental approvals, including
building permits, licenses, conditional use permits and any certificates of
need, after diligent efforts to do so in order to be able to perform all
required repair and restoration work and to operate the Facility for its
Primary Intended Use in substantially the same manner as immediately prior
to such damage or destruction, Tenant may terminate this Lease upon 30 days
prior written notice to Landlord; provided further, however, if Landlord
-------------------------
notifies Tenant in writing within 15 days of Landlord's receipt of Tenant's
notice of
31
<PAGE>
termination that Landlord intends to restore the Facility to substantially
the same condition as existed immediately before the damage and destruction
and Landlord diligently commences and prosecutes such restoration and
completes such restoration within 90 days after the date of Tenant's notice
of termination, then Tenant's election to terminate the Lease shall be
deemed rescinded and the Lease shall remain in full force and effect.
Notwithstanding Section 14.4 below, in the event Landlord elects to restore
------------
the Facility as provided in the immediately preceding sentence, during the
period from the date of Tenant's notice of termination through the date the
restoration of the Facility is completed, the Base Rent shall be deemed to
be zero and Tenant's payment of Rent shall consist only of the payment of
Additional Rent in accordance with Section 9 of the Basic Lease Provisions
---------
and the Additional Charges as required by the Detailed Lease Provisions.
Upon any such termination of the Lease by Tenant or upon Landlord's
election to restore the Facility as provided in this section, Landlord
shall be entitled to retain all insurance proceeds, grossed up by Tenant to
account for the deductible or any self-insured retention; provided,
further, that Tenant shall be entitled to retain or receive all insurance
proceeds relating to (i) Tenant's Personal Property, (ii) the Tenant
Improvements and (iii) subject to inclusion in Course Revenue, Tenant's
business interruption insurance.
14.2.3 Costs of Repair. If Tenant restores the Facility as
---------------
provided in Sections 14.2.1 and 14.2.2 above and the cost of the repair or
--------------- ------
restoration exceeds the amount of proceeds received by Landlord or Tenant
from the insurance required under Article 13, Tenant shall pay for such
----------
excess cost of repair or restoration. If Landlord restores the Facility as
provided in Sections 14.2.1 and 14.2.2 above and the cost of the repair or
--------------- ------
restoration exceeds the amount of proceeds received by Landlord as provided
in those sections, Landlord shall pay for such excess cost of repair or
restoration.
14.3 Reconstruction Not Covered by Insurance. If during the Term,
---------------------------------------
the Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
----------
renders the Facility Unsuitable For Its Primary Intended Use, Tenant shall
either (A) restore the Facility, at Tenant's cost, to substantially the same
condition as existed immediately before the damage or destruction, or (B) elect
to terminate this Lease upon 60 days prior written notice to Landlord; provided,
however, if Landlord notifies Tenant in writing within 15 days of Landlord's
receipt of Tenant's notice of termination that Landlord intends to restore the
Facility, at Landlord's cost, to substantially the same condition as existed
immediately before the damage and destruction and Landlord diligently commences
and prosecutes such restoration and completes such restoration within 90 days
after the date of Tenant's notice
32
<PAGE>
of termination, then Tenant's election to terminate the Lease shall be deemed
rescinded and the Lease shall remain in full force and effect. In the event
Landlord elects to restore the Facility as provided in the immediately preceding
sentence, during the period from the date of Tenant's notice of termination
through the date the restoration of the Facility is completed, the Base Rent
shall be deemed to be zero and Tenant's payment of Rent shall consist only of
the payment of Additional Rent in accordance with Section 9 of the Basic Lease
---------
Provisions and the Additional Charges as required by the Detailed Lease
Provisions.
14.4 Waiver. Tenant hereby waives any statutory rights of
------
termination which may arise by reason of any damage or destruction of the
Facility which Landlord or Tenant is obligated to restore or may restore under
any of the provisions of this Lease.
14.5 Damage Near End of Term. Notwithstanding any other provision to
-----------------------
the contrary in this Article 14, if damage to or destruction of the Leased
----------
Property occurs during the last 24 months of the Term of this Lease, and if such
damage or destruction cannot reasonably be expected to be fully repaired or
restored prior to the date that is 12 months prior to the end of the then-
applicable Term, then Tenant shall have the right to terminate the Lease on 30
days' prior notice to Landlord by giving notice thereof to Landlord within 60
days after the date of such damage or destruction. Upon any such termination,
Landlord shall be entitled to retain all insurance proceeds, grossed up by
Tenant to account for the deductible or any self-insured retention; provided,
---------
however, that, Tenant shall be entitled to retain or receive all insurance
- -------
proceeds relating to (i) Tenant's Personal Property, (ii) Tenant Improvements
and (iii) subject to the inclusion in Course Revenue, Tenant's business
interruption insurance.
ARTICLE 15 - CONDEMNATION
-------------------------
15.1 Total Taking. If at any time during the Term the Leased
------------
Property is totally and permanently taken by Condemnation, this Lease shall
terminate on the Date of Taking and Tenant shall promptly pay all outstanding
rent and other charges through the date of termination.
15.2 Partial Taking. If a portion of the Leased Property is taken by
--------------
Condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered Unsuitable For Its Primary Intended Use, but if the Facility is thereby
rendered Unsuitable For Its Primary Intended Use, this Lease shall terminate on
the Date of Taking.
15.3 Restoration. If there is a partial taking of the Leased
-----------
Property and this Lease remains in full force and effect pursuant to Section
-------
15.2, Landlord at its cost shall accomplish all necessary restoration up to but
- ----
not exceeding the amount of the Award payable to Landlord, as provided herein.
If Tenant receives
33
<PAGE>
an Award under Section 15.4, Tenant shall repair or restore any Tenant
------------
Improvements up to but not exceeding the amount of the Award payable to Tenant
therefor.
15.4 Award-Distribution. The entire Award shall belong to and be
------------------
paid to Landlord, except that, subject to the rights of the Facility Mortgagee,
Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such items, a sum attributable to the value, if any,
of: (i) any Tenant Improvements and (ii) the leasehold interest of Tenant under
this Lease; provided, however, that if the amount received by Landlord and the
------------------
Facility Mortgagee is less than the Condemnation Threshold, then the amount of
the Award otherwise payable to Tenant for the value of its leasehold interest
under this Lease (and not any other funds of Tenant) shall instead be paid over
to Landlord up to the amount of the shortfall.
15.5 Temporary Taking. The taking of the Leased Property, or any
----------------
part thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than six months. During any such six month period, which
shall be a temporary taking, all the provisions of this Lease shall remain in
full force and effect with no abatement of rent payable by Tenant hereunder. In
the event of any such temporary taking, the entire amount of any such Award made
for such temporary taking allocable to the Term of this Lease, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant, provided however
that notwithstanding the preceding, to the extent that Tenant successfully
prevails against the condemning authority on a claim that the Leased Property
would have generated a given level of revenues which would have produced
Additional Rent during the period of such taking, then the appropriate portion
of the Award which is attributable to revenue that would have generated
Additional Rent for said period shall be paid to Landlord, if due and payable,
as Additional Rent.
ARTICLE 16 - EVENTS OF DEFAULT
------------------------------
16.1 Events of Default. If any one or more of the following events
-----------------
(individually, an "Event of Default") shall occur:
----------------
(a) if Tenant shall fail to make payment of the Rent payable by
Tenant under this Lease when the same becomes due and payable and such
failure is not cured by Tenant within a period of seven days after
receipt by Tenant of notice thereof from Landlord; provided, however,
-----------------
that such notice shall be in lieu of and not in addition to any notice
required under applicable law;
(b) if Tenant shall fail to obtain, maintain or replace a Letter of
Credit or a Distribution Letter of Credit as required by Article 25
----------
and such default continues for three days after written notice to
Tenant;
34
<PAGE>
(c) if, other than as a result of Unavoidable Delays, Tenant shall
fail to observe or perform any material term, covenant or condition of
this Lease and such failure is not cured by Tenant within a period of
30 days after receipt by Tenant of notice thereof from Landlord,
unless such failure cannot with due diligence be cured within a period
of 30 days, in which case such failure shall not be deemed to continue
if Tenant proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof; provided, however, that
-----------------
such notice shall be in lieu of and not in addition to any notice
required under applicable law; provided further, however, that the
-------------------------
cure period shall not extend beyond 30 days as otherwise provided by
this Section 16.1(c) if the facts or circumstances giving rise to the
---------------
default are creating a further harm to Landlord or the Leased Property
and Landlord makes a good faith determination that Tenant is not
undertaking remedial steps that Landlord would cause to be taken if
this Lease were then to terminate.
(d) if Tenant or SWC shall:
(i) admit in writing its inability to pay its debts generally
as they become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act,
(iii) make an assignment for the benefit of its creditors,
(iv) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property, or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof;
(e) if Tenant or SWC shall, on a petition in bankruptcy filed against
it, be adjudicated as bankrupt or a court of competent jurisdiction
shall enter an order or decree appointing, without the consent of
Tenant or SWC, a receiver of Tenant or SWC or of the whole or
substantially all of its property, or approving a petition filed
against it seeking reorganization or arrangement of Tenant or SWC
under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof, and such
judgment, order or
35
<PAGE>
decree shall not be vacated or set aside or stayed within 60 days from
the date of the entry thereof;
(f) if Tenant or SWC shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(g) if the estate or interest of Tenant in the Leased Property or any
part thereof shall be levied upon or attached in any proceeding and
the same shall not be vacated or discharged within the later of 90
days after commencement thereof or 30 days after receipt by Tenant of
notice thereof from Landlord (unless Tenant shall be contesting such
lien or attachment in accordance with Article 12); provided, however,
---------- -----------------
that such notice shall be in lieu of and not in addition to any notice
required under applicable law;
(h) if, except as a result of damage, destruction or partial or
complete Condemnation or other Unavoidable Delays, Tenant voluntarily
ceases operations on the Leased Property for a period in excess of 45
consecutive days other than relating to the closure of up to nine
holes at a time or the clubhouse in order for Tenant to carry out
renovations so long as Tenant is diligently performing such
renovations;
(i) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be
incorrect, now or hereafter, in any material respect and any adverse
effect on Landlord of any such misrepresentation or breach of warranty
has not been corrected to Landlord's satisfaction within 30 days after
Tenant becomes aware of, or is notified by Landlord of the fact of,
such misrepresentation or breach of warranty;
(j) if an Event of Default under any of the Other Property Leases
occurs, provided, however, that if such Event of Default (other than
-----------------
for the failure to pay money or post a Letter of Credit if required
hereunder) arose from occurrences beyond the reasonable control of
Tenant, such Event of Default shall not constitute an Event of Default
under this Section 16.1(j);
---------------
(k) with respect to any of the Other Property Leases, either an Event
of Default has occurred and is continuing or such leases have been
terminated by reason of an Event of Default;
(l) if Tenant shall make a Distribution and shall have failed to post
the Distribution Letter of Credit as required by Section 25.6 and such
------------
default continues for three days after written notice to Tenant.
36
<PAGE>
THEN, Landlord may terminate this Lease by giving Tenant not less than
10 days' notice (or no notice for clauses (d), (e) and (f) with respect to
Tenant) of such termination and upon the expiration of the time fixed in such
notice, the Term shall terminate and all rights of Tenant under this Lease shall
cease. Landlord shall have all rights at law and in equity available to
Landlord as a result of Tenant's breach of this Lease.
16.2 Payment of Costs. Tenant shall, to the extent permitted by law,
----------------
pay as Additional Charges all costs and expenses incurred by or on behalf of
Landlord, including reasonable attorneys' fees and expenses, as a result of any
Event of Default hereunder.
16.3 Exceptions. No Event of Default (other than a failure to make
----------
payment of money or post a Letter of Credit, if required hereunder) shall be
deemed to exist under clause (c) or clause (j) of Section 16.1 during any time
------------
the curing thereof is prevented by an Unavoidable Delay; provided that, upon the
-------------
cessation of such Unavoidable Delay, Tenant shall remedy such default without
further delay.
16.4 Certain Remedies. If an Event of Default shall have occurred
----------------
(and the event giving rise to such Event of Default has not been cured within
the curative period relating thereto as set forth in Section 16.1) and be
------------
continuing, whether or not this Lease has been terminated pursuant to Section
-------
16.1, Tenant shall, to the extent permitted by law, if required by Landlord so
- ----
to do, immediately surrender to Landlord the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Landlord may enter upon and
------------
repossess the Leased Property by reasonable means (but without a breach of
peace), summary proceedings, ejectment or otherwise, and may remove Tenant and
all other Persons and any and all Tenant's Personal Property from the Leased
Property subject to any requirement of law.
16.5 Damages. None of (a) the termination of this Lease pursuant to
-------
Section 16.1, (b) the repossession of the Leased Property, (c) the failure of
- ------------
Landlord, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Landlord to collect or receive any rentals due upon any such reletting, shall
relieve Tenant of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Tenant shall forthwith pay to Landlord all Rent due and
payable with respect to the Leased Property to, and including, the date of such
termination. Thereafter, Tenant shall forthwith pay to Landlord, at Landlord's
option, as and for liquidated and agreed current damages for Tenant's default,
either:
37
<PAGE>
(a) the sum of:
(i) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination,
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided,
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided, and
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using the
San Francisco Federal Funds Rate plus one percent and the Additional
Rent shall be deemed to be the same as for the then-current Fiscal
Year or, if not determinable, the immediately preceding Fiscal Year,
for the remainder of the Term, or such other amount as either party
shall prove reasonably could have been earned during the remainder of
the Term or any portion thereof; or
(b) without termination of Tenant's right to possession of the Leased
Property, each installment of said Rent and other sums payable by
Tenant to Landlord under the Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce, by
action or otherwise, any other term or covenant of this Lease.
16.6 Additional Remedies. Landlord has all other remedies that may
-------------------
be available under applicable law.
16.7 Appointment of Receiver. Upon the entry of a court order that
-----------------------
an Event of Default has occurred, Landlord shall be entitled, as a matter of
right, to the appointment of a receiver or receivers acceptable to Landlord of
the Leased Property and the Facility and of the revenues, earnings, income,
products and profits thereof, pending such proceedings, with such powers as the
court making such appointment shall confer.
38
<PAGE>
16.8 Waiver. If this Lease is terminated pursuant to Section 16.1:
------ ------------
(i) Tenant waives, to the extent permitted by applicable law (a) any right of
redemption, re-entry or repossession and (b) any right to a trial by jury in the
event of summary proceedings to enforce the remedies set forth in this Article
-------
16; and (ii) Landlord waives, to the extent permitted by applicable law, any
- --
right to a trial by jury in the event of summary proceedings to enforce the
remedies set forth in this Article 16.
----------
16.9 Application of Funds. Any payments received by Landlord under
--------------------
any of the provisions of this Lease during the existence or continuance of any
Event of Default (and such payment is made to Landlord rather than Tenant due to
the existence of an Event of Default) shall be applied to Tenant's obligations
in the order which Landlord may determine or as may be prescribed by the laws of
the State.
16.10 Impounds. Landlord shall have the right during the continuance
--------
of an Event of Default to require Tenant to pay to Landlord an additional
monthly sum (each an "Impound Payment") sufficient to pay the Impound Charges
---------------
(as hereinafter defined) as they become due. As used herein, "Impound Charges"
---------------
shall mean real estate taxes on the Leased Property or payments in lieu thereof
and premiums on any insurance required by this Lease. Landlord shall determine
the amount of the Impound Charges and of each Impound Payment. The Impound
Payments shall be held in a separate account and shall not be commingled with
other funds of Landlord and interest thereon shall be held for the account of
Tenant. Landlord shall apply the Impound Payments to the payment of the Impound
Charges on their respective due dates. Any Impound Payments which have not been
applied to Impound Charges shall be released to Tenant six months after the
Event of Default is cured without any reoccurring Event of Default. If at any
time the Impound Payments theretofore paid to Landlord shall be insufficient for
the payment of the Impound Charges, Tenant, within 10 days after Landlord's
demand therefor, shall pay the amount of the deficiency to Landlord.
ARTICLE 17 - RIGHT TO CURE DEFAULT
----------------------------------
17.1 Tenant's Default. If Tenant shall fail to make any payment or
----------------
to perform any act required to be made or performed under this Lease, and to
cure the same within the relevant time periods provided in Section 16.1,
------------
Landlord, after notice to and demand upon Tenant, and without waiving or
releasing any obligation or default, may (but shall be under no obligation to)
at any time thereafter make such payment or perform such act for the account and
at the expense of Tenant. Landlord may, to the extent permitted by law, enter
upon the Leased Property for such purpose and take all such action thereon as,
in Landlord's opinion, may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Tenant. All sums so paid by Landlord and all
costs and expenses (including reasonable attorneys' fees and expenses, to
39
<PAGE>
the extent permitted by law) so incurred, together with a late charge thereon at
the Overdue Rate from the date on which such sums or expenses are paid or
incurred by Landlord, shall be paid by Tenant to Landlord on demand. The
obligations of Tenant and rights of Landlord contained in this Section 17.1
------------
shall survive the expiration or earlier termination of this Lease.
17.2 Landlord's Default. If Landlord shall fail to perform any act
------------------
required to be performed by Landlord under this Lease, and to cure the same
within the relevant time periods provided in Section 24.3, Tenant, after notice
------------
to and demand upon Landlord, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter
perform such act for the account and at the expense of Landlord; provided that
nothing herein shall create in favor of Tenant a right of set-off to be applied
against the payment of Rent hereunder. All sums so paid by Tenant and all costs
and expenses (including reasonable attorneys' fees and expenses, to the extent
permitted by law) so incurred, together with a late charge thereon at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Tenant, shall be paid by Landlord to Tenant on demand; provided that nothing
herein shall create in favor of Tenant a right of set-off to be applied against
the payment of Rent hereunder. The obligations of Landlord and rights of Tenant
contained in this Section 17.2 shall survive the expiration or earlier
------------
termination of this Lease.
ARTICLE 18 - LEGAL REQUIREMENTS
-------------------------------
Subject to Article 12 regarding permitted contests, Tenant, at its
----------
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, whether or not compliance therewith shall
require structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
ARTICLE 19 - HOLDING OVER
-------------------------
If Tenant shall for any reason remain in possession of the Leased
Property after the expiration of the Term or earlier termination of the Term
hereof, such possession shall be as a month-to-month tenant during which time
Tenant shall pay as rental each month, 125% of the aggregate of (i) one-twelfth
of the aggregate Base Rent and Additional Rent payable with respect to the last
Fiscal Year of the preceding Term; (ii) all Additional Charges accruing during
the month; and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Leased Property. During such
period of month-to-month tenancy, Tenant shall be obligated to perform and
40
<PAGE>
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to month-
to-month tenancies, to continue its occupancy and use of the Leased Property.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the expiration or earlier
termination of this Lease.
ARTICLE 20 - RISK OF LOSS
-------------------------
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property as a consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Landlord or Landlord's employees, authorized agents or
contractors, and those claiming from, through or under Landlord) is assumed by
Tenant. In the absence of Landlord's negligence, acts of Landlord or Landlord's
employees, authorized agents or contractors, or those claiming from, through or
under Landlord, or breach of this Lease by Landlord, which in any of the
foregoing cases causes such loss or decrease in the enjoyment and beneficial use
of the Leased Property, subject to Section 24.3, (i) Landlord shall in no event
------------
be answerable or accountable for any of the events mentioned in the first
sentence of this Article 20 and (ii) none of such events shall entitle Tenant to
----------
any abatement of Rent except as otherwise provided in the Lease. This Article
-------
20 shall be subject to Article 13, including Section 13.4 thereof.
- -- ---------- ------------
ARTICLE 21 - INDEMNIFICATION
----------------------------
21.1 Tenant's Indemnification of Landlord. Except as otherwise
------------------------------------
provided in Sections 8.3, 8.5, 8.6 and 21.2 and notwithstanding the existence of
------------ --- --- ----
any insurance provided for in Article 13, and without regard to the policy
----------
limits of any such insurance, Tenant will protect, indemnify, save harmless and
defend Landlord from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable attorneys'
fees and expenses) (collectively, "Claims"), to the extent permitted by law,
------
imposed upon or incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks during the Term of this Lease, including, but not limited
to, any accident, injury to or death of Person or loss of or damage to
property resulting from golf balls, golf clubs, golf shoes, lawn
mowers or other gardening devices, golf carts, tractors or other
motorized vehicles present on or adjacent to the Leased Property;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
41
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(c) any Impositions (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply with any
of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of any and
all existing and future subleases of the Leased Property to be
performed by the landlord (Tenant) thereunder;
(f) any Claims Landlord may incur or suffer as a result of any
permitted contest by Tenant pursuant to Article 12; and
----------
(g) any Claims Landlord may incur or suffer in connection with the
Existing Instruments.
21.2 Landlord's Indemnification of Tenant. In addition to Landlord's
------------------------------------
obligations under Section 8.6, Landlord shall protect, indemnify, save harmless
-----------
and defend Tenant from and against all Claims imposed upon or incurred by, or
asserted against Tenant as a result of (i) Landlord's or Landlord's employees,
authorized agents' or contractors' negligence, or (ii) any acts of Landlord or
Landlord's employees, authorized agents or contractors, or those claiming from,
through or under Landlord (other than such acts which are authorized under the
Lease or applicable law), or (iii) breach of this Lease by Landlord, including
any Claims Tenant may incur or suffer in connection with the Existing
Instruments as a result of any breach of this Lease by Landlord.
21.3 Mechanics of Indemnification. As soon as reasonably practicable
----------------------------
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 21, the indemnified party shall give notice
----------
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 21 as soon as a claim has been made in
----------
writing by a third party, regardless of whether an actual loss has been
suffered, so long as the indemnified party shall in good faith determine that
such claim is not frivolous and that the indemnified party may be liable for, or
otherwise incur, a loss as a result thereof and shall give notice of such
determination to the indemnifying party. The indemnified party shall permit the
indemnifying party, at its option and expense, to assume the defense of any such
claim by counsel selected by the indemnifying party and reasonably satisfactory
to the indemnified party, and to settle or otherwise dispose of the same;
provided, however, that the indemnified party may at all times participate in
- -------- -------
such defense at its expense; and provided further, however, that the
-------- ------- -------
indemnifying party shall not, in defense of any such claim, except with the
prior written consent of the indemnified party, consent to the entry of any
judgment or to enter into any settlement that does
42
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not include as an unconditional term thereof the giving by the claimant or
plaintiff in question to the indemnified party and its affiliates a release of
all liabilities in respect of such claims, or that does not result only in the
payment of money damages by the indemnifying party. If the indemnifying party
shall fail to undertake such defense within 30 days after such notice, or within
such shorter time as may be reasonable under the circumstances, then the
indemnified party shall have the right to undertake the defense, compromise or
settlement of such liability or claim on behalf of and for the account of the
indemnifying party.
21.4 Survival of Indemnification Obligations. Tenant's or Landlord's
---------------------------------------
liability for a breach of the provisions of this Article 21 arising during the
----------
Term hereof shall survive any termination of this Lease provided that such
indemnity obligations shall only apply with respect to claims described in a
notice delivered by the indemnified party to the indemnifying party within four
(4) years after the expiration of the Term or earlier termination of this Lease;
provided, however, that the limitation set forth in this Section 21.4 shall not
------------
apply with respect to indemnification obligations pursuant to Article 8 of this
---------
Lease.
ARTICLE 22 - SUBLETTING AND ASSIGNMENT
--------------------------------------
22.1 Prohibition Against Subletting and Assignment. Subject to
---------------------------------------------
Section 22.3, Tenant shall not, without the prior written consent of Landlord
- ------------
(which consent Landlord may grant or withhold in its sole and absolute
discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer the Lease or any interest therein, all or any part of the Leased
Property or suffer or permit the Lease or the leasehold estate created hereby or
thereby or any other rights arising under the Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law; provided that Tenant shall be
permitted to pledge its interest in this Lease to its lender in accordance with
the form of Landlord's Consent set forth on Exhibit L attached hereto. For
---------
purposes of this Section 22.1, an assignment of the Lease shall be deemed to
------------
include any Change of Control of Tenant, as if such Change of Control were an
assignment of the Lease. Notwithstanding the first sentence of this Section
-------
22.1, an assignment of this Lease in connection with the sale, conveyance or
- ----
other transfer of all or substantially all of the assets of Tenant (whether by
operation of law or otherwise) shall be treated as a Change in Control (and
therefore will be permitted if the requirements of Section 22.2.1 through
--------------
Section 22.2.3 hereof are met).
- --------------
22.2 Changes of Control. A Change of Control requiring the consent
------------------
of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any stockholder
of Tenant of a Controlling interest in Tenant to a Person other than
an Affiliate of Tenant,
43
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other than in either case a distribution to the public pursuant to an
effective registration statement under the Securities Act of 1933, as
amended (a "Registered Offering");
-------------------
(b) the sale, conveyance or other transfer of all or substantially
all of the assets of Tenant (whether by operation of law or
otherwise), which may include a transfer of assignment of this Lease;
(c) any transaction pursuant to which Tenant is merged with or
consolidated into another entity (other than an entity owned and
Controlled by an Affiliate of Tenant), and Tenant is not the surviving
entity;
provided, however, that notwithstanding the foregoing any such transaction shall
- -----------------
not be deemed a Change of Control if each of the following conditions are met:
22.2.1 Financial Covenants. Unless a Distribution Letter of
-------------------
Credit in an amount specified in Section 25.6 is posted in favor of
------------
Landlord concurrently with any such consolidation, merger, sale or
conveyance, the Person formed by or surviving such transaction shall have
(i) a Tangible Net Worth not less than $25,000,000 and (ii) a Fixed Charge
Coverage Ratio of not less than 1.5 to 1.0 for two consecutive Fiscal
Quarters.
22.2.2 Operating Standards. The surviving entity shall operate
-------------------
the Leased Property at a standard at least as high as that operated by
Tenant prior to the Change of Control.
22.2.3 Commitment to the Golf Industry. Immediately after such
-------------------------------
consolidation, merger, sale or conveyance, the surviving entity and its
Affiliates shall have not less than 12 total golf courses (or less if
acceptable to Landlord) under management or lease, which number shall be
maintained for not less than three years after the Change of Control.
22.3 Subleases.
---------
22.3.1 Permitted Subleases. Landlord acknowledges that Tenant
-------------------
intends to sublease the Leased Premises to its wholly-owned subsidiary,
SWC. In addition, Tenant or SWC shall, without Landlord's prior approval,
be permitted to sublease portions of the Leased Property to concessionaires
or licensees to:
(a) operate golf professionals' shops;
(b) operate golf driving ranges;
(c) provide golf lessons;
44
<PAGE>
(d) operate restaurants;
(e) operate bars; and
(f) operate any other portions (but not the entirety) of the Leased
Property customarily associated with or incidental to the operation of
the Golf Course.
22.3.2 Terms of Sublease. Each sublease of any of the Leased
-----------------
Property shall be subject and subordinate to the provisions of this Lease.
No sublease made as permitted by Section 22.3.1 shall affect or reduce any
--------------
of the obligations of Tenant hereunder, and all such obligations shall
continue in full force and effect as if no sublease had been made. No
sublease shall impose any additional obligations on Landlord under this
Lease.
22.3.3 Copies. Tenant shall, within 10 days after the execution
------
and delivery of any sublease permitted by Section 22.3.1, deliver a
--------------
duplicate original thereof to Landlord.
22.3.4 Assignment of Rights in Subleases. As security for
---------------------------------
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant in
and to all subleases now in existence or hereinafter entered into for any
or all of the Leased Property, and all extensions, modifications and
renewals thereof and all rents, issues and profits therefrom. Landlord
hereby grants to Tenant a license to collect and enjoy all rents and other
sums of money payable under any sublease of any of the Leased Property;
provided, however, that Landlord shall have the absolute right at any time
after the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke said license and to collect such rents
and sums of money and to retain the same. Tenant shall not (i) after the
occurrence and continuance of an Event of Default, consent to, cause or
allow any material modification or alteration of any of the terms,
conditions or covenants of any of the subleases or the termination thereof,
without the prior written approval of Landlord nor (ii) accept any rents
(other than customary security deposits) more than 90 days in advance of
the accrual thereof nor permit anything to be done, the doing of which, nor
omit or refrain from doing anything, the omission of which, will or could
be a breach of or default in the terms of any of the subleases.
22.3.5 Licenses, Etc. For purposes of Sections 22.1, 22.3 and
------------- -----------------------
22.5, subleases shall be deemed to include any licenses, concession
----
arrangements, management contracts or other arrangements relating to the
possession or use of all or any part of the Leased Property.
45
<PAGE>
22.4 Assignment. No assignment shall in any way impair the
----------
continuing primary liability of Tenant hereunder, and no consent to any
assignment in a particular instance shall be deemed to be a waiver of the
prohibition set forth in Article 22. Any assignment shall be solely of Tenant's
----------
entire interest in this Lease. Any assignment or other transfer of all or any
portion of Tenant's interest in the Lease in contravention of Article 22 shall
----------
be voidable at Landlord's option.
22.5 REIT Limitations. Anything contained in this Lease to the
----------------
contrary notwithstanding, Tenant shall not (i) sublet or assign the Leased
Property or this Lease on any basis such that the rental or other amounts to be
paid by the sublessee or assignee thereunder would be based, in whole or in
part, on the income or profits derived by the business activities of the
sublessee or assignee; (ii) sublet or assign the Leased Property or this Lease
to any person that Landlord owns, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code), a 10%
or greater interest in; or (iii) sublet or assign the Leased Property or this
Lease in any other manner or otherwise derive any income which could cause any
portion of the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other income received by
Landlord to fail to qualify as income described in Section 856(c)(2) of the
Code. The requirements of this Section 22.5 shall likewise apply to any further
------------
subleasing by any subtenant.
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS
--------------------------------------------------------
23.1 Officer's Certificates. At any time, and from time to time upon
----------------------
Tenant's receipt of not less than 10 days' prior written request by Landlord,
Tenant will furnish to Landlord an Officer's Certificate certifying that:
(a) this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth
the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not to the best knowledge of Tenant, Landlord is in
default in the performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of
which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the signatory, threatened, against
Tenant before or by any court or administrative agency which, if
adversely decided, would materially and adversely affect the financial
condition and operations of Tenant; and
46
<PAGE>
(e) responding to such other questions or statements of fact as
Landlord shall reasonably request.
Tenant's failure to deliver such statement within such time shall
constitute an acknowledgment by Tenant that this Lease is unmodified and in full
force and effect except as may be represented to the contrary by Landlord,
Landlord is not in default in the performance of any covenant, agreement or
condition contained in this Lease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section 23.1 may be relied upon by Landlord.
------------
23.2 Annual Financial Statements of Tenant. Tenant will furnish to
-------------------------------------
Landlord, within 90 days after the end of Tenant's fiscal year, a copy of its
audited consolidated balance sheet as of the end of such fiscal year, and
related audited consolidated statement of income and statement of cash flows for
such fiscal year (each with footnotes), prepared by a nationally recognized
accounting firm in accordance with generally accepted accounting principles
applied on a basis consistently maintained throughout the period involved. All
annual financial statements shall be accompanied by a certificate of an officer
and the chief accounting officer of Tenant delivered with such statements,
stating (i) that the officers know of no Event of Default, or event which, upon
notice or the passage of time or both, would become an Event of Default, which
has occurred and is continuing under this Lease or, if any such event has
occurred or is continuing, specifying the nature and period of existence thereof
and what action Tenant has taken or proposes to take with respect thereto, and
(ii) except as otherwise specified in such certificate, that to the best of such
officers' knowledge, Tenant has fulfilled all of its obligations under this
Lease which are required to be fulfilled on a prior date to such certificate.
23.3 Quarterly Financial Statements of Tenant. Tenant will furnish to
----------------------------------------
Landlord, within 45 days after the end of each of the first three fiscal
quarters of Tenant's fiscal year, a copy of its unaudited consolidated balance
sheet as of the end of such fiscal quarter, and related unaudited consolidated
statement of income and statement of cash flows for such fiscal quarter (each
with footnotes), prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the period
involved and certified as true and correct by the Chief Financial Officer of
Tenant. All quarterly financial statements shall be accompanied by a
certificate of an officer and the chief accounting officer of Tenant, delivered
with such statements, stating (i) that the officers know of no Event of Default,
or event which, upon notice or the passage of time or both, would become an
Event of Default, which as occurred and is continuing under the Lease or, if any
such event has occurred or is continuing, specifying the nature and period of
existence thereof and what action Tenant has taken or proposes to take with
respect thereto, (ii) except as otherwise specified in such certificate, that to
the best of such officers' knowledge, Tenant has fulfilled all of its
obligations under the Lease which are required to be
47
<PAGE>
fulfilled on a prior date to such certificate, and (iii) Tenant's Tangible Net
Worth and supporting calculations.
23.4 Monthly Course Statements. Tenant will furnish to Landlord,
-------------------------
within 30 days after the end of each month during each fiscal year, a copy of
its operating statements for the Property and each of the Other Leased
Properties which shall include, without limitation, profit and loss statements,
including departmental revenue and expense analysis including rounds data and
membership data prepared on a modified accrual basis in accordance with
generally accepted accounting principles, except for depreciation, taxes,
capitalized interest and corporate and certain expense allocations, applied on a
basis consistently maintained throughout the period involved. Significant
departures from modified accrual basis will be identified in balance sheet
analysis (i.e., accounts receivable, property, plant and equipment, capital
spending and capitalized interest).
23.5 Annual Course Statements. Tenant will furnish to Landlord within
------------------------
90 days after the end of its fiscal year a copy of its operating statements for
the Property and each of the Other Leased Properties which shall include,
without limitation, profit and loss statements, including departmental revenue
and expense analysis including rounds data and membership data prepared on a
modified accrual basis in accordance with generally accepted accounting
principles, except for depreciation, taxes, capitalized interest and corporate
and certain expense allocations, applied on a basis consistently maintained
throughout the period involved. Significant departures from modified accrual
basis will be identified in balance sheet analysis (i.e., accounts receivable,
property, plant and equipment, capital spending and capitalized interest).
23.6 Budgets. Tenant shall furnish to Landlord copies of annual
-------
budgets, including monthly breakdowns for the Property and each of the Other
Leased Properties no later than 30 days prior to the applicable fiscal year of
Tenant. Such annual budgets shall include, without limitation, repairs, capital
budgets and marketing plans for each of the Properties. If prepared by Tenant,
Tenant shall also promptly deliver to Landlord any quarterly and annual
reforecasts of the budgets.
23.7 Environmental Statements. Immediately upon Tenant's learning, or
------------------------
having reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law is located
in, on or under the Leased Property or any adjacent property, Tenant shall
notify Landlord in writing of (a) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed or threatened; (b) any
claim made or threatened by any Person against Tenant or the Leased Property
relating to damage, contribution, cost recovery, compensation, loss, or injury
resulting from or claimed to result from any Hazardous Material; and (c) any
reports made to any federal, state or local environmental agency arising out of
or in connection with any Hazardous Material in or removed
48
<PAGE>
from the Leased Property, including any complaints, notices, warnings or
asserted violations in connection therewith.
23.8 Confidential Information.
------------------------
(a) Except as otherwise provided in this Section 23.8, Landlord
------------
agrees that all financial statements, budgets, reports, and business plans
(collectively, the "Information") shall be kept confidential and shall not be
-----------
disclosed by Landlord to any other party without Tenant's prior written consent,
which consent may be withheld at Tenant's sole discretion. Landlord agrees that
(i) the Information shall be disclosed only to the officers, employees,
authorized representatives of Landlord, prospective purchasers of the Leased
Property and their authorized representatives who need access to the Information
(all such persons hereinafter referred to as the "Authorized Representatives"),
--------------------------
(ii) all of the Authorized Representatives shall be informed of the confidential
nature of the Information and shall attempt to maintain the confidentiality of
the Information as provided herein, and (iii) Landlord shall exercise the same
degree of care to preserve the confidentiality of Information as Landlord and a
reasonable prudent person would to protect its own confidential information.
(b) If Landlord receives a request to disclose any Information under
subpoena or order, it shall (i) promptly notify Tenant thereof, (ii) consult
with Tenant on the advisability of taking steps to resist or narrow such
request, and (iii) if disclosure is required or deemed advisable, cooperate with
Tenant in any attempt that Tenant may make to obtain an order or other reliable
assurance that confidential treatment will be accorded to designated portions of
the Information. Landlord shall be entitled to reimbursement for its expenses,
including the fees and expenses of its counsel, in connection with action taken
pursuant to this Section 23.8(b). If Landlord is required (by oral questions,
---------------
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar legal process) to disclose any Information
supplied to it in the course of its dealing with Tenant or its representatives,
Landlord shall provide Tenant with prompt notice of such request(s) so Tenant
may seek an appropriate protective order and/or waive Landlord's compliance with
the provisions of this Lease. If in the absence of a protective order or the
receipt of a waiver hereunder, Landlord is nonetheless, in the opinion of
Landlord's counsel, compelled to disclose any Information to any tribunal or
else stand liable for contempt or to suffer other censure or penalty, Landlord
may disclose such Information pursuant to such legal process without liability
hereunder.
(c) This Section 23.8 shall not apply to: (i) disclosures which legal
------------
counsel for Landlord advises are reasonably necessary to meet reporting or
disclosure requirements to which Landlord or its affiliates are subject,
including reporting obligations under the Securities Exchange Act of 1934, as
amended, (ii) Information which is publicly available or which is obtained by
Landlord from third party sources other any person who Landlord
49
<PAGE>
would have reasonable basis to believe is bound by a confidentiality agreement
with Tenant and (iii) disclosures in connection with an exercise by Landlord of
remedies hereunder.
23.9 Fiscal Year. The deadlines for delivery of information set
-----------
forth in this Article 23 that are based upon the end of fiscal years or fiscal
----------
quarters have determined been based upon the fact that Tenant's fiscal year ends
on September 30. If Tenant moves the end of its fiscal year to be later in the
year, Landlord may require the shortening of such deadlines by up to 30 days.
ARTICLE 24 - LANDLORD MORTGAGES
-------------------------------
24.1 Landlord May Grant Liens. Subject to Section 24.2, without the
------------------------ ------------
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause to exist any lien, encumbrance or title retention
agreement ("Landlord's Encumbrance") upon the Leased Property, or any portion
----------------------
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing. This Lease is and at all times shall be subject and
subordinate to any ground or underlying leases, mortgages, trust deeds or like
encumbrances, which may now or hereafter affect the Leased Property and to all
renewals, modifications, consolidations, replacements and extensions of any such
lease, mortgage, trust deed or like encumbrance. This clause shall be self-
operative and no further instrument of subordination shall be required by any
ground or underlying lessor or by any mortgagee or beneficiary, affecting any
lease or the Leased Property. In confirmation of such subordination, Tenant
shall execute promptly any certificate that Landlord may request for such
purposes.
24.2 Tenant's Non-Disturbance Rights. So long as Tenant shall pay
-------------------------------
all Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Landlord's Encumbrance
which is created or otherwise comes into existence after the Commencement Date.
Landlord shall obtain from any holder of a Landlord Encumbrance a nondisturbance
agreement in a form reasonably acceptable to such holder and shall deliver such
nondisturbance agreement to Tenant. The nondisturbance agreement shall protect
Tenant's possession and other rights under this Lease absent an Event of Default
by Tenant hereunder. A memorandum of this Lease shall be recorded in the real
property records of Fort Bend County, Texas in a form acceptable to Landlord and
Tenant.
24.3 Breach by Landlord. It shall be a breach of this Lease if
------------------
Landlord shall fail to observe or perform any material term, covenant or
condition of this Lease on its part to be performed or if Landlord shall have
breached any material representation or warranty made by Landlord and such
failure or breach shall continue for a period of 30 days after notice thereof
from Tenant, unless such failure or breach cannot with due diligence be cured
within a period of 30 days, in which case such
50
<PAGE>
failure or breach shall not be deemed to continue if Landlord, within said 30-
day period, proceeds promptly and with due diligence to cure the failure or
breach and diligently completes the curing thereof. The time within which
Landlord shall be obligated to cure any such failure or breach shall also be
subject to extension of time due to the occurrence of any Unavoidable Delay.
Tenant's remedies for a default or breach include any remedies available at law
or equity.
24.4 Facility Mortgage Protection. Tenant agrees that the holder of
----------------------------
any Landlord Encumbrance shall have no duty, liability or obligation to perform
any of the obligations of Landlord under this Lease, but that in the event of
Landlord's default with respect to any such obligation, Tenant will give any
such holder whose name and address have been furnished to Tenant in writing for
such purpose notice of Landlord's default and allow such holder 30 days
following receipt of such notice for the cure of said default before invoking
any remedies Tenant may have by reason thereof.
ARTICLE 25 - FINANCIAL COVENANTS
--------------------------------
25.1 Financial Covenant. If at any time Tenant fails to maintain a
------------------
minimum Tangible Net Worth of at least $20,000,000 (the "Financial Covenant"),
------------------
Tenant shall post and maintain a Letter of Credit in the Letter of Credit Amount
as provided in Section 25.2. Tenant shall provide an Officer's Certificate to
------------
Landlord not later than 30 days after the end of each Fiscal Quarter as to
Tenant's compliance or noncompliance with the Financial Covenant, which
certificate shall include a calculation in reasonable detail of such compliance
or noncompliance. In addition, Tenant shall set forth any Distributions to be
made by Tenant.
25.2 Provision of Letter of Credit. If any certificate delivered
-----------------------------
pursuant to Section 25.1 shall disclose that Tenant is not in compliance with
------------
the Financial Covenant, Tenant shall deliver to Landlord a Letter of Credit
within 30 days after the date of such certificate, but in no event after the end
of the subsequent Fiscal Quarter. Upon delivery of such new Letter of Credit to
Landlord, no breach or default under this Lease shall arise as a result of
Tenant's failure to meet the Financial Covenant. The Letter of Credit shall be
maintained and delivered to Landlord until such date as Tenant shall
subsequently be in compliance with the Financial Covenant for two consecutive
Fiscal Quarters, whereupon Landlord shall surrender the Letter of Credit to
Tenant for cancellation.
25.3 Terms of Letters of Credit. The Letter of Credit or
--------------------------
Distribution Letter of Credit shall:
(i) be an irrevocable standby letter of credit from a bank with a
long-term debt rating from each of Standard & Poor's and Moody's of
investment grade naming Landlord (and/or any Facility Mortgagee if
requested by Landlord) as beneficiary to secure Tenant's obligations
hereunder and Tenant's or
51
<PAGE>
an Affiliate of Tenant's obligations under the Other Property Leases;
(ii) have a stated amount equal to the amount required by this Lease
plus, if the Letter of Credit is intended to satisfy Tenant's obligations
under the Other Property Leases with Landlord, the amounts required under
such other leases;
(iii) have a term of not less than one year;
(iv) provide that it will be honored upon a signed statement by
Landlord that an Event of Default has occurred and that Landlord is
entitled to draw upon the letter of credit under this Lease in the amount
so requested by Landlord, and shall require no signature or statement from
any party other than Landlord;
(v) provide that Landlord had given not less than three Business
Day's notice to Tenant prior to submitting the Letter of Credit to the bank
for presentation; and
(vi) permit multiple draws by providing that following the honor of
any drafts in an amount less than the aggregate stated amount of the Letter
of Credit, the issuing bank shall return the original letter of credit to
Landlord and that Landlord's rights as to the remaining stated amount of
the Letter of Credit will not be extinguished.
25.4 Draws Against Letters of Credit; Application of Proceeds.
--------------------------------------------------------
Landlord may draw against the Letter of Credit or the Distribution Letter of
Credit upon any Event of Default in an amount equal to Landlord's reasonable
estimate of its damages at the time of the draw, with a right to make future
draws if such estimate proves to be inadequate. Landlord may apply any amounts
drawn under such letters of credit to the satisfaction of any obligations owed
to Landlord under this Lease or the Other Property Leases. Any proceeds from
such letters of credit drawn but not so applied shall be held by Landlord as a
security deposit and if not utilized to satisfy obligations owed to Landlord
under the Lease or Other Property Leases shall be released to Tenant six months
after the Event of Default is cured without any reoccurring Event of Default.
25.5 Renewal of Letter of Credit. If the Letter of Credit shall
---------------------------
expire at a time when the Letter of Credit is still required under Section 25.2,
------------
Tenant shall renew the Letter of Credit at least 30 days prior to its
expiration. If Tenant shall fail to renew the Letter of Credit prior to such
time, Landlord may draw against the same and hold the proceeds thereof as a
security deposit until such time as Tenant shall renew the Letter of Credit.
Landlord shall hold such security deposit in a separate account in trust for
Tenant and shall account to Tenant for any interest earned thereon.
52
<PAGE>
25.6 Distributions by Tenant and
Other Credit Impairments
------------------------
25.6.1 Posting of Distribution Letter of Credit. In addition to
----------------------------------------
Tenant's obligation to post the Letter of Credit under Section 25.2, if
------------
during the Term any of the following occurs:
(i) Tenant makes a Distribution and after giving effect to the
Distribution the Tangible Net Worth is less than $15,000,000; or
(ii) a default by Tenant or Cobblestone Holdings in any payment of
principal or interest on any obligations for borrowed money having a
principal balance of $5,000,000 or more in the aggregate (excluding
obligations which are limited in recourse to specific property of
Tenant provided that such property is not a substantial portion of the
assets of Tenant), or in the performance of any other provision
contained in any instrument under which any such obligation is created
or secured (including the breach of any covenant thereunder), if an
effect of such default is that the holder(s) of such obligation cause
such obligation to become due prior to its stated maturity; or
(iii) a final, non-appealable judgment or judgments for the payment
of money in excess of $3,000,000 in the aggregate not fully covered
(excluding deductibles) by insurance shall be rendered against Tenant
or Cobblestone Holdings and the same shall remain undischarged,
unvacated, unbonded, or unstayed for a period of 60 consecutive days;
or
(iv) if Tenant elects to post a Distribution Letter of Credit in
lieu of satisfying the financial covenants set forth in Section
-------
22.2.1.
------
THEN Tenant shall deliver to Landlord a Distribution Letter of Credit in a
stated amount equal to the Distribution LC Amount. Tenant shall deliver to
Landlord the Distribution Letter of Credit as required by clause (i) no
later than 10 Business Days prior to making such Distribution and as
required by clause (ii) or (iii) immediately upon the occurrence thereof.
25.6.2 Cancellation or Reduction of Distribution Letter of
---------------------------------------------------
Credit. The Distribution Letter of Credit shall be:
------
(i) surrendered to the issuing bank for cancellation upon such date
that (a) the Tangible Net Worth for two consecutive Fiscal
Quarters exceeds $20,000,000, (b) no Event of Default shall have
occurred during such Fiscal Quarters and (c) neither of the
events set forth in clauses (ii) or
53
<PAGE>
(iii) of Section 25.6.1 shall have occurred during such Fiscal
--------------
Quarters.
(ii) surrendered to the issuing bank for adjustment to the
Distribution LC Amount which would then be applicable under
Section 25.6.1 upon such date that (a) the Tangible Net Worth
--------------
equals an amount for two consecutive Fiscal Quarters such that a
higher or lower Distribution LC Amount would then be applicable
pursuant to Section 25.6.1; provided however that such
--------------
Distribution LC Amount shall only be adjusted downward if (b) no
Event of Default shall have occurred during such Fiscal Quarters
and (c) neither of the events set forth in clauses (ii) or (iii)
of Section 25.6.1 shall have occurred during such Fiscal
--------------
Quarters.
25.6.3 Renewal of Distribution Letter of Credit. If the
----------------------------------------
Distribution Letter of Credit shall expire at a time when the Distribution
Letter of Credit is still required under Section 25.6, Tenant shall renew
------------
the Distribution Letter of Credit at least 30 days prior to its expiration.
If Tenant shall fail to renew the Distribution Letter of Credit prior to
such time, Landlord may draw against the same and hold the proceeds thereof
as a security deposit until such time as Tenant shall renew the
Distribution Letter of Credit. Landlord shall hold such security deposit
in a separate account in trust for Tenant and shall account to Tenant for
any interest earned thereon.
25.7 Liquidated Damages. The requirement for the delivery of a Letter
------------------
of Credit or Distribution Letter of Credit as required by Tenant under this
Article 25 herein shall not create liquidated damages on behalf of Landlord for
- ----------
a default by Tenant under this Article 25. Tenant shall be liable for
----------
Landlord's actual damages calculated as of the time of the default caused by
Tenant's failure to deliver and maintain the Letter of Credit or Distribution
Letter of Credit as required under this Article 25.
----------
25.8 Letters of Credit Not Additive. Notwithstanding the other
------------------------------
provisions of this Article 25, if Tenant is required by the terms of this Lease
----------
to provide and maintain a Letter of Credit and a Distribution Letter of Credit,
Tenant will only be obligated to provide and maintain a letter of credit in the
stated amount equal to the greater of the two requirements and not the sum of
the two requirements.
ARTICLE 26 - MISCELLANEOUS
--------------------------
26.1 Landlord's Right to Inspect. Upon reasonable prior notice to
----------------------------
Tenant, Tenant shall permit Landlord and its authorized representatives to
inspect the Leased Property during usual business hours subject to any security,
health, safety or confidentiality requirements of Tenant or any governmental
agency or insurance requirement relating to the Leased Property, or imposed by
law or
54
<PAGE>
applicable regulations. Notwithstanding the foregoing, no prior notice to
Tenant shall be required for casual Landlord visits not imposing any
unreasonable burdens upon Tenant. Landlord shall indemnify Tenant for all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against Tenant by reason of Landlord's
inspection pursuant to this Section 26.1.
------------
26.2 No Waiver. No failure by Landlord to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. No failure by Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof shall constitute a waiver of any such breach or
of any such term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
26.3 Remedies Cumulative. To the extent permitted by law, each
-------------------
legal, equitable or contractual right, power and remedy of Landlord or Tenant
now or hereafter provided either in this Lease or by statute or otherwise shall
be cumulative and concurrent and shall be in addition to every other right,
power and remedy. The exercise or beginning of the exercise by Landlord or
Tenant of any one or more of such rights, powers and remedies shall not preclude
the simultaneous or subsequent exercise by Landlord or Tenant of any or all of
such other rights, powers and remedies.
26.4 Acceptance of Surrender. No surrender to Landlord of this Lease
-----------------------
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
26.5 No Merger of Title. There shall be no merger of this Lease or
------------------
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
26.6 Conveyance by Landlord. If Landlord shall convey the Leased
----------------------
Property in accordance with the terms hereof other than as security for a debt,
Landlord shall, upon the written assumption by the transferee of the Leased
Property of all liabilities and obligations of the Lease be released from all
future liabilities and obligations under this Lease arising or accruing from and
after the date of such conveyance or other transfer as to the Leased
55
<PAGE>
Property. All such future liabilities and obligations shall thereupon be
binding upon the new owner.
26.7 Quiet Enjoyment. So long as Tenant shall pay all Rent as the
---------------
same becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Tenant shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term hereof, free of any claim
or other action by Landlord or anyone claiming by, through or under Landlord,
but subject to all liens and encumbrances contained in the Title Policy.
26.8 Notices. All notices, demands, requests, consents, approvals
-------
and other communications hereunder shall be in writing and delivered or mailed
(by registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties, as provided in the Basic Lease Provisions.
26.9 Survival of Claims. Anything contained in this Lease to the
------------------
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination of this Lease shall survive
such termination provided that such liabilities shall only apply with respect to
claims described in a notice delivered by the indemnified party to the
indemnifying party within four (4) years after the expiration of the Term or
earlier termination of this Lease; provided, however, that the limitation set
forth in this Section 26.9 shall not apply with respect to claims made pursuant
------------
to Article 8 of this Lease.
---------
26.10 Invalidity of Terms or Provisions. If any term or provision of
---------------------------------
this Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
26.11 Prohibition Against Usury. If any late charges provided for in
-------------------------
any provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
26.12 Amendments to Lease. Neither this Lease nor any provision
-------------------
hereof may be changed, waived, discharged or terminated except by an instrument
in writing and in recordable form signed by Landlord and Tenant.
26.13 Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall be binding upon and inure to the benefit of the parties hereto. All
permitted assignees or sublessees shall be subject to the terms and provisions
of this Lease.
26.14 Titles. The headings in this Lease are for convenience of
------
reference only and shall not limit or otherwise affect the meaning hereof.
56
<PAGE>
26.15 Governing Law. This Lease shall be governed by and construed
-------------
in accordance with the internal laws of the State of California (but not
including its conflict of laws rules); provided that if Seller (or its designee)
elects to lease the Club pursuant to Section 13.23 of the Purchase Agreement,
this Lease shall be governed by Texas law and the provisions of Section 26.22
-------------
shall be null and void.
26.16 Memorandum of Lease. Landlord and Tenant shall, promptly upon
-------------------
the request of either, enter into a short form memorandum of this Lease, in form
and substance satisfactory to Landlord and suitable for recording under the
State, in which reference to this Lease, and all options contained herein, shall
be made. Tenant shall pay all costs and expenses of recording such Memorandum
of Lease.
26.17 Attorneys' Fees. In the event of any dispute between the
---------------
parties hereto involving the covenants or conditions contained in this Lease or
arising out of the subject matter of this Lease, the prevailing party shall be
entitled to recover against the other party reasonable attorneys' fees and court
costs.
26.18 Non-Recourse as to Landlord. Anything contained herein to the
---------------------------
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against the Leased Property and
not against any other assets, properties or funds of (a) Landlord, (b) any
director, officer, general partner, limited partner, employee or agent of
Landlord, or with respect to any general partner of Landlord, any of their
respective general partners or stockholders (or any legal representative, heir,
estate, successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or their
respective general partners or any predecessor or successor partnership or
corporation or their stockholders, officers, directors, employees or agents (or
other entity), or (d) any other Person affiliated with any of the foregoing, or
any director, officer, employee or agent of any thereof.
26.19 No Relationship. Landlord shall in no event be construed for
---------------
any purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to the
Leased Property or any of the Other Leased Properties or otherwise in the
conduct of their respective businesses.
26.20 Signs; Reletting. During the last two (2) years of the Term,
----------------
Landlord shall have the right (i) to advertise the availability of the Leased
Property for sale or reletting and to erect upon the Leased Property signs
indicating such availability (provided that such signs will be located in areas
mutually acceptable to Landlord and Tenant) and (ii) to show the Leased Property
to prospective purchasers or tenants or their agents at such reasonable times as
Landlord may elect.
57
<PAGE>
26.21 Course Identity. Tenant may identify the Leased Property as a
---------------
golf course managed and operated by Tenant and may use the name "Cobblestone
-----------
Golf Group" or the initials "CGG" or the Tenant's logo alone or in conjunction
- ---------- ---
with other words or names or designs owned by Tenant or any of its Affiliates.
Landlord recognizes that the name "Cobblestone Golf Group" and the initials
----------------------
"CGG," together with any other names, logos or designs owned by Tenant or any of
---
its Affiliates and used in the management and operation of the Leased Property
(including without limitation any such names, logos or designs used in
connection with the restaurant, banquet rooms and meeting rooms in and about the
Leased Property), together with appurtenant goodwill, are the exclusive property
of Tenant or its Affiliates (collectively, the "Tenant-Owned Names").
------------------
Accordingly, Landlord agrees that no right or remedy of Landlord for any default
on the part of Tenant under this Lease shall, nor shall any provision of this
Lease, confer upon Landlord or its successors or assigns the right to use
Tenant-Owned names in the operation of the Leased Property or otherwise. In the
event of any breach of this covenant by Landlord, Tenant, in addition to any
remedies available to it under this Lease or at law or in equity, shall have the
right to injunctive relief.
26.22 Judicial Reference. Landlord and Tenant agree to waive and
------------------
give up the right to a jury trial and to submit all disputes, controversies,
differences, claims or demands, whether of fact or of law or both, relating to
or arising out of this contract, to be resolved at the request of any party, by
a trial on Order of Reference conducted by a retired judge or justice from the
panel of Judicial Arbitration & Mediation Services, Inc. (JAMS) appointed
pursuant to the provisions of CCP (S) 638(1) or any amendment, addition or
successor section thereto to hear the case and report a statement of decision
thereon. The parties intend this general reference agreement to be specifically
enforceable in accordance with said section. The following procedures shall be
followed in any such reference:
26.22.1 Petition to Compel Reference. Any party seeking to enforce
----------------------------
the provision for reference contained in this agreement shall file a petition to
enforce the reference agreement in any court of competent jurisdiction, or if an
action has already been commenced respecting any dispute covered by this
reference agreement, a motion for reference pursuant to the provisions of CCP
(S) 638.
26.22.2 Selection of Referee. The parties will attempt to agree on a
--------------------
retired judge from the JAMS panel. If they are unable to agree, JAMS will
provide a list of three available judges and each party may strike one name from
the list. The remaining judge will serve as the referee (unless he or she is
disqualified after appropriate objection pursuant to CCP (S)(S) 641 and 642).
If the parties strike the same judge, leaving two remaining judges, the parties
will flip a coin. The winner of such coin flip shall strike one additional
judge, leaving one remaining judge who will serve as the referee (unless he or
she is disqualified after appropriate objection pursuant to CCP (S)(S) 641 and
642). If any
58
<PAGE>
referee is disqualified under CCP (S)(S) 641 and 642, the foregoing process
shall be repeated to select a new referee.
26.22.3 Prehearing Conference. The referee shall schedule a
---------------------
prehearing conference to reach agreement on procedural matters, arrange for the
exchange of information, obtain stipulations, and attempt to narrow the issues.
26.22.4 Discovery. The parties will submit a proposed discovery
---------
schedule to the referee at the prehearing conference. All discovery methods
(and sanctions and other remedies for noncompliance with same) available to
litigants under the Civil Discovery Act (CCP (S) 2016, et seq.) and means of
production permitted under CCP (S) 1985, et seq. shall be available to parties
in such reference. Such discovery may include exchanges to expert trial witness
information pursuant to CCP (S) 2034. Absent other agreement by the parties,
the parties shall be afforded not less than two months and not more than four
months to complete discovery.
26.22.5 The Hearing.
-----------
(a) Unless otherwise agreed by the parties, the hearing shall
commence within six months of the court's order for reference.
(b) The parties shall file briefs with the referee at least
three days before the hearing, specifying the facts each intends
to prove and analyzing the applicable law.
(c) The parties shall have the right to representation by legal
counsel throughout the reference proceedings.
(d) California Evidence Code rules of evidence and procedure
relating to the conduct of the hearing, examination of witnesses,
and presentation of evidence shall apply.
(e) Any party desiring a stenographic record may secure a court
reporter to attend the proceedings. The requesting party must
notify the other parties of the arrangements in advance of the
hearing and must pay for the cost incurred.
(f) Any party may request oral evidence to be given under oath.
26.22.6 The Decision.
------------
(a) The referee shall issue a written statement of decision
which shall be
59
<PAGE>
reported to the court in accordance with CCP (S) 643 and mailed
promptly to the parties.
(b) Judgment may be entered on the decision of the referee in
accordance with CCP (S) 644, and the decision may be excepted to,
challenged and appealed according to law.
26.22.7 Fees and Expenses. The referee must award costs, including
-----------------
reasonable attorneys fees, to the prevailing party, if any, and may order the
referee's fees to be paid or shared by the parties in such manner as the referee
deems just.
26.22.8 Extraordinary and Interim Relief. Notwithstanding the
--------------------------------
foregoing, in the event that extraordinary or interim relief is necessary and no
referee has been appointed, Landlord or Tenant may resort to any court of
competent jurisdiction for purposes of seeking such extraordinary or interim
relief including an injunction. In the event it become necessary to file a
legal action or proceeding to enforce this agreement, the prevailing party in
such action or proceeding shall be entitled to recover all costs and expenses
incurred in connection with such action or proceeding, including reasonable
attorneys fees and court costs.
60
<PAGE>
EXHIBIT A
---------
Defined Terms; Interpretation
-----------------------------
Defined Terms. For all purposes of this Lease, except as otherwise expressly
- -------------
provided or unless the context otherwise requires, the terms defined below have
the meanings assigned to them below.
Additional Charges: As defined in Section 3.4.
------------------ -----------
Additional Rent: As defined in Basic Lease Provisions.
---------------
Affiliate: As applied to any Person, means any other Person directly
---------
or indirectly controlling, controlled by, or under common control with, that
Person.
Annual Base Rent: As defined in the Basic Lease Provisions.
----------------
Applicable Percentage: As defined in the Basic Lease Provisions.
---------------------
Applicable Rate: As defined in Section 7.3.3.
--------------- -------------
Award: Means all compensation, sums or anything of value awarded,
-----
paid or received on a total or partial Condemnation.
Base Rent: Means one-twelfth of the Annual Base Rent.
---------
Basic Lease Provisions: The provisions so labelled starting on page
----------------------
(i) of this Lease.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
------------
which is not a day on which national banks in the City of New York, New York,
are authorized, or obligated, by law or executive order, to close.
Capital Improvement Account: Means a deposit account in the name of
---------------------------
Tenant maintained in California with a major bank selected by Tenant.
Change of Control: As defined in Section 22.2.
----------------- ------------
Cobblestone Holdings: Means Cobblestone Holdings, Inc., a Delaware
--------------------
corporation and the parent of Tenant.
Code: The Internal Revenue Code of 1986, as
----
Commencement Date: As defined in the Basic Lease Provisions.
-----------------
Condemnation: Means (a) the exercise of any governmental power,
------------
whether by legal proceedings or otherwise, by a Condemnor, and (b) a voluntary
sale or transfer by Landlord to any Condemnor,
A-1
<PAGE>
either under threat of condemnation or while legal proceedings for condemnation
are pending.
Condemnation Threshold: Means $13,000,000.
----------------------
Condemnor: Means any public or quasi-public authority, or private
---------
corporation or individual, having the power of condemnation.
Confirmed Extended Term: As defined in Section 7.3.
----------------------- ------- ---
Consumer Price Index: Means the Consumer Price Index for all Urban
--------------------
Consumers for U.S. City Average.
Control: Means (including, with correlative meanings, the terms
-------
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
Course Cash Flow: Means for any trailing twelve-month period, Total
----------------
Revenue minus the sum of: (a) the cost of goods sold, (b) all operating
expenses (including an administrative fee equal to 4% of Total Revenue, all
lease costs and property taxes but excluding depreciation and amortization), (c)
an amount for capital improvement reserves equal to 2% of Total Revenue, and (d)
a management fee/lease payment to an operator of the Facility equal to the
following amounts for the respective Fiscal Year:
<TABLE>
<S> <C>
First Fiscal Year: $250,000
Second Fiscal Year: $300,000
Third Fiscal Year: $350,000
Fourth Fiscal Year: $375,000
Fifth Fiscal Year and each
Fiscal Year thereafter: $400,000
</TABLE>
Course Revenue: Means all revenues received (whether by Tenant or any
--------------
subtenants, concessionaires or licensees) from or by reason of the operation of
the Facility, or any other use of the Leased Property, including revenues from
memberships (to the extent the membership was sold on or after the Commencement
Date), initiation fees (to the extent the membership was sold on or after the
Commencement Date), dues, greens fees, fees to reserve a tee time, golf-related
guest fees or golf cart rentals, golf-related surcharges, fees or other charges
paid to Tenant by sponsors of golf tournaments at the Leased Property (unless
the terms under which Tenant is paid by such sponsor do not comply with Section
-------
22.5, in which event the gross revenues received by such sponsor for the
- ----
tournament shall be included in Course Revenue) and proceeds of any business
interruption or similar insurance actually received by Tenant; provided,
---------
however, that Course Revenue shall not include:
- -------
A-2
<PAGE>
(a) Other Revenue;
(b) Cash refunds or credits allowed on returns by customers;
(c) The amount of any city, county, state or federal sales or
excise tax on sales, which is both added to the selling price and
paid to the taxing authority by Tenant; and the amount of any
city, county, state, or federal admission tax or use tax, which
is paid to the relevant taxing authority by Tenant;
(d) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for goods or services and returned
to Tenant from a customer's bank as being uncollectible, but only
after Tenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit
account incurred by Tenant for the sale of merchandise or
services; provided, however, that the credit was extended to the
-----------------
customer by Tenant, and that reasonable efforts to collect said
account have been made;
(f) The actual uncollectible amount of any sale of merchandise
or services for which Tenant accepted a credit card; provided,
---------
however, that Tenant has made reasonable efforts to collect the
-------
debt after being notified by the issuing bank of the invalidity
or uncollectibility of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
(h) Revenue or proceeds from sales or trade-ins of machinery,
vehicles, trade fixtures or personal property used in connection
with Tenant's operation of the Leased Property;
(i) The value of any merchandise, supplies or equipment
exchanged or transferred from or to other locations or businesses
of Tenant where such exchange or transfer is not made for the
purpose of avoiding a sale which would otherwise be made from or
at the Leased Property;
(j) Revenue, if any, from receipts in the form of refunds from
or the value of merchandise, supplies or equipment returned to
shippers, suppliers or manufacturers;
A-3
<PAGE>
(k) Revenue, if any, from the amount of any cash or quantity
discounts received from sellers, suppliers or manufacturers;
(l) The amount of any gratuities paid or given by customers to
or for employees of Tenant;
(m) Receipts from the sales of uniforms or clothing required to
be worn by employees;
(n) Revenues from charging employees for meals served or
provided to employees of Tenant;
(o) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(p) Revenue received from any subtenant, concessionaire or
licensee, inasmuch as the gross revenue received by such
subtenant, concessionaire or licensee is otherwise included in
the definition of Course Revenue or Other Revenue;
(q) Gross revenue received by any sponsor of a golf tournament
at the Leased Property, provided that the terms under which
Tenant is paid surcharges, fees or other charges by such sponsor
comply with Section 22.5;
------------
(r) Receipts from the sales of supplies or inventory by Tenant
to subtenants, concessionaires, or licensees provided that such
sales are at Tenant's cost of such supplies or inventories with
no mark-up or premium; and
(s) Revenue received by any golf professional who is an employee
at the Facility for golf instruction services at the Facility
(excluding any golf school or golf seminar activities) provided
that Tenant receives no fee, mark-up or premium for such
services.
For purposes of this definition of Course Revenue, all references to
Tenant in clauses (a) through (r) above shall also include any subtenants,
concessionaires and licensees.
A-4
<PAGE>
Course Value: Means Course Cash Flow multiplied by the following
------------
multiples depending on the respective Fiscal Year:
First Fiscal Year: 10x
Second Fiscal Year: 9.35x
Third Fiscal Year: 8.58x
Fourth Fiscal Year: 7.87x
Fifth Fiscal Year and
each Fiscal Year thereafter: 7.41x
Date of Taking: Means the date the Condemnor has the right to
--------------
possession of the property being condemned.
Deposit Account: As defined in Section 7.3.3.
--------------- -------------
Deposit Amount: As defined in Section 7.3.3.
-------------- -------------
Deposit Rent: As defined in Section 7.3.3.
------------ -------------
Distribution: Means any dividend, distribution, stock repurchase,
------------
recapitalization, affiliate loan or other similar transaction the effect of
which is to reduce the Tangible Net Worth.
Distribution Letter of Credit: Means a letter of credit which
-----------------------------
satisfies the requirements of Section 25.6.
------------
Distribution LC Amount: Means (i) in the case of clauses (i) and (iv)
----------------------
of Section 25.6.1, the amount, if any, by which the Course Value is less than
--------------
$13,000,000, but in any event (a) not less than six months of Base Rent, (b) not
greater than $1,310,000 as Escalated if the Tangible Net Worth is in excess of
$10,000,000, and (c) not greater than $2,000,000 as Escalated if the Tangible
Net Worth is less than $10,000,000; and (ii) in the case of clauses (ii) and
(iii) of Section 25.6.1 the amount, if any, by which the Course Value is less
--------------
than $13,000,000, but in any event (a) not less than six months of Base Rent and
(b) not greater than $2,000,000 as Escalated.
Environmental Law: Means all applicable statutes, regulations, rules,
-----------------
ordinances, codes, licenses, permits, orders, demands, approvals, authorizations
and similar items of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and regulatory
decrees, judgments and orders relating to the protection of human health or the
environment as in effect on the Commencement Date or as thereafter amended,
including but not limited to those pertaining to reporting, licensing,
permitting, investigation, removal and remediation of emissions, discharges,
releases or threatened releases of "Hazardous Materials," substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes
whether solid, liquid or gaseous in nature, into the air, surface water, ground
water or land, or relating to the manufacture, processing, distribution, use,
treatment, storage,
A-5
<PAGE>
disposal, transport or handling of substances, pollutants, contaminants or
hazardous or toxic substances, materials, or wastes, whether solid, liquid or
gaseous in nature, including: (x) the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. (S)(S) 9601 et seq.), the Resource
------
Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.), the Clean Air Act
------
(42 U.S.C. (S)(S) 7401 et seq.), the Federal Water Pollution Control Act (33
------
U.S.C. (S) 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. (S)(S) 300f et
------ --
seq.), the Toxic Substances Control Act (15 U.S.C. (S)(S) 2601 et seq.), the
- --- ------
Endangered Species Act (16 U.S.C. (S)(S) 1531 et seq.), the Emergency Planning
------
and Community Right-to-Know Act of 1986 (42 U.S.C: (S)(S) 11001 et seq.), and
------
(y) analogous state and local provisions.
Escalated: means, as to any dollar amount and any date of
---------
determination, such amount as increased annually by the annual increase in the
Consumer Price Index from the month in which the Commencement Date occurs to the
month in which the date of determination occurs.
Event of Default: As defined in Section 16.1.
---------------- ------------
Existing Instruments: means: the Special Warranty Deed (as defined in
--------------------
the Purchase Agreement), CC&R's (as defined in Section 14 of the Basic Lease
----------
Provisions), the Mutual Easement Agreement (to be executed by Seller and
Landlord concurrently with the Commencement Date), and all other easements and
matters of record referenced in Schedule B to the Title Policy.
Extended Terms: As defined in the Basic Lease Provisions.
--------------
Facility: As defined in the Basic Lease Provisions.
--------
Facility Mortgage: As defined in Section 13.1.
----------------- ------------
Facility Mortgagee: Means the holder or beneficiary of a Facility
------------------
Mortgage, if any, and only to the extent Landlord gives Tenant notice of the
identity and address of the Person.
Financial Covenant: As defined in Section 25.1.
------------------ ------------
Fiscal Quarter: The three-month periods (or applicable portions
--------------
thereof) in any Fiscal Year from January 1 through March 31, April 1 through
June 30, July 1 through September 30 and October 1 through December 31.
Fiscal Year: As defined in the Basic Lease Provisions.
-----------
Fixed Charge Coverage Ratio: Means, if applicable, for any period,
---------------------------
the ratio of (A) the sum of, without duplication (i) consolidated net income of
Tenant excluding any gains or losses in respect of dispositions plus (ii)
provision for taxes plus (iii) consolidated interest expense (including non-cash
interest payments or accruals and the interest component, if any, of lease
A-6
<PAGE>
obligations of Tenant and its subsidiaries) plus (iv) all lease and rent
obligations (including percentage rent obligations) of Tenant and its
subsidiaries plus (v) other non-cash charges deducted from consolidated revenues
in determining net income for such period including depreciation and
amortization (including amortization of intangibles), over (B) the sum of (i)
consolidated interest expenses of Tenant and its subsidiaries for such period
plus (ii) all lease and rent obligations (including percentage rent obligations)
of Tenant and its subsidiaries for such period.
Fixtures: Means all permanently affixed equipment, machinery,
--------
fixtures, and other items of real and/or personal property, including all
components thereof, now and hereafter located in, on or used in connection with
and permanently affixed to or incorporated into the Leased Improvements,
including all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which, to the
greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all items included
within the category of Tenant's Personal Property and any Tenant Improvements.
Full Replacement Cost: Means the actual replacement cost thereof from
---------------------
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
Hazardous Material: Means any chemical substance:
------------------
(i) the presence of which requires investigation or
remediation under any federal, state or local statute,
regulation, ordinance, order, action or policy, administrative
request or civil complaint under any of the foregoing or under
common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of the
Commencement Date, or as thereafter amended, including the
Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S)(S) 9601 et seq.) and/or the Resource
------
Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.);
------
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and as of the Commencement Date, or as thereafter
amended, is regulated by any governmental authority, agency,
department, commission, board, or instrumentality
A-7
<PAGE>
of the United States, or any state or any political subdivision
thereof having or asserting jurisdiction over the Leased
Property;
(iv) the presence of which on any of the Leased Property causes
a nuisance upon such Leased Property or to adjacent properties or
poses a hazard to the health or safety of persons on or about any
of the Leased Property;
(v) which, except as contained in building materials, contains
gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenyls (PCBs) or friable asbestos or friable
asbestos-containing materials or urea formaldehyde foam
insulation; or
(vi) radon gas.
Impartial Appraiser: As defined in Section 13.2.
------------------- ------------
Impositions: Means collectively:
-----------
(a) all taxes (including all real and personal property, ad
valorem, sales and use, single business, gross receipts,
transaction privilege, rent or similar taxes);
(b) assessments and levies (including all assessments for public
improvements or benefits, whether or not commenced or completed
prior to the date hereof and whether or not to be completed
within the Term);
(c) excises;
(d) fees (including license, permit, inspection, authorization
and similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the Leased Property
and/or the Rent (including all interest and penalties thereon due to any failure
in payment by Tenant), which at any time during or in respect of the Term hereof
may be assessed or imposed on or in respect of or be a lien upon (i) Landlord or
Landlord's interest in the Leased Property; (ii) the Leased Property or any part
thereof or any rent therefrom or any estate, right, title or interest therein;
or (iii) any operation, use or possession of, or sales from or activity
conducted on or in connection with the Leased Property or the leasing or use of
the Leased Property or any part thereof; provided, however, that Impositions
-----------------
shall not include:
A-8
<PAGE>
(aa) any tax based on net income (whether denominated as an
income, franchise, capital stock or other tax) imposed on
Landlord or any other Person other than Tenant;
(bb) any transfer, or net revenue tax of Landlord or any other
Person other than Tenant;
(cc) any tax imposed solely with respect to the sale, exchange
or other disposition by Landlord of any Leased Property or the
proceeds thereof; or
(dd) any tax imposed with respect to any principal or interest
on any indebtedness on the Leased Property.
Impound Charges: As defined in Section 16.10.
--------------- -------------
Impound Payment: As defined in Section 16.10.
--------------- -------------
Initial Base Rent: As defined in the Basic Lease Provisions.
-----------------
Insurance Requirements: All terms of any insurance policy required by
----------------------
this Lease (including any requirements set forth in the Basic Lease Provisions)
and all requirements of the issuer of any such policy.
Land: As defined in Article 1.
---- ---------
Landlord: As defined in the preamble.
--------
Landlord's Encumbrance: As defined in Section 24.1.
---------------------- ------------
Landlord's Personal Property: As defined in Article 1.
---------------------------- ---------
Lease: As defined in the preamble.
-----
Leased Improvements: As defined in Article 1.
------------------- ---------
Leased Property: As defined in Article 1.
--------------- ---------
Legal Requirements: All federal, state, county, municipal and other
------------------
governmental statutes, laws (including the Americans with Disabilities Act and
any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any
A-9
<PAGE>
instruments, either of record or known to Tenant (other than encumbrances
created by Landlord without the consent of Tenant), at any time in force
affecting the Leased Property; or (iii) require the cleanup or other treatment
of any Hazardous Material.
Letter of Credit: Means a letter of credit which satisfies the
----------------
requirements of Sections 25.2 and 25.3.
----------------------
Letter of Credit Amount: Means, for any Fiscal Year, an amount equal
-----------------------
to six months of Base Rent for such Fiscal Year.
Membership Documents: As defined in Section 7.3.1.
-------------------- -------------
Membership Plan: As defined in Section 7.3.1.
--------------- -------------
Officer's Certificate: A certificate of Tenant signed by an officer
---------------------
authorized to so sign by the board of directors or by-laws.
Official Records: Means the Official Records of the County of Fort
----------------
Bend, Texas.
Other Leased Properties: Mean the properties leased to Tenant or an
-----------------------
Affiliate of Tenant by Landlord or an Affiliate of Landlord, and listed on
Exhibit C attached hereto.
- ---------
Other Property Leases: Mean the other leases entered into between
---------------------
Landlord or an Affiliate of Landlord and Tenant or an Affiliate of Tenant
relating to Tenant's use of the Other Leased Properties.
Other Revenue: Means all revenue received (whether by Tenant or any
-------------
subtenants, concessionaires or licensees) from or by reason of the Leased
Property relating to (i) the operation of snack bars, restaurants, bars and
banquet operations, (ii) golf and tennis professionals' shops on the Leased
Property, (iii) parking, (iv) fitness centers, (v) tennis facilities, (vi) day
care, (vii) nongolf-related guest fees and related surcharges, (viii) locker
rentals, (ix) bag storage, (x) video games, (xi) vending machines and (xii) fees
or other charges paid to Tenant by providers of golf lessons (unless the terms
under which Tenant is paid by such provider do not comply with Section 22.5, in
------------
which event the gross revenue received by such provider shall be included in
Other Revenue); but excluding: (1) the items described in clauses (b) through
-------------
(r) of the definition of Course Revenue (for purposes of this definition of
Other Revenue, all references to Tenant in clauses (a) through (s) of the
definition of Course Revenue shall also include any subtenants, concessionaires
and licensees) and (2) gross revenue received by any provider of golf lessons,
provided that the terms under which Tenant is paid fees or other charges by such
provider comply with Section 22.5.
------------
Overdue Rate: On any date, a rate equal to 2 1/2% above the Prime
------------
Rate, but in no event greater than the maximum rate then permitted under
applicable law.
A-10
<PAGE>
Person: Means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, Indian tribes or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
Primary Intended Use: Means the operation of a golf course,
--------------------
consisting of the Facility, and other activities customarily associated with or
incidental to the operation of the Facility, including sale or rental of golf-
related merchandise at a golf professional's shop, sale of memberships,
furnishing of lessons by a golf professional, operation of a driving range, and
sales of food and beverages, including liquor sales and operation of tennis
courts, swimming pools and athletic facilities.
Prime Rate: On any date, a rate equal to the annual rate on such date
----------
announced by Citibank, N.A. to be its prime rate or base rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law.
Programs: As defined in Section 3.7.2.
-------- -------------
Purchase Agreement: As defined in the Basic Lease Provisions.
------------------
Related Rights: As defined in Article 1.
-------------- ---------
Rent: Collectively, the Base Rent, Additional Rent, Additional
----
Charges (all as defined in Article 3) and the Deposit Rent (as defined in
---------
Section 7.3.3).
- -------------
Replacement Water Rights: Means Water Rights that provide water
------------------------
supply and transportation at a quantity, price and priority which at the time of
their acquisition are not less favorable in any material respect to the holder
of the Water Rights than the quantity, price and priority of the Water Rights
which will be replaced by such Replacement Water Rights.
State: The State or Commonwealth in which the Leased Property is
-----
located.
SWC: Shall mean SWC Golf Group, Inc., a Texas corporation.
---
Tangible Net Worth: Means the net book value (assets minus
------------------
liabilities) of Tenant on a consolidated basis (excluding intangibles, goodwill,
patents, trademarks, trade names, organizational expense, loans to affiliates
and any recharacterization of the existing two classes of preferred stock to
debt).
Tenant: As defined in the preamble.
------
Tenant Improvement: As defined in Section 10.1.
------------------ ------------
A-11
<PAGE>
Tenant's Original Water Rights: As defined in Section 6.7.2.
------------------------------ -------------
Tenant-Owned Names: As defined in Section 26.21.
------------------ -------------
Tenant's Personal Property: All machinery, equipment, furniture,
--------------------------
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant and used or useful in Tenant's business on the Leased Property,
including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, bar equipment, flatware, lawn mowers and other
gardening tools, tractors and other motorized vehicles and golf carts.
Tenant's Properties: As defined in Section 3.7.1.
------------------- -------------
Term: Collectively, the Initial Term and the Extended Terms, as the
----
context may require, unless earlier terminated pursuant to the provisions
hereof.
Title Policy: Means that certain Owner Policy of Title Insurance
------------
issued or to be issued to Landlord by Lawyers Title Company (File No. 96210003)
as of the Commencement Date in connection with Landlord's acquisition of the
Leased Property from Seller.
Total Revenue: Course Revenue plus Other Revenue.
-------------
Unavoidable Delays: Delays due to strikes, lockouts, inability to
------------------
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
- -------------
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party, under this Lease.
Unsuitable For Its Primary Intended Use: A state or condition of the
---------------------------------------
Facility such that in the good faith judgment of Tenant, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
Water Rights: Means any rights, permits, water well rights, and any
------------
other water rights or privileges of any nature for the supply or transportation
of water to the Leased Property owned from time to time by Landlord or Tenant,
including Tenant's Original Water Rights and the Replacement Water Rights.
Interpretation. The foregoing defined terms include the plural as well as the
- --------------
singular. "Including" and variants thereof shall be deemed to mean "including
without limitation." All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles as
A-12
<PAGE>
at the time applicable. All references in this Lease to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the Detailed Lease Provisions unless otherwise indicated.
The words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Lease as a whole and not to any particular Article, Section or
other subdivision.
<PAGE>
EXHIBIT B
---------
Legal Description of the Land
-----------------------------
[attached]
<PAGE>
EXHIBIT C
---------
Other Leased Properties
-----------------------
Course Name City County State
- ----------- ---- ------ -----
Carmel Mtn Ranch CC San Diego San Diego CA
<PAGE>
EXHIBIT D
---------
Operating Standards
-------------------
Tenant shall perform the following maintenance service at no less than
the frequencies indicated, subject to weather and soil conditions and
Unavoidable Delays. The enumerated maintenance standards are (i) guidelines
developed for the operation of golf courses in general, and (ii) subject to
changes in industry practices or new or revised environmental laws, ordinances,
or codes. Tenant shall comply with such standards subject to changes required
by law or industry practice with respect to high-quality golf facilities.
1. Greens, practice putting greens & nurseries
-------------------------------------------
A. Mowing - At least five days per week at a height between 3/16" - 5/16"
during the growing season; as needed during the off season.
B. Change cup locations on all greens and practice putting greens daily
during the active season and at least three times weekly in the off-
season. Cup location on all greens will be moved at least twenty feet
from the previous placement where possible.
C. Repair ball marks, divots, or any other damaged turf areas on all
greens and practice greens daily.
D. Aerify all greens, practice putting greens and nurseries as often as
necessary to produce superior turf quality, but no less than two times
per year.
E. Top dress all greens, practice putting greens and nurseries:
A. After any aerification performed with 1/2" or larger tines;
B. As needed to maintain a smooth putting surface.
C. Topdressing will be sand or a mix similar to that used to
construct the greens.
F. Light vertical mowing of all greens, practice putting greens and
nurseries shall be performed as appropriate to smooth and true the
putting surfaces. Heavy dethatching shall be performed as necessary
to produce superior turf quality.
Note: Where bermuda grass greens are maintained, they shall be
overseeded annually using perennial rye or a blend of perennial rye,
Poa trivialis and/or fine fescues or other suitable turf grasses - at
a rate between 20 and 30 lbs. per 1,000 square feet. A good faith
effort shall
<PAGE>
be made to complete such overseeding approximately 2 to 3 weeks before
the first annual frost if possible.
The putting surface shall be prepared for overseeding by aerifying not
later than 30 days prior to overseeding and verticutting weekly
starting three to four weeks prior.
Overseeding shall be topdressed 1/8" with material similar to green
construction material or an approved sand/organic mixture. A complete
fertilizer shall be applied immediately prior to seeding. Greens
shall be irrigated sufficient to remain moist but not soaked until all
seed has germinated.
During germination period, cup shall be changed frequently. First
mowing shall be at 5/16" reducing to normal cutting heights gradually.
A preventive program of fungicide applications shall be maintained
starting two days after overseeding.
G. Spiking of all greens and practice greens shall be performed as needed
between aerifications to maintain water infiltration.
H. Fertilization - All greens, practice greens, and nurseries shall be
fertilized with nitrogen, phosphorous, potash, and other elements as
needed to maintain color, growth, health and turgidity of the turf,
without allowing excessive or succulent growth.
The goal of the greens fertilization program is to provide the best
possible putting surface, not to produce the maximum amount of growth.
I. Fungicides - All greens, practice greens and nurseries shall receive
appropriate fungicide applications to prevent and/or control fungal
disease activity.
J. Weed Control - All greens, practice greens and nurseries shall be
maintained to the extent possible free of undesirable grasses and
weeds. Pre-emergent herbicides shall be used as necessary to prevent
intrusion into the greens of weeds difficult to eradicate such as
goosegrass, crabgrass, etc.
K. Insecticides - All greens, practice greens and nurseries shall be
treated as necessary to prevent or halt insect damage.
<PAGE>
2. Tees - All areas used for tee surface
-------------------------------------
A. Mowing - All tees shall be mowed at a height between 3/8" - 5/8" three
times per week during growing season and as necessary during off-
season.
B. Topdressing - All worn areas on tees shall be topdressed at least
weekly to fill divots and level tee surface. Topdressing material
shall contain seed of annual or perennial ryegrasses, or other species
as appropriate.
C. Overseeding - All tees shall be overseeded at a rate of not less than
10 lbs./1,000 square feet, approximately two to three weeks before the
first expected annual frost. Seed used shall be a suitable species or
blend.
D. Set-up - Tee markers and all tee equipment shall be moved daily for
proper play and control of turf wear.
E. Weed Control - Tees shall be kept weed free to the extent possible by
the proper and timely application of pre-and/or post-emergent
herbicides.
F. Vertical Mowing - All tees shall be verticut as necessary to control
mat or thatch build-up.
G. Aerification - All tees shall be aerified as often as necessary to
produce superior turf quality, but not less than two times per year.
H. Fertilization - All tees shall be fertilized with nitrogen,
phosphorous, potash, and other elements as needed to maintain color,
growth, health and turgidity of the turf, without showing excessive or
succulent growth.
3. Fairways - All areas of play except greens, tees, roughs and natural growth
---------------------------------------------------------------------------
areas
-----
A. Mowing - All fairways shall be mowed at least three times per week at
a height between 1/2" - 7/8" during the growing season and as needed
for the balance of the year.
B. Aerification - All fairways shall be aerified as often as necessary to
produce superior turf quality, but not less than once a year.
C. Fertilization - All fairways shall be fertilized with nitrogen,
phosphorous, potash, or other elements as needed to maintain color,
growth, health and turgidity of the turf, without allowing excessive
or succulent growth.
D. Vertical mowing - All fairways shall be verticut as necessary to
control mat or thatch build-up.
<PAGE>
E. Weed Control - Fairways shall be kept weed free to the extent possible
by the proper and timely application of pre- and/or post-emergent
herbicides.
4. Roughs
------
All turfed areas of play except greens, tees, fairways and natural growth
areas.
A. Mowing - All roughs shall be mowed to a height not to exceed 2 1/2
inches on average.
B. Aerification -
1) Fairway-to-tree-line play areas shall be aerified as often as
necessary to produce superior turf quality, but no less than once
per year.
2) Within wooded play areas - as necessary to establish and/or
maintain turf.
C. Fertilization - Roughs shall be fertilized as necessary to maintain
turf.
D. Weed Control - Shall be performed as necessary to prevent seed
formation and to allow proper play.
5. Natural Growth Areas
--------------------
All areas in which native or introduced vegetation is allowed to survive
without routine mowing, cultivating, irrigation or other routine
maintenance procedures. May be out of play areas, steep slopes, barriers,
windbreaks, nature trails, etc. Such areas are to be maintained free of
excessive trash, noxious weeds and vertebrate pests, and in such manner as
to comply fully with fire department regulations or other such regulations
as may apply. Such natural growth areas may be improved and may from time
to time be subjected to irrigation, cultivation, pruning, or other such
practices as may be necessary or desirable to establish or maintain them.
6. Planters - All areas planted with ornamental plants, not intended for golf
--------------------------------------------------------------------------
play and having a definable border
----------------------------------
A. Clean-up - All planters shall be maintained free of trash and debris.
B. Weed Control - All planters shall be maintained free of weeds by
mechanical and/or chemical means.
C. Trimming - The plant material (trees, shrubbery and ground covers) in
planters shall be trimmed for protection from wind, insect damage, and
for appearance.
<PAGE>
7. Trees - All trees within the property lines of the golf course
--------------------------------------------------------------
A. Stakes - Trees shall be staked as necessary until of sufficient size
to stand unassisted. Stakes shall be installed and maintained in the
manner recommended by the University of California. Stakes shall be
removed as soon as possible.
B. Pruning - All trees shall be properly pruned for protection from wind
and pests as well as for appearance and safety.
C. Irrigation - All trees shall be irrigated to provide adequate moisture
for normal growth.
D. Mowing - Large area mowers shall not be used within one foot of the
trunk of any tree.
E. Removal and Replacement - When appropriate, all dead trees, for
whatever cause, shall be removed. Any necessary replacement shall be
with a tree of appropriate type and size.
8. Irrigation - All equipment required to irrigate all areas of the property
-------------------------------------------------------------------------
A. Repair or replace all heads, valves, controllers, wiring, and pipe as
needed to maintain the proper operation of the entire golf course
irrigation system (including greens, tees, fairways, planters, flower
beds, etc.) on an on-going basis.
B. The golf course shall be irrigated as necessary to support proper
growth of golf turf and associated landscaping.
9. Fences - All fences and walls, block, chain link, or barbed wire, etc. on
-------------------------------------------------------------------------
or within boundaries of the property
------------------------------------
A. Repair as necessary all broken or damaged fencing on the Facility.
B. Repair or replace as necessary all fences, gates and locking devices
needed for the protection of the golf course or equipment.
10. Clubhouse and structures - All structures within the boundaries of the golf
---------------------------------------------------------------------------
course
------
A. Course Restrooms - All course restrooms shall be maintained daily to
provide clean and sanitary facilities for the users and employees of
the course. Soap, towels, toilet paper, etc. shall be provided in
adequate quantity at all times. Portable facilities shall be
maintained similarly.
<PAGE>
B. All buildings and structures shall be maintained in good repair at all
times. Surrounding areas shall be maintained free of weeds, brush,
disorganized junk or broken-down equipment, trash piles, etc. Interior
areas shall be clean and neatly organized, safe and sanitary for customers
and employees. Painting, rodent and insect control, and landscaping shall
be performed as necessary. "Housekeeping" duties shall be assigned to all
maintenance crew members and shall be performed daily.
C. Cart Paths - Maintain all cart paths in a safe and clean condition.
D. The golf course superintendent is responsible for all facilities and
structures maintenance not within the clubhouse area proper.
11. Edging
------
All sidewalks, patios and concrete cart paths must be kept edged. Edging
around valve boxes, meter boxes, backflow preventers, etc. shall be done as
needed to insure that there is no obstruction of play or maintenance from
growth around these item.
12. Sand traps
----------
All sand traps shall be edged as necessary to maintain an appropriate lip,
raked daily and filled with fresh sand as needed to maintain a minimum 1/2"
depth on slopes and 4" in the bottom. Replacement sand will be of a dust-
free type, suitable for trap use.
13. Landscaped areas
----------------
The various planting areas throughout the course shall be cultivated,
weeded, and pruned on a regular basis, with at least two replanting
programs for annuals scheduled each year, depending on the length of the
season.
14. Trash and refuse
----------------
Shall be collected daily and removed from the property in a safe, sanitary
and lawful manner as necessary to minimize or eliminate problems from
refuse odors, insects, etc. Approved trash receptacles shall be
conveniently stationed on tees and other appropriate areas and emptied
daily.
15. Vertebrate pest control
-----------------------
Shall be routinely performed throughout the property on an on-going basis,
in such a manner that vertebrate pest populations are controlled consistent
with normal levels and regulations for the area.
<PAGE>
16. Aquatic
-------
All lakes, ponds and streams shall be maintained in a safe and sanitary
manner and in good appearance.
17. Soil and Water
--------------
Analysis will be performed yearly by an approved professional laboratory.
18. Storage Tanks
-------------
Testing and inspection of all storage tanks located at the Leased Property
will be performed periodically to verify that no leakage from such tanks
has occurred or is occurring and that all storage tanks at the Leased
Property comply with Legal Requirements.
<PAGE>
EXHIBIT E
---------
Landlord's Personal Property
----------------------------
[attached]
<PAGE>
EXHIBIT F
---------
Declaration of CC&Rs
--------------------
[attached]
<PAGE>
EXHIBIT G
---------
Booked Contracts
----------------
[attached]
<PAGE>
EXHIBIT H
---------
Golf Car Lease
--------------
[attached]
<PAGE>
EXHIBIT I
---------
Form of Future Easements
------------------------
[attached]
<PAGE>
EXHIBIT J
---------
Initial Capital Improvements
----------------------------
The term "Initial Capital Improvements" shall generally refer to the capital
----------------------------
improvements required to be made pursuant to Section 11.2.1 of the Purchase
Agreement. The construction and funding for such capital improvements shall be
governed by Section 20 of the Basic Lease Provisions of this Lease. Within 60
----------
days after the Commencement Date, Landlord and Tenant shall establish a detailed
list of the Initial Capital Improvements and schedule of completion based upon
Section 11.2.1 of the Purchase Agreement and information obtained by Landlord
and Tenant as part of the due diligence investigation of the Leased Property.
<PAGE>
EXHIBIT K
---------
Refundable Security Deposits
----------------------------
[attached]
<PAGE>
EXHIBIT L
---------
Form of Landlord's Consent
--------------------------
[attached hereto]
<PAGE>
EXHIBIT M
---------
Bylaw Amendments
----------------
[attached]
<PAGE>
DETAILED LEASE PROVISIONS
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - LEASED PROPERTY................................... 1
ARTICLE 2 - TERM.............................................. 1
2.1 Term.............................................. 1
2.2 Extended Term..................................... 1
ARTICLE 3 - RENT.............................................. 2
3.1 Rent.............................................. 2
3.2 Base Rent......................................... 2
3.3 Additional Rent................................... 2
3.4 Additional Charges................................ 4
3.5 Late Payment of Rent.............................. 4
3.6 Net Lease......................................... 5
3.7 Marketing Programs................................ 5
3.8 Income/Expense Prorations......................... 6
ARTICLE 4 - IMPOSITIONS....................................... 6
4.1 Payment of Impositions............................ 6
4.2 Information and Reporting......................... 6
4.3 Assessment Challenges............................. 6
4.4 Prorations........................................ 6
4.5 Refunds........................................... 7
4.6 Utility Charges................................... 7
4.7 Reassessments Upon Transfer....................... 7
4.8 Assessment Districts.............................. 7
ARTICLE 5 - TENANT WAIVERS.................................... 7
5.1 No Termination, Abatement, Etc.................... 7
5.2 Condition of the Leased Property.................. 8
5.3 Tenant's Rights Against Landlord.................. 9
ARTICLE 6 - OWNERSHIP OF PROPERTY............................. 9
6.1 Leased Property................................... 9
6.2 Landlord's Personal Property...................... 10
6.3 Tenant's Personal Property........................ 10
6.4 Purchase of Tenant's Personal Property............ 10
6.5 Removal of Personal Property...................... 11
6.6 Landlord's Waivers................................ 11
6.7 Water Rights...................................... 12
6.8 Liquor License.................................... 12
ARTICLE 7 - USE OF LEASED PROPERTY............................ 13
7.1 Use............................................... 13
7.2 Specific Prohibited Uses.......................... 13
7.3 Membership Matters, Fees and Charges.............. 14
7.4 Landlord to Grant Easements, Etc.................. 16
ARTICLE 8 - HAZARDOUS MATERIALS............................... 17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.1 Representations................................ 17
8.2 Remediation.................................... 17
8.3 Tenant's Indemnification of Landlord........... 18
8.4 Survival of Indemnification Obligations........ 18
8.5 Environmental Violations at Expiration or
Termination of Lease........................... 18
8.6 Landlord's Indemnification of Tenant........... 19
ARTICLE 9 - MAINTENANCE AND REPAIR............................ 19
9.1 Tenant's Sole Obligation....................... 20
9.2 Waiver of Statutory Obligations................ 20
9.3 Mechanic's Liens............................... 20
9.4 Surrender of Leased Property................... 20
ARTICLE 10 - TENANT'S IMPROVEMENTS............................ 21
10.1 Tenant's Right to Construct.................... 21
10.2 Scope of Right................................. 21
10.3 Cooperation of Landlord........................ 22
10.4 Commencement of Construction................... 22
10.5 Rights in Tenant Improvements.................. 22
ARTICLE 11 - LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS..... 23
11.1 Liens.......................................... 23
11.2 Encroachments and Other Title Matters.......... 24
ARTICLE 12 - PERMITTED CONTESTS............................... 24
ARTICLE 13 - INSURANCE........................................ 26
13.1 General Insurance Requirements................. 26
13.2 Replacement Cost............................... 27
13.3 Waiver of Subrogation.......................... 27
13.4 Form Satisfactory, Etc......................... 27
13.5 Change in Limits............................... 28
13.6 Blanket Policy................................. 28
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS................ 28
14.1 Insurance Proceeds............................. 28
14.2 Reconstruction Covered by Insurance............ 30
14.3 Reconstruction Not Covered by Insurance........ 32
14.4 Waiver......................................... 32
14.5 Damage Near End of Term........................ 32
ARTICLE 15 - CONDEMNATION..................................... 33
15.1 Total Taking................................... 33
15.2 Partial Taking................................. 33
15.3 Restoration.................................... 33
15.4 Award-Distribution............................. 33
15.5 Temporary Taking............................... 33
ARTICLE 16 - EVENTS OF DEFAULT................................ 34
16.1 Events of Default.............................. 34
16.2 Payment of Costs............................... 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
16.3 Exceptions.............................................. 36
16.4 Certain Remedies........................................ 37
16.5 Damages................................................. 37
16.6 Additional Remedies..................................... 38
16.7 Appointment of Receiver................................. 38
16.8 Waiver.................................................. 38
16.9 Application of Funds.................................... 38
16.10 Impounds................................................ 39
ARTICLE 17 - RIGHT TO CURE DEFAULT................................... 39
ARTICLE 18 - LEGAL REQUIREMENTS...................................... 40
ARTICLE 19 - HOLDING OVER............................................ 40
ARTICLE 20 - RISK OF LOSS............................................ 40
21.2 Landlord's Indemnification of Tenant.................... 42
21.3 Mechanics of Indemnification............................ 42
21.4 Survival of Indemnification Obligations................. 42
ARTICLE 22 - SUBLETTING AND ASSIGNMENT............................... 43
22.1 Prohibition Against Subletting and Assignment........... 43
22.2 Changes of Control...................................... 43
22.3 Subleases............................................... 44
22.4 Assignment.............................................. 45
22.5 REIT Limitations........................................ 45
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS............. 46
23.1 Officer's Certificates.................................. 46
23.2 Annual Financial Statements of Tenant................... 46
23.3 Quarterly Financial Statements of Tenan................. 47
23.4 Monthly Course Statements............................... 47
23.5 Annual Course Statements................................ 48
23.6 Budgets................................................. 48
23.7 Environmental Statements................................ 48
23.8 Confidential Information................................ 48
23.9 Fiscal Year............................................. 49
ARTICLE 24 - LANDLORD MORTGAGES...................................... 49
24.1 Landlord May Grant Liens................................ 50
24.2 Tenant's Non-Disturbance Rights......................... 50
24.3 Breach by Landlord...................................... 50
24.4 Facility Mortgage Protection............................ 50
ARTICLE 25 - FINANCIAL COVENANTS..................................... 51
25.1 Financial Covenant...................................... 51
25.2 Provision of Letter of Credit........................... 51
25.3 Terms of Letters of Credit.............................. 51
25.4 Draws Against Letters of Credit; Application of
Proceeds.............................................
25.5 Renewal of Letter of Credit............................. 52
25.6 Distributions by Tenant and.............................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Credit Impairments......................... 52
25.7 Liquidated Damages............................... 54
25.8 Letters of Credit Not Additive................... 54
ARTICLE 26 - MISCELLANEOUS.................................... 54
26.1 Landlord's Right to Inspect...................... 54
26.2 No Waiver........................................ 54
26.3 Remedies Cumulative.............................. 55
26.4 Acceptance of Surrender.......................... 55
26.5 No Merger of Title............................... 55
26.6 Conveyance by Landlord........................... 55
26.7 Quiet Enjoyment.................................. 55
26.8 Notices.......................................... 55
26.9 Survival of Claims............................... 56
26.10 Invalidity of Terms or Provisions............... 56
26.11 Prohibition Against Usury....................... 56
26.12 Amendments to Lease............................. 56
26.13 Successors and Assigns.......................... 56
26.14 Titles.......................................... 56
26.15 Governing Law................................... 56
26.16 Memorandum of Lease............................. 56
26.17 Attorneys' Fees................................. 57
26.18 Non-Recourse as to Landlord..................... 57
26.19 No Relationship................................. 57
26.20 Signs; Reletting................................ 57
26.21 Course Identity................................. 57
26.22 Judicial Reference.............................. 58
</TABLE>
<PAGE>
EXHIBIT 10.6
[LETTERHEAD OF NATIONAL GOLF PROPERTIES]
July 1, 1996
Mr. Joseph H. Champ
Vice President of Acquisitions
Cobblestone Golf Group, Inc.
3702 Via de la Valle
Del Mar, California 92014
RE: Sweetwater: NGP/Cobblestone Lease
----------------------------------
Dear Joe:
National Golf Operating Partnership, L.P. ("NGOP") and Cobblestone
Golf Group, Inc. ("Cobblestone") have entered into that certain Lease dated as
of July 1, 1996 ("Lease") with respect to the lease of Sweetwater Country Club
(the "Leased Property"). NGOP has purchased the Leased Property (the
"Acquisition") from Sweetwater Golf Partnership, a Texas general partnership
("Seller") pursuant to that certain Purchase and Sale Agreement and Joint Escrow
Instructions dated as of April 16, 1996 (the "Purchase Agreement").
As part of the Acquisition, NGOP and Seller have entered into that
certain Amendment to Purchase Agreement dated as of July 1, 1996, a copy of
which is attached hereto as Exhibit "A" (the "Amendment"). The Amendment
-----------
modifies certain provision of the Purchase Agreement and sets forth various
understandings regarding the agreements of NGOP, Seller and Cobblestone to
satisfy certain obligations after the Closing Date (as defined in the Purchase
Agreement).
In order to clarify and supplement the Lease in order to reflect the
understandings and agreements set forth in the Amendment, NGOP and Cobblestone
hereby agree as follows:
1. Cobblestone acknowledges and consents to the Amendment and agrees
to perform and assume the obligations set forth in Sections 3, 5, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16 of the Amendment.
2. In accordance with Section 3.8 of the Lease, NGOP and Cobblestone
have agreed to a preliminary schedule of prorations, a copy of which is
attached hereto as Exhibit "B" (the "Preliminary Prorations Schedule"), which
-----------
proration amount shall be paid to Cobblestone on
<PAGE>
the Closing Date. The amount of the prorations set forth in the Preliminary
Prorations Schedule shall be subject to adjustment in cash after the Closing
Date as and when more complete and accurate information becomes available. NGOP
and Cobblestone agree to cooperate and use their best efforts to make such
adjustments not later than 60 days after the Closing Date, at which time NGOP
and Cobblestone shall agree upon and execute a final prorations schedule ("FINAL
PRORATIONS SCHEDULE"). Prior to the execution of the Final Prorations Schedule,
the prorations set forth in the Preliminary Prorations Schedule shall be the
agreed upon prorations pursuant to Section 3.8 of the Lease.
3. The Deposit Account (as defined in Section 7.3.3 of the Lease) shall
be opened by NGOP within 10 business days after the Closing Date. In accordance
with Section 7.3.3 of the Lease, the Deposit Rent for July will be due when the
account is opened, prorated from the date the Deposit Account is established.
4. This letter agreement may be executed in counterpart.
5. Except as modified herein, the Lease shall remain in full force and
effect.
Please acknowledge your understanding and agreement with the foregoing by
executing and returning to NGOP a signed counterpart of this letter agreement.
Best regards,
NATIONAL GOLF OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: NATIONAL GOLF PROPERTIES, INC.,
a Maryland corporation
Its general partner
By: /s/ Scott S. Thayer
---------------------------------
Its: Chief Leasing Officer
AGREED TO AND ACKNOWLEDGED THIS
1st DAY OF July, 1996:
COBBLESTONE GOLF GROUP, INC.,
a Delaware corporation
By: /s/ Joseph H. Champ
------------------------------
Its: Vice President
------------------------------
<PAGE>
EXHIBIT "A"
[executed Amendment to Purchase Agreement to be attached]
<PAGE>
AMENDMENT TO PURCHASE AND SALE AGREEMENT
-----------------------------------------
This Amendment to Purchase and Sale Agreement (this "Amendment") is entered
into between SWEETWATER GOLF PARTNERSHIP, a Texas general partnership
("Seller"), and NATIONAL GOLF OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership ("Buyer").
WHEREAS, Seller and Buyer have entered into that certain Purchase and Sale
Agreement dated April 16, 1996, between Buyer and Seller (the "Original
Agreement"). The Original Agreement, as amended by this Amendment, is referred
to as the Purchase Agreement.
WHEREAS, Buyer and Seller have decided to amend certain of their
obligations set forth in the Original Agreement and would like to memorialize
such amendments;
NOW, THEREFORE, for and in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller agree as follows:
1. DEFINED TERMS. All initially capitalized, undefined terms used in
this Agreement shall have the meanings ascribed to them in the Original
Agreement.
2. CREDIT. Prior to Closing, Buyer made objections to the condition
of the Property and other items related thereto. In lieu of satisfying all of
such objections, Buyer and Seller have agreed that Seller will provide Buyer
with a credit equal to One Hundred Fifty Thousand Six Hundred Nineteen Dollars
and No/100 ($150,619.00) to be applied as a credit against the Purchase Price.
3. MEMBER CONTRACTS. Buyer agrees to provide Seller, within two (2)
days following Closing, with copies of all Member Contracts obtained by Buyer.
4. DOWNSPOUT. Within thirty (30) days after the Closing, Seller shall
fix the downspout attached to the athletic building located on the Property.
Additionally, Seller will place sheet metal exhaust stacks on the chillers
adjacent to the tennis building.
5. PAYROLL OBLIGATION. Buyer agrees to process or cause Operator to
process, Seller's final payroll obligation that is payable on July 5, 1996 to
Seller' former employees, although Seller shall be responsible for all payments
to such employees provided Doris Griffith stays at the Property to assist
Operator in such processing. Buyer's obligations will include causing Operator
to process the accounting and payroll information necessary for ADP to issue the
payroll checks to Seller's former employees. Buyer agrees that Seller shall have
the right to include a COBRA notice and information regarding such employees'
401-K accounts with the payroll check delivered by Operator to the employees on
July 5, 1996.
6. PAST DUE ACCOUNTS. It is agreed that within fifteen (15) days of
Closing a determination of the amount of all past due accounts older than sixty
(60) days as of June 25, 1996 (the "First Amount") will be made and such amount
will be compared to all past due accounts older than sixty (60) days as of July
1, 1996 (the "Second Amount"). To the extent the First Amount exceeds the Second
Amount, Seller agrees to pay such difference to Buyer within eighty (80) days
after the Closing.
7. COLLECTION OF SELLER'S RECEIVABLES. Section 2.6 of the Agreement
provides that Seller's Receivables shall only be the property of Seller for a
period of Sixty (60) days after Closing. Notwithstanding anything to the
contrary in the Purchase Agreement, it is agreed that Seller's Receivables
shall remain the property of Seller until August 31, 1996. Buyer and Seller
agree that Section 4.13 of the Purchase Agreement is deleted and replaced with
the following:
<PAGE>
Seller's Receivables.
--------------------
Buyer agrees to cause Operator to use commercially reasonable efforts to
collect all such Seller's Receivables for a period commencing on the Closing
Date and continuing for sixty (60) days thereafter. Seller shall pay Operator
Nine Thousand Dollars and No/100 ($9,000.00) for the set-up costs associated
with collections of the Seller's Receivables. All such amounts collected by
Operator shall be applied first to the oldest amounts owed by such member (i.e.,
FIFO accounting). All of Seller's Receivables collected by Buyer or Operator
during such 60-day period, shall be paid to Seller by Buyer within eighty (80)
days of the Closing Date. It is agreed that all amounts relating to the Golf
Course that were incurred (and that remain outstanding on the day following the
Closing Date) greater than sixty (60) days prior to the Closing Date shall not
be Seller's Receivables, but shall become property of the Buyer on the day
following the Closing Date. Additionally, to the extent any item is a Seller
Receivable, but such amount has not been collected, within sixty (60) days after
the Closing Date, such account shall also become the property of Operator. The
provisions of Section 4.11, Section 4.12, and Section 4.13 shall survive the
Closing."
8. SECURITY DEPOSITS. The following is hereby added to the end of
Section 13.17.3:
"Notwithstanding anything to the contrary in this Agreement (e.g., Section
13.1), Buyer shall indemnify, protect, defend, and hold harmless Seller,
Seller's partners, and their successors and assigns from any and all Claims
relating to Buyer's (or Cobblestone's) obligations as set forth in the
immediately preceding sentence, excluding (i) any Claim for a refund of a
security deposit not reflected on Exhibit "G" or any inaccuracy of the
amount of the security deposits (if any member listed as "Terminated"
alleges he is owed a security deposit, Buyer shall be required to indemnify
Seller for such Claim, subject to the exceptions listed in this Section) on
Exhibit G (i.e., if Exhibit G details a security deposit of Five Thousand
Dollars and No/100 ($5,000.00) and a Member claims he paid a security
deposit of Eight Thousand Dollars and No/100 ($8,000.00), then Buyer would
not be liable for such Three Thousand Dollars and No/100 ($3,000.00)
shortfall not reflected on Exhibit "G"), and (ii) any Claim by a member for
refund of his security deposit for a full golf membership prior to the Club
reaching the level of "full complement of memberships" (as provided in the
current Club Bylaws), which level of one thousand (1,000) full golf members
has been utilized by Seller as a full complement of golf members.
9. BYLAWS. Buyer agrees to cause Operator to notify all members of
Sweetwater Country Club, within sixty (60) days of Closing, of the Bylaw
revisions made and adopted by Seller prior to Closing, as shown on Exhibit "A"
to this Agreement. Seller acknowledges and agrees that Buyer or Operator may
satisfy the obligation to) so notify the members of Sweetwater Country Club by
notifying the members of both changes made by Seller and changes made by Buyer
to the Bylaws.
10. DEVELOPER PRIVILEGES. The following is hereby added as the third
and fourth sentences of Section 13.17.5 of the Purchase Agreement (and no
provisions of such section are being deleted):
"In addition to the ten (10) full membership privileges discussed above,
for a period of five (5) years following the Closing Date, Buyers hereby
grants to Seller fifteen (15) athletic memberships to employees of Seller,
as designated by Seller in writing from time to time. It is understood and
agreed that such membership privileges shall afford the managers and
immediate families of such members that same privileges accorded full
members and athletic members (e.g., the ability to bring guests) so long as
such full members abide by the golf play limitations in this paragraph."
Buyer agrees to cause Operator to recognize the provisions of Section
13.17.5.
11. BUILDER'S PROGRAM. Buyer acknowledges that Seller and SPI have
participated in a builders program whereby builders of homes in Sugar Land,
Texas, Seller, and SPI all contributed to the cost
Page 2
<PAGE>
of either full golf nontransferable memberships or nontransferable tennis
memberships at the Club. It is agreed that for all homeowners listed on Exhibit
"B" who desire to purchase such a membership, Buyer will recognize such program
and issue a membership under such program to such homeowner provided (i) the
builder pays One Thousand Dollars and No/100 ($1,000.00) towards any such full
golf membership and (ii) (a) SPI pays Two Thousand Dollars and No/100
($2,000.00) towards such full golf membership or (b) SPI pays One Thousand
Dollars and No/100 ($1,000.00) towards such tennis membership. Any remaining
balance owed for any such membership shall be paid by the homeowner.
12. EXHIBIT G. Exhibit "G" attached to the Original Agreement
is hereby deleted and replaced with Exhibit G that is attached to this
Amendment.
13. PRORATIONS. Section 4.11(f) of the Original Agreement is
amended by deleting "On the day of Closing," in the second sentence and
replacing it with "Within ten (10) days following the Closing," Any resulting
amounts owed by Buyer or Seller as a result of the adjustment in Purchase Price
described in Section 4.11(f) shall be paid by the party owing such funds within
ten (10) days of the determination of such adjusted Purchase Price.
14. POST-CLOSING OBLIGATION OF SELLER. Buyer and Seller
acknowledge that Section 11.2 of the Purchase Agreement is entitled "Conditions
to Seller's Duty" and while certain items set forth in Section 11.2 are
conditions to Seller's obligations (e.g., Section 11.2.2; 11.2.3, and 11.2.4),
Section 11.2.1 has been mistakenly characterized as a condition precedent when
the obligations set forth in Section 11.2.1 are obligations to be performed
after Closing by Buyer. Buyer hereby agrees that it will perform the
obligations set forth in Section 11.2.1 after Closing notwithstanding the
headings in Article 11.
15. POSSESSION. Section 4.8 of the Purchase and Sale Agreement
is hereby deleted and replaced with the following:
Possession.
- ----------
"Possession and the right to possession of the Property shall be
delivered to Buyer on July __, 1996, subject to the matters in the Deed, the
Deed Restrictions, the Plat, and subject to the rights of all members of
Sweetwater Country Club. The risk of loss of and destruction to any of the
Property occurring as a result of any cause shall be upon Seller through the day
before Closing. The risk of loss of and destruction to any of the Property
occurring as a result of any cause shall be upon Buyer on July __, 1996."
16. OTHER DOCUMENTS. Seller and Buyer agree that they will, at
any time and from time to time, upon the request of the other party, execute,
acknowledge, and deliver all such further documents as may be reasonably
required to effectuate the provisions of this Agreement.
17. AMENDMENT. No amendment or modification of this Agreement
shall be valid unless the amendment or modification is in writing and signed by
both parties.
18. ENTIRE AGREEMENT. This Agreement represent the entire
agreement between the parties and incorporates all prior agreements and
understandings with regard to the matters set forth herein. No previous
agreement or understanding, verbal or written, or the parties or any of their
agents shall be binding or enforceable, unless specifically incorporated in this
Agreement.
19. NO PRESUMPTION REGARDING DRAFTER. Seller and Buyer
acknowledge and agree that the terms and provisions of this Agreement have been
negotiated and discussed between Seller and Buyer, and that this Agreement
reflects their mutual agreement regarding the subject matter of this Agreement.
Because of
Page 3
<PAGE>
the nature of such negotiations and discussions, it would not be appropriate to
deem either Seller or Buyer to be the drafter of this Agreement, and therefore
no presumption for or against the drafter shall be applicable in interpreting or
enforcing this Agreement.
20. TIME OF THE ESSENCE. Time is of the essence of this Agreement. The
parties understand that the time for performance of each obligation has been the
subject of negotiation by the parties.
21. ENFORCEABILITY OF ANY PROVISION. If any agreement, condition,
obligation, covenant, warranty or other provision of this Agreement shall be
determined to be unenforceable, invalid, or void, such determination shall not
affect, impair, invalidate or render unenforceable any other agreement,
condition, obligation, covenant, warranty, or other provision of this Agreement.
22. COUNTERPARTS. This Agreement and any amendment may be executed in
counterparts, and upon all counterparts being so executed, each counterpart
shall be considered as an original and all counterparts shall be considered as
one agreement.
23. EFFECT OF TITLES. The title of the various sections of this Agreement
are solely for the purpose of convenience and shall not be relied upon in
construing any provision of this Agreement.
24. ATTORNEYS' FEES. In the event of a dispute in connection with this
Agreement involving the non-performance by a party of its obligations, the
prevailing party shall be entitled to reasonable attorneys' fees and all other
expenses reasonably incurred in connection with such dispute, whether or not
litigation is commenced, in addition to all other relief to which the party is
entitled. If the successful party recovers judgment in any legal action or
proceeding, the attorneys' fees and all other expenses of litigation shall be
included in and made part of any such judgment.
25. APPLICABLE LAW. The internal, local laws of the State of Texas
(excluding its conflict of laws, rules, etc.) shall be applied in interpreting
and enforcing this Agreement.
26. REMAINING PROVISIONS. All other terms and conditions of the Purchase
and Sale Agreement, not modified or amended herein, shall remain in full force
and effect.
SWEET WATER GOLF PARTNERSHIP, a NATIONAL GOLF OPERATING PARTNERSHIP, L.P.,
Texas general partnership, a Delaware limited partnership
By: Sugarland Properties By: NATIONAL GOLF PROPERTIES, INC.,
Incorporated, a Maryland corporation,
its Managing Partner its general partner
By: /s/ Stephen J. Ewbank By: /s/ W. Scott McMartin
-------------------------- --------------------------
Stephen J. Ewbank, Name: W. Scott McMartin
Executive Vice President ------------------------
Title: V.P.
-----------------------
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated December 8, 1995 with respect to Cobblestone Golf
Group, Inc., our report dated July 3, 1996 with respect to Lakeway Country
Club, our combined report dated June 21, 1996 with respect to Stonebridge
Country Club Inc, and The Ranch Country Club, Inc., our report dated July 19,
1996 with respect to Brandermill Country Club, L.P., our report dated July 19,
1996 with respect to Pecan Grove Plantation Country Club, Inc., our report
dated July 19, 1996 with respect to Ocean Vista Land Company, and our report
dated July 19, 1996 with respect to Saticoy Regional Golf Course, in Amendment
No. 2 to the Registration Statement (Form S-4) of Cobblestone Golf Group, Inc.
ERNST & YOUNG, LLP
San Diego, California
September 26, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to Registration Statement on Form S-4 of Cobblestone Golf
Group, Inc. of our report dated July 26, 1996 relating to the financial
statements of Sweetwater Golf Partnership, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
September 26, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cobblestone Golf Group, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Amendment No. 2 to Registration Statement of our report dated April 12, 1994,
relating to the financial statements of the Brandermill Country Club, L.P.
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Richmond, Virginia
September 25, 1996
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
11 1/2% Series A Senior Notes due 2003
of
COBBLESTONE GOLF GROUP, INC.
Pursuant to the Prospectus dated October 2, 1996
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON OCTOBER 29, 1996 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH
CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO
WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent is:
Norwest Bank Minnesota, National Association
In Person:
By Registered or Certified Mail:
Northstar East Bldg.
Norwest Bank Minnesota, 608 2nd Ave S.
National Association 12th Floor
Corporate Trust Operations Corporate Trust Ser.
P.O. Box 1517 Minneapolis, MN
Minneapolis, MN 55480-1517
By Facsimile (for Eligible
By Hand or Overnight Courier: Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated October 2, 1996
(the "Prospectus"), of Cobblestone Golf Group, Inc., a Delaware corporation
(the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together with the Prospectus constitutes the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 11 1/2% Series B
Senior Notes due 2003 (the "Exchange Notes") for each $1,000 principal amount
of its outstanding 11 1/2% Series A Senior Notes due 2003 (the "Private
Notes"). Recipients of the Prospectus should read the requirements described
in such Prospectus with respect to eligibility to participate in the Exchange
Offer. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the
undersigned represents that it has received from each beneficial owner of
Private Notes ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Private Notes (i) if
certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer--Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information received
from the beneficial owners is accurately reflected in the boxes entitled
"Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence."
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take
considerable time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private
Notes," (ii) complete the boxes entitled "Beneficial Owner(s)--Purchaser
Status" and "Beneficial Owner(s)--Residence", (iii) if appropriate, check and
complete the boxes relating to book-entry transfer, guaranteed delivery,
Special Issuance Instructions and Special Delivery Instructions, (iv) sign the
Letter of Transmittal by completing the box entitled "Sign Here" and (v)
complete the Substitute Form W-9. Each holder of Private Notes should
carefully read the detailed instructions below prior to completing the Letter
of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for exchange
must complete columns (1) through (3) in the box below entitled "Description
of Private Notes," complete the boxes entitled and sign the box below entitled
"Sign Here." If only those columns are completed, such holder of Private Notes
will have tendered for exchange all Private Notes listed in column (3) below.
If the holder of Private Notes wishes to tender for exchange less than all of
such Private Notes, column (4) must be completed in full. In such case, such
holder of Private Notes should refer to Instruction 5.
<PAGE>
DESCRIPTION OF PRIVATE NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) (2) (3) (4)
PRINCIPAL
PRIVATE AMOUNT
NOTE AGGREGATE TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED NUMBER(S) PRINCIPAL FOR EXCHANGE
HOLDER(S) OF PRIVATE NOTE(S), EXACTLY AS (ATTACH AMOUNT (MUST BE IN
NAME(S) SIGNED REPRESENTED INTEGRAL
APPEAR(S) ON PRIVATE NOTE CERTIFICATE(S) LIST IF BY MULTIPLES OF
(PLEASE FILL IN, IF BLANK) NECESSARY) CERTIFICATE(S)/1/ $1,000)/2/
- ------------------------------------------------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
</TABLE>
1. Unless indicated in the column "Principal Amount Tendered For Exchange,"
any tendering Holder of 11 1/2% Series A Senior Notes due 2003 will be
deemed to have tendered the entire aggregate principal amount represented
by the column labelled "Aggregate Principal Amount Represented by
Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 11 1/2%
Series A Senior Notes due 2003. All other tenders must be in integral
multiples of $1,000.
<PAGE>
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): ______________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
Account Number (if delivered by book-entry transfer): ______________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
_______________________________________________________________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if
the Exchange Notes issued in
exchange for Private Notes,
certificates for Private Notes
in a principal amount not
exchanged for Exchange Notes, or
Private Notes (if any) not
tendered for exchange, are to be
issued in the name of someone
other than the undersigned or
(ii) if Private Notes tendered
by book-entry transfer which are
not exchanged are to be returned
by credit to an account
maintained at DTC.
Issue to:
Name ____________________________
(Please Print)
Address _________________________
---------------------------------
---------------------------------
(Include Zip Code)
---------------------------------
(Tax Identification or Social
Security No.)
Credit Private Notes not
exchanged and delivered by book-
entry transfer to DTC account
set forth below:
---------------------------------
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY if the
Exchange Notes issued in
exchange for Private Notes,
certificates for Private Notes
in a principal amount not
exchanged for Exchange Notes, or
Private Notes (if any) not
tendered for exchange, are to be
mailed or delivered (i) to
someone other than the
undersigned or (ii) to the
undersigned at an address other
than the address shown below the
undersigned's signature.
Mail or delivered to:
Name ____________________________
(Please Print)
Address _________________________
---------------------------------
---------------------------------
(Include Zip Code)
---------------------------------
(Tax Identification or Social
Security No.)
<PAGE>
BENEFICIAL OWNER(S)--RESIDENCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS
OF PRINCIPAL AMOUNT OF PRIVATE NOTES
EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BENEFICIAL OWNER(S)--PURCHASER STATUS
The beneficial owner of each of the Private Notes described herein is
(check the box that applies):
[_]A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_]An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_]A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in
accordance with Rule 904 of the Securities Act
[_]Other (describe) _______________________________________________________
------------------------------------------------------------------------
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Pursuant to the offer by Cobblestone Golf Group, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated October 2, 1996 (the "Prospectus") and this
Letter of Transmittal (the "Letter of Transmittal"), which together with the
Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 11 1/2% Series B Senior Notes due 2003 (the
"Exchange Notes") for each $1,000 principal amount of its outstanding 11 1/2%
Series A Senior Notes due 2003 (the "Private Notes"), the undersigned hereby
tenders to the Company for exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith,
the undersigned will have irrevocably sold, assigned, transferred and
exchanged, to the Company, all right, title and interest in, to and under all
of the Private Notes tendered for exchange hereby, and hereby will have
appointed the Exchange Agent as the true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as agent of the
Company) of such holder of Private Notes with respect to such Private Notes,
with full power of substitution to (i) deliver certificates representing such
Private Notes, or transfer ownership of such Private Notes on the account
books maintained by DTC (together, in any such case, with all accompanying
evidences of transfer and authenticity), to the Company, (ii) present and
deliver such Private Notes for transfer on the books of the Company and (iii)
receive all benefits and otherwise exercise all rights and incidents of
beneficial ownership with respect to such Private Notes, all in accordance
with the terms of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act as amended ("Rule 14e-4") equal to or greater than
the principal amount of Private Notes tendered hereby; (iii) the tender of
such Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is
applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Private
Notes tendered for exchange hereby.
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private
Notes in connection with the Exchange Offer will be acquired by the
undersigned and such beneficial owner(s) in the ordinary course of business of
the undersigned, (ii) the undersigned have no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes,
(iii) the undersigned and each beneficial owner acknowledge and agree that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) the undersigned and each beneficial owner understand that a
secondary resale transaction described in clause (iii) above and any resales
of Exchange Notes obtained by the undersigned in exchange for the Private
Notes acquired by the undersigned directly from the Company should be covered
by an effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (vi) neither the undersigned nor any beneficial owner is
an "affiliate," as defined under Rule 405 under the Securities Act, of the
Company. If the undersigned is a broker-dealer that will receive
<PAGE>
Exchange Notes for its own account in exchange for Private Notes that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes
tendered by the undersigned and not accepted for exchange will be returned to
the undersigned at the address set forth above unless otherwise indicated in
the box above entitled "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Private Notes from the name of the holder of Private Note(s)
thereof if the Company does not accept for exchange any of the Private Notes
so tendered for exchange or if such transfer would not be in compliance with
any transfer restrictions applicable to such Private Note(s).
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity, or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
<PAGE>
SIGN HERE
- --------------------------------------------------------------------------------
(Signature(s) of Owner(s))
Date: , 1996
Must be signed by the registered holder(s) of Private Notes exactly as
name(s) appear(s) on certificate(s) representing the Private Notes or on a
security position listing or by person(s) authorized to become registered
Private Note holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. (See
Instruction 6).
Name(s): _______________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title): _________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address: _______________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Principal place of business (if different from address listed above): __________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.: ( ) _____________________________________________
Tax Identification or Social Security Nos.: ____________________________________
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by Instruction 1)
Authorized Signature: __________________________________________________________
Dated: _________________________________________________________________________
Name and Title: ________________________________________________________________
(Please Print)
Name of Firm: __________________________________________________________________
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the Unites States, or (3)
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934 which is a member of one of the following
recognized Signature Guarantee Programs (an "Eligible Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private
Notes tendered herewith and such registered holder(s) have not completed the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) if such Private
Notes are tendered for the account of an Eligible Institution. IN ALL OTHER
CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders
of Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered
Private Notes or any timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation"), as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth on the cover of this Letter of Transmittal prior to
5:00 p.m., New York City time, on the Expiration Date. Holders of Private
Notes who elect to tender Private Notes and (i) whose Private Notes are not
immediately available or (ii) who cannot deliver the Private Notes, this
Letter of Transmittal or other required documents to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, must tender their
Private Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Holders may have such tender effected if: (a) such tender is made
through an Eligible Institution; (b) prior to 5:00 p.m., New York City time,
on the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate numbers(s) of such Private Notes and the principal
amount of Private Notes tendered for exchange, stating that tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, this Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing such Private
Notes (or a Book-Entry Confirmation), in proper form for transfer, and any
other documents required by this Letter of Transmittal, will be deposited by
such Eligible Institution with the Exchange Agent; and (c) a properly executed
Letter of Transmittal (or a facsimile hereof), as well as the certificate(s)
for all tendered Private Notes in proper form for transfer or a Book-Entry
Confirmation, together with any other documents required by this Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a
notice of withdrawal of Private Notes must (i) specify the name of the person
who tendered the Private Notes to be withdrawn (the "Depositor"), (ii)
identify the Private Notes to be withdrawn (including the certificate number
or numbers and aggregate principal amount of such Private Notes), and (iii) be
signed by the holder of Private Notes in the same manner as the original
signature on the Letter of Transmittal by which such Private Notes were
tendered (including any required signature guarantees). All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, whose determination
shall be final and binding on all parties. Any Private Notes so withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Private
Notes so withdrawn are validly retendered. Properly withdrawn Private Notes
may be retendered by following one of the procedures described in the section
of the Prospectus entitled "The Exchange Offer--Procedures for Tendering" at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of
the principal amount of the Private Notes, will be sent to the holders of
Private Notes unless otherwise indicated in the appropriate box on this Letter
of Transmittal as promptly as practicable after the expiration or termination
of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Private
Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
<PAGE>
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed
or accompanied by a properly completed bond power, in either case signed by
such registered holder exactly as the name(s) of the registered holder of
Private Notes appear(s) on the certificates. Signatures on such Private Notes
or bond powers must be guaranteed by an Eligible Institution (unless signed by
an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the exchange of Private
Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Private Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the holder of Private Notes or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Holders of Private Notes tendering Private
Notes by book-entry transfer may request that Private Notes not accepted be
credited to such account maintained at DTC as such holder of Private Notes may
designate.
9. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering Holder
whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further
instructions:
Norwest Bank Minnesota,
National Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113
(612) 667-9764
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<PAGE>
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private
Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or
(B) the Internal Revenue Service has notified the holder of Private Notes that
he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption from backup withholding. If such holder of Private Notes
is an individual, the TIN is such holder's social security number. If the
Exchange Agent is not provided with the correct taxpayer identification
number, the holder of Private Notes may be subject to certain penalties
imposed by the Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. Exempt holders of Private Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify
as an exempt recipient by submitting to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Private Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Private Notes. If the Private Notes are held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for additional guidance regarding which number to report.
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
11 1/2% SERIES A SENIOR NOTES DUE 2003 OF COBBLESTONE GOLF GROUP, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated October
2, 1996 (the "Prospectus") of Cobblestone Golf Group, Inc., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 11 1/2% Series A
Senior Notes due 2003 (the "Private Notes") held by you for the account of the
undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount):
$ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Private Notes held by you for the account of the
undersigned (insert principal amount of Private Notes to be tendered, if any):
$ of the Private Notes.
[_] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner of the Private Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) , (ii) the undersigned is acquiring the Exchange Notes
in the ordinary course of business of the undersigned, (iii) the undersigned
has no arrangement or understanding with any person to participate in the
distribution of Exchange Notes, (iv) the undersigned acknowledges that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the Staff of the Securities and Exchange
Commission set forth in certain no-action letters (See the section of the
Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"), (v)
the undersigned understands that a secondary resale transaction described in
clause (iv) above and any resales of Exchange Notes obtained by the
undersigned in exchange for the Private Notes acquired by the undersigned
directly from the Company should be covered by an effective registration
statement containing the selling securityholder information required by Item
507 or Item 508, if applicable, of Regulation S-K of the Commission, (vi) the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company, and (vii) if the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Private Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act; (b) to agree, on behalf of the undersigned,
as set forth in the Letter of Transmittal; and (c) to take such other action
as necessary under the Prospectus or the Letter of Transmittal to effect the
valid tender of Private Notes.
<PAGE>
The purchaser status of the undersigned is (check the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe)
-------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGN HERE
Name of Beneficial Owner(s):
---------------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s):
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Name(s) (please print):
--------------------------------------------------------------
- -------------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal place of business (if different from address listed above):
-------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number(s):
---------------------------------------------------------------
- -------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number(s):
-----------------------------------------
- -------------------------------------------------------------------------------
Date:
---------------------------------------------------------------------------
<PAGE>
PAYER'S NAME:
PART 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW
------------------------
SUBSTITUTE Social Security Number
FORM W-9
DEPARTMENT OF THE TREASURY OR
INTERNAL
REVENUE
SERVICE
------------------------
Employer Identification
Number
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
PART 2--Certification Under Penalties
of Perjury, I certify that:
--------------------------------------------------------
PART 3 --
(1) The number shown on this form is Awaiting
my current taxpayer TIN [_]
identification number (or I am
waiting for a number to be issued
to me) and
(2) I am not subject to backup
withholding either because I have
not been notified by the Internal
Revenue Service (the "IRS") that
I am subject to backup
withholding as a result of a
failure to report all interest or
dividends, or the IRS has
notified me that I am no longer
subject to backup withholding.
--------------------------------------------------------
Certificate instructions--You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding be-
cause of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you are subject to backup withholding
you receive another notification from the IRS stat-
ing that you are no longer subject to backup with-
holding, do not cross out item (2).
SIGNATURE __________________________ DATE ___________
NAME ________________________________________________
ADDRESS _____________________________________________
CITY _____________________________ STATE ZIP CODE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
PAYOR'S NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
or (b) I intend to mail or deliver such an application in the near future.
I understand that if I do not provide a taxpayer identification number
with sixty (60) days, 31% of all reportable payments made to me thereafter
will be withheld until I provide such a number.
---------------------------------------------------------- ------------
Signature Date
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
11 1/2% SERIES A SENIOR NOTES DUE 2003
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY
HOLDER OF 11 1/2% SERIES A SENIOR NOTES DUE 2003 (THE "PRIVATE NOTES") OF
COBBLESTONE GOLF GROUP, INC., A DELAWARE CORPORATION (THE "COMPANY"), WHO
WISHES TO TENDER PRIVATE NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER,
AS DEFINED IN THE PROSPECTUS DATED OCTOBER 2, 1996 (THE "PROSPECTUS") AND
(i) WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT
DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER
OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE
PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER
PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE
EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
COBBLESTONE GOLF GROUP, INC.
NOTICE OF GUARANTEED DELIVERY
To: Norwest Bank Minnesota, National Association, the Exchange Agent
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions
only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations
Norwest Center Confirm Receipt of Notice of
Sixth and Marquette Guaranteed Delivery by Telephone:
Minneapolis, MN 55479-0113
(612) 667-9764
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures
set forth under the caption "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus. By so tendering, the undersigned does hereby
make, at and as of the date hereof, the representations and warranties of a
tendering Holder of Private Notes set forth in the Letter or Transmittal. The
undersigned hereby tenders the Private Notes listed below:
<TABLE>
<CAPTION>
<S> <C>
CERTIFICATE NUMBERS PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Private Notes will be tendered SIGN HERE
by book-entry transfer:
-------------------------------------
Signature(s)
Name of Tendering Institution:
-------------------------------------
- -------------------------------------
The Depository Trust Company -------------------------------------
Name(s) (Please Print)
Account No.: ________________________
-------------------------------------
-------------------------------------
Address
-------------------------------------
Zip Code
-------------------------------------
Area Code and Telephone No.
Date: _______________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee Medallion
Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedure for book-entry transfer set forth in
the Prospectus, and any other required documents, all by 5:00 p.m., New York
City time, on the fifth New York Stock Exchange trading day following the
Expiration Date (as defined in the Prospectus).
SIGN HERE
-------------------------------------
Name of Firm
-------------------------------------
Authorized Signature
-------------------------------------
Name (Please print)
-------------------------------------
-------------------------------------
Address
-------------------------------------
Zip Code
-------------------------------------
Area Code and Telephone No.
Date: _______________________________
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should
be sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF SIGNATURES.
If this Notice of Guaranteed Delivery is signed by the registered Holder(s) of
the Private Notes referred to herein, then the signature must correspond with
the name(s) as written on the face of the Private Notes without alteration,
enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence
satisfactory to the Company of their authority so to act must be submitted
with this Notice of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
