<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION NO. 333-31025
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
KSL RECREATION GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 33-0747103
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
56-140 PGA BOULEVARD
LA QUINTA, CALIFORNIA 92253
(760) 564-1088
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
NOLA S. DYAL, ESQ.
56-140 PGA BOULEVARD
LA QUINTA, CALIFORNIA 92253
(760) 564-1088
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
GARY I. HOROWITZ, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If 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: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10 1/4% Series B Senior Subordinated Notes due
2007........................................... $125,000,000 100% $125,000,000 $37,878.79(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
(2) Paid on July 10, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SEPTEMBER 11, 1997
$125,000,000
[LOGO]
OFFER TO EXCHANGE $125,000,000 OF ITS
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR $125,000,000 OF ITS OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
OCTOBER 13, 1997, UNLESS EXTENDED.
------------------------
KSL Recreation Group, Inc. (the "Issuer"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange an aggregate of up to $125,000,000 principal amount of 10 1/4% Series B
Senior Subordinated Notes due 2007 (the "Exchange Notes") of the Issuer for an
identical face amount of the issued and outstanding 10 1/4% Senior Subordinated
Notes due 2007 (the "Old Notes" and together with the Exchange Notes, the
"Notes") of the Issuer from the Holders (as defined) thereof. As of the date of
this Prospectus, there is $125,000,000 aggregate principal amount of the Old
Notes outstanding. The terms of the Exchange Notes are identical in all material
respects to the Old Notes, except that the Exchange Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
therefore will not bear legends restricting their transfer and will not contain
certain provisions providing for additional interest in respect of the Old Notes
under certain circumstances described in the Registration Rights Agreement (as
defined), which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer.
The net proceeds from the offering of the Old Notes, together with initial
borrowings under the New Credit Facility (as defined), were used (i) to repay
approximately $265.0 million of outstanding indebtedness of entities that became
subsidiaries of the Issuer as part of the Concurrent Transactions (as defined)
and (ii) to make a loan of approximately $20.8 million to KSL Land Corporation
("KSL Land"), an affiliate of the Issuer, which was used to repay indebtedness
of KSL Land with respect to which one of such subsidiaries was a co-obligor
(collectively, the "Refinancings"). See "Use of Proceeds." The Issuer is a
wholly-owned subsidiary of KSL Recreation Corporation ("Parent"), approximately
96.7% of the Common Stock (84.5% on a fully diluted basis) of which is owned by
partnerships formed at the direction of Kohlberg Kravis Roberts & Co., L.P.
("KKR"), an affiliate of Kohlberg Kravis Roberts & Co.
The Exchange Notes will bear interest from the date of issuance at the rate
of 10.25% per annum, payable semi-annually in arrears on May 1 and November 1 of
each year, commencing on November 1, 1997. The Issuer will not be required to
make any mandatory redemption or sinking fund payment with respect to the
Exchange Notes prior to maturity. The Exchange Notes will be redeemable at the
option of the Issuer, in whole or in part, at any time on or after May 1, 2002
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time prior to May 1, 2001
the Issuer may, at its option redeem up to 50% of the Exchange Notes originally
issued under the Indenture (as defined) on the Issue Date (as defined) at a
redemption price equal to 110.25% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings (as defined); PROVIDED
that at least 50% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture on the Issue Date remain outstanding immediately
after the occurrence of each such redemption; PROVIDED, FURTHER, that such
redemption occurs within 60 days of the date of closing of each such Equity
Offering.
In the event of a Change of Control (as defined), holders of the Exchange
Notes will have the right to require the Issuer to purchase their Exchange
Notes, in whole or in part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that the Issuer will have, or will have
access to, sufficient funds to repurchase the Exchange Notes upon a Change of
Control.
(COVER PAGE CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Exchange Notes will be general unsecured obligations of the Issuer,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Issuer, including indebtedness pursuant to the New Credit
Facility. At April 30, 1997, on a pro forma basis as if the Lake Lanier
Transaction (as defined) had occurred on such date, the Issuer would have had
approximately $175.0 million of Senior Indebtedness outstanding. The Exchange
Notes will be effectively subordinated to all liabilities of the Issuer's
subsidiaries. At April 30, 1997, on a pro forma basis as if the Lake Lanier
Transaction had occurred on such date, the Issuer's subsidiaries would have had
approximately $302.1 million of total liabilities.
The Old Notes were issued and sold on April 30, 1997 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Issuer contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the Issuer
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired
in the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes and
neither such holder nor any such other person is engaging in or intends to
engage in a distribution of such Exchange Notes. However, the Issuer has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Notwithstanding the foregoing, 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 any resale of Exchange Notes
received in exchange for such Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuer). The Issuer
has agreed to make available for a period ending on the earlier to occur of (i)
the date when all Exchange Notes held by Participating Broker Dealers have been
sold and (ii) 180 days after consummation of the Exchange Offer this Prospectus
to any Participating Broker Dealer and any other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of
Exchange Notes. See "Plan of Distribution."
The Issuer does not intend to apply for listing of the Exchange Notes on any
securities exchange or for inclusion of the Exchange Notes in any automated
quotation system. The Old Notes have been designated for trading in the Private
Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the fourth business day
following the Expiration Date (as defined). Old Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. The
Issuer will not receive any proceeds from the Exchange Offer. The Issuer will
pay all of the expenses incident to the Exchange Offer.
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Issuer and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Issuer is presently subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement, such reports and other information can be inspected
and copied at the Public Reference Section of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at
regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet (http://www.sec.gov).
"PGA WEST" is a trademark licensed to the Company by the Professional
Golfers' Association of America. "TPC" is a trademark licensed to the Company by
PGA Tour, Inc. "Doral," "Doral Golf Resort and Spa" and "The Spa at Doral" are
trademarks licensed to the Company by Carol Management Corporation. "Blue
Monster," "The Club at PGA WEST" and "Quality, Affordable Golf" are registered
trademarks of the Company. See "Business--Licenses and Trademarks."
3
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
HEREIN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
INFORMATION. UNLESS OTHERWISE EXPRESSLY STATED OR THE CONTEXT OTHERWISE
REQUIRES: (I) THE TERM "ISSUER" REFERS TO KSL RECREATION GROUP, INC.; (II) THE
TERM "COMPANY" REFERS TO KSL RECREATION GROUP, INC. AND THE ENTITIES THAT BECAME
SUBSIDIARIES OF THE ISSUER (INCLUDING THEIR RESPECTIVE PREDECESSORS) PURSUANT TO
THE CONCURRENT TRANSACTIONS (AS DEFINED), AND GIVES EFFECT TO THE LAKE LANIER
TRANSACTION (AS DEFINED) AND THE CONCURRENT TRANSACTIONS; AND (III) THE TERM
"PARENT" REFERS TO KSL RECREATION CORPORATION, THE OWNER OF ALL OUTSTANDING
CAPITAL STOCK OF THE ISSUER. THE COMPANY'S FISCAL YEAR ENDS ON OCTOBER 31 OF
EACH YEAR. ADJUSTED EBITDA IS PRESENTED IN THIS PROSPECTUS TO ASSIST IN
UNDERSTANDING THE COMPANY'S OPERATING RESULTS. AS USED HEREIN, "ADJUSTED EBITDA"
IS DEFINED AS NET INCOME BEFORE INCOME TAX EXPENSE (BENEFIT), NET INTEREST
EXPENSE, DEPRECIATION AND AMORTIZATION, LOSS ON SALE OF GOLF FACILITY,
EXTRAORDINARY ITEMS, AND CERTAIN NON-CASH ITEMS, PLUS ADJUSTED NET MEMBERSHIP
DEPOSITS (AS DEFINED). THE COMPANY USES ADJUSTED EBITDA AS THE PRIMARY MEASURE
OF ITS RECURRING, OPERATING CASH FLOW PERFORMANCE BECAUSE IT INCLUDES RECURRING
CASH FLOW GENERATED BY PRIVATE CLUB MEMBERSHIP SALES OF THE COMPANY AT ITS
RESORT PROPERTIES. AS STRUCTURED, THESE PRIVATE CLUB MEMBERSHIP SALES ARE NOT
TREATED AS REVENUE FOR GAAP PURPOSES AND THEREFORE DO NOT APPEAR IN THE
COMPANY'S STATEMENT OF OPERATIONS, BUT ARE REFLECTED IN THE COMPANY'S STATEMENT
OF CASH FLOWS.
THE COMPANY VIEWS CASH FLOW FROM MEMBERSHIP SALES AS AN IMPORTANT OPERATING
CASH FLOW MEASURE AS MEMBERSHIP SALES ARE RECURRING IN NATURE AS THE CLUB BUILDS
ITS MEMBERSHIP AND REPLACES THE NATURAL TURNOVER. ALSO, THE SIGNIFICANT PAYROLL
AND OPERATING EXPENSES NECESSARY TO CREATE, SELL AND MAINTAIN A PRIVATE CLUB
OPERATION ARE TREATED AS ONGOING EXPENSES IN THE COMPANY'S STATEMENT OF
OPERATIONS AND THEREFORE RECOGNIZING THE CASH FLOW FROM SALES IS AN APPROPRIATE
MATCH IN DETERMINING THE OVERALL PERFORMANCE OF THE CLUB OPERATION. IT IS
IMPORTANT TO NOTE THAT THE MEMBERSHIP CASH FLOW INCLUDED IN ADJUSTED EBITDA IS
ONLY THE CASH AMOUNT COLLECTED NET OF FINANCED SALES AND REFUNDS.
FROM THE COMPANY'S PERSPECTIVE, EBITDA AND NET MEMBERSHIP CASH FLOW TOGETHER
AS ADJUSTED EBITDA PROVIDE THE MOST ACCURATE MEASURE OF THE RECURRING CASH FLOW
PERFORMANCE OF THE OPERATIONS. THEREFORE, THE ADJUSTED EBITDA MARGIN MEASURES
THE TOTAL CASH FLOW YIELD OF THE OPERATIONS. WITH REGARD TO THE COMPANY'S
CAPITAL STRUCTURE, ADJUSTED EBITDA/NET INTEREST EXPENSE REFLECTS THE COMPANY'S
ABILITY TO SERVICE DEBT PAYMENTS. ADJUSTED EBITDA AS DEFINED IN THIS PROSPECTUS
IS THE DOCUMENTED CASH FLOW MEASURE FOR CERTAIN DEBT SERVICE TESTS IN THE
INDENTURE AND IN THE NEW CREDIT FACILITY. ADJUSTED EBITDA SHOULD NOT BE
CONSTRUED AS AN INDICATOR OF THE COMPANY'S OPERATING PERFORMANCE OR AS AN
ALTERNATIVE TO OPERATING INCOME AS DETERMINED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"). ADDITIONALLY, ADJUSTED EBITDA SHOULD
NOT BE CONSTRUED BY INVESTORS AS A MEASURE OF THE COMPANY'S LIQUIDITY OR ABILITY
TO MEET ALL CASH NEEDS OR AS AN ALTERNATIVE TO CASH FLOWS FROM OPERATING,
INVESTING AND FINANCING ACTIVITIES AS DETERMINED IN ACCORDANCE WITH GAAP, NOR
SHOULD ADJUSTED EBITDA BE CONSTRUED BY INVESTORS AS AN ALTERNATIVE TO ANY OTHER
DETERMINATION UNDER GAAP.
THE COMPANY
The Company is one of the nation's leading operators of destination resort
businesses and community golf course facilities. The Company's mission is to
become a premier operator of service-based recreation, leisure and hospitality
businesses worldwide, capitalizing on significant growth opportunities in
business and leisure travel and participant recreation. For the twelve months
ended April 30, 1997, on a pro forma basis as defined herein, the Company's
revenues were $214.0 million and net loss was $16.3 million.
The Company's operations currently include world-class resorts and community
golf properties. The resort businesses are comprised of: (i) the internationally
recognized La Quinta Resort & Club ("La Quinta") and PGA WEST facilities ("PGA
WEST"), located in the Palm Springs, California area, which, together,
constitute the Company's "Desert Resorts" operations; (ii) the renowned Doral
Golf Resort and Spa ("Doral"), located near Miami, Florida; (iii) a hotel and
recreational complex at Lake Lanier near
4
<PAGE>
Atlanta, Georgia ("Lake Lanier Islands") and (iv) the Grand Traverse Resort
("Grand Traverse"), located in the northern portion of the lower peninsula of
Michigan. KSL Fairways ("Fairways"), the Company's community golf division, owns
22 golf facilities located in six states. The Company believes Fairways is the
nation's third largest owner/operator of community golf courses.
RESORT OPERATIONS
- DESERT RESORTS. Acquired by the Company in December 1993, Desert Resorts
includes 640 "casita"-style hotel rooms, eight championship eighteen-hole
golf courses including the renowned TPC Stadium Course, two private clubs
with approximately 1,930 dues-paying members (as of April 30, 1997),
several nationally recognized golf and tennis instruction programs,
including the Jim McLean Golf Academy at PGA WEST and The Dave Pelz Short
Game School, 49 tennis courts, 25 swimming pools, eight restaurants and
approximately 66,000 square feet of conference space, enabling Desert
Resorts to accommodate multiple large group functions. PGA WEST has
hosted several of the most prestigious events in golf, including the
Skins Game, the Bob Hope Chrysler Classic, The Grand Slam of Golf, the
Diners Club Matches and the Liberty Mutual Legends of Golf. Of Desert
Resorts' championship golf courses, four were designed by Pete Dye, two
by Jack Nicklaus, one by Arnold Palmer and one by Tom Weiskopf. La Quinta
was one of only 20 resorts nationwide and the only resort in southern
California to receive GOLF Magazine's prestigious Gold Medal in November
1996. For the twelve months ended April 30, 1997, revenues for Desert
Resorts were $84.0 million.
- DORAL GOLF RESORT AND SPA. Acquired by the Company in December 1993,
Doral includes 646 hotel rooms, four championship eighteen-hole golf
courses including the famed "Blue Monster" golf course which was recently
restored under the direction of noted professional golfer and golf course
designer Raymond Floyd and which is the home of the Doral-Ryder Open, a
nine-hole executive golf course, Jim McLean's nationally recognized golf
instruction program, the Arthur Ashe Tennis Center, featuring 15 courts,
one swimming pool, three restaurants, approximately 75,000 square feet of
conference space and a private club with approximately 400 dues-paying
members (at April 30, 1997). Doral also includes an internationally
acclaimed spa (the "Spa at Doral"), which features an additional 48 hotel
suites, three swimming pools, two restaurants and approximately 85,000
square feet of fitness and spa facilities. Doral also received the Gold
Medal award from GOLF Magazine in November 1996, making Doral one of only
four resorts in Florida to receive this award and making the Company one
of only two resort operators in the world to receive Gold Medals at more
than one facility. For the twelve months ended April 30, 1997, revenues
for Doral were $64.7 million.
- LAKE LANIER ISLANDS. Lake Lanier Islands is an approximately 1,040 acre
recreational complex situated at Lake Lanier, Georgia, which is located
approximately 45 miles from downtown Atlanta. Lake Lanier's operations
currently include a 224-room hotel operated by the Company under a
license agreement with Hilton Hotels, an eighteen-hole golf course, three
tennis courts, one swimming pool, two restaurants, approximately 12,500
square feet of conference space, extensive beach and water park
facilities, houseboat and fishing boat rentals, riding stables,
campgrounds, pavilions and an amphitheater. For the period from May 15,
1996 through April 30, 1997, on a pro forma basis after giving effect to
the Lake Lanier Transaction, revenues for Lake Lanier Islands would have
been $19.3 million.
- GRAND TRAVERSE RESORT. Grand Traverse, which the Company acquired in
August 1997, includes 425 hotel rooms, two championship golf courses,
nine tennis courts, four racquetball courts, three swimming pools, three
restaurants and approximately 55,000 square feet of conference space.
"The Bear" golf course at Grand Traverse was designed by Jack Nicklaus.
Grand Traverse won a Silver Medal from GOLF Magazine in November 1996.
5
<PAGE>
COMMUNITY GOLF OPERATIONS
- KSL FAIRWAYS. In mid-1993, the Company purchased Fairways, a
then-privately-held owner/ operator of community golf facilities
primarily along the east coast of the United States. During the past
three years, Fairways' operations have grown rapidly and today include a
total of 16 eighteen-hole golf facilities, three 27-hole golf facilities
and three 36-hole golf facilities at 22 locations in the Southeast,
Mid-Atlantic and upper Midwest regions of the United States. These clubs
are a mix of public (or daily fee), semi-private and private golf
facilities, with approximately 8,000 dues-paying members (at April 30,
1997) at the semi-private and private clubs. For the twelve months ended
April 30, 1997, revenues for the community golf operations were $46.0
million.
OPERATING ACHIEVEMENTS
The Company was formed in 1993, acquired Fairways in July 1993, acquired
Desert Resorts and Doral in December 1993 and, since July 1993, has acquired an
additional 12 community golf course properties through Fairways. The Company
began operating Lake Lanier Islands pursuant to a management agreement in May
1996 and closed the sublease on Lake Lanier Islands in August 1997. The
Company's revenues have increased from $124.2 million in fiscal 1994 to $180.3
million in fiscal 1996, representing a 20.5% compound annual growth rate. In
addition, Adjusted EBITDA (see note 2 at page 21 for a summary of cash flows
from operating, investing and financing activities and a reconciliation of net
income (loss) to Adjusted EBITDA) has increased from $23.0 million in fiscal
1994 to $43.9 million in fiscal 1996, representing a compound annual growth rate
of 38.0%. Management attributes this growth in revenues and margin improvement
to the successful implementation of a number of initiatives since 1994, the most
significant of which include: (i) a $66.5 million capital spending program at
the Company's resorts; (ii) improvements in service levels and the introduction
of enhanced programs available to the Company's members and guests; (iii)
development of marketing techniques to promote the unique natural beauty and
history of its resort properties; (iv) implementation of yield management
techniques to increase usage of the Company's facilities; (v) better matching
the Company's employee base to its seasonal labor needs through labor
forecasting; (vi) implementation of combined purchasing programs across the
Company's different operations; (vii) consolidation of certain of the Company's
administrative and executive management functions; and (viii) introduction of
new membership programs at its resorts designed to add new members and convert
existing members.
BUSINESS STRATEGY
The Company's management has significant experience in operating resort and
recreation businesses and is focused on maximizing the business potential of the
Company by providing a superior destination resort experience and a quality
recreation product for its guests and members. The Company believes it is
well-positioned to capitalize on the significant growth and consolidation
opportunities that it believes exist in the recreation, leisure and hospitality
industries. The Company's business strategy is to (i) capitalize on high-impact
capital improvements at its resorts, (ii) distinguish and market the uniqueness
and brand names of its resort properties, (iii) continue to grow its membership
business, (iv) expand through strategic acquisitions and (v) enter related
recreation businesses.
- CAPITALIZE ON HIGH-IMPACT CAPITAL IMPROVEMENTS AT ITS RESORTS. The
Company's strategy is to make capital expenditures at its resort
properties that are designed to result in incremental revenues and
Adjusted EBITDA. As a part of this strategy, over the past three years,
the Company has invested approximately $33.5 million at Desert Resorts
to, among other things: (i) build a new 24,000 square foot addition to
the conference facilities at La Quinta; (ii) construct a new championship
golf course designed by Tom Weiskopf at PGA WEST and renovate the
Mountain Course at La Quinta; and (iii) build a new 28,000 square foot
members' clubhouse at
6
<PAGE>
the Citrus Course at La Quinta. During the same period, the Company has
invested approximately $33.0 million at Doral to, among other things: (i)
renovate all 646 guest rooms and refurbish all 48 spa guest suites at the
resort; (ii) renovate the approximately 75,000 square feet of conference
facilities and most of the public reception areas; and (iii) restore the
famed "Blue Monster" Golf Course and rebuild the Gold Course under the
direction of noted professional golfer and golf course designer Raymond
Floyd. The Company believes that as a result of these capital
expenditures: (i) revenue per available room ("RevPAR"), a common measure
of the yield generated by occupancy and room rate, at its resorts has
increased; (ii) its resorts have attracted higher spending corporate and
other group guests; (iii) the number of free independent traveler ("FIT")
guests at its resorts has increased; (iv) the combined revenue yield of
its golf and hotel operations at its resorts has increased; and (v) the
value of its private club membership has been enhanced. Because many of
the capital improvements at Desert Resorts and Doral have been recently
completed, the Company believes that it will continue to realize
additional growth in revenues and Adjusted EBITDA as a result of those
investments.
- DISTINGUISH AND MARKET UNIQUENESS AND BRAND NAMES OF ITS PROPERTIES. The
Company believes that its destination resort facilities offer a unique
combination of luxury hotel accommodations, world class golf and tennis
facilities and conference facilities unmatched by many of its
competitors. The Company seeks to develop and accentuate the unique
aspects of its world-renowned destination resorts in order to attract
repeat customers, encourage group guests to return as FIT guests and
increase rates charged for its services and amenities. Key elements of
this strategy include promoting the independent name of each of the
Company's destination resorts in order to distinguish them from "chain"
competitors, capitalizing on a broad range of promotional events to
enhance the prestige of the Company's resorts and retaining recognized
experts, such as Jim McLean, Dave Pelz and John Austin, to oversee
quality golf and tennis instructional programs at the Company's resorts.
As part of this strategy, the Company sponsors nationally televised
professional golf events. In the last twelve months, the Company has
hosted: (i) the Doral-Ryder Open, (ii) the Lexus Challenge, (iii) the
Diners Club Matches and (iv) the Liberty Mutual Legends of Golf. In
addition, the Bob Hope Chrysler Classic will be played at PGA WEST for
the next three years. The Company believes that the national television
exposure for its resorts resulting from these tournaments provides a
significant marketing benefit to the Company.
- CONTINUE TO GROW MEMBERSHIP BUSINESS. By expanding the number and type of
its membership programs, developing new membership facilities and
implementing more sophisticated and effective sales and marketing
programs, the Company believes that it enhances the value of its resort
and community golf club memberships which, in turn, should continue to
increase the number of its members and the annual growth in membership
revenue. For fiscal 1996, dues revenue represented approximately 12% of
total revenues. To achieve this goal, the Company has (i) engaged senior
management experienced in developing new membership programs; (ii)
upgraded the training and increased the number of its sales and marketing
staff; (iii) adopted more sophisticated direct mail marketing techniques
and member-referral programs; (iv) developed programs to cross-sell club
memberships, primarily to its resort guests; and (v) implemented programs
to facilitate the conversion of new home buyers in communities
surrounding Desert Resorts into new members at one or more of Desert
Resorts' private clubs. From January 1, 1994 to April 30, 1997, the
Company has, after attrition, added or converted approximately 2,330
members at Doral and Desert Resorts. In addition, the Company believes
that the recent capital improvements at its destination resorts should
enable the clubs at La Quinta, PGA WEST and Doral to accommodate a
significant number of additional golf members.
7
<PAGE>
- EXPAND THROUGH STRATEGIC ACQUISITIONS. The Company intends to engage in
strategic acquisitions to increase revenues and Adjusted EBITDA. In the
community golf industry, the Company expects to continue to seek
acquisitions designed to increase marketing synergies and cost
efficiencies arising out of its strategy of forming "clusters" of courses
within geographic areas in order to create economies of scale and to
promote reciprocity among clubs for the members within those "clusters."
Because the community golf industry is highly fragmented, the Company
believes that the high cost of operating and maintaining competitive golf
courses, competition for a limited supply of experienced golf operating
managers and the cost efficiencies afforded by ownership and operation of
multiple golf courses will result in continued industry consolidation.
The Company believes that its access to capital and professional
management will enable it to capitalize on future acquisition
opportunities which may arise as the result of this expected industry
consolidation. In the resort industry, the Company expects to continue to
acquire unique resorts that offer a combination of quality accommodations
and superior recreational amenities and/or conference facilities. Because
the resort industry is characterized by a large number of independent
owners, high capital demands and ownership by "enthusiasts" rather than
professional managers, the Company believes that acquisition
opportunities in the resort industry will be available to the Company.
The Company's acquisitions in fiscal 1996 accounted for approximately
1.4% of fiscal 1996 revenues.
- ENTER RELATED RECREATION BUSINESSES. Consistent with the Company's
service-based recreation emphasis, the Company's strategy includes
selectively expanding into related recreation businesses. In May 1996,
the Company entered into an agreement with Lake Lanier Islands
Development Authority ("LLIDA"), a State of Georgia agency, to manage
Lake Lanier Islands as the first step to closing the privatization of the
facility pursuant to a long-term sublease (which was closed in August
1997). In addition to hotel and golf operations, Lake Lanier Islands
generates significant revenues from daily ticketed attractions, including
extensive beach and water park facilities, houseboat and fishing boat
rental operations, riding stables, campgrounds, pavilions, an
amphitheater, group and social outings and front gate admissions. The
Company intends to seek other daily ticketed attraction businesses in the
future and has recently hired executives with extensive experience in
this area of the recreation industry. Additionally, the Company expects
other privatization opportunities to emerge as local, state and federal
government agencies seek ways to increase the quality of public
recreation facilities while reducing their financial and other
obligations to such facilities. With its experience in operating
recreational facilities and its access to capital, the Company believes
it is well-positioned to benefit from this trend.
INDUSTRY OVERVIEW
HOTEL LODGING
The Company believes that its destination resorts compete most directly with
chain and independent "luxury resort" hotels. There are approximately 278 luxury
resorts in the United States, consisting of approximately 107,000 rooms. The
Company believes that the development of new resorts has been and will continue
to be constrained by both high initial capital requirements and maintenance
costs. As a result, the supply in the luxury resort segment of the hotel and
lodging industry has been relatively stable from 1992 to 1996. However, both
total revenues and RevPAR for this segment grew at a compound annual rate of
over 5% between 1992 and 1996, which the Company believes reflects increased
demand. The Company believes that demand in the luxury resort sector in general,
and in destination resorts in particular, will continue to increase in the
future as a result of: (i) increases in leisure time and disposable income that
are expected to occur as the "baby boom" generation matures; (ii) the growing
desire of leisure travelers to take more active vacations; and (iii) increased
corporate demand for quality, full service facilities which combine both group
meeting facilities and recreational amenities.
8
<PAGE>
The luxury resort sector is characterized by a large number of independent
owners, with approximately 60% of all luxury resort hotels being operated
independently of chain affiliations. The Company believes that, because of this
fragmentation, as well as the high capital requirements to maintain and operate
luxury resorts acquisition opportunities in the resort industry will be
available.
GOLF
Since 1980, the golf industry has experienced significant growth. According
to industry data, the number of golfers has increased approximately 66% from
1980 to 1995 and the number of rounds played has increased approximately 37%
during the same time period. In the twelve months ended August 1994, the golf
business generated approximately $15.1 billion in revenues in the United States,
of which $10.1 billion was spent on playing fees. The Company believes that
favorable demographics, particularly the aging of the "baby boom" generation,
should result in an increase in the number of rounds played and an increase in
spending per golfer.
The golf industry is highly fragmented, with approximately 14,400 golf
facilities in the United States as of December 31, 1996. The Company believes
that the 15 largest golf course management companies in the United States
collectively manage fewer than 5% of the total number of golf facilities and
that only 11 golf course management companies manage 10 or more golf facilities.
The Company believes that this fragmentation, together with the high cost of
operating and maintaining competitive golf courses, competition for a limited
supply of experienced golf operating managers and the cost efficiencies afforded
by ownership and operation of multiple golf courses, should result in continued
industry consolidation.
MANAGEMENT AND OWNERSHIP
In mid-1993, partnerships formed at the direction of KKR, together with
Michael S. Shannon and Larry E. Lichliter, the former chief executive officer
and former chief operating officer, respectively, of Vail Associates, Inc.
("Vail Associates"), a premier ski resort owner and operator located in Vail,
Colorado, established Parent to capitalize on the attractive economics and the
positive growth fundamentals in certain segments of the service-based recreation
and leisure industries. The Issuer is a wholly-owned subsidiary of Parent,
approximately 96.7% of the Common Stock (84.5% on a fully diluted basis) of
which is owned by partnerships formed at the direction of KKR. See "Management"
and "Beneficial Ownership of Common Stock."
9
<PAGE>
SUMMARY CORPORATE STRUCTURE
The following chart summarizes the corporate structure of the Company after
giving effect to the Lake Lanier Transaction.
[CHART]
- --------------------------
(1) Approximately 96.7% (84.5% on a fully diluted basis) of the capital stock of
Parent is owned by partnerships formed at the direction of KKR and
approximately 3.3% (15.5% on a fully diluted basis) of the capital stock of
Parent is owned by management and one prior owner of courses acquired by
Fairways. See "Management" and "Beneficial Ownership of Common Stock." KSL
Recreation Corporation owns all of the outstanding capital stock of the
Issuer.
(2) On May 15, 1996, the Company entered into an agreement to manage the
facilities at Lake Lanier Islands (the "Lake Lanier Management Agreement")
with the Lake Lanier Islands Development Authority ("LLIDA") which subleases
the property from a department of the State of Georgia which leases the
property from the U.S. Army Corps of Engineers (the "Corps of Engineers").
The Company subsequently executed a 50-year sublease with LLIDA. The Company
closed the sublease in August 1997. See "Business--Properties; Lake Lanier
Transaction."
(3) As of October 31, 1996, KSL Fairways Golf Corporation, a subsidiary of KSL
Golf Holdings, Inc., had an 88.15% partnership interest in The Fairways
Group, L.P. Two entities unaffiliated with the Company, Meridian Venture
Partners and The Fairways Group Associates, L.P., owned a 4.24% partnership
interest and a 7.61% partnership interest, respectively, in The Fairways
Group, L.P. Pursuant to the partnership agreement of The Fairways Group,
L.P., KSL Fairways Golf Corporation serves as the managing general partner
of The Fairways Group, L.P.
10
<PAGE>
THE REFINANCINGS
The gross proceeds from the offering of the Old Notes were $125.0 million
which, together with $100.0 million of term loans under the New Credit Facility
and a $75.0 million drawing under the revolving credit portion of the New Credit
Facility, were used: (i) to repay approximately $265.0 million of outstanding
indebtedness of subsidiaries of the Issuer; (ii) to make a loan of approximately
$20.8 million to KSL Land Corporation ("KSL Land"), an affiliate of the Issuer
which was used to repay indebtedness of KSL Land, with respect to which Desert
Resorts was a co-obligor; (iii) to pay prepayment penalties; (iv) to pay fees
and expenses in connection with the Refinancings; and (v) for general corporate
purposes.
The following table sets forth the sources and uses of funds in connection
with the Refinancings.
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(IN MILLIONS)
SOURCES:
Revolving loan under New Credit Facility(1)............................. $ 75.0
Term loans under New Credit Facility(1)................................. 100.0
The Notes............................................................... 125.0
------
Total sources......................................................... $ 300.0
------
------
USES:
Refinancing of Desert Resorts indebtedness:
Direct repayment of indebtedness...................................... $ 131.7
Loan to KSL Land to repay indebtedness with respect to which Desert
Resorts was a co-obligor............................................ 20.8
Refinancing of Fairways indebtedness.................................... 69.3
Refinancing of Doral indebtedness....................................... 64.0
Prepayment penalties on outstanding indebtedness........................ 1.3
Fees and expenses....................................................... 10.0
General corporate purposes.............................................. 2.9
------
Total uses............................................................ $ 300.0
------
------
</TABLE>
- ------------------------
(1) The New Credit Facility provides for revolving borrowings of up to $175.0
million and term loans of up to $100.0 million. See "Description of Certain
Indebtedness--New Credit Facility."
THE CONCURRENT TRANSACTIONS
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with the
consummation of the Refinancings: (i) Parent contributed the outstanding capital
stock of the parent of Desert Resorts, Doral, Fairways and Lake Lanier Islands
to the Issuer as a result of which they became wholly-owned subsidiaries of the
Issuer; (ii) KSL Landmark Corporation (which owned Desert Resorts and into which
Desert Resorts was merged effective July 1, 1997) dividended to Parent (through
the Issuer) all of the general partnership interests and Class A limited
partnership interests owned by KSL Landmark Corporation in four affiliated
limited partnerships whose principal assets were beneficial interests in
undeveloped commercial and residential real estate parcels in the vicinity of
Desert Resorts, thereby removing ongoing funding obligations of the Company for
holding costs relating to undeveloped land; (iii) the Company sold to KSL Land
at historical cost (which approximated fair market value) the general
partnership interest and Class A limited partnership interest owned by KSL
Landmark Corporation in an additional limited partnership whose principal assets
were residential real estate parcels in the vicinity of Desert Resorts (iv)
Parent, the Company and affiliates settled intercompany balances, which resulted
in an increase in cash to the Company of $46.3 million; (v) the Company
distributed to Parent in cash excess equity funding of $46.3 million contributed
by Parent to
11
<PAGE>
Desert Resorts at the time of acquisition; (vi) the Company distributed $13.9
million in cash to Parent, which was recorded as a return of capital to Parent;
and (vii) certain management, lending and other agreements used to allocate
corporate general and administrative expenses between Parent and its
subsidiaries prior to the Refinancings were cancelled and the Issuer and Parent
entered into a new expense allocation agreement (the "Expense Allocation
Agreement") which has resulted in an increase in corporate general and
administrative expenses of the Company since April 30, 1997 (the transactions
described in clauses (i) through (vii) above being referred to herein as the
"Concurrent Transactions"). See "Unaudited Pro Forma Consolidated Financial
Statements" and "Certain Related Transactions." The Concurrent Transactions did
not reflect possible future dividends by the Company of additional parcels of
land which may occur following the receipt of applicable state and local
government approvals.
12
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................. The Issuer is offering to exchange pursuant to the
Exchange Offer up to $125,000,000 aggregate principal
amount of its new 10 1/4% Series B Senior Subordinated
Notes due 2007 (the "Exchange Notes") for a like
aggregate principal amount of its outstanding 10 1/4%
Senior Subordinated Notes due 2007 (the "Old Notes"
and together with the Exchange Notes, the "Notes").
The terms of the Exchange Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferrable by Holders (as defined) thereof
(other than as provided herein), and are not subject
to any covenant regarding registration under the
Securities Act. See "The Exchange Offer."
Interest Payments.................. Interest on the Exchange Notes shall accrue from the
last interest payment date (May 1 or November 1) on
which interest was paid on the Notes so surrendered
or, if no interest has been paid on such Notes, from
April 30, 1997 (the "Interest Payment Date").
Minimum Condition.................. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered
for exchange.
Expiration Date; Withdrawal
of Tender........................ The Exchange Offer will expire at 5:00 p.m., New York
City time, on October 13, 1997, unless the Exchange
Offer is extended, in which case the term "Expiration
Date" means 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. See "The Exchange
Offer--Withdrawal Rights."
Exchange Date...................... The date of acceptance for exchange of the Old Notes
will be the fourth business day following the
Expiration Date.
Conditions to the Exchange Offer... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuer. The
Issuer currently expects that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Certain Conditions
to the Exchange Offer." The Issuer reserves the right
to terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old Each holder of Old Notes wishing to accept the
Notes............................ 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 the Old
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set forth
therein. See "The Exchange Offer--Procedures for
Tendering Old Notes" and "Plan of Distribution."
Use of Proceeds.................... There will be no proceeds to the Issuer from the
exchange of Notes pursuant to the Exchange Offer.
Federal Income Tax Consequences.... The exchange of Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax
purposes. See "Certain United States Federal Income
Tax Considerations."
Special Procedures for Beneficial
Owners........................... Any beneficial owner whose Old 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 promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and
delivering the Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in
such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take considerable
time. See "The Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures..... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, the
Letter of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for
Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange Notes....... The Issuer will accept for exchange any and all Old
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date. See "The
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Exchange Offer--Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes."
Effect on Holders of Old Notes..... As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the Issuer will have
fulfilled a covenant contained in the Registration
Rights Agreement (the "Registration Rights Agreement")
dated April 30, 1997 among the Issuer and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon
Brothers Inc, Credit Suisse First Boston Corporation,
BancAmerica Securities, Inc., Montgomery Securities
and Scotia Capital Markets (the "Initial Purchasers")
and, accordingly, there will be no additional interest
in respect of the Old Notes pursuant to the terms of
the Registration Rights Agreement, and the holders of
the Old Notes will have no further registration or
other rights under the Registration Rights Agreement.
Holders of the Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold such
Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture
between the Issuer and First Trust of New York
National Association relating to the Old Notes and the
Exchange Notes (the "Indenture"), except for any such
rights under the Registration Rights Agreement that by
their terms terminate or cease to have further
effectiveness as a result of the making of, and the
acceptance for exchange of all validly tendered Old
Notes pursuant to, the Exchange Offer. All untendered
Old Notes will continue to be subject to the
restrictions on transfer provided for in the Old Notes
and in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the
trading market for untendered Old Notes could be
adversely affected.
Consequence of Failure to Holders of Old Notes who do not exchange their Old
Exchange......................... Notes for Exchange Notes pursuant to the Exchange
Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the
legend thereon as a consequence of the offer or sale
of the Old Notes pursuant to an exemption from, or in
a transaction not subject to, the registration
requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may
not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act
and applicable state securities laws. The Issuer does
not currently anticipate that it will register the Old
Notes under the Securities Act.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Exchange Agent..................... First Trust of New York National Association is
serving as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered................. $125.0 million in aggregate principal amount of
10 1/4% Senior Subordinated Notes due 2007 (the
"Exchange Notes").
Maturity Date...................... May 1, 2007.
Interest Payment Dates............. May 1 and November 1, commencing on November 1, 1997.
Mandatory Redemption............... The Issuer will not be required to make mandatory
redemption or sinking fund payments with respect to
the Exchange Notes.
Optional Redemption................ The Exchange Notes will be redeemable at the option of
the Issuer, in whole or in part, at any time on or
after May 1, 2002 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to
the date of redemption.
In addition, at any time or from time to time on or
prior to May 1, 2001 the Issuer may, at its option,
redeem up to 50% of the Exchange Notes originally
issued under the Indenture on the Issue Date at a
redemption price equal to 110.25% of the aggregate
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings;
provided that at least 50% of the aggregate principal
amount of Exchange Notes originally issued under the
Indenture on the Issue Date remain outstanding
immediately after the occurrence of each such
redemption; provided further that such redemption
occurs within 60 days of the date of closing of each
such Equity Offering.
Change of Control.................. In the event of a Change of Control (as defined),
holders of the Exchange Notes will have the right to
require the Issuer to purchase their Exchange Notes at
a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase.
Ranking............................ The Exchange Notes will be general unsecured
obligations of the Issuer subordinated in right of
payment to all existing and future Senior Indebtedness
of the Issuer, including indebtedness pursuant to the
New Credit Facility. At April 30, 1997, on a pro forma
basis as if the Lake Lanier Transaction had occurred
on such date, the aggregate principal amount of
outstanding Senior Indebtedness of the Issuer would
have been $175.0 million. The Exchange Notes will be
effectively subordinated to all liabilities of the
Issuer's subsidiaries. At April 30, 1997, on a pro
forma basis as if the Lake Lanier Transaction had
occurred on such date, the Issuer's subsidiaries would
have had approximately $302.1 million of total
liabilities.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Certain Covenants.................. The indenture governing the Exchange Notes (the
"Indenture") contains covenants that, among other
things:
(i) limit the incurrence by the Issuer and its
Restricted Subsidiaries (as defined) of additional
indebtedness; (ii) limit the issuance by the Issuer of
Disqualified Stock (as defined); (iii) prohibit the
issuance of preferred stock by subsidiaries of the
Issuer; (iv) restrict the ability of the Issuer and
its Restricted Subsidiaries to make dividends and
other restricted payments or investments; (v) limit
transactions by the Issuer and its Restricted
Subsidiaries with affiliates; (vi) limit the ability
of the Issuer and its Restricted Subsidiaries to make
asset sales; (vii) limit the ability of the Issuer and
its Restricted Subsidiaries to incur liens to secure
indebtedness other than Senior Indebtedness; and
(viii) limit the ability of the Issuer to consolidate
or merge with or into, or to transfer all or
substantially all of its assets to, another person.
The foregoing restrictions are subject to a number of
significant exceptions. See "Description of Exchange
Notes."
</TABLE>
RISK FACTORS
Prospective investors in the Exchange Notes should carefully consider the
matters set forth herein under "Risk Factors."
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma consolidated
balance sheet data at April 30, 1997 and summary unaudited pro forma
consolidated income statement data of KSL Recreation Group, Inc. and
subsidiaries for the fiscal year ended October 31, 1996, for the six months
ended April 30, 1997 and for the twelve months ended April 30, 1997. The pro
forma consolidated balance sheet data at April 30, 1997 give effect to the Lake
Lanier Transaction as if such transaction had occurred on April 30, 1997. The
pro forma consolidated income statement data and other data for the fiscal year
ended October 31, 1996, for the six months ended April 30, 1997 and for the
twelve months ended April 30, 1997 give effect to the Refinancings and the
Concurrent Transactions as if such transactions had occurred at the beginning of
the earliest period presented and to the Lake Lanier Transaction as if it had
occurred on May 15, 1996.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR SIX MONTHS MONTHS
ENDED ENDED ENDED
OCTOBER 31, APRIL 30, APRIL 30,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL
RATIOS)
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA:
Revenues........................................................................... $ 192,405 $ 128,112 $ 213,966
Operating expenses................................................................. 178,863 101,172 193,837
----------- ----------- -----------
Income from operations............................................................. 13,542 26,940 20,129
Net interest expense............................................................... 29,142 15,924 31,360
Minority interests in losses of subsidiaries....................................... 58 182 162
Income tax expense (benefit)....................................................... (35) 2,138 2,106
Extraordinary gain (loss), net of income tax....................................... 32,120 (3,138) (3,138)
----------- ----------- -----------
Net income (loss).................................................................. $ 16,613 $ 5,922 $ (16,313)
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA CONSOLIDATED OTHER DATA:
Net Membership Deposits(1)......................................................... $ 4,391 $ 3,593 $ 5,980
Adjusted Net Membership Deposits(2)................................................ 4,391 3,593 5,980
Other non-cash items............................................................... 873 330 1,114
Capital expenditures(3)............................................................ 25,240 7,268 19,478
Ratio of earnings to fixed charges(4).............................................. -- 1.7x --
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-------------------
<S> <C>
(IN THOUSANDS)
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 25,427
Working capital............................................................................. 27,062
Total assets................................................................................ 605,611
Long-term debt (including current portion).................................................. 339,733
Total stockholder's equity.................................................................. 178,518
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
18
<PAGE>
- ------------------------
(1) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with the initial
conversion of such members to new membership plans at Desert Resorts, were
nonrecurring in nature.
(3) Excludes the effect of the Lake Lanier Transaction for all periods
presented.
(4) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries to earnings before income taxes
and extraordinary items and (ii) fixed charges are comprised of interest
expense, capitalized interest, and the estimated interest portion of rental
expense. The Company's pro forma earnings would have been insufficient to
cover fixed charges by $16,177 and $11,435 for the fiscal year ended October
31, 1996 and the twelve months ended April 30, 1997, respectively.
19
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of the Company at and for the periods indicated. Income statement data for
the three fiscal years ended October 31, 1996 have been derived from
consolidated financial statements of the Company audited by Deloitte & Touche
LLP, independent public auditors. Data for the six months ended April 30, 1996
and at and for the six months ended April 30, 1997 have been derived from
unaudited consolidated financial statements of the Company which, in the opinion
of management, include all adjustments necessary for a fair presentation of the
information. Data at and for the six months ended April 30, 1997 do not purport
to be indicative of results to be expected for the full fiscal year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED OCTOBER 31, APRIL 30,
------------------------------- ------------------------
1994(1) 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
INCOME STATEMENT DATA:
Revenues................................................... $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses......................................... 116,184 153,615 165,493 85,108 92,189
--------- --------- --------- ----------- -----------
Income from operations..................................... 8,026 4,636 14,781 21,443 30,652
Net interest expense....................................... 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility.............................. -- (2,684) -- -- --
Minority interests in losses of subsidiaries............... 458 201 58 78 182
Income tax expense (benefit)............................... -- -- (291) (3) 2,195
Extraordinary gain (loss), net of income tax............... (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- ----------- -----------
Net income (loss).......................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
OTHER DATA:
Adjusted EBITDA(2)......................................... $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
Net Membership Deposits(3)................................. 24,218 6,347 4,391 2,004 3,593
Adjusted Net Membership Deposits(4)........................ 351 234 4,391 2,004 3,593
Other non-cash items....................................... 228 885 873 89 330
Capital expenditures....................................... 15,105 52,639 25,240 13,030 7,268
Revenue growth............................................. -- 27.4% 13.9% -- 15.3%
Adjusted EBITDA margin(5).................................. 18.5% 16.6% 24.3% 32.8% 38.8%
Ratio of earnings to fixed charges(6)...................... -- -- -- 1.6x 1.9x
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-------------------
<S> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 36,325
Working capital............................................................................. 38,063
Total assets................................................................................ 575,246
Long-term debt (including current portion).................................................. 308,582
Total stockholder's equity.................................................................. 178,518
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
20
<PAGE>
- ------------------------
(1) Desert Resorts and Doral were acquired in December 1993. Accordingly, the
Company's operating results for fiscal 1994 include only ten months of
operations for Desert Resorts and Doral.
(2) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization, loss on sale
of golf facility, extraordinary items and certain non-cash items (consisting
of recurring gains and losses on sale or disposal of fixed assets and
accretion of future membership liabilities), plus Adjusted Net Membership
Deposits (as defined below) and is consistent with the definition that is
contained in the Indenture. Adjusted EBITDA is presented to assist in
understanding the Company's operating results. The Company uses Adjusted
EBITDA as the primary measure of its recurring, operating cash flow
performance because it includes recurring cash flow generated by private
club membership sales of the Company at its resort properties. As
structured, these private club membership sales are not treated as revenue
for GAAP purposes and therefore do not appear in the Company's Statement of
Operations, but are reflected in the Company's Statement of Cash Flows.
The Company views cash flow from membership sales as an important operating
cash flow measure as membership sales are recurring in nature as the club
builds its membership and replaces the natural turnover. Also, the
significant payroll and operating expenses necessary to create, sell and
maintain a private club operation are treated as ongoing expenses in the
Company's Statement of Operations and therefore recognizing the cash flow
from sales is an appropriate match in determining the overall performance of
the club operation. It is important to note that the membership cash flow
included in Adjusted EBITDA is only the cash amount collected net of
financed sales and refunds.
From the Company's perspective, EBITDA and net membership cash flow together
as Adjusted EBITDA provide the most accurate measure of the recurring cash
flow performance of the operations. Therefore, the Adjusted EBITDA margin
measures the total cash flow yield of the operations. With regard to the
Company's capital structure, Adjusted EBITDA/Net interest expense reflects
the Company's ability to service debt payments. Adjusted EBITDA as defined
in this Prospectus is the documented cash flow measure for certain debt
service tests in the Indenture and in the New Credit Facility. Adjusted
EBITDA should not be construed as an indicator of the Company's operating
performance or as an alternative to operating income as determined in
accordance with GAAP. Additionally, Adjusted EBITDA should not be construed
by investors as a measure of the Company's liquidity or ability to meet all
cash needs or as an alternative to cash flows from operating, investing and
financing activities as determined in accordance with GAAP, nor should
Adjusted EBITDA be construed by investors as an alternative to any other
determination under GAAP.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
21
<PAGE>
The following table sets forth, for the periods indicated, information
of cash flow from operating, investing and financing activities determined
in accordance with GAAP and reconciliations of consolidated net income
(loss) to Adjusted EBITDA.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED OCTOBER 31, APRIL 30,
------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flow information determined in accordance with
GAAP
Cash flows provided by (used in):
Operating activities................................. $ (25,467) $ (6,750) $ 14,926 $ 9,598 $ 74,577
Investing activities................................. (397,761) (48,912) (12,250) 4,348 (21,469)
Financing activities................................. 456,228 26,237 (3,301) (9,657) (26,126)
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash equivalents... $ 33,000 $ (29,425) $ (625) $ 4,289 $ 26,982
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Reconciliations of consolidated net income (loss) to
Adjusted EBITDA
Net income (loss)...................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- ----------- ---------
Adjustments to net income (loss):
Income tax (benefit) expense......................... -- -- (291) (3) 2,195
Net interest expense................................. 14,011 18,483 27,710 12,530 15,605
Depreciation and amortization........................ 13,971 20,327 23,770 11,386 12,916
Loss on sale of golf facility........................ -- 2,684 -- -- --
Extraordinary (gain) loss............................ 2,202 -- (32,120) (32,120) 3,138
--------- --------- --------- ----------- ---------
Total adjustments to net income (loss): 30,184 41,494 19,069 (8,207) 33,854
--------- --------- --------- ----------- ---------
EBITDA................................................. 22,455 25,164 38,609 32,907 43,750
--------- --------- --------- ----------- ---------
Adjustments to EBITDA:
Net Membership Deposits.............................. 24,218 6,347 4,391 2,004 3,593
Excluded Conversion Membership Deposits(4)........... (23,867) (6,113) -- -- --
--------- --------- --------- ----------- ---------
Adjusted Net Membership Deposits................... 351 234 4,391 2,004 3,593
Non-cash items..................................... 228 885 873 89 330
--------- --------- --------- ----------- ---------
Total adjustments to EBITDA...................... 579 1,119 5,264 2,093 3,923
--------- --------- --------- ----------- ---------
Adjusted EBITDA........................................ $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
(3) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with initial conversion
of such members to new membership plans at Desert Resorts, were nonrecurring
in nature.
(5) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues, in each case for the applicable period.
(6) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries to earnings before income taxes
and extraordinary items and (ii) fixed charges are comprised of interest
expense, capitalized interest and the estimated interest portion of rental
expense. Earnings for fiscal 1994, 1995 and 1996 were insufficient to cover
fixed charges by $6,064, $17,574 and $13,506, respectively.
22
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH HEREIN, HOLDERS OF OLD NOTES
SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE DECIDING TO TENDER OLD NOTES IN THE EXCHANGE OFFER. THE
RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL
AS THE EXCHANGE NOTES. THE INFORMATION CONTAINED HEREIN CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. A NUMBER OF FACTORS
COULD CAUSE ACTUAL RESULTS, PERFORMANCE, ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPETITIVE ENVIRONMENT IN THE GOLF
AND RESORT INDUSTRY IN GENERAL AND IN THE COMPANY'S SPECIFIC MARKET AREAS;
CHANGES IN PREVAILING INTEREST RATES AND THE AVAILABILITY OF AND TERMS OF
FINANCING TO FUND THE ANTICIPATED GROWTH OF THE COMPANY'S BUSINESS; INFLATION;
CHANGES IN COSTS OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL AND IN
THE COMPANY'S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN OR FAILURE
TO COMPLY WITH FEDERAL, STATE AND/OR LOCAL GOVERNMENT REGULATIONS; LIABILITY AND
OTHER CLAIMS ASSERTED AGAINST THE COMPANY; CHANGES IN OPERATING STRATEGY OR
DEVELOPMENT PLANS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; THE
SIGNIFICANT INDEBTEDNESS OF THE COMPANY; LABOR DISTURBANCES; CHANGES IN THE
COMPANY'S ACQUISITION AND CAPITAL EXPENDITURE PLANS; AND OTHER FACTORS
REFERENCED HEREIN. IN ADDITION, SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY
DEPENDENT UPON ASSUMPTIONS, ESTIMATES AND DATA THAT MAY BE INCORRECT OR
IMPRECISE AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS.
ACCORDINGLY, ANY FORWARD-LOOKING STATEMENTS INCLUDED HEREIN DO NOT PURPORT TO BE
PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT BE REALIZED.
FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY, AMONG OTHER THINGS, THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL,"
"SHOULD," "SEEKS," "PRO FORMA" OR "ANTICIPATES," "INTENDS" OR THE NEGATIVE
THEREOF, OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY
DISCUSSIONS OF STRATEGY OR INTENTIONS. GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATIONS TO UPDATE ANY SUCH FACTORS OR
TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is highly leveraged. At April 30, 1997, on a pro forma basis as
if the Lake Lanier Transaction had occurred on such date, the Company would have
had long-term debt and capital lease obligations (including current portions
thereof) of $339.7 million, which represented 65.6% of the Company's total
capitalization. See "Summary--Summary Pro Forma Consolidated Financial Data,"
"Unaudited Pro Forma Consolidated Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, for the fiscal year
ended October 31, 1996 (excluding a $32.1 million extraordinary gain) on a pro
forma basis as described herein, the Company's earnings would have been
insufficient to cover fixed charges by $15.6 million. Furthermore, subject to
the restrictions contained in the New Credit Facility, the Company currently has
$75.0 million of additional borrowing availability under the New Credit
Facility. See "Description of Certain Indebtedness--New Credit Facility."
Subject to restrictions in the indenture governing the Notes (the "Indenture")
and the New Credit Facility, the Issuer and its subsidiaries may incur
additional indebtedness from time to time and such indebtedness may be Senior
Indebtedness or, under certain circumstances, effectively senior to the Notes.
See "--Holding Company Structure; Effective Subordination of Notes."
A substantial portion of the Company's cash flow from operations will be
dedicated for the foreseeable future to servicing its indebtedness under the
Notes and New Credit Facility and the payment of other fixed charges, including
capital lease obligations. The Company's high degree of leverage may have
important consequences to the holders of the Notes, including (i) the Company's
high degree of leverage could make it more vulnerable to changes in general
economic conditions or downturns in industry conditions than its competitors;
(ii) since a substantial portion of the Company's cash flow will be
23
<PAGE>
committed to the payments of interest and principal on its indebtedness, the
Company's ability to take advantage of business opportunities, including
strategic acquisitions, could be impaired; (iii) the Company's ability to obtain
additional financing in the future for working capital or capital expenditures
may be limited; and (iv) the Company's indebtedness under the New Credit
Facility is expected to bear interest at variable rates, which would make the
Company vulnerable to increases in interest rates.
The Company's ability to make scheduled payments of principal and interest
on the Notes (and the Company's other indebtedness, including indebtedness under
the New Credit Facility), will depend on the future performance of the Company,
which is, to a certain extent, subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations or that other funds will be available in an amount
sufficient to enable the Company to make such principal and interest payments on
the Notes or on such other Indebtedness. Although the Company believes that its
liquidity, capital resources and cash flows from existing operations will be
sufficient to fund planned capital expenditures, working capital requirements
and interest and principal payments on its indebtedness for the foreseeable
future, a variety of factors could impact the Company's ability to fund planned
capital expenditures, working capital requirements and interest and principal
payments, including a prolonged or severe economic recession in the U.S.,
departures from currently expected demographic trends (for example, if the total
number of golf rounds and golf spending are not as great as currently
anticipated) or the Company's inability to achieve operating improvements at
existing and acquired operations at currently expected levels. Moreover, the
Company currently expects that it will acquire additional resorts, recreational
facilities and golf courses and, in connection therewith, expects to incur
additional indebtedness. In the event that the Company incurs such additional
indebtedness, its ability to make principal and interest payments on its
indebtedness, including the Notes, may be adversely impacted. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Issuer, which will include all obligations
arising under the New Credit Facility. At April 30, 1997, on a pro forma basis
after giving effect to the Lake Lanier Transaction, the aggregate amount of the
Issuer's outstanding Senior Indebtedness would have been approximately $175.0
million (excluding unused commitments). The Indenture limits, but does not
prohibit, the incurrence by the Issuer of additional Senior Indebtedness. In the
event of a bankruptcy, liquidation or reorganization of the Issuer, or in the
event of acceleration of any indebtedness of the Issuer, upon the occurrence of
an event of default, the assets of the Issuer would be available to pay
obligations on the Notes only after all then outstanding Senior Indebtedness of
the Issuer has been paid in full in cash or cash equivalents. See "Description
of Exchange Notes-- Subordination."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF NOTES
The Issuer is a holding company with no operations or tangible assets other
than operations conducted through its subsidiaries and capital stock of such
subsidiaries. The Issuer's obligations under the New Credit Facility will be
initially guaranteed by all of its existing and future domestic subsidiaries
(other than The Fairways Group, L.P.). The Notes will not be guaranteed by such
subsidiaries. The Indenture also permits subsidiaries of the Issuer to guarantee
certain other indebtedness of the Issuer in the future. As a result, the Notes
will be effectively subordinated to all obligations of the Issuer's
subsidiaries, including the guarantees by such subsidiaries of the New Credit
Facility. At April 30, 1997, on a pro forma basis after giving effect to the
Lake Lanier Transaction, the Issuer's subsidiaries would have had approximately
$302.1 million of total liabilities. In the event of an insolvency, liquidation
or other reorganization of any of the subsidiaries of the Issuer, the creditors
of the Issuer (including the holders of the Notes), as well as stockholders of
the Issuer, will have no right to proceed against the assets of such
subsidiaries or to cause
24
<PAGE>
the liquidation or bankruptcy of such subsidiaries under federal bankruptcy
laws. Creditors of such subsidiaries would be entitled to payment in full from
such assets before the Issuer would be entitled to receive any distribution
therefrom. Except to the extent that the Issuer may itself be a creditor with
recognized claims against such subsidiaries, claims of creditors of such
subsidiaries will have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of the Issuer, including claims under
the Notes.
RESTRICTIONS IMPOSED BY TERMS OF THE ISSUER'S INDEBTEDNESS
The Indenture contains certain covenants that, among other things: (i) limit
the incurrence by the Issuer and its Restricted Subsidiaries of additional
indebtedness; (ii) limit the issuance by the Issuer and its Restricted
Subsidiaries of Disqualified Stock; (iii) prohibit the issuance of preferred
stock by subsidiaries of the Issuer; (iv) restrict the ability of the Issuer and
its Restricted Subsidiaries to make dividends and other restricted payments or
investments; (v) limit transactions by the Issuer and its Restricted
Subsidiaries with affiliates; (vi) limit the ability of the Issuer and its
Restricted Subsidiaries to make asset sales; (vii) limit the ability of the
Issuer and its Restricted Subsidiaries to incur liens to secure indebtedness
other than Senior Indebtedness; and (viii) limit the ability of the Issuer to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person. See "Description of Exchange Notes-- Certain
Covenants." In addition, the New Credit Facility contains additional and more
restrictive covenants and requires the Company to maintain specified financial
ratios and satisfy certain tests relating to its financial condition. See
"Description of Certain Indebtedness--New Credit Facility."
The Issuer's ability to comply with the covenants in the Indenture and the
New Credit Facility may be affected by events beyond its control, including
prevailing economic, financial, competitive, legislative, regulatory and other
conditions. The breach of any such covenants or restrictions could result in a
default under the Indenture and/or the New Credit Facility which would permit
the holders of the Notes and/or the lenders under the New Credit Facility, as
the case may be, to declare all amounts borrowed thereunder to be due and
payable, together with accrued and unpaid interest, and the commitments of the
lenders to make further extensions of credit under the New Credit Facility could
be terminated. If the Issuer were unable to repay its indebtedness to its
lenders under the New Credit Facility, such lenders could proceed against any or
all of the collateral securing the indebtedness under the New Credit Facility,
which collateral is expected to consist of the capital stock of all of the
Issuer's existing direct domestic subsidiaries and 65% of the issued and
outstanding shares of capital stock of each direct foreign subsidiary of the
Issuer, if any. In addition, if the Company fails to comply with the financial
and operating covenants contained in the New Credit Facility, such failure could
result in an event of default thereunder, which could permit the acceleration of
the debt incurred thereunder and, in come cases, cross-acceleration and
cross-default of indebtedness outstanding under other debt instruments of the
Company, including the Notes. See "Description of Exchange Notes" and
"Description of Certain Indebtedness--New Credit Facility."
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
The Company, through its subsidiaries, is, has been and will continue to be,
involved in the investigation and evaluation of potential resort, recreation
facility, golf course and other strategic acquisitions and at any time may be
discussing possible acquisitions. The Company has historically financed its
acquisitions through a combination of borrowings under bank credit facilities
and equity. The Company's future growth and financial success will be dependent
upon a number of factors, including, among others, its ability to (i) identify
acceptable acquisition candidates, (ii) consummate the acquisitions on favorable
terms, (iii) promptly and profitably improve the financial performance of
acquired properties, (iv) integrate the acquired properties into the Company's
operations and (v) attract and retain customers and members at any acquired
operations. Identifying acquisition candidates and integrating acquired entities
requires a significant amount of management time and skill. There can be no
assurance that the Company will be effective in identifying or integrating
acquisitions, or that any failure to identify or
25
<PAGE>
integrate acquisitions will not have a material adverse effect on the Company's
business, operating results or financial condition. Furthermore, there can be no
assurance that suitable resort, recreation facility, golf course or similar
acquisition opportunities will be available or that, because of competition from
other purchasers or other reasons, the Company will be able to consummate such
acquisitions on satisfactory terms. In addition, the acquisition of resort,
recreation facility, golf course and other similar properties may become more
expensive in the future if demand for such properties continues to increase.
The Company's ability to execute its acquisition 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 at all) or that such
financing will not result in the incurrence of additional indebtedness. In
August 1997, the Company acquired Grand Traverse for a purchase price of
approximately $45 million. This acquisition was financed under the revolving
credit portion of the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition of Operations--Liquidity and Capital Resources."
FACTORS AFFECTING RESORT VISITORS AND GOLF PARTICIPATION
The success of efforts to attract visitors to resorts is dependent upon
discretionary spending by consumers, which may be adversely affected by general
and regional economic conditions. In the case of the Company's resorts, the
regional economies of southern California, southern Florida and Georgia are
significant to its operations, although Desert Resorts and Doral attract
customers from throughout the United States and abroad. See "Business." A
decrease in tourism or in consumer spending on travel and/or recreation could
have an adverse effect on the Company's business, financial condition and
results of operations.
The success of efforts to attract and retain members at a private or
semi-private club and the number of rounds played at a public golf course is
also dependent upon discretionary spending by consumers, which may be adversely
affected by general and regional economic conditions. In the case of the
Company's community golf operations, the regional economies of Florida,
Wisconsin and the Mid-Atlantic United States are particularly important. See
"Business." 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
business, financial condition and results of operations.
COMPETITION
The resort industry is highly competitive. The Company's destination resorts
compete with other golf and recreation-based resorts. These include premier
independent resorts as well as national hotel chains. In addition, the Company's
resorts compete with other recreational businesses, such as cruise ships and
gaming casinos. The Company believes that it competes based on brand name
recognition, location, room rates and the quality of its services and amenities.
Golf courses compete for players and members with other golf courses located
in the same geographic areas. The Company's golf courses compete based on the
overall quality of their facilities (including the quality of its customer
service), the maintenance of their facilities, available amenities, location and
overall value. The number and quality of golf courses in a particular area could
have a material effect on the revenue of any of the Company's golf courses,
which could in turn affect the Company's financial performance and results of
operations. The availability of sufficient acreage often limits the number of
competing golf courses, particularly in metropolitan areas. However, the areas
of Florida, Georgia and California in which many of the Company's existing
properties are located have significant open land available, and there has been
continued construction by potential competitors of both public and private golf
facilities in those areas. In addition, the Palm Springs area, which has
approximately 90 golf courses in a relatively concentrated geographic area, is
generally viewed as a particularly competitive area and newer
26
<PAGE>
golf courses frequently become very attractive focal points and may attract
golfers who would otherwise have used the Company's facilities. There can be no
assurance that continued construction of competing facilities, or renewed or
strong and sustained interest in existing competing facilities, will not
adversely effect the Company's future financial performance.
The Company competes for the purchase and lease of golf courses with several
national and regional golf course companies. Certain of the Company's national
competitors have larger staffs and more golf courses currently leased, owned or
under management than the Company. In addition, certain national competitors
have greater capital resources than the Company and some of such competitors may
have access to capital at a lower cost than is currently available to the
Company. There can be no assurance that such competition will not adversely
affect the Company's results of operations or ability to maintain or increase
sales and market share.
RISKS ASSOCIATED WITH UNINSURABLE LOSSES
The Company currently carries comprehensive liability, fire, flood (for
certain courses) and extended coverage insurance with respect to its resorts and
all of the golf courses owned or leased by it with policy specifications and
insured limits and deductibles customarily carried for similar properties. There
are, however, certain types of losses (such as those losses incurred as a result
of earthquakes, which are of particular concern with respect to Desert Resorts,
or hurricanes, which are of particular concern with respect to the Company's
Florida properties) which may be either uninsurable or not economically
insurable. As a result, in the event of such a loss, the Company could lose both
its capital invested in, and anticipated profits from, one or more of the
Company's resorts and/or golf courses.
The Company also has title insurance policies for each of the properties
currently owned by it. There can be no assurance, however, that the amount of
title insurance coverage for any such properties accurately reflects the current
value of such properties or that title losses would be completely covered by
such insurance.
SEASONALITY
The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands and
the Company's community golf operations offset a portion of the seasonality
associated with Desert Resorts and Doral because they generate a significant
percentage of their revenue and operating income during the last two quarters of
the fiscal year. Seasonal variations in revenue and operating income could
result in the Company borrowing more under the New Credit Facility during
certain periods than others. Failure by the Company to properly manage its cash
flow as a result of such seasonality may result in insufficient cash flow to
meet the Company's obligations under the New Credit Facility, the Notes and/or
any of the Company's other indebtedness.
FACTORS AFFECTING COURSE CONDITIONS
Turf grass conditions must be satisfactory to attract play on the Company's
resort and community golf courses. Severe weather or other factors, including
grass diseases or pestilence, could cause unexpected problems with turf grass
conditions at any golf course or at courses located within the same geographic
area. 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 within
the Company's control. If the quantity of irrigation water were reduced as a
result of a drought or other water shortage, available water would be used first
on selected areas of the affected golf course, such as tees and greens, and then
on remaining areas of the golf course. A severe drought of extensive duration
could adversely affect the operation of one or more of the Company's
27
<PAGE>
properties and, as a result, the financial condition and results of operations
of such properties. While the Company believes that it currently has sufficient
access to water to operate its golf courses in the manner in which they are
currently operated, there can be no assurance that certain conditions, including
weather, governmental regulation or environmental concerns, will not materially
adversely affect the supply of water to a particular golf course or courses in
the future.
The Company currently operates golf courses in eight states which may
experience natural conditions which are beyond its control (such as periods of
extraordinarily dry, wet, hot and cold weather, or unforeseen natural events
such as hurricanes, fires, floods, severe storms, tornados or earthquakes).
These conditions may occur at any time and may have a 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. The Company is insured against
these potential events in a manner which it believes to be consistent with
industry standards. See "--Risks Associated with Uninsurable Losses." However,
the occurrence or repeated re-occurrence of any of 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 business,
financial condition and results of operations.
ENVIRONMENTAL REGULATION
Operations at the Company's resort and community golf courses involve the
use and storage of various hazardous materials such as herbicides, pesticides,
fertilizers, batteries, solvents, motor oil and gasoline. For instance, one of
the Company's resorts conducts, and has conducted, dry cleaning operations. Dry
cleaners raise environmental concerns, including waste produced from the
cleaning, spotting and pressing processes; machine leaks; chemical spills; and
air emissions. In addition, the Company's resorts and golf courses contain, or
have contained, underground storage tanks ("USTs") for storing fuel and other
materials. All new USTs must be fitted with leak detection and spill prevention
equipment, while older tanks must be retrofitted for such equipment. If any UST
is known to be leaking, it must be removed, and soil and sometimes groundwater
may have to be remediated. If an UST is taken out of use, it must be removed and
any leaks remediated. 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 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 failure to remediate
contamination at a property may adversely affect the ability of a property owner
to sell such real estate or to pledge such property as collateral for a loan.
The Company believes that it is in compliance in all material respects with
applicable federal, state and local environmental laws and regulations. See
"Business--Governmental Regulation-- Environmental Matters."
RISKS ASSOCIATED WITH LICENSE AGREEMENTS
The Company is a party to a license agreement with the Professional Golfers'
Association of America (the "PGA License Agreement") pursuant to which it is
permitted and licensed to use the PGA WEST name and logos in sales, promotion,
advertising, development and/or operations of certain property located in the
City of La Quinta, California, known as "PGA WEST" (the "PGA WEST Property").
The Company believes that the PGA WEST logo is an important aspect of the
Company's business because of the prestige associated with the Professional
Golfers' Association. The PGA License Agreement provides for royalty payments on
an annual basis through 2005, the exact amount of which will be determined by
reference to the number and sales of residential units by KSL Land. KSL Land has
in the past made all royalty payments attributable to its land sales and is
expected to continue to do so in the future; however, KSL Land has not agreed in
writing to do so, is not controlled by the Company and, as a result, no
assurance can be given that KSL Land will pay any future royalty owing under the
PGA License Agreement. Failure to comply with the terms of the PGA License
Agreement, including any failure to pay
28
<PAGE>
royalties arising out of land sales by KSL Land, could result in the payment of
monetary damages by the Company. Such occurrence could have a material adverse
effect on the Company. See "Business-- Licenses and Trademarks."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The New Credit Facility prohibits the Company from purchasing any of the
Notes (except in certain limited amounts) and also provides that certain change
of control events with respect to the Company will constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness (as defined in the Indenture) to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control (as defined in the Indenture) occurs at a time when the Company is
prohibited from purchasing the Notes, the Company could seek the consent of its
lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Notes by the relevant Senior Indebtedness. In such case, the
Company's failure to purchase the tendered Notes would constitute an event of
default under the Indenture which would, in turn, constitute a default under the
New Credit Facility and could constitute a default under other Senior
Indebtedness. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes.
Furthermore, no assurance can be given that the Company will have sufficient
resources to satisfy its repurchase obligation with respect to the Notes
following a Change of Control. See "Description of Exchange Notes--Repurchase at
the Option of Holders."
FRAUDULENT TRANSFER CONSIDERATIONS
Substantially all of the net proceeds of the offering of the Old Notes were
applied to repay indebtedness incurred by the Company in connection with its
acquisition of various properties. Management of the Company believes that such
indebtedness was incurred, and that the indebtedness represented by the Notes
was incurred, for proper purposes and in good faith and that the Company was, at
the time of each such acquisition, currently is solvent, will have sufficient
capital for carrying on its business and will be able to pay its debts as they
mature. Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of the indebtedness relating to any of the
acquisitions or the issuance of the Notes, the Company was insolvent, was
rendered insolvent by reason of such incurrence, was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things: (i) void
all or a portion of the Company's obligations under the Notes, the effect of
which would be that holders of the Notes may not be repaid in full or at all
and/or (ii) subordinate the Company's obligations to other existing and future
indebtedness of the Company, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes.
CONTROL BY KKR AFFILIATES; CONFLICTS OF INTEREST
Approximately 96.7% (84.5% on a fully diluted basis) of the outstanding
shares of Common Stock of Parent (which owns all of the outstanding capital
stock of the Issuer), is owned by three investment partnerships, Resort
Associates, L.P., Golf Associates, L.P. and KKR Partners II, L.P., of which KKR
Associates, L.P. ("KKR Associates") is the general partner and a number of
institutional and other investors associated with KKR are the limited partners.
Accordingly, KKR Associates controls the Issuer and has the power to elect all
of its directors, appoint new management and approve any action requiring
approval of the Issuer's stockholders, including adopting amendments to the
Issuer's Certificate of
29
<PAGE>
Incorporation and approving mergers or sales of substantially all of the
Issuer's assets. There can be no assurance that the interests of KKR Associates
will not conflict with the interests of the holders of the Notes. See
"Beneficial Ownership of Common Stock" and "Certain Related Transactions."
In addition, Parent has in the past provided funds and management oversight
to its affiliates, including KSL Land, which is also controlled by two of the
three KKR partnerships named above, and it is expected that Parent will continue
to do so in the future. Furthermore, certain members of the Company's management
are also expected to perform services for Parent, KSL Land and other affiliates.
See "Management." There can be no assurance that the interests of Parent, KSL
Land or such other affiliates will not conflict with the interests of the
Company and consequently, the interests of the holders of the Notes.
ABSENCE OF RESTRICTIONS ON PARENT
Parent will not be a guarantor of the Notes, is not a party to the Indenture
under which the Exchange Notes will be issued and, therefore, will not be
subject to the covenants and restrictions set forth therein. Likewise, to the
extent that Parent establishes or acquires subsidiaries which are not also
subsidiaries of the Company (i.e., subsidiaries which Parent does not own
through the Company), those subsidiaries will not be subject to the covenants or
restrictions set forth in the Indenture. In addition, Parent will be a guarantor
of the Company's obligations under the Lake Lanier Islands sublease and, as a
result, actions or inactions by Parent could result in a default under the Lake
Lanier Islands sublease. To the extent that the lessor under the sublease
accelerates all obligations thereunder, such an acceleration would constitute a
default under the New Credit Facility and the Notes. As a result of the
foregoing, there can be no assurance that actions taken by, or circumstances
relating to, Parent will not materially adversely affect the Company.
LACK OF PUBLIC MARKET FOR THE SECURITIES
There is no existing market for the Exchange Notes, and although the Old
Notes have been designated for trading in the PORTAL Market, the National
Association of Securities Dealers' screen-based automated market for trading of
securities eligible for resale under Rule 144A, there can be no assurance as to
the liquidity of any market that may develop for the Exchange Notes, the ability
of holders of the Exchange Notes to sell their Exchange Notes, or the price at
which holders would be able to sell their Exchange Notes. Future trading prices
of the Exchange Notes will depend on many factors, including, among other
things, prevailing interest rates, the Issuer's operating results and the market
for similar securities. The Issuer does not intend to apply for listing of the
Exchange Notes on any securities exchange or the Nasdaq National Market. The
Company has been advised by the Initial Purchasers that the Initial Purchasers
currently intend to make a market in the Exchange Notes. However, the Initial
Purchasers are not obligated to do so and any market-making activities with
respect to the Exchange Notes may be discontinued at any time without notice.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. There can be no assurance that, if a market for
the Exchange Notes were to develop, such a market would not be subject to
similar disruptions. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of any shelf registration statement.
See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
Old Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Issuer does not currently intend to register the Old Notes under the
Securities Act. Based on interpretations by the staff of the Commission, the
Issuer
30
<PAGE>
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold or otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of the
Issuer 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 such Old Notes were acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with any
person to participate in the distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old 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 "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes will be adversely affected.
USE OF PROCEEDS
There will be no proceeds to the Issuer from the exchange of Notes pursuant
to the Exchange Offer.
The gross proceeds from the offering of the Old Notes were $125.0 million
which, together with $100.0 million of term loans under the New Credit Facility
and a $75.0 million drawing under the revolving credit portion of the New Credit
Facility, were used (i) to repay approximately $265.0 million of outstanding
indebtedness of subsidiaries of the Company outstanding at the time of the
offering of the Old Notes, including approximately (a) $131.7 million of Desert
Resorts indebtedness, (b) $69.3 million of Fairways indebtedness and (c) $64.0
million of Doral indebtedness, (ii) to make a loan of approximately $20.8
million to KSL Land, which was used to repay indebtedness of KSL Land with
respect to which Desert Resorts was a co-obligor, (iii) to pay prepayment
penalties and fees and expenses incurred in connection with the Refinancings and
(iv) for general corporate purposes. The New Credit Facility provides for term
loans of $100.0 million and revolving borrowings of up to $175.0 million for
working capital purposes, including acquisitions.
The indebtedness repaid at Desert Resorts accrued interest at an average
effective rate of approximately 11.8% per annum and was to mature in December
1997. The indebtedness repaid at Fairways accrued interest at an average
effective rate of approximately 8.5% per annum and was to mature from June 1998
through December 2009, with the majority of such indebtedness maturing in April
2002; approximately $14.7 million (net of principal repayments) of such
indebtedness was incurred during 1996 to purchase four golf course facilities.
The indebtedness repaid at Doral accrued interest at an average effective rate
of approximately 8.7% per annum and was to mature from December 1999 through
December 2001.
31
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical cash and cash equivalents
and capitalization of the Company at April 30, 1997 and (ii) the cash and cash
equivalents and capitalization of the Company at April 30, 1997, after giving
pro forma effect to the Lake Lanier Transaction as if it had occurred on April
30, 1997. The following pro forma data do not purport to be indicative of the
actual cash and cash equivalents or capitalization that would have occurred had
the transactions and events reflected therein in fact occurred on the date
specified. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical consolidated financial statements of the Company and related notes
thereto and "Unaudited Pro Forma Consolidated Financial Statements" included
herein.
<TABLE>
<CAPTION>
AT APRIL 30, 1997
-----------------------
<S> <C> <C>
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................. $ 36,325 $ 25,427
---------- -----------
---------- -----------
Long-term debt (including current portion):
New Credit Facility:(1)
Term loans........................................................ $ 100,000 $ 100,000
Revolving loans................................................... 75,000 75,000
The Notes........................................................... 125,000 125,000
Capital lease obligations(2)........................................ 8,582 39,733
---------- -----------
Total long-term debt............................................ 308,582 339,733
---------- -----------
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized; 1,000 shares
issued and outstanding............................................ -- --
Additional paid-in-capital.......................................... 197,361 197,361
Accumulated deficit................................................. (18,843) (18,843)
---------- -----------
Total stockholder's equity...................................... 178,518 178,518
---------- -----------
Total capitalization.................................................. $ 487,100 $ 518,251
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The New Credit Facility provides for term loans of $100.0 million and
revolving borrowings of up to $175.0 million. The Company borrowed the full
amount of the term loans and made a $75.0 million drawing under the
revolving credit portion of the New Credit Facility on April 30, 1997.
Subject to restrictions contained in the New Credit Facility, the Company
currently has $75.0 million of additional availability under the revolving
credit portion of the New Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness--New Credit
Facility."
(2) Represents $8.6 million of existing capital lease obligations and, on a pro
forma basis, an additional $31.1 million of capital lease obligations to be
incurred in connection with the Lake Lanier Transaction.
32
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The consolidated income statement data for the period from July 6, 1993
(when a majority interest in Fairways was acquired) through October 31, 1993 and
the consolidated balance sheet data at October 31, 1993 and 1994 are derived
from audited consolidated financial statements of the Company which are not
included in this Prospectus. The consolidated income statement data for the
three fiscal years ended October 31, 1996 and the consolidated balance sheet
data at October 31, 1995 and 1996 are derived from consolidated financial
statements of the Company audited by Deloitte & Touche LLP, independent public
auditors.
Consolidated balance sheet data at April 30, 1996 and 1997 and consolidated
income statement data for the six month periods ended April 30, 1996 and 1997
are derived from unaudited consolidated financial statements of the Company,
included elsewhere herein, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the information. Data at and
for the six months ended April 30, 1997 do not purport to be indicative of
results to be expected for the full year.
The following information should be read in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD ENDED
ENDED FISCAL YEAR ENDED OCTOBER 31, APRIL 30,
OCTOBER 31, ------------------------------- ----------------------
1993(1) 1994(2) 1995 1996 1996 1997
----------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
CONSOLIDATED INCOME STATEMENT DATA:
Revenues................................. $ 8,631 $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses....................... 8,066 116,184 153,615 165,493 85,108 92,189
----------- --------- --------- --------- --------- -----------
Income from operations................... 565 8,026 4,636 14,781 21,443 30,652
Net interest expense..................... 1,074 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility............ -- -- (2,684) -- -- --
Minority interests in losses of
subsidiaries........................... 21 458 201 58 78 182
Income tax expense (benefit)............. -- -- -- (291) (3) 2,195
Extraordinary items, net of income tax... -- (2,202) -- 32,120 32,120 (3,138)
----------- --------- --------- --------- --------- -----------
Net income (loss)........................ $ (488) $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
----------- --------- --------- --------- --------- -----------
----------- --------- --------- --------- --------- -----------
OTHER DATA:
Net Membership Deposits(3)............... $ -- $ 24,218 $ 6,347 $ 4,391 $ 2,004 $ 3,593
Adjusted Net Membership Deposits(4)...... -- 351 234 4,391 2,004 3,593
Other non-cash items..................... -- 228 885 873 89 330
Capital expenditures..................... 472 15,105 52,639 25,240 13,030 7,268
Revenue growth........................... -- -- 27.4% 13.9% -- 15.3%
Ratio of earnings to fixed charges(5).... -- -- -- -- 1.6x 1.9x
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 6,393 $ 39,393 $ 9,968 $ 9,343 $ 14,257 $ 36,325
Working capital(6)....................... 4,264 36,923 (1,365) (1,771) 14,315 38,063
Total assets............................. 68,420 565,583 578,447 577,922 578,426 575,246
Long-term debt (including current
portion)............................... 37,716 324,343 324,604 271,411 263,085 308,582
Total stockholder's equity............... 27,513 187,966 197,431 221,976 243,543 178,518
</TABLE>
33
<PAGE>
- ------------------------
(1) Reflects operations from July 6, 1993 through October 31, 1993.
(2) Desert Resorts and Doral were acquired in December 1993. Accordingly, the
Company's operating results for fiscal 1994 include only ten months of
operations for Desert Resorts and Doral.
(3) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with initial conversion
of such members to new membership plans at Desert Resorts, were nonrecurring
in nature.
(5) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense, the estimated interest portion of rental expense, and
minority interests in losses of subsidiaries, to earnings before income
taxes and extraordinary items and (ii) fixed charges are comprised of
interest expense, capitalized interest and the estimated interest portion of
rental expense. Earnings were insufficient to cover fixed charges for the
period ended October 31, 1993, and the fiscal years ended October 31, 1994,
1995 and 1996 by $509, $6,064, $17,574 and $13,506, respectively.
(6) At October 31, 1995 and 1996, the Company's working capital deficit resulted
from the current portion of Doral's indebtedness which totalled $6.0 million
and $4.5 million for 1995 and 1996, respectively.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--
THE PREDECESSORS
The following table sets forth selected historical financial data of (i) the
Hotel at La Quinta (the "Hotel"), (ii) Doral and (iii) Fairways, in each case,
for periods prior to their acquisition by Parent. The income statement data for
the years ended December 31, 1992 and December 31, 1993 and the balance sheet
data at December 31, 1992 and December 31, 1993 exclude the results of
operations and assets of PGA WEST and the club operations at La Quinta (the
"Excluded Assets") because such data are not available for such periods. The
assets and operations that currently comprise the operations of Desert Resorts
were acquired on December 30, 1993 from the Resolution Trust Corporation (the
"RTC"), which was administering the assets and operations of Landmark Land
Company of California ("Landmark California"), including the Excluded Assets.
The RTC maintained a separate Hotel accounting staff and separate financial
records with respect to the Hotel throughout the period during which the RTC
administered the operations and assets at Desert Resorts; however, no such
financial records were maintained with respect to the Excluded Assets. In
addition, the Excluded Assets represented only a portion of the total operations
of Landmark California. Furthermore, since the acquisition of the Excluded
Assets by Parent in December 1993, the operations of the Excluded Assets have
been significantly restructured. Specifically: (i) the golf, tennis and other
membership programs at PGA WEST and La Quinta have been substantially changed;
(ii) the operations of PGA WEST and La Quinta have been integrated into a single
resort operation; and (iii) expenses such as RTC oversight fees, bankruptcy
expenses and costs associated with operations of Landmark California that were
not acquired by Parent are no longer incurred in connection with the Excluded
Assets. As a result of the foregoing, the Company believes that there is a
substantial lack of continuity in the operation of the Excluded Assets and that
any presentation of financial data relating to the Excluded Assets would not be
meaningful to an investor. Accordingly, such data have been excluded from the
following table.
<TABLE>
<CAPTION>
HOTEL AT LA QUINTA DORAL FAIRWAYS
------------------------ ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------ ---------------------- --------------------
<CAPTION>
1992 1993 1992 1993 1992 1993(1)
----------- ----------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT FINANCIAL RATIOS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................ $33,107 $34,247 $55,994 $55,330 $21,843 $10,692
Operating expenses.............................. 37,921 37,955 54,525 58,996 22,080 10,111
----------- ----------- ---------- ---------- --------- ---------
Operating income (loss)......................... (4,814) (3,708) 1,469 (3,666) (237) 581
Net interest expense............................ 9,083 10,775 4,467 4,470 4,213 2,164
----------- ----------- ---------- ---------- --------- ---------
Net income (loss)............................... $(13,897) $(14,483) $(2,998) $(8,136) $(4,450) $(1,583)
----------- ----------- ---------- ---------- --------- ---------
----------- ----------- ---------- ---------- --------- ---------
Ratio of earnings to fixed charges(2)............. -- -- -- -- -- --
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,951 $ 3,784 $ 2,528 $ 2,357 $ 424 $ --
Working capital................................. (37,981) (6,731) (3,189) 19,212 (2,345) 1,268
Total assets.................................... 90,231 86,054 58,238 128,189 49,191 47,292
Long-term debt (including current portion)...... 114,254 156,667 55,582 75,800 41,566 44,356
Total stockholders' equity (deficit)............ (69,795) (84,277) (18,144) 47,263 1,682 (598)
</TABLE>
- ------------------------
(1) Reflects operations from January 1, 1993 through July 5, 1993 (the date of
acquisition by Parent).
(2) For purposes of these ratios, (i) earnings have been calculated by adding
interest expense and the estimated interest portion of rental expense to
earnings before income taxes and (ii) fixed charges are comprised of
interest expense and the estimated interest portion of rental expense.
Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992 and 1993 for the Hotel at La Quinta by $13,897 and
$14,483, respectively, and for the years ended December 31, 1992 and 1993 at
Doral by $2,998 and $8,136, respectively, and for the year ended December
31, 1992 and the period from January 1, 1993 to July 5, 1993 at Fairways by
$4,450 and $1,583, respectively.
35
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") have been derived through the application of
pro forma adjustments to the Company's historical consolidated financial
statements included elsewhere in this Prospectus. The Pro Forma Financial
Statements have been prepared to illustrate the effects of the Refinancings, the
Lake Lanier Transaction and the Concurrent Transactions.
On May 15, 1996, the Company entered into the Lake Lanier Management
Agreement to manage the facilities at Lake Lanier Islands with LLIDA, which
subleases the facilities from the Department of Natural Resources, State of
Georgia, which leases the property from the Corps of Engineers. The Lake Lanier
Management Agreement provides for a monthly fee of $160,000 payable to the
Company. Subsequent to May 15, 1996, the Company executed a 50-year sublease
with LLIDA, with certain rights to extend the sublease a minimum of an
additional ten years upon certain conditions. The Company closed the sublease in
August 1997.
The sublease will be accounted for as a capital lease. Accordingly, the
Company will record the net assets acquired pursuant to the sublease and will
recognize the net present value of the related minimum lease payments. In
addition, in connection with the sublease and concurrently with the Refinancings
(as described below), Parent contributed $9.0 million in cash to the Issuer to
fund the purchase by the Company of certain equipment and other assets used in
the operation of the Lake Lanier Islands facilities that were not leased
pursuant to the sublease.
The Lake Lanier Management Agreement provided that, at the closing of the
sublease, the Company and LLIDA would be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement would terminate. Accordingly, in August 1997, the Company was credited
with the net earnings (as defined) of Lake Lanier Islands from May 15, 1996 to
such date less amounts earned by the Company pursuant to the Lake Lanier
Management Agreement. The net amount paid by the Company will be recognized as
an adjustment to the recorded values of the assets acquired pursuant to the
sublease. The sublease, together with the capital contribution and the asset
acquisition, is referred to herein as the "Lake Lanier Transaction." Because the
sublease became effective in 1997, the Pro Forma Financial Statements give
effect thereto, as discussed below. See "Business-- Properties; Lake Lanier
Transaction."
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with the
consummation of the Refinancings: (i) Parent contributed the outstanding capital
stock of the parent of Desert Resorts, Doral, Fairways and Lake Lanier Islands
to the Issuer, as a result of which they became wholly-owned subsidiaries of the
Issuer; (ii) KSL Landmark Corporation (which owned Desert Resorts and into which
Desert Resorts was merged effective July 1, 1997) dividended to Parent (through
the Issuer) all of the general partnership interests and Class A limited
partnership interests owned by KSL Landmark Corporation in four affiliated
limited partnerships whose principal assets were beneficial interests in
undeveloped commercial and residential real estate parcels in the vicinity of
Desert Resorts, thereby removing ongoing funding obligations of the Company for
holding costs relating to undeveloped land; (iii) the Company sold to KSL Land
at historical cost (which approximated fair market value) the general
partnership interest and Class A limited partnership interest owned by KSL
Landmark Corporation in an additional limited partnership whose principal assets
were residential real estate parcels in the vicinity of Desert Resorts; (iv)
Parent, the Company and affiliates settled intercompany balances, which resulted
in an increase in cash to the Company of $46.3 million; (v) the Company
distributed to Parent in cash excess equity funding of $46.3 million contributed
by Parent to Desert Resorts at the time of acquisition; (vi) the Company
distributed $13.9 million in cash to Parent, which was recorded as a return of
capital to Parent; and (vii) certain management, lending and other agreements
used to allocate corporate general and administrative expenses between Parent
and its subsidiaries prior to the Refinancings were cancelled and the Issuer and
Parent entered into the Expense
36
<PAGE>
Allocation Agreement which has resulted in an increase in corporate general and
administrative expenses of the Company since April 30, 1997 (the transactions
described in clauses (i) through (vii) above being referred to herein as the
"Concurrent Transactions"). See "Certain Related Transactions." The Concurrent
Transactions did not reflect possible future dividends by the Company of
additional parcels of land which may occur following the receipt of applicable
state and local government approvals.
The unaudited pro forma consolidated statements of operations for the fiscal
year ended October 31, 1996 and the six months ended April 30, 1997 give effect
to the Refinancings and the Concurrent Transactions as if such transactions had
occurred at the beginning of the earliest period presented and to the Lake
Lanier Transaction, as if it had occurred on May 15, 1996. The unaudited pro
forma consolidated balance sheet as of April 30, 1997 gives effect to the Lake
Lanier Transaction as if such transaction had occurred on April 30, 1997.
The accompanying unaudited Pro Forma Consolidated Financial Statements do
not give effect to the August 1997 acquisition of the Grand Traverse Resort. In
the opinion of management, the inclusion of such pro forma information would not
materially change the accompanying unaudited Pro Forma Consolidated Financial
Statements.
The Pro Forma Financial Statements do not purport to present the actual
financial position or results of operations that would have occurred had the
transactions and events reflected therein occurred on the dates specified, nor
do they purport to be indicative of the results of operations or financial
condition the Company may achieve in the future. The Pro Forma Financial
Statements are based on certain assumptions and adjustments described in the
notes hereto and should be read in conjunction therewith.
The Pro Forma Financial Statements should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of the Company
and notes thereto included elsewhere in this Prospectus.
37
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE
LANIER
HISTORICAL TRANSACTION PRO FORMA
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 36,325 (9,000)(A) $ 25,427
(198)(B)
2,619(C)
(1,424)(D)
(2,895)(E)
Restricted cash........................................................ 3,629 (2,619)(C) 1,010
Accounts receivable, net............................................... 20,403 932(D) 21,335
Inventories............................................................ 7,192 317(D) 7,509
Other.................................................................. 6,915 507(D) 7,422
----------- ----------- -------------
Total current assets............................................. 74,464 (11,761) 62,703
Property and equipment, net............................................ 358,352 9,000(A) 400,478
1,777(D)
31,349(F)
Note receivable from KSL Land.......................................... 20,800 20,800
Restricted cash, long term............................................. 127 127
Other.................................................................. 36,899 36,899
Excess of cost over fair value of assets acquired, net................. 84,604 84,604
----------- ----------- -------------
Total assets..................................................... $ 575,246 $ 30,365 $ 605,611
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable....................................................... $ 5,416 $ 551(D) $ 5,967
Accrued expenses....................................................... 16,375 1,197(D) 17,572
Current portion of long term debt...................................... 1,000 1,000
Current portion of obligations under capital leases.................... 3,143 26(F) 3,169
Payable to affiliates.................................................. 31 31
Due to Lake Lanier Islands Development Authority....................... 2,895 (2,895)(E) --
Other.................................................................. 7,541 361(D) 7,902
----------- ----------- -------------
Total current liabilities........................................ 36,401 (760) 35,641
Long-term debt:
Long-term debt, less current portion................................... 299,000 299,000
Obligations under capital leases, less current portion................. 5,439 31,323(F) 36,564
(198)(B)
----------- ----------- -------------
Total long-term debt............................................. 304,439 31,125 335,564
Deferred income taxes.................................................. 16,760 16,760
Member deposits........................................................ 38,920 38,920
Minority interests in equity of subsidiaries........................... 208 208
STOCKHOLDER'S EQUITY:
Common stock and additional paid-in capital............................ 197,361 197,361
Accumulated deficit.................................................... (18,843) (18,843)
----------- ----------- -------------
Total stockholder's equity....................................... 178,518 -- 178,518
----------- ----------- -------------
Total liabilities and stockholder's equity....................... $ 575,246 $ 30,365 $ 605,611
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheets.
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
(A) Reflects the purchase of certain equipment and other assets used in the
operation of the Lake Lanier Islands facilities that will not be leased
pursuant to the sublease.
(B) Reflects the repayment to LLIDA of monthly management fees of $160
previously paid to the Company by LLIDA pursuant to the Lake Lanier
Management Agreement ($1,843) and the payment of monthly rent of $258 paid
by the Company to LLIDA pursuant to the sublease ($2,971), offset by the
earnings (as defined) of Lake Lanier Islands for the period from May 15,
1996 to April 30, 1997 ($4,616).
(C) Reflects the reclassification from restricted cash to unrestricted cash of
cash attributable to the operations of Lake Lanier Islands for the period
from May 15, 1996 to April 30, 1997, which was accumulated and held by the
Company in a fiduciary capacity pursuant to the terms of the Lake Lanier
Management Agreement.
(D) Reflects the transfer to the Company by LLIDA of the remaining assets and
liabilities of Lake Lanier Islands and a cash payment to LLIDA by the
Company of the excess of liabilities over the assets to be acquired.
(E) Reflects the repayment by the Company to LLIDA of cash collected and held by
the Company on behalf of LLIDA and amounts due to LLIDA for the period from
May 15, 1996 to April 30, 1997.
(F) Reflects the net assets leased pursuant to the sublease and the net present
value of the related minimum lease payments.
39
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE THE
LANIER PRO FORMA CONCURRENT THE PRO FORMA
HISTORICAL TRANSACTION(A) LAKE LANIER TRANSACTIONS REFINANCINGS THE COMPANY
---------- -------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 180,274 $ 12,131 $ 192,405 $ -- $ -- $ 192,405
Operating expenses..................... 165,493 10,110 175,603 (319)(B) -- 178,863
3,579(C)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) from operations.......... 14,781 2,021 16,802 (3,260) -- 13,542
Interest expense, including
amortization of debt issuance costs,
net.................................. 27,710 1,346 29,056 -- 28,063(D) 29,142
(27,977)(E)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before minority
interests, income taxes and
extraordinary items.................. (12,929) 675 (12,254) (3,260) (86) (15,600)
Minority interests in loss of
subsidiaries......................... 58 -- 58 -- -- 58
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before income taxes and
extraordinary items.................. (12,871) 675 (12,196) (3,260) (86) (15,542)
Income tax expense (benefit)........... (291) 256 (35) -- -- (35)
---------- -------------- ----------- ------------ ------------- -------------
Income (loss) before extraordinary
items................................ (12,580) 419 (12,161) (3,260) (86) (15,507)
Extraordinary gain on early
extinguishment of debt, net of tax... 32,120 -- 32,120 -- -- 32,120
---------- -------------- ----------- ------------ ------------- -------------
Net income............................. $ 19,540 $ 419 $ 19,959 $ (3,260) $ (86) $ 16,613
---------- -------------- ----------- ------------ ------------- -------------
---------- -------------- ----------- ------------ ------------- -------------
OTHER DATA:
Net Membership Deposits................ $ 4,391 $ 4,391
Adjusted Net Membership Deposits....... 4,391 4,391
Other non-cash items................... 873 873
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations.
40
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAKE THE
LANIER REFINANCINGS PRO FORMA
HISTORICAL TRANSACTION(A) AND OTHER THE COMPANY
---------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 122,841 $ 5,271 $ 128,112
Operating expenses........................................... 92,189 7,536 1,447(C) 101,172
---------- ------- ------------ -------------
Income (loss) from operations................................ 30,652 (2,265) (1,447) 26,940
Interest expense, including amortization of debt issuance
costs, net.................................................. 15,605 1,438 14,259(D) 15,924
(15,378)(E)
---------- ------- ------------ -------------
Income (loss) before minority interests, income taxes and
extraordinary items......................................... 15,047 (3,703) (328) 11,016
Minority interests in loss of subsidiaries................... 182 -- -- 182
---------- ------- ------------ -------------
Income (loss) before income taxes and extraordinary items.... 15,229 (3,703) (328) 11,198
Income tax expense (benefit)................................. 2,195 (57) -- 2,138
---------- ------- ------------ -------------
Income(loss) before extraordinary items...................... 13,034 (3,646) (328) 9,060
Extraordinary loss on early extinguishment of debt, net of
tax......................................................... (3,138) -- -- (3,138)
---------- ------- ------------ -------------
Net income................................................... $ 9,896 $ (3,646) $ (328) $ 5,922
---------- ------- ------------ -------------
---------- ------- ------------ -------------
OTHER DATA:
Net Membership Deposits...................................... $ 3,593 $ 3,593
Adjusted Net Membership Deposits............................. 3,593 3,593
Other non-cash items......................................... 330 330
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of
operations
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) Reflects the results of operations of Lake Lanier Islands as if the Lake
Lanier Transaction had occurred on May 15, 1996. Also reflects adjustments
to reverse monthly management fees of $160 included in the Company's
historical revenues associated with the operation by the Company of Lake
Lanier Islands during the relevant period pursuant to the Lake Lanier
Management Agreement.
(B) Reflects the elimination of the historical losses of the limited
partnerships in which the Company ceased to have an ownership interest
following the Concurrent Transactions.
(C) Reflects the increase in corporate general and administrative expenses that
would have occurred under the Expense Allocation Agreement following the
Refinancings and the Lake Lanier Transaction. Increased corporate and
general expenses are due to (i) expanded corporate support in finance,
accounting and compliance due primarily to the Refinancings and other
transactions and; (ii) new corporate support in retail sales and centralized
buying and in membership sales.
(D) Reflects interest expense related to borrowings under the New Credit
Facility and the Exchange Notes as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED APRIL 30,
OCTOBER 31, 1996 1997
---------------- -------------
<S> <C> <C>
Term Loan A of $50,000 under the New Credit Facility (at an assumed
weighted average interest rate of 8.50%)............................. $ 4,309 $ 2,137
Term Loan B of $50,000 under the New Credit Facility (at an assumed
weighted average interest rate of 8.75%)............................. 4,436 2,200
Revolving Loans under the New Credit Facility (based upon outstanding
borrowings of $75,000 at an annual weighted average interest rate of
8.00%)............................................................... 5,506 3,016
The Exchange Notes (at an interest rate of 10.25%).................... 12,812 6,406
------- -------------
27,063 13,759
Amortization of debt issuance cost related to the New Credit Facility
and the Exchange Notes............................................... 1,000 500
------- -------------
Total......................................................... $ 28,063 $ 14,259
------- -------------
------- -------------
</TABLE>
(E) Reflects elimination of interest expense, including amortization of debt
issuance costs, in connection with the Refinancings as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED APRIL 30,
OCTOBER 31, 1996 1997,
---------------- -------------
<S> <C> <C>
Desert Resorts indebtedness........................................... $ 15,623 $ 8,982
Fairways indebtedness................................................. 6,274 3,371
Doral indebtedness.................................................... 6,080 3,025
------- -------------
Total......................................................... $ 27,977 $ 15,378
------- -------------
------- -------------
</TABLE>
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. DOLLAR
AMOUNTS INCLUDED IN THIS SECTION ARE IN THOUSANDS, EXCEPT REFERENCES TO ADR AND
REVPAR (EACH AS DEFINED HEREIN) AND GOLF MEMBERSHIP DEPOSITS, WHICH ARE
REFERENCES TO ACTUAL AMOUNTS.
The information contained herein includes forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause
actual results, performance, achievements of the Company, or industry results to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to: the competitive environments in the golf and resort
industries in general and in the Company's specific market areas; changes in
prevailing interest rates and the availability of and terms of financing to fund
the anticipated growth of the Company's business; inflation; changes in costs of
goods and services; economic conditions in general and in the Company's specific
market areas; demographic changes; changes in or failure to comply with federal,
state and/or local government regulations; liability and other claims asserted
against the Company; changes in operating strategy or development plans; the
ability to attract and retain qualified personnel; the significant indebtedness
of the Company; labor disturbances; changes in the Company's acquisition and
capital expenditure plans; and other factors referenced herein. In addition,
such forward-looking statements are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates," "intends," or the negative thereof, or other variations thereon
or comparable terminology, or by discussions of strategy or intentions. Certain
of the foregoing factors are discussed in more detail elsewhere in this
Prospectus, including, without limitation, under the caption "Risk Factors."
GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
GENERAL
The Company's business currently consists of resort operations and community
golf operations. The Company presently owns and operates Desert Resorts and
Doral, two world-renowned destination resorts, Grand Traverse, a regional
destination resort, and subleases Lake Lanier Islands, a regional destination
resort and recreational facility near Atlanta, Georgia. In addition, through
Fairways, the Company operates 22 golf course properties (21 of which it owns
and one of which it leases).
The Company was formed in mid-1993 and acquired Fairways in July 1993. At
the time it was acquired by the Company, Fairways owned and operated 11 golf
course properties, one of which was subsequently sold. Since July 1993, Fairways
has acquired 12 additional golf course properties. Because of these acquisitions
and dispositions, the Company's results of operations are not comparable from
fiscal period to fiscal period. Of Fairways' 22 facilities, five are private
clubs, 12 are semi-private clubs and five are public (or daily fee) facilities.
The Company's operating strategy for Fairways has been to form "clusters" of
courses within geographic areas in order to create economies of scale in
management and purchasing and to promote reciprocity among clubs for the members
within these clusters. Since the Company acquired Fairways in 1993, revenues for
the Company's community golf operations have increased from $28,742 for the
fiscal year ended October 31, 1994, to $44,766 for the fiscal year ended October
31, 1996.
43
<PAGE>
In December 1993, the Company acquired Desert Resorts (consisting of La
Quinta and PGA WEST) and Doral. Prior to their acquisition by the Company, each
of La Quinta and PGA WEST was operated as a separate business unit. Following
their acquisition, La Quinta and PGA WEST were integrated by the Company into a
single destination resort. Since the acquisition of both Desert Resorts and
Doral, the Company has invested significant capital in facilities-related
improvements and has initiated measures designed to achieve operating
efficiencies and reduce costs at its resorts. As a result of these capital
improvements and operating initiatives, revenues for the Company's resort
operations have increased from $95,468 for the fiscal year ended October 31,
1994, to $134,626 for the fiscal year ended October 31, 1996.
On May 15, 1996, the Company began operating Lake Lanier Islands pursuant to
the Lake Lanier Management Agreement. The Lake Lanier Management Agreement
provides for a monthly fee of $160 payable to the Company. Subsequent to May 15,
1996, the Company executed a 50-year sublease with LLIDA, with certain rights to
extend the sublease a minimum of an additional ten years under certain
conditions. The Company closed the sublease in August 1997. In connection with
the sublease, concurrently with the Refinancings, Parent contributed $9,000 in
cash to the Issuer to fund the purchase of fixed assets used in the operation of
the Lake Lanier Islands facilities that were not leased pursuant to the
sublease. See "Business--Properties; Lake Lanier Transaction."
The Lake Lanier Management Agreement provided that, at the closing of the
sublease, the Company and LLIDA would be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement would terminate. Accordingly, in August 1997, at the closing of the
sublease, the Company was credited with the net earnings (as defined) of Lake
Lanier Islands from May 15, 1996 to such date less amounts earned by the Company
pursuant to the Lake Lanier Management Agreement. The net amount paid by the
Company will be recognized as a reduction to the recorded values of the assets
acquired pursuant to the sublease. See "Unaudited Pro Forma Consolidated
Financial Statements" and "Business--Properties; Lake Lanier Transaction."
The Company generates revenues at Fairways through non-refundable initiation
fees, membership dues, greens fees, golf cart rentals, retail (pro shop) sales
and food and beverage sales.
The Company generates revenues at Desert Resorts and Doral from room
revenues, greens fees, food and beverage sales and, to a lesser extent,
membership dues and merchandise (pro shop and retail) sales. Revenues at Desert
Resorts and Doral do not include Net Membership Deposits, which are defined as
the amount of refundable membership deposits paid by new and upgraded resort
club members and by existing members who have converted to new membership plans,
in each case in cash, plus principal payments in cash received on notes in
respect thereof, minus the amount of any refunds paid in cash in respect of such
deposits. The price of a full golf membership deposit ranges from between
$42,500 and $50,000 at Desert Resorts, depending on the club and type of
membership, and is $12,500 at Doral. These membership deposits are fully
refundable in thirty years (or sooner under certain circumstances). In
accordance with GAAP, the Company accounts for membership deposits as "cash
provided from financing activities" on its statement of cash flows and reports a
liability on its balance sheet equal to the amount of such membership deposits.
In addition to income statement data in accordance with GAAP, this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes a discussion of the Company's Adjusted EBITDA, which is
defined as net income before income tax expense (benefit), net interest expense,
depreciation and amortization, loss on sale of golf facility, extraordinary
items and other non-cash items, plus Adjusted Net Membership Deposits. Adjusted
Net Membership Deposits is defined as Net Membership Deposits, excluding in
fiscal 1994 and fiscal 1995, $23.9 million and $6.1 million, respectively, of
Net Membership Deposits which, because these amounts were paid by existing
resort club members in connection with initial conversion of such members to new
membership plans at Desert Resorts, were nonrecurring in nature. In fiscal 1994
and 1995, Desert Resorts introduced new membership programs at the PGA WEST and
La Quinta private clubs, respectively. These new programs, which provide for the
44
<PAGE>
payment of a fully refundable (in thirty years, or sooner under certain
circumstances) membership deposit to join one or both of the clubs, and were
offered, on an optional basis, to then existing members of each of the two
private clubs. Accordingly, existing members who chose to convert to the new
membership program paid a new membership deposit. Information regarding Adjusted
EBITDA has been provided because the Company believes that it assists in
understanding the Company's operating results. The Company uses Adjusted EBITDA
as the primary measure of its recurring, operating cash flow performance because
it includes recurring cash flow generated by private club membership sales of
the Company at its resort properties. As structured, these private club
membership sales are not treated as revenue for GAAP purposes and therefore do
not appear in the Company's Statement of Operations, but are reflected in the
Company's Statement of Cash Flows.
The Company views cash flow from membership sales as an important operating
cash flow measure as membership sales are recurring in nature as the club builds
its membership and replaces the natural turnover. Also, the significant payroll
and operating expenses necessary to create, sell and maintain a private club
operation are treated as ongoing expenses in the Company's Statement of
Operations and therefore recognizing the cash flow from sales is an appropriate
match in determining the overall performance of the club operation. It is
important to note that the membership cash flow included in Adjusted EBITDA is
only the cash amount collected net of financed sales and refunds.
From the Company's perspective, EBITDA and net membership cash flow together
as Adjusted EBITDA provide the most accurate measure of the recurring cash flow
performance of the operations. Therefore, the Adjusted EBITDA margin measures
the total cash flow yield of the operations. With regard to the Company's
capital structure, Adjusted EBITDA/Net interest expense reflects the Company's
ability to service debt payments. Adjusted EBITDA as defined in this Prospectus
is the documented cash flow measure for certain debt service tests in the
Indenture and in the New Credit Facility. Adjusted EBITDA should not be
construed as an indicator of the Company's operating performance or as an
alternative to operating income as determined in accordance with GAAP.
Additionally, Adjusted EBITDA should not be construed by investors as a measure
of the Company's liquidity or ability to meet all cash needs or as an
alternative to cash flows from operating, investing and financing activities as
determined in accordance with GAAP, nor should Adjusted EBITDA be construed by
investors as an alternative to any other determination under GAAP.
45
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations and other data of the Company.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
ENDED OCTOBER 31, APRIL 30,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 124,210 $ 158,251 $ 180,274 $ 106,551 $ 122,841
Operating expenses.......................................... 116,184 153,615 165,493 85,108 92,189
---------- ---------- ---------- ---------- ----------
Income from operations...................................... 8,026 4,636 14,781 21,443 30,652
Net interest expense........................................ 14,011 18,483 27,710 12,530 15,605
Loss on sale of golf facility............................... -- (2,684) -- -- --
Minority interests in losses of subsidiaries................ 458 201 58 78 182
Income tax expense (benefit)................................ -- -- (291) (3) 2,195
Extraordinary items, net of income tax...................... (2,202) -- 32,120 32,120 (3,138)
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Adjusted EBITDA(1).......................................... $ 23,034 $ 26,283 $ 43,873 $ 35,000 $ 47,673
Net Membership Deposits(2).................................. 24,218 6,347 4,391 2,004 3,593
Adjusted Net Membership Deposits(3)......................... 351 234 4,391 2,004 3,593
Non-cash items.............................................. 228 885 873 89 330
</TABLE>
- ------------------------------
(1) Adjusted EBITDA is defined as net income before income tax expense
(benefit), net interest expense, depreciation and amortization, loss on sale
of golf facility, extraordinary items, and other non-cash items, plus
Adjusted Net Membership Deposits (as defined below) and is consistent with
the definition that is contained in the Indenture. Adjusted EBITDA is
presented to assist in understanding the Company's operating results.
Adjusted EBITDA should not be construed as an indicator of the Company's
operating performance or as an alternative to operating income as determined
in accordance with GAAP. Additionally, Adjusted EBITDA should not be
construed by investors as a measure of the Company's liquidity or ability to
meet all cash needs or as an alternative to cash flows from operating,
investing and financing activities as determined in accordance with GAAP,
nor should Adjusted EBITDA be construed by investors as an alternative to
any other determination under GAAP. See note 2 at page 21 for a summary of
cash flows from operating, investing and financing activities and a
reconciliation of consolidated net income (loss) to Adjusted EBITDA.
(2) Net Membership Deposits is defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing
members who have converted to new membership plans, in each case in cash,
plus principal payments in cash received on notes in respect thereof, minus
the amount of any refunds paid in cash in respect of such deposits.
(3) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1994 and fiscal 1995 $23.9 million and $6.1 million,
respectively, of Net Membership Deposits which, because these amounts were
paid by existing resort club members in connection with the initial
conversion of such members to new membership plans at Desert Resorts, were
nonrecurring in nature.
46
<PAGE>
The following table sets forth certain financial and other data regarding
the Company's hotel operations at Desert Resorts and Doral.
<TABLE>
<CAPTION>
LA QUINTA DORAL
RESORT & CLUB RESORT & SPA
--------------------------- ---------------------------
<S> <C> <C>
Location.............................................. La Quinta, California Miami, Florida
Number of Guest Rooms................................. 640 646
Number of Spa Guest Suites............................ n/a 48
Year Opened (most recent expansion)................... 1926, (1989) 1961
Month Acquired........................................ December, 1993 December, 1993
Completed Renovation Expenditures,
including golf courses and clubs.................... $33.5 million $33 million
FY 1996 Occupancy..................................... 57.2% 67.0%
FY 1996 Average Daily Rate (ADR)...................... $170 $128
FY 1996 Rooms Revenue/
Available Rooms..................................... $97 $86
</TABLE>
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO THE SIX MONTHS ENDED APRIL 30, 1996
REVENUES. Revenues increased by $16,290, or 15.3%, from $106,551 in the
first two fiscal quarters of 1996 to $122,841 in the first two fiscal quarters
of 1997. This increase reflected increases in revenues at each of the Company's
operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $6,686, or
12.8%, from $52,368 in the first two fiscal quarters of 1996 to $59,054 in
the first two fiscal quarters of 1997. This increase was primarily
attributable to (i) an increase in room revenues of $2,076, or 12.6%, from
$16,515 in the first two fiscal quarters of 1996 to $18,591 in the first two
fiscal quarters of 1997, (ii) an increase in food and beverage sales of
$1,814, or 14.8%, from $12,297 in the first two fiscal quarters of 1996 to
$14,111 in the first two fiscal quarters of 1997 and (iii) an increase in
golf fees and dues of $1,746, or 12.3%, from $14,250 in the first two fiscal
quarters of 1996 to $15,996 in the first two fiscal quarters of 1997. The
increase in room revenues was attributable to (i) an increase in occupancy
rate from 69% in the first two fiscal quarters of 1996 to 77% in the first
two fiscal quarters of 1997 and (ii) an increase in the average daily rate
("ADR") from $203 in the first two fiscal quarters of 1996 to $204 in the
first two fiscal quarters of 1997, resulting in an increase in revenue per
available room ("RevPAR") from $139 in the first two fiscal quarters of 1996
to $157 in the first two fiscal quarters of 1997. The increases in food and
beverage sales and golf fees and dues were primarily attributable to the
increase in occupancy and membership.
DORAL. Revenues at Doral increased by $7,387, or 20.2%, from $36,540 in
the first two fiscal quarters of 1996 to $43,927 in the first two fiscal
quarters of 1997. This increase was primarily attributable to (i) an
increase in room revenues of $2,509, or 16.9%, from $14,820 in the first two
fiscal quarters of 1996 to $17,329 in the first two fiscal quarters of 1997,
(ii) an increase in food and beverage sales of $2,253, or 23.0%, from $9,788
in the first two fiscal quarters of 1996 to $12,041 in the first two fiscal
quarters of 1997 and (iii) an increase in golf fees and dues of $1,563, or
32.1%, from $4,870 in the first two fiscal quarters of 1996 to $6,433 in the
first two fiscal quarters of 1997. The increase in room revenues was
attributable to (i) an increase in occupancy rate from 73% in the first two
fiscal quarters of 1996 to 79% in the first two fiscal quarters of 1997 and
(ii) an increase in the ADR from $156 in the first two fiscal quarters of
1996 to $173 in the first two fiscal quarters of 1997, resulting in an
increase in RevPAR from $114 in the first two fiscal quarters of 1996 to
$137 in the first two fiscal quarters of 1997. The increases in food and
beverage sales and golf fees were primarily attributable to the increase in
occupancy rate.
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FAIRWAYS. Revenues at Fairways increased by $1,256, or 7.1%, from
$17,642 in the first two fiscal quarters of 1996 to $18,898 in the first two
fiscal quarters of 1997. This increase was primarily attributable to an
increase in golf fees and dues of $1,530, or 13.1%, from $11,698 in the
first two fiscal quarters of 1996 to $13,228 in the first two fiscal
quarters of 1997, offset by a decrease of $299, or 21.0%, in merchandise
sales from $1,421 in the first two fiscal quarters of 1996 to $1,122 in the
first two fiscal quarters of 1997. The increase in golf fees and dues was
primarily attributable to the full period effect of the acquisition of four
golf facilities during fiscal 1996 and increased play resulting from more
favorable weather in the first two fiscal quarters of 1997. The decrease in
merchandise sales was primarily attributable to reduced sales of lower
margin merchandise.
OPERATING EXPENSES. Operating expenses increased by $7,081, or 8.3%, from
$85,108 in the first two fiscal quarters of 1996 to $92,189 in the first two
fiscal quarters of 1997. Operating expenses, excluding depreciation and
amortization, increased by $5,551, or 7.5%, from $73,722 in the first two fiscal
quarters of 1996 to $79,273 in the first two fiscal quarters of 1997, primarily
as a result of increased activity arising out of the higher occupancy rate at
the Company's resorts and the period effect of the four additional golf
facilities acquired by Fairways in fiscal 1996. The primary components of the
increase were (i) an increase in variable payroll and benefit expenses of
$1,817, or 5.5%, from $32,906 in the first two fiscal quarters of 1996 to
$34,723 in the first two fiscal quarters of 1997, (ii) an increase in supplies,
and maintenance and repair expenses of $1,372, or 16.2%, from $8,462 in the
first two fiscal quarters of 1996 to $9,834 in the first two fiscal quarters of
1997 and (iii) an increase in cost of sales of $733, or 5.0%, from $14,524 in
the first two fiscal quarters of 1996 to $15,257 in the first two fiscal
quarters of 1997. As a percentage of revenues, operating expenses, excluding
depreciation and amortization, declined from 69.2% of revenues in the first two
fiscal quarters of 1996 to 64.5% of revenues in the first two fiscal quarters of
1997. Depreciation and amortization increased by $1,530, or 13.4%, from $11,386
in the first two fiscal quarters of 1996 to $12,916 in the first two fiscal
quarters of 1997. This increase was primarily attributable to the completion of
capital improvements at Desert Resorts and Doral in fiscal 1996, as well as to
the acquisition of four additional golf facilities at Fairways in fiscal 1996.
OPERATING INCOME. Operating income increased by $9,209, or 42.9%, from
$21,443 in the first two fiscal quarters of 1996 to $30,652 in the first two
fiscal quarters of 1997 as the result of the factors discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $3,075, or 24.5%,
from $12,530 in the first two fiscal quarters of 1996 to $15,605 in the first
two fiscal quarters of 1997. This increase was primarily attributable to (i)
increases in interest rates on indebtedness at Desert Resorts in the first two
fiscal quarters of 1997 resulting from the refinancing in December 1995 of
indebtedness at Desert Resorts at higher rates than the original financing and
the associated increase in debt issue cost of that refinancing and (ii) an
increase of indebtedness incurred in connection with the acquisition of four
golf facilities at Fairways in fiscal 1996.
EXTRAORDINARY ITEMS. The Company incurred an extraordinary loss of $3,138,
net of income tax effect of $2,007, in the first two fiscal quarters of 1997 due
to a loss on extinguishment of debt consisting of the prepayment penalties and
financing costs associated with the previous borrowings that were refinanced in
April 1997. In the first two fiscal quarters of 1996, the Company and the lender
which provided financing for the acquisition of Desert Resorts entered into a
compromise debt settlement, as a result of which the Company retired
indebtedness and recorded an extraordinary gain, net of income taxes, of
$32,120.
NET INCOME. Net income decreased by $31,218, or 75.9%, from $41,114 in the
first two fiscal quarters of 1996 to $9,896 in the first two fiscal quarters of
1997 as a result of the factors discussed above. Excluding the effect of
extraordinary items, net income would have increased by $4,040, or 44.9%, from
net income of $8,994 in the first two fiscal quarters of 1996 to net income of
$13,034 in the first two fiscal quarters of 1997.
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ADJUSTED EBITDA. Adjusted EBITDA increased by $12,673, or 36.2%, from
$35,000 in the first two fiscal quarters of 1996 to $47,673 in the first two
fiscal quarters of 1997. This increase was primarily attributable to the factors
discussed above and an increase in Adjusted Net Membership Deposits of $1,589,
or 79.3%, from $2,004 in the first two fiscal quarters of 1996 to $3,593 in the
first two fiscal quarters of 1997. (See note 2 at page 21 for a summary of cash
flows from operating, investing and financing activities and a reconciliation of
net income to Adjusted EBITDA.)
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
REVENUES. Revenues increased by $22,023, or 13.9%, from $158,251 in fiscal
1995 to $180,274 in fiscal 1996. This increase reflected increases in revenues
at each of the Company's operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $3,465, or
4.7%, from $73,818 in fiscal 1995 to $77,283 in fiscal 1996. This increase
was primarily attributable to (i) an increase in room revenue of $2,141, or
10.2%, from $21,084 in fiscal 1995 to $23,225 in fiscal 1996, (ii) an
increase in food and beverage sales of $736, or 4.3%, from $17,248 in fiscal
1995 to $17,984 in fiscal 1996 and (iii) an increase in golf fees and dues
of $523, or 2.4%, from $21,719 in fiscal 1995 to $22,242 in fiscal 1996. The
increase in room revenues was attributable to (i) an increase in occupancy
rate from 54% in fiscal 1995 to 57% in fiscal 1996 and (ii) an increase in
ADR from $166 in fiscal 1995 to $170 in fiscal 1996, resulting in an
increase in RevPAR from $89 in fiscal 1995 to $97 in fiscal 1996. The
increases in food and beverage sales and golf fees and dues were primarily
attributable to the increases in occupancy rate.
DORAL. Revenues at Doral increased by $12,044, or 26.6%, from $45,299
in fiscal 1995 to $57,343 in fiscal 1996. This increase was primarily
attributable to (i) the completion of the room renovation program in October
1995, which resulted in lower occupancy rates throughout fiscal 1995, and
(ii) the completion of the rebuilding of the Gold Course in January 1996,
which resulted in lower golf revenues from May 1995 to January 1996. During
fiscal 1996, (i) room revenues increased by $5,753, or 35.2%, from $16,364
in fiscal 1995 to $22,117 in fiscal 1996, (ii) food and beverage sales
increased by $4,072, or 31.4%, from $12,977 in fiscal 1995 to $17,049 in
fiscal 1996, (iii) golf fees and dues increased by $192, or 2.8%, from
$6,892 in fiscal 1995 to $7,084 in fiscal 1996 and (iv) spa revenues
increased by $351, or 12.7% from $2,761 in fiscal 1995 to $3,112 in fiscal
1996. The increase in room revenues was primarily attributable to an
increase in occupancy rate from 49% in fiscal 1995 to 67% in fiscal 1996,
resulting in an increase in RevPAR from $63 in fiscal 1995 to $86 in fiscal
1996. The increases in golf fees and dues and food and beverage sales were
primarily attributable to the increase in occupancy rate and, in the case of
golf fees and dues, the completion of the rebuilding of the Gold Course as
discussed above, offset in part by lower revenues as a result of the
restoration of the "Blue Monster" from April 1996 to December 1996.
FAIRWAYS. Revenues at Fairways increased by $5,632, or 14.4%, from
$39,134 in fiscal 1995 to $44,766 in fiscal 1996. This increase was
primarily attributable to (i) an increase in golf fees and dues at Fairways
of $5,229, or 21.5%, from $24,365 in fiscal 1995 to $29,594 in fiscal 1996
and (ii) an increase in food and beverage sales of $633, or 7.3%, from
$8,672 in fiscal 1995 to $9,305 in fiscal 1996. The increases in golf fees
and dues and food and beverage sales were primarily attributable to the
acquisition of four golf facilities in fiscal 1996.
OPERATING EXPENSES. Operating expenses increased by $11,878, or 7.7%, from
$153,615 in fiscal 1995 to $165,493 in fiscal 1996. Operating expenses,
excluding depreciation and amortization, increased by $8,435, or 6.3%, from
$133,288 in fiscal 1995 to $141,723 in fiscal 1996, primarily as a result of
increased activity resulting from higher occupancy rates at the Company's
resorts and the acquisition of four golf facilities at Fairways in fiscal 1996.
The primary components of the increase were (i) an increase in payroll and
expenses of $3,452, or 7.3%, from $47,542 in fiscal 1995 to $50,994 in fiscal
1996, reflecting increases in staff and changes in incentive programs and (ii)
an increase in supplies, maintenance and repair expenses
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of $1,440, or 8.8%, from $16,345 in fiscal 1995 to $17,785 in fiscal 1996,
offset in part by a decrease in benefit expenses of $1,711 or 13.3%, from
$12,827 in fiscal 1995 to $11,116 in fiscal 1996, as a result of changes in
benefit programs and lower workman's compensation losses. As a percentage of
revenues, operating expenses, excluding depreciation and amortization, declined
from 84.2% of revenues in fiscal 1995 to 78.6% of revenues in fiscal 1996.
Depreciation and amortization increased by $3,443, or 16.9%, from $20,327 in
fiscal 1995 to $23,770 in fiscal 1996. This increase was primarily attributable
to the completion of capital improvements at Desert Resorts and Doral in fiscal
1996.
OPERATING INCOME. Operating income increased by $10,145, or 219%, from
$4,636 in fiscal 1995 to $14,781 in fiscal 1996 as a result of the factors
discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $9,227, or 49.9%,
from $18,483 in fiscal 1995 to $27,710 in fiscal 1996. This increase was
primarily attributable to (i) the refinancing of indebtedness at Desert Resorts
at higher rates than the original financing and (ii) additional indebtedness
incurred at Fairways to fund the acquisition of three golf facilities in fiscal
1995 and four golf facilities in fiscal 1996, partially offset by higher
interest income due to higher cash balances and interest received on a note
receivable from an affiliate.
LOSS ON SALE OF GOLF FACILITY AND EXTRAORDINARY ITEMS. The Company incurred
an extraordinary gain, net of income taxes, on the early extinguishment of
indebtedness of $32,120, in fiscal 1996. In fiscal 1995, the Company incurred a
loss of $2,684 in connection with the sale of a golf facility at Fairways.
NET INCOME. Net income increased by $35,870 from a net loss of $16,330 in
fiscal 1995 to net income of $19,540 in fiscal 1996 as a result of the factors
described above. Excluding the effect of the loss on sale of golf facility and
extraordinary items, net loss would have decreased by $1,066, or 7.8%, from
$13,646 in fiscal 1995 to $12,580 in fiscal 1996.
ADJUSTED EBITDA. Adjusted EBITDA increased by $17,590, or 66.9%, from
$26,283 in fiscal 1995 to $43,873 in fiscal 1996. This increase was primarily
attributable to the factors described above and an increase in Adjusted Net
Membership Deposits of $4,157 from $234 in fiscal 1995 to $4,391 in fiscal 1996.
(See note 2 at page 21 for a summary of cash flows from operating, investing and
financing activities and a reconciliation of net income to Adjusted EBITDA.)
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
DESERT RESORTS AND DORAL WERE ACQUIRED IN DECEMBER 1993. ACCORDINGLY,
OPERATING RESULTS FOR FISCAL 1994 INCLUDE ONLY TEN MONTHS OF OPERATIONS FOR SUCH
ENTITIES.
REVENUES. Revenues of the Company increased by $34,041, or 27.4%, from
$124,210 in fiscal 1994 to $158,251 in fiscal 1995. This increase reflected
increases in revenues at each of the Company's operating units.
DESERT RESORTS. Revenues at Desert Resorts increased by $17,552, or
31.2%, from $56,266 in fiscal 1994 to $73,818 in fiscal 1995. This increase
was primarily attributable to (i) an increase in room revenues of $4,283, or
25.5%, from $16,801 in fiscal 1994 to $21,084 in fiscal 1995, (ii) an
increase in food and beverage sales of $4,227, or 32.5%, from $13,021 in
fiscal 1994 to $17,248 in fiscal 1995 and (iii) an increase in golf fees and
dues of $4,024, or 22.7%, from $17,695 in fiscal 1994 to $21,719 in fiscal
1995. The increase in room revenues was attributable to an increase in ADR
from $154 in fiscal 1994 to $166 in fiscal 1995, resulting in an increase in
RevPAR from $84 in fiscal 1994 to $89 in fiscal 1995. The increases in food
and beverage sales and golf fees and dues were primarily attributable to the
increase in occupancy rate.
DORAL. Revenues at Doral increased by $6,097, or 15.6%, from $39,202 in
fiscal 1994 to $45,299 in fiscal 1995. This increase was primarily
attributable to (i) an increase in room revenues of $1,112, or
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7.3%, from $15,252 in fiscal 1994 to $16,364 in fiscal 1995, (ii) an
increase in food and beverage sales of $3,591, or 38.3%, from $9,386 in
fiscal 1994 to $12,977 in fiscal 1995 and (iii) an increase in golf fees and
dues of $1,752, or 34.1%, from $5,140 in fiscal 1994 to $6,892 in fiscal
1995. The increase in room revenues was primarily attributable to twelve
months of operations during fiscal 1995 as compared to ten months of
operations during fiscal 1994, offset by declines in both occupancy rate and
ADR in fiscal 1995 as a result of the room renovation program undertaken
from May 1994 to October 1995. The increases in food and beverage sales and
golf fees and dues were primarily attributable to twelve months of
operations during fiscal 1995 as compared to ten months of operations during
fiscal 1994, offset in part by lower revenues as a result of the Gold Course
being closed from May 1995 to January 1996.
FAIRWAYS. Revenues at Fairways increased by $10,392, or 36.2%, from
$28,742 in fiscal 1994 to $39,134 in fiscal 1995. This increase was
primarily attributable to (i) an increase in golf fees and dues of $5,639,
or 30.1%, from $18,726 in fiscal 1994 to $24,365 in fiscal 1995 and (ii) an
increase in food and beverage sales of $2,657, or 44.2%, from $6,015 in
fiscal 1994 to $8,672 in fiscal 1995. These increases were primarily
attributable to the acquisition of three golf facilities in fiscal 1995.
OPERATING EXPENSES. Operating expenses increased by $37,431, or 32.2%, from
$116,184 in fiscal 1994 to $153,615 in fiscal 1995. Operating expenses,
excluding depreciation and amortization, increased by $31,075, or 30.4%, from
$102,213 in fiscal 1994 to $133,288 in fiscal 1995, primarily as a result of the
effects of a full twelve months of operations in fiscal 1995 compared to ten
months of operations in fiscal 1994 for Desert Resorts and Doral and the
acquisition by Fairways of five golf facilities in fiscal 1994 and three golf
facilities in fiscal 1995. As a percentage of revenues, operating expenses,
excluding depreciation and amortization, increased from 82.3% of revenues in
fiscal 1994 to 84.2% of revenues in fiscal 1995 primarily as a result of the
decrease in occupancy rate and room revenues due to the room renovation program
at Doral. Depreciation and amortization increased by $6,356, or 45.5%, from
$13,971 in fiscal 1994 to $20,327 in fiscal 1995. This increase was primarily
attributable to the completion of the room renovation program at Doral in
October 1995.
OPERATING INCOME. Operating income decreased by $3,390, or 42.2%, from
$8,026 in fiscal 1994 to $4,636 in fiscal 1995 as the result of the factors
discussed above.
NET INTEREST EXPENSE. Net interest expense increased by $4,472, or 31.9%,
from $14,011 in fiscal 1994 to $18,483 in fiscal 1995. This increase was
primarily attributable to an increase in indebtedness incurred in connection
with the acquisition of five golf facilities in fiscal 1994 and three golf
courses in fiscal 1995 and increased interest rates generally.
LOSS ON SALE OF GOLF FACILITY AND EXTRAORDINARY ITEMS. The Company incurred
a loss of $2,684 in fiscal 1995 in connection with the sale of a golf facility
at Fairways. In fiscal 1994, the Company incurred an extraordinary loss on the
early extinguishment of indebtedness of $2,202 in connection with a write-off of
previously deferred financing costs relating to the early retirement of certain
indebtedness at Fairways.
NET LOSS. Net loss increased by $8,601, or 111%, from a net loss of $7,729
in fiscal 1994 to a net loss of $16,330 in fiscal 1995. Excluding the effect of
the loss on sale of golf facility and extraordinary items, net loss would have
increased by $8,119, or 147%, from a net loss of $5,527 in fiscal 1994 to a net
loss of $13,646 in fiscal 1995.
ADJUSTED EBITDA. Adjusted EBITDA increased by $3,249, or 14.1%, from
$23,034 in fiscal 1994 to $26,283 in fiscal 1995. This increase was primarily
attributable to the factors described above. (See note 2 at page 21 for a
summary of cash flows from operating, investing and financing activities and a
reconciliation of net loss to Adjusted EBITDA.)
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating requirements
with a combination of operating cash flow, borrowings under the credit
facilities of its operating subsidiaries and equity investments from
partnerships formed at the direction of KKR. The Company has utilized these
sources of funds to make acquisitions, to fund significant capital expenditures
at its properties, to fund operations and to service debt under the credit
facilities of its operating subsidiaries. The Company presently expects to fund
its future capital and operating requirements at its existing operations through
a combination of borrowings under the New Credit Facility and cash generated
from operations.
During the first two fiscal quarters of 1997, cash flow provided by
operating activities was $74,577, compared to $9,598 for the first two fiscal
quarters of 1996. This increase was primarily due to the settlement of
receivables due from Parent and its affiliates of $46,911 and the release of
restricted cash to operating cash of $9,499 due to the New Credit Facility. The
positive impact on cash from the settlement of these receivables was offset by
the cash used in financing activities to provide a dividend and a net return of
capital to Parent of $51,199. During the first two fiscal quarters of 1997, cash
flow used in investing activities was $21,469, compared to cash provided by
investing activities of $4,348 for the first two fiscal quarters of 1996. This
change was primarily attributable to the repayment to the Company of a $23,065
note by an affiliate in the first two fiscal quarters of 1996, as compared to
the issuance of a new $20,800 note by the Company to KSL Land in the first two
fiscal quarters of 1997; offset by a decline in capital expenditures of $15,547
in the first two fiscal quarters of 1997 compared to the first two fiscal
quarters of 1996.
During the fiscal year ended October 31, 1996, cash flow provided by
operating activities was $14,926, compared to cash flow used in operating
activities of $6,750 for the fiscal year ended October 31, 1995. This change was
primarily attributable to (i) the reduction of a receivable owed by Parent in
1996, (ii) the increase in revenues during fiscal 1996 and (iii) improved
management of accounts payable, offset in part by advances by the Company to KSL
Land. During the fiscal year ended October 31, 1996, cash flow used in investing
activities was $12,250, compared to $48,912 for the fiscal year ended October
31, 1995. This decrease was primarily attributable to a reduction in capital
expenditures of $28,157 in fiscal 1996 compared to fiscal 1995 and the repayment
to the Company of a $23,065 note by an affiliate in 1996, offset by an increase
of $5,112 in fiscal 1996 of funds used to acquire golf courses.
From the beginning of fiscal 1994 to the end of fiscal 1996, the Company
spent approximately $33,500 at Desert Resorts to, among other things: (i) build
a new 24,000 square foot addition to the conference facilities at La Quinta;
(ii) construct a new championship golf course designed by Tom Weiskopf at PGA
WEST and renovate the Mountain Course at La Quinta; and (iii) build a new 28,000
square foot members' clubhouse at the Citrus Course at La Quinta. These
expenditures were funded primarily through operating cash flow. The Company has
budgeted approximately $6,300 in fiscal 1997 at Desert Resorts to fund
additional capital expenditures.
From the beginning of fiscal 1994 to the end of fiscal 1996, the Company
spent approximately $33,000 at Doral to, among other things: (i) renovate all
646 guest rooms and refurbish all 48 spa guest suites at the resort; (ii)
renovate the 75,000 square feet of conference facilities and most of the public
reception areas; and (iii) restore the famed "Blue Monster" Golf Course and
rebuild the Gold Course under the direction of noted professional golfer and
golf course designer Raymond Floyd. These expenditures were funded primarily
through additional capital contributions from Parent. The Company has budgeted
approximately $2,600 in fiscal 1997 at Doral to fund additional capital
expenditures.
The Company has budgeted approximately $2,000 for capital expenditures in
fiscal 1997 at Fairways.
In connection with the Lake Lanier Transaction and concurrently with the
Refinancings, Parent contributed $9,000 in cash to the Issuer to fund the
purchase of certain equipment and other assets used in the operation of the Lake
Lanier Islands facilities that were not leased pursuant to the sublease. In
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addition, the terms of the sublease will require the Company to spend $5,000 for
capital improvements at Lake Lanier Islands over the first five years of the
sublease. The Company may also make additional capital improvements at Lake
Lanier Islands in the future. See "Business--Properties; Lake Lanier
Transaction."
The Company is continually engaged in evaluating potential acquisition
candidates to add to its portfolio of properties at both its resort and
community golf businesses. The Company expects that funding for future
acquisitions may come from a variety of sources, depending on the size and
nature of any such acquisitions. Potential sources of capital include cash
generated from operations, borrowings under the New Credit Facility, additional
equity investments from Parent or partnerships formed at the direction of KKR or
other external debt or equity financings. There can be no assurance that such
additional capital sources will be available to the Company on terms which the
Company finds acceptable, or at all. See "Risk Factors--Acquisition Strategy and
Risks Related to Rapid Growth." In August 1997, the Company acquired Grand
Traverse for a purchase price of approximately $45 million. This acquisition was
financed under the revolving credit portion of the New Credit Facility.
In connection with the Refinancings, the Company entered into the New Credit
Facility providing for aggregate borrowings of up to $275,000. In connection
with the New Credit Facility, the credit agreements at each of Desert Resorts,
Doral and Fairways were repaid and terminated. The New Credit Facility provides
for term loans of $100,000 and revolving loans of $175,000. The term loans were
fully drawn at closing and approximately $75,000 was drawn under the revolving
credit portion of the New Credit Facility at closing. Interest rates on the term
loans and the revolving credit loans will be based, at the Company's option, on
the Base Rate (as defined) or LIBOR (as defined). The loans under the term loan
facility (the "Term Loans") are comprised of Term A Loans ($50,000), which have
a final maturity of April 30, 2005 and annual interim amortization of $500 from
1998 to 2004 with a final payment of $46,500 due in 2005, and Term B Loans
($50,000) which have a final maturity of April 30, 2006 and annual interim
amortization of $500 from 1998 until 2005 with a final payment of $46,000 due in
2006. The revolving credit loan commitment matures on April 30 2004, with
scheduled mandatory reductions in the aggregate commitments thereunder to
$163,750 on April 30, 2000, $152,500 on April 30, 2001, $137,500 on April 30,
2002 and $118,750 on April 30, 2003. The New Credit Facility contains certain
restrictions and limitations, including financial covenants that will require
the Company to maintain and achieve certain levels of financial performance and
limitations on the payment of cash dividends and similar restricted payments.
See "Description of Certain Indebtedness--New Credit Facility."
The Company believes that its liquidity, capital resources and cash flows
from existing operations will be sufficient to fund capital expenditures,
working capital requirements and interest and principal payments on its
indebtedness for the foreseeable future. However, a variety of factors could
impact the Company's ability to fund capital expenditures, working capital
requirements and interest and principal payments, including a prolonged or
severe economic recession in the United States, departures from currently
expected demographic trends (for example, if the total number of golf rounds
played and golf spending are not as great as currently anticipated) or the
Company's inability to achieve operating improvements at existing and acquired
operations at currently expected levels. Moreover, the Company currently expects
that it will acquire additional resorts, golf facilities or other recreational
facilities, and in connection therewith, expects to incur additional
indebtedness. In the event that the Company incurs such additional indebtedness,
its ability to make principal and interest payments on its indebtedness,
including the Notes, may be adversely impacted.
SEASONALITY AND INFLATION
The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands and
the Company's community golf operations offset a portion of the seasonality
associated with Desert Resorts
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and Doral because they generate a significant percentage of their revenue and
operating income during the summer months which are recognized in the last two
quarters of the fiscal year.
The Company believes that inflation does not materially impact its business
operations.
ACCOUNTING CHANGES
In fiscal 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of. The effects of adopting (SFAS)
No. 121 were not material in relation to the Company's consolidated financial
statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128) which
is effective for financial statements issued for periods ending after December
15, 1997. SFAS 128 simplifies the previous standards for computing earnings per
share and requires the disclosure of basic and diluted earnings per share. For
the year ended October 31, 1996, the amount reported as net income per common
and common equivalent share was not materially different than that which would
have been reported for basic and diluted earnings per share in accordance with
SFAS 128.
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BUSINESS
GENERAL
The Company is one of the nation's leading operators of destination resort
businesses and community golf course facilities. The Company's mission is to
become a premier operator of service-based recreation, leisure and hospitality
businesses worldwide, capitalizing on significant growth opportunities in
business and leisure travel and participant recreation. For the twelve months
ended April 30, 1997, on a pro forma basis as defined herein, the Company's
revenues were $214.0 million and net loss was $16.3 million.
The Company's operations currently include world-class resorts and community
golf properties. The resort businesses are comprised of: (i) the internationally
recognized La Quinta Resort & Club ("La Quinta") and PGA WEST facilities ("PGA
WEST"), located in the Palm Springs, California area, which, together,
constitute the Company's "Desert Resorts" operations; (ii) the renowned Doral
Golf Resort and Spa ("Doral"), located near Miami, Florida; (iii) a hotel and
recreational complex at Lake Lanier near Atlanta, Georgia ("Lake Lanier
Islands") and (iv) the Grand Traverse Resort ("Grand Traverse"), located in the
northern portion of the lower peninsula of Michigan. KSL Fairways ("Fairways"),
the Company's community golf division, owns 22 golf facilities located in six
states. The Company believes Fairways is the nation's third largest
owner/operator of community golf courses.
RESORT OPERATIONS
- DESERT RESORTS. Acquired by the Company in December 1993, Desert Resorts
includes 640 "casita"-style hotel rooms, eight championship eighteen-hole
golf courses including the renowned TPC Stadium Course, two private clubs
with approximately 1,930 dues-paying members (as of April 30, 1997),
several nationally recognized golf and tennis instruction programs
including the Jim McLean Golf Academy at PGA WEST and The Dave Pelz Short
Game School, 49 tennis courts, 25 swimming pools, eight restaurants and
approximately 66,000 square feet of conference space, enabling Desert
Resorts to accommodate multiple large group functions. PGA WEST has hosted
several of the most prestigious events in golf, including the Skins Game,
the Bob Hope Chrysler Classic, The Grand Slam of Golf, the Diners Club
Matches and the Liberty Mutual Legends of Golf. Of Desert Resorts'
championship golf courses, four were designed by Pete Dye, two by Jack
Nicklaus, one by Arnold Palmer and one by Tom Weiskopf. La Quinta was one
of only 20 resorts nationwide and the only resort in southern California
to receive GOLF Magazine's prestigious Gold Medal in November 1996. For
the twelve months ended April 30, 1997, revenues for Desert Resorts were
$84.0 million.
- DORAL GOLF RESORT AND SPA. Acquired by the Company in December 1993, Doral
includes 646 hotel rooms, four championship eighteen-hole golf courses
including the famed "Blue Monster" golf course which was recently restored
under the direction of noted professional golfer and golf course designer
Raymond Floyd and which is the home of the Doral-Ryder Open, a nine-hole
executive golf course, Jim McLean's nationally recognized golf instruction
program, the Arthur Ashe Tennis Center, featuring 15 courts, one swimming
pool, three restaurants, approximately 75,000 square feet of conference
space, a private club with approximately 400 dues-paying members (at April
30, 1997). Doral also includes an internationally acclaimed spa (the "Spa
at Doral"), which features an additional 48 hotel suites, three swimming
pools, two restaurants and approximately 85,000 square feet of fitness and
spa facilities. Doral also received the Gold Medal award from GOLF
Magazine in November 1996, making Doral one of only four resorts in
Florida to receive this award and making the Company one of only two
resort operators in the world to receive Gold Medals at more than one
facility. For the twelve months ended April 30, 1997, revenues for Doral
were $64.7 million.
- LAKE LANIER ISLANDS. Lake Lanier Islands is an approximately 1,040 acre
recreational complex situated at Lake Lanier, Georgia, which is located
approximately 45 miles from downtown Atlanta. Lake Lanier's operations
currently include a 224-room hotel operated by the Company under a
55
<PAGE>
license agreement with Hilton Hotels, an eighteen-hole golf course, three
tennis courts, one swimming pool, two restaurants, approximately 12,500
square feet of conference space, extensive beach and water park
facilities, houseboat and fishing boat rentals, riding stables,
campgrounds, pavilions and an amphitheater. For the period from May 15,
1996 through April 30, 1997, on a pro forma basis after giving effect to
the Lake Lanier Transaction, revenues for Lake Lanier Islands would have
been $19.3 million.
- GRAND TRAVERSE RESORT. Grand Traverse, which the Company acquired in
August 1997, includes 425 hotel rooms, two championship golf courses, nine
tennis courts, four racquetball courts, three swimming pools, three
restaurants and approximately 55,000 square feet of conference space. "The
Bear" golf course at Grand Traverse was designed by Jack Nicklaus. Grand
Traverse won a Silver Medal from GOLF Magazine in November 1996.
COMMUNITY GOLF OPERATIONS
- KSL FAIRWAYS. In mid-1993, the Company purchased Fairways, a
then-privately-held owner/operator of community golf facilities primarily
along the east coast of the United States. During the past three years,
Fairways' operations have grown rapidly and today include a total of 16
eighteen-hole golf facilities, three 27-hole golf facilities and three
36-hole golf facilities at 22 locations in the Southeast, Mid-Atlantic and
upper Midwest regions of the United States. These clubs are a mix of
public (or daily fee), semi-private and private golf facilities, with
approximately 8,000 dues-paying members (at April 30, 1997) at the
semi-private and private clubs. For the twelve months ended April 30,
1997, revenues for the community golf operations were $46.0 million.
The Company's principal executive offices are located at 56-140 PGA
Boulevard, La Quinta, California 92253.
OPERATING ACHIEVEMENTS
The Company was formed in 1993, acquired Fairways in July 1993, acquired
Desert Resorts and Doral in December 1993 and, since July 1993, has acquired an
additional 12 community golf course properties through Fairways. The Company
began operating Lake Lanier Islands pursuant to a management agreement in May
1996 and closed a sublease on Lake Lanier Islands in August 1997. The Company's
revenues have increased from $124.2 million in fiscal 1994 to $180.3 million in
fiscal 1996, representing a 20.5% compound annual growth rate. In addition
Adjusted EBITDA has increased from $23.0 million in fiscal 1994 to $43.9 million
in fiscal 1996, representing a compound annual growth rate of 38.0%. Management
attributes this growth in revenues and margin improvement to the successful
implementation of a number of initiatives since 1994 , the most significant of
which include: (i) a $66.5 million capital spending program at the Company's
resorts; (ii) improvements in service levels and the introduction of enhanced
programs available to the Company's members and guests; (iii) development of
marketing techniques to promote the unique natural beauty and history of its
resort properties; (iv) implementation of yield management techniques to
increase usage of the Company's facilities; (v) better matching the Company's
employee base to its seasonal labor needs through labor forecasting; (vi)
implementation of combined purchasing programs across the Company's different
operations; (vii) consolidation of certain of the Company's administrative and
executive management functions; and (viii) introduction of new membership
programs at its resorts designed to add new members and convert existing
members.
BUSINESS STRATEGY
The Company's management has significant experience in operating resort and
recreation businesses and is focused on maximizing the business potential of the
Company by providing a superior destination resort experience and a quality
recreation product for its guests and members. The Company believes it is
well-positioned to capitalize on the significant growth and consolidation
opportunities that it believes exist in the recreation, leisure and hospitality
industries. The Company's business strategy is to (i) capitalize on
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<PAGE>
high-impact capital improvements at its resorts, (ii) distinguish and market the
uniqueness and brand names of its resort properties, (iii) continue to grow its
membership business, (iv) expand through strategic acquisitions and (v) enter
related recreation businesses.
- CAPITALIZE ON HIGH-IMPACT CAPITAL IMPROVEMENTS AT ITS RESORTS. The
Company's strategy is to make capital expenditures at its resort
properties that are designed to result in incremental revenues and
Adjusted EBITDA. As a part of this strategy, over the past three years,
the Company has invested approximately $33.5 million at Desert Resorts to,
among other things: (i) build a new 24,000 square foot addition to the
conference facilities at La Quinta; (ii) construct a new championship golf
course designed by Tom Weiskopf at PGA WEST and renovate the Mountain
Course at La Quinta; and (iii) build a new 28,000 square foot members'
clubhouse at the Citrus Course at La Quinta. During the same period, the
Company has invested approximately $33.0 million at Doral to, among other
things: (i) renovate all 646 guest rooms and refurbish all 48 spa guest
suites at the resort; (ii) renovate the approximately 75,000 square feet
of conference facilities and most of the public reception areas; and (iii)
restore the famed "Blue Monster" Golf Course and rebuild the Gold Course
under the direction of noted professional golfer and golf course designer
Raymond Floyd. The Company believes that as a result of these capital
expenditures: (i) revenue per available room ("RevPAR"), a common measure
of the yield generated by occupancy and room rate, at its resorts has
increased; (ii) its resorts have attracted higher spending corporate and
other group guests; (iii) the number of free independent traveler ("FIT")
guests at its resorts has increased; (iv) the combined revenue yield of
its golf and hotel operations at its resorts has increased; and (v) the
value of its private club membership has been enhanced. Because many of
the capital improvements at Desert Resorts and Doral have been recently
completed, the Company believes that it will continue to realize
additional growth in revenues and Adjusted EBITDA as a result of those
investments.
- DISTINGUISH AND MARKET UNIQUENESS AND BRAND NAMES OF ITS PROPERTIES. The
Company believes that its destination resort facilities offer a unique
combination of luxury hotel accommodations, world class golf and tennis
facilities and conference facilities unmatched by many of its competitors.
The Company seeks to develop and accentuate the unique aspects of its
world-renowned destination resorts in order to attract repeat customers,
encourage group guests to return as FIT guests and increase rates charged
for its services and amenities. Key elements of this strategy include
promoting the independent name of each of the Company's destination
resorts in order to distinguish them from "chain" competitors,
capitalizing on a broad range of promotional events to enhance the
prestige of the Company's resorts and retaining recognized experts, such
as Jim McLean, Dave Pelz and John Austin, to oversee quality golf and
tennis instructional programs at the Company's resorts. As part of this
strategy, the Company sponsors nationally televised professional golf
events. In the last twelve months, the Company has hosted: (i) the
Doral-Ryder Open, (ii) the Lexus Challenge, (iii) the Diners Club Matches
and (iv) the Liberty Mutual Legends of Golf. In addition, the Bob Hope
Chrysler Classic will be played at PGA WEST for the next three years. The
Company believes that the national television exposure for its resorts
resulting from these tournaments provides a significant marketing benefit
to the Company.
- CONTINUE TO GROW MEMBERSHIP BUSINESS. By expanding the number and type of
its membership programs, developing new membership facilities and
implementing more sophisticated and effective sales and marketing
programs, the Company believes that it enhances the value of its resort
and community golf club memberships which, in turn, should continue to
increase the number of its members and the annual growth in membership
revenue. For fiscal 1996, dues revenue represented approximately 12% of
total revenues. To achieve this goal, the Company has (i) engaged senior
management experienced in developing new membership programs; (ii)
upgraded the training and increased the number of its sales and marketing
staff; (iii) adopted more sophisticated direct mail marketing techniques
and member-referral programs; (iv) developed programs to cross-sell club
memberships, primarily to its resort guests; and (v) implemented programs
to facilitate the conversion of new home buyers in communities surrounding
Desert Resorts into new members at
57
<PAGE>
one or more of Desert Resorts' private clubs. From January 1, 1994 to
April 30, 1997, the Company has, after attrition, added or converted
approximately 2,330 members at Doral and Desert Resorts. In addition, the
Company believes that the recent capital improvements at its destination
resorts should enable the clubs at La Quinta, PGA WEST and Doral to
accommodate a significant number of additional golf members.
- EXPAND THROUGH STRATEGIC ACQUISITIONS. The Company intends to engage in
strategic acquisitions to increase revenues and Adjusted EBITDA. In the
community golf industry, the Company expects to continue to seek
acquisitions designed to increase marketing synergies and cost
efficiencies arising out of its strategy of forming "clusters" of courses
within geographic areas in order to create certain economies of scale and
to promote reciprocity among clubs for the members within those
"clusters." Because the community golf industry is highly fragmented, the
Company believes that the high cost of operating and maintaining
competitive golf courses, competition for a limited supply of experienced
golf operating managers and the cost efficiencies afforded by ownership
and operation of multiple golf courses will result in continued industry
consolidation. The Company believes that its access to capital and
professional management will enable it to capitalize on future acquisition
opportunities which may arise as the result of this expected industry
consolidation. In the resort industry, the Company expects to continue to
acquire unique resorts that offer a combination of quality accommodations
and superior recreational amenities and/or conference facilities. Because
the resort industry is characterized by a large number of independent
owners, high capital demands and ownership by "enthusiasts" rather than
professional managers, the Company believes that acquisition opportunities
in the resort industry will be available to the Company. The Company's
acquisitions in fiscal 1996 accounted for approximately 1.4% of fiscal
1996 revenues.
- ENTER RELATED RECREATION BUSINESSES. Consistent with the Company's
service-based recreation emphasis, the Company's strategy includes
selectively expanding into related recreation businesses. In May 1996, the
Company entered into an agreement to manage Lake Lanier Islands as the
first step to closing the privatization of the facility pursuant to a
long-term sublease (which was closed in August 1997). See "--Properties;
Lake Lanier Transaction." In addition to hotel and golf operations, Lake
Lanier Islands generates significant revenues from daily ticketed
attractions, including extensive beach and water park facilities,
houseboat and fishing boat rental operations, riding stables, campgrounds,
pavilions, an amphitheater, group and social outings and front gate
admissions. The Company intends to seek other daily ticketed attraction
businesses in the future and has recently hired executives with extensive
experience in this area of the recreation industry. Additionally, the
Company expects other privatization opportunities to emerge as local,
state and federal government agencies seek ways to increase the quality of
public recreation facilities while reducing their financial and other
obligations to such facilities. With its experience in operating
recreational facilities and its access to capital, the Company believes it
is well-positioned to benefit from this trend.
INDUSTRY OVERVIEW
HOTEL LODGING
ALL OF THE DATA IN THIS "HOTEL LODGING" SUBSECTION IS STATED AS OF AND FOR
THE YEARS ENDED DECEMBER 31, 1992 AND 1996 AND IS BASED ON INFORMATION COMPILED
BY SMITH TRAVEL RESEARCH ("SMITH TRAVEL"), WHICH THE COMPANY BELIEVES IS A
COMMONLY USED SOURCE OF INDUSTRY DATA BY AND FOR THE HOTEL AND LODGING INDUSTRY.
There are approximately 32,500 hotels in the United States, consisting of
approximately 3.4 million rooms. These hotels are generally segmented by price,
level of service and location. Hotels are also classified as either affiliated
with chains or operated as independent hotels. The Company believes that its
destination resorts compete most directly with chain and independent "luxury
resort" hotels, which consist of hotels (i) whose average daily rate ("ADR") is
in the top 15% of their local markets, (ii) which are located in a resort area
and (iii) which offer some resort amenities.
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<PAGE>
There are approximately 278 luxury resorts in the United States, consisting
of approximately 107,000 rooms. As the chart below indicates, the supply of
rooms in the luxury sector increased by only 938 rooms between 1992 and 1996,
representing a compound annual growth rate of approximately 0.2%. The Company
believes that the development of new resorts has been and will continue to be
constrained by both high initial capital requirements and maintenance costs.
<TABLE>
<CAPTION>
TOTAL PROPERTIES
ROOM SUPPLY COMPOUND ANNUAL
------------- -------------------- GROWTH RATE
1992 1996 1992 1996 1992-1996
----- ----- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Independent luxury resorts................................. 165 167 50,544 50,982 0.2%
Chain luxury resorts....................................... 110 111 55,469 55,969 0.2%
--- --- --------- ---------
Total luxury resorts....................................... 275 278 106,013 106,951 0.2%
</TABLE>
While supply in the luxury resort segment of the hotel and lodging industry
has been relatively stable since 1992, both total revenues and RevPAR for this
segment grew at a compound annual rate of over 5% between 1992 and 1996. These
increases, which the Company believes provide a measure of increased demand, are
illustrated by the following chart:
<TABLE>
<CAPTION>
TOTAL REVENUE (IN
TOTAL PROPERTIES OCCUPANCY PERCENTAGE
BILLIONS) AVERAGE ROOM RATE
------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1996 1992 1996 1992 1996 1992 1996
----- ----- --------- --------- --------- --------- --------- ---------
Independent luxury resorts.......... 165 167 $ 1.7 $ 2.1 67.0% 70.7% $ 138.67 $ 159.34
Chain luxury resorts................ 110 111 1.8 2.2 70.1% 75.1% 123.54 143.84
--- --- --- ---
Total luxury resorts................ 275 278 $ 3.5 $ 4.3 68.6% 73.0% 130.60 151.00
<CAPTION>
REVPAR*
--------------------
<S> <C> <C>
1992 1996
--------- ---------
Independent luxury resorts.......... $ 92.91 $ 112.65
Chain luxury resorts................ 86.60 108.02
Total luxury resorts................ 89.59 110.23
</TABLE>
- ------------------------
* RevPAR is calculated by multiplying occupancy percentage by average room
rate.
The Company believes that demand in the luxury resort sector in general, and
in destination resorts in particular, will increase in the future as a result
of: (i) increases in leisure time and disposable income that are expected to
occur as the "baby boom" generation matures, (ii) the growing desire of leisure
travelers to take more active vacations and (iii) increased corporate demand for
quality, full service facilities which combine both group meeting facilities and
recreational amenities.
The luxury resort sector is characterized by a large number of independent
owners, with approximately 60% of all luxury resort hotels being operated
independently of chain affiliations. The Company believes that, because of this
fragmentation, as well as the high capital requirements to maintain and operate
luxury resorts and the high proportion of "enthusiast" owners, rather than
professional managers, acquisition opportunities in the resort industry will be
available.
GOLF
EXCEPT AS NOTED, ALL OF THE DATA IN THIS "GOLF" SUBSECTION IS BASED ON
INFORMATION COMPILED BY THE NATIONAL GOLF FOUNDATION, WHICH THE COMPANY BELIEVES
IS A COMMONLY USED SOURCE OF INDUSTRY DATA BY AND FOR THE GOLF INDUSTRY.
59
<PAGE>
Since 1980, the golf industry has experienced significant growth. As the
chart below demonstrates, the number of golfers has increased approximately 66%
from 1980 to 1995 and the number of rounds played has increased approximately
37% during the same time period. In the twelve months ended August 1994, the
golf business generated approximately $15.1 billion in revenues in the United
States, of which $10.1 billion was spent on playing fees.
<TABLE>
<CAPTION>
1980 1995 % INCREASE
--------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Number of golfers.................................................................... 15 25 66%
Rounds played........................................................................ 358 490 37%
</TABLE>
The Company believes that expected future demographic trends should result
in an increase in the number of golf rounds played per year and the amount of
money spent on golf fees and related products per golfer. The average annual
number of rounds played per golfer increases significantly as the golfer ages.
Approximately 16.8 million golfers, or 67% of the total golfers, were between
the ages of 18 and 49 in 1995. While representing the majority of total golfers,
these golfers have historically played substantially fewer rounds per year than
golfers over the age of 50, who typically have more leisure time and disposable
wealth to devote to golf. As the chart below demonstrates, the average rounds
per golfer grows significantly with age, as the 50-59 age group plays nearly
twice as many rounds as the 30-39 age group and 47% more rounds than the 40-49
age group. The United States Census Bureau estimates that the population age 50
and over will increase by 39% between 1996 and 2010 from 69.2 million to 96.4
million. As a result, the Company anticipates that, during the same time period,
the total number of rounds played should increase. The chart below sets forth
the golf participation and annual average rounds per golfer played by age group
in 1995:
<TABLE>
<CAPTION>
NUMBER OF
AGE GROUP GOLFERS % OF TOTAL GOLF PARTICIPATION ANNUAL AVERAGE % OF
(YEARS) (IN THOUSANDS) GOLFERS IN CATEGORY ROUNDS PER GOLFER TOTAL 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>
In addition to potential increases in the number of rounds played, the aging
of the golf population also has potentially favorable implications for golf
spending patterns. Historically, golfers who are over the age of 50 have spent
more on golf than younger players. For the twelve months ended August 1994,
golfers who were between the ages of 18 and 49 spent approximately $10.5 billion
on the sport of golf. This translates into approximately $625 per golfer. For
the same time period, golfers who were age 50 and over spent approximately $939
per golfer. Given this estimated 50% "spending premium" by golfers over the age
of 50, the Company believes that spending increases appear favorably correlated
to the aging U.S. population.
Further, more affluent golfers and avid golfers (defined as those golfers
playing at least 25 rounds annually) have historically generated higher per
golfer spending than the average golfer. For example, for the twelve months
ended August 1994, golfers with annual incomes of $75,000 or greater are
estimated to have spent approximately $1,269 per year per golfer and golfers
classified as avid are estimated to have spent approximately $1,710 per year per
golfer. Based on the foregoing, these two segments generated "spending premiums"
of approximately 81% and 143%, respectively, when compared to the average
golfer. The Company targets more affluent and avid golfers at its resorts and
community golf operations.
The Company believes that the golf industry will experience consolidation in
the coming years. The golf industry is highly fragmented, with approximately
14,400 golf facilities in the United States as of December 31, 1996. The Company
believes that the 15 largest golf course management companies in the
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United States collectively manage fewer than 5% of the total number of golf
facilities and that only 11 golf course management companies manage 10 or more
golf facilities. The Company believes that this fragmentation, together with the
high cost of operating and maintaining competitive golf courses, competition for
a limited supply of experienced golf operating managers and the cost
efficiencies afforded by ownership and operation of multiple golf courses,
should result in continued industry consolidation.
RESORT OPERATIONS
DESERT RESORTS
Desert Resorts is one of the country's premier golf destination resorts,
strategically located in the City of La Quinta, California. The City of La
Quinta is a growing community located at the eastern end of the Coachella
Valley, a renowned golf and recreation destination anchored at its western end
by Palm Springs.
La Quinta is a historic hotel of traditional Spanish adobe design which has
been a leading resort destination since it opened in 1926. La Quinta currently
offers 640 "casita"-style hotel rooms (Spanish-style cottages) spread over
approximately 45 acres of grounds. Its indigenous architecture and campus-like
setting provide, in the Company's opinion, significant competitive advantages
over newer resorts, both in the Coachella Valley and throughout the United
States. La Quinta was one of only 20 resorts nationwide and the only resort in
southern California to receive GOLF Magazine's prestigious Gold Medal in
November 1996. Desert Resorts also includes PGA WEST, which attracts golfers
from around the world, as well as from southern California and the Palm Springs
area. Desert Resorts has eight championship golf courses, six clubhouses with
over 161,000 square feet of space and 49 hard, clay and grass tennis courts.
Desert Resorts' tennis facilities offer instruction by former Wimbledon
mixed-doubles champion John Austin and were rated a Top Ten Tennis Resort by
Tennis Magazine in 1996.
Prior to their acquisition by the Company in December 1993, La Quinta and
PGA WEST were operated as separate businesses. Since the acquisitions, the
Company has (i) consolidated executive management and back office operations at
Desert Resorts, (ii) promoted and marketed the two properties as a single resort
and (iii) accommodated the cross utilization of the two properties by guests and
members through programs such as master charging privileges, centralized tee
time reservation systems and the sale of golf, membership and retail products
associated with PGA WEST to La Quinta guests. As a result, the Company believes
that it has realized management efficiencies and marketing synergies in the
operation of the two facilities and created "seamless" access for guests and
members to both facilities.
For the fiscal year ended October 31, 1996, La Quinta's hotel operations
recorded an occupancy rate of 57.2% and an average daily rate of $170, resulting
in RevPAR of $97, and total net room revenues of $22.7 million. This compares to
an occupancy rate of 54.5% and an average daily room rate of $154, resulting in
RevPAR of $84, and total net room revenues of $16.3 million in fiscal 1994.
Approximately 67% of total occupied room nights at La Quinta during fiscal 1996
consisted of corporate and other group guests, while the remaining 33% reflected
usage by FIT guests. The Company believes a mix of group and FIT business
substantially in these proportions optimizes the revenues of the hotel
facilities.
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<PAGE>
The following tables set forth certain information relating to the
facilities at Desert Resorts:
DESERT RESORTS FACILITIES
<TABLE>
<CAPTION>
ACRES ROOMS GOLF COURSES TENNIS COURTS CONFERENCE SPACE RETAIL SPACE RESTAURANTS
- --------- ----------- ------------------- ----------------- ---------------- -------------- -----------------
<C> <C> <C> <C> <S> <C> <C>
1,490.... 640 8 49 66,000 sq. ft. 19,500 sq. ft. 8
<CAPTION>
ACRES SWIMMING POOLS SPAS/HOT TUBS
- --------- ------------------- -------------------
<C> <C> <C>
1,490.... 25 38
</TABLE>
DESERT RESORTS GOLF FACILITIES
GOLF COURSES:
<TABLE>
<CAPTION>
NAME ARCHITECT AWARDS/EVENTS
- ------------------------------ -------------- -----------------------------------------------------------------
<S> <C> <C>
Mountain Course Pete Dye Host of PGA Club Professional Championship (1995)
Rated among America's 100 Best Modern Golf Courses by GolfWeek
Dunes Course Pete Dye Host of NCAA Women's National Championship (1996)
Citrus Course Pete Dye Host of Lexus Challenge (1996, 1995)
Previously Rated among 100 Most "Women-Friendly" Courses in the
United States by Golf for Women
TPC Stadium Course Pete Dye Host of Liberty Mutual Legends of Golf (1996, 1995)
Rated among America's 100 Best Modern Golf Courses by GolfWeek
Jack Nicklaus Tournament Jack Nicklaus Host of Diners Club Matches (1996, 1995, 1994)
Course Host of Wendy's 3 Tour Challenge (1994)
Tom Weiskopf Private Course Tom Weiskopf Host of Rolex National Collegiate Match Play Team Championship
(1996)
Host of PGA Club Professional Championship (1996)
Arnold Palmer Private Course Arnold Palmer Host of Liberty Mutual Legends of Golf (1997)
Host of PGA Club Professional Championship (1996)
Host of Bob Hope Chrysler Classic (1994)
Jack Nicklaus Private Course Jack Nicklaus Host of PGA Club Professional Championship (1996, 1995)
</TABLE>
GOLF SCHOOLS:
<TABLE>
<CAPTION>
NAME AWARDS/RECOGNITION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Jim McLean Golf Academy at PGA WEST Jim McLean named 1994 Teacher of the Year by Golf Digest
Staff Instructor for GOLF Magazine
Dave Pelz Short Game School at PGA WEST Staff Instructor for GOLF Magazine
</TABLE>
La Quinta's private club operation provides golf and tennis facilities, golf
and tennis instruction, special events, dining and social activities to its
members. At April 30, 1997, La Quinta had approximately 385 golf members and
approximately 160 other members. A full golf membership at La Quinta currently
requires a $42,500 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of $4,740. In fiscal 1996,
Adjusted Net Membership Deposits at La Quinta were approximately $881,000.
PGA WEST's private club operation provides golf and tennis facilities, golf
and tennis instruction, special events, dining and social activities to its
membership. At April 30, 1997, PGA WEST had approximately 1,285 golf members and
approximately 95 other members. A full golf membership at PGA WEST currently
requires a $50,000 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of $5,580. In fiscal 1996,
Adjusted Net Membership Deposits at PGA WEST were approximately $3.2 million.
62
<PAGE>
Desert Resorts is located approximately 160 miles from Los Angeles and
approximately 175 miles from San Diego. The Palm Springs Regional Airport, which
is located approximately 20 miles from Desert Resorts, and Ontario International
Airport, which is located approximately 60 miles from Los Angeles and
approximately 100 miles from Desert Resorts, together provide direct air access
from most major U.S. cities. In 1996, total passenger traffic at Palm Springs
Regional Airport was approximately 1.1 million passengers, representing an 18%
increase over 1995. In 1996, Ontario International Airport accommodated
approximately 6.4 million passengers and has recently begun a $300 million
expansion program to add two new terminals by 1999 and plans to undertake
further improvements expected to increase capacity by approximately 60% to 10.0
million passengers by the year 2005.
DORAL GOLF RESORT AND SPA
Doral is a premier golf destination resort located approximately 15 miles
from downtown Miami, Florida and approximately 10 miles from Miami International
Airport. The Company believes that this proximity gives Doral a competitive
advantage in attracting both corporate and other group and FIT business.
The Company acquired Doral in December 1993. Prior to the Company's
acquisition of Doral, it had been under family ownership since it opened in
1961, during which time it had gained national recognition for its championship
golf facilities and convenience for East Coast travelers. By 1993, however, its
facilities and operations had deteriorated and, as a result, following its
acquisition, the Company initiated a $33 million renovation program for all 646
hotel rooms and all 48 spa guest suites, a substantial portion of the common
areas and conference space and two golf courses, and undertook major restaffing
and repositioning efforts in an attempt to re-establish Doral's reputation for
high-end service and appeal. As a result of these efforts, in November 1996,
Doral received GOLF Magazine's prestigious Gold Medal Resort award.
Doral includes 646 hotel rooms, four championship eighteen-hole golf courses
including the famed "Blue Monster" golf course, the home of the Doral-Ryder
Open, which was recently restored and the Gold Course which was recently rebuilt
under the direction of noted professional golfer and golf course designer
Raymond Floyd, a nine-hole executive golf course, Jim McLean's nationally
recognized golf instruction program, the Arthur Ashe Tennis Center, featuring 15
courts, one swimming pool, three restaurants, approximately 75,000 square feet
of conference space and a private club with approximately 400 dues-paying
members (at April 30, 1997).
Facilities at Doral also include the Spa at Doral, which has developed
international recognition independent of Doral's other amenities. The Spa at
Doral includes 48 guest suites, approximately 85,000 square feet of fitness and
spa facilities, 25 massage rooms, seven facial rooms, three swimming pools, two
saunas and two restaurants. The Spa at Doral offers a variety of services,
including personal fitness training, massage therapy, health and beauty
amenities and stress reduction and nutrition training.
In fiscal 1996, Doral's hotel operations generated total net room revenues
of $21.7 million, compared to total net room revenues of $15.3 million in fiscal
1994 due to increased levels of occupancy and average daily rate from 1994 to
1996. Approximately 61% of total occupied room nights at Doral during fiscal
1996 consisted of corporate and other group guests, while the remaining 39%
reflected usage by FIT guests. The Company believes a mix of group and FIT
business substantially in these proportions optimizes the revenue of the hotel
facilities.
The following tables set forth certain information relating to the
facilities at Doral:
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DORAL FACILITIES
<TABLE>
<CAPTION>
ACRES ROOMS GOLF COURSES TENNIS COURTS CONFERENCE SPACE RETAIL SPACE RESTAURANTS
----- ----------- ------------------- ----------------- ---------------- ------------ -----------------
<C> <C> <C> <C> <S> <C> <C>
650....... 694 5 15 75,000 sq. ft 8,500 sq. ft 5
<CAPTION>
ACRES SWIMMING POOLS
----- ---------------------
<C> <C>
650....... 4
</TABLE>
NOTABLE DORAL FACILITIES
<TABLE>
<CAPTION>
NAME AWARDS/EVENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Blue Course (the "Blue Monster") Host of Doral-Ryder Open (1962-1997)
Doral Golf Learning Center with Jim McLean Jim McLean named 1994 Teacher of the Year by Golf Digest
Staff Instructor for GOLF Magazine
The Spa at Doral Rated a Top U.S. Spa by Conde Nast Traveler
Rated a Top Spa Destination in United States by Zagat
Survey, U.S. Hotels and Restaurants
</TABLE>
Doral's private club operation provides golf and tennis facilities, golf and
tennis instruction, special events, dining and social activities to its members.
At April 30, 1997, Doral had approximately 250 golf members and approximately
150 other members. A full golf membership at Doral currently requires a $12,500
deposit which is fully refundable in thirty years (or sooner under certain
circumstances), and annual dues of approximately $3,600. In fiscal 1996, Net
Membership Deposits at Doral were approximately $330,000.
The Miami area continues to grow and tourism by domestic and international
travelers to south Florida has also been steadily increasing. The area
surrounding Doral serves as the corporate headquarters for several prominent
corporations and the Company has benefited from the use of its facilities by
employees of these corporations.
LAKE LANIER ISLANDS
Lake Lanier Islands, a regional destination resort and recreational complex
for the Southeast, is located approximately 45 miles from downtown Atlanta. Lake
Lanier Islands is situated on Lake Lanier, an approximately 38,000 acre lake
with approximately 520 miles of shoreline and numerous lakeside primary and
secondary homes. Lake Lanier Islands was initially developed and operated by
agencies of the State of Georgia under a long-term lease agreement with the
Corps of Engineers. In 1996, the Company was the successful bidder in a
privatization initiative by the State of Georgia. See "--Properties; Lake Lanier
Transaction."
Lake Lanier Islands features a 224-room hotel, 12,500 square feet of
conference space, three retail outlets, two restaurants, one swimming pool, one
golf course, three tennis courts and several daily ticketed attractions,
including extensive beach and water park facilities, houseboat and fishing boat
rental operations, riding stables, campgrounds, pavilions, an amphitheater,
group and social outings and front gate admissions.
In the period from May 15, 1996 through October 31, 1996, Lake Lanier
Islands' hotel operations recorded an occupancy rate of 66.0%, an average daily
rate of $115 and total net room revenues of $2.8 million. Approximately 69% of
total occupied room nights at Lake Lanier Islands consisted of corporate and
other groups, while the remaining 31% reflected usage by FIT guests. In addition
to its hotel and golf operations, Lake Lanier Islands generates significant
revenues from daily attractions, including the water park, boat rental
operation, group and social outings, front gate admissions for access to the
Islands, and special events. In the period from May 15, 1996 through October 31,
1996, these daily attractions and special events generated approximately $4.5
million in revenues.
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GRAND TRAVERSE RESORT
Grand Traverse Resort is a regional destination resort and recreational
complex located in the northern portion of the lower peninsula of Michigan. The
Company believes that this location offers Grand Traverse the opportunity to
attract visitors from major Midwestern markets. The Company acquired Grand
Traverse in August 1997 for a purchase price of approximately $45 million.
Grand Traverse, which covers approximately 1,370 acres, includes a 425-room
hotel, two championship golf courses, nine tennis courts, four racquetball
courts, three swimming pools, three restaurants, approximately 55,000 square
feet of conference space, approximately 73,000 square feet of fitness facilities
and approximately 23,000 square feet of retail space.
One of Grand Traverse's two courses, "The Bear," was designed by Jack
Nicklaus. The Company is also in the process of constructing a third
championship course, which is being designed by noted professional golfer and
golf course designer Gary Player.
COMMUNITY GOLF OPERATIONS
Fairways, the community golf operations of the Company, operates 22 golf
course properties (21 owned and one leased), including 16 eighteen-hole
facilities, three 27-hole facilities and three 36-hole facilities. The Company
acquired 12 of the 22 golf course properties after its acquisition of Fairways
in July 1993. Fairways' portfolio includes five private country clubs, 12
semi-private course properties and five public (or daily fee) course properties.
Fairways operates its courses in three geographic clusters: the Mid-Atlantic
region (Virginia, Maryland and Pennsylvania) with ten properties, the
Southeastern region (Florida) with eight properties, and the Midwestern region
(Tennessee, Wisconsin) with four properties. As the third largest golf course
owner in the nation (based on number of courses owned during 1996), the Company
is able to (i) realize purchasing efficiencies with respect to both volume and
price, (ii) attract quality management and (iii) create marketing synergies
among the Fairways clubs and between the Fairways clubs and the Company's
resorts. The Company realizes additional management and operating efficiencies
through the use of regional managers who oversee the management of each of the
individual golf course properties within a geographic cluster.
Fairways derives most of its revenue from its golf operations. At its
private clubs, Fairways generates revenue through initiation fees, membership
dues, greens fees, retail (pro shop) sales and food and beverage sales. At its
public (or daily fee) courses, Fairways generates revenue through greens fees,
golf cart rentals, retail (pro shop) sales and food and beverage sales. At April
30, 1997, Fairways' private and semi-private clubs had approximately 8,000
members and, during fiscal 1996, golf members at Fairways' private and
semi-private clubs paid a total of approximately $12.1 million in annual
membership dues, with individual dues ranging from $900 to $4,500 annually.
Approximately 868,600 rounds were played at all Fairways courses in fiscal 1996,
of which members played approximately 368,300 rounds and non-members played
approximately 500,300 rounds.
Many of Fairways' properties offer additional amenities such as tennis
courts, swimming pools, clubhouses and restaurants. These features generally
provide additional revenue by encouraging existing members to utilize Fairways'
clubs and by attracting additional members. Fairways also seeks to position many
of its golf courses and related facilities as social centers by hosting social
events, thereby attracting non-golf members as well. In this regard, the Company
employs an active sales staff to promote Fairways clubs as sites for banquets
and other group events. Fairways also provides other benefits to members of its
clubs such as reciprocal playing privileges at other Fairways' properties and
special vacation packages at the Company's destination resorts. In addition to
encouraging Fairways' members to visit the Company's resorts, management
believes that these promotional activities also benefit the Fairways courses by
associating them with the prestige of the courses at Doral and Desert Resorts.
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The following tables set forth certain information regarding Fairways' golf
course properties, including a description of each course and a summary of the
facilities and services available.
<TABLE>
<CAPTION>
DATE
ACQUIRED
BY
COURSE NAME LOCATION TYPE OF COURSE TENNIS POOL FAIRWAYS (1)
- --------------------------- --------------------------- --------------------------- ----------- --- ---------------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC COURSES
Birkdale Golf and C.C...... Richmond, VA 18-Hole semi-private Yes Yes 12/93
Broad Bay C.C.............. Virginia Beach, VA 18-Hole private Yes Yes 7/93
Countryside G.C............ Roanoke, VA 18-Hole public Yes Yes 7/93
Kiln Creek Golf and C.C.... Newport News, VA 27-Hole private Yes Yes 4/94
Marlborough C.C............ Upper Marlboro, MD 18-Hole semi-private Yes Yes 7/93
Monroe Valley G.C.......... Jonestown, PA 18-Hole public No No 7/93
Montclair C.C.............. Dumfries, VA 18-Hole private Yes Yes 7/93
Patuxent Greens C.C........ Laurel, MD 18-Hole private Yes Yes 7/93
Prince William G.C......... Dulles, VA 18-Hole public No No 7/93
Tantallon C.C.............. Fort Washington, MD 18-Hole semi-private Yes Yes 3/96
SOUTHEASTERN COURSES
The Club at Hidden Creek... Navarre, FL 18-Hole semi-private No No 10/95
Indigo Lakes Golf and Daytona Beach, FL 18-Hole semi-private
C.C...................... No No 6/94
Pebble Creek............... Tampa, FL 18-Hole semi-private Yes Yes 10/94
Scenic Hills C.C........... Pensacola, FL 18-Hole semi-private Yes Yes 7/93
Shalimar Pointe Golf and Shalimar, FL 18-Hole semi-private
C.C...................... Yes Yes 7/93
Tiger Point Golf & C.C..... Gulf Breeze, FL 36-Hole semi-private Yes Yes 7/93
Walden Lake Golf and C.C... Plant City, FL 36-Hole semi-private Yes Yes 12/93
Wellington C.C............. Wellington, FL 36-Hole private Yes Yes 12/94
MIDWESTERN COURSES
Lake Windsor G.C........... Windsor, WI 27-Hole public No No 6/96
Memphis Oaks C.C........... Memphis, TN 18-Hole semi-private No Yes 5/95
Mequon C.C................. Mequon, WI 27-Hole semi-private Yes Yes 6/96
Willow Run G.C............. Pewaukee, WI 18-Hole public No No 1/96
</TABLE>
- ------------------------------
(1) Represents the date acquired by the Company or, if different, the date the
Company commenced operations of the courses.
MARKETING/MEMBERSHIP PROGRAMS
The Company attempts to position Desert Resorts and Doral at the premium end
of the specific market segments in which they compete. Lake Lanier Islands is
currently being positioned as an amenity oriented, regional resort setting for
corporate and other groups seeking alternatives to city based conference
centers, as well as "Atlanta's Playground" for daily attractions and special
events. Fairways positions itself as America's leader in "Quality, Affordable
Golf."
To effectively position each property, the Company's operating subsidiaries
use a number of marketing strategies and marketing channels. The marketing
function is largely decentralized to allow managers who are most familiar with
the guest or member population and with the specific property to play an active
role in developing the appropriate marketing strategy. The Company uses a
combination of print media, direct mail, telemarketing, local and national
public relations and, in the case of televised golf tournaments, television, to
develop market awareness, to create a property's image and to market golf,
lodging,
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<PAGE>
memberships, food and beverage and special events to targeted consumers.
Although specific marketing activities are largely decentralized, the Company's
corporate office develops and implements national marketing and promotional
programs, controls trademarks and trademark licensing agreements, engages public
relations firms and advertising agencies, coordinates communications with media
sources, develops video materials and develops and manages all televised golf
tournaments. The Company believes that these centralized activities provide
highly effective, complementary programs to the operating subsidiaries'
decentralized marketing efforts.
The Company also attempts to take advantage of numerous cross marketing
opportunities available to it by virtue of its scale and high market recognition
of its facilities. The Company's destination resorts attract guests and members
with similar demographic and economic profiles, including those that may have
visited the Company's other resorts. For example, groups seeking alternative
sites for conferences, particularly those which seek to rotate annual meetings
between east and west coast sites, are targeted by group salespersons at the
destination resorts. Additionally, community club members and daily fee golfers
at the community golf courses provide a valuable database of avid golfers who
can be attracted to the Company's destination resorts. Within the community golf
clubs, the Company believes that reciprocal member privileges among other
Fairways clubs offer an attractive benefit of membership.
A growing component of the Company's marketing and sales efforts, both at
resorts and at community clubs, are focused on membership programs. In all its
clubs, the Company employs salespersons focused exclusively on membership sales
and marketing, as well as persons focused exclusively on member services and
programming. Within its resort clubs, the Company has successfully introduced
new membership programs with enhanced benefits and privileges of membership. The
Company intends to continue to enhance the benefits and privileges of membership
within these and other clubs. Within the community clubs, proactive membership
sales efforts target member referrals, residents within close proximity to the
clubs and prospects generated by various mailing lists.
CUSTOMERS
The Company attracts a broad range of customer to its resort and community
golf facilities. For its destination resort businesses, the Company's customers
typically include FIT guests and corporate and other group participants as well
as active users of recreational services. The Company's destination resort
customers are drawn from an international, national and regional customer base
and often exhibit the higher spending patterns of affluent corporate and leisure
travelers. Desert Resorts' private clubs attract members and non-member guests
on a national scale, with higher concentrations of customers from southern
California. Doral's club typically attracts local corporate and individual golf
and fitness enthusiasts.
Lake Lanier Islands draws customers from Georgia and the southeastern United
States. Its hotel operations draw significant numbers of both corporate and
other group participants and FIT guests. Its other facilities attract a mix of
customers with a wide array of interests, including active golfers and daily
attraction users, such as boaters and water park attendees. The Company believes
that Lake Lanier Islands draws customers from a broad range of socioeconomic
backgrounds.
Each of the Company's community golf facilities attracts members and daily
fee golf participants from the community in which the applicable facility is
located. The Company's community golf club customers include families and
individual golf enthusiasts from a broad range of socioeconomic backgrounds.
COMPETITION
The resort industry is highly competitive. The Company's destination resorts
compete with other golf and recreation-based resorts. These include premier
independent resorts as well as national hotel chains. In addition, the Company's
existing resorts compete with other recreation businesses, such as cruise ships
and gaming casinos. The Company believes that it competes based on brand name
recognition, location, room rates, and the quality of service and amenities.
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<PAGE>
Golf courses compete for players and members with other golf courses located
in the same geographic areas. The Company's golf courses compete based on the
overall quality of their facilities (including the quality of its customer
service), the maintenance of their facilities, available amenities, location and
overall value. The availability of sufficient acreage often limits the number of
competing golf courses, particularly in metropolitan areas. However, the areas
of Florida, Georgia and California in which many of the Company's existing
properties are located have significant open land available, and there has been
continued construction by potential competitors of both public and private golf
facilities in those areas. In addition, the Palm Springs area, which has
approximately 90 golf courses in a relatively concentrated geographic area, is
generally viewed as a particularly competitive area and newer golf courses
frequently become very attractive focal points and may attract golfers who would
otherwise have used the Company's facilities.
The Company competes for the purchase and lease of golf courses with several
national and regional golf course companies. Certain of the Company's national
competitors have larger staffs and more golf courses currently leased, owned or
under management than the Company. In addition, certain national competitors
have greater capital resources than the Company and some of such competitors may
have access to capital at a lower cost than is currently available to the
Company. See "Risk Factors-- Competition."
PROPERTIES; LAKE LANIER TRANSACTION
The Company owns Desert Resorts and Doral. The Company owns 21 of its 22
community golf facilities and leases the other. The Company also owns beneficial
interests in three land trusts which hold undeveloped land that may be used for
future golf course development.
On May 15, 1996, the Company entered into the Lake Lanier Management
Agreement to manage the facilities at Lake Lanier Islands with LLIDA, which
subleases the facilities from the Department of Natural Resources, State of
Georgia, which leases the property from the Corps of Engineers. The Lake Lanier
Management Agreement provides for a monthly fee of $160,000 payable to the
Company. Subsequent to May 15, 1996, the Company executed a 50-year sublease
with LLIDA, with certain rights to extend the sublease for a minimum of an
additional ten years upon certain conditions. The Company closed the sublease in
August 1997.
The Lake Lanier Management Agreement provided that, at the closing of the
sublease, the Company and LLIDA would be placed in the same economic position as
if the sublease had closed on May 15, 1996 and the Lake Lanier Management
Agreement would terminate. Accordingly, in August 1997, the Company was credited
with the net earnings (as defined) of Lake Lanier Islands from May 15, 1996 to
such date less amounts earned by the Company pursuant to the Lake Lanier
Management Agreement. The net amount paid by the Company will be recognized as a
reduction to the recorded values of the assets acquired pursuant to the
sublease.
In connection with the sublease, concurrently with the Refinancings, Parent
contributed $9.0 million in cash to the Issuer to fund the purchase of certain
equipment and other fixed assets used in the operation of the Lake Lanier
Islands facilities that were not leased pursuant to the sublease. Under the
terms of the sublease, the Company is required to make monthly base lease
payments of $250,000, or $3.0 million annually. An additional annual payment
equal to 3.5% of gross revenues in excess of $20 million is also payable
pursuant to the sublease, with a minimum of $100,000 in years one through five
and $200,000 annually thereafter. Pursuant to the sublease, the Company is
required to spend 5% of annual gross revenues on capital replacement and
improvements, with carryover provisions allowing all or some portion of these
amounts to be deferred to subsequent years. In addition, the Company has
committed to expend $5.0 million over the first five years of the sublease
following the first year in which gross revenues exceed $20.0 million for the
development and construction of new capital projects. Approximately $3.6 million
of capital improvements are currently underway at the water park and other
facilities, of which approximately $1.8 million will be applied against the
Company's $5.0 million capital investment requirement.
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<PAGE>
The Company believes that the structure and terms of the Lake Lanier Islands
sublease provide several attractive features for operating and developing Lake
Lanier Islands. For example, the Company has the right to enter into subleases
with either affiliates or third parties, subject to certain terms and
conditions, to separately undertake new projects on undeveloped land.
Non-disturbance agreements with both the Department of Natural Resources, State
of Georgia and the Corps of Engineers have been executed and are presently being
held in escrow, along with the sublease. In addition, the Company will receive
lease payments from the Renaissance Pine Isle Resort ("Renaissance"), a 250-room
hotel with an 18-hole golf course located at Lake Lanier Islands, through the
year 2018. After such date, the sublease in favor of Renaissance (to which the
Company is currently subordinated) will expire and the Company's sublease will
become the primary sublease.
LICENSES AND TRADEMARKS
The Company is a party to the Professional Golfers' Association License
Agreement pursuant to which it is permitted and licensed to use the PGA WEST
name and logos in sales, promotion, advertising, development and/or operations
of certain property located in the city of La Quinta, California, known as "PGA
WEST" (the "PGA WEST Property"). The PGA License Agreement provides the Company
with (i) the exclusive rights in the United States to the name "PGA WEST" in
connection with the PGA WEST Property and (ii) the exclusive rights in the
states of California and Arizona to the names "PGA" and "PGA of America" in
connection with the PGA WEST Property. The term of the PGA License Agreement
extends through the later of (i) the date on which all of the residential units
located on the PGA WEST Property have been sold and (ii) the date on which the
Company ceases to use the name "PGA WEST" in the name of golf clubs, golf
courses, hotels and/or any other commercial, office or residential developments
then located on the PGA WEST Property. The Company believes that the PGA WEST
logo is an important aspect of the Company's business because of the prestige
associated with the Professional Golfers' Association. The PGA License Agreement
provides for royalty payments on an annual basis through 2005, although the
exact amount of any royalty payments with respect to the PGA mark will be
determined by reference to the number and sales of residential units by KSL
Land.
KSL Land has in the past made all royalty payments attributable to its land
sales and is expected to continue to do so in the future; however, KSL Land has
not agreed in writing to do so, is not controlled by the Company and no
assurance can be given that KSL Land will pay any future royalty owing under the
PGA License Agreement. Failure to comply with the terms of the PGA License
Agreement, including any failure to pay royalties arising out of land sales by
KSL Land, could result in the payment of monetary damages by the Company. Such
occurrence could have a material adverse effect on the Company. See "Risk
Factors--Risks Associated with License Agreements."
The Company is also a licensee under a license agreement with the PGA TOUR.
The PGA TOUR license agreement provides the Company with the exclusive rights to
use the names "PGA TOUR" and "TPC" in connection with the sales, promotion,
marketing and operation of PGA WEST. The PGA TOUR agreement is expected to
terminate no earlier than January 1, 2006.
The Company owns the "Blue Monster" name and has obtained from Carol
Management Corporation ("Carol Management"), the former owner of Doral Golf
Resort and Spa, an irrevocable, perpetual license for the "Doral" name in
connection with the Company's operation, marketing and promotion of the
facilities located at Doral. In addition, Carol Management is prohibited from
licensing the "Doral" mark for any purpose anywhere in southern Florida, but
retains the right to license the Doral mark elsewhere. Although failure by the
Company to comply with the terms of the Doral license agreement could result in
monetary damages, Carol Management does not have the right to terminate the
Doral license agreement in the event of a breach by the Company.
EMPLOYEES
For the year ended October 31, 1996, Desert Resorts, Doral, Lake Lanier
Islands and Fairways employed approximately 1,500 persons, 1,050 persons, 615
persons and 1,350 persons, respectively, during
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their respective peak seasons and approximately 950 persons, 975 persons, 225
persons and 700 persons, respectively, during their respective off-peak seasons.
In addition, Parent employs approximately 25 persons who render services in
connection with the Company's operations at its corporate headquarters. The
Company believes that its employee relations are good. Although none of the
Company's employees is currently represented by a labor union, certain union
representatives have recently sought unsuccessfully to organize certain of the
Company's employees at Desert Resorts and Doral.
GOVERNMENTAL REGULATION
ENVIRONMENTAL MATTERS. Operations at the Company's resort and community
golf courses involve the use and storage of various hazardous materials such as
herbicides, pesticides, fertilizers, batteries, solvents, motor oil and
gasoline. For instance, the Company's resorts conduct, or have conducted, dry
cleaning operations. Dry cleaners raise environmental concerns, including waste
produced from the cleaning, spotting and pressing processes; machine leaks;
chemical spills; and air emissions. In addition, the Company's resorts and golf
courses contain, or have contained, underground storage tanks for storing fuel
and other materials. All new USTs must be fitted with leak detection and spill
prevention equipment, while older tanks must be retrofitted for such equipment.
If any UST is known to be leaking, it must be removed, and soil and sometimes
groundwater may have to be remediated. If an UST is taken out of use, it must be
removed and any leaks remediated. 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 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 failure to
remediate contamination at a property may adversely affect the ability of a
property owner to sell such real estate or to pledge such property as collateral
for a loan. The Company believes that it is in compliance in all material
respects with applicable federal, state and local environmental laws and
regulations.
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. Some of the Company's
resort and golf course employees receive the federal minimum wage and any
increase in the federal minimum wage would increase the Company's labor costs.
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 and other facilities 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 is
also subject to the Equal Employment Opportunity Act. 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, 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.
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MANAGEMENT
Set forth below are the names, ages and positions of the directors and
executive officers of the Issuer (unless otherwise specified), together with the
key employees of the Issuer and its subsidiaries. The terms of each of the
directors will expire annually upon the election and qualification at the annual
meeting of shareholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Michael S. Shannon................................... 39 President, Chief Executive Officer and Director
Larry E. Lichliter................................... 54 Executive Vice President and Director
John K. Saer, Jr..................................... 40 Vice President, Chief Financial Officer and Treasurer
Nola S. Dyal......................................... 47 Vice President, General Counsel and Secretary
Bradley T. Quayle.................................... 45 Vice President, Marketing and Corporate Development
Steven F. Elliott.................................... 34 Vice President of Corporate Finance
James E. Wanless..................................... 44 Vice President of Club and Membership Development
Thomas McGrath....................................... 47 Vice President, Merchandising and Events
Emily-May Richards................................... 49 Corporate Controller
Henry R. Kravis...................................... 53 Director
George R. Roberts.................................... 52 Director
Paul E. Raether...................................... 50 Director
Michael T. Tokarz.................................... 47 Director
Scott M. Stuart...................................... 38 Director
Alexander Navab, Jr.................................. 31 Director
OTHER KEY EMPLOYEES:
Eric L. Affeldt...................................... 39 President, The Fairways Group, L.P.
Scott M. Dalecio..................................... 35 President, KSL Desert Resorts, Inc.
Joel B. Paige........................................ 37 President, KSL Hotel Corp.
Raymond C. Williams.................................. 50 President, KSL Lake Lanier, Inc.
</TABLE>
MICHAEL S. SHANNON. Mr. Shannon has been the President and Chief Executive
Officer of the Issuer since its formation. Mr. Shannon was a founding
stockholder of Parent and has served as Parent's President and Chief Executive
Officer since its inception. Prior to forming Parent, Mr. Shannon was President
and Chief Executive Officer of Vail Associates in Vail, Colorado. Mr. Shannon is
a director of ING America Life Insurance Company.
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LARRY E. LICHLITER. Mr. Lichliter has been Executive Vice President of the
Issuer since its formation. Mr. Lichliter was a founding stockholder of Parent
and has served as its Executive Vice President since its inception. He also
served as Chief Operating Officer of Parent from its inception through December
1996. Mr. Lichliter has also served as President of KSL Land Corporation and its
subsidiaries since 1996. Mr. Lichliter began his career as the Controller for
Vail Associates in 1977 before becoming Director of Finance for Beaver Creek
Resort, and later serving as Senior Vice President of Operations for Vail
Associates.
JOHN K. SAER, JR. Mr. Saer has been Vice President, Chief Financial Officer
and Treasurer of the Issuer since its formation. Mr. Saer joined Parent in July
1993 as Director of Finance and Acquisitions. He was later elected to the office
of Vice President of Business Development and Acquisitions in 1994 and now
serves as Vice President, Chief Financial Officer and Treasurer of Parent. From
1990 until joining Parent, Mr. Saer served as a principal of Windermere
Management, Inc. and its affiliate, Jonison Partners, Ltd.
NOLA S. DYAL. Ms. Dyal has been Vice President, General Counsel and
Secretary of the Issuer since its formation. Ms. Dyal joined Parent in November
1993 as Vice President, General Counsel and Secretary. From 1986 to 1993, Ms.
Dyal was Vice President, General Counsel and Secretary of Vail Associates.
BRADLEY T. QUAYLE. Mr. Quayle has been Vice President, Marketing and
Corporate Development of the Issuer since its formation. Mr. Quayle joined
Parent in September 1993 as Vice President, Business Development and Corporate
Communications. He now also serves as Vice President, Marketing and Corporate
Development of Parent. From 1989 to 1993, Mr. Quayle was employed by Vail
Associates as Vice President of Business Development. From 1982 to 1993, Mr.
Quayle was President of Resort Communications Management in Vail, Colorado and
President of Eagle Valley Investments.
STEVEN F. ELLIOTT. Mr. Elliott has been Vice President of Corporate Finance
of the Issuer since its formation. Mr. Elliott joined Parent in 1995 as Director
of Finance and Analysis. In 1996, he was elected Vice President of Corporate
Finance. Prior to joining Parent, Mr. Elliott was Vice President of Corporate
Finance in the Capital Markets Group of Security Capital Group from 1994 to
1995. Prior to that, Mr. Elliott was a Vice President at Dillon, Read & Co. Inc.
JAMES E. WANLESS. Mr. Wanless has been Vice President, Club and Membership
and Development of the Issuer since its formation. Mr. Wanless joined Parent in
September 1996 as Vice President, Club and Membership Development. From 1995 to
1996, Mr. Wanless was a Director and Senior Vice President of Membership
Marketing International. For more than five years prior to joining Parent, Mr.
Wanless was a senior partner of the law firm Hillier and Wanless.
THOMAS MCGRATH. Mr. McGrath has been Vice President, Merchandising and
Events of the Issuer since its formation. Mr. McGrath joined Parent in June 1996
as Vice President, Merchandising and Events. From 1988 until joining Parent, Mr.
McGrath was Vice President of Merchandising for eight years with Silver Dollar
City, Inc. in Branson, Missouri.
EMILY-MAY RICHARDS. Ms. Richards has been Corporate Controller of the
Issuer since its formation. Ms. Richards joined Parent in October 1994 as
Corporate Controller after serving as a private consultant for Parent and its
subsidiaries with Richards Group, P.C., a certified public accounting firm
founded by Ms. Richards in 1986. Ms. Richards owned and operated the Richards
Group, P.C. from 1986 to 1994.
HENRY R. KRAVIS. Mr. Kravis, Founding Partner of KKR, is a Director of
Parent and the Issuer and a managing member of the Executive Committee of the
limited liability company which serves as the general partner of KKR. He is also
a Director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies, Inc., Flagstar Corporation, The
Gillette Company, IDEX Corporation, K-III Communications Corporation, Merit
Behavioral Care Corporation, Newsquest Capital plc., Owens-Illinois Group, Inc.,
Owens-Illinois, Inc., Safeway, Inc., Sotheby's Holdings, Inc., Union Texas
Petroleum Holdings, Inc. and World Color Press, Inc.
72
<PAGE>
GEORGE R. ROBERTS. Mr. Roberts, Founding Partner of KKR, is a Director of
Parent and the Issuer and a managing member of the Executive Committee of the
limited liability company which serves as the general partner of KKR. He is also
a director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies, Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc., Owens-Illinois Group, Inc., Owens-Illinois,
Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc. and World Color Press,
Inc.
PAUL E. RAETHER. Mr. Raether is a Director of Parent and the Issuer and is
a member of the limited liability company which serves as the general partner of
KKR. He is also a Director of Bruno's, Inc., Flagstar Companies, Inc., Evenflo &
Spalding Holding's Corporation, Flagstar Corporation, Fred Meyer, Inc. and IDEX
Corporation. Mr. Raether joined KKR in 1980.
MICHAEL T. TOKARZ. Mr. Tokarz is a Director of Parent and the Issuer and is
a member of the limited liability company which serves as the general partner of
KKR. Prior to 1993, Mr. Tokarz was an Executive at KKR. Mr. Tokarz joined KKR in
1985. He is also a Director of Evenflo & Spalding Holdings Corporation, Flagstar
Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III Communications
Corporation, Safeway, Inc. and Walter Industries, Inc.
SCOTT M. STUART. Mr. Stuart is a Director of Parent and the Issuer and is a
member of the limited liability company which serves as the general partner of
KKR. Prior to 1995, Mr. Stuart was an Executive at KKR. He is also a Director of
Borden, Inc., Newsquest Capital plc and World Color Press, Inc. Mr. Stuart
joined KKR in 1986.
ALEXANDER NAVAB, JR. Mr. Navab is a Director of Parent and the Issuer and
has been an Executive at KKR since 1993. Prior to joining KKR, Mr. Navab was
employed by James D. Wolfensohn Incorporated. He is also a Director of Borden,
Inc., Newsquest Capital plc. and World Color Press, Inc.
ERIC L. AFFELDT. Mr. Affeldt is President and Chief Executive Officer of
The Fairways Group, L.P., a limited partnership through which Fairways
operations are conducted, and a Vice President of KSL Fairways Golf Corporation,
a subsidiary of the Issuer and the managing general partner of Fairways Group,
L.P. Mr. Affeldt joined Parent in July 1992 as Director of Finance. After
serving as Vice President of Acquisitions of The Fairways Group, he became its
President in July 1995. Prior to joining the Company, Mr. Affeldt owned and
operated Vail Financial Planning, a financial advisory firm in Vail, Colorado.
SCOTT M. DALECIO. Mr. Dalecio has been President of KSL Desert Resorts,
Inc., the operating subsidiary which operates both the La Quinta Resort & Club
and PGA WEST in La Quinta, California since March 1996. Prior thereto, Mr.
Dalecio held several management positions with the La Quinta Resort & Club since
joining La Quinta Resort & Club in 1986, including President and General
Manager.
JOEL B. PAIGE. Mr. Paige has been the President of KSL Hotel Corp., the
operating subsidiary which owns Doral, since April 1995. From November 1994
through April 1995, Mr. Paige was General Manager at the Scottsdale Hilton in
Scottsdale, Arizona. From September 1990 until joining the Scottsdale Hilton,
Mr. Paige was employed as General Manager of Doral.
RAYMOND C. WILLIAMS. Mr. Williams has been President of KSL Lake Lanier,
Inc., the operating subsidiary which manages Lake Lanier Islands since July
1996. Prior to July 1996, Mr. Williams was Vice President and Chief Operating
Officer of Arrow Dynamics in Salt Lake City, Utah. From 1973 to 1995, Mr.
Williams was an executive for Six Flags Theme Parks, Inc., holding several
positions, including Senior Vice President, Operational Planning & Strategy.
Messrs. Kravis and Roberts are first cousins.
The business address of Messrs. Kravis, Raether, Tokarz, Stuart and Navab is
9 West 57th Street, New York, New York 10019 and of Mr. Roberts is 2800 Sand
Hill Road, Suite 200, Menlo Park, California 94025.
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<PAGE>
Vail Associates filed a petition seeking relief under Chapter 11 of the
federal bankruptcy laws in June 1992 and emerged from bankruptcy in October
1992.
The Company anticipates that during 1997, Mr. Lichliter will spend
approximately 95% of his time on matters related to the operations of Parent,
KSL Land and other affiliates of the Company. The Company anticipates that
during 1997, Mr. Shannon, Mr. Saer, Ms. Dyal and Mr. Quayle each will spend up
to 10% of his or her time on matters relating to the operations of such other
entities. See "Risk Factors--Control by KKR Affiliates; Conflicts of Interest."
The following directors have been appointed to serve on the Issuer's
Executive Committee during fiscal 1997: Messrs. Kravis, Raether, Tokarz and
Shannon. The following directors have been appointed to serve on the Issuer's
Audit Committee during fiscal 1997: Messrs. Stuart, Navab and Lichliter.
BOARD COMPENSATION
All directors are reimbursed for their usual and customary expenses incurred
in attending all Board and committee meetings. Each director receives an
aggregate annual fee of $25,000 for serving on Parent's and the Company's Boards
of Directors.
EXECUTIVE COMPENSATION
Prior to the formation of the Issuer in March 1997, all current executive
officers of the Issuer were employed by Parent and all compensation for such
officers was paid by Parent. The following table presents certain summary
information concerning compensation paid or accrued by Parent for services
rendered in all capacities for the fiscal year ended October 31, 1996 for (i)
the chief executive officer of the Issuer and (ii) each of the four other most
highly compensated executive officers of the Issuer, determined as of October
31, 1996 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
NAME AND FISCAL OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------------ ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Michael S. Shannon
President and Chief Executive Officer................................. 1996 $ 450,000 $ 615,000 $ 2,864(3)
Larry E. Lichliter
Executive Vice President.............................................. 1996 250,000 175,000 4,737(3)
John K. Saer, Jr.
Vice President, Chief Financial Officer and Treasurer................. 1996 190,000 150,000 --
Nola S. Dyal
Vice President, General Counsel and Secretary......................... 1996 195,000 105,000 --
Bradley T. Quayle
Vice President, Marketing and Corporate Development................... 1996 158,000 60,000 --
</TABLE>
- ------------------------
(1) After the consummation of the Offering, Parent will continue to pay all
compensation for the executive officers named above; however, the Issuer
will reimburse Parent for the amount of all such compensation that is
directly attributable to the operations of the Company. See "Certain
Related Transactions."
(2) It is anticipated that the Company will pay estimated compensation of
$1,881,000 for services rendered by the above named executives during fiscal
1997. With the exception of Mr. Lichliter (who spends approximately 5% of
his time on work related to the Company), the other executives spend between
90% to 98% of their time on Company matters.
(3) Represents cost of premiums for long-term disability insurance.
74
<PAGE>
STOCK OPTIONS OF PARENT
STOCK OPTION PLAN
Parent adopted the KSL Recreation Corporation 1995 Stock Purchase and Option
Plan (the "Plan"), providing for the issuance to certain officers and key
employees (the "Optionees") of up to 77,225 shares of common stock of Parent
("Stock"). Unless sooner terminated by Parent's Board of Directors, the Plan
will expire on June 30, 2005.
The Compensation Committee of Parent's Board of Directors, consisting of
Messrs. Kravis and Tokarz (the "Committee"), administers the Plan. The Committee
has the authority to determine the forms and amounts of awards made to Optionees
(each, a "Grant"). Such Grants may take a variety of forms in the Committee's
sole discretion including "incentive stock options" under Section 422 of the
Code, other Stock options, stock appreciation rights, restricted Stock, purchase
Stock, dividend equivalent rights, performance rights, performance shares or
other stock-based grants.
NON-QUALIFIED STOCK OPTION AGREEMENTS
All options granted under the Plan to date have been non-qualified stock
options granted pursuant to Non-Qualified Stock Option Agreements (the "Stock
Option Agreements"). Under the terms of Stock Option Agreements, the exercise
price of the options granted is $500 per share, and options may be exercised
based upon a schedule which refers to a date set forth in each Optionee's Stock
Option Agreement (the "Option Trigger Date"). Generally, an Optionee's options
will vest one-fifth on each of the following five anniversary dates of such
Optionee's Option Trigger Date. However, certain Stock Option Agreements provide
that certain Optionees' options will vest on the first anniversary date of the
Optionee's Option Trigger Date, one-half on each of the following two
anniversary dates of the Optionee's Option Trigger Date, one-third on each of
the following three anniversary dates of the Optionee's Option Trigger Date or
one-fourth on each of the following four anniversary dates of the Optionee's
Option Trigger Date. Each Stock Option Agreement provides for acceleration of
exercisability of some or all of an Optionee's options immediately prior to a
change of control and immediately upon termination of employment because of
death, permanent disability or retirement (at age 65 or over after three years
of employment) of the Optionee.
Options granted under the Plan pursuant to a Stock Option Agreement expire
upon the earliest of (i) June 30, 2005, (ii) the date the option is terminated
under the circumstances set forth in the Common Stock Purchase Agreement (as
defined below), (iii) the termination of the Optionee's employment because of
criminal conduct (other than traffic violations), (iv) if prior to the fifth
anniversary of the Optionee's Option Trigger Date, the termination of employment
for any reason other than death, disability or retirement after the age of 65
and (v) if the Committee so determines, the merger or consolidation of Parent
into another corporation or the exchange or acquisition by another corporation
of all or substantially all of Parent's assets or 80% of Parent's then
outstanding voting stock, or the reorganization, recapitalization, liquidation
or dissolution of Parent.
Each of the executive officers and the other key employees listed in the
table in this "Management" section has entered into a Stock Option Agreement.
MANAGEMENT COMMON STOCK PURCHASE AGREEMENTS
If an Optionee exercises options under his or her Stock Option Agreement, he
or she is required to enter into a Common Stock Purchase Agreement with Parent.
None of these employees (the "Management Stockholders") has exercised any
options to date. Pursuant to each Common Stock Purchase Agreement, the
Management Stockholder may not transfer any shares of Stock acquired thereby or
upon exercise of vested options granted under the Plan (collectively, the "Plan
Shares") within five years (although certain Management Stockholders may
transfer their Plan Shares after they have been fully vested) after the date set
forth in his or her Common Stock Purchase Agreement (the "Purchase Trigger
Date").
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<PAGE>
Each Common Stock Purchase Agreement provides the Management Stockholder
with the right to require Parent to repurchase all of Management Stockholder's
Plan Shares and pay Management Stockholder (or his or her estate or Management
Stockholder Trust) a stated price for cancellation of options if (a) the
Management Stockholder's employment is terminated as a result of his or her
death or permanent disability, (b) the Management Stockholder dies or becomes
permanently disabled after having retired from Parent at or after age 65 after
having been employed by Parent for at least three years after the Purchase
Trigger Date or (c) with the prior consent of Parent's Board of Directors (which
consent will not be withheld unless the Board reasonably determines that Parent
would be financially impaired if it made such a purchase), the Management
Stockholder retires from Parent on or after age 65 after having been employed by
Parent for at least three years after the Purchase Trigger Date. The Management
Stockholder also has the right, until the later of five years after the Purchase
Trigger Date or the first public offering in which the Partnerships participate,
to have Parent register a stated percentage of his Plan Shares under the
Securities Act in connection with certain public offerings.
Each Common Stock Purchase Agreement also provides Parent with (a) prior to
a public offering, the right of first refusal to buy Plan Shares owned by each
Management Stockholder on essentially the same terms and conditions as such
Management Stockholder proposes in a sale of his Plan Shares to another bona
fide third party purchaser and (b) the right to repurchase all of the Management
Stockholder's Plan Shares and pay him a stated price for cancellation of his
Options if (i) the Management Stockholder's employment is involuntarily
terminated with cause, (ii) the Management Stockholder terminates his or her
employment other than by reason of death, disability or retirement on or after
the age of 65 or (iii) the Management Stockholder effects an unpermitted
transfer of Plan Shares.
Upon a change of control of Parent, the transfer restrictions, right of
first refusal, and certain other rights with respect to sale and repurchase of
the Plan Shares and cancellation of Options as described above will lapse.
The repurchase price of the Plan Shares under the Common Stock Purchase
Agreements depends upon the nature of the event that triggers the repurchase and
whether such repurchase occurs at the election of the Management Stockholder or
Parent. Generally, if the repurchase is at the Management Stockholder's
election, the repurchase price per share will be the book value per share (as
defined in the Common Stock Purchase Agreement) of Stock or, if the Stock is
publicly traded, the market value per share of Stock. Generally, if the
repurchase is at Parent's election, the repurchase price per share will be the
lesser of (a) the book value per share (as defined in the Common Stock Purchase
Agreement) of Stock (or if the Stock is publicly traded, the market value per
share) and (b) $500.
The following table sets forth certain information relating to options to
purchase shares of Stock which were granted to the Named Executive Officers
prior to fiscal 1996. No options were granted to the Named Executive Officers
during the fiscal year ended October 31, 1996. Certain Named Executive Officers
received options and partnership interests in KSL Land and partnerships
affiliated therewith during the fiscal year ended October 31, 1996, but such
options are "out-of-the-money" and no allocation has been made for distribution
of partnership profits with respect to such partnership interests.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND OPTION VALUES AT OCTOBER 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
NUMBER OF SHARES AT OCTOBER 31, 1996 OCTOBER 31, 1996
ACQUIRED ON (EXERCISABLE/ (EXERCISABLE/UNEXERCISABLE)
NAME EXERCISE VALUE REALIZED UNEXERCISABLE) (1)
- ---------------------------- ----------------------- ------------------- --------------------- ----------------------------
Michael S. Shannon.......... -- -- 22,744/ 0 $ 2,472,796/0
Larry E. Lichliter.......... -- -- 12,646/ 0 1,374,962/0
John K. Saer, Jr............ -- -- 2,673/ 1,782 290,663/193,775
Nola S. Dyal................ -- -- 1,401/ 1,401 152,311/152,311
Bradley T. Quayle........... -- -- 1,988/ 663 216,180/72,060
</TABLE>
- ------------------------------
(1) The Common Stock is not publicly traded and the value of the options
represents management's best judgment of value at October 31, 1996 as
calculated using the "Black-Scholes" model of option valuation.
76
<PAGE>
MANAGEMENT INCENTIVE BONUSES
Certain members of management of Parent and the Issuer and its subsidiaries,
including departmental managers and executive officers, including Named
Executive Officers, are eligible to receive cash bonuses in addition to their
annual salary compensation. Such awards are based on the performance of such
individuals as determined by their direct supervisors and other senior
management and the financial performance of Parent, and the Company and its
subsidiaries.
STOCK PURCHASED BY MANAGEMENT
Messrs. Shannon, Lichliter, Saer and Affeldt have purchased 2,053, 1,141,
301 and 53 shares of Stock, respectively, at a purchase price of $500 per share.
In connection with these purchases, Parent loaned $1,026,260, $570,640, $150,720
and $26,715 to Messrs. Shannon, Lichliter, Saer and Affeldt, respectively. Each
loan is evidenced by a promissory note which (i) is due and payable on June 9,
2005, but may be prepaid at any time, without penalty, (ii) bears an annual
interest rate of 5% and (iii) is secured by the Stock purchased by each such
individual.
STOCK RECEIVED IN LIEU OF FEES
In October 1995, Parent entered into Stock Purchase Agreements with Messrs.
Shannon, Lichliter, Saer and Affeldt, pursuant to which Messrs. Shannon,
Lichliter, Saer and Affeldt were issued 6,881, 3,826, 1,011 and 179 shares of
Stock, respectively, in lieu of receiving certain fees otherwise owed to them by
Parent. Such Stock Purchase Agreements are substantially similar to the Common
Stock Purchase Agreements described above except that restrictions on transfer
are in effect for three years (compared with five years, in general, under the
Common Stock Purchase Agreements). Since such Management Stockholders incurred
certain income tax liabilities in connection with the receipt of such Stock,
Parent loaned $1,322,815, $735,529, $194,271 and $31,523 to Messrs. Shannon,
Lichliter, Saer and Affeldt, respectively. Each loan is evidenced by a
promissory note which (i) is due and payable on October 30, 2005, but may be
prepaid at any time, without penalty, (ii) bears an annual interest rate of 5%
and (iii) is secured by the Stock granted to each such individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors participated in deliberations of Parent's board of
directors concerning executive officer compensation during fiscal 1996 and have
been appointed to serve on Parent's Compensation Committee during fiscal 1997:
Messrs. Kravis and Tokarz. During fiscal 1996, no executive officer of Parent
served as a member of the compensation committee of another entity or as a
director of another entity, one of whose executive officers served on the
compensation committee or board of directors of Parent.
77
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of April 30, 1997, certain information
concerning the ownership of shares of Common Stock of Parent by: (i) persons who
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each person who is a director of the Company; (iii) each person who is a Named
Executive Officer; and (iv) all directors and executive officers of the Company
as a group. Parent owns 100% of the common stock of the Issuer. As of April 30,
1997, there were 469,854 shares of common stock of Parent outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT OF
BENEFICIAL SHARES
NAME AND ADDRESS OWNERSHIP OUTSTANDING
- ----------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
KKR Associates, L.P................................................................ 454,409(1) 96.71%
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019(1)
Michael S. Shannon................................................................. 31,677 6.43
Larry E. Lichliter................................................................. 17,613 3.65
John K. Saer, Jr................................................................... 3,985 *
Nola S. Dyal....................................................................... 2,101 *
Bradley T. Quayle.................................................................. 1,988 *
All executive officers and directors as a group (19 persons)(1).................... 60,582 11.76%
</TABLE>
- ------------------------
* Denotes less than one percent.
(1) Shares of Common Stock shown as beneficially owned by KKR Associates, L.P.
are held as follows: approximately 83.7% by Resort Associates L.P.,
approximately 11.9% by Golf Associates L.P. and approximately 1.1% by KKR
Partners II, L.P. (collectively, the "Partnerships"). KKR Associates, L.P.,
a limited partnership, is the sole general partner of each of the
Partnerships and possesses sole voting power with respect to such shares.
The general partners of KKR Associates, L.P. are Henry R. Kravis, George R.
Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, James
H. Greene, Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott
M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts, Raether, Tokarz
and Stuart are also directors of the Company. Alexander Navab, Jr. is a
limited partner of KKR Associates, L.P. and is also a director of the
Company. Each of such individuals may be deemed to share beneficial
ownership of the shares shown as beneficially owned by KKR Associates, L.P.
Each of such individuals disclaims beneficial ownership of such shares.
78
<PAGE>
CERTAIN RELATED TRANSACTIONS
TRANSACTIONS WITH KKR
KKR Associates, L.P. beneficially owns approximately 96.7% (84.5% on a fully
diluted basis) of Parent's outstanding shares of Common Stock. The general
partners of KKR Associates, L.P. are Messrs. Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz,
James H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and
Edward A. Gilhuly. Messrs. Kravis, Roberts, Raether, Tokarz and Stuart are also
directors of the Company, as is Alexander Navab, Jr. who is a limited partner of
KKR Associates, L.P. Each of the general partners of KKR Associates, L.P. is
also a member of the limited liability company which serves as the general
partner of KKR and Mr. Navab is an executive of KKR. KKR receives an annual fee
of $500,000 in connection with providing financial advisory services to Parent
and may receive customary investment banking fees for services rendered to
Parent and/or the Company in connection with divestitures, acquisitions and
certain other transactions. In connection with the acquisitions of Desert
Resorts and Doral in 1993, Parent paid fees of approximately $6.3 million to KKR
in fiscal 1994 for services provided in connection therewith. See "Management"
and "Beneficial Ownership of Common Stock."
The limited partners of KKR Associates, L.P. are certain past and present
employees of KKR and partnerships and trusts for the benefit of the families of
the general partners and past and present employees and a former partner of KKR.
Each of the Partnerships has the right to require Parent to register under
the Securities Act shares of Common Stock held by it pursuant to several
registration rights agreements. Such registration rights will generally be
available to each of the Partnerships until registration under the Securities
Act is no longer required to enable it to resell the Common Stock owned by it.
Such registration rights agreements provide, among other things, that Parent
will pay all expenses in connection with the first six registrations requested
by each such Partnership and in connection with any registration commenced by
Parent as a primary offering.
TRANSACTIONS WITH PARENT AND AFFILIATES OF PARENT
In connection with the Refinancings, Issuer and Parent entered into an
Expense Allocation Agreement pursuant to which Parent performs management
services requested by Issuer and Issuer reimburses Parent for all expenses
incurred by Parent and directly attributable to Issuer and its subsidiaries.
The Issuer's liability for taxes is determined based upon a Tax Sharing
Agreement entered into by the members of the affiliated group of corporations
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code")) of which Parent is the common parent (the "Parent
Affiliated Group"). Under the Tax Sharing Agreement, the Issuer and its
subsidiaries are generally responsible for Federal taxes based upon the amount
that would be due if the Issuer and its subsidiaries filed Federal tax returns
as a separate affiliated group of corporations rather than as part of Parent's
consolidated federal tax returns. The allocation of tax liability pursuant to
the Tax Sharing Agreement may not reflect the Issuer's actual tax liability that
would be imposed on the Issuer had it not filed tax returns as part of the
Parent Affiliated Group. The combined state tax liabilities are allocated to the
Issuer and its subsidiaries based on similar principles.
In order to simplify the Company's corporate and capital structures, Parent
and the Company entered into the following transactions concurrently with or
prior to the consummation of the Refinancings: (i) Parent contributed the
outstanding capital stock of the parent of Desert Resorts, Doral, Fairways and
Lake Lanier Islands to the Issuer as a result of which they became wholly-owned
subsidiaries of the Issuer; (ii) KSL Landmark Corporation (which owned Desert
Resorts and into which Desert Resorts was merged effective July 1, 1997)
dividended to Parent (through the Issuer) all of the general partnership
interests and Class A limited partnership interests owned by KSL Landmark
Corporation in four affiliated limited
79
<PAGE>
partnerships whose principal assets are beneficial interests in undeveloped
commercial and residential real estate parcels in the vicinity of Desert
Resorts, thereby removing ongoing funding obligations of the Company for holding
costs relating to undeveloped land; (iii) the Company sold to KSL Land at
historical cost (which approximated fair market value) the general partnership
interest and Class A limited partnership interest owned by KSL Landmark
Corporation in an additional limited partnership whose principal assets are
residential real estate parcels in the vicinity of Desert Resorts; (iv) Parent,
the Company and affiliates settled intercompany balances, resulting in an
increase in cash to the Company of $46.3 million; (v) the Company distributed to
Parent in cash excess equity funding of $46.3 million contributed by Parent to
Desert Resorts at the time of acquisition; (vi) the Company distributed $13.9
million in cash to Parent, which was recorded as a return of capital to Parent;
and (vii) certain management, lending and other agreements used to allocate
corporate general and administrative expenses between Parent and its
subsidiaries prior to the Refinancings were cancelled and the Issuer and Parent
entered into the Expense Allocation Agreement which has resulted in an increase
in corporate general and administrative expenses of the Company following the
Refinancings. The Concurrent Transactions did not reflect possible future
dividends by the Company of additional parcels of land which may occur following
the receipt of applicable state and local government approvals.
The Company paid management fees of $417,000, $750,000 and $3.2 million to
Parent in fiscal 1994, 1995 and 1996, respectively.
Since 1993, Fairways has paid an annual management fee of $250,000 per annum
directly to Parent. Fairways expects to pay a management fee of $250,000 per
annum to Parent.
TRANSACTIONS WITH MANAGEMENT
Parent has made loans to Messrs. Shannon, Lichliter, Saer and Affeldt (i) in
connection with their purchase of common stock of Parent and (ii) to fund the
tax liability incurred as a result of their receipt of common stock of Parent.
Each of Messrs. Shannon, Lichliter, Saer and Affeldt has delivered promissory
notes to Parent as evidence of such indebtedness. See "Management--Stock
Purchased by Management" and "--Stock Received in Lieu of Fees."
In addition, Parent has made loans to Messrs. Shannon, Lichliter, Saer and
Affeldt to fund tax liability incurred as a result of their receipt of common
stock of KSL Land and certain partnership interests in partnerships affiliated
with Parent. In connection with such loans, each of Messrs. Shannon, Lichliter,
Saer and Affeldt have delivered promissory notes in aggregate amounts of
$212,461, $122,832, $32,952 and $5,303, respectively.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description, which sets forth the material terms of the New
Credit Facility, does not purport to be complete, and is subject to, and is
qualified in its entirety by reference to, the forms of such instruments, copies
of which may be obtained as described under "Available Information."
NEW CREDIT FACILITY
The New Credit Facility was provided by a syndicate of banks and other
financial institutions (the "Lenders") led by Donaldson, Lufkin & Jenrette
Securities Corporation, as a co-syndication agent and documentation agent, The
Bank of Nova Scotia, as a co-syndication agent and administrative agent (the
"Administrative Agent"), and BancAmerica Securities, Inc., as syndication agent.
The New Credit Facility provides for a term loan facility of $100.0 million (the
"Term Loan Facility") and a revolving credit facility of $175.0 million (the
"Revolving Credit Facility"). The Revolving Credit Facility includes a portion
thereunder for letters of credit, and a portion thereof for short-term
borrowings ("Swingline Loans"). The loans under the Term Loan Facility (the
"Term Loans") are comprised of Term A Loans ($50.0 million), which have a final
maturity of April 30, 2005 and annual interim amortization of $500,000 beginning
in 1998 until 2004, and Term B Loans ($50.0 million) which have a final maturity
of April 30, 2006 and annual interim amortization of $500,000 beginning in 1998
until 2005. The Revolving Credit Facility commitment matures on April 30, 2004,
with scheduled mandatory reductions in the aggregate commitments thereunder to
$163.75 million on April 30, 2000, $152.50 million on April 30, 2001, $137.50
million on April 30, 2002 and $118.75 million on April 30, 2003.
The interest rate for the Term A Loans is, at the option of the Issuer,
LIBOR plus 2.75%, or the alternate base rate ("ABR") plus 1.75%. The interest
rate for the Term B Loans is, at the option of the Company, LIBOR plus 3.00% or
ABR plus 2.00%. The interest rate under the Revolving Credit Facility is
initially, at the option of the Company, LIBOR plus 2.25% or ABR plus 1.25%. The
Issuer may elect interest periods of one, two, three or six months (or nine or
12 months, to the extent available under the relevant Facility) for LIBOR
borrowings. Calculation of interest is based on actual days elapsed in a year of
360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based
on the Prime Rate) and interest is payable at the end of each interest period
and, in any event, at least every three months or 90 days, as the case may be.
ABR is the highest of (i) the Administrative Agent's Prime Rate and (ii) the
Federal Funds Effective Rate plus one-half of 1%. LIBOR will at all times
include statutory reserves to the extent actually incurred.
The Issuer pays a commitment fee at a rate that was initially equal to
one-half of 1% per annum on the undrawn portion of the commitments in respect of
the New Credit Facility, which began to accrue on April 30, 1997, payable
quarterly in arrears. The commitment fees will at all times be calculated based
on the actual number of days elapsed over a 365-day year.
The Issuer pays a letter of credit fee equal to a rate per annum equal to
the margin for LIBOR loans under the Revolving Credit Facility, less one-quarter
of 1%, on the aggregate face amount of outstanding letters of credit under the
Revolving Credit Facility, payable in arrears at the end of each quarter and
upon the termination of the Revolving Credit Facility, in each case for the
actual number of days elapsed over a 365-day year. In addition, the Issuer pays
to the Fronting Bank (as defined in the New Credit Facility), for its own
account, (a) a fronting fee of one-quarter of 1% per annum on the aggregate face
amount of outstanding letters of credit, payable in arrears at the end of each
quarter and upon the termination of the Revolving Credit Facility, in each case
for the actual number of days elapsed over a 365-day year, and (b) customary
issuance, amendment and administration fees.
The New Credit Facility contains provisions under which commitment fees and
interest rates for the Revolving Credit Facility will be adjusted in increments
based on the achievement of certain performance goals.
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The Term Loans are subject to mandatory prepayment with (a) 100% of the net
cash proceeds of certain non-ordinary-course asset sales or other dispositions
of property by the Company and its subsidiaries, except to the extent that such
proceeds are reinvested in the business of the Issuer and its subsidiaries
within one year and subject to certain other exceptions, (b) until certain
performance goals are attained, 50% of excess cash flow (as defined in the New
Credit Facility) and (c) 100% of the net proceeds of certain issuances of debt
obligations of the Issuer and its subsidiaries. Voluntary prepayments and
Revolving Credit Facility commitment reductions are permitted in whole or in
part at the option of the Issuer, in minimum principal amounts, without premium
or penalty, subject to reimbursement of certain of the Lenders' costs under
certain conditions.
The Issuer's obligations under the New Credit Facility are secured by a
perfected first priority pledge of and security interest in all the common stock
of each existing and subsequently acquired direct domestic subsidiary of the
Issuer and 65% of the common stock of each existing and subsequently acquired
direct foreign subsidiary and, in certain circumstances, non-cash consideration
received for certain sales of assets. In addition, indebtedness under the New
Credit Facility was initially guaranteed by each existing and subsequently
acquired domestic subsidiary of the Issuer (other then The Fairways Group,
L.P.). See "Description of the Notes--Subordination" and "Risk
Factors--Subordination."
The New Credit Facility provides that the Company must meet or exceed an
interest coverage ratio and a fixed charge ratio and must not exceed a leverage
ratio. The New Credit Facility also contains customary covenants relating to the
delivery of financial statements, reports, notices, and other information,
access to information and properties, maintenance of insurance, payment of
taxes, maintenance of properties, nature of business, corporate existence and
rights, compliance with applicable laws, transactions with affiliates, use of
proceeds, limitations on indebtedness, limitations on liens, limitations on
dividends and other distributions and limitations on debt payments, including
prepayment or redemption of the Notes.
The New Credit Facility includes customary events of default.
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THE EXCHANGE OFFER
GENERAL
The Issuer hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $125 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
As of the date of this Prospectus, $125 million aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September 12, 1997, to all holders
of Old Notes known to the Issuer. The Issuer's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "Certain Conditions to the Exchange Offer" below. The Issuer
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on April 30, 1997 in a transaction exempt from the
registration requirements of the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Issuer
entered into the Registration Rights Agreement, which requires the Issuer to
file with the Commission a registration statement relating to the Exchange Offer
and to use its best efforts to cause the registration statement relating to the
Exchange Offer to become effective under the Securities Act within 150 days
after the date of issuance of the Old Notes. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made by the Issuer to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Issuer is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Issuer is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Issuer has not sought its
own interpretive letter and there can be no assurance that the staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Issuer within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were
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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 "Plan of Distribution."
TERMS OF THE EXCHANGE
The Issuer hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Issuer has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Issuer believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for sale, resold and otherwise transferred
by any holder of such Exchange Notes (other than any such holder that is a
broker-dealer or is an "affiliate" of the Issuer 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 such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a noaction letter, there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Issuer or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old 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 "Plan of
Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from April 30, 1997.
Tendering holders of the Old Notes shall 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 the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on October
13, 1997, unless the Issuer, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Expiration Date will be at
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least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. The Issuer expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
The Issuer expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "--Certain Conditions to the Exchange Offer" which have not been waived by
the Issuer and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Issuer will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Issuer
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Issuer will exchange the Exchange Notes for the Old Notes
on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth below
and the acceptance thereof by the Issuer will constitute a binding agreement
between the tendering holder and the Issuer upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE ISSUER.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Issuer and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to
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be delivered to an address other than that of the registered holder appearing on
the note register for the Old Notes, the signature in the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Issuer may, at its option, reject the tender.
Copies of the notice of guaranteed delivery ("Notice of Guaranteed Delivery")
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or not to accept any particular
Old Notes which acceptance might, in the judgment of the Issuer or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be
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final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Issuer shall determine. Neither the Issuer, the
Exchange Agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of Old Notes for
exchange, nor shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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 Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Issuer, or if it is an affiliate it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old 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 "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Issuer and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Issuer will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Issuer to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or transfer ownership of
such Old Notes on the account books maintained by a book-entry transfer
facility. The Transferor further agrees that acceptance of any tendered Old
Notes by the Issuer and the issuance of Exchange Notes in exchange therefor
shall constitute performance in full by the Issuer of certain of its obligations
under the Registration Rights Agreement. All authority conferred by the
Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the
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distribution of such Exchange Notes. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. Each Transferor which is a broker-dealer
receiving Exchange Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. 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 Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
will make available, for a period ending on the earlier to occur of (i) the date
when all Exchange Notes held by Participating Broker Dealers have been sold and
(ii) 180 days after consummation of the Exchange Offer this Prospectus to any
Participating Broker-Dealer and any other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of
Exchange Notes.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Notes to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (vi) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Issuer and such determination will be final and binding on all
parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of
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the Exchange Offer, the Issuer shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Issuer has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuer shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any law, statute, rule or regulation or applicable interpretation of
the staff of the Commission is issued or promulgated which, in the good
faith determination of the Issuer, does not permit the Issuer to effect the
Exchange Offer; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Issuer 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 such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(c) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the reasonable judgment of the Issuer, would prohibit the Issuer
from proceeding with or consummating the Exchange Offer.
The Issuer expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Issuer of properly tendered Old Notes). In addition, the
Issuer may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Issuer may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall
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be deemed an ongoing right which may be asserted at any time and from time to
time. If the Issuer waives or amends the foregoing conditions, it will, if
required by law, extend the Exchange Offer for a minimum of five business days
from the date that the Issuer first gives notice, by public announcement or
otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by the Issuer
concerning the events described above will be final and binding upon all
parties.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Issuer is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
First Trust of New York National Association has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below:
<TABLE>
<S> <C>
BY HAND: BY MAIL:
First Trust of New York, National Association First Trust National Association
100 Wall Street P.O. Box 64485
Suite 2000 St. Paul, Minnesota 55164-9549
New York, New York 10005
Attn: Cathy Donohue
BY OVERNIGHT COURIER: BY FACSIMILE:
First Trust National Association (612) 244-1537
Attn: Specialized Finance Attn: Specialized Finance
180 East Fifth Street Telephone: (800) 934-6802
St. Paul, Minnesota 55101
</TABLE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Issuer 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 Issuer, 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 Issuer
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by
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them in forwarding copies of this and other related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for their
customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
approximately $240,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuer. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuer since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuer may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Issuer by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
TRANSFER TAXES
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old 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.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuer upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuer does not currently anticipate that it will
register the Old Notes under the Securities Act.
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Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Issuer will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. All untendered Old Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered Old Notes could be adversely affected.
The Issuer may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Issuer has no
present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Issuer is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Issuer has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Issuer within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder who is an "affiliate" of the Issuer or
who has an arrangement or understanding with respect to the distribution of the
Exchange Notes to be acquired pursuant to the Exchange Offer, or any
broker-dealer who purchased Old Notes from the Issuer to resell pursuant to Rule
144A or any other available exemption under the Securities Act (i) could not
rely on the applicable interpretations of the staff and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Issuer has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
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DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under an indenture dated as of April 30, 1997 (the "Indenture") between
the Issuer, as issuer, and First Trust of New York National Association, as
trustee (the "Trustee"). The terms of the Exchange Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
Each of the Indenture and the Registration Rights Agreement is an exhibit to the
Registration Statement of which this Prospectus is a part.
On April 30, 1997, the Issuer issued $125.0 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Old
Notes. Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the Exchange Notes, will be treated as a single
class of securities under the Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Exchange
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old Notes and
Exchange Notes then outstanding.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of the
Shelf Registration Statement, the Indenture will be subject to and governed by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
the provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. For definitions of certain capitalized terms used in the
following summary, see "--Certain Definitions." As used herein, "Company" refers
to KSL Recreation Group, Inc.
GENERAL
The Exchange Notes will mature on May 1, 2007, will be limited to $125.0
million aggregate principal amount and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate set forth
on the cover page hereof from April 30, 1997, or from the most recent interest
payment date to which interest has been paid or duly provided for, payable on
November 1, 1997, and semiannually thereafter on May 1 and November 1 in each
year until the principal thereof is paid or duly provided for to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the April 15 or October 15 next preceding such interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes will be exchangeable and transferable (subject
to compliance with transfer restrictions imposed by applicable securities laws
for so long as the Exchange Notes are not registered for resale under the
Securities Act), at the office or agency of the Company in the City of New York
maintained for such purposes (which initially will be the Trustee) or, at the
option of the Company, by check mailed to the address of the Person entitled
thereto as such address appears on the security register; provided that all
payments of principal, premium and interest with respect to Exchange Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. The Exchange Notes will be issued
only in fully registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof. No service charge will be made for any
registration of transfer or exchange or redemption
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of Exchange Notes, but the Company may require payment in certain circumstances
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
As discussed under "Exchange Offer; Registration Rights," pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
holders of the Old Notes, at the Company's cost, (i) to effect a registered
Exchange Offer under the Securities Act to exchange the Old Notes for Exchange
Notes, which will have terms identical in all material respects to the Old Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions or interest rate increases as described herein) and (ii) in the
event that any changes in law or applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, or if for any
other reason the Exchange Offer is not consummated within 180 days following the
date of the original issue of the Old Notes, or if any Holder of the Old Notes
(other than the Initial Purchasers) is not eligible to participate in the
Exchange Offer, or upon the request of any Initial Purchasers in certain
circumstances, to register the Old Notes for resale under the Securities Act
through a shelf registration statement (the "Shelf Registration Statement"). In
the event that either (a) the registration statement with respect to the
Exchange Offer (the "Exchange Offer Registration Statement") has not been
declared effective on or prior to the 150th calendar day following the date of
original issue of the Old Notes, (b) the Exchange Offer is not consummated or a
Shelf Registration Statement is not declared effective on or prior to the 180th
calendar day following the date of original issue of the Old Notes, or (c) the
Exchange Offer Registration Statement or (subject to certain black-out periods)
the Shelf Registration Statement is declared effective but thereafter ceases to
be effective or usable, the interest rate borne by the Old Notes shall be
increased by one-quarter of one percent per annum following such 150-day period
in the case of clause (a) above, following such 180-day period in the case of
clause (b) above, or following the date on which such registration statement
ceases to be effective or usable in the case of clause (c) above, which rate
will be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; PROVIDED that
the aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the effectiveness of the Exchange Offer Registration Statement
after the 150-day period described in clause (a) above, (y) the consummation of
the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, after the 180-day period described in clause (b) above, or (z)
the date on which the Exchange Offer Registration Statement or Shelf
Registration Statement is again declared effective or becomes usable, in the
case of clause (c) above, the interest rate borne by the Old Notes from the date
of such effectiveness, consummation or that the applicable registration
statement again becomes effective and usable, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; PROVIDED, HOWEVER, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or (c) above
occurs, the interest rate may again be increased and thereafter decreased
pursuant to the foregoing provisions. In certain circumstances, the Company will
not be required to keep the Shelf Registration Statement effective for a period
not to exceed 30 days in any consecutive twelve-month period. See "--Exchange
Offer; Registration Rights."
Old Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the
date of the Indenture or thereafter incurred. Upon any distribution to creditors
of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities, the
holders of Senior
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Indebtedness will be entitled to receive payment in full in cash or Cash
Equivalents of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the holders of Exchange Notes will be entitled to
receive any payment with respect to the Subordinated Note Obligations, and until
all Senior Indebtedness is paid in full in cash or Cash Equivalents, any
distribution to which the holders of Exchange Notes would be entitled shall be
made to the holders of Senior Indebtedness (except that holders of Exchange
Notes may receive (i) Equity Interests of the Company and any debt securities of
the Company that are subordinated at least to the same extent as the Exchange
Notes to (a) Senior Indebtedness and (b) any Indebtedness issued in exchange for
Senior Indebtedness and (ii) payments made from the trusts described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such Equity Interests or subordinated
debt securities or from the trust described under "--Legal Defeasance and
Covenant Defeasance") if (i) a default in the payment of the principal of,
premium, if any, or interest on, or of unreimbursed amounts under letters of
credit or fees relating to letters of credit and commitments to extend credit
constituting Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "payment default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "non-payment default") and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Exchange Notes, including any missed payments, may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash or Cash Equivalents and (b)
in case of a nonpayment default, the earlier of (x) the date on which such
nonpayment default is cured or waived, (y) 179 days after the date on which the
applicable Payment Blockage Notice is received (each such period, the "Payment
Blockage Period") or (z) the date such Payment Blockage Period shall be
terminated by written notice to the Trustee from the requisite holders of such
Designated Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until (i) 365 days have elapsed since the effectiveness of the immediately
preceding Payment Blockage Notice (provided that, if any Payment Blockage Notice
is given by or on behalf of any holders of Designated Senior Indebtedness (other
than the representative under the New Credit Facility), within such 365 day
period, the representative under the New Credit Facility may give another
Payment Blockage notice within such period and (ii) all scheduled payments of
principal, premium, if any, and interest on the Exchange Notes that have come
due have been paid in full in cash or cash equivalents. In no event, however,
may the total number of days during which any Payment Blockage Period or Periods
is in effect exceed 179 days in the aggregate during any 365 consecutive day
period. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Exchange Notes is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness. At
April 30, 1997, on a pro forma basis after giving effect to the Lake Lanier
Transaction,
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the Company would have had approximately $175.0 million of Senior Indebtedness
outstanding and the Company would have had additional availability of $100.0 for
borrowings under the New Credit Facility, all of which would be Senior
Indebtedness of the Company. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Facility and (ii) any other Senior Indebtedness or
Guarantor Senior Indebtedness permitted under the Indenture the principal amount
of which is $50 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Senior Indebtedness" means (i) the Obligations of the Company under the New
Credit Facility and (ii) any other Indebtedness of the Company permitted to be
incurred by the Company under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes, including, with
respect to (i) and (ii), interest accruing subsequent to the filing of, or which
would have accrued but for the filing of, a petition for bankruptcy, whether or
not such interest is an allowable claim in such bankruptcy proceeding.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (1) any liability for federal, state, local or other taxes owed
or owing by the Company or any of its Subsidiaries, (2) any obligation of the
Company to any of its Subsidiaries, (3) any accounts payable or trade
liabilities arising in the ordinary course of business (including instruments
evidencing such liabilities) other than obligations in respect of bankers'
acceptances and letters of credit under the New Credit Facility, (4) any
Indebtedness that is incurred in violation of the Indenture, (5) Indebtedness
which, when incurred and without respect to any election under Section 1111 (b)
of Title 11, United States Code, is without recourse to the Company, (6) any
Indebtedness, guarantee or obligation of the Company which is subordinate or
junior to any other Indebtedness, guarantee or obligation of the Company, (7)
Indebtedness evidenced by the Notes and (8) Capital Stock of the Company.
"Subordinated Note Obligations" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, redemption, repurchase or other acquisition thereof, together with
and including any amounts received upon the exercise of rights of rescission or
other rights of action (including claims for damages) or otherwise, to the
extent relating to the purchase price of the Notes or amounts corresponding to
such principal, premium, if any, or interest on the Notes.
The Exchange Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company will have no
Subordinated Indebtedness.
SUBSIDIARY GUARANTEES
The Indenture provides that the Company may, at its option, cause any
Restricted Subsidiary to guarantee the Exchange Notes.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Exchange Notes.
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes will not be redeemable at the
Company's option prior to May 1, 2002. On and after May 1, 2002, the Exchange
Notes will be subject to redemption at the option
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of the Company, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the redemption prices (expressed as a percentage of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the twelve-month
period beginning on May 1 of each of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 105.125%
2003............................................................................. 103.417%
2004............................................................................. 101.708%
2005 and thereafter.............................................................. 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to May 1, 2001,
the Company may, at its option, redeem up to 50% of the aggregate principal
amount of Exchange Notes originally issued under the Indenture on the Issuance
Date at a redemption price equal to 110.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of one or more Equity Offerings; PROVIDED that
at least 50% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture on the Issuance Date remains outstanding immediately
after the occurrence of such redemption; PROVIDED further that such redemption
occurs within 60 days of the date of closing of each such Equity Offering. The
Trustee shall select the Exchange Notes to be purchased in the manner described
under "Repurchase at the Option of Holders--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of the Exchange Notes pursuant
to the offer described below (the "Change of Control Offer") at a price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase. The Indenture provides that within 30 days following any Change of
Control, the Company will mail a notice to each Holder of Exchange Notes issued
under the Indenture, with a copy to the Trustee, with the following statements
and/or information: (1) a Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control," and that all Exchange Notes properly
tendered pursuant to such Change of Control Offer will be accepted for payment;
(2) the purchase price and the purchase date, which will be no earlier than 30
days nor later than 60 days from the date such notice is mailed, except as may
be otherwise required by applicable law (the "Change of Control Payment Date");
(3) any Note not properly tendered will remain outstanding and continue to
accrue interest; (4) unless the Company defaults in the payment of the Change of
Control Payment, all Exchange Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Exchange Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Exchange Notes, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Exchange Notes completed, to the paying agent and at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (6) Holders will be entitled to withdraw
their tendered Exchange Notes and their election to require the Company to
purchase such Exchange Notes, provided that the paying agent receives, not later
than the close of business on the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Exchange Notes
tendered for purchase, and a statement that such Holder is withdrawing his
tendered Exchange Notes and his election to have such Exchange Notes purchased;
and (7) that Holders whose Exchange Notes are being purchased only in part will
be issued new Exchange Notes equal in principal amount to the unpurchased
portion of the Exchange Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
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The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Senior Indebtedness, or offer to repay
in full all outstanding Senior Indebtedness and repay the Senior Indebtedness
with respect to which such offer has been accepted, or obtain the requisite
consents, if any, under all outstanding Senior Indebtedness to permit the
repurchase of the Exchange Notes required by this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all
Exchange Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all Exchange Notes or portions
thereof so tendered and (3) deliver, or cause to be delivered, to the Trustee
for cancellation the Exchange Notes so accepted together with an Officers'
Certificate stating that such Exchange Notes or portions thereof have been
tendered to and purchased by the Company. The Indenture will provide that the
paying agent will promptly mail to each Holder of Exchange Notes the Change of
Control Payment for such Exchange Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any; PROVIDED, that
each such new Note will be in a principal amount of $1,000 or an integral
multiple 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
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable.
The New Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may prohibit, the Company from purchasing any Exchange Notes as a result of a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its lenders
to the purchase of the Exchange Notes 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 will remain prohibited from
purchasing the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Exchange Notes.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
or Equity Interests issued or sold or otherwise disposed of and (y) at least 75%
of the proceeds from such Asset Sale when received consists of either (I) cash
or Cash Equivalents or (II) property or assets that are used or useful in a
Similar Business, or Capital Stock of any Person primarily engaged in a Similar
Business if, as a
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result of the acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary; PROVIDED that the amount of (1) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Exchange Notes or a
Subsidiary Guarantee, if any) that are assumed by the transferee of any such
assets pursuant to an agreement that releases the Company or such Restricted
Subsidiary from further liability, (2) any notes or other obligations received
by the Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash or Cash
Equivalents within 180 days after such Asset Sale (to the extent of the cash or
Cash Equivalents received) and (3) any Designated Noncash Consideration received
by the Company or any of its Restricted Subsidiaries in such Asset Sale having
an aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (3) that is at that time
outstanding, not to exceed 15% of the Company's Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for the purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the New Credit Facility, other Senior
Indebtedness or Guarantor Senior Indebtedness (and, in each case, to
correspondingly reduce commitments with respect thereto) or to permanently
reduce Pari Passu Indebtedness of the Company or any Subsidiary Guarantor
(provided that if the Company or such Subsidiary Guarantor shall so reduce
Obligations under Pari Passu Indebtedness, it will redeem Exchange Notes with an
aggregate principal amount equal to the proportion that the total aggregate
principal amount of Exchange Notes outstanding bears to the sum of the total
aggregate principal amount of Exchange Notes outstanding plus the total
aggregate principal amount outstanding of such Pari Passu Indebtedness, if the
Exchange Notes are then redeemable or, if the Exchange Notes may not be then
redeemed, the Company shall make an offer (in accordance with the procedures set
forth below for an Asset Sale Offer) to purchase at 100% of the principal amount
thereof the amount of the Exchange Notes that would otherwise be redeemed), (ii)
to an investment in property, capital expenditures or assets that are used or
useful in a Similar Business, or Capital Stock of any Person primarily engaged
in a Similar Business if, as a result of such acquisition by the Company or any
Restricted Subsidiary, such Person becomes a Restricted Subsidiary and/or (iii)
to an investment in properties or assets that replace the properties or assets
that are the subject of such Asset Sale. Pending the final application of any
such Net Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The
Indenture will provide that any Net Proceeds from the Asset Sale that are not
invested as provided and within the time period set forth in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15 million, the Company shall make
an offer to all Holders of Exchange Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Exchange Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Company will commence an
Asset Sale Offer with respect to Excess Proceeds within ten Business Days after
the date that Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Exchange Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Exchange Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Exchange Notes to be purchased in
the manner described under the caption "Selection and Notice" below. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
SELECTION AND NOTICE. If less than all of the Exchange Notes are to be
redeemed at any time, or if more Exchange Notes are tendered pursuant to an
Asset Sale Offer than the Company is required to purchase, selection of such
Exchange Notes for redemption or purchase, as the case may be, will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Exchange Notes are listed, or, if
such Exchange Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate (and in such manner
as complies with applicable legal requirements); PROVIDED that no Exchange Notes
of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Exchange Notes to be purchased or redeemed at
such Holder's registered address. If any Note is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such Note shall
state the portion of the principal amount thereof that has been or is to be
purchased or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date, unless the Company defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Exchange Notes
or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
equity securities issued by a Subsidiary other than a Wholly Owned Restricted
Subsidiary, the Company or a Restricted Subsidiary receives at least its PRO
RATA share of such dividend or distribution in accordance with its Equity
Interests in such class or series of equity securities); (ii) purchase, redeem,
defease or otherwise acquire or retire for value any Equity Interests of the
Company; (iii) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value in each case, prior to any scheduled
repayment, or maturity, any Subordinated Indebtedness; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness under the provisions of the first paragraph of "--Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the Issuance Date (including Restricted Payments permitted by clauses (i), (ii)
(with respect to the payment of dividends on Refunding Capital Stock pursuant to
clause (b) thereof), (iv) (only to the extent that amounts paid pursuant to such
clause are greater than amounts that would have been paid pursuant to such
clause if $5 million and $10 million were substituted in such clause for $10
million and $20 million, respectively), (vi) and (ix) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
fiscal quarter that first begins after the Issuance Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, in the case
such Consolidated Net Income for such period is a deficit, minus 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of marketable
securities received by the Company since the Issuance Date from the issue or
sale of Equity Interests of the Company (including Retired Capital Stock (as
defined below)) or debt securities of the Company that have been converted into
such Equity Interests of the Company (other than, in each case, Refunding
Capital Stock (as defined below), Equity Interests or convertible debt
securities of the Company sold to a Restricted Subsidiary, Disqualified Stock,
debt securities that have been converted into Disqualified Stock, Designated
Preferred Stock and Equity Interests of the Company issued to members of
management, directors or consultants of the Company and its Subsidiaries after
the Issuance Date to the extent such amounts have been applied to Restricted
Payments in accordance with clause (iv) of the next succeeding paragraph), plus
(iii) 100% of the aggregate amount of cash and marketable securities contributed
to the capital of the Company following the Issuance Date (excluding Excluded
Contributions), plus (iv) 100% of the aggregate amount received in cash and the
fair market value of marketable securities (other than Restricted Investments)
received since the Issuance Date from (A) the sale or other disposition (other
than to the Company or a Restricted Subsidiary) of Restricted Investments made
by the Company and its Restricted Subsidiaries (other than Restricted
Investments in an Unrestricted Subsidiary the Investment in which was made by
the Company or a Restricted Subsidiary pursuant to clause (vii) below) or (B) a
dividend from, or the sale (other than to the Company or a Restricted
Subsidiary) of the stock of, an Unrestricted Subsidiary (other than an
Unrestricted Subsidiary the Investment in which was made by the Company or a
Restricted Subsidiary pursuant to clause (vii) below).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at the date of declaration such payment would have complied with the
provisions of the Indenture:
(ii) (a) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity
Interests of the Company (other than any Disqualified Stock) (the "Refunding
Capital Stock"), and (b) if immediately prior to the retirement of Retired
Capital Stock, the declaration and payment of dividends thereon was permitted
under clause (vi) of this paragraph, the declaration and payment of dividends on
the Refunding Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement; PROVIDED, HOWEVER,
that at the time of the declaration of any such dividends, no Default or Event
of Default shall have occurred and be continuing or would occur as a consequence
thereof;
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(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness made by exchange for, or out of the proceeds of the
substantially concurrent sale of, new Indebtedness of the Company or the
Restricted Subsidiary that is the obligor with respect to the Subordinated
Indebtedness being redeemed, repurchased or otherwise acquired or retired so
long as (A) the principal amount of such new Indebtedness does not exceed the
principal amount of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired for value (plus the amount of any premium
required to be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to Senior Indebtedness and/or Guarantor Senior
Indebtedness, if any, the Exchange Notes and/or the Subsidiary Guarantees, if
any, at least to the same extent as such Subordinated Indebtedness so purchased,
exchanged, redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(iv) a Restricted Payment to Parent, which Restricted Payment is applied
solely to pay for the repurchase, retirement or other acquisition or retirement
for value of common Equity Interests of Parent held by any future, present or
former employee, director or consultant of the Company or any of the Company's
Subsidiaries pursuant to any management equity plan or stock option plan or any
other management or employee benefit plan or agreement; PROVIDED, HOWEVER, that
the aggregate Restricted Payments made under this clause (iv) does not exceed in
any calendar year $10 million (with unused amounts in any calendar year being
carried over to succeeding calendar years subject to a maximum (without giving
effect to the following proviso) of $20 million in any calendar year); PROVIDED
FURTHER that such amount in any calendar year may be increased by an amount not
to exceed (i) the cash proceeds received by the Company from the sale of Equity
Interests of Parent to members of management, directors or consultants of the
Company and its Restricted Subsidiaries that occurs after the Issuance Date (to
the extent the cash proceeds from the sale of such Equity Interest have not
otherwise been applied to the payment of Restricted Payments by virtue of the
preceding paragraph (c)) plus (ii) the cash proceeds of key man life insurance
policies received by the Company and its Restricted Subsidiaries after the
Issuance Date less (iii) the amount of any Restricted Payments previously made
pursuant to clauses (i) and (ii) of this subparagraph (iv); and PROVIDED FURTHER
that cancellation of Indebtedness owing to the Company from members of
management of Company or any of its Restricted Subsidiaries in connection with a
repurchase of Equity Interests of Parent will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of the
Indenture;
(v) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company issued in accordance with the
covenant entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock";
(vi) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) issued
after the Issuance Date (including, without limitation, the declaration and
payment of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (ii)); PROVIDED, HOWEVER, that
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of issuance of
such Designated Preferred Stock, after giving effect to such issuance on a pro
forma basis, the Company and its Restricted Subsidiaries would have had a Fixed
Charge Coverage Ratio of at least 1.5 to 1.00;
(vii) investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (vii) that are at that time outstanding, not to exceed the greater of (A)
$25 million and (B) 5% of the Company's Total Assets at the time of such
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Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise price
of such options;
(ix) the payment of dividends on the Company's Common Stock, following the
first public offering of the Company's Common Stock after the Issuance Date, of
up to 6% per annum of the net proceeds received by the Company in such public
offering, other than public offerings with respect to the Company's Common Stock
registered on Form S-8 or Form S-4;
(x) (a) Restricted Payments made pursuant to the Concurrent Transactions and
the Refinancings and (b) the dividend to Parent of the Specified Property;
PROVIDED, HOWEVER that immediately prior to a dividend of a Specified Property,
the use of such Specified Property shall be substantially similar to the use of
such Specified Property by the Company and/or the Restricted Subsidiaries on the
Issuance Date;
(xi) Investments in Unrestricted Subsidiaries or Joint Ventures that are
made with Excluded Contributions;
(xii) payments to Parent, whether in the form of dividends, the making of
loans or advances or otherwise, for expenses incurred by Parent in its capacity
as a holding company that are directly attributable to the operations of the
Company and its Restricted Subsidiaries, including, without limitation, (a)
customary salary, bonus and other benefits payable to officers and employees of
Parent, (b) fees and expenses paid to members of the Board of Directors of
Parent, (c) general corporate overhead expenses of Parent, (d) foreign, federal,
state or local tax liabilities paid by Parent and (e) management, consulting or
advisory fees paid by Parent to KKR; PROVIDED, HOWEVER, that federal and
California state income tax liabilities shall only be reimbursed pursuant to the
Tax Sharing Agreement or on substantially the same terms as set forth in the Tax
Sharing Agreement;
(xiii) a Corporate Sale Transaction on only one occasion; PROVIDED that
immediately after giving effect to such transaction, the Company's ratio of
Total Net Debt to Pro Forma Consolidated Cash Flow for the four quarters
immediately preceding such transaction is equal to or less than immediately
prior to such transaction;
(xiv) a dividend of the KSL Land Note to Parent; and
(xv) other Restricted Payments in an aggregate amount not to exceed the
greater of (A) $25 million and (B) 5% of the Company's Total Assets at the time
of such Restricted Payment;
PROVIDED, HOWEVER, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix), (x)(b), (xi), (xii), (xiii) and (xv), no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; and PROVIDED FURTHER that for purposes of determining the aggregate
amount expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses (i),
(ii) (with respect to the payment of dividends on Refunding Capital Stock
pursuant to clause (b) thereof), (iv) (only to the extent that amounts paid
pursuant to such clause are greater than amounts that would have been paid
pursuant to such clause if $5 million and $10 million were substituted in such
clause for $10 million and $20 million, respectively), (vi) and (ix) shall be
included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary
to become a Restricted Subsidiary except pursuant to the last sentence of the
definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid in
cash) in the Subsidiary so designated will be deemed to be Restricted Payments
in an amount determined as set forth in the last sentence of the definition of
"Investments." Such designation will only be permitted if a Restricted Payment
in such amount and of such
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nature would be permitted pursuant to the first or second paragraph of this
covenant at such time and if such Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK. The Indenture provides that (i) the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness), (ii) the Company and the Subsidiary Guarantors, if any,
will not issue any Disqualified Stock and (iii) the Company will not permit any
of its Restricted Subsidiaries that are not Subsidiary Guarantors, if any, to
issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company and the
Subsidiary Guarantors, if any, may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if the ratio of Total Net
Debt to Pro Forma Consolidated Cash Flow for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been no greater than 6.75 to 1
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom).
The foregoing limitations will not apply to:
(a) the incurrence by the Company and the Subsidiary Guarantors, if any,
of Indebtedness under the New Credit Facility and the issuance and creation
of letters of credit and banker's acceptances thereunder (with letters of
credit and banker's acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$300 million outstanding at any one time;
(b) the incurrence by the Company of Indebtedness represented by the
Exchange Notes;
(c) Existing Indebtedness (other than Indebtedness described in clauses
(a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) (together with any Refinancing
Indebtedness with respect thereto), does not exceed 15% of the Company's
Total Assets;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash
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proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Exchange Notes; PROVIDED FURTHER
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or another Restricted Subsidiary) shall be deemed, in
each case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Subsidiary Guarantor incurs
such Indebtedness to a Restricted Subsidiary that is not a Subsidiary
Guarantor, such Indebtedness is subordinated in right of payment to the
Subsidiary Guarantee of such Subsidiary Guarantor; PROVIDED FURTHER that any
subsequent issuance or transfer of any Capital Stock of any Restricted
Subsidiary to whom such Indebtedness is owed or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or another Restricted Subsidiary) shall be deemed, in each case
to be an incurrence of such Indebtedness;
(i) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture
to be outstanding or (2) for the purpose of fixing or hedging currency
exchange rate risk with respect to any currency exchanges; PROVIDED that
such agreements do not increase the Indebtedness of the obligor outstanding
at any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder
(j) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(k) Indebtedness of a Subsidiary Guarantor, if any, in respect of such
Subsidiary Guarantor's Subsidiary Guarantee;
(l) Indebtedness of the Company and any of its Restricted Subsidiaries
not otherwise permitted hereunder in an aggregate principal amount, which
when aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (l), does not exceed the
greater of (x) $75 million and (y) 10% of the Total Assets of the Company at
the time of such incurrence; PROVIDED however, that (I) Indebtedness of
Foreign Subsidiaries which, when aggregated with the principal amount of all
other Indebtedness of Foreign Subsidiaries then outstanding and incurred
pursuant to this clause (l), does not exceed the greater of (x) $37.5
million (or the equivalent thereof in any other currency) and (y) 5% of the
Total Assets of the Company at the time of such incurrence, PROVIDED,
FURTHER, that, with respect to any such Foreign Subsidiary, the aggregate
amount of such Indebtedness, together with all other Indebtedness of such
Foreign Subsidiary incurred pursuant to this clause (l), does not exceed 15%
of the Total Assets of such Foreign Subsidiary at the time of such
incurrence by such Foreign Subsidiary and (II) Indebtedness of Restricted
Subsidiaries that are not Foreign Subsidiaries which, when aggregated with
the principal amount of all other indebtedness of Restricted Subsidiaries
that are not Foreign Subsidiaries then outstanding and incurred pursuant to
this clause (l), does not exceed the greater of (x) $37.5 million and (y) 5%
of the Total Assets of the Company at the time of such incurrence; PROVIDED
FURTHER that with respect to any such Restricted Subsidiary that is not a
Foreign Subsidiary, the aggregate amount of such Indebtedness, together with
all other Indebtedness of such Restricted Subsidiary incurred pursuant to
this
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clause (l) does not exceed 15% of the Total Assets of such Restricted
Subsidiary at the time of such incurrence.
(m) any guarantee by the Company of Indebtedness or other obligations of
any of its Restricted Subsidiaries so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture and any Excluded Guarantee (as defined below under
"--Limitation on Guarantees of Indebtedness by Restricted Subsidiaries") of
a Restricted Subsidiary;
(n) the incurrence by the Company or any of its Restricted Subsidiaries
of indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or PARI PASSU
to the Exchange Notes or any Subsidiary Guarantee, such Refinancing
Indebtedness is subordinated or PARI PASSU to the Exchange Notes and/or the
Subsidiary Guarantees at least to the same extent as the Indebtedness being
refinanced or refunded and (iii) shall not include (x) Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor that refinances
Indebtedness of the Company or a Subsidiary Guarantor or (y) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii)
of this clause (n) will not apply to any refunding or refinancing of any
Senior Indebtedness or Guarantor Senior Indebtedness;
(o) Indebtedness or preferred stock of Persons that are acquired by the
Company or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of the Indenture; PROVIDED that such
Indebtedness or preferred stock is not incurred in contemplation of such
acquisition or merger; and PROVIDED FURTHER that after giving effect to such
acquisition, either (i) the Company would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Total Net Debt to Pro Forma
Consolidated Cash Flow test set forth in the first sentence of this covenant
or (ii) the Company's ratio of Total Net Debt to Pro Forma Consolidated Cash
Flow is no greater than immediately prior to such acquisition.
LIENS. The Indenture provides that the Company will not directly or
indirectly create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness on
any asset or property of the Company or its Restricted Subsidiary, or any income
or profits therefrom, or assign or convey any right to receive income therefrom,
unless the Exchange Notes are equally and ratably secured with the Pari Passu
Indebtedness or Subordinated Indebtedness so secured or until such time as such
Pari Passu Indebtedness or Subordinated Indebtedness is no longer secured by a
Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of
such Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor
or its Restricted Subsidiaries or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Subsidiary Guarantee of
such Subsidiary Guarantor is equally and ratably secured with the Pari Passu
Indebtedness or Subordinated Indebtedness so secured or until such time as such
Pari Passu Indebtedness or Subordinated Indebtedness is no longer secured by a
Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
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of its properties or assets in one or more related transactions to, any Person
unless: (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (the Company or such Person, as the case may be, being herein called the
"Successor Company"); (ii) the Successor Company (if other than the Company)
expressly assumes all the obligations of the Company under the Indenture and the
Exchange Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) immediately
after giving pro forma effect to such transaction, as if such transaction had
occurred at the beginning of the applicable four-quarter period, (A) the
Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Total Net Debt to Pro Forma Consolidated Cash Flow
test set forth in the first sentence of the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock" or
(B) the ratio of Total Net Debt to Pro Forma Consolidated Cash Flow for the
Successor Company and its Restricted Subsidiaries would be no greater than such
ratio for the Company and its Restricted Subsidiaries immediately prior to such
transaction; (v) each Subsidiary Guarantor, if any, unless it is the other party
to the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to such Person's obligations
under the Indenture and the Exchange Notes; and (vi) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. The Successor Company will succeed
to, and be substituted for, the Company under the Indenture and the Exchange
Notes. Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction") involving
aggregate consideration in excess of $5 million, unless:
(a) such Affiliate Transaction is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person; and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $10 million, a
resolution adopted by a majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to KKR and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from an
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Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (a) of the preceding paragraph; (vii) payments or
loans to employees or consultants which are approved by a majority of the Board
of Directors of the Company in good faith; (viii) any agreement as in effect as
of the Issuance Date or any amendment thereto (so long as any such amendment is
not disadvantageous to the holders of the Exchange Notes in any material
respect) or any transaction contemplated thereby; (ix) the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the Issuance Date and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Issuance Date shall only be permitted by this clause (ix)
to the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the holders of the Exchange Notes in any material
respect; (x) the payment of all fees and expenses related to the Refinancings as
disclosed in this Prospectus; and (xi) transactions with customers, clients,
suppliers, or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of the
Indenture which are fair to the Company or its Restricted Subsidiaries, in the
reasonable determination of a majority of the members of the Board of Directors
of the Company or the senior management thereof, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
become effective any consensual encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date, including pursuant to the New Credit Facility and its related
documentation;
(2) the Indenture and the Exchange Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person,
so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
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(7) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Liens" that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(9) other Indebtedness of Foreign Subsidiaries permitted to be incurred
subsequent to the Issuance Date pursuant to the provisions of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock";
(10) customary provisions in joint venture agreements at the time of
creation of such joint venture and other similar agreements entered into in
the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business; and
(12) any encumbrances or restrictions of the type referred to in clauses
(a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (11) above, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt") unless (i) if such Restricted Subsidiary is not a Subsidiary Guarantor,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Exchange Notes by such Restricted Subsidiary, (ii) if the Exchange Notes or
the Subsidiary Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary Guarantee under the
supplemental indenture shall be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the Exchange Notes or the Subsidiary Guarantee are subordinated to the
Guaranteed Debt under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the Exchange Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, any such guarantee
of such Restricted Subsidiary with respect to the Guaranteed Debt shall be
subordinated in right of payment to such Restricted Subsidiary's Subsidiary
Guarantee with respect to the Exchange Notes substantially to the same extent as
the Guaranteed Debt is subordinated to the Exchange Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary, (iv) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; and (v) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that (A) such Subsidiary Guarantee of the
Exchange Notes has been duly executed and authorized and (B) such Subsidiary
Guarantee of the Exchange Notes constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
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contemplation of, such Person becoming a Restricted Subsidiary of the Company
and (y) that guarantees the payment of Obligations of the Company or any
Restricted Subsidiary under the New Credit Facility or any other bank facility
which is designated as Senior Indebtedness and any refunding, refinancing or
replacement thereof, in whole or in part, provided that such refunding,
refinancing or replacement thereof constitutes Senior Indebtedness and is not
incurred pursuant to a registered offering of securities under the Securities
Act or a private placement of securities (including under Rule 144A) pursuant to
an exemption from the registration requirements of the Securities Act, which
private placement provides for registration rights under the Securities Act (any
guarantee excluded by operations of this clause (y) being an "Excluded
Guarantee").
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Subsidiary Guarantee by a Restricted Subsidiary of the Exchange Notes shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) in the case of
a guarantee incurred pursuant to clause (a) of this covenant, the release or
discharge of the guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that the Company will not, and will not permit any Subsidiary Guarantor
to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of the
Company or any Indebtedness of any Subsidiary Guarantor, as the case may be,
unless such Indebtedness is either (a) PARI PASSU in right of payment with the
Exchange Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the case
may be or (b) subordinate in right of payment to the Exchange Notes, or such
Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, in the same
manner and at least to the same extent as the Exchange Notes are subordinate to
Senior Indebtedness or such Subsidiary Guarantor's Subsidiary Guarantee is
subordinate to such Subsidiary Guarantor's Guarantor Senior Indebtedness, as the
case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"), the Indenture will
require the Company to file with the Commission (and provide the Trustee and
Holders with copies thereof, without cost to each Holder, within 15 days after
it files them with the Commission), (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form); (b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any
successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Company would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective purchasers
of Exchange Notes, in addition to providing such information to the Trustee and
the Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act. In addition, the Company and the
Subsidiary Guarantors have agreed that, for so long as any of the Exchange Notes
remain outstanding, they will furnish to holders and prospective purchasers of
the Exchange Notes the information required by Rule 144A(d)(4) under the
Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the
Exchange Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Exchange Notes or any Subsidiary
Guarantee;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Exchange Notes whether or not such payment shall be
prohibited by the subordination provisions relating to the Exchange Notes or
any Subsidiary Guarantee;
(iii) failure by the Company or a Subsidiary Guarantor, if any, for 30
days after receipt of written notice given by the Trustee or the holders of
at least 30% in principal amount of the Exchange Notes then outstanding to
comply with any of its other agreements in the Indenture, the Exchange Notes
or the Subsidiary Guarantees, if any;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $15 million or more at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $15 million, which final judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days
after such judgment becomes final, and in the event such judgment is covered
by insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) any Subsidiary Guarantee shall for any reason cease to be in full
force and effect or be declared null and void or any responsible officer of
the Company or Subsidiary Guarantor denies that it has any further liability
under any such Subsidiary Guarantee or gives notice to such effect (other
than by reason of the termination of the Indenture or the release of any
such Subsidiary Guarantee in accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Exchange Notes may
declare the principal, premium, if any, interest and any other monetary
obligations on all the then outstanding Exchange Notes to be due and payable
immediately; PROVIDED, HOWEVER, that, so long as any Indebtedness permitted to
be incurred pursuant to the New Credit Facility shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the New Credit Facility or (ii) five business days after
the giving of written notice to the Company and the representative under the New
Credit Facility of such acceleration. Upon the
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effectiveness of such declaration, such principal, premium, interest and other
monetary obligations will be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising under clause (vi) of the
first paragraph of this section, all outstanding Exchange Notes will become due
and payable without further action or notice. Holders of Exchange Notes may not
enforce the Indenture or the Exchange Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Exchange Notes may direct the Trustee in its exercise of any
trust or power. The Indenture provides that the Trustee may withhold from
Holders of Exchange Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, if any, or interest) if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to accelerate
the Exchange Notes if in the best judgment of the Trustee acceleration is not in
the best interest of the Holders of such Exchange Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Exchange Notes issued thereunder by notice to the
Trustee may on behalf of the Holders of all of such Exchange Notes waive any
existing Default or Event of Default and its consequences under the Indenture,
except a continuing Default or Event of Default in the payment of interest on,
premium, if any, or the principal of, any such Note held by a non-consenting
Holder.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or a Subsidiary Guarantor, if any, shall have any liability for any obligations
of the Company or the Subsidiary Guarantors, if any, under the Exchange Notes,
the Subsidiary Guarantees, if any, or the Indenture or for any claim based on,
in respect of, or by reason of such obligations or their creation. Each Holder
of the Exchange Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Subsidiary Guarantors, if any, under
the Indenture, the Exchange Notes and the Subsidiary Guarantees, if any, will
terminate (other than certain obligations) and will be released upon payment in
full of all of the Exchange Notes. The Company may, at its option and at any
time, elect to have all of its obligations discharged with respect to the
outstanding Exchange Notes and have each Subsidiary Guarantor's, if any,
obligation discharged with respect to its Subsidiary Guarantee ("Legal
Defeasance") and cure all then existing Events of Default except for (i) the
rights of Holders of outstanding Exchange Notes to receive payments in respect
of the principal of, premium, if any, and interest on such Exchange Notes when
such payments are due solely out of the trust created pursuant to the Indenture,
(ii) the Company's obligations with respect to Exchange Notes concerning issuing
temporary Exchange Notes, registration of such Exchange Notes, mutilated,
destroyed, lost or stolen Exchange Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, 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 each Subsidiary Guarantor, if
any, released with respect to certain covenants that are 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 Exchange Notes. In the event Covenant Defeasance
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occurs, certain events (not including non-payment on other indebtedness,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Exchange Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Exchange Notes, cash in U.S. dollars,
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 due on the outstanding Exchange Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, or interest on the outstanding Exchange
Notes, and the Company must specify whether the Exchange Notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding
Exchange Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject
to U.S. 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 an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Exchange Notes
will not recognize income, gain or loss for U.S. federal income tax purposes
as a result of such Covenant Defeasance and will be subject to such 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 (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
shall have occurred and be continuing on the date of such deposit or,
insofar as Events of Default from bankruptcy or insolvency events, 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, any material
agreement or instrument (other than the Indenture) to which the Company or a
Subsidiary Guarantor, if any, is a party or by which the Company or a
Subsidiary Guarantor, if any, is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit (which
assumptions and exclusions shall not relate to the operation of Section 547
of the United States Bankruptcy Code or any analogous New York State law
provision), the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally under any applicable U.S. federal or state law,
and that the Trustee has a perfected security interest in such trust funds
for the ratable benefit of the Holders;
(vii) 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 defeating, hindering, delaying or defrauding any creditors of the
Company or a Subsidiary Guarantor, if any, or others; and
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(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Exchange Notes issued thereunder, when either (a) all such Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or (b) (i) all
such Exchange Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or a
Subsidiary Guarantor, if any, has irrevocably deposited or caused to be
deposited with such Trustee as trust funds in trust an amount of money
sufficient to pay and discharge the entire Indebtedness on such Exchange Notes
not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption;
(ii) no Default or Event of Default with respect to the Indenture or the
Exchange Notes shall have occurred and be continuing on the date of such deposit
or shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other instrument to
which the Company or a Subsidiary Guarantor, if any, is a party or by which the
Company or a Subsidiary Guarantor, if any, is bound; (iii) the Company or a
Subsidiary Guarantor, if any, has paid or caused to be paid all sums payable by
it under such Indenture; and (iv) the Company has delivered irrevocable
instructions to the Trustee under such Indenture to apply the deposited money
toward the payment of such Exchange Notes at maturity or the redemption date, as
the case may be. In addition, the Company must deliver an Officers' Certificate
and an opinion of counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Exchange Notes and a Subsidiary Guarantee, if any, issued thereunder may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Exchange Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Exchange
Notes), and any existing default or compliance with any provision of the
Indenture or the Exchange Notes may be waived with the consent of the Holders of
a majority in principal amount of the outstanding Exchange Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Exchange Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Exchange Notes held by a
nonconsenting Holder of the Exchange Notes): (i) reduce the principal amount of
the Exchange Notes whose Holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity of any such
Note or alter or waive the provisions with respect to the redemption of the
Exchange Notes (other than provisions relating to the covenants described under
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of, premium, if any, or interest on the
Exchange Notes (except a rescission of acceleration of the Exchange Notes by the
Holders of at least a majority in aggregate principal amount of such Exchange
Notes and a waiver of the payment default that resulted from such acceleration),
or in respect of a covenant or provision contained in the Indenture or any
Subsidiary Guarantee which cannot be amended or modified without the consent of
all Holders, (v) make any Note payable in money other than that stated in such
Exchange Notes, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders of such Exchange Notes to
receive payments of
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principal of, premium, if any, or interest on such Exchange Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders"), (viii) make any change in the foregoing amendment and
waiver provisions, (ix) impair the right of any Holder of the Exchange Notes to
receive payment of principal of, or interest on such Holder's Exchange Notes on
or after the due dates therefore or to institute suit for the enforcement of any
payment on or with respect to such Holder's Exchange Notes, (x) except as
provided under "Legal Defeasance and Covenant Defeasance" or in accordance with
the terms of any Subsidiary Guarantee, release a Subsidiary Guarantor, if any,
from its obligations under its Subsidiary Guarantee, if any, or make any change
in a Subsidiary Guarantee, if any, that would adversely affect the Holders or
(xi) make any change in the subordination provisions of the Indenture that would
adversely affect the holders of the Exchange Notes.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Exchange Notes, the Company, a Subsidiary Guarantor, if
any (with respect to a Subsidiary Guarantee, if any, or the Indenture to which
it is party), and the Trustee together may amend or supplement the Indenture,
any Subsidiary Guarantee or the Exchange Notes (i) to cure any ambiguity, defect
or inconsistency, (ii) to provide for uncertificated Exchange Notes in addition
to or in place of certificated Exchange Notes, (iii) to comply with the covenant
relating to mergers, consolidations and sales of assets, (iv) to provide for the
assumption of the Company's or any Subsidiary Guarantor's obligations to Holders
of such Exchange Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Exchange Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, (vi)
to add covenants for the benefit of the Holders or to surrender any right or
power conferred upon the Company, (vii) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or (viii) to add a Subsidiary Guarantor under the
Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Exchange Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
will provide that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such
Exchange Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Exchange Notes and the Subsidiary Guarantees, if any,
will be, subject to certain exceptions, governed by and construed in accordance
with the internal laws of the State of New York, without regard to the choice of
law rules thereof.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Adjusted Net Membership Deposits" for any period means, with respect to any
specified Person, the amount of refundable membership deposits paid in such
period to such specified Person or any Restricted Subsidiary of such specified
Person, by new and upgraded private club members and by existing club members
who have converted to new membership plans, in each case in cash, plus principal
payments in cash received by such specified Person or any Restricted Subsidiary
of such Person in such period on notes in respect thereof, minus the amount of
any refunds paid to such specified Person or any Restricted Subsidiary of such
specified Person, in cash in such period in respect of such deposits; PROVIDED,
HOWEVER, that all amounts paid to such specified Person or any Restricted
Subsidiary of such specified Person, in such period by existing private club
members in connection with the conversion of such members to new membership
plans within six months after the introduction of such plans shall be excluded.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents, Investment Grade Securities or
obsolete equipment in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All
Assets" or any disposition that constitutes a Change of Control pursuant
to the Indenture;
(c) any Restricted Payment that is permitted to be made, and is made,
under the covenant described above under "Limitation on Restricted
Payments";
(d) any disposition of assets with an aggregate fair market value of
less than $1 million;
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(e) any disposition of property or assets by a Restricted Subsidiary
to the Company or by the Company or a Restricted Subsidiary to a
Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) any sale leaseback of an asset within 180 days after the
completion of construction or acquisition of such asset;
(h) foreclosures on assets; and
(i) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole; or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of more of the total voting
power of the Voting Stock of the Company than the Permitted Holders and
their Related Parties beneficially own at the time the Company so becomes
aware of such acquisition if, at such time, the Permitted Holders and their
Related Parties do not have the right or the ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (a) provision for taxes based on income or profits of such Person
for such period deducted in computing Consolidated Net Income or, if different,
paid or accrued pursuant to, or on terms substantially similar to those
contained in, the Tax Sharing Agreement, plus (b) Consolidated Interest Expense
of such Person for such period, plus (c) Consolidated Depreciation and
Amortization Expense of such Person for such period, plus (d) Adjusted Net
Membership Deposits (as recorded on the Company's consolidated statement of cash
flows for the applicable period), plus (e) any expenses or charges related to
any Equity Offering or Indebtedness permitted to be incurred by the Indenture
(including such expenses or charges related to the Refinancings) and deducted in
computing Consolidated Net Income, plus (f) the amount of any restructuring
charge deducted in such period in computing Consolidated Net Income, plus (g)
without duplication, any other non-cash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of a cash
reserve for anticipated cash charges for any future period and amortization of a
prepaid cash expense that was paid in a prior period), less, without duplication
(h) non-cash items increasing Consolidated Net Income of such Person for such
period (excluding any items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period).
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, to the extent deducted in computing Consolidated Net
Income, the total amount of depreciation and amortization expense (including the
amortization of deferred financing fees) and other noncash charges (excluding
any noncash item that represents an accrual, reserve or amortization of a cash
expenditure that was paid in a prior period of such Person and its Restricted
Subsidiaries for such period on a consolidated basis and otherwise determined in
accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of: (a) to the extent deducted in computing Consolidated Net
Income, consolidated interest expense of such Person and its Restricted
Subsidiaries for such period (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations and net payments (if any) pursuant to Hedging Obligations, but
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax gains or
losses (less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business (as determined in
good faith by the Board of Directors of the Company) shall be excluded, (iv) the
Net Income of the referent Person attributable to any Person that is not a
Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the
equity method of accounting, shall be included only to the extent of the amount
of dividends or distributions or other payments paid in cash (or to the extent
converted into cash) to the referent Person or a Wholly Owned Restricted
Subsidiary thereof in respect of such period, (v) the Net Income of any Person
acquired in a pooling of interests transaction shall not be included for any
period prior to the date of such acquisition and (vi) the Net Income for such
period of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of its Net Income to the referent Person or a Restricted Subsidiary
thereof is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been legally
waived.
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"Contingent Obligations" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"Corporate Sale Transaction" means any Restricted Payment consisting of the
dividend of Equity Interests of any Subsidiary and/or the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "Restricted Payments" covenant.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Notes; PROVIDED, HOWEVER, that if such Capital Stock is
issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred stock
by the Company (excluding Disqualified Stock) that is registered pursuant to the
Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, and (ii) any private issuance of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
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"Excluded Contribution" means the net cash proceeds received by the Company
after the Issuance Date from (a) contributions to its common equity capital and
(b) the sale (other than to a Subsidiary or to any Company or Subsidiary
management equity plan or stock option plan or any other management or employee
benefit plan or agreement) of Capital Stock of the Company (other than
Disqualified Stock), in each case, designated as Excluded Contributions pursuant
to an Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company on the date such capital
contributions are made or the date such Capital Stock is sold, as the case may
be, the cash proceeds of which are excluded from the calculation set forth in
paragraph (c) of the "Limitation on Restricted Payments" covenant.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Old Notes as described
in this Prospectus.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of Consolidated Cash Flow of such Person for such period to
the Fixed Charges of such Person for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of Indebtedness arising under revolving
credit borrowings, in which case Consolidated Interest Expense shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period) or issues or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the Calculation Date shall be calculated on a pro forma basis assuming that all
such Investments, acquisitions, dispositions, discontinued operations, mergers
and consolidations (and the reduction of any associated fixed charge obligations
and the change in Consolidated Cash Flow resulting therefrom) had occurred on
the first day of the four-quarter reference period. If since the beginning of
such period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Investment, acquisition, disposition,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition had such Person been a Restricted
Subsidiary at the time of such Investment, acquisition, disposition, merger,
consolidation or discontinued operation, then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of the applicable four quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon
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the rate actually chosen, or, if none, then based upon such optional rate chosen
as the Company may designate.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person or its Restricted Subsidiaries.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of Columbia
or any territory thereof.
"GAAP" means 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 have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, (i) the Obligations of such Subsidiary Guarantor under the New Credit
Facility and (ii) any other Indebtedness of such Subsidiary Guarantor permitted
to be incurred by the under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor, including, with respect to (i) and (ii), interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Indebtedness will not include (1)
any liability for federal, state, local or other taxes owed or owing by any
Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor to the
Company, (3) any accounts payable or trade liabilities arising in the ordinary
course of business (including instruments evidencing such liabilities) other
than obligations in respect of bankers' acceptances and letters of credit under
the New Credit Facility, (4) any Indebtedness that is incurred in violation of
the Indenture, (5) Indebtedness which, when incurred and without respect to any
election under Section 1111 (b) of Title 11, United States Code, is without
recourse to a Subsidiary Guarantor, (6) any Indebtedness, guarantee or
obligation of any Subsidiary Guarantor which is subordinate or junior to any
other Indebtedness, guarantee or obligation of such Subsidiary Guarantor, (7)
Indebtedness evidenced by any Subsidiary Guarantee and (8) Capital Stock of any
Subsidiary Guarantor.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of the Exchange Notes.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person) and (d) the liquidation preference of
all outstanding Disqualified Stock of such Person; PROVIDED, HOWEVER, that
Contingent Obligations incurred in the ordinary course of business shall be
deemed not to constitute Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "--Certain Covenants--Restricted Payments," (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
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net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issuance Date" means the closing date for the sale and original issuance of
the Old Notes under the Indenture.
"Joint Venture" means a corporation, partnership or other entity engaged in
a Similar Business as to which the Company (directly or through one or more
Restricted Subsidiaries) owns an Equity Interest.
"KSL Land Note" means the note payable to the Company by KSL Land evidencing
the approximately $20.8 million loan to KSL Land pursuant to the Refinancings.
"KSL Recreation" means KSL Recreation Corporation, a Delaware corporation,
the corporate parent of the Company, and any successor thereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"Management Group" means the group consisting of the Officers of the
Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the consolidated net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including any
cash proceeds received upon the sale or other disposition of Designated Non-Cash
Proceeds), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and brokerage
and sales commissions), and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of principal, premium (if any)
and interest on Indebtedness required (other than required by clause (i) of the
second paragraph of "--Repurchase at the Option of Holders--Asset Sales") to be
paid as a result of such transaction and any deduction of appropriate amounts to
be provided by the Company as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company after such sale or other disposition thereof, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"New Credit Facility" means that certain credit facility described in this
Prospectus among the Company and the lenders from time to time party thereto,
including any collateral documents, instruments and agreements executed in
connection therewith, and the term New Credit Facility shall also include any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof and any credit facilities that replace, refund or refinance
any part of the loans, other credit facilities or commitments thereunder,
including any such replacement, refunding or refinancing facility that increases
the amount borrowable thereunder or alters the maturity thereof, PROVIDED,
HOWEVER, that there shall not be more than one facility at any one time that
constitutes the New Credit Facility and, if at any time there is more than one
facility which would constitute the New Credit Facility, the Company will
designate to the Trustee which one of such facilities will be the New Credit
Facility for purposes of the Indenture.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Officer" means the Chairman of the Board, the President and any Executive
Vice President of the Company.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
which ranks pari passu in right of payment to the Notes and (b) with respect to
any Subsidiary Guarantee, Indebtedness which ranks pari passu in right of
payment to such Subsidiary Guarantee.
"Permitted Holders" means KKR and any of its Affiliates and the Management
Group.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is engaged in a Similar Business if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
or (ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; (d) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to the provisions of "--Repurchase at the Option of
Holders--Asset Sales" or any other disposition of assets not constituting an
Asset Sale; (e) any Investment existing on the Issuance Date; (f) advances to
employees not in excess of $10 million outstanding at any one time; (g) any
Investment acquired by the Company or any of its Restricted Subsidiaries (i) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (ii) the transfer of title with
respect to any secured investment in default as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to such secured
Investment; (h) Hedging Obligations permitted under the "Limitation of
Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (i) loans
and advances to officers, directors and employees for business-related travel
expenses, moving expenses and other similar expenses, in each case, incurred in
the ordinary course of business; (j) any Investment in a Similar Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (j) that are at the time outstanding, not to exceed the greater of (x)
$50 million and (y) 10% of Total Assets at the time of such Investment (with the
fair market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (k) additional Investments having
an aggregate fair market value, taken together with all other Investments made
pursuant to this clause (k) that at the time outstanding, not to exceed the
greater of (x) $50 million and (y) 10% Total Assets at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value); (l)
Investments the payment for which consists of Equity Interests of the Company
(exclusive of Disqualified Stock); PROVIDED, HOWEVER, that such Equity Interests
will not increase the amount available for Restricted Payments under clause (c)
of the "Restricted Payments" covenant; (m) any guarantees permitted to be made
pursuant to the covenant entitled "Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock"; and (n) any transaction to the extent it
constitutes an investment that is permitted by and made in accordance with the
provisions of the second paragraph of the covenant described under "--Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii) and (vi) of such paragraph).
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity. "preferred
stock" means any Equity Interest with preferential right of payment of dividends
or upon liquidation, dissolution, or winding up.
"Pro Forma Consolidated Cash Flow" means with respect to any Person for any
period the Consolidated Cash Flow of such Person for such period; PROVIDED,
HOWEVER, (i) for purposes of making the computation referred to above,
Investments, acquisitions (including transactions accounted for as
acquisitions), dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by the Company or
any of its Restricted Subsidiaries during the four-quarter reference period or
subsequent to such reference period and on or prior to or simultaneously with
the date of calculation shall be calculated on a pro forma basis assuming that
all such Investments, acquisitions, dispositions, discontinued operations,
mergers and consolidations (and the reduction of any associated fixed charge
obligations and the change in Consolidated Cash Flow resulting therefrom) had
occurred on the first day of the four-quarter reference period, and (ii) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, discontinued operation, merger or consolidation that
would have required adjustment pursuant to this definition had such Person been
a Restricted Subsidiary at the time of such investment, acquisition,
disposition, discontinued operation, merger or consolidation, then Pro Forma
Consolidated Cash Flow shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, discontinued
operation, merger or consolidation had occurred at the beginning of the
applicable four quarter period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of the
Company.
"Related Parties" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or any
portion of a Holder's Notes pursuant to the provisions described under the
covenants entitled "--Repurchase at the Option of Holders--Change of Control" or
"--Repurchase at the Option of Holders--Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issuance
Date.
"Similar Business" means any business the majority of whose revenues are
derived from the leasing, ownership and/or operation of recreation, leisure
and/or hospitality facilities, including without limitation, golf courses,
resort facilities, spas and hotels, or any business or activity that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"Specified Property" means the items set forth on Annex A to the Indenture.
"Subordinated Indebtedness" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Subsidiary
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Guarantee, any Indebtedness of the applicable Subsidiary Guarantor which is by
its terms subordinated in right of payment to such Subsidiary Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"Subsidiary Guarantee" means any guarantee of the obligations of the Company
under the Indenture and the Exchange Notes by any Person in accordance with the
provisions of the Indenture.
"Subsidiary Guarantor" means any Person that incurs a Subsidiary Guarantee;
PROVIDED that upon the release and discharge of such Person from its Subsidiary
Guarantee in accordance with the Indenture, such Person shall cease to be a
Subsidiary Guarantor.
"Tax Sharing Agreement" means that certain tax sharing agreement between and
among the Issuer, Parent and each of the entities described on Schedule A
thereto, dated as of the Issue Date.
"Total Assets" means (i) with respect to the Company, the total consolidated
assets of the Company and its Restricted Subsidiaries, as shown on the most
recent balance sheet of the Company or (ii) with respect to any Foreign
Subsidiary, or any Restricted Subsidiary that is not a Foreign Subsidiary, the
total consolidated assets of such Foreign Subsidiary or Restricted Subsidiary,
as the case may be, and its Restricted Subsidiaries, as shown on the most recent
balance sheet of such Foreign Subsidiary or Restricted Subsidiary, as
applicable; PROVIDED, HOWEVER, that, in the case of clauses (i) and (ii), Total
Assets shall not include the Specified Property.
"Total Net Debt" means at any date of determination, an amount equal to (i)
the aggregate amount of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding as of the date of determination less (ii) the aggregate
of all unrestricted cash and Cash Equivalents of the Company and its Restricted
Subsidiaries as of such date.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
PROVIDED that (a) any Unrestricted Subsidiary must be an entity of which a
majority of the voting power of the outstanding Voting Stock is beneficially
owned, directly or indirectly, by the Company, (b) the Company certifies that
such designation complies with the covenants described under "--Certain
Covenants-- Restricted Payments" and (c) each of (I) the Subsidiary to be so
designated and (II) its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness (x) pursuant to
which the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries or (y) with respect to which a default (including any
rights that the holders thereof may have to take enforcement action against such
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any
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Indebtedness of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants--Restricted Payments." The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"--Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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EXCHANGE OFFER; REGISTRATION RIGHTS
EXCHANGE OFFER. The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Issuance Date, pursuant to which the
Company agreed, for the benefit of the holders of the Old Notes, that it will,
at its own expense, (i) file the Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer to exchange the Notes for Exchange
Notes having substantially identical terms in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions or interest rate increases as described herein) as soon as
reasonably practicable after the Issuance Date, (ii) use its best efforts to
cause the Exchange Offer Registration Statement to be declared effective by the
Commission under the Securities Act within 150 calendar days after the Issuance
Date and (iii) use its best efforts to consummate the Exchange Offer within 180
calendar days after the Issuance Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to the holders
of the Old Notes. For each Old Note surrendered to the Company pursuant to the
Exchange Offer, the holder who surrendered such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Old Note surrendered in exchange therefor
or, if no interest has been paid on such Old Note, from the original issue date
of such Old Note. Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes
would generally be freely transferable after the Exchange Offer without further
registration under the Securities Act (subject to certain representations
required to be made by each holder of Old Notes, as set forth below). However,
any purchaser of Old Notes who is an "affiliate" of the Company or who intends
to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretations of the staff
of the Commission, (ii) will not be able to tender its Old Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes unless such sale or transfer is made pursuant to an exemption from
such requirements. In addition, in connection with any resales of Exchange
Notes, any broker-dealer (a "Participating Broker-Dealer") which acquired the
Old Notes for its own account as a result of market making or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Old Notes) with the prospectus contained in the Exchange Offer Registration
Statement. The Company has agreed to make available for a period ending on the
earlier to occur of (i) the date when all Exchange Notes held by Participating
Broker Dealers have been sold and (ii) 180 days after consummation of the
Exchange Offer a prospectus meeting the requirements of the Securities Act to
any Participating Broker-Dealer and any other persons, if any, with similar
prospectus delivery requirements, for use in connection with any resale of
Exchange Notes. A Participating Broker-Dealer or any other person that delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations thereunder).
Each holder of the Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes, (iii) it is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company and
(iv) it is not acting on behalf of any person who could not truthfully make the
foregoing representations.
128
<PAGE>
SHELF REGISTRATION. In the event that (i) any changes in law or the
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any other reason the Exchange
Offer is not consummated within 180 calendar days after the Issuance Date, (iii)
under certain circumstances, if the Initial Purchasers shall so request or (iv)
any holder of Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, the Company will, at its expense, (a) as
promptly as reasonably practicable file the Shelf Registration Statement
covering resales of the Old Notes, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act by the
180th calendar day after the Issuance Date and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of two years from
the Issuance Date (or one year from the date the Shelf Registration Statement is
declared effective if such Shelf Registration Statement is filed upon the
request of any Initial Purchasers pursuant to clause (iii) above) or such
shorter period ending when all Old Notes covered by the Shelf Registration
Statement have been sold in the manner set forth and as contemplated in the
Shelf Registration Statement or when the Old Notes become eligible for resale
pursuant to Rule 144 under the Securities Act without volume restrictions, if
any. The Company, will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes. A
holder of Old Notes that sells its Old Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a holder (including
certain indemnification rights and obligations thereunder). In addition, each
holder of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Notes included in the
Shelf Registration Statement and to benefit from the provisions regarding any
increase in interest applicable to the Old Notes set forth in the following
paragraph.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration statements
will be filed, or, if filed, that they will become effective. In the event that
either (a) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 150th calendar day following the date of original
issue of the Old Notes, (b) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 180th
calendar day following the date of original issue of the Old Notes, or (c) the
Exchange Offer Registration Statement or (subject to certain black-out periods)
the Shelf Registration Statement is declared effective but thereafter ceases to
be effective or usable, the interest rate borne by the Old Notes shall be
increased by one-quarter of one percent per annum following such 150-day period
in the case of clause (a) above, following such 180-day period in the case of
clause (b) above, or following the date on which such registration statement
ceases to be effective or usable in the case of clause (c) above, which rate
will be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; PROVIDED that
the aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the effectiveness of the Exchange Offer Registration Statement
after the 150-day period described in clause (a) above, (y) the consummation of
the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, after the 180-day period described in clause (b) above, or (z)
the date on which the Exchange Offer Registration Statement or Shelf
Registration Statement is again declared effective or becomes usable, in the
case of clause (c) above, the interest rate borne by the Old Notes from the date
of such effectiveness, consummation or that the applicable registration
statement again becomes effective and usable, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; PROVIDED, HOWEVER, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or
129
<PAGE>
(c) above occurs, the interest rate may again be increased and thereafter
decreased pursuant to the foregoing provisions. Notwithstanding the foregoing,
the Company may issue a notice that the Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction and may issue any
notice suspending use of the Shelf Registration Statement required under
applicable securities laws to be issued and, in the event that the aggregate
number of days in any consecutive twelve-month period for which all such notices
are issued and effective does not exceed 30 days in the aggregate, then the
interest rate borne by the Old Notes will not be increased as described above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which has been filed as an exhibit to which this Prospectus is a part.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for the Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC.
Exchange Notes held by persons who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered certificated form (a "Certificated Exchange Note"). Upon the transfer
of any Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, 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
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certan other organizations.
Indirect acces to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Exchange Note to the
accounts of persons who have accounts with such depository. Such accounts
initially will be designated by or on behalf of the Initial Purchasers.
Ownership of beneficial interests in the Global Exchange Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Exchange Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Notes represented by
such Global Exchange Note for all purposes under the Indenture and the Exchange
130
<PAGE>
Notes. No beneficial owners of an interest in the Global Exchange Note will be
able to transfer that interest except in accordance with DTC's applicable
procedures.
The Issuer understands that, under existing industry practices, in the event
that the Issuer requests any action of Holders, or an owner of a beneficial
interest in such permnent Global Exchange Note desires to give or take any
action (including a suit for repayment of principal, premium or interest) that a
Holder is entitled to give or take under the Notes, DTC woud authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instruction of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Issuer, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Exchange Note
will credit participants' accounts with payments in amounts proportionate to
their respectve beneficial ownership interests in the principal amount of such
Global Exchange Note, as shown on the records of DTC or its nominee. The Issuer
also expects that payments by participants to owners of beneficial interests in
such Global Exchange Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the acounts of customers registered in the names of nominees
for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a Holder requires physical delivery of
Certificated Exchange Notes for any reason, including to sell Exchange Notes to
persons in states which require such delivery of such Exchange Notes or to
pledge such Exchange Notes, such holder must transfer its interest in the Global
Exchange Note, in accordance with the normal procedures of DTC and the
procedures set forth in the Indenture.
Neither the Issuer nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Exchange
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if DTC
is at any time unwilling or unable to continue as a depositary for the Global
Exchange Note and a successor depositary is not appointed by the Issuer within
90 days, the Issuer will issue Certificated Exchange Notes in exchange for the
Global Exchange Note.
131
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes should not constitute
recognition events for federal income tax purposes. Consequently, no gain or
loss should be recognized by Holders upon receipt of the Exchange Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
Exchange Notes, a Holder's basis in Exchange Notes should be the same as such
Holder's basis in the Old Notes exchanged therefor. Holders should be considered
to have held the Exchange Notes from the time of their original acquisition of
the Old Notes.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS.
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 resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. To the extent any such broker-dealer participates in
the Exchange Offer and so notifies the Issuer, or causes the Issuer to be so
notified in writing, the Issuer has agreed that during the period ending on the
earlier to occur of (i) the date when all Exchange Notes held by Participating
Broker Dealers have been sold and (ii) 180 days after consummation of the
Exchange Offer it will make this Prospectus as amended or supplemented,
available to any Participating Broker Dealer and any other persons, if any, with
similar prospectus delivery requirements, for use in connection with any resale
of Exchange Notes, and will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. 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 prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at 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 or the purchasers or 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 Issuer has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuer by Simpson Thacher
& Bartlett (a partnership which includes professional corporations), New York,
New York.
132
<PAGE>
EXPERTS
The financial statements as of October 31, 1996 and 1995 and for each of the
three years in the period ended October 31, 1996 included in this prospectus and
the related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Notwithstanding that the Issuer may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Securities and
Exchange Commission, the Issuer will file with the Commission (and provide the
Trustee and Holders with copies thereof, without cost to each Holder, within 15
days after it files them with the Commission), (a) within 90 days after the end
of each fiscal year, annual reports on Form 10-K (or any successor or comparable
form) containing the information required to be contained therein (or required
in such successor or comparable form); (b) within 45 days after the end of each
of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or
any successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Issuer would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Issuer shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Issuer will make available such information to prospective purchasers
of Notes, in addition to providing such information to the Trustee and the
Holders, in each case within 15 days after the time the Issuer would be required
to file such information with the Commission, if it were subject to Sections 13
or 15(d) of the Exchange Act. In addition, the Issuer has agreed that, for so
long as any of the Old Notes remain outstanding, they will furnish to holders
and prospective purchasers of the Old Notes the information required by Rule
144A(d)(4) under the Securities Act.
133
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of October 31, 1995 and 1996 and April 30, 1997 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997 (unaudited)......................................................... F-4
Consolidated Statements of Stockholder's Equity for the years ended October 31, 1994, 1995 and 1996 and the
six months ended April 30, 1997 (unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
KSL Recreation Group, Inc.
We have audited the accompanying consolidated balance sheets of KSL
Recreation Group, Inc. and subsidiaries (the Company) as of October 31, 1995 and
1996, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended October
31, 1996. Our audits also included the financial statement schedule included in
Item 21(b) of the Registration Statement. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KSL
Recreation Group, Inc. and subsidiaries as of October 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Costa Mesa, California
April 9, 1997 (April 30, 1997 as to the first paragraph of Note 1 and August 11,
1997 as to Note 15)
F-2
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1996
AND APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 9,968 $ 9,343 $ 36,325
Restricted cash................................................................. 73 5,512 3,629
Trade receivables, net of allowance for doubtful receivables of $569, $1,573 and
$660 (unaudited), respectively................................................ 9,276 11,046 20,403
Inventories (Note 4)............................................................ 6,548 7,266 7,192
Current portion of notes receivable (Note 3).................................... 1,403 1,658 2,171
Other receivables............................................................... 3,359 1,559 1,872
Prepaid expenses and other...................................................... 2,016 2,221 2,872
--------- --------- -----------
Total current assets.......................................................... 32,643 38,605 74,464
PROPERTY AND EQUIPMENT, at cost (Notes 6 and 7):
Land and land improvements...................................................... 181,631 219,014 220,216
Buildings....................................................................... 122,396 134,390 134,902
Furniture, fixtures and equipment............................................... 40,314 52,323 55,447
Construction in progress........................................................ 19,601 1,570 2,641
--------- --------- -----------
363,942 407,297 413,206
Less accumulated depreciation................................................... (26,400) (44,916) (54,854)
--------- --------- -----------
Property and equipment, net................................................... 337,542 362,381 358,352
NOTES RECEIVABLE FROM AFFILIATE (Note 11)....................................... 25,995 -- 20,800
NOTES RECEIVABLE, less current portion (Notes 3, 11 and 13)..................... 3,727 4,015 4,780
RESTRICTED CASH, less current portion........................................... 3,870 7,743 127
RECEIVABLE FROM PARENT (Notes 1 and 11)......................................... 53,807 43,891 --
RECEIVABLES FROM AFFILIATES (Note 11)........................................... -- 3,694 --
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES, net of accumulated
amortization of $6,386, $10,007 and $11,815 (unaudited), respectively......... 89,891 86,411 84,604
OTHER ASSETS, net (Note 5)...................................................... 30,972 31,182 32,119
--------- --------- -----------
$ 578,447 $ 577,922 $ 575,246
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 9,551 $ 7,280 $ 5,416
Accrued liabilities............................................................. 12,282 16,506 16,375
Current portion of long-term debt (Note 6)...................................... 6,080 4,611 1,000
Current portion of obligations under capital leases (Note 7).................... 1,615 2,407 3,143
Customer and other deposits..................................................... 2,459 3,412 3,623
Payable to affiliates........................................................... -- 705 31
Due to Lake Lanier Islands Development Authority (Note 15)...................... -- 3,874 2,895
Deferred income................................................................. 2,021 1,581 3,918
--------- --------- -----------
Total current liabilities..................................................... 34,008 40,376 36,401
LONG-TERM DEBT, less current portion (Note 6)................................... 314,154 260,416 299,000
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 7)................. 2,755 3,977 5,439
--------- --------- -----------
Total long-term debt, less current portion.................................... 316,909 264,393 304,439
MEMBER DEPOSITS................................................................. 29,650 34,026 38,920
DEFERRED INCOME TAXES (Note 8).................................................. -- 16,760 16,760
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES (Note 1)........................... 449 391 208
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDER'S EQUITY (Notes 5 and 9):
Common stock, $.01 par value, 1,000 shares authorized and outstanding........... -- -- --
Additional paid-in capital...................................................... 222,389 227,394 197,361
Accumulated deficit............................................................. (24,958) (5,418) (18,843)
--------- --------- -----------
Total stockholder's equity.................................................... 197,431 221,976 178,518
--------- --------- -----------
$ 578,447 $ 577,922 $ 575,246
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rooms revenue.......................................................... $ 32,194 $ 37,678 $ 45,548 $ 31,414 $ 35,987
Food and beverage sales................................................ 28,423 38,897 44,338 25,707 29,679
Golf fees.............................................................. 25,098 32,646 35,371 19,938 23,480
Dues and fees.......................................................... 16,464 20,330 23,549 10,881 12,178
Merchandise sales...................................................... 9,864 13,416 14,068 8,353 8,959
Spa revenue............................................................ 2,712 2,761 3,112 1,869 2,382
Other.................................................................. 9,455 12,523 14,288 8,389 10,176
--------- --------- --------- --------- ---------
Total revenues..................................................... 124,210 158,251 180,274 106,551 122,841
EXPENSES:
Costs of goods sold:
Food and beverage.................................................... 8,509 12,847 13,671 7,379 7,965
Merchandise.......................................................... 5,431 8,610 8,730 5,092 4,825
Other................................................................ 716 3,591 3,095 2,053 2,467
Payroll................................................................ 39,096 47,542 50,994 26,453 27,658
Benefits............................................................... 9,537 12,827 11,116 6,453 7,065
Supplies............................................................... 8,806 11,532 12,499 5,963 6,882
Utilities.............................................................. 5,754 7,253 8,076 3,692 3,995
Maintenance and repairs................................................ 4,076 4,813 5,286 2,499 2,952
Advertising and marketing.............................................. 2,721 4,250 4,372 2,284 2,345
Real estate taxes...................................................... 3,666 5,035 4,424 2,574 2,437
Other.................................................................. 13,901 14,988 19,460 9,280 10,682
Depreciation and amortization.......................................... 13,971 20,327 23,770 11,386 12,916
--------- --------- --------- --------- ---------
Total expenses..................................................... 116,184 153,615 165,493 85,108 92,189
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS................................................. 8,026 4,636 14,781 21,443 30,652
OTHER INCOME (EXPENSE):
Interest income (Notes 3 and 11)....................................... 3,773 5,462 1,058 538 245
Interest expense....................................................... (17,784) (23,945) (28,768) (13,068) (15,850)
Loss on sale of golf course (Note 13).................................. -- (2,684) -- -- --
--------- --------- --------- --------- ---------
Other expense, net................................................. (14,011) (21,167) (27,710) (12,530) (15,605)
INCOME (LOSS) BEFORE MINORITY INTERESTS, INCOME TAXES AND EXTRAORDINARY
ITEM................................................................. (5,985) (16,531) (12,929) 8,913 15,047
MINORITY INTERESTS IN LOSSES OF SUBSIDIARIES........................... 458 201 58 78 182
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............... (5,527) (16,330) (12,871) 8,991 15,229
INCOME TAX EXPENSE (BENEFIT) (Note 8).................................. -- -- (291) (3) 2,195
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................ (5,527) (16,330) (12,580) 8,994 13,034
EXTRAORDINARY GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT (net of
income tax expense (benefit) of $0, $0, $16,757, $16,757 and
($2,007), respectively) (Note 12).................................... (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- --------- ---------
NET INCOME (LOSS)...................................................... $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE:
Before extraordinary item.............................................. $ (5,527) $ (16,330) $ (12,580) $ 8,994 $ 13,034
Extraordinary gain (loss).............................................. (2,202) -- 32,120 32,120 (3,138)
--------- --------- --------- --------- ---------
TOTAL EARNINGS (LOSS) PER SHARE........................................ $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE
EQUIVALENTS.......................................................... 1,000 1,000 1,000 1,000 1,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE November 1, 1993....................................... $ -- $ 28,412 $ (899) $ 27,513
Capital contributions (Note 9)................................. -- 168,182 -- 168,182
Net loss....................................................... -- (7,729) (7,729)
---------- ---------- ------------ ----------
BALANCE, October 31, 1994...................................... -- 196,594 (8,628) 187,966
Capital contributions (Note 9)................................. -- 25,795 -- 25,795
Net loss....................................................... -- -- (16,330) (16,330)
---------- ---------- ------------ ----------
BALANCE, October 31, 1995...................................... -- 222,389 (24,958) 197,431
Capital contributions (Note 9)................................. -- 5,005 -- 5,005
Net income..................................................... -- -- 19,540 19,540
---------- ---------- ------------ ----------
BALANCE, October 31, 1996...................................... -- 227,394 (5,418) 221,976
Capital contributions (unaudited) (Note 9)..................... -- 9,000 -- 9,000
Dividends (unaudited) (Note 9)................................. -- -- (23,321) (23,321)
Capital distributions (unaudited) (Note 9)..................... -- (39,033) -- (39,033)
Net income (unaudited)......................................... -- -- 9,896 9,896
---------- ---------- ------------ ----------
BALANCE, April 30, 1997 (unaudited)............................ $ -- $ 197,361 $ (18,843) $ 178,518
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ (7,729) $ (16,330) $ 19,540 $ 41,114 $ 9,896
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 13,971 20,327 23,770 11,386 12,916
Extraordinary loss (gain) on debt extinguishment.................. 2,202 -- (48,256) (48,256) 5,145
Deferred income taxes............................................. -- -- 16,760 16,760 --
Provision for losses on trade receivables......................... 435 (3) 1,004 207 (116)
Provision for losses on notes receivable.......................... -- -- 228 -- --
Minority interests in losses of subsidiaries...................... (458) (201) (58) (78) (182)
(Gain) loss on sales of property, net............................. -- 2,516 88 (78) 187
Changes in operating assets and liabilities, net of effects from
investment in subsidiaries and acquisitions of golf course
facilities:
Restricted cash................................................. 13,935 399 (9,311) (5,486) 9,499
Trade receivables............................................... (3,861) (1,615) (2,408) (10,922) (9,241)
Inventories..................................................... (545) (729) (518) (365) 74
Other receivables............................................... (2,534) 1 1,804 2,231 (313)
Prepaid expenses and other...................................... (889) (447) (183) 623 (651)
Notes receivable................................................ (117) 5 (292) -- --
Receivable from Parent.......................................... (38,513) (16,533) 9,916 8,243 43,891
Receivables from affiliates..................................... (185) 1,887 (2,989) (2,923) 3,020
Other assets.................................................... (9,592) (527) 1,536 648 973
Accounts payable................................................ 7,403 449 (2,894) (4,660) (1,864)
Accrued liabilities............................................. 1,411 3,314 4,210 399 (131)
Customer and other deposits..................................... 347 302 360 (1,067) 210
Deferred income................................................. 62 435 (1,255) 1,822 2,243
Due to Lake Lanier Islands Development Authority................ -- -- 3,874 -- (979)
Other current liabilities....................................... (810) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities........... (25,467) (6,750) 14,926 9,598 74,577
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in related subsidiaries, net of cash acquired.......... (336,150) -- -- -- --
Purchases of property and equipment............................... (13,645) (48,782) (20,625) (12,003) (3,729)
Notes receivable from affiliate, net.............................. (26,072) 77 23,065 23,065 (20,800)
Acquisition of golf course facilities............................. (25,162) (10,162) (15,274) (7,273) --
Proceeds from sales of property and equipment..................... -- 1,396 583 150 174
Notes receivable, net............................................. 3,371 8,594 1,908 919 1,780
Investment in partnerships........................................ (782) (571) (1,907) (510) (515)
Proceeds from sale of investment in partnership................... -- -- -- -- 1,621
Deposits and deferred acquisition costs........................... 15,230 536 -- -- --
Receivables from related parties.................................. (1,322) -- -- -- --
Liabilities to related parties.................................... (13,229) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities........... (397,761) (48,912) (12,250) 4,348 (21,469)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance.................................... $ 328,809 $ 8,665 $ 147,370 $ 138,346 $ 300,362
Principal payments on long-term debt and obligations under
capital leases............................................... (57,802) (12,255) (154,945) (150,916) (266,730)
Member deposits, net........................................... 20,846 4,365 2,483 1,127 2,047
Capital contributions from Parent.............................. 168,182 25,795 5,005 5,000 9,000
Capital distributions and dividends to Parent.................. -- -- -- -- (60,199)
Debt financing costs........................................... (3,807) (333) (3,214) (3,214) (10,606)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities............ 456,228 26,237 (3,301) (9,657) (26,126)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 33,000 (29,425) (625) 4,289 26,982
CASH AND CASH EQUIVALENTS, beginning of period................. 6,393 39,393 9,968 9,968 9,343
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period....................... $ 39,393 $ 9,968 $ 9,343 $ 14,257 $ 36,325
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid (net of amounts capitalized)................... $ 15,604 $ 23,440 $ 25,774 $ 10,045 $ 17,229
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid............................................ $ -- $ -- $ -- $ -- $ 424
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases............................... $ 1,460 $ 3,857 $ 4,615 $ 1,027 $ 3,539
Notes receivable issued for member deposits.................... 3,250 1,449 1,892 930 2,848
Note receivable issued from sale of assets..................... -- 1,933 494 -- 211
Trade-in of equipment under capital lease...................... -- -- 397 -- --
Development of golf course from undeveloped land............... -- -- 2,720 -- --
Issuance of long-term debt for acquisition of land............. -- -- 1,711 -- --
Dividend to Parent of investments in partnerships.............. -- -- -- -- 2,155
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1. GENERAL
KSL Recreation Group, Inc. (Group), is a wholly-owned subsidiary of KSL
Recreation Corporation (the Parent). Group and its subsidiaries (collectively,
the Company) are engaged in the ownership and management of golf courses,
private clubs, resorts and activities related thereto. At the completion of
certain financing transactions (as described in Note 6) on April 30, 1997, KSL
Landmark Corporation, KSL Florida Holdings, Inc., KSL Georgia Holdings, Inc. and
KSL Golf Holdings, Inc. became wholly-owned subsidiaries of Group in a
transaction accounted for in a manner similar to a pooling of interests.
As of October 31, 1996, giving effect to the transactions described in Note
6, the Company has four principal investments: (1) through KSL Golf Holdings,
Inc. (Fairways), a Delaware corporation, the Company owns an 88.1% majority
partnership interest in The Fairways Group, L.P. (TFG, L.P.) a Delaware limited
partnership; (2) a 100% interest in KSL Florida Holdings, Inc. (Doral), a
Delaware corporation; (3) a 100% interest in KSL Landmark Corporation (Desert
Resorts), a Delaware corporation; and (4) a 100% interest in KSL Georgia
Holdings, Inc., a Delaware corporation. TFG L.P. and an affiliate own and
operate 22 golf facilities principally in the mid-Atlantic, southeast and
midwestern United States. Fairways, through a subsidiary, is the managing
general partner in TFG L.P. Doral owns and operates the Doral Golf Resort and
Spa in Miami, Florida. Desert Resorts and affiliates own and operate the PGA
WEST golf courses, the La Quinta Resort & Club and related activities in La
Quinta, California. KSL Georgia Holdings, Inc. and its subsidiary (KSL Lake
Lanier, Inc.) manage a resort recreation area of approximately 1,041 acres known
as Lake Lanier Islands, outside of Atlanta, Georgia (Note 15).
During fiscal 1994, the Parent completed significant acquisitions, as
described below, which now constitute the principal operations of the Company.
Each of the acquisitions has been accounted for as a purchase, and the results
of each operation have been included in the accompanying consolidated financial
statements since the date of acquisition. The cost of each acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed based on independent appraisals and on analyses
prepared by management. The excess of the purchase price over the fair value of
the acquired entities (goodwill) has been capitalized and is being amortized
over the estimated useful lives of the goodwill (Note 2).
On December 30, 1993, the Parent acquired 85% of the assets and assumed 85%
of the liabilities of Doral for a purchase price, including acquisition costs,
of approximately $104,200. The purchase price was financed with available cash
of $46,400 and bank financing of approximately $57,800. The principals of the
predecessor company (the Minority Shareholders) contributed certain assets in
exchange for 15% of the outstanding common and preferred stock of Doral. The
purchase price allocation resulted in goodwill of approximately $38,600.
During 1994, Doral terminated its management agreements with its Minority
Shareholders and an affiliate. Pursuant to the terms of the management
agreements, Doral paid approximately $1,080 in termination fees, including
management fees paid through the date of acquisition. These termination fees
have been included in the purchase price of the Doral business.
During 1995, pursuant to a stockholders' agreement between Doral and the
Minority Shareholders, the Minority Shareholders exercised their option to sell
to Doral, and Doral purchased all of the Minority
F-8
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1. GENERAL (CONTINUED)
Shareholders' interest in Doral of approximately $5,465 for $7,303, resulting in
an increase to land and improvements of approximately $1,426 and an increase to
goodwill of approximately $412.
On December 30, l993, the Parent, with its affiliates, acquired certain of
the assets and assumed substantially all of the liabilities of various hotel,
golf and real estate operations located in La Quinta, California for a total
purchase price of approximately $295,200, including certain adjustments
subsequent to the acquisition date, which resulted in goodwill of approximately
$52,550. The seller provided financing of approximately $206,700, which was
collateralized by all the purchased assets. The remaining amount of the purchase
price was financed with available cash.
INTERIM UNAUDITED FINANCIAL INFORMATION--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of various normal accruals) necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows. The
consolidated financial position at April 30, 1997 is not necessarily indicative
of the financial position to be expected at October 31, 1997 and the
consolidated results of operations for the six months ended April 30, 1997 are
not necessarily indicative of the consolidated results of operations to be
expected for the year ending October 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation--The consolidated financial statements include the
accounts of Group and its wholly-owned subsidiaries. Investments in 50%-or-less
owned affiliates in which Company management has significant influence are
accounted for using the equity method of accounting. Under the equity method of
accounting, the investment, is carried at cost, adjusted each year for the
appropriate share of investee income or loss and any cash contributions or
distributions. All significant intercompany transactions and balances have been
eliminated in the accompanying consolidated financial statements.
CASH EQUIVALENTS--The Company considers all highly-liquid investments with
original maturities of three months or less to be cash equivalents.
RESTRICTED CASH--Certain cash balances are restricted primarily to uses for
debt service, capital expenditures, real estate taxes, insurance payments,
letters of credit required for construction in progress, and as provided under
the Lake Lanier Islands management agreement (Note 15).
INVENTORIES--Inventories are stated primarily at the lower of cost,
determined on the first-in, first-out method, or market. Base stock consisting
of china, silver, glassware and linens is recorded using the base stock
inventory method.
PROPERTY AND EQUIPMENT--Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Generally, the estimated useful lives are 15
to 40 years for buildings and improvements and 3 to 10 years for furniture,
fixtures and equipment. Improvements are capitalized while maintenance and
repairs are charged to expense as incurred. Assets under capital leases are
amortized using the straight-line method over the shorter of the lease term or
estimated useful lives of the assets. Depreciation of assets under capital
leases, principally
F-9
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
golf carts and telephone and computer equipment, is included in depreciation and
amortization expense in the accompanying consolidated statements of operations.
LONG-LIVED ASSETS--The Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF in fiscal 1996.
The effects of adopting SFAS No. 121 were not material in relation to the
Company's consolidated financial statements.
Management reviews real estate and other long-lived assets, including
certain identifiable intangibles and goodwill, for possible impairment whenever
events or circumstances indicate the carrying amount of an asset may not be
recoverable. If there is an indication of impairment, management prepares an
estimate of future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual disposition. If
these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value. The fair
value is estimated at the present value of future cash flows discounted at a
rate commensurate with management's estimate of the business risks. Real estate
assets, if any, for which management has committed to a plan to dispose of the
assets, whether by sale or abandonment, are reported at the lower of carrying
amount or fair value less cost to sell. Preparation of estimated expected future
cash flows is inherently subjective and is based on management's best estimate
of assumptions concerning expected future conditions.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES--The excess of the cost
over the fair value of acquired entities (goodwill) is capitalized and amortized
on a straight-line basis over 15 to 30 years. Amortization expense related to
goodwill was approximately $2,897, $3,462, $3,616 for fiscal years 1994, 1995,
1996 and $1,821 and $1,808 for the six months ended April 30, 1996 and 1997
(unaudited), respectively. The Company periodically evaluates the recoverability
of goodwill by comparing the carrying value of goodwill to undiscounted
estimated future cash flows from related operations. If it has been determined
that an impairment in value has occurred, the goodwill would be written down to
an amount which will be equivalent to the present value of estimated future
operating cash flows from the related operations.
DEBT ISSUE COSTS--Debt issue costs are amortized over the life of the
related debt.
MEMBER DEPOSITS--Member deposits represent the required deposits for certain
membership plans which entitle the member to the usage of various golf, tennis,
and social facilities and services. Member deposits are refundable, without
interest, in thirty years or sooner, under certain criteria and circumstances.
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES--Minority interests in equity
of subsidiaries represent minority shareholders' proportionate share of the
equity in certain subsidiaries of the Company, principally TFG L.P. The Company
owned approximately 88.1% of TFG L.P. at October 31, 1995 and 1996, and April
30, 1997 (unaudited).
A minority interest partner (the Partner) in TFG L.P. had a partner deficit
balance of approximately $2,961 and $3,065 as of October 31, 1995 and 1996,
respectively. The Company has reduced the minority
F-10
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest allocation of TFG L.P.'s net loss by the Partner's share of $272, $361
and $104 in fiscal years 1994, 1995 and 1996, respectively.
INCOME TAXES--The Company accounts for income taxes under the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability
approach in accounting for income taxes. Under this method, a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences in the recognition of accounting
transactions for tax and reporting purposes and from carryforwards. Measurement
of the deferred items is based on enacted tax laws. In the event the future
consequence of differences result in a deferred tax asset, SFAS No. 109 requires
an evaluation of the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a deferred tax asset
is recorded when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The Company is included in the
consolidated federal and combined state income tax returns filed by the Parent.
Pursuant to the terms of an arrangement between the Company and the Parent,
current and deferred income tax expenses and benefits are provided to the
members of the tax sharing group including the Company based on their allocable
share of the consolidated taxable income or loss. To the extent that the Federal
tax losses of the Company are utilized by the Parent or other of the Parent's
subsidiaries, the Company is compensated. The combined state tax liabilities
will be allocated based on each member's apportioned share of the combined state
tax liabilities. Had the Company's accounting for income taxes been performed
utilizing the separate return basis, the provision (benefit) for income taxes
would have been $0, $(362) and $263 for the years ended October 31, 1994, 1995
and 1996, respectively.
REVENUE RECOGNITION--Revenues related to dues and fees are recognized as
income in the period in which the service is provided. Non-refundable membership
initiation fees are recognized as revenue when billed. Other revenues are
recognized at the time of sale or rendering of service.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and cash
equivalents, trade receivables, other receivables, accounts payable and accrued
liabilities approximate their fair values because of the short maturity of these
financial instruments. Notes receivable approximate fair value as the interest
rates charged approximate currently available market rates. Based on the
borrowing rates currently available to the Company for debt with similar terms
and maturities, the fair value of notes payable and obligations under capital
leases approximate the carrying value of these liabilities.
Member deposits approximate fair value due to the agreed-upon terms of the
financial instrument. The fair value estimates presented herein are based on
pertinent information available as of the balance sheet dates. The Company is
not aware of any factors that would significantly affect the estimated fair
value amounts.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.
F-11
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
3. NOTES RECEIVABLE
Notes receivable of $2,013, $2,316 and $2,356 as of October 31, 1995, 1996
and April 30, 1997 (unaudited), respectively, represent purchase money mortgage
notes received in connection with the sale of a golf facility (Note 13) and
various land parcels. A note of approximately $1,800 is due July 2002 with the
remaining notes due in November 1998.
Notes receivable of $2,441, $2,681 and $3,919 at October 31, 1995, 1996 and
April 30, 1997 (unaudited), respectively, primarily represent notes from members
related to member deposits and bear interest at various rates ranging primarily
from 9% to 11.25%. The majority of these notes are due within three years.
As part of the acquisition of Desert Resorts, the Company acquired the
rights to certain notes receivable. Notes receivable valued at approximately
$8,316, including discounts of $1,702, as of October 31, 1994 were collected in
full in January 1995. The discount is included in interest income for the year
ended October 31, 1995.
The Company, through TFG L.P., has a note receivable from a general partner
of $676 as of October 31, 1995, 1996 and April 30, 1997. The note accrues
interest at 8% and is due upon the earlier of April 2000 or the partner selling
his partnership interest. No principal or interest payments are due on the note
until it matures (Note 11).
4. INVENTORIES
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Merchandise...................................................................... $ 4,395 $ 4,213 $ 4,160
Food and beverage................................................................ 1,148 1,424 1,193
Base stock (china, silver, glassware, linen)..................................... 509 985 949
Supplies and other............................................................... 496 644 890
--------- --------- -----------
$ 6,548 $ 7,266 $ 7,192
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-12
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
5. OTHER ASSETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Undeveloped land............................................................... $ 19,096 $ 16,376 $ 16,376
Debt issue costs, less accumulated amortization of $908, $3,019 and $0
(unaudited), respectively.................................................... 3,837 5,028 9,250
Other intangibles, less accumulated amortization of $188, $342 and $437
(unaudited), respectively.................................................... 2,912 3,628 3,671
Favorable lease, less accumulated amortization $912, $1,303 and $1,498
(unaudited), respectively.................................................... 2,801 2,410 2,215
Investment in partnerships..................................................... 1,353 3,260 --
Other.......................................................................... 973 480 607
--------- --------- -----------
$ 30,972 $ 31,182 $ 32,119
--------- --------- -----------
--------- --------- -----------
</TABLE>
Other intangibles primarily represent costs related to the costs of certain
membership programs which are being amortized over 5 to 30 years using the
straight-line method. The favorable lease asset represents the difference
between the stated lease terms and the estimated fair value of a golf course
lease acquired and is amortized over the lease term. Amortization expense for
these other assets approximated $1,078, $1,362 and $2,661 for 1994, 1995 and
1996, respectively, and $372 and $290 for the six months ended April 30, 1996
and 1997 (unaudited), respectively.
Investment in partnerships represents the Company's general and limited
partner interests in five limited partnerships whose principal assets are
undeveloped commercial and residential real estate parcels. On April 30, 1997
(unaudited), the Company sold one of these land partnership investments at
historical cost of $1,621 (which approximated fair value) to an affiliate for
use in land development. The remaining investments in four land partnerships at
historical cost of $2,155 was provided as a dividend to the Parent (see Note 9).
Accordingly, the Company has no investment in these partnerships as of April 30,
1997.
F-13
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------- APRIL 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Senior subordinated redeemable notes payable, with interest payable
semi-annually at 10.25%, principal due at maturity on May 1, 2007.......... $ -- $ -- $ 125,000
Term notes, payable in annual installments of $1,000 with interest payable
ranging at Prime plus 1.75% to 2.00% or LIBOR plus 2.75% to 3.00% (10.25%
to 10.50% at April 30, 1997--unaudited), $50,000 maturing April 30, 2005
and $50,000 maturing April 30, 2006........................................ -- -- 100,000
Revolving note, total available of $175,000, with interest payable at Prime
plus 1.25% or LIBOR plus 2.25% (9.75% at April 30, 1997 - unaudited),
principal due at maturity on April 30, 2004................................ -- -- 75,000
Note payable of which approximately 60% is interest only at LIBOR plus 3.5%,
(8.9% as of October 31, 1996) payable monthly and approximately 40% is
interest-only at 14.0% payable monthly; principal and accrued interest paid
in April 1997.............................................................. -- 131,289 --
Purchase money promissory notes, interest at rates ranging from 4.0% to 8.5%,
principal and accrued interest paid in December 1995....................... 199,605 -- --
Term notes, payable in installments, with interest payable ranging at LIBOR
plus 2.7%-3.2% (8.2%-8.7% at October 31, 1996), guaranteed by the Parent,
due December 31, 1999 through 2001, paid in April 1997..................... 50,500 49,000 --
Revolving note, total available of $15,000, maturing on December 31, 1999
with interest payable at LIBOR plus 2.7% (8.1% at October 31, 1996), paid
and terminated in April 1997............................................... 15,000 15,000 --
Term loans, interest at either a floating rate or the Eurodollar rate
(ranging from 7.8% to 9.8% at October 31, 1996) as elected by the Company,
principal payable in quarterly installments ending April 30, 2002, paid in
April 1997................................................................. 49,071 63,430 --
Other notes payable, paid in April 1997...................................... 6,058 6,308 --
---------- ---------- ----------
320,234 265,027 300,000
Less current portion......................................................... (6,080) (4,611) (1,000)
---------- ---------- ----------
Long-term portion............................................................ $ 314,154 $ 260,416 $ 299,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In April 1997, the Company offered $125,000 in aggregate principal amount of
senior subordinated redeemable notes (the Notes) and entered into a new credit
facility providing for term loans of up to $100,000 and a revolving credit
portion of up to $175,000. The Notes are redeemable beginning May 2002
F-14
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT (CONTINUED)
at the Company's option at various rates ranging from 105.125% at May 2002,
decreasing to 100% at May 2005 and thereafter. The Company is required to offer
to buy the Notes at 101% upon a change of control, as defined in the Notes
agreement. The terms of the credit facility limit borrowings under the revolving
credit loan to $175,000. The borrowings limitation decreases to $163,750 in May
2000, $152,500 in May 2001, $137,500 in May 2002 and $118,750 in May 2003. The
terms of the credit facility also contain certain financial covenants including
interest coverage, fixed charges and leverage ratios.
The proceeds from the Notes, together with $100,000 of term loans under the
new credit facility and a $75,000 drawing under the revolving credit portion of
the new credit facility (collectively, the Refinancings) were used on April 30,
1997, (i) to repay approximately $265,000 of outstanding indebtedness of the
Company, (ii) to make a loan of approximately $20,800 to KSL Land Corporation
(KSL Land), which was used to repay indebtedness of KSL Land with respect to
which a subsidiary of the Company is a co-obligor, (iii) to pay prepayment
penalties and fees and expenses incurred in connection with the Refinancings and
(iv) for general corporate purposes. The stock of certain subsidiaries has been
pledged to collateralize the new credit facility. Prior to the Refinancings,
long-term debt was collateralized by substantially all of the assets of the
Company.
Certain of the long-term debt agreements, provide that any distributions of
profits must satisfy certain terms and must be approved by the lenders, require
the Company to maintain specified financial ratios and, in some instances,
govern investments, capital expenditures, asset dispositions and borrowings. In
addition, mandatory prepayments are required under certain circumstances,
including the sale of assets. Total nonuse fees of approximately $6, $322, $262,
$184 and $84 were paid in 1994, 1995, 1996 and the six months ended April 30,
1996 and 1997 (unaudited), respectively, on the daily average of the unused
amount of certain revolving and term loan commitments. The Company was in
compliance with or has obtained waivers to secure compliance with the financial
covenants at October 31, 1996 and April 30, 1997 (unaudited).
The Company, through TFG L.P., entered into a credit agreement with certain
financial institutions which provides for periodic term loans up to $90,000
through October 1998 to be used for financing future golf course acquisitions
and other specific purposes. The agreement also provides for a revolving credit
facility of up to $10,000 for working capital needs which expires in April 2002.
As of October 31, 1996, approximately $26,570 was available under the term loan
and $9,648 was available under the revolving credit agreements. As a result of
the Refinancings, the credit agreement was terminated in April 1997.
In December 1995, the Company completed a negotiated compromise debt
settlement (Note 12), and the Company and certain of its affiliates obtained
debt financing of $153,000. As a result of this transaction, the Company was,
through a subsidiary, co-obligor on KSL Land's portion of the debt financing
which had a principal amount outstanding of $20,794, at October 31, 1996. The
Company was released from its co-obligation as a result of the repayment of KSL
Land's indebtedness in April 1997, as described above.
During 1994, 1995 and 1996, the Company capitalized interest of
approximately $79, $1,043 and $577, respectively, related to construction in
progress activities.
F-15
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT (CONTINUED)
Scheduled principal payments on long-term debt as of October 31, 1996 and as
of April 30, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1997
----------- -----------
<S> <C> <C>
(UNAUDITED)
Year ending October 31:
1997.................................................................................. $ 4,611 $ 1,000
1998.................................................................................. 138,785 1,000
1999.................................................................................. 35,574 1,000
2000.................................................................................. 27,399 1,000
2001.................................................................................. 35,418 1,000
Thereafter............................................................................ 23,240 295,000
----------- -----------
$ 265,027 $ 300,000
----------- -----------
----------- -----------
</TABLE>
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company has entered into certain leases for equipment and golf carts
that are classified as capital leases. Property under capital leases is
summarized as follows (see also Note 15):
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- APRIL 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Equipment............................................................................. $ 6,620 $ 9,442 $ 12,364
Less accumulated depreciation......................................................... (1,971) (3,176) (3,858)
--------- --------- -----------
$ 4,649 $ 6,266 $ 8,506
--------- --------- -----------
--------- --------- -----------
</TABLE>
Total minimum payments due under capital leases at October 31,1996 are
summarized as follows:
<TABLE>
<S> <C>
Year ending October 31:
1997.............................................................................. $ 2,993
1998.............................................................................. 2,478
1999.............................................................................. 1,400
2000.............................................................................. 435
2001.............................................................................. 82
---------
Total minimum lease payments........................................................ 7,388
Less amounts representing interest.................................................. (1,004)
---------
Present value of minimum lease payments............................................. 6,384
Less current portion................................................................ (2,407)
---------
Long-term portion................................................................... $ 3,977
---------
---------
</TABLE>
F-16
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
The components of the Federal and State income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
Current:
Federal................................................................................... $ -- $ -- $ (359)
State..................................................................................... -- -- 65
--- --- ---------
(294)
Deferred:
Federal................................................................................... -- -- 3
State..................................................................................... -- -- --
--- --- ---------
-- -- 3
--- --- ---------
Total....................................................................................... $ -- $ -- $ (291)
--- --- ---------
--- --- ---------
</TABLE>
Taxes on income vary from the statutory Federal income tax rate applied to
earnings before taxes on income and extraordinary items as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory Federal income tax rate (35%) applied to earnings before income taxes
and extraordinary items......................................................... $ (1,934) $ (5,716) $ (4,505)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefits..................................... (166) (490) (644)
Change in valuation allowance................................................... 1,753 5,481 4,041
Benefits of lower federal income tax rate......................................... 55 163 129
Reduction in state tax carryforwards.............................................. 136 380 299
Other............................................................................. 156 182 389
--------- --------- ---------
$ -- $ -- $ (291)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities arising from differences between
accounting for financial statement purposes and tax purposes, less valuation
reserves at October 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................................... $ 11,338 $ 15,292
Deferred income.......................................................................... 274 431
Investment in partnership interest....................................................... 2,087 1,728
Self-insured employee benefit programs................................................... 689 878
Other.................................................................................... 277 968
--------- ----------
Total deferred tax assets.............................................................. 14,665 19,297
Less valuation reserve..................................................................... (8,158) (12,199)
--------- ----------
Deferred tax assets, net............................................................... 6,507 7,098
Deferred tax liabilities:
Purchase price adjustment (Note 12)...................................................... -- 16,760
Fixed assets............................................................................. 3,652 3,711
Prepaid real property taxes.............................................................. 580 493
Basis difference in partnerships......................................................... 266 302
Amortization of intangibles.............................................................. 1,720 2,046
Capitalized assets....................................................................... 249 278
Other.................................................................................... 40 268
--------- ----------
Total deferred tax liabilities......................................................... 6,507 23,858
--------- ----------
Net deferred tax liability............................................................. $ -- $ (16,760)
--------- ----------
--------- ----------
</TABLE>
The Company has reserved for net deferred tax assets whose realization
depends on future taxable income. The valuation reserve was increased by $5,481
and $4,041, during 1995 and 1996, respectively.
At October 31, 1996, the Company has net operating loss carryforwards
available of approximately $41,000, which will begin to expire in the year
ending October 31, 2009, to offset future federal taxable income. State net
operating loss carryforwards total approximately $37,000 which will begin to
expire in the year ending October 31, 1999.
F-18
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
9. STOCKHOLDER'S EQUITY
During 1994, 1995 and 1996, the Company received capital contributions of
approximately $168,200, $25,800 and $5,000, respectively, from the Parent. The
1994 contributions were used primarily in the acquisitions of Desert Resorts and
Doral. The 1995 and 1996 contributions were used primarily for property
renovations at Doral.
Concurrent with the Refinancings, the Company provided dividends to the
Parent of $23,321 and a return of capital of $39,033, including a transfer of
the Company's $2,155 investment in certain limited partnerships at historical
cost (Note 5). During the period ended April 30, 1997, the Parent provided
capital contributions of $9,000 for purposes of the Lake Lanier Islands sublease
(Note 15).
Earnings per share for the years ended October 31, 1994, 1995 and 1996 and
for the six-month periods ended April 30, 1996 and 1997 are computed by dividing
net income by the weighted average number of outstanding common shares and
common shares equivalent during the respective periods. Common share equivalents
include the effect of dilutive stock options calculated using the treasury stock
method.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE (EPS), which will require the Company to disclose basic
EPS and diluted EPS for all periods for which an income statement is presented,
and which will replace earnings per share disclosures currently being made. The
Company is required to adopt this standard effective November 1, 1997. For pro
forma disclosure purposes, basic EPS and diluted EPS for the current reporting
and comparable periods in the prior years computed in accordance with SFAS No.
128 would be equal to primary and fully diluted EPS, respectively, as included
in the consolidated statements of operations.
10. COMMITMENTS AND CONTINGENCIES
The Company leases a golf course facility, a portion of a second golf course
facility and certain equipment and office space under long-term, noncancelable
operating leases, some of which provide for additional rent based on actual
operating costs, real estate taxes and insurance costs.
Future minimum lease payments under noncancelable operating leases with a
remaining life in excess of one year are as follows at October 31, 1996:
<TABLE>
<S> <C>
Year ending October 31:
1997............................................................................... $ 288
1998............................................................................... 174
1999............................................................................... 74
2000............................................................................... 47
2001............................................................................... 30
Thereafter......................................................................... 29
---------
$ 642
---------
---------
</TABLE>
Rental expense on operating leases approximated $627, $343 and $306 for
1994, 1995 and 1996, respectively.
F-19
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to various litigation matters which are incidental to
its business. Although the results of the litigation cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the Company's consolidated financial
statements.
11. RELATED PARTY TRANSACTIONS
The Company provided financing to an affiliate, KSL Land, of approximately
$26,000 at October 31, 1995. The notes receivable bear interest at rates ranging
from 4% to 8.5%. On December 20, 1995, the Company forgave $2,930 of the notes
receivable (Note 12). The Company recorded interest income of $904, $1,845 and
$87 in 1994, 1995 and 1996, respectively, and $87 and $0 for the six months
ended April 30, 1996 and 1997 (unaudited), respectively, related to these notes
receivable. KSL Land retired the remaining notes payable to the Company in
December 1995, when KSL Land and the Company obtained debt financing of $153,000
(Note 6). As a result of the Refinancings, the Company provided financing to KSL
Land of approximately $20,800 at April 30, 1997. This unsecured note receivable
bears interest at 8% and is payable at maturity in June 1999.
The receivable from Parent of $53,807 and $43,891 at October 31, 1995 and
1996, respectively, related to loans by the Company to the Parent to fund
Parent's operating costs and to fund certain of the Parent's long-term
investments. Management fees of $667, $750 and $3,199 in 1994, 1995 and 1996,
respectively, and $1,625 for each of the six months ended April 30, 1996 and
1997 (unaudited) were paid to the Parent for management advisory services.
Receivables of $3,694 from affiliates as of October 31, 1996, are for
reimbursement of expenses which the Company loaned the affiliates to fund
certain operating costs. These receivables were settled in April 1997.
TFG L.P. has a note receivable from a general partner of $676, which is
included in long-term notes receivable at October 31, 1995 and 1996. The note
accrues interest at 8% and is due upon the earlier of April 2000 or the partner
selling his partnership interest. No principal or interest payments are due on
the note until it matures. TFG L.P. accrued interest income of $54 related to
the note during both 1995 and 1996. In July 1996, the general partner pledged
TFG L.P. partnership units as security for repayment of this note. In July 1996,
the Parent entered into a put/call agreement with one of the minority interest
partners in TFG L.P. to purchase such minority interest at any time through May
1, 2030.
As part of the acquisitions of Desert Resorts and Doral, the Company paid
fees of approximately $6,300 during 1994 to a stockholder of the Parent for
services provided in the acquisitions.
12. EXTRAORDINARY ITEMS
In October 1994, the Company recorded an extraordinary loss of approximately
$2,200 in connection with the early retirement of approximately $34,400
principal amount of notes which were retired from the proceeds of new term
loans. The loss consisted primarily of the write-off of previously deferred
financing costs associated with debt that was retired.
On December 20, 1995, the Company completed a negotiated compromise debt
settlement with the lender which provided financing for the various properties
acquired by Desert Resorts. As a result of this
F-20
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
12. EXTRAORDINARY ITEMS (CONTINUED)
settlement, the Company retired debt totaling $199,687 for a payment of $148,500
which resulted in an extraordinary gain of $51,187, which was offset by $2,930
of debt forgiveness to KSL Land (Note 11). For financial statement purposes,
after net interest forgiveness of $953, transaction costs of $333 and deferred
income taxes of $16,757, the net gain on extinguishment of debt was $32,120. For
federal income taxes, this gain is treated as an adjustment of the original
purchase price of the related assets and, therefore, results in a deferred
long-term income tax liability.
On April 30, 1997, the Company expensed the net deferred financing costs,
prepayment fees and other costs, which aggregated approximately $5,145 related
to the debt that was extinguished as a result of the Refinancings. Such amount
is reflected as an extraordinary loss on early extinguishment of debt, net of
income tax benefit of $2,007, in the accompanying consolidated statements of
operations for the period ended April 30, 1997 (unaudited).
13. LOSS ON SALE OF GOLF COURSE FACILITY
During fiscal 1995, the Company sold one of the golf facilities included in
the Company's original acquisition of T.F.G. L.P. for approximately $2,100
resulting in a loss of approximately $2,700. In connection with the sale, the
Company received a note, collateralized by the facility sold for approximately
$1,900. The note receivable bears interest at prime plus 2% (10.25% at October
31, 1996), with an interest rate cap of 11%. Interest was deferred and added to
principal until January 1996, at which time monthly interest-only payments
began. In October 1996, the note was modified by the parties to defer interest
payments from November 1996 to March 1997 and add accrued interest to principal.
Interest-only payments resumed in April 1997. Monthly principal and interest
payments of $20 are due beginning July 1997 through the maturity date of the
note in July 2002.
F-21
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
14. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ----------
For the year ended October 31, 1996:
Revenues................................................ $ 45,602 $ 60,949 $ 36,256 $ 37,467 $ 180,274
Operating income (loss)................................. 5,103 15,893 (2,862) (3,353) 14,781
Net income (loss)....................................... 31,346 9,769 (10,563) (11,012) 19,540
Earnings (loss) per share............................... 31,346 9,769 (10,563) (11,012) 19,540
For the year ended October 31, 1995:
Revenues................................................ 41,738 53,512 32,714 30,287 158,251
Operating income (loss)................................. 3,293 11,062 (2,719) (7,000) 4,636
Net income (loss)....................................... 281 5,589 (10,321) (11,879) (16,330)
Earnings (loss) per share............................... 281 5,589 (10,321) (11,879) (16,330)
</TABLE>
15. SUBSEQUENT EVENTS
LAKE LANIER TRANSACTION
On May 15, 1996, the Company through its subsidiary, KSL Lake Lanier, Inc.,
entered into a management agreement with Lake Lanier Islands Development
Authority (LLIDA), a State of Georgia agency, to manage the facilities at Lake
Lanier Islands (a golf, hotel and recreation complex) which LLIDA leases from
the United States Army Corps of Engineers (the Corps). LLIDA's intent is to
privatize the management and operation of Lake Lanier Islands through a sublease
arrangement. Due to the need for third party consents and approvals, LLIDA and
the Company entered into the management agreement as an interim step to the
sublease. At the closing of the sublease, which occurred in August 1997, the
management agreement provided that LLIDA and the Company would be placed in the
same economic position as if the sublease transaction had closed on May 15,
1996. Accordingly, the Company was credited with the net earnings (as defined)
of the operations from May 15, 1996 to the closing date less amounts earned by
the Company pursuant to the management agreement. Such net amount paid by the
Company will be recognized as an adjustment to the recorded values of the assets
leased pursuant to the sublease.
The sublease expires in 2046. The sublease will be accounted for as a
capital lease. Accordingly, the Company will record the net assets acquired
pursuant to the sublease and will recognize the net present value of the related
minimum lease payments. The sublease is guaranteed by the Parent.
F-22
<PAGE>
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
15. SUBSEQUENT EVENTS (CONTINUED)
The minimum payments due under the capital lease, as of the economic
effective date of the sublease, May 15, 1996, are summarized as follows:
<TABLE>
<CAPTION>
UNAUDITED
-----------
<S> <C>
Period from May 15, 1996 to October 31, 1996.......................................................... $ 1,421
Year ending October 31:
1997................................................................................................ 3,100
1998................................................................................................ 3,100
1999................................................................................................ 3,100
2000................................................................................................ 3,100
2001................................................................................................ 3,146
Thereafter.......................................................................................... 142,533
-----------
Total minimum lease payments.......................................................................... 159,500
Less amounts representing interest.................................................................... (128,163)
-----------
Present value of minimum lease payments............................................................... $ 31,337
-----------
-----------
</TABLE>
In April 1997, the Parent contributed $9,000 in cash to the Company to fund
the purchase of certain equipment and other fixed assets used in the operation
of the Lake Lanier Islands facilities that will not be leased pursuant to the
sublease. Under the terms of the sublease, the Company is required to make
monthly base lease payments of $250, or $3,000 annually. An additional annual
payment equal to 3.5% of gross revenues in excess of $20,000 is also payable
pursuant to the sublease, with a minimum of $100 in years one through five and
$200 in years six through 50. Pursuant to the sublease, the Company is required
to spend 5% of annual gross revenues on capital replacement and improvements,
with carryover provisions allowing all or some portion of these amounts to be
deferred to subsequent years. In addition, the Company has committed to expend
$5,000 over the first five years of the sublease for the development and
construction of new capital projects. Approximately $3,600 of capital
improvements are under development as of June 1997 and are being funded by the
State of Georgia on a non-interest bearing advance that will be repaid by the
Company upon closing of the sublease, and approximately $1,765 will be applied
against the Company's $5,000 capital investment requirement.
GRAND TRAVERSE ACQUISITION
In August 1997, the Company, through a subsidiary, acquired the Grand
Traverse Resort, a 425 room hotel and related golf and recreational facilities,
located in Grand Traverse, Michigan for a purchase price of approximately
$45,000. This acquisition will be accounted for using the purchase method of
accounting. The purchase price was financed under the revolving credit portion
of the Company's new credit facility (Note 6). For the calendar year ended
December 31, 1996, the revenues and net loss at Grand Traverse were
approximately $32,000 and approximately $1,600, respectively.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO EXCHANGE THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 23
Use of Proceeds........................................................... 31
Capitalization............................................................ 32
Selected Consolidated Historical Financial Data........................... 33
Selected Historical Financial Data--The Predecessors...................... 35
Unaudited Pro Forma Consolidated Financial Statements..................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 44
Business.................................................................. 56
Management................................................................ 72
Beneficial Ownership of Common Stock...................................... 79
Certain Related Transactions.............................................. 80
Description of Certain Indebtedness....................................... 82
The Exchange Offer........................................................ 84
Description of Exchange Notes............................................. 94
Certain U.S. Federal Income Tax Consequences.............................. 133
Plan of Distribution...................................................... 133
Legal Matters............................................................. 133
Experts................................................................... 134
Available Information..................................................... 134
Index to Consolidated Financial Statements................................ F-1
</TABLE>
[LOGO]
OFFER TO EXCHANGE $125,000,000 OF ITS 10 1/4% SERIES B SENIOR SUBORDINATED NOTES
DUE 2007, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR $125,000,000
OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
SEPTEMBER 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
a. permissive indemnification for expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to litigation other than
stockholder derivative actions if certain conditions are met;
b. permissive indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are parties to
stockholder derivative actions if certain conditions are met;
c. mandatory indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are successful on
the merits or otherwise in defense of litigation covered by a. and b. above;
and
d. that the indemnification provided for by Section 145 is not deemed
exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.
The Registrant's certificate of incorporation, as amended (the "Certificate
of Incorporation") and by-laws provide that the Registrant shall indemnify its
officers, directors, employees and agents to the extent permitted by the
indemnification provisions of the DGCL described above.
The Certificate of Incorporation limits the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of the
duty as a director, other than liability as a director (i) for breach of duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (certain illegal distributions), or
(iv) for any transaction for which the director derived an improper personal
benefit.
The Registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance of
their duties.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b)
KSL RECREATION GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING COST AND NET CREDIT END OF
OF PERIOD EXPENSES LOSSES PERIOD
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
ACCOUNTS RECEIVABLE
Fiscal Year ended October 31, 1994......................... $ 92 477 -- $ 569
Fiscal Year ended October 31, 1995......................... $ 569 425 (425) $ 569
Fiscal Year ended October 31, 1996......................... $ 569 1,433 (429) $ 1,573
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(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 thereto) 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 the purpose 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-2
<PAGE>
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed to be underwriters, in addition to the information called for
by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement or amendment thereto to be signed on its
behalf by the undersigned, thereunto duly authorized, on September 4, 1997.
KSL RECREATION GROUP, INC.
By: /s/ MICHAEL S. SHANNON
-----------------------------------------
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of KSL Recreation Group, Inc., do
hereby constitute and appoint John K. Saer, Jr. and Nola S. Dyal, or either of
them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and on our behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said Corporation to comply with the Securities
Act of 1933 and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto and we do hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on the 4th day of September, 1997 by the following
persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ --------------------------
President and Chief
/s/ MICHAEL S. SHANNON Executive Officer and
- ------------------------------ Director (Principal
Michael S. Shannon Executive Officer)
Vice President, Chief
/s/ JOHN K. SAER, JR. Financial Officer
- ------------------------------ (Principal Financial and
John K. Saer, Jr. Accounting Officer) and
Treasurer
*
- ------------------------------ Director
Henry R. Kravis
*
- ------------------------------ Director
George R. Roberts
*
- ------------------------------ Director
Paul E. Raether
*
- ------------------------------ Director
Michael T. Tokarz
II-4
<PAGE>
SIGNATURE TITLE
- ------------------------------ --------------------------
*
- ------------------------------ Director
Scott M. Stuart
*
- ------------------------------ Director
Alexander Navab
/s/ LARRY E. LICHLITER
- ------------------------------ Director
Larry E. Lichliter
/s/ JOHN K. SAER, JR.
- ------------------------------ Attorney-in-fact
John K. Saer, Jr.
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
* 1 Senior Subordinated Notes Purchase Agreement dated April 30, 1997 among KSL Recreation Group, Inc. and
Donaldson Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, Credit Suisse First Boston
Corporation, BancAmerica Securities, Inc., Montgomery Securities and Scotia Capital Markets.
* 3.1 Certificate of Incorporation of the Company.
* 3.2 Bylaws of the Company.
* 4.1 Senior Subordinated Notes Indenture, dated as of April 30, 1997, among KSL Recreation Group, Inc. and
First Trust of New York National Association, Trustee.
* 4.2 Form of 10 1/4% Senior Subordinated Note due 2007. (Included as part of Senior Subordinated Notes
Indenture filed as Exhibit 4.1 hereto).
* 4.3 Form of 10 1/4% Series B Senior Subordinated Note due 2007. (Included as part of Senior Subordinated
Notes Indenture filed as Exhibit 4.1 hereto).
* 4.4 Senior Subordinated Notes Registration Rights Agreement, dated as of April 30, 1997, by and among KSL
Recreation Group, Inc. and Donaldson Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc,
Credit Suisse First Boston Corporation, BancAmerica Securities, Inc., Montgomery Securities and Scotia
Capital Markets.
* 5.1 Opinion of Simpson Thacher & Bartlett.
* 10.1 Credit Agreement, dated as of April 30, 1997, among KSL Recreation Group, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, as a co-syndication agent and documentation agent, The Bank of Nova
Scotia, as a co-syndication agent and administrative agent, and BancAmerica Securities, Inc., as
syndication agent.
* 10.2 Sublease, executed between Lake Lanier Islands Development Authority and KSL Lake Lanier, Inc.
* 10.3 Management Agreement, effective as of May 16, 1996, by and between Lake Lanier Islands Development
Authority and KSL Lake Lanier, Inc.
* 10.4 License Agreement, dated March 5, 1984, between The Professional Golfer's Association and LML
Development Corp. of California as assigned by the Assignment and Assumption Agreement, dated December
24, 1993, by and between Landmark Land Company of California, Inc. and KSL Landmark Corporation.
* 10.5 Trademark Agreement, dated January 10, 1985, between PGA Tour, Inc. and Landmark Land Company of
California, Inc. as assigned by the Assignment and Assumption Agreement, dated December 24, 1993, by and
between Landmark Land Company of California, Inc. and KSL Landmark Corporation.
* 10.6 Assignment and Assumption Agreement, dated December 24, 1993, by and between Landmark Land Company of
California, Inc. and KSL Landmark Corporation.
* 10.7 License Agreement, dated December 30, 1993, among Carol Management Corporation, C.A.H. Spa of Florida
Corp., KSL Hotel Corp. and KSL Spa Corp. (subsequently merged into KSL Hotel Corp.).
* 10.8 KSL Recreation Corporation 1995 Stock Purchase and Option Plan.
* 10.9 Form of KSL Recreation Corporation Common Stock Purchase Agreement.
* 10.10 Form of KSL Recreation Corporation Non-Qualified Stock Option Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
* 10.11 Expense Allocation Agreement, dated April 30, 1997, between KSL Recreation Corporation and KSL
Recreation Group, Inc.
* 10.12 Tax Sharing Agreement and Amendment to Tax Sharing Agreement, dated April 30, 1997, by and between KSL
Recreation Corporation, KSL Recreation Group, Inc., KSL Landmark Corporation, KSL Desert Resorts, Inc.,
KSL Vacation Resorts, Inc., Xochimilco Properties, Inc., Wild West Desert Properties, Inc., KSL Travel,
Inc., KSL Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL Florida Holdings, Inc., KSL Hotel
Corp., KSL Georgia Holdings, Inc., KSL Lake Lanier, Inc., KSL Land Corporation and KSL Land II
Corporation.
* 11 Computation of Earnings (Loss) Per Share
* 12 Computation of ratio of earnings to fixed charges.
* 21 List of Subsidiaries of the Company.
23.1 Consent of Simpson Thacher & Bartlett (Included as part of its opinion filed as Exhibit 5.1 hereto).
* *23.2 Consent of Deloitte & Touche LLP, independent auditors.
* 24 Powers of Attorney
* 25 Statement of Eligibility of First Trust of New York National Association on Form T-1.
* *99.1 Form of Letter of Transmittal.
* *99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Previously filed
** Filed herewith.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of KSL Recreation
Group, Inc. on Form S-4 of our report dated April 9, 1997 (April 30, 1997 as to
the first paragraph of Note 1 and August 11, 1997 as to Note 15) appearing in
the Prospectus, which is a part of this Registration Statement, and to the
reference to us under the headings "Summary Financial Data," "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 8, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
10 1/4% SENIOR SUBORDINATED NOTES
DUE 2007
OF
KSL RECREATION GROUP, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER
13, 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY KSL RECREATION GROUP,
INC.
EXCHANGE AGENT:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY HAND: BY MAIL:
First Trust of New York, National Association First Trust National Association
100 Wall Street, Suite 2000 P.O. Box 64485
New York, New York 10005 St. Paul, Minnesota 55164-9549
Attn: Cathy Donohue
BY OVERNIGHT COURIER: BY FACSIMILE:
First Trust National Association (612) 244-1537
Attn: Specialized Finance Attn: Specialized Finance
180 East Fifth Street Telephone: (800) 934-6802
St. Paul, Minnesota 55101
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated September 11,
1997 (the "Prospectus") of KSL Recreation Group, Inc. (the "Company"), and this
Letter of Transmittal (the "Letter of Transmittal"), which together describe the
Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of
its new 10 1/4% Series B Senior Subordinated Notes due 2007 (the "Exchange
Notes") for each $1,000 in principal amount of outstanding 10 1/4% Senior
Subordinated Notes due 2007 (the "Old Notes"). The terms of the Exchange Notes
are identical in all material respects (including principal amount, interest
rate and maturity) to the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes are freely
transferable by holders thereof (except as provided herein or in the Prospectus)
and are not subject to any covenant regarding registration under the Securities
Act of 1933, as amended (the "Securities Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<PAGE>
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
AGGREGATE
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT PRINCIPAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY OLD NOTES* TENDERED**
<S> <C> <C> <C>
Total
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes. See
instruction 2.
This Letter of Transmittal is to be used either if certificates representing
Old Notes are to be forwarded herewith or if delivery of Old Notes is to be made
by book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company, pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer-- Procedures for Tendering Old Notes."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
/ / The Depository Trust Company
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Name of Eligible Institution that Guaranteed Delivery ______________________
Date of Execution of Notice of Guaranteed Delivery _________________________
If Delivered by Book-Entry Transfer:
Account Number _____________________________________________________________
<PAGE>
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON
SIGNING THE LETTER OF TRANSMITTAL:
Name _________________________________________________________________________
(Please Print)
Address ______________________________________________________________________
(Including Zip Code)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM
THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address ______________________________________________________________________
(Including Zip Code)
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name _______________________________________________________________________
Address ____________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus 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. Any holder who is an "affiliate" of the Company or who has
an arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act must
comply with the registration and prospectus delivery requirements under the
Securities Act.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of the Old Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Old Notes. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company, in connection with the Exchange
Offer) to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Old Notes, and that, when the
same are accepted for exchange, the Company will acquire good and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
also warrants that it will, upon request, 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 tendered Old
Notes or transfer ownership of such Old Notes on the account books maintained by
the book-entry transfer facility. The undersigned further agrees that acceptance
of any and all validly tendered Old Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement (as defined
in the Prospectus) and that the Company shall have no further obligations or
liabilities thereunder except as provided in Section 2 of said agreement.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Old Notes tendered hereby and, in such event, the Old Notes not exchanged
will be returned to the undersigned at the address shown above. In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth under "The Exchange Offer--Certain Conditions to
the Exchange Offer" occur.
By tendering, each holder of Old Notes represents that the Exchange Notes
acquired in the exchange will be obtained in the ordinary course of such
holder's business, that such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes, that such holder is not
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and that such holder is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. Any holder of Old Notes using
the Exchange Offer to participate in a distribution of the Exchange Notes (i)
cannot rely on the position of the staff of the Securities and Exchange
Commission (the "Commission") enunciated in its interpretive letter with respect
to Exxon Capital Holdings Corporation (available April 13, 1989) or similar
letters and (ii) must comply with the registration and prospectus requirements
of the Securities Act in connection with a secondary resale transaction.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus 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.
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time
prior to the Expiration Date in accordance with the terms of this Letter of
Transmittal. See Instruction 2.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, and registered in
the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
TENDER HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Holder(s)
Dated ___________________ Area Code and Telephone Number ___________________
(MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR OLD NOTES. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR,
ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER
PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE
FULL TITLE OF SUCH PERSON.) SEE INSTRUCTION 3.
Name(s) ________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ____________________________________________________
Taxpayer Identification No. ____________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
Title __________________________________________________________________________
Address ________________________________________________________________________
Name of Firm ___________________________________________________________________
Area Code and Telephone No. ____________________________________________________
Dated __________________________________________________________________________
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
A holder of Old Notes may tender the same by (i) properly completing and
signing this Letter of Transmittal or a facsimile hereof (all references in the
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other document required by this Letter of Transmittal, to the Exchange
Agent at its address set forth above on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT
AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY
DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended. If the Exchange Notes and/or Old Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Old Notes, the signature on the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received on
or prior to the Expiration Date, a letter, telegram or facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date, the Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), will be delivered
by such Eligible Institution together with a properly completed and duly
executed Letter of Transmittal (and any other required documents). Copies of the
notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
<PAGE>
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Old Notes.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Old Notes to be withdrawn, (iv) include a statement that such holder
is withdrawing his election to have such Old Notes exchanged, (v) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (vi) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn Old Notes or othewise comply with the book-entry transfer facility
procedure. All questions as to the validity of notices of withdrawals, including
time of receipt, will be determined by the Company and such determination will
be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under the caption "Procedures for Tendering Old Notes" in
the Prospectus at any time on or prior to the Expiration Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Old Notes.
<PAGE>
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the Old Notes) of Old Notes listed and tendered hereby, no endorsements
of certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holder of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the OldNotes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of such Old Notes, for the holder of such Old Notes; or (ii) for the
account of an Eligible Institution.
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Old 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 exception therefrom
is not submitted herewith the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS.
The Company reserves the right to waive in its reasonable judgment, in whole
or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the address indicated above for further
instructions.
7. SUBSTITUTE FORM W-9.
Each holder of Old Notes whose Old Notes are accepted for exchange (or other
payee) is required to provide a correct taxpayer identification number ("TIN"),
generally the holder's Social Security or federal employer identification
number, and with certain other information, on Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify that the holder
(or other payee) is not subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the holder (or other payee)
to a $50 penalty imposed by the Internal Revenue Service and 31% federal income
tax backup withholding on payments made in connection with the Exchange Notes.
The box in Part 3 of the Substitute Form W-9 may be checked if the holder (or
other payee) has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is
not provided by the time any payment is made in connection with the Exchange
Notes, 31% of all such payments will be withheld until a TIN is provided.
<PAGE>
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to KSL Recreation Group, Inc., 56-140 PGA West
Boulevard, La Quinta, California 92253, attention: Corporate Secretary
(telephone: 619-564-1088).
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Old Notes whose Old Notes are
accepted for exchange may be subject to backup withholding unless the holder
provides First Trust National Association (as payor) (the "Paying Agent"),
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
Old Notes is awaiting a TIN) and that (A) the holder of Old 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 Old 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 Old Notes is an individual,
the TIN is such holder's social security number. If the Paying Agent is not
provided with the correct taxpayer identification number, the holder of Old
Notes may be subject to certain penalties imposed by the Internal Revenue
Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Old Notes should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt receipient, the holder must submit a Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Paying Agent. See the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Old Notes or other payee. Backup
withholding is not an additional tax. Rather, the 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 box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Old Notes has not been issued a TIN and has applied for a
TIN or intends to apply for a TIN in the near futue. If the box in Part 3 is
checked, the holder of Old Notes or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding . Notwithstanding that the box in Part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the Paying
Agent will withhold 31% of all payments made prior to the time a properly
certified TIN is provided to the Paying Agent.
The holder of Old Notes is required to give the Paying Agent the TIN (e.g.,
social security number or employer identification number) of the record owner of
the Old Notes. If the Old Notes are in more than one name or are not in the name
of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
<PAGE>
<TABLE>
<S> <C> <C>
PAYOR'S NAME: FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS PAYING AGENT
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN Social Security number(s) or
IN THE BOX AT RIGHT AND CERTIFY Employer Identification
BY SIGNING AND DATING BELOW. Number(s)
PART 2--CERTIFICATION--Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued
for me), and
FORM W-9 (2) I am not subject to backup withholding because: (a) I am
DEPARTMENT OF THE TREASURY exempt form backup withholding, or (b) I have not been notified
INTERNAL REVENUE SERVICE by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding.
PAYOR'S REQUEST FOR CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if
TAXPAYER IDENTIFICATION you have been notified by the IRS that you are currently subject
NUMBER ("TIN") to backup withholding because of underreporting interest or
dividends on your tax return.
Signature PART 3--Awaiting TIN / /
Date
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF THE SUBSTITUTE FORM W-9.
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 (1) 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 (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all reportable cash
payments made to me thereafter will be withheld until I provide a taxpayer
identification number.
<TABLE>
<S> <C>
------------------------------------------------ --------------------------------
Signature Date
</TABLE>
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
10 1/4% SENIOR SUBORDINATED NOTES
DUE 2007
IN EXCHANGE FOR NEW
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
OF
KSL RECREATION GROUP, INC.
Registered holders of outstanding 10 1/4% Senior Subordinated Notes due 2007
(the "Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of new 10 1/4% Series B Senior Subordinated Notes due 2007 (the
"Exchange Notes") and whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to First Trust National
Association (the "Exchange Agent") prior to the Expiration Date, may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) or mail to the Exchange Agent. See "The Exchange
Offer--Procedure for Tendering Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY HAND: BY MAIL:
First Trust of New York, National Association First Trust National Association
100 Wall Street, Suite 2000 P.O. Box 64485
New York, New York 10005 St. Paul, MInnesota 55164-9549
Attention: Cathy Donohue
BY OVERNIGHT EXPRESS: BY FACSIMILE:
First Trust National Association (612) 244-1537
Attn: Specialized Finance Attn: Specialized Finance
100 East Fifth Street Telephone: (800) 934-6802
St. Paul, Minnesota 55101
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus
dated September 11, 1997 of KSL Recreation Group, Inc. (the "Prospectus"),
receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT
APPEARS ON THE OLD NOTES OF OLD NOTES OF OLD NOTES
NAME OF TENDERING HOLDER (PLEASE PRINT) TENDERED TENDERED
<S> <C> <C> <C>
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
- --------------------- --------------------- --------------------- ---------------------
</TABLE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth above, the certificates representing the Old Notes (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at the book-entry transfer facility), together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the Expiration Date (as defined in
the Prospectus and the Letter of Transmittal).
<TABLE>
<S> <C>
Name of Firm:
Address: (Authorized Signature)
Title:
(Zip Code) Name:
Area Code and Telephone No.: (Please type or print)
Date:
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
