KSL RECREATION GROUP INC, 10-K, 1998-01-29

KSL RECREATION GROUP INC
10-K, 1998-01-29
AMUSEMENT & RECREATION SERVICES

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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------- --------------

Commission File Number - 333-31025
---------

KSL RECREATION GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware 33-0747103
- ------------------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

56-140 PGA Boulevard
La Quinta, California 92253
- ------------------------------------------ -------------------------
(Address of principal executive office) (Zip Code)

Registrant's telephone number including area code: 760-564-1088

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant: None

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

Common Stock, $.01 par value, 1,000 shares (January 15, 1998)

DOCUMENTS INCORPORATED BY REFERENCE: None

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INDEX

Page
----

Part I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 8

Part II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .11
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . .17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .35

Part III.
Item 10. Directors and Executive Officers . . . . . . . . . . . . . . . . . .36
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .40
Item 12. Security Ownership of Certain Beneficial Owners and Management . . .45
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . .46

Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . .48

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PORTIONS OF THIS ANNUAL REPORT ON FORM 10-K INCLUDE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH COULD CAUSE ACTUAL RESULTS TO MATERIALLY DIFFER FROM THOSE PROJECTED OR
IMPLIED. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE
DESCRIBED IN THIS ANNUAL REPORT.

PART I.

ITEM 1. BUSINESS

GENERAL

KSL Recreation Group, Inc. was incorporated on March 14, 1997, under the
laws of the State of Delaware. KSL Recreation Group, Inc., together with its
subsidiaries (the "Company"), are engaged in service-based recreation through
the ownership and management of resorts, golf courses, private clubs, and
activities related thereto. The Company's operations currently include: (i)
the La Quinta Resort & Club ("La Quinta") and PGA WEST ("PGA WEST"), located
in the Palm Springs, California area, which, together, constitute the
Company's "Desert Resorts" operations; (ii) 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"); (iv)
Grand Traverse Resort ("Grand Traverse"), located in the northwest portion of
the lower peninsula of Michigan; and (v) KSL Fairways ("Fairways"), which
operates 22 golf course properties located in six states. The Company is
wholly owned by KSL Recreation Corporation, a Delaware corporation
incorporated on May 19, 1993 ("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., an affiliate
of Kohlberg Kravis Roberts & Co.

In July, 1993, Parent, through a subsidiary, acquired Fairways. In
December, 1993, Parent, through certain subsidiaries, acquired Desert Resorts
and Doral. On May 15, 1996, Parent, through a subsidiary, began operating Lake
Lanier Islands pursuant to an interim management agreement with Lake Lanier
Islands Development Authority ("LLIDA"), an agency of the State of Georgia,
which leases the property from the U. S. Army Corps of Engineers. Shortly after
the Company's formation in March 1997, the subsidiaries of the Parent which
owned Desert Resorts, Doral and Fairways, and managed Lake Lanier Islands became
wholly owned subsidiaries of the Company. In August 1997, the Company closed on
a fifty-year sublease of Lake Lanier Islands and acquired Grand Traverse.

The Company's operations comprise numerous, interrelated services,
including lodging, conference services, corporate hospitality programs and
facilities, food and beverage, private and resort golf operations, club
membership programs, and entertainment and athletic focused special events.

DESERT RESORTS

Desert Resorts is located in the City of La Quinta, California, a golf and
recreation destination located near Palm Springs, California. Since the
acquisition of Desert Resorts, the Company has invested significant capital in
facilities-related improvements, initiated measures designed to enhance and
expand the revenue base, and introduced numerous operating efficiencies.

Desert Resorts includes La Quinta, formerly known as the La Quinta Hotel,
which opened in 1926. La Quinta currently offers 640 "casita"-style hotel rooms
(Spanish-style cottages) spread over approximately 45 acres of grounds,
featuring indigenous architecture and a campus-like setting, and caters to both
corporate groups, individual guests and recreation enthusiasts. La Quinta's
facilities include approximately 66,000 square feet of conference space, eight
restaurants, 25 pools, 38 spas, three championship 18-hole golf courses, three
clubhouses and 23 tennis courts.

Desert Resorts also includes PGA WEST, a residential and resort golf
community comprised of five championship 18-hole golf courses, three clubhouses
and nineteen tennis courts. Both PGA WEST and La Quinta operate private club
businesses, which represent a growth opportunity at both Desert Resorts and
throughout the Company.

Both La Quinta's and PGA WEST's private club operations provide golf and
tennis facilities, golf and tennis instruction, special events, and dining and
social activities to its members. A full golf membership at La Quinta currently
requires a $47,500 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual golf dues of $5,160. A full golf
membership at PGA WEST currently requires a $55,000 deposit, which is fully
refundable in thirty years (or sooner under certain circumstances), and annual
golf dues of $5,940.

On May 16, 1997, KSL Desert Resorts, Inc., the subsidiary of the Company
which owned Desert Resorts, was merged into its then parent, KSL Landmark
Corporation. Concurrently, the name of KSL Landmark Corporation was changed to
KSL Desert Resorts, Inc., now a direct, wholly owned subsidiary of the Company.
On October 31, 1997, certain wholly owned subsidiaries of the Parent, KSL

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Travel, Inc., KSL Vacation Resorts, Inc. and Wild West Desert Properties, Inc.,
became wholly owned subsidiaries of KSL Desert Resorts, Inc.

DORAL GOLF RESORT AND SPA

Doral is a golf destination resort located approximately fifteen miles from
downtown Miami, Florida and approximately ten miles from Miami International
Airport. Since the acquisition of Doral in 1993, the Company has invested
significant capital in an overall property renovation, has initiated measures
designed to enhance and expand the revenue base, and has introduced significant
operating efficiencies.

Doral includes 646 hotel rooms, approximately 75,000 square feet of
conference space, five championship 18-hole golf courses including the recently
restored "Blue Monster" golf course, the home of the Doral-Ryder Open, and the
Gold Course which was recently rebuilt under the direction of golf professional
and designer Raymond Floyd, a 9-hole executive golf course, Jim McLean's golf
instruction program, the Arthur Ashe Tennis Center, featuring fifteen courts,
one swimming pool, three restaurants and a private club. One of Doral's five
championship golf courses, the Silver Course, was acquired by the Company on
October 31, 1997.

Facilities at Doral also include the Spa at Doral, which 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, stress reduction
and nutrition training.

Members of Doral's private club are provided use of the resort's golf,
tennis and fitness facilities, golf and tennis instruction, special events,
dining and social activities. A full golf membership at Doral currently
requires a $15,000 deposit which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of approximately $3,720.

LAKE LANIER ISLANDS

On August 1, 1997, the Company entered into the fifty year sublease of Lake
Lanier Islands, a resort recreation area of approximately 1,041 acres. Lake
Lanier Islands is a regional destination resort and recreational complex located
approximately 45 miles from downtown Atlanta. It 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 features a 224-room hotel, 12,500 square feet of
conference space, three retail outlets, two restaurants, a swimming pool, a 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.

GRAND TRAVERSE

On August 11, 1997, the Company acquired Grand Traverse and related golf
and recreational facilities. Grand Traverse is a regional destination resort
located in the northwest portion of the lower peninsula of Michigan, which
covers approximately 1,370 acres, and features a 425-room hotel, approximately
55,000 square feet of conference space, two championship 18-hole golf courses,
nine tennis courts, four racquetball courts, three swimming pools, three
restaurants, approximately 73,000 square feet of fitness facilities,
approximately 23,000 square feet of retail space and a private club operation.
One of Grand Traverse's two courses, "The Bear," was designed by golf
professional and designer Jack Nicklaus. The Company is also in the process of
constructing a third championship 18-hole golf course, which is being designed
by professional golfer and golf course designer Gary Player. Grand Traverse also
operates a condominium leasing program comprised of approximately 230 rental
units.

Grand Traverse's private club operation also provides golf, tennis and
fitness facilities, sports instruction, special events, dining and social
activities to its members. A full golf membership at Grand Traverse currently
requires a $12,500 deposit which is fully refundable in thirty years (or sooner
under certain circumstances), and annual golf dues of approximately $1,500.

FAIRWAYS

Fairways is based in Manassas, Virginia and operates 22 golf course
properties (21 of which are owned and one of which is leased) located in
numerous markets in the Eastern and Midwestern United States. These properties
include sixteen 18-hole golf courses, three 27-hole golf courses and three
36-hole golf courses, comprising private, semi-private, and daily fee golf
operations.

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At the time it was acquired by the Company in July 1993, Fairways owned and
operated eleven golf course properties, one of which was subsequently sold.
Since July 1993, Fairways has acquired twelve additional golf course properties.
Of Fairway's 22 properties, five are private clubs, twelve 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.

Approximately 938,000 rounds were played at all Fairways courses in
fiscal 1997, of which members played approximately 393,000 rounds and
non-members played approximately 545,000 rounds. Individual golf dues range
from $900 to $5,700 annually.

MARKETING PROGRAMS

The Company attempts to position Desert Resorts, Doral and Grand Traverse
at the premium end of the specific markets 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 its operations, 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, 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, interactive CDs and
internet web sites, and develops and manages televised golf tournaments.

CUSTOMERS

The Company's operations attract a broad range of customers. The customers
typically include frequent independent travelers (FIT), corporate and other
group participants as well as active users of recreational services. At Desert
Resorts and Doral, the 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. The private club at Doral typically attracts
local corporate and individual golf and fitness enthusiasts.

Lake Lanier Islands draws customers from Georgia and the southeastern
United States. The hotel operations at Lake Lanier Islands draw significant
numbers of both corporate and other group participants and FIT guests. Lake
Lanier Islands' 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.

Grand Traverse draws customers largely from Michigan and the Midwest. Its
customers include affluent FIT and corporate guests. Grand Traverse's private
club typically attracts local fitness and golf enthusiasts.

Fairways' golf facilities attract members and daily fee golf participants
from the community in which the applicable facility is located. Its golf club
customers include families and individual golf enthusiasts from a broad range of
socioeconomic backgrounds.

CERTAIN FACTORS AFFECTING RESORTS AND GOLF COURSES

Turf grass conditions must be satisfactory to attract play on the Company's
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. While the Company believes that it currently has sufficient access to
water to operate its golf course 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 nine 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,

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severe storms, tornadoes 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.

CERTAIN UNINSURED RISKS

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, only partially insurable or
not economically insurable. As a result, in the event of such a loss, the
Company could lose all or a significant portion of both its capital invested in,
and anticipated profits from, one or more of the Company's resorts and/or golf
courses.

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, South Florida, and the states of
Michigan and Georgia are significant to its operations, although Desert Resorts
and Doral attract customers from throughout the United States and abroad. 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 are
also dependent upon discretionary spending by consumers, which may be adversely
affected by general and regional economic conditions. In the case of Fairways
golf operations, the regional economies of Florida, Wisconsin and the
Mid-Atlantic United States are particularly important. 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 recreation industry is highly competitive. The Company's 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. 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.

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,
Grand Traverse and Fairways 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 summer months which are recognized in
the last two quarters of the fiscal year.

LICENSES AND TRADEMARKS

The Company is a party to the Professional Golfers' Association License
Agreement ("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

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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
Corporation, an affiliate of the Company engaged in the real estate development
business ("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.

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, 1997, the Company employed approximately
6,000 persons during its peak seasons and approximately 3,900 persons during its
off-peak seasons. In addition, Parent employs approximately 31 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. 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 and the Equal Employment Opportunity Act. The Company
believes it is operating in substantial compliance with applicable laws and
regulations governing its operations.

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ITEM 2. PROPERTIES

PROPERTIES CITY/STATE OWNED OR LEASED

Desert Resorts
La Quinta Resort & Club La Quinta, California Owned
PGA WEST La Quinta, California Owned

Doral Golf Resort and Spa Miami, Florida Owned

Lake Lanier Islands Lake Lanier Islands, Georgia Leased

Grand Traverse Resort Acme, Michigan Owned

KSL Fairways
Birkdale Golf and C.C. Richmond, Virginia Owned
Broad Bay C.C. Virginia Beach, Virginia Owned
Countryside Golf Club Roanoke, Virginia Owned
Kiln Creek Golf and C.C. Newport News, Virginia Owned
Malborough C.C. Upper Marlboro, Maryland Owned
Monroe Valley Golf Club Jonestown, Pennsylvania Owned
Montclair C.C. Dumfries, Virginia Owned
Patuxent Greens C.C. Laurel, Maryland Owned
Prince William Golf Club Dulles, Virginia Leased
Tantallon C.C. Ft. Washington, Maryland Owned
The Club at Hidden Creek Navarre, Florida Owned
Indigo Lakes Golf and C.C. Daytona Beach, Florida Owned
Pebble Creek Tampa, Florida Owned
Scenic Hills C.C. Pensacola, Florida Owned
Shalimar Pointe Golf and C.C. Shalimar, Florida Owned
Tiger Point Golf & C.C. Gulf Breeze, Florida Owned
Walden Lake Golf and C.C. Plant City, Florida Owned
Wellington C.C. Wellington, Florida Owned
Lake Windsor G. C. Windsor, Wisconsin Owned
Memphis Oaks C.C. Memphis, Tennessee Owned
Mequon C.C. Mequon, Wisconsin Owned
Willow Run G.C. Pewaukee, Wisconsin Owned

Descriptions of the Company's significant properties are provided in
"Business". All properties are owned or leased by subsidiaries of the Company.
The corporate office is located within PGA WEST in La Quinta, California.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in certain legal proceedings generally incidental
to its normal business activities. Management of the Company does not believe
that the outcome of any of these proceedings will have a material adverse effect
on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders during the fourth
quarter of fiscal year 1997.

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PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Currently, there is no market for the common stock of the Company or its
Parent.

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ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

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>
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
1997(3) 1996 1995 1994(2) 1993(1)
------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 226,070 $ 182,249 $ 159,266 $ 124,210 $ 8,631
Net income (loss). . . . . . . . . . . . . . . . (363) 19,741 (16,172) (7,729) (488)

Cash and cash equivalents. . . . . . . . . . . . 24,056 9,329 10,112 39,396 6,393
Total assets . . . . . . . . . . . . . . . . . . 636,041 578,852 578,955 565,583 68,420
Long-term debt (including current portion) . . . 366,020 271,436 324,604 324,343 37,716

Earnings (Loss) Per Share:
Before extraordinary item. . . . . . . . . . . $ 2,801 $ (12,379) $ (16,172) $ (5,527) $ (488)
Extraordinary gain (loss). . . . . . . . . . . (3,164) 32,120 - (2,202) -
---------- ---------- ---------- ---------- --------

Total Earnings (Loss) Per Share. . . . . . . . . $ (363) $ 19,741 $ (16,172) $ (7,729) $ (488)
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
Weighted average number of
common shares and common share equivalents . . 1,000 1,000 1,000 1,000 1,000
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
Other Data:
Net Membership Deposits (4). . . . . . . . . . . $ 8,311 $ 4,391 $ 6,347 $ 24,218 $ -
Adjusted Net Membership Deposits(5). . . . . . . 8,311 4,391 234 351 -
Other non-cash items . . . . . . . . . . . . . . 563 873 885 228 -
</TABLE>

1) Reflects operations from July 6, 1993 (date of commencement of operations)
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) Full operations of Lake Lanier Islands and Grand Traverse commenced in
August 1997. Accordingly, the Company's operating results for 1997 included
management fees for Lake Lanier Islands through July, and approximately
three months of operations of both Lake Lanier Islands and Grand Traverse.
4) 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 cash, plus principal
payments in cash received on notes in respect thereof, minus the amount of
any refunds paid in cash with respect to such deposits.
5) Adjusted Net Membership Deposits is defined as Net Membership Deposits,
excluding in fiscal 1995 and fiscal 1994, $6.1 million and $23.9 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
considered nonrecurring in nature.

10
<PAGE>

ITEM 7. 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
COMPANY'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS DOCUMENT. DOLLAR AMOUNTS INCLUDED IN THIS SECTION
ARE IN THOUSANDS.

The Company generates revenues at Desert Resorts, Doral and Grand Traverse
from room revenues, greens fees, food and beverage sales and, to a lesser
extent, membership dues and merchandise (pro shop and retail) sales. At
Fairways, revenues are generated through non-refundable initiation fees,
membership dues, greens fees, golf cart rentals, merchandise (pro shop) sales
and food and beverage sales. Rooms revenue, water park revenues, food and
beverage sales and to a lesser extent, golf fees, merchandise sales, and
admission fees drive revenues at Lake Lanier Islands.

Revenues at Desert Resorts, Doral and Grand Traverse 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 with respect to such deposits. These membership deposits
are fully refundable in thirty years (or sooner under certain circumstances). In
accordance with generally accepted accounting principles (GAAP), the Company
accounts for membership deposits as "cash provided from financing activities" in
its statement of cash flows and reports a liability in its balance sheet equal
to the amount of such membership deposits.

In addition to statement of operation 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, $23,900 and $6,100, 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 non-recurring 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 payment
of a fully refundable (in thirty years, or sooner under certain circumstances)
membership deposit to join one or both of the clubs 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 views cash flow from membership sales as an
important component of 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. 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.

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.

11
<PAGE>

FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996

REVENUES. Revenues increased by $43,821, or 24%, from $182,249 in fiscal
1996 to $226,070 in fiscal 1997. This increase reflected increases in revenues
at each of the Company's existing operating units and the partial year addition
of two operating units in Lake Lanier Islands and Grand Traverse.

DESERT RESORTS. Revenues at Desert Resorts increased by $12,857, or 16%,
from $79,258 in fiscal 1996 to $92,115 in fiscal 1997. This increase was
primarily attributable to (i) an increase in room revenue of $3,236, or
14%, from $23,225 in fiscal 1996 to $26,461 in fiscal 1997 (ii) an increase
in food and beverage sales of $3,280, or 18%, from $17,984 in fiscal 1996
to $21,264 in fiscal 1997 and (iii) an increase in golf fees and dues of
$2,679, or 12%, from $22,242 in fiscal 1996 to $24,921 in fiscal 1997. The
increase in room revenues was attributable to an increase in occupancy. The
increased occupancy reflected the successful booking of more group and
corporate business supported by a new ballroom and related facilities,
which were completed in April 1996. The increases in food and beverage
sales and golf fees and dues were primarily attributable to the increases
in occupancy rate and the addition of a private golf course completed in
January 1996.

DORAL. Revenues at Doral increased by $13,815, or 24%, from $57,343 in
fiscal 1996 to $71,158 in fiscal 1997. During fiscal 1997, (i) room
revenues increased by $4,853, or 22%, from $22,117 in fiscal 1996 to
$26,970 in fiscal 1997, (ii) food and beverage sales increased by $2,736,
or 16%, from $17,049 in fiscal 1996 to $19,785 in fiscal 1997, (iii) golf
fees and dues increased by $3,242, or 46%, from $7,084 in fiscal 1996 to
$10,326 in fiscal 1997 and (iv) spa revenues increased by $932, or 30%,
from $3,112 in fiscal 1996 to $4,044 in fiscal 1997. The increase in room
revenues was primarily attributable to an increase in occupancy. 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, the
"Blue Monster" course, and expanded sales and marketing programs.

FAIRWAYS. Revenues at Fairways increased by $221, or less than 1%, from
$44,766 in fiscal 1996 to $44,987 in fiscal 1997. This increase was
primarily attributable to (i) an increase in golf fees and dues of
$1,412, or 5%, from $29,594 in fiscal 1996 to $31,006 in fiscal 1997,
which was (ii) offset in part by a decrease in food and beverage sales
of $429, or 5%, from $9,305 in fiscal 1996 to $8,876 in fiscal 1997. The
increases in golf fees and dues were primarily attributable to the
acquisition of four golf facilities in fiscal 1996.

LAKE LANIER ISLANDS. Revenues at Lake Lanier Islands increased by $8,024.
In fiscal 1997, total revenues were $8,905 consisting primarily of
management fees of $1,440 received from November 1, 1996 to the closing of
the sublease at August 1, 1997, food and beverage revenue of $1,914, water
park revenue of $1,160, room revenue of $1,680, and other revenue of $2,711
for the period August 1, 1997 to October 31, 1997.

GRAND TRAVERSE. Revenues at Grand Traverse were $8,904 from August 11,
1997 (acquisition date) to October 31, 1997, consisting of rooms revenue of
$4,100, food and beverage revenue of $2,760 and other revenues of $2,044.

OPERATING EXPENSES. Operating expenses increased by $26,175, or 16%, from
$167,057 in fiscal 1996 to $193,232 in fiscal 1997. Operating expenses,
excluding depreciation and amortization, increased by $22,309, or 16%, from
$143,258 in fiscal 1996 to $165,567 in fiscal 1997, primarily as a result of
increased activity resulting from the opening of new facilities, the addition of
Grand Traverse and Lake Lanier Islands, and higher occupancy rates at the
Company's resorts. The primary components of the increase were (i) an increase
in payroll and benefits of $8,896, or 14%, from $63,039 in fiscal 1996 to
$71,935 in fiscal 1997, reflecting increases in staff and changes in incentive
programs, (ii) an increase in other expenses of $11,506, or 15%, from $77,020 in
fiscal 1996 to $88,526 in fiscal 1997, and (iii) an increase in corporate fees
of $1,907, or 60%, from $3,199 in fiscal 1996 to $5,106 in fiscal 1997. As a
percentage of revenues, operating expenses, excluding depreciation and
amortization, declined from 79% of revenues in fiscal 1996 to 73% of revenues in
fiscal 1997. Depreciation and amortization increased by $3,866, or 16%, from
$23,799 in fiscal 1996 to $27,655 in fiscal 1997. This increase was primarily
attributable to the completion of capital improvements at Desert Resorts and
Doral in fiscal 1996 and the addition of Grand Traverse and Lake Lanier Islands.

OPERATING INCOME. Operating income increased by $17,646, or 116%, from
$15,192 in fiscal 1996 to $32,838 in fiscal 1997 as a result of the factors
discussed above.

NET INTEREST EXPENSE. Net interest expense increased by $2,326, or 8%,
from $27,711 in fiscal 1996 to $30,037 in fiscal 1997. This increase was
primarily attributable to (i) increased indebtedness of the Company and (ii)
increased amortization of capitalized finance costs, partially offset by
interest income received on a note receivable from an affiliate.

12
<PAGE>

EXTRAORDINARY ITEMS. The Company incurred an extraordinary loss, net of
income tax benefits, on the early extinguishment of indebtedness of $3,164, in
fiscal 1997. In fiscal 1996, the Company incurred an extraordinary gain, net of
income tax, on the early extinguishment of indebtedness of $32,120.

NET INCOME. Net income decreased by $20,104 from $19,741 in fiscal 1996 to
a net loss of $363 in fiscal 1997 as a result of the factors described above.
Excluding extraordinary items, net loss would have decreased by $15,180, or
123%, from a net loss of $12,379 in fiscal 1996 to a net income of $2,801 in
fiscal 1997.

ADJUSTED EBITDA. Adjusted EBITDA increased by $25,207, or 57%, from
$44,313 in fiscal 1996 to $69,520 in fiscal 1997. This increase was primarily
attributable to the factors described above and an increase in Adjusted Net
Membership Deposits of $3,920 from $4,391 in fiscal 1996 to $8,311 in fiscal
1997.

FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995

REVENUES. Revenues increased by $22,983, or 14%, from $159,266 in fiscal
1995 to $182,249 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 $4,425, or 6%,
from $74,833 in fiscal 1995 to $79,258 in fiscal 1996. This increase was
primarily attributable to (i) an increase in room revenue of $2,141, or
10%, from $21,084 in fiscal 1995 to $23,225 in fiscal 1996, (ii) an
increase in food and beverage sales of $736, or 4%, 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%, from $21,719 in fiscal 1995 to $22,242 in fiscal 1996. The
increase in room revenues was attributable to an increase in occupancy. 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 27%, 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%, from $16,364 in fiscal 1995 to $22,117 in fiscal 1996, (ii) food and
beverage sales increased by $4,072, or 31%, from $12,977 in fiscal 1995 to
$17,049 in fiscal 1996, (iii) golf fees and dues increased by $192, or 3%,
from $6,892 in fiscal 1995 to $7,084 in fiscal 1996 and (iv) spa revenues
increased by $351, or 13% 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. 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%, 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 of $5,229, or 21%,
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%, 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.

LAKE LANIER ISLANDS. Revenues at Lake Lanier Islands were $881 for fiscal
1996, consisting of management fees from May 15, 1996 to October 31, 1996.

OPERATING EXPENSES. Operating expenses increased by $12,594, or 8%, from
$154,463 in fiscal 1995 to $167,057 in fiscal 1996. Operating expenses,
excluding depreciation and amortization, increased by $9,135, or 7%, from
$134,123 in fiscal 1995 to $143,258 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
benefits of $2,042, or 3%, from $60,997 in fiscal 1995 to $63,039 in fiscal
1996, reflecting increases in staff and changes in incentive programs and
(ii) an increase in other expenses of $4,644, or 6%, from $72,376 in fiscal 1995
to $77,020 in fiscal 1996, (iii) an increase in corporate fees of $2,449 or 326%
from $750 in fiscal 1995 to $3,199 in fiscal 1996. As a percentage of revenues,
operating expenses, excluding depreciation and amortization, declined from 84%
of revenues in fiscal 1995 to 79% of revenues in fiscal 1996. Depreciation and
amortization increased by $3,459, or 17%, from $20,340 in fiscal 1995 to $23,799
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 $10,389, or 216 %, from
$4,803 in fiscal 1995 to $15,192 in fiscal 1996 as a result of the factors
discussed above.

13
<PAGE>

NET INTEREST EXPENSE. Net interest expense increased by $9,219, or 50%,
from $18,492 in fiscal 1995 to $27,711 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 $35,913 from a net loss of $16,172 in
fiscal 1995 to net income of $19,741 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 $1,109, or 8%, from
$13,488 in fiscal 1995 to $12,379 in fiscal 1996.

ADJUSTED EBITDA. Adjusted EBITDA increased by $17,850, or 68%, from
$26,463 in fiscal 1995 to $44,313 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.

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 Kohlberg Kravis Roberts & Co., L.P.
(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 credit
facility and cash generated from operations.

During fiscal 1997, cash flow provided by operating activities was
$100,104, compared to $15,218 for fiscal 1996. This increase was primarily due
to (i) the settlement of receivables due from Parent and its affiliates of
$46,446, (ii) the release of restricted cash to operating cash of $9,499 due to
the credit facility, (iii) the release of $2,411 in restricted cash due to the
execution of the Lake Lanier Islands sublease, (iv) an increase in accrued
interest payable of $7,435, and (v) a decrease in trade receivables of $4,027.
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 $51,655. During fiscal 1997, cash flow used in investing
activities was $87,276, compared to $12,755 for fiscal 1996. This change was
primarily attributable to the investment in Lake Lanier Islands, Grand Traverse
and the Silver Course for Doral of $58,575; the repayment to the Company of a
$23,065 note by an affiliate in fiscal 1996, as compared to the issuance of a
new $21,653 note by the Company to an affiliate in fiscal 1997, and was offset
by a decline in capital expenditures of $8,945, and a decline in acquisition of
golf course facilities of $15,274 in fiscal 1997 compared to fiscal 1996.

During fiscal 1996, cash flow provided by operating activities was $15,218,
compared to cash flow used in operating activities of $6,860 for fiscal 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 working capital, offset in part by advances by the
Company to KSL Land. During fiscal 1996, cash flow used in investing activities
was $12,755, compared to $48,661 for fiscal 1995. This decrease was primarily
attributable to a reduction in capital expenditures of $28,392 in fiscal 1996
compared to fiscal 1995 and the repayment to the Company of a $23,065 note by an
affiliate in fiscal 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.

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.

14
<PAGE>

In connection with the Lake Lanier Islands sublease, the Parent contributed
$9,000 in cash to the Company 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 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.

In April 1997, the Company sold $125,000 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 line of up to $175,000. The Notes
are redeemable beginning May 2002 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. Maximum borrowing under
the revolving credit line decrease from a maximum of $175,000 to $163,750 in
May 2000, $152,500 in May 2001, $137,500 in May 2002 and $118,750 in May 2003.

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, which was
used to repay indebtedness of KSL Land with respect to which a subsidiary of the
Company 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 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.

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. In December, 1997, the Company entered into an
agreement to purchase the assets of Silver Spring Country Club, a 36-hole golf
facility in Menomonee Falls, Wisconsin for approximately $9,000. This
acquisition will be financed under the revolving credit portion of the Company's
credit facility. 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 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 be available at all.

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 Company believes that inflation does not materially impact its business
operations.

15
<PAGE>

ACCOUNTING PRONOUNCEMENTS

In fiscal 1996, the Company adopted the provisions of 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 SFAS
No. 128, "Earnings per Share" which changes 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, 1997, the amount reported as net income
per common share was not materially different than that which would have been
reported for basic and diluted earnings per share in accordance with SFAS 128.
This statement will be adopted by the Company beginning November 1, 1997.

During 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which established standards for the reporting
and displaying of comprehensive income. Comprehensive income is defined as all
changes in a Company's net assets except changes resulting from transactions
with shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive income
must be reported in a financial statement with the cumulative total presented as
a component of equity. This statement will be adopted by the Company beginning
November 1, 1998.

During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning November 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company believes the segment information required to be disclosed
under SFAS No. 131 will be more comprehensive than previously provided,
including expanded disclosure of income statement and balance sheet items. The
Company has not yet completed its analysis of the operating segments on which it
will report.

OTHER MATTERS

The Company relies heavily on computer technology to effectively carry out
its day-to-day operations. As the millennium approaches, the Company is
assessing all of its computer systems to ensure that they are "Year
2000"-compliant. In this process, the Company expects to both replace some
systems and upgrade others which are not Year 2000-compliant. The Company
expects its Year 2000 project to be completed on a timely basis. However, there
can be no assurance that the systems of other companies on which the Company may
rely also will be timely converted or that such failure to convert by another
company would not have an adverse effect on the Company's systems. The Company
presently believes, with modification to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
and is not anticipated to be material to its financial position or results of
operations in any given year. The Company's stated expectations regarding its
Year 2000 project constitute forward-looking statements. Actual results could
differ materially from the Company's expectations due to unanticipated
technological difficulties or project delays. Reference is made to the
introductory paragraph of this annual report.

16
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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, 1997 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, 1997. Our audits also included the financial statement schedule
listed in the index at Item 14. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1997 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, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP

Costa Mesa, California
January 23, 1998

17
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
(In thousands, except share and per share data)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Rooms revenue . . . . . . . . . . . . . . . . . . $ 59,393 $ 45,548 $ 37,678
Food and beverage sales . . . . . . . . . . . . . 54,598 44,338 38,897
Golf fees . . . . . . . . . . . . . . . . . . . . 42,641 35,371 32,646
Dues and fees . . . . . . . . . . . . . . . . . . 24,826 23,549 20,330
Other . . . . . . . . . . . . . . . . . . . . . . 44,612 33,443 29,715
--------- --------- ---------
Total revenues . . . . . . . . . . . . . . . . 226,070 182,249 159,266
EXPENSES:
Payroll and benefits. . . . . . . . . . . . . . . 71,935 63,039 60,997
Other expenses. . . . . . . . . . . . . . . . . . 88,526 77,020 72,376
Depreciation and amortization . . . . . . . . . . 27,665 23,799 20,340
Corporate fee (Note 12) . . . . . . . . . . . . . 5,106 3,199 750
--------- --------- ---------
Total operating expenses . . . . . . . . . . . 193,232 167,057 154,463
--------- --------- ---------
INCOME FROM OPERATIONS. . . . . . . . . . . . . . 32,838 15,192 4,803

OTHER INCOME (EXPENSE):
Interest income (Notes 3 and 12). . . . . . . . . 1,672 1,058 5,462
Interest expense. . . . . . . . . . . . . . . . . (31,709) (28,769) (23,954)
Loss on sale of golf course (Note 14) . . . . . . - - (2,684)
--------- --------- ---------
Other expense, net . . . . . . . . . . . . . . (30,037) (27,711) (21,176)
INCOME (LOSS) BEFORE MINORITY INTERESTS, INCOME
TAXES AND EXTRAORDINARY ITEM. . . . . . . . . . 2,801 (12,519) (16,373)
MINORITY INTERESTS IN LOSSES OF SUBSIDIARY. . . . 143 58 201
--------- --------- ---------

INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM. . . . . . . . . . . . . . . 2,944 (12,461) (16,172)

INCOME TAX EXPENSE (BENEFIT) (Note 9) . . . . . . 143 (82) -
--------- --------- ---------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . 2,801 (12,379) (16,172)

EXTRAORDINARY GAIN (LOSS) ON EARLY
EXTINGUISHMENT OF DEBT (net of income tax expense
(benefit) of ($2,007) and $16,757, respectively)
(Note 13) . . . . . . . . . . . . . . . . . . . (3,164) 32,120 -
--------- --------- ---------

NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ (363) $ 19,741 $(16,172)
--------- --------- ---------
--------- --------- ---------

EARNINGS (LOSS) PER SHARE:
Before extraordinary item . . . . . . . . . . . . $ 2,801 $(12,379) $(16,172)
Extraordinary gain (loss) . . . . . . . . . . . . (3,164) 32,120 -
--------- --------- ---------

TOTAL EARNINGS (LOSS) PER SHARE . . . . . . . . . $ (363) $ 19,741 $(16,172)
--------- --------- ---------
--------- --------- ---------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES. . . . . 1,000 1,000 1,000
--------- --------- ---------
--------- --------- ---------

</TABLE>

See accompanying notes to consolidated financial statements.

18
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1997 AND 1996

(In thousands except share data)

<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,056 $ 9,329
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,790 6,038
Trade receivables, net of allowance for doubtful
receivables of $722 and $1,573 respectively. . . . . . . . . . . . . . . . . 14,185 11,046
Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,383 7,266
Current portion of notes receivable (Note 3) . . . . . . . . . . . . . . . . . 1,946 1,658
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . 3,865 3,883
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,225 39,220

PROPERTY AND EQUIPMENT, net (Notes 5, 7 and 8) . . . . . . . . . . . . . . . . . 431,436 362,867
NOTES RECEIVABLE FROM AFFILIATES (Note 12) . . . . . . . . . . . . . . . . . . . 21,653 -
NOTES RECEIVABLE, less current portion (Notes 3, 12 and 14). . . . . . . . . . . 5,177 4,015
RESTRICTED CASH, less current portion. . . . . . . . . . . . . . . . . . . . . . 101 7,763
RECEIVABLE FROM PARENT (Notes 1 and 12). . . . . . . . . . . . . . . . . . . . . - 43,585
RECEIVABLES FROM AFFILIATES (Note 12). . . . . . . . . . . . . . . . . . . . . . - 3,694
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES, net of
accumulated amortization of $13,756 and $10,007, respectively . . . . . . . . 90,343 87,274
OTHER ASSETS, net (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,106 30,434
---------- ----------
$ 636,041 $ 578,852
---------- ----------
---------- ----------

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,948 $ 7,322
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,899 16,831
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,149 2,714
Current portion of long-term debt (Note 7) . . . . . . . . . . . . . . . . . . 1,000 4,636
Current portion of obligations under capital leases (Note 8) . . . . . . . . . 3,044 2,407
Payable to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 719
Deferred income, customer deposits and other . . . . . . . . . . . . . . . . . 6,429 5,404
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 44,498 40,033

LONG-TERM DEBT, less current portion (Note 7). . . . . . . . . . . . . . . . . . 326,500 260,416
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 8). . . . . . . . . 35,476 3,977
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,168 885
MEMBER DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,759 34,026
DEFERRED INCOME TAXES (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . 15,202 16,760
MINORITY INTERESTS IN EQUITY OF SUBSIDIARY (Note 2). . . . . . . . . . . . . . . 247 391

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDER'S EQUITY (Notes 6 and 10):
Common stock, $.01 par value, 1,000 shares authorized and outstanding. . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 197,535 227,424
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,344) (5,060)
---------- ----------
Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . 168,191 222,364
---------- ----------
$ 636,041 $ 578,852
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

19
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

(In thousands)

ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----- ------- ------- -----
<S> <C> <C> <C> <C>
BALANCE November 1, 1994 . . . . . . . . . . $ - $ 196,594 $ (8,629) $ 187,965
Capital contributions (Note 10). . . . . . . - 25,795 - 25,795
Net loss . . . . . . . . . . . . . . . . . . - - (16,172) (16,172)
---------- ---------- ---------- ----------

BALANCE October 31, 1995 . . . . . . . . . . - 222,389 (24,801) 197,588
Capital contributions (Note 10). . . . . . . - 5,035 - 5,035
Net income . . . . . . . . . . . . . . . . . - - 19,741 19,741
---------- ---------- ---------- ----------

BALANCE October 31, 1996 . . . . . . . . . . - 227,424 (5,060) 222,364
Capital contributions (Note 10). . . . . . . - 9,144 - 9,144
Dividends (Note 10). . . . . . . . . . . . . - - (23,921) (23,921)
Capital distributions (Note 10). . . . . . . - (39,033) - (39,033)
Net loss . . . . . . . . . . . . . . . . . . - - (363) (363)
---------- ---------- ---------- ----------

BALANCE, October 31, 1997. . . . . . . . . . $ - $ 197,535 $ (29,344) $ 168,191
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

20
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

(In thousands)

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ (363) $ 19,741 $ (16,172)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 27,665 23,799 20,340
Amortization of debt issuance costs. . . . . . . . . . . . . . . . . . 1,720 2,112 777
Extraordinary loss (gain) on debt extinguishment . . . . . . . . . . . 5,171 (48,256) -
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . (1,558) 16,760 -
Provision for losses on trade receivables. . . . . . . . . . . . . . . (933) 1,004 (3)
Provision for losses on notes receivable . . . . . . . . . . . . . . . - 228 -
Minority interests in losses of subsidiary . . . . . . . . . . . . . . (143) (58) (201)
(Gain) loss on sales of property, net. . . . . . . . . . . . . . . . . (141) 88 2,516
Changes in operating assets and liabilities, net of effects from
investment in subsidiaries:
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,910 (9,464) 6
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 4,027 (2,408) (1,615)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 (518) (729)
Prepaid expenses and other current assets. . . . . . . . . . . . . . 1,579 1,537 (464)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 347 (292) 5
Receivable from Parent . . . . . . . . . . . . . . . . . . . . . . . 43,442 10,069 (16,522)
Receivables from affiliates. . . . . . . . . . . . . . . . . . . . . 3,004 (2,975) 1,669
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (308) (596) (1,318)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (532) (2,894) 491
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (2,433) 6,356 2,822
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . 7,435 1,438 208
Deferred income, customer deposits and other . . . . . . . . . . . . (453) (781) 1,034
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 282 328 296
---------- ---------- ----------
Net cash provided by (used in) operating activities. . . . . . . . 100,104 15,218 (6,860)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries, net of cash acquired . . . . . . . . . . . (58,575) (50) (65)
Purchases of property and equipment. . . . . . . . . . . . . . . . . . (12,135) (21,080) (49,472)
Notes receivable from affiliate, net . . . . . . . . . . . . . . . . . (21,653) 23,065 77
Acquisition of golf course facilities. . . . . . . . . . . . . . . . . - (15,274) (10,162)
Proceeds from sales of property and equipment. . . . . . . . . . . . . 277 583 2,402
Collections on member notes receivable . . . . . . . . . . . . . . . . 3,704 1,908 8,594
Investment in partnerships . . . . . . . . . . . . . . . . . . . . . . (515) (1,907) (571)
Proceeds from sale of investment in partnership. . . . . . . . . . . . 1,621 - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 536
---------- ---------- ----------
Net cash used in investing activities. . . . . . . . . . . . . . . (87,276) (12,755) (48,661)
</TABLE>

See accompanying notes to consolidated financial statements.

21
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 (CONTINUED)

(In thousands)

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance. . . . . . . . . . . . . . . . . $ 327,862 $ 147,395 $ 8,665
Principal payments on long-term debt and obligations under
capital leases . . . . . . . . . . . . . . . . . . . . . . (268,081) (154,945) (12,255)
Member deposits, net . . . . . . . . . . . . . . . . . . . . 4,608 2,483 4,365
Capital contributions from Parent. . . . . . . . . . . . . . 9,144 5,035 25,795
Capital distributions and dividends to Parent. . . . . . . . (60,799) - -
Debt financing costs . . . . . . . . . . . . . . . . . . . . (10,835) (3,214) (333)
----------- ----------- ----------

Net cash provided by (used in) financing activities. . . . . 1,899 (3,246) 26,237
----------- ----------- ----------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . 14,727 (783) (29,284)

CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . 9,329 10,112 39,396
----------- ----------- ----------

CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . $ 24,056 $ 9,329 $ 10,112
----------- ----------- ----------
----------- ----------- ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid (net of amounts capitalized) . . . . . . . . $ 22,555 $ 25,774 $ 23,449
----------- ----------- ----------
----------- ----------- ----------

Income taxes paid. . . . . . . . . . . . . . . . . . . . . $ 424 $ 9 $ -
----------- ----------- ----------
----------- ----------- ----------

NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases . . . . . . . . . . . . . . $ 35,154 $ 4,615 $ 3,857
Notes receivable issued for member deposits. . . . . . . . . 5,210 1,892 1,449
Note receivable issued from sale of assets . . . . . . . . . 412 494 1,933
Dividend to Parent of investments in partnerships. . . . . . 2,155 - -
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 -
</TABLE>

See accompanying notes to consolidated financial statements.

22
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(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 7) on April 30, 1997, KSL
Desert Resorts, Inc. (previously 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. Prior to April 30, 1997, these subsidiaries
were wholly-owned by the Parent.

On October 31, 1997, certain wholly-owned subsidiaries of the Parent, KSL
Travel, Inc. (KTI), KSL Vacation Resorts, Inc. (VRI) and Wild West Desert
Properties, Inc. (Wild West), became wholly-owned subsidiaries of Group in a
transaction accounted for in a manner similar to a pooling of interests. The
accompanying consolidated financial statements have been restated to reflect
this transaction. The effects on income (loss) before extraordinary items, net
income (loss) and related per share amounts were not material.

As of October 31, 1997, the Company has five principal investments:
(1) through KSL Golf Holdings, Inc. (Fairways), a Delaware corporation, the
Company, through an intermediate subsidiary 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 Desert Resorts, Inc. (Desert Resorts), a
Delaware corporation, who owns 100% of KTI, VRI and Wild West, (4) a 100%
interest in KSL Georgia Holdings, Inc. (Lake Lanier), a Delaware corporation;
and (5) a 100% interest in KSL Grand Traverse Holdings, Inc. (Grand Traverse), 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 owns and operates the PGA WEST golf courses, the La Quinta Resort
& Club and related activities in La Quinta, California. Lake Lanier leases and
manages a resort recreation area of approximately 1,041 acres known as Lake
Lanier Islands, outside of Atlanta, Georgia. Grand Traverse owns and operates
the Grand Traverse Resort and related activities outside of Traverse City,
Michigan.

On May 15, 1996, the Company, through a subsidiary, 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 was 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 was
recognized as an adjustment to the recorded values of the assets leased pursuant
to the sublease. The sublease is accounted for as a capital lease. Accordingly,
in August, 1997, the Company recorded the net assets acquired pursuant to the
sublease and recognized the net present value of the related minimum lease
payments.

23
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

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 and
letters of credit required for construction in progress.

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 is included in depreciation and amortization expense in the accompanying
consolidated statements of operations.

LONG-LIVED ASSETS-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 $3,749, $3,616 and $3,462 for fiscal years 1997, 1996
and 1995, 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.

DEBT ISSUE COSTS-Debt issue costs are amortized over the life of the
related debt and the associated amortization expense is included in interest
expense in the accompanying consolidated financial statements.

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.

24
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

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, 1997 and
1996.

A minority interest partner (the Partner) in TFG L.P. had a partner
deficit balance of approximately $3,322 and $3,065 as of October 31, 1997 and
1996, respectively. The Company has reduced the minority interest allocation
of TFG L.P.'s net loss by the Partner's share of $257, $104 and $361 in
fiscal years 1997, 1996 and 1995, respectively.

During 1995, pursuant to a stockholders' agreement between Doral
and the principals of the predecessor company (the Minority Shareholders),
the Minority Shareholders exercised their option to sell to Doral, and Doral
purchased all of the Minority 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.

INCOME TAXES-The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards (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 agreement 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 $149, $260 and $(362)
for the years ended October 31, 1997, 1996 and 1995, 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.

25
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

ACCOUNTING PRONOUNCEMENTS-During 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which
established standards for the reporting and displaying of comprehensive
income. Comprehensive income is defined as all changes in a Company's net
assets except changes resulting from transactions with shareholders. It
differs from net income in that certain items currently recorded to equity
would be a part of comprehensive income. Comprehensive income must be
reported in a financial statement with the cumulative total presented as a
component of equity. This statement will be adopted by the Company beginning
November 1, 1998.

During 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which will be effective for the Company beginning November 1,
1998. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company believes the segment information
required to be disclosed under SFAS No. 131 will be more comprehensive than
previously provided, including expanded disclosure of income statement and
balance sheet items. The Company has not yet completed its analysis of the
operating segments on which it will report.

RECLASSIFICATION-Certain reclassifications have been made to the
1996 and 1995 consolidated financial statements to conform to the 1997
presentation.

3. NOTES RECEIVABLE

Notes receivable of $2,386 and $2,316 as of October 31, 1997 and
1996, respectively, represent purchase money mortgage notes received in
connection with the sale of a golf facility (Note 14) and various land
parcels. Such notes are due at various dates primarily through 2002.

Notes receivable of $4,061 and $2,681 at October 31, 1997 and 1996,
respectively, primarily represent notes from members related to member
deposits and bear interest primarily at 10%. 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, 1997 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 (Note 12). In July, 1996, this general partner pledged TFG
L.P. partnership units as security for repayment of this note.

4. INVENTORIES

Inventories consist of the following:
OCTOBER 31,
-----------
1997 1996
---- ----
Merchandise . . . . . . . . . . . . . . . . . . . $ 3,791 $ 4,213
Food and beverage . . . . . . . . . . . . . . . . 1,629 1,116
Base stock (china, silver, glassware, linen). . . 1,182 985
Supplies and other. . . . . . . . . . . . . . . . 781 952
-------- --------
$ 7,383 $ 7,266
-------- --------
-------- --------

26
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

OCTOBER 31,
-----------
1997 1996
---- ----
Land and land improvements. . . . . . . . . . . $ 242,815 $ 219,014
Buildings . . . . . . . . . . . . . . . . . . . 171,364 134,767
Furniture, fixtures and equipment . . . . . . . 79,033 52,438
Construction in progress. . . . . . . . . . . . 5,071 1,570
---------- ----------
498,283 407,789
Less accumulated depreciation . . . . . . . . . (66,847) (44,922)
---------- ----------

Property and equipment, net . . . . . . . . . $ 431,436 $ 362,867
---------- ----------
---------- ----------

6. OTHER ASSETS

Other assets consist of the following:

OCTOBER 31,
-----------
1997 1996
---- ----
Undeveloped land. . . . . . . . . . . . . . . . $ 16,376 $ 16,376
Debt issue costs, less accumulated amortization
of $473 and $3,019, respectively. . . . . . . 9,064 5,028
Lease agreements, less accumulated amortization
of $324 and $0, respectively. . . . . . . . . 3,555 -
Other intangibles, less accumulated amortization
of $609 and $364, respectively. . . . . . . . 2,666 2,881
Favorable lease, less accumulated amortization
$1,694 and $1,303, respectively . . . . . . . 2,019 2,410
Investment in partnerships. . . . . . . . . . . - 3,260
Deposits and other assets . . . . . . . . . . . 426 479
---------- ----------
$ 34,106 $ 30,434
---------- ----------
---------- ----------

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. Lease
agreements represent the estimated fair value of lease contracts with third
parties related to a condominium leasing program associated with the
acquisition of Grand Traverse and is amortized generally over three years.
Amortization expense for these other assets, excluding debt issue costs,
approximated $960, $573 and $598 for 1997, 1996 and 1995, respectively.

Investment in partnerships represented the Company's general and limited
partner interests in five limited partnerships whose principal assets were
undeveloped commercial and residential real estate parcels. On April 30, 1997
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 were provided as a dividend to the Parent (Note
10). Accordingly, the Company has no investment in these partnerships as of
October 31, 1997.

27
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

7. LONG-TERM DEBT

<TABLE>
<CAPTION>
Long-term debt consists of the following:
OCTOBER 31,
-----------
1997 1996
---- ----
<S> <C> <C>
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% (8.75% to 9% at October 31, 1997),
$46,500 maturing April 30, 2005 and $46,000 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% (7.88% to 8.25% at October 31, 1997), principal due at maturity on April 30, 2004 . . . 102,500 -
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%, paid in
April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,289
Term notes, payable in installments, with interest payable ranging at LIBOR plus 2.7% to 3.2%
(8.2% to 8.7% at October 31, 1996), guaranteed by the Parent, due December 31, 1999 through
2001, paid in April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Term loans, interest at either a floating rate or the Eurodollar rate (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,430
Other notes payable, paid in April 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,333
----------- ----------
327,500 265,052
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000) (4,636)
----------- ----------
Long-term portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 326,500 $ 260,416
----------- ----------
----------- ----------
</TABLE>

In April 1997, the Company sold $125,000 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 line of up to
$175,000. The Notes are redeemable beginning May 2002 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. Maximum
borrowings under the revolving credit line decrease from a maximum of
$175,000 to $163,750 in May 2000, $152,500 in May 2001, $137,500 in May 2002
and $118,750 in May 2003.

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
an affiliate, KSL Land Corporation (KSL Land), which was used to repay
indebtedness of KSL Land with respect to which a subsidiary of the Company
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 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.

28
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

The terms of the credit facility contain certain financial covenants
including interest coverage, fixed charges and leverage ratios. 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. The Company 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 credit facility, which began to accrue
on April 23, 1997. Total non-use fees of approximately $437, $262, and $322
were paid in 1997, 1996, 1995 respectively, on the daily average of the
unused amount of certain revolving and term loan commitments. The 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. The Company was in compliance with
the financial covenants at October 31, 1997.

In December 1995, the Company completed a negotiated compromise debt
settlement (Note 13), 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.

Scheduled principal payments on long-term debt as of October 31, 1997
are as follows:

Year ending October 31:
1998 . . . . . . . . . . . . . . . . . . . . . $ 1,000
1999 . . . . . . . . . . . . . . . . . . . . . 1,000
2000 . . . . . . . . . . . . . . . . . . . . . 1,000
2001 . . . . . . . . . . . . . . . . . . . . . 1,000
2002 . . . . . . . . . . . . . . . . . . . . . 1,000
Thereafter . . . . . . . . . . . . . . . . . . 322,500
----------

Total. . . . . . . . . . . . . . . . . . . . . $ 327,500
----------
----------

During 1997, 1996 and 1995, the Company capitalized interest of
approximately $0, $577 and $1,043 respectively, related to construction in
progress activities.

8. OBLIGATIONS UNDER CAPITAL LEASES

During 1997 the Company entered into a fifty year sublease of a resort
recreation area of approximately 1,041 acres known as Lake Lanier Islands
(Note 1). Under the terms of the sublease, the Company is required to make
monthly base lease payments of $250. An additional annual payment equal to
3.5% of gross revenues in excess of $20,000 is payable pursuant to the
sublease, with a minimum of $100 in years one through five and $200 in years
six through fifty. 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 is committed to expend
$5,000 over the first five years of the sublease for the development and
construction of new capital projects. This sublease expires in 2046 and is
guaranteed by the Parent. Additionally, the Company has entered into certain
leases for equipment and golf carts that are classified as capital leases.

Property under the sublease and the other capital leases is summarized
as follows:

OCTOBER 31,
-----------
1997 1996
---- ----
Buildings and land improvements . . . . . $ 24,715 -
Equipment . . . . . . . . . . . . . . . . 15,617 $ 9,442
Less accumulated depreciation . . . . . . (5,606) (3,176)
--------- ---------

$ 34,726 $ 6,266
--------- ---------
--------- ---------

29
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

Total minimum payments due under capital leases at October 31,1997
are summarized as follows:

<TABLE>
<CAPTION>
LAKE LANIER OTHER CAPITAL
SUBLEASE LEASES TOTAL
-------- ------ -----
<S> <C> <C> <C>
Year ending October 31:
1998. . . . . . . . . . . . . . . . . . . $ 3,100 $ 3,593 $ 6,693
1999. . . . . . . . . . . . . . . . . . . 3,100 2,532 5,632
2000. . . . . . . . . . . . . . . . . . . 3,100 1,438 4,538
2001. . . . . . . . . . . . . . . . . . . 3,100 487 3,587
2002. . . . . . . . . . . . . . . . . . . 3,100 128 3,228
Thereafter. . . . . . . . . . . . . . . . 143,250 - 143,250
--------- ---------- --------
Total minimum lease payments. . . . . . . . . 158,750 8,178 166,928
Less amounts representing interest. . . . . . (127,408) (1,000) (128,408)
--------- ---------- --------
Present value of minimum lease payments . . . 31,342 7,178 38,520
Less current portion. . . . . . . . . . . . . (25) (3,019) (3,044)
--------- ---------- --------
Long-term portion . . . . . . . . . . . . . . $ 31,317 $ 4,159 $ 35,476
--------- ---------- --------
--------- ---------- --------
</TABLE>

9. INCOME TAXES

The components of the Federal and state income tax expense (benefit) are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . $ - $ (150) $ -
State . . . . . . . . . . . . . . . . . . . 263 65 -
--------- ---------- --------
263 (85) -
Deferred:
Federal . . . . . . . . . . . . . . . . . . (105) 3 -
State . . . . . . . . . . . . . . . . . . . (15) - -
--------- ---------- --------
(120) 3 -
--------- ---------- --------
Total . . . . . . . . . . . . . . . . . . . . $ 143 $ (82) $ -
--------- ---------- --------
--------- ---------- --------
</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>
YEAR ENDED OCTOBER 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate (35%)
applied to earnings before income
taxes and extraordinary items . . . . . . $ 1,030 $ (4,361) $ (5,660)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefits 147 (623) (485)
Change in valuation allowance . . . . . . (1,128) 4,040 5,481
Benefits of lower federal income tax rate . . 29 125 162
Reduction in state tax carryforwards. . . . . (96) 348 306
Other . . . . . . . . . . . . . . . . . . . . 161 389 196
-------- ---------- ----------
$ 143 $ (82) $ -
-------- ---------- ----------
-------- ---------- ----------
</TABLE>

30
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

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:

OCTOBER 31,
-----------
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards. . . . . . $ 15,968 $ 15,298
Capitalized lease . . . . . . . . . . . . . 1,574 -
Deferred income . . . . . . . . . . . . . . 365 431
Investment in partnership interest. . . . . 2,049 1,728
Self-insured employee benefit programs. . . 433 879
Other . . . . . . . . . . . . . . . . . . . 946 973
---------- ----------

Total deferred tax assets. . . . . . . . 21,335 19,309
Less valuation reserve . . . . . . . . . . . . (11,071) (12,199)
---------- ----------
Deferred tax assets, net . . . . . . . . 10,264 7,110
Deferred tax liabilities:
Purchase price adjustment (Note 13) . . . . 15,978 16,757
Fixed assets. . . . . . . . . . . . . . . . 4,494 3,714
Prepaid real property taxes . . . . . . . . 1,080 493
Basis difference in partnerships. . . . . . 316 302
Amortization of intangibles . . . . . . . . 3,192 2,047
Capitalized assets. . . . . . . . . . . . . 78 282
Other . . . . . . . . . . . . . . . . . . . 328 275
---------- ----------
Total deferred tax liabilities . . . . . 25,466 23,870
---------- ----------
Net deferred tax liability . . . . . . . $ (15,202) $ (16,760)
---------- ----------
---------- ----------

The Company has reserved for net deferred tax assets whose realization
depends on future taxable income. The valuation reserve was decreased by
$1,128 during 1997 and was increased by $4,041 during 1996.

At October 31, 1997, the Company has net operating loss carryforwards
available of approximately $41,397, 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 $39,362 which will begin to
expire in the year ending October 31, 1999.

10. STOCKHOLDER'S EQUITY

During 1997, 1996 and 1995, the Company received capital contributions
of approximately $9,005, $5,035 and $25,795 respectively, from the Parent.
The 1997 contributions were used primarily for equipment and other fixed
asset purchases at Lake Lanier and the 1995 and 1996 contributions were used
primarily for property renovations at Doral.

Concurrent with the Refinancings (Note 7), 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 6). Immediately prior to the
contribution from the Parent of certain subsidiaries (Note 1), Wild West
provided a dividend to the Parent of $600 and the Parent contributed
additional capital of $138 to VRI.

Earnings per share for the years ended October 31, 1997, 1996 and 1995
are computed by dividing net income by the weighted average number of
outstanding common shares and common share equivalents, if any, during the
respective periods. Common share equivalents include the effect of dilutive
stock options calculated using the treasury stock method.

31
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

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 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 accompanying consolidated
statements of operations.

11. COMMITMENTS AND CONTINGENCIES

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.

Contractual obligations associated with construction in progress
approximated $2,722 at October 31, 1997, consisting primarily of the Gary
Player golf course at Grand Traverse. (Notes 6 and 7).

12. 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 13). The Company recorded interest
income of $87 and $1,845 in 1996 and 1995, 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 7). As a result of the Refinancings (Note 7), the Company
provided financing to KSL Land of approximately $20,800 at April 30, 1997.
The Company recorded interest income of $798 in 1997 related to this note
receivable. This unsecured note receivable bears interest at 8% and is
payable at maturity in June 1999.

The receivable from Parent of $43,585 at October 31, 1996 is 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.

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 1977.

Prior to the Refinancing, management fees of $1,750, $3,199 and
$750 in 1997, 1996 and 1995, respectively, were payable to the Parent for
management advisory services. These receivables were settled in April 1997.
As a result of the Refinancing, the Company entered into an expense
allocation agreement with the Parent. During 1997 the Company incurred $3,356
of expenses to be reimbursed to the Parent. Such management fees and
reimbursed expenses are included in corporate fee expense in the accompanying
consolidated statements of operations.

TFG L.P. has a note receivable from a general partner of $676,
which is included in long-term notes receivable at October 31, 1997 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 1997 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.

13. EXTRAORDINARY ITEMS

On April 30, 1997, the Company expensed the net deferred financing
costs, prepayment fees and other costs, which aggregated approximately
$5,171, related to the debt that was extinguished as a result of the
Refinancings (Note 7). 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.

32
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

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 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 12). 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.

14. 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 TFG 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%
(10.5% at October 31, 1997), with an interest rate floor of 9% and a 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
commenced in July 1997 and continue through the maturity date of the note in
July 2002.

15. ACQUISITION

On August 11, 1997 the Company, through a subsidiary, acquired the
Grand Traverse Resort, a 425 room hotel and related golf and recreational
facilities, located outside Traverse City, Michigan for approximately $45,000.

The purchase of Grand Traverse was financed under the revolving
credit portion of the Company's credit facility (Note 7). The acquisition
has been accounted for as a purchase and accordingly, the operating results
of Grand Traverse have been included in the Company's consolidated financial
statements since acquisition. The excess of the aggregate purchase price
over the fair value of the net assets acquired of approximately $6,000 is
being amortized over 15 years.

The following unaudited pro forma consolidated results of
operations for the years ended October 31, 1997 and 1996 assume the Grand
Traverse acquisition occurred as of November 1, 1995:

(In thousands, except share data)
1997 1996
---- ----
Revenues . . . . . . . . . . . . . . . . $ 247,142 $ 212,249
Income (loss) before income
taxes and extraordinary item . . . . . 2,824 (10,961)
Net income (loss). . . . . . . . . . . . (483) 21,241
Net Earnings (Loss) Per Share. . . . . . (483) 21,241

The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisition had taken place as of the
beginning of the fiscal periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.

33
<PAGE>

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

16. UNAUDITED QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
(In thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended October 31, 1997:
Revenues . . . . . . . . . . . . . . . . . . $ 54,549 $ 70,565 $ 43,531 $ 57,425 $ 226,070
Income (loss) from operations. . . . . . . . 10,046 21,278 (54) 1,568 (c) 32,838
Net income (loss). . . . . . . . . . . . . . 1,812 8,756 (a) (6,803) (4,128) (363)

Earnings (Loss) Per Share. . . . . . . . . . 1,812 8,756 (6,803) (4,128) (363)

For the year ended October 31, 1996:
Revenues . . . . . . . . . . . . . . . . . . 46,008 61,696 36,561 37,984 182,249
Income (loss) from operations. . . . . . . . 5,238 16,733 (2,878) (3,901) 15,192
Net income (loss). . . . . . . . . . . . . . 31,481 (b) 10,161 (10,578) (11,323) 19,741

Earnings (Loss) Per Share. . . . . . . . . . 31,481 10,161 (10,578) (11,323) 19,741
</TABLE>

(a) Includes extraordinary loss on early extinguishment of debt of $3,164.
(b) Includes extraordinary gain on early extinguishment of debt of $32,120.
(c) Includes a decrease in workers compensation expense due to a change in
California's experience rating ($840) and a decrease in workers
compensation claims ($920). Also, income from operations includes $4,374
from the Lake Lanier sublease and the Grand Traverse acquisition which
were consummated in August 1997.

17. SUBSEQUENT EVENTS

On December 1, 1997 the Company, through a subsidiary, entered into an
agreement to purchase the assets of Silver Spring Country Club (Silver
Spring), a 36-hole golf facility in Menomonee Falls, Wisconsin for
approximately $9,000. This acquisition is scheduled to close in the second
quarter of fiscal 1998. The acquisition will be accounted for using the
purchase method of accounting. The purchase price will be financed under the
revolving credit portion of the Company's credit facility (Note 7).

34
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

35
<PAGE>

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages and positions of the directors
and executive officers of the Company, together with other key executive
officers of the Company's subsidiaries and Parent. 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.. . . . . . . . . . . . . . . . . . . 41 Vice President, Chief Financial Officer and Treasurer
Nola S. Dyal . . . . . . . . . . . . . . . . . . . . . 48 Vice President, General Counsel and Secretary
Bradley T. Quayle. . . . . . . . . . . . . . . . . . . 45 Vice President of Marketing and Corporate Development
Steven F. Elliott. . . . . . . . . . . . . . . . . . . 34 Vice President of Corporate Finance
E. D. Bryant . . . . . . . . . . . . . . . . . . . . . 51 Vice President of Direct Marketing and Sales
Richard L. DesVaux . . . . . . . . . . . . . . . . . . 42 Vice President of Finance Administration
Doris Allen-Kirchner . . . . . . . . . . . . . . . . . 45 Vice President of Human Resources
James E. Wanless . . . . . . . . . . . . . . . . . . . 44 Vice President of Club and Membership Development
Thomas McGrath . . . . . . . . . . . . . . . . . . . . 47 Vice President of Merchandising and Events
Emily-May Richards . . . . . . . . . . . . . . . . . . 49 Corporate Controller
Henry R. Kravis. . . . . . . . . . . . . . . . . . . . 53 Director
George R. Roberts. . . . . . . . . . . . . . . . . . . 54 Director
Paul E. Raether. . . . . . . . . . . . . . . . . . . . 51 Director
Michael T. Tokarz. . . . . . . . . . . . . . . . . . . 48 Director
Scott M. Stuart. . . . . . . . . . . . . . . . . . . . 38 Director
Alexander Navab, Jr. . . . . . . . . . . . . . . . . . 32 Director

OTHER KEY EXECUTIVE OFFICERS:
Eric L. Affeldt. . . . . . . . . . . . . . . . . . . . 40 President, KSL Hotel Corp. and KSL Silver Properties, Inc.
Mark A. Burnett. . . . . . . . . . . . . . . . . . . . 33 President, KSL Fairways Golf Corporation
Scott M. Dalecio . . . . . . . . . . . . . . . . . . . 35 President, KSL Desert Resorts, Inc.
Joel B. Paige. . . . . . . . . . . . . . . . . . . . . 38 President, KSL Florida Holdings, Inc. and KSL Grand Traverse
Holdings, Inc.
Raymond C. Williams. . . . . . . . . . . . . . . . . . 51 President, KSL Lake Lanier, Inc.
Gary M. Beasley. . . . . . . . . . . . . . . . . . . . 32 Vice President of Acquisitions, KSL Recreation Corporation
</TABLE>

MICHAEL S. SHANNON. Mr. Shannon has been a Director and the President and
Chief Executive Officer of the Company since its formation. Mr. Shannon was a
founding stockholder of Parent and has served as a Director and President and
Chief Executive Officer of Parent since its inception. Mr. Shannon is also a
Director of each of the Company's subsidiaries and serves as either President
or Executive Vice President of each subsidiary. 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 and
TCA Cable TV, Inc.

LARRY E. LICHLITER. Mr. Lichliter has been a Director and Executive Vice
President of the Company since its formation. Mr. Lichliter was a founding
stockholder of Parent and has served as a Director and its Executive Vice
President since its inception. He served as Chief Operating Officer of Parent
from its inception through December 1996. Mr. Lichliter is also a Director
and serves as either President or Executive Vice President of each of the
Company's subsidiaries. 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 Company 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. Mr. Saer is also Vice President, Chief
Financial Officer and/or Treasurer for each of the Company's subsidiaries.
From 1990 until joining Parent, Mr. Saer served as a principal of Windermere
Management, Inc. and its affiliate, Jonison Partners, Ltd.

36
<PAGE>

NOLA S. DYAL. Ms. Dyal has been Vice President, General Counsel and
Secretary of the Company since its formation. Ms. Dyal joined Parent in
November 1993 as Vice President, General Counsel and Secretary. Ms. Dyal also
serves as Vice President, General Counsel and Secretary for each of the
Company's subsidiaries, with one exception. 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 of Marketing and
Corporate Development of the Company 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 Company 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. In April 1997, Mr. Elliott was elected Vice President
of each of the Company's then existing subsidiaries. Additionally, in
October 1997, Mr. Elliott was elected Vice President of KSL Silver
Properties, Inc., a new subsidiary of the Company. 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.

E. D. BRYANT. Mr. Bryant became Vice President of Direct Sales and
Marketing of the Company and the Parent in September 1997. At that time, Mr.
Bryant was also elected Vice President of Direct Marketing and Sales for
certain of the Company's subsidiaries. From January 1991 to September 1997,
Mr. Bryant was employed by Marriott Vacation Club International, most
recently as Vice President, Western Region Sales and Marketing.

RICHARD L. DESVAUX. Mr. DesVaux joined the Company and Parent as Vice
President of Finance Administration in August 1997. From October 1990 to
July 1997, Mr. DesVaux served as Vice President of Internal Audit and Vice
President and Administrative Officer for Hilton Hotels Corporation.

DORIS ALLEN-KIRCHNER. Ms. Allen-Kirchner joined the Company and Parent in
October 1997 as Vice President of Human Resources. From November 1994 to
September 1997, Ms. Allen-Kirchner served as a Management Consultant to
Quorum Health Resources, Inc. Prior to that, Ms. Allen-Kirchner was Chief
Operations Officer for Vail Valley Medical Center in Vail, Colorado since
1985.

JAMES E. WANLESS. Mr. Wanless has been Vice President of Club and
Membership Development of the Company since its formation. Mr. Wanless joined
Parent in September 1996 as Vice President of 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 of Merchandising and
Events of the Company since its formation. Mr. McGrath joined Parent in June
1996 as Vice President of 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
Company 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 is also the Corporate
Controller or Assistant Controller of all of the Company's subsidiaries. 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 Company and a managing member of the Executive Committee of
the limited liability company which serves as the general partner of KKR.
In addition, Mr. Kravis is a Director of KSL Golf Holdings, Inc., a
subsidiary of the Company. He is also a Director of Accuride Corporation,
Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, The Gillette Company, IDEX Corporation, KinderCare
Learning Centers, Inc., Merit Behavioral Care Corporation, Newsquest Capital
PLC, Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA, Inc.,
Randall's Food Markets, Inc., Safeway, Inc., Sotheby's Holdings, Inc., Union
Texas Petroleum Holdings, Inc. and World Color Press, Inc.

GEORGE R. ROBERTS. Mr. Roberts, Founding Partner of KKR, is a Director of
Parent and the Company 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 Accuride Corporation, Amphenol Corporation, Borden, Inc.,
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation,
KinderCare Learning Centers, Inc., Merit Behavioral Care Corporation,
Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., Randall's
Food Markets, Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc. and
World Color Press, Inc.

37
<PAGE>

PAUL E. RAETHER. Mr. Raether is a Director of Parent and the Company 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., IDEX Corporation and
Randall's Food Markets, Inc. Mr. Raether joined KKR in 1980.

MICHAEL T. TOKARZ. Mr. Tokarz is a Director of Parent and the Company 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. In
addition, Mr. Tokarz is a Director of KSL Golf Holdings, Inc., a subsidiary
of the Company. Mr. Tokarz joined KKR in 1985. He is also a Director of
Evenflo & Spalding Holdings Corporation, IDEX Corporation, PRIMEDIA, Inc.,
Safeway, Inc. and Walter Industries, Inc.

SCOTT M. STUART. Mr. Stuart is a Director of Parent and the Company 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. In addition, Mr.
Stuart is a Director of KSL Golf Holdings, Inc., a subsidiary of the Company.
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 Company 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, Reltec Corporation and World Color
Press, Inc.

ERIC L. AFFELDT. Mr. Affeldt became President of KSL Hotel Corp., the
operating subsidiary which owns Doral, and KSL Silver Properties, Inc., the
operating subsidiary which owns the Silver Course for use in connection with
the Doral, on December 29, 1997. Prior to that, Mr. Affeldt was President of
KSL Fairways Golf Corporation, a subsidiary of the Company and the managing
general partner of The Fairways Group, L.P., a limited partnership through
which Fairways operations are conducted. 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.

MARK A. BURNETT. On December 29, 1997, Mr. Burnett became President of KSL
Fairways Golf Corporation, a subsidiary of the Company and the managing
general partner of The Fairways Group, L.P., a limited partnership through
which Fairways operations are conducted. He had served as its Vice President
since May 1997. Prior to that, Mr. Burnett was the southern regional manager
for KSL Fairways since August 1996. From August 1991 to July 1996, Mr.
Burnett was employed by Golf Enterprises, Inc. in Dallas, Texas in various
capacities, most recently as Vice President of Western Operations from March
1994 through July 1996.

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. Mr. Dalecio is also the President or Vice President of each
of the four operating subsidiaries of KSL Desert Resorts, Inc.

JOEL B. PAIGE. Mr. Paige has been the President of KSL Florida Holdings,
Inc., a subsidiary of the Company which owns KSL Hotel Corp. and KSL Silver
Properties, Inc., since December 1996. Mr. Paige is also the President of
KSL Grand Traverse Holdings, Inc., and its four wholly-owned operating
subsidiaries, which own and operate the Grand Traverse Resort and its related
assets acquired in August 1997. From April 1995 through December 1997, Mr.
Paige had also been the President of KSL Hotel Corp. 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 leases and operates 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.

GARY M. BEASLEY. Mr. Beasley became Vice President of Acquisitions for the
Parent in November 1997. He joined the Parent in June 1995 as Associate,
Business Development and became Director of Acquisitions in December 1996.
Prior to joining Parent, Mr. Beasley was an Associate at Security Capital
Group, Inc. from September 1993 to June 1995. From September 1991 to June
1993, Mr. Beasley attended Stanford Business School where he received his
Masters in Business Administration.

Messrs. Kravis and Roberts are first cousins.

The business address of Messrs. Kravis, Raether, Tokarz, Stuart and
Navab is 9 West 57th Street, Suite 200, New York, New York 10019 and the
business address of Mr. Roberts is 2800 Sand Hill Road, Suite 200, Menlo
Park, California 94025.

38
<PAGE>

The following directors have been appointed to serve on the Company's
Executive Committee during fiscal 1998: Messrs. Kravis, Raether, Tokarz and
Shannon. The following directors have been appointed to serve on the
Company's Audit Committee during fiscal 1998: Messrs. Stuart, Navab and
Lichliter.

39
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Prior to the formation of the Company in March 1997, executive officers
of the Company 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 years ended October 31, 1997 and 1996 for
(i) the chief executive officer of the Company and (ii) each of the four
other most highly compensated executive officers of the Company, determined
as of October 31, 1997 (collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1) (2)
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN STOCK OPTION/ LTIP COMPEN-
POSITION YEAR SALARY BONUS -SATION AWARD(S) SARS PAYOUTS SATION (3)
- -------- ---- ------ ----- ------- -------- ---- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Shannon
President and Chief
Executive Officer 1997 $475,000 $650,000 - - - - $27,864
1996 450,000 615,000 - - - - 27,864

Larry E. Lichliter
Executive Vice President 1997 275,000 175,000 - - - - $29,962
1996 250,000 175,000 - - - - 29,962

John K. Saer, Jr.
Vice President, Chief
Financial Officer and
Treasurer 1997 244,000 250,000 - - 707 - -
1996 190,000 150,000 - - - - -

Nola S. Dyal
Vice President, General
Counsel and Secretary 1997 200,000 200,000 - - 477 - -
1996 195,000 105,000 - - - - -

Bradley T. Quayle
Vice President of
Marketing and Corporate
Development 1997 175,000 60,000 - - - - -
1996 158,000 60,000 - - - - -
</TABLE>

- -----------

(1) After formation of the Company, the Parent has and will continue to
pay all compensation for the Named Executive Officers; however, the Company
will reimburse Parent for the amount of all such compensation that is
directly attributable to the operations of the Company. See "Certain
Relationships and Related Transactions."

(2) The Named Executive Officers spend between 90% to 98% of their time
on Company matters, with the exception of Mr. Lichliter who spends
approximately 5% of his time on work related to the Company.

(3) Represents cost of premiums for long-term disability insurance and
directors compensation.

40
<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 which approximates
fair value, 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 over periods
ranging from one to five years from such 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 vesting 100% of Optionee's Options, the termination of
employment for any reason other than involuntary termination of employment
without cause, 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.

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").

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 (as defined in "Security
Ownership of Certain Beneficial Owners and Management") 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.

41
<PAGE>

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.

OPTION GRANTS IN PARENT FOR FISCAL YEAR 1997 AND POTENTIAL REALIZABLE VALUES

The following table sets forth as to each of the Named Executive
Officers information with respect to option grants by Parent during fiscal
year 1997 and the potential realizable value of such option grants: (i) the
number of shares of Common Stock underlying options granted during fiscal
year 1997, (ii) the percentage that such options represent of all options
granted to employees during that year, (iii) the exercise price, (iv) the
expiration date and (v) the potential realizable value, assuming a 5% and 10%
annual rate of appreciation in the Common Stock during the option terms.

<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1997
---------------------------------

INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR OPTION
GRANTED TO TERM (1)
OPTIONS EMPLOYEE IN EXERCISE EXPIRATION ---------------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Shannon - - - - - -
Larry E. Lichliter - - - - - -
John K. Saer, Jr. 707(2) 9.6% $500.00 6/30/2005 $168,800 $404,300
Nola S. Dyal 477(3) 6.5% 500.00 6/30/2005 113,900 272,700
Bradley T. Quayle - - - - - -
</TABLE>
-------------------

(1) Amounts for the Named Executive Officers shown under the "Potential
Realizable Value" columns above have been calculated by multiplying the
exercise price by the annual appreciation rate shown (compounded for the term
of the options), subtracting the exercise price per share and multiplying the
gain per share by the number of shares covered by the options.

(2) Mr. Saer's options vest 20% each year over a five year term with an Option
Trigger Date of July 15, 1993.

(3) Ms. Dyal's options vest 25% each year over a four year term with an Option
Trigger Date of November 1, 1993.

42
<PAGE>

The following table sets forth as to each of the Named Executive Officers
information with respect to option exercises during fiscal year 1997 and the
status of their options on October 31, 1997: (i) the number of shares of common
stock underlying options exercised during fiscal year 1997, (ii) the aggregate
dollar value realized upon the exercise of such options, (iii) the total number
of exercisable and unexercisable stock options held on October 31, 1997 and (iv)
the aggregate dollar value of in-the-money exercisable and unexercisable options
on October 31, 1997.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND OPTION VALUES AT OCTOBER 31, 1997
-------------------------------------

NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE AT OCTOBER 31, 1997 OCTOBER 31, 1997
NAME EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE) (1)
---- -------- -------- --------------------------- -------------------------------
<S> <C> <C> <C> <C>
Michael S. Shannon _ _ 22,744/ 0 $6,566,800/ 0
Larry E. Lichliter _ _ 12,646/ 0 3,650,200/ 0
John K. Saer, Jr. _ _ 3,565/ 891 1,001,600/ 250,300
Nola S. Dyal _ _ 2,101/ 701 589,100/ 196,300
Bradley T. Quayle _ _ 2,651/ 0 765,400/ 0

- -----------
</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, 1997 as calculated
using the "Black-Scholes" model of option valuation.

MANAGEMENT INCENTIVE BONUSES

Certain members of management of Parent and the Company, including Named
Executive Officers, departmental managers and 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.

STOCK PURCHASED BY MANAGEMENT

In October 1995, Messrs. Shannon, Lichliter, Saer and Affeldt 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.

OPTIONS AND PARTNERSHIP INTERESTS IN AFFILIATES

Certain executive officers and key employees received options and
partnership interests in KSL Land and partnerships affiliated therewith prior
to and during fiscal year 1997, 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.

43
<PAGE>

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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following directors participated in deliberations of Parent's board of
directors concerning executive officer compensation during fiscal year 1997 and
have been appointed to serve on Parent's Compensation Committee during fiscal
year 1998: Messrs. Kravis and Tokarz. During fiscal year 1997, 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.

44
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of January 15, 1998 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 Company. As of January
15, 1998, there are 469,854 shares of Common Stock of Parent outstanding.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP (8) CLASS
-----------------------------------------------------------------------------
<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
Michael S. Shannon 31,677 (2) 6.43
Larry E. Lichliter 17,613 (3) 3.65
John K. Saer, Jr. 4,876 (4) 1.03
Nola S. Dyal 2,802 (5) *
Bradley T. Quayle 2,651 (6) *
All Executive Officers and Directors as
a Group (24 persons) 63,953 (7) 12.34
-----------------------------------------------------------------------------
</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 and investment 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.

(2) Includes options to purchase 22,744 shares exercisable within 60 days.

(3) Includes options to purchase 12,646 shares exercisable within 60 days.

(4) Includes options to purchase 3,565 shares exercisable within 60 days.

(5) Represents options to purchase 2,802 shares exercisable within 60 days.

(6) Represents options to purchase 2,651 shares exercisable within 60 days.

(7) Includes options to purchase 48,508 shares exercisable within 60 days.

(8) The nature of beneficial ownership for all of the shares listed is sole
voting and investment power.

45
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH KKR

KKR Associates, L.P. ("KKR") 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 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. Each
of the general partners of KKR 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. See "Directors and
Executive Officers" and "Security Ownership of Certain Beneficial Owners and
Management."

The limited partners of KKR 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, the Company and Parent entered into an
Expense Allocation Agreement pursuant to which Parent performs management
services requested by the Company and the Company reimburses Parent for all
expenses incurred by Parent and directly attributable to the Company and its
subsidiaries.

The Company'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 Company and its
subsidiaries are generally responsible for Federal taxes based upon the amount
that would be due if the Company 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 Company's actual tax liability
that would be imposed on the Company had it not filed tax returns as part of the
Parent Affiliated Group. The combined state tax liabilities are allocated to the
Company and its subsidiaries based on similar principles.

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 each of the parents of
the subsidiaries that own Desert Resorts, Doral and Fairways, and the parent
of the subsidiary that leases Lake Lanier Islands to the Company resulting in
such parents becoming wholly-owned subsidiaries of the Company; (ii) KSL
Landmark Corporation (which owned Desert Resorts and into which KSL Desert
Resorts, Inc. was merged effective May 16, 1997) paid a dividend to Parent
(through the Company) of 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 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 KSL Landmark Corporation 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; (vii) the
Company provided financing to KSL Land of $20.8 million and (viii) certain
management, lending and other agreements used to allocate corporate general
and administrative expenses between Parent and its subsidiaries prior to the
Refinancings were canceled and the Company 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 Company paid management fees and fees pursuant to the
Expense Allocation Agreement (reflected collectively as the "Corporate Fee"
in the accompanying consolidated statements of operations) in the amount of
$5.1 million to Parent in fiscal year 1997.

46
<PAGE>

On October 31, 1997, Parent contributed all of the capital stock of KSL
Travel, Inc. ("Travel"), Wild West Desert Properties, Inc. whose name was
subsequently changed to KSL Real Estate Company ("Real Estate") and KSL
Vacation Resorts, Inc., whose name was subsequently changed to Las Casitas
Corporation ("Las Casitas") to the Company and the Company contributed all
such stock to KSL Desert Resorts, Inc., the result of which was that Travel,
Real Estate and Las Casitas became wholly-owned subsidiaries of KSL Desert
Resorts, Inc. In connection with the contribution of capital stock of Las
Casitas to the Company, Parent contributed capital in the amount of $138,000
to the Company. Prior to the contribution of the capital stock of Real Estate
to the Company, Real Estate paid a dividend of $600,000 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 "Executive
Compensation--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.

47
<PAGE>

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

(1) Financial Statements

The following Consolidated Financial Statements of KSL Recreation
Group, Inc. and subsidiaries are included in Part II, Item 8:

Independent Auditors' Report
Consolidated Statements of Operations for the Years Ended
October 31, 1997, 1996 and 1995
Consolidated Balance Sheets as of October 31, 1997 and 1996
Consolidated Statements of Stockholder's Equity for the years
ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements

(2) Financial Schedule

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

(In thousands)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS - BALANCE AT
BEGINNING OF COST AND NET CREDIT END OF
PERIOD EXPENSES LOSS PERIOD
------ -------- ---- ------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Accounts Receivable . . . . . . . . . . . . .
Fiscal year ended October 31, 1995. . . . . . . $ 569 $ 425 $ (425) $ 569
Fiscal year ended October 31, 1996. . . . . . . 569 1433 (429) 1,573
Fiscal year ended October 31, 1997. . . . . . . 1,573 1,193 (2,044) 722
</TABLE>

Financial statements and schedules not listed are omitted because of the
absence of the conditions under which they are required or because all
material information is included in the consolidated financial statements or
notes thereto.

(3) Exhibits

3.1 Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by
reference.

*3.2 Certificate of Amendment of Certificate of Incorporation of
the Company (changing name to KSL Recreation Group, Inc.)

3.3 By-laws of the Company, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-4, File No.
333-31025, is hereby incorporated by reference.

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, filed as Exhibit 4.1
to the Company's Registration Statement on Form S-4, File
No. 333-31025, is hereby incorporated by reference.

4.2 Form of 10 1/4% Senior Subordinated Note due 2007, filed as
Exhibit 4.2 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by
reference. (Included as part of Senior Subordinated Notes
Indenture filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-4, File No. 333-31025, and hereby
incorporated by reference.)

48
<PAGE>

4.3 Form of 10 1/4% Series B Senior Subordinated Note due 2007,
filed as Exhibit 4.3 to the Company's Registration Statement
on Form S-4, File No. 333-31025, is hereby incorporated by
reference. (Included as part of Senior Subordinated Notes
Indenture filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-4, File No. 333-31025, and hereby
incorporated by reference.)

4.4 Senior Subordinated Notes Registration Rights Agreement,
dated 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, filed as Exhibit 4.4
to the Company's Registration Statement on Form S-4, File
No. 333-31025, is hereby incorporated by reference.

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, filed as
Exhibit 10.1 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by
reference.

10.2 Sublease, executed between Lake Lanier Islands Development
Authority and KSL Lake Lanier, Inc., filed as Exhibit 10.2
to the Company's Registration Statement on Form S-4, File
No. 333-31025, is hereby incorporated by reference.

10.3 Management Agreement effective as of May 16, 1996, by and
between Lake Lanier Islands Development Authority and KSL
Lake Lanier, Inc., filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

10.4 License Agreement, dated March 5, 1994, 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, filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

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, filed as
Exhibit 10.5 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by
reference.

10.6 Assignment and Assumption Agreement, dated December 24,
1993, by and between Landmark Land Company of California,
Inc. and KSL Landmark Corporation, filed as Exhibit 10.6 to
the Company's Registration Statement on Form S-4, File No.
333-31025, is hereby incorporated by reference.

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.), filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

10.8 KSL Recreation Corporation 1995 Stock Purchase and Option
Plan, filed as Exhibit 10.8 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

10.9 Form of KSL Recreation Corporation Common Stock Purchase
Agreement, filed as Exhibit 10.9 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

10.10 From of KSL Recreation Corporation Non-Qualified Stock
Option Agreement, filed as Exhibit 10.10 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

10.11 Expense Allocation Agreement, dated April 30, 1997, between
KSL Recreation Corporation and KSL Recreation Group, Inc.,
filed as Exhibit 10.11 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

49
<PAGE>

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, filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is
hereby incorporated by reference.

*10.13 Second Amendment to the Tax Sharing Agreement, dated
November 1, 1997, by and among KSL Recreation
Corporation, KSL Recreation Group, Inc., KSL Land
Holdings, Inc., KSL Landmark Corporation, KSL Desert
Resorts, Inc., Las Casitas Corporation, KSL Real Estate
Company, KSL Travel, Inc., Casitas Plaza Corporation, KSL
Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL
Florida Holdings, Inc., KSL Hotel Corp., KSL Silver
Properties, Inc., KSL Georgia Holdings, Inc., KSL Lake
Lanier, Inc., KSL Grand Traverse Holdings, Inc., KSL
Grand Traverse Land, Inc., KSL Grand Traverse Realty,
Inc., KSL Grand Traverse Resort, Inc., KSL Water Works,
Inc., KSL Land Corporation, KSL Citrus Properties, Inc.,
KSL Development Corporation, KSL Land II Corporation, KSL
Land III Corporation, KSL Land IV Corporation and Landaq,
Inc.

*10.14 Contract for Purchase and Sale of Grand Traverse Resort,
dated August 1, 1997, by and between Grand Traverse Holding
Company, GRS Grand Hotel Corporation, General Realty
Services, Inc., GTR Resort Development, Inc. and Grand
Personalty, Inc., TICOR Title Insurance Corporation and KSL
Recreation Corporation as assigned by the Assignment of
Purchase Contract from KSL Recreation Corporation to KSL
Grand Traverse Holdings, Inc., KSL Grand Traverse Resort,
Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse
Realty, Inc., and KSL Water Works, Inc. dated August 1,
1997.

*10.15 Assignment of Purchase Contract from KSL Recreation
Corporation to KSL Grand Traverse Holdings, Inc., KSL Grand
Traverse Resort, Inc., KSL Grand Traverse Land, Inc., KSL
Grand Traverse Realty, Inc., and KSL Water Works, Inc. dated
August 1, 1997.

*11 Computation of Earnings (Loss) Per Share

13 Quarterly Report on Form 10-Q for the period ended July 31,
1997 filed on October 24, 1997 is hereby incorporated by
reference.

*21 List of Subsidiaries of the Company

---------------------------------
* Filed herewith.

50
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on
January 28, 1998.

KSL RECREATION GROUP, INC.

By: /s/ John K. Saer, Jr.
----------------------------
John K. Saer, Jr.
Vice President, Chief Financial
Officer and Treasurer

Pursuant to the requirements of the Securities and Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons in the capacities indicated on January 28, 1998.

Signatures Title
- --------------------------------- --------------------------------------------

/s/ Michael S. Shannon President, Chief Executive Officer and
- -------------------------------- Director (Principal Executive Officer)
(Michael S. Shannon)

/s/ Larry E. Lichliter Executive Vice President and Director
- --------------------------------
(Larry E. Lichliter)

/s/ Henry R. Kravis Director
- --------------------------------
(Henry R. Kravis)

Director
- --------------------------------
(George R. Roberts)

/s/ Paul E. Raether Director
- --------------------------------
(Paul E. Raether)

/s/ Michael T. Tokarz Director
- --------------------------------
(Michael T. Tokarz)

Director
- --------------------------------
(Scott M. Stuart)

Director
- --------------------------------
(Alexander Navab, Jr.)

/s/ John K. Saer, Jr. Vice President, Chief Financial Officer
- -------------------------------- and Treasurer (Principal Financial
(John K. Saer, Jr.) Officer)

/s/ Emily-May Richards Controller (Principal Accounting Officer)
- --------------------------------
(Emily-May Richards)

51
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------

3.1 Certificate of Incorporation of the Company, filed as Exhibit 3.1
to the Company's Registration Statement on Form S-4, File No.
333-31025, is hereby incorporated by reference.

* 3.2 Certificate of Amendment of Certificate of Incorporation of the
Company (changing name to KSL Recreation Group, Inc.)

3.3 By-laws of the Company, filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

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, filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-4, File No. 333-31025,
is hereby incorporated by reference.

4.2 Form of 10 1/4% Senior Subordinated Note due 2007, filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-4,
File No. 333-31025, is hereby incorporated by reference.
(Included as part of Senior Subordinated Notes Indenture filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-4,
File No. 333-31025, and hereby incorporated by reference.)

4.3 Form of 10 1/4% Series B Senior Subordinated Note due 2007, filed
as Exhibit 4.3 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by reference.
(Included as part of Senior Subordinated Notes Indenture filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-4,
File No. 333-31025, and hereby incorporated by reference.)

4.4 Senior Subordinated Notes Registration Rights Agreement, dated
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, filed as Exhibit 4.4 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

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, filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

10.2 Sublease, executed between Lake Lanier Islands Development
Authority and KSL Lake Lanier, Inc., filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-4, File No. 333-31025,
is hereby incorporated by reference.

10.3 Management Agreement effective as of May 16, 1996, by and between
Lake Lanier Islands Development Authority and KSL Lake Lanier,
Inc., filed as Exhibit 10.3 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

10.4 License Agreement, dated March 5, 1994, 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, filed as Exhibit
10.4 to the Company's Registration Statement on Form S-4, File
No. 333-31025, is hereby incorporated by reference.

<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------

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, filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

10.6 Assignment and Assumption Agreement, dated December 24, 1993, by
and between Landmark Land Company of California, Inc. and KSL
Landmark Corporation, filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-4, File No. 333-31025, is hereby
incorporated by reference.

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.), filed as Exhibit 10.7 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

10.8 KSL Recreation Corporation 1995 Stock Purchase and Option Plan,
filed as Exhibit 10.8 to the Company's Registration Statement on
Form S-4, File No. 333-31025, is hereby incorporated by
reference.

10.9 Form of KSL Recreation Corporation Common Stock Purchase
Agreement, filed as Exhibit 10.9 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

10.10 Form of KSL Recreation Corporation Non-Qualified Stock Option
Agreement, filed as Exhibit 10.10 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

10.11 Expense Allocation Agreement, dated April 30, 1997, between KSL
Recreation Corporation and KSL Recreation Group, Inc., filed as
Exhibit 10.11 to the Company's Registration Statement on Form
S-4, File No. 333-31025, is hereby incorporated by reference.

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, filed as Exhibit 10.12 to the Company's Registration
Statement on Form S-4, File No. 333-31025, is hereby incorporated
by reference.

* 10.13 Second Amendment to the Tax Sharing Agreement, dated October 31,
1997, by and among KSL Recreation Corporation, KSL Recreation
Group, Inc., KSL Land Holdings, Inc., KSL Landmark Corporation,
KSL Desert Resorts, Inc., Las Casitas Corporation, KSL Real
Estate Company, KSL Travel, Inc., Casitas Plaza Corporation, KSL
Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL Florida
Holdings, Inc., KSL Hotel Corp., KSL Silver Properties, Inc., KSL
Georgia Holdings, Inc., KSL Lake Lanier, Inc., KSL Grand Traverse
Holdings, Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse
Realty, Inc., KSL Grand Traverse Resort, Inc., KSL Water Works,
Inc., KSL Land Corporation, KSL Citrus Properties, Inc., KSL
Development Corporation, KSL Land II Corporation, KSL Land III
Corporation, KSL Land IV Corporation, and Landaq, Inc.

<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------

* 10.14 Contract for Purchase and Sale of Grand Traverse Resort, dated
August 1, 1997, by and between Grand Traverse Holding Company,
GRS Grand Hotel Corporation, General Realty Services, Inc., GTR
Resort Development, Inc. and Grand Personalty, Inc., TICOR Title
Insurance Corporation and KSL Recreation Corporation as assigned
by the Assignment of Purchase Contract from KSL Recreation
Corporation to KSL Grand Traverse Holdings, Inc., KSL Grand
Traverse Resort, Inc., KSL Grand Traverse Land, Inc., KSL Grand
Traverse Realty, Inc., and KSL Water Works, Inc. dated August 1,
1997.

* 10.15 Assignment of Purchase Contract from KSL Recreation Corporation
to KSL Grand Traverse Holdings, Inc., KSL Grand Traverse Resort,
Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse Realty,
Inc., and KSL Water Works, Inc. dated August 1, 1997.

* 11 Computation of Earnings (Loss) Per Share

13 Quarterly Report on Form 10-Q for the period ended July 31, 1997
filed on October 24, 1997 is hereby incorporated by reference.

* 21 List of Subsidiaries of the Company

- --------------
* Filed herewith.

<PAGE>

Exhibit 3.2

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
KSL RECREATION HOLDINGS, INC.

* * * * * * *
Pursuant to Section 241 of the General Corporation
Law of the State of Delaware

KSL Recreation Holdings, Inc., a corporation organized and existing under
and by virtue of the Delaware General Corporation Law (the "Corporation"), DOES
HEREBY CERTIFY:

FIRST: That the Board of Directors of the Corporation, by unanimous
written consent of its members acting without a meeting pursuant to Section
141(f) of the General Corporation Law of the State of Delaware, duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable.
The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Board of Directors of the Corporation hereby deems
it advisable and in the best interest of the Corporation that the
Certificate of Incorporation (the "Charter") be amended by changing the
name of the Corporation to KSL RECREATION GROUP, INC.; and further

RESOLVED, that Larry E. Lichliter, a director of the Corporation be,
and he hereby is authorized and directed to make and execute, in the name
and under the corporate seal of this Corporation, a Certificate of
Amendment of the Certificate of Incorporation reflecting the foregoing, and
to file such certificate in the Office of the Secretary of State of the
State of Delaware.

SECOND: That the Corporation has not received any payment for any of its
stock nor have any officers been elected.

THIRD: That the amendment was duly adopted in accordance with the
provision of Section 241 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, said CORPORATION has caused this certificate to be
signed by Larry E. Lichliter, a director of the Corporation, this 2nd day of
April, 1997.

/s/ Larry E. Lichliter
------------------------------------
Larry E. Lichliter, Director

<PAGE>

SECOND AMENDMENT TO THE
TAX SHARING AGREEMENT

This Second Amendment ("Second Amendment") to the Tax Sharing Agreement is
made and entered into this 1st day of November, 1997 to have the respective
effective dates as set forth herein.

WHEREAS, the Tax Sharing Agreement was entered into by and between KSL
Recreation Corporation, a California corporation ("REC") and each of the
entities described on Schedule A annexed thereto (the "Signator Corporations")
dated April 30, 1997, to be effective November 1, 1996 (the "Agreement"), and as
amended, such amendment to be effective the date of incorporation of KSL
Recreation Group, Inc., March 14, 1997 (the "First Amendment");

WHEREAS, the Parent, as defined in the Agreement, desires to amend and/or
supplement certain Schedules to the Agreement as set forth herein; and

WHEREAS, the Parent desires to amend certain provisions of the Agreement as
set forth herein;

NOW THEREFORE, in consideration of the promises and conditions set forth
herein, the parties agree to amend the Agreement as follows:

1. The capitalized terms contained in this Second Amendment shall have
the same meaning as that set forth in the Agreement.

2. The introductory paragraph of the Agreement and the First Amendment
shall be modified by deleting in the second line of said paragraph the word
"California" and substituting therefor the word "Delaware".

3. The second paragraph of the First Amendment shall be modified by
deleting in the third line of said paragraph the words "Hotel and Lanier" and
substituting therefore the words "Florida and Georgia".

4. On May 16, 1997, KSL Desert Resorts, Inc. was merged into its then
parent corporation, KSL Landmark Corporation. Concurrently, the name of KSL
Landmark Corporation was changed to KSL Desert Resorts, Inc., therefore the
Landmark Subgroup shall hereinafter be referred to as the "Desert Resorts
Subgroup".

5. KSL Citrus Properties, Inc. and KSL Development Corporation shall be
Members (as defined therein) of the Land Group and said corporations shall be
Signator Corporations under the Agreement effective the effective date of the
Agreement.

6. Pursuant to Section 2.5 FUTURE MEMBERS of the Agreement, (i) KSL Land
III Corporation, KSL Land IV Corporation and Landaq, Inc. (formerly KSL Casitas
Corporation) shall be added as Members of the Land Group and Signator
Corporations under the Agreement

<PAGE>

effective the fiscal year ended October 31, 1997; (ii) KSL Silver Properties,
Inc. shall be added as a Member of the Rec Group and Florida Subgroup, and a
Signator Corporation under the Agreement effective September 16, 1997, its date
of incorporation; and (iii) Casitas Plaza Corporation shall be added as a Member
of the Rec Group and Landmark Subgroup, and a Signator Corporation under the
Agreement effective October 27, 1997, its date of incorporation.

7. Pursuant to Section 2.5 of the Agreement, a new Subgroup of the REC
Group shall be designated as the Grand Traverse Subgroup and shall include the
following corporations: KSL Grand Traverse Holdings, Inc., KSL Grand Traverse
Land, Inc., KSL Grand Traverse Realty, Inc., KSL Grand Traverse Resort, Inc. and
KSL Water Works, Inc., and said corporations shall be deemed Members of the REC
Group and Signator Corporations under the Agreement effective July 16, 1997 (the
earliest date of incorporation of the corporations named in this Section). KSL
Grand Traverse Holdings, Inc. shall be designated as the Subgroup Agent for the
Grand Traverse Subgroup.

8. Effective the fiscal year ended October 31, 1997, KSL Travel, Inc.,
KSL Real Estate Company (formerly Wild West Desert Properties, Inc.) and Las
Casitas Corporation (formerly KSL Vacation Resorts, Inc.) shall become Members
of the Landmark Group and shall no longer be deemed as Travel Subgroup, Wild
West Subgroup and Vacation Subgroup, respectively.

9. Income and franchise taxes of the Rec Group shall not be applicable to
new Members and/or Subgroups for periods preceding their stated effective dates
as Members and/or Subgroups and Signator Corporations under the Agreement.

10. Pursuant to the First Amendment, the Grand Traverse Subgroup shall
also be added to and deemed Members of the Bond Subgroup effective July 16,
1997, and, as such, will be treated as a single subgroup along with KSL
Recreation Group, Inc., and the Landmark, Fairways, Florida and Georgia
Subgroups, comprising the Bond Subgroup.

11. Pursuant to the Agreement, First Amendment and the changes and
additions described herein this Second Amendment, revised schedules (the
"Schedules") to the Agreement are attached hereto as EXHIBIT A and shall replace
the schedules to the Agreement in their entirety.

12. Exhibit II to the Agreement has been revised and is attached hereto as
Exhibit II to this Second Amendment and shall replace Exhibit II to the
Agreement in its entirety.

13. All other terms, covenants and conditions set forth in the Agreement
and the First Amendment shall be and remain in full force and effect. In the
event of any conflict between the provisions of this Second Amendment and the
provisions of the Agreement and/or the First Amendment, the provisions of this
Second Amendment shall control.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to become effective as of the respective dates set forth herein.

KSL Recreation Corporation
KSL Recreation Group, Inc.
KSL Land Holdings, Inc.
KSL Desert Resorts, Inc.
Las Casitas Corporation
KSL Real Estate Company
KSL Travel, Inc.
Casitas Plaza Corporation
KSL Golf Holdings, Inc.
KSL Fairways Golf Corporation
KSL Florida Holdings, Inc.
KSL Hotel Corp.
KSL Silver Properties, Inc.
KSL Georgia Holdings, Inc.
KSL Lake Lanier, Inc.
KSL Grand Traverse Holdings, Inc.
KSL Grand Traverse Land, Inc.
KSL Grand Traverse Realty, Inc.
KSL Grand Traverse Resort, Inc.
KSL Water Works, Inc.
KSL Land Corporation
KSL Citrus Properties, Inc.
KSL Development Corporation
KSL Land II Corporation
KSL Land III Corporation
KSL Land IV Corporation
Landaq, Inc.
Delaware corporations

By: /s/ John K. Saer Jr.
--------------------------------
Name: John K. Saer Jr.
--------------------------------
Title: Vice President
--------------------------------

<PAGE>

EXHIBIT A

(Attached)

<PAGE>

EXHIBIT 1
ILLUSTRATION OF THE CALCULATION REQUIRED PURSUANT TO PARAGRAPH 4.2 (a)

LANDMARK FLORIDA FAIRWAYS GEORGIA WILD WEST
ENTITY SUBGROUP SUBGROUP SUBGROUP SUBGROUP SUBGROUP TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KSL Landmark Corporation (10,500)
KSL Desert Resorts, Inc. (27,000)
KSL Florida Holdings (9,000)
KSL Hotel Corp (25,000)
KSL Golf Holdings, Inc. (500)
KSL Fairways Wisconsin I, Inc. 0
KSL Fairways Wisconsin II, Inc. 0
KSL Fairways Wisconsin III, Inc. 0
KSL Fairways Golf Corp. (23,000)
KSL Fairways Midwest 5,000
KSL Georgia Holdings 1,000
KSL Lake Lanier, Inc. 4,000
Wild West Desert Properties 10,000
-------------------------------------------------------------------------------------

Taxable Income/(Loss) (37,500) (34,000) (18,500) 5,000 10,000 (75,000)

Federal Tax Rate 34% 34% 34% 34% 34% 34%
-------------------------------------------------------------------------------------

Tax Affect of Income/(Loss) (12,750) (11,560) (6,290) 1,700 3,400 (25,500)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

Allocation of Loss
to Subgroups ** (31,250) (28,333) (15,417) (75,000)

Loss as if Subgroups Filed
Separate Tax Returns (37,500) (34,000) (18,500) (90,000)
-------------------------------------------------------------------------------------

Difference in Allocation Resulting
From Consolidated Tax Return 6,250 5,667 3,083 15,000

Federal Tax Rate 34% 34% 34% 34%
-------------------------------------------------------------------------------------

Tax on Difference 2,125 1,927 1,048 5,100
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

Intercompany Receivable/Payable 2,125 1,927 1,048 -1,700 -3,400 0
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>

** Allocation is calculated by dividing subgroup's separate loss into
the sum of all losses, and multiplying the resulting fraction by the
consolidated net income/loss.

Example: KSL Landmark Corp.

Subgroup Loss (37,500)
Total Losses (90,000)
----------
Ratio 41.67%
Consolidated Taxable Loss (75,000)
----------
Allocated Loss (31,250)
----------
----------

<PAGE>

EXHIBIT 2
ILLUSTRATION OF THE CALCUATION REQUIRED PURSUANT TO PARAGRAPH 4.2 (a)
(After Effective Date of the Amendment)

<TABLE>
<CAPTION>
BOND KSL Land
ENTITY SUBGROUP REC Holding TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KSL Recreation Group, Inc. 150,000
KSL Desert Resorts, Inc. (160,000)
KSL Florida Holdings 75,000
KSL Hotel Corp 80,000
KSL Golf Holdings, Inc. 2,000
KSL Fairways Golf Corp. 4,000
KSL Grand Traverse Holding, Inc. 12,500
KSL Georgia Holdings 2,000
KSL Lake Lanier, Inc. 500,000
KSL Travel, Inc. 10,000
Wild West Desert Properties (225,500)
KSL Land Holdings, Inc. (600,000)
-------------------------------------------------------

Taxable Income/(Loss) 300,000 150,000 (600,000) (150,000)

Federal Tax Rate 34% 34% 34% 34%
-------------------------------------------------------

Tax Affect of Income/(Loss) 102,000 51,000 (204,000) (51,000)
-------------------------------------------------------
-------------------------------------------------------

Allocation of Loss
to Subgroups ** 50,000 (200,000) (150,000)

Income/(Loss) as if Subgroups
Filed Separate Tax Returns 150,000 (600,000) (450,000)
-------------------------------------------------------
Difference in Allocation Resulting
From Consolidated Tax Return (100,000) 400,000 300,000

Federal Tax Rate 34% 34% 34%
-------------------------------------------------------

Tax on Difference (34,000) 136,000 102,000
-------------------------------------------------------
-------------------------------------------------------

Intercompany Receivable/Payable (102,000) (34,000) 136,000 0
-------------------------------------------------------
-------------------------------------------------------

</TABLE>

<PAGE>

SCHEDULE A

SIGNATOR CORPORATIONS

KSL Recreation Corporation
KSL Recreation Group, Inc.
KSL Land Holdings, Inc. (formerly Xochimilco Properties, Inc.)
KSL Desert Resorts, Inc.
Las Casitas Corporation (formerly KSL Vacation Resorts, Inc.)
KSL Real Estate Company (formerly Wild West Desert Properties, Inc.)
KSL Travel, Inc.
Casitas Plaza Corporation
KSL Golf Holdings, Inc.
KSL Fairways Golf Corporation
KSL Florida Holdings, Inc.
KSL Hotel Corp.
KSL Silver Properties, Inc.
KSL Georgia Holdings, Inc.
KSL Lake Lanier, Inc.
KSL Land Corporation
KSL Citrus Properties, Inc.
KSL Development Corporation
KSL Land II Corporation
KSL Land III Corporation
KSL Land IV Corporation
Landaq, Inc.
KSL Grand Traverse Holdings, Inc.
KSL Grand Traverse Land, Inc.
KSL Grand Traverse Realty, Inc.
KSL Grand Traverse Resort, Inc.
KSL Water Works, Inc.

<PAGE>

SCHEDULE B

REC GROUP MEMBERS

KSL Recreation Corporation
KSL Land Holdings, Inc. (formerly Xochimilco Properties, Inc.)
KSL Recreation Group, Inc.
KSL Desert Resorts, Inc.
Las Casitas Corporation (formerly KSL Vacation Resorts, Inc.)
KSL Real Estate Company (formerly Wild West Desert Properties, Inc.)
KSL Travel Inc.
Casitas Plaza Corporation
KSL Golf Holdings, Inc.
KSL Fairways Golf Corporation
KSL Florida Holdings, Inc.
KSL Hotel Corp.
KSL Silver Properties, Inc.
KSL Georgia Holdings, Inc.
KSL Lake Lanier, Inc.
KSL Grand Traverse Holdings, Inc.
KSL Grand Traverse Land, Inc.
KSL Grand Traverse Realty, Inc.
KSL Grand Traverse Resort, Inc.
KSL Water Works, Inc.

<PAGE>

SCHEDULE C

LAND GROUP MEMBERS

KSL Land Corporation
KSL Citrus Properties, Inc.
KSL Development Corporation
KSL Land II Corporation
KSL Land III Corporation
KSL Land IV Corporation
Landaq, Inc. (formerly KSL Casitas Corporation)

<PAGE>

SCHEDULE D

DESERT RESORTS SUBGROUP
(FORMERLY LANDMARK SUBGROUP)

KSL Desert Resorts, Inc. (formerly KSL Landmark Corporation)
Las Casitas Corporation (formerly KSL Vacation Resorts, Inc.)
KSL Real Estate Company (formerly Wild West Desert Properties, Inc.)
KSL Travel, Inc.
Casitas Plaza Corporation

<PAGE>

SCHEDULE E

FLORIDA SUBGROUP

KSL Florida Holdings, Inc.
KSL Hotel Corp.
KSL Silver Properties, Inc.

<PAGE>

SCHEDULE F

FAIRWAYS SUBGROUP

KSL Golf Holdings, Inc.
KSL Fairways Golf Corporation

<PAGE>

SCHEDULE G

GEORGIA SUBGROUP

KSL Georgia Holdings, Inc.
KSL Lake Lanier, Inc.

<PAGE>

SCHEDULE H

LAND HOLDINGS SUBGROUP
(FORMERLY XOCHIMILCO SUBGROUP)

KSL Land Holdings, Inc. (formerly Xochimilco Properties, Inc.)

<PAGE>

SCHEDULE I

BOND SUBGROUP

KSL Recreation Group, Inc.
Desert Resorts Subgroup
Fairways Subgroup
Florida Subgroup
Georgia Subgroup
Grand Traverse Subgroup

<PAGE>

SCHEDULE J

GRAND TRAVERSE SUBGROUP

KSL Grand Traverse Holdings, Inc.
KSL Grand Traverse Land, Inc.
KSL Grand Traverse Realty, Inc.
KSL Grand Traverse Resort, Inc.
KSL Water Works, Inc.

<PAGE>

Execution Copy

CONTRACT FOR PURCHASE AND
SALE OF GRAND TRAVERSE RESORT

BY AND BETWEEN

GRAND TRAVERSE HOLDING COMPANY,

GRS GRAND HOTEL CORPORATION

GENERAL REALTY SERVICES, INC.

GTR RESORT DEVELOPMENT, INC.

and

GRAND PERSONALTY, INC.

TICOR TITLE INSURANCE CORPORATION

and

KSL RECREATION CORPORATION

<PAGE>

TABLE OF CONTENTS

PAGE

1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . -1-
1.2 Acquired Accounts. . . . . . . . . . . . . . . . . . . . . . . -1-
1.3 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . -1-
1.4 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.5 Buyer's Address. . . . . . . . . . . . . . . . . . . . . . . . -1-
1.6 Buyer's Attorney . . . . . . . . . . . . . . . . . . . . . . . -1-
1.7 Buyer's Costs. . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.8 Cash to Close. . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.9 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.10 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.11 Club Memberships . . . . . . . . . . . . . . . . . . . . . . . -2-
1.12 Country Club . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.13 Deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.14 Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.15 Effective Closing Date . . . . . . . . . . . . . . . . . . . . -2-
1.16 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . -2-
1.18 Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.19 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . -3-
1.20 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . -3-
1.21 Golf Courses . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.22 Governmental Authority . . . . . . . . . . . . . . . . . . . . -3-
1.23 Hazardous Material . . . . . . . . . . . . . . . . . . . . . . -3-
1.24 Health Club. . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.25 Hotel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.26 Excluded Housing Inventory . . . . . . . . . . . . . . . . . . -3-
1.27 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.28 Investigation Period . . . . . . . . . . . . . . . . . . . . . -3-
1.29 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.30 Legal Requirement. . . . . . . . . . . . . . . . . . . . . . . -4-
1.30.5 Music House. . . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.31 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.32 New Clubhouse. . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.33 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . -4-
1.34 Permitted Use. . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.35 Personal Property. . . . . . . . . . . . . . . . . . . . . . . -5-
1.36 Player Golf Course . . . . . . . . . . . . . . . . . . . . . . -6-
1.37 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . -6-
1.38 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
1.39 Property Records . . . . . . . . . . . . . . . . . . . . . . . -6-
1.40 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . -8-
1.41 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . -8-
1.42 Rent Roll. . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
1.43 Required Repairs . . . . . . . . . . . . . . . . . . . . . . . -8-
1.44 Resort . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-

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1.45 Sales Contracts. . . . . . . . . . . . . . . . . . . . . . . . -8-
1.46 Seller's Address . . . . . . . . . . . . . . . . . . . . . . . -8-
1.47 Seller's Agent . . . . . . . . . . . . . . . . . . . . . . . . -8-
1.48 Seller's Attorney. . . . . . . . . . . . . . . . . . . . . . . -9-
1.49 Seller's Knowledge . . . . . . . . . . . . . . . . . . . . . . -9-
1.50 Service Contracts. . . . . . . . . . . . . . . . . . . . . . . -9-
1.51 Space Leases . . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.52 State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.53 Title Commitment . . . . . . . . . . . . . . . . . . . . . . . -9-
1.54 Title Company. . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.55 Title Policy . . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.56 Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.57 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
1.58 Water System . . . . . . . . . . . . . . . . . . . . . . . . .-10-

2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . .-10-

3. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
3.1 Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
3.2 Cash to Close. . . . . . . . . . . . . . . . . . . . . . . . .-10-

4. Buyer's Inspection of the Resort. . . . . . . . . . . . . . . . . . .-10-
4.1 Seller's Delivery of Property Records. . . . . . . . . . . . .-10-
4.2 Buyer's Inspection of the Resort . . . . . . . . . . . . . . .-10-
4.3 Service Contracts. . . . . . . . . . . . . . . . . . . . . . .-11-
4.4 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . .-12-
4.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . .-12-
4.6 Buyer's Right to Terminate During the Investigation Period . .-12-
4.7 Buyer's Right to Request Additional Information. . . . . . . .-12-
4.8 Acceptability of Acquired Property . . . . . . . . . . . . . .-13-

5. Evidence of Title . . . . . . . . . . . . . . . . . . . . . . . . . .-13-
5.1 Marketable Title . . . . . . . . . . . . . . . . . . . . . . .-13-
5.2 Title Commitment . . . . . . . . . . . . . . . . . . . . . . .-13-
5.3 Additional Exceptions. . . . . . . . . . . . . . . . . . . . .-14-
5.4 Additional Exceptions Curable by the Payment of Money. . . . .-14-
5.5 Additional Exceptions Not Curable by the Payment of Money. . .-14-
5.6 Postponement of Closing Date . . . . . . . . . . . . . . . . .-15-

6. Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-15-
6.1 Delivery of Survey . . . . . . . . . . . . . . . . . . . . . .-15-
6.2 Survey Defects . . . . . . . . . . . . . . . . . . . . . . . .-15-

7. Representations and Warranties. . . . . . . . . . . . . . . . . . . .-15-
7.1 Seller's Representations and Warranties. . . . . . . . . . . .-15-
7.1.1 Seller's Existence. . . . . . . . . . . . . . . . . .-16-
7.1.2 Authority . . . . . . . . . . . . . . . . . . . . . .-16-
7.1.3 Title . . . . . . . . . . . . . . . . . . . . . . . .-16-
7.1.4 No Legal Bar. . . . . . . . . . . . . . . . . . . . .-16-

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<PAGE>

7.1.5 Litigation. . . . . . . . . . . . . . . . . . . . . .-16-
7.1.6 Hazardous Material. . . . . . . . . . . . . . . . . .-17-
7.1.7 No Rights to Purchase . . . . . . . . . . . . . . . .-17-
7.1.8 Covenants, Conditions, Restrictions or Easements. . .-17-
7.1.9 Personal Property . . . . . . . . . . . . . . . . . .-17-
7.1.10 Service Contracts . . . . . . . . . . . . . . . . . .-18-
7.1.11 Assessed Valuation. . . . . . . . . . . . . . . . . .-18-
7.1.12 Notices . . . . . . . . . . . . . . . . . . . . . . .-18-
7.1.13 Parties in Possession . . . . . . . . . . . . . . . .-18-
7.1.14 Space Leases. . . . . . . . . . . . . . . . . . . . .-18-
7.1.15 Leasing Commissions . . . . . . . . . . . . . . . . .-19-
7.1.16 Sales and other Taxes . . . . . . . . . . . . . . . .-19-
7.1.17 Employees . . . . . . . . . . . . . . . . . . . . . .-19-
7.1.18 Employment Benefit Plan and Employment Matters. . . .-19-
7.1.19 Intentionally Omitted . . . . . . . . . . . . . . . .-20-
7.1.20 No Special Assessments and Impact Fees. . . . . . . .-20-
7.1.21 Access to Highways and Roads. . . . . . . . . . . . .-20-
7.1.22 Commitments to Governmental Authorities . . . . . . .-20-
7.1.23 Adverse Information . . . . . . . . . . . . . . . . .-20-
7.1.24 Compliance with Laws. . . . . . . . . . . . . . . . .-20-
7.1.25 Insurance Policies. . . . . . . . . . . . . . . . . .-21-
7.1.26 The Improvements. . . . . . . . . . . . . . . . . . .-21-
7.1.27 Utilities . . . . . . . . . . . . . . . . . . . . . .-21-
7.1.28 Sales Commissions . . . . . . . . . . . . . . . . . .-21-
7.1.29 Parking . . . . . . . . . . . . . . . . . . . . . . .-21-
7.1.30 Air/Mineral Rights. . . . . . . . . . . . . . . . . .-21-
7.1.31 Insolvency. . . . . . . . . . . . . . . . . . . . . .-22-
7.1.32 Use of the Name and Trademarks. . . . . . . . . . . .-22-
7.1.33 Related Property. . . . . . . . . . . . . . . . . . .-22-
7.1.34 Historical Site . . . . . . . . . . . . . . . . . . .-22-
7.1.35 Club Memberships. . . . . . . . . . . . . . . . . . .-22-
7.1.36 Environmentally Sensitive Area/Endangered Species . .-22-
7.1.37 Accuracy of Statements. . . . . . . . . . . . . . . .-23-
7.2 Buyer's Representations and Warranties . . . . . . . . . . . .-23-
7.2.1 Buyer's Existence . . . . . . . . . . . . . . . . . .-23-
7.2.2 Authority . . . . . . . . . . . . . . . . . . . . . .-23-
7.2.3 No Conflict . . . . . . . . . . . . . . . . . . . . .-23-
7.2.4 Sophisticated Buyer . . . . . . . . . . . . . . . . .-23-
7.2.5 No Legal Bar. . . . . . . . . . . . . . . . . . . . .-24-
7.2.6 Litigation. . . . . . . . . . . . . . . . . . . . . .-24-
7.3 Survival of Representations. . . . . . . . . . . . . . . . . .-24-
7.4 Buyer's Pre-Closing Remedies for Seller's Misrepresentations .-25-

8. Covenants and Affirmative Obligations . . . . . . . . . . . . . . . .-25-
8.1 Maintenance of Resort. . . . . . . . . . . . . . . . . . . . .-25-
8.2 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
8.2.1 Leasing Activities. . . . . . . . . . . . . . . . . .-26-
8.2.2 Tenant Estoppel Certificates. . . . . . . . . . . . .-26-

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8.3 Service Contracts. . . . . . . . . . . . . . . . . . . . . . .-27-
8.4 No Further Encumbrances. . . . . . . . . . . . . . . . . . . .-27-
8.5 Compliance with Obligations. . . . . . . . . . . . . . . . . .-27-
8.6 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . .-27-
8.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
8.8 Press Release. . . . . . . . . . . . . . . . . . . . . . . . .-28-
8.9 Employee Benefit Plan and Employment Matters . . . . . . . . .-28-
8.9.1 Future Employment of Employees. . . . . . . . . . . .-28-
8.9.2 Health Care Continuation Requirements . . . . . . . .-28-
8.9.3 Employment Contracts; Compliance with Workers
Adjustment and Retraining Notification Act. . . . . .-29-
8.9.4 Employee Benefit Plans. . . . . . . . . . . . . . . .-29-
8.9.5 Indemnification of Buyer. . . . . . . . . . . . . . .-29-
8.9.6 Indemnification of Seller . . . . . . . . . . . . . .-30-
8.10 Shadow Management. . . . . . . . . . . . . . . . . . . . . . .-30-
8.11 Retail Real Estate Sales . . . . . . . . . . . . . . . . . . .-31-
8.12 Notice of Changes. . . . . . . . . . . . . . . . . . . . . . .-31-
8.13 Exclusive Right. . . . . . . . . . . . . . . . . . . . . . . .-31-
8.14 Removal of Personal Property . . . . . . . . . . . . . . . . .-31-
8.15 Equipment Leases . . . . . . . . . . . . . . . . . . . . . . .-31-
8.16 Sales, Use, Single Business Tax and Other Taxes. . . . . . . .-31-
8.17 Sales Commissions. . . . . . . . . . . . . . . . . . . . . . .-32-
8.18 Events Prior to Closing and Other Information. . . . . . . . .-32-
8.19 Club Memberships, Space Leases . . . . . . . . . . . . . . . .-32-
8.20 Water System . . . . . . . . . . . . . . . . . . . . . . . . .-33-
8.21 Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . .-33-
8.22 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . .-33-

9. Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-33-
9.1 Conditions to Buyer's Obligation to Close. . . . . . . . . . .-33-
9.1.1 Compliance with Covenants . . . . . . . . . . . . . .-33-
9.1.2 Delivery of Documents . . . . . . . . . . . . . . . .-33-
9.1.3 Representations and Warranties. . . . . . . . . . . .-33-
9.1.4 Status of Title . . . . . . . . . . . . . . . . . . .-33-
9.1.5 No Material Change. . . . . . . . . . . . . . . . . .-33-
9.1.6 Liquor License. . . . . . . . . . . . . . . . . . . .-34-
9.1.7 Licenses and Permits. . . . . . . . . . . . . . . . .-34-
9.1.8 Certain Environmental Matters . . . . . . . . . . . .-35-
9.1.9 1996 Audit. . . . . . . . . . . . . . . . . . . . . .-35-
9.1.10 Certificates of Occupancy and Fire Department
Clearances. . . . . . . . . . . . . . . . . . . . . .-35-
9.2 Option to Extend Closing Date. . . . . . . . . . . . . . . . .-35-

10. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-35-

11. Seller's Closing Documents. . . . . . . . . . . . . . . . . . . . . .-35-
11.1 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . .-35-
11.1.1 Deed. . . . . . . . . . . . . . . . . . . . . . . . .-35-
11.1.2 Seller's Affidavit. . . . . . . . . . . . . . . . . .-35-
11.1.3 Bill of Sale. . . . . . . . . . . . . . . . . . . . .-36-
11.1.4 Assignment of Space Leases and Club
Memberships . . . . . . . . . . . . . . . . . . . . .-36-

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<PAGE>

11.1.5 Assignment of Service Contracts . . . . . . . . . . .-36-
11.1.6 General Assignment. . . . . . . . . . . . . . . . . .-36-
11.1.7 Notice of Change of Ownership . . . . . . . . . . . .-36-
11.1.8 Service Contracts, Permits and Warranties . . . . . .-37-
11.1.9 Opinion of Counsel. . . . . . . . . . . . . . . . . .-37-
11.1.10 Closing Statement . . . . . . . . . . . . . . . . . .-37-
11.1.11 Authorizing Resolutions . . . . . . . . . . . . . . .-37-
11.1.12 Certificate Concerning Representation and Warranties.-37-
11.1.13 Employment and Collective Bargaining Agreements . . .-37-
11.1.14 Sales, Use, Single Business Tax and Other Taxes . . .-37-
11.1.15 Assignment of Telephone Numbers . . . . . . . . . . .-38-
11.1.16 Keys. . . . . . . . . . . . . . . . . . . . . . . . .-39-
11.1.17 Space Leases and Sales Contracts. . . . . . . . . . .-39-
11.1.18 Rent Roll . . . . . . . . . . . . . . . . . . . . . .-39-
11.1.19 FIRPTA. . . . . . . . . . . . . . . . . . . . . . . .-39-
11.1.20 Tenant Estoppel Certificates. . . . . . . . . . . . .-39-
11.1.21 Service Contract Estoppel Certificates. . . . . . . .-39-
11.1.22 Personnel (Employee) Files. . . . . . . . . . . . . .-39-
11.1.23 Guest Information . . . . . . . . . . . . . . . . . .-39-
11.1.24 Certificate of Title. . . . . . . . . . . . . . . . .-39-
11.1.25 Operating Statements. . . . . . . . . . . . . . . . .-39-
11.1.26 Tenant Files. . . . . . . . . . . . . . . . . . . . .-39-
11.1.27 Maintenance Records and Operating Manuals . . . . . .-39-
11.1.28 Property Records. . . . . . . . . . . . . . . . . . .-40-
11.1.29 Assignment of Sales Contracts . . . . . . . . . . . .-40-
11.1.30 Assignment of Developer's Rights. . . . . . . . . . .-40-
11.1.31 Assignment of Trademarks. . . . . . . . . . . . . . .-40-
11.1.32 Music House . . . . . . . . . . . . . . . . . . . . .-40-
11.2 Pre-Closing Delivery . . . . . . . . . . . . . . . . . . . . .-40-

12. Buyer's Closing Documents . . . . . . . . . . . . . . . . . . . . . .-40-
12.1 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . .-41-
12.1.1 Corporate Resolution. . . . . . . . . . . . . . . . .-41-
12.1.2 Assignment of Leases. . . . . . . . . . . . . . . . .-41-
12.1.3 Assignment of Service Contracts . . . . . . . . . . .-41-
12.1.4 Assignment of Sales Contracts . . . . . . . . . . . .-41-
12.1.5 Opinion of Borrower's Counsel . . . . . . . . . . . .-41-
12.1.6 Closing Statement . . . . . . . . . . . . . . . . . .-41-
12.1.7 Certificate regarding Representations and Warranties.-41-

13. Closing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . .-41-
13.1 Transfer of Funds. . . . . . . . . . . . . . . . . . . . . . .-41-
13.2 Delivery of Documents. . . . . . . . . . . . . . . . . . . . .-41-
13.3 Disbursement of Funds and Documents. . . . . . . . . . . . . .-42-

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<PAGE>

14. Prorations and Adjustment; Closing Costs. . . . . . . . . . . . . . .-42-
14.1 Prorations and Adjustment. . . . . . . . . . . . . . . . . . .-42-
14.2 Seller's Closing Costs . . . . . . . . . . . . . . . . . . . .-46-
14.3 Buyer's Closing Costs. . . . . . . . . . . . . . . . . . . . .-46-

15. Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-46-

16. Condemnation and Damage by Casualty . . . . . . . . . . . . . . . . .-47-
16.1 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . .-47-
16.2 Damage by Casualty . . . . . . . . . . . . . . . . . . . . . .-47-
16.2.1 Damage Not in Excess of Set Amounts . . . . . . . . .-47-
16.2.2 Damage in Excess of Set Amounts . . . . . . . . . . .-47-

17. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-47-
17.1 Buyer's Default. . . . . . . . . . . . . . . . . . . . . . . .-48-
17.2 Seller's Default . . . . . . . . . . . . . . . . . . . . . . .-48-
17.3 Defaulting Party . . . . . . . . . . . . . . . . . . . . . . .-48-

18. Real Estate Commission. . . . . . . . . . . . . . . . . . . . . . . .-48-

19. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-

20. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-

21. Escrow Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-

22. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
22.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .-50-
22.2 Section and Paragraph Headings . . . . . . . . . . . . . . . .-50-
22.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
22.4 Third Party Beneficiary. . . . . . . . . . . . . . . . . . . .-51-
22.5 No Joint Venture . . . . . . . . . . . . . . . . . . . . . . .-51-
22.6 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . .-51-
22.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .-51-
22.8 Entire Contract. . . . . . . . . . . . . . . . . . . . . . . .-51-
22.9 Time of the Essence. . . . . . . . . . . . . . . . . . . . . .-51-
22.10 Computation of Time. . . . . . . . . . . . . . . . . . . . . .-51-
22.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . .-51-
22.12 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . .-51-
22.13 Construction of Contract . . . . . . . . . . . . . . . . . . .-51-
22.14 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
22.15 Further Acts . . . . . . . . . . . . . . . . . . . . . . . . .-52-
22.16 Joint and Several Obligation of Seller . . . . . . . . . . . .-52-
22.17 Joint and Several Obligation of Buyer. . . . . . . . . . . . .-52-
22.18 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . .-52-

23. Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
23.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
23.2 Indemnification by Seller. . . . . . . . . . . . . . . . . . .-53-
23.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . .-54-
23.4 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . .-55-
23.5 Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . .-56-

-vi-
<PAGE>

23.6 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . .-57-

24. Warranty of Condition of Assets . . . . . . . . . . . . . . . . . . .-57-
24.1 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . .-57-
24.2 Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-57-
24.3 Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . .-57-
24.4 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . .-57-
24.5 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . .-58-

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<PAGE>

EXHIBITS

EXHIBIT 1.13 Form of Deed
EXHIBIT 1.26 Excluded Housing Inventory
EXHIBIT 1.29 Legal Description of the Land
EXHIBIT 1.31 Names used in connection with Resort
EXHIBIT 1.33 Permitted Exceptions
EXHIBIT 1.39(h) Schedule of Permits
EXHIBIT 1.39(m) Schedule of Insurance Policies
EXHIBIT 1.39(n) Requested Due Diligence Information Schedule
EXHIBIT 1.40 Allocation of Purchase Price
EXHIBIT 1.42 Rent Roll and Schedule of Space Leases
EXHIBIT 1.45 Schedule of Sales Contracts
EXHIBIT 1.46 Seller's Tax Identification Number
EXHIBIT 1.49 Schedule of Individuals re Seller's Knowledge
EXHIBIT 1.53 Copy of Title Commitment
EXHIBIT 1.58 Description of Property Served by Water Company
EXHIBIT 4.3 Draft Contract for Foundation of New Clubhouse
EXHIBIT 4.3a Service Contracts Assumed by Buyer
EXHIBIT 7.1.5 Schedule of Seller's Litigation
EXHIBIT 7.1.6 Schedule of Environmental and Engineering Reports
EXHIBIT 7.1.17 Collective Bargaining Agreements and Employment Contracts
EXHIBIT 7.1.18 Employee Benefit Plans Schedule
EXHIBIT 7.1.22 Commitments to Third Parties
EXHIBIT 7.1.24 Schedule of Notices re Compliance with Laws
EXHIBIT 7.1.28 Schedule of Sales Commissions
EXHIBIT 7.1.29 Property Adjacent to Resort Owned or Leased by Seller
EXHIBIT 7.1.35 Club Memberships
EXHIBIT 7.1.30 Schedule of Air/Mineral Rights
EXHIBIT 7.1.32 Fictitious Name Filings
EXHIBIT 7.2.5 Schedule of Individuals re Buyer's Knowledge
EXHIBIT 7.2.6 Schedule of Buyer's Litigation
EXHIBIT 8.1 Capital Expenditure Schedule
EXHIBIT 8.2.1 Rental Management Agreements
EXHIBIT 8.2.2 Tenant Estoppel Certificate
EXHIBIT 8.10 Managers of the Resort
EXHIBIT 8.14 Items to be Sold at Auction
EXHIBIT 8.15 Schedule of Buyer Assumed Leases
EXHIBIT 8.19 Credits for Certain Club Membership Fees
EXHIBIT 8.20 Water Company Property
EXHIBIT 9.1.10 Certificate of Occupancy and Fire Department Inspections
EXHIBIT 14.1 Form of Closing Schedule
EXHIBIT 14.1(a)(ix) Unbooked Gift Certificates
EXHIBIT 18 Schedule of Brokers, Salespersons and Finders

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EXHIBIT 23.5 Terms of Holdback Escrow
EXHIBIT 24.3 Terms of Warranty Escrow

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CONTRACT FOR PURCHASE AND SALE OF GRAND TRAVERSE RESORT

This Contract for Purchase and Sale of Grand Traverse Resort (the
"Contract" or "Agreement") is made and entered into as of the Effective Date (as
hereinafter defined), by and among Grand Traverse Holding Company, a Michigan
corporation, GRS Grand Hotel Corporation, a Michigan corporation, General
Realty Services, Inc., a Michigan corporation, GTR Resort Development, Inc., a
Michigan corporation, and Grand Personalty, Inc., a Michigan corporation and
their successors and assigns permitted hereunder (jointly and collectively, the
"Seller" and variously as a "Seller"), and KSL Recreation Corporation, a
Delaware corporation and its successors and assigns permitted hereunder (the
"Buyer").

In consideration of the mutual agreements herein set forth, the parties
hereto agree as follows:

DEFINITIONS. The following terms when used in this Contract shall have
the following meanings:

1.1 INTENTIONALLY OMITTED.

1.2 ACQUIRED ACCOUNTS. (a) Cash or cash equivalents having a
combined and total balance as of the Closing Date of $100,000, and (b) all
accounts receivable, in amounts provided for in Section 14.1(vii).

1.3 ATTORNEYS' FEES. All reasonable fees, costs, charges and
expenses charged or incurred by an attorney for services rendered and the
services of any paralegals, legal assistants or law clerks, and any other
costs, expenses or charges related to the providing of such services
including, but not limited to all fees and costs in connection with the
preparation, negotiation and execution of the Contract and the Closing
thereof, and fees, court costs, costs, charges and expenses charged in
connection with representation at the trial level and in all appeals
resulting herefrom or as a consequence of the entry into the transactions
contemplated hereby.

1.4 BUSINESS DAY. Any day (excluding Saturdays and Sundays)
that the banks in Detroit, Michigan are open for business.

1.5 BUYER'S ADDRESS. 56-140 PGA Boulevard, La Quinta,
California 92253.

1.6 BUYER'S ATTORNEY. Miller, Canfield, Paddock and Stone,
P.L.C., Attention: Michael A. Limauro, Esq. Buyer's Attorney's mailing
address and telephone number are 150 West

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Jefferson, Suite 2500, Detroit, Michigan 48226. Telephone No. (313) 963-6420;
Facsimile No. (313) 496-7500, with a copy to Nola Dyal, Esq. at the Buyer's
Address.

1.7 BUYER'S COSTS. All reasonable costs incurred by Buyer
with regard to this transaction, including without limitation reasonable
costs incurred in conducting, performing or causing to be performed or
prepared "due diligence" studies, investigations, audit examinations,
surveys, title commitments, environmental, structural and any other
inspections, examinations or evaluations of the Resort, together with all
reasonable engineering costs, Attorneys' Fees and any and all other expenses
incurred by Buyer in connection with the performance of its obligations or
investigations hereunder prior to Closing, whether or not the Closing occurs.

1.8 CASH TO CLOSE. The Purchase Price plus all of Buyer's
closing costs specified herein, subject to the adjustments and prorations set
forth herein, less the Deposit.

1.9 CLOSING. The delivery of the Deed to Buyer concurrently
with the delivery of the Purchase Price to Seller.

1.10 CLOSING DATE. A date that is no later than ten (10)
days from the later to occur of (i) the expiration of the Investigation
Period, or (ii) the Effective Date of this Contract.

1.11 CLUB MEMBERSHIPS. All memberships (both written and
oral) in the Country Club and the Health Club and any other clubs operated on
the Resort (collectively, the "Clubs") including all deposits and income
derived therefrom.

1.12 COUNTRY CLUB. Means the Village Country Club.

1.13 DEED. The Deed (with no warranty as to the rights, if
any, of the Township of Acme to the Water System, and otherwise with warrants
against Grantor's acts or omissions only) conveying the Land and Improvements
from Seller to Buyer, a form of which is attached hereto as EXHIBIT 1.13.

1.14 DEPOSIT. The sum of Five Hundred Thousand and No/100
Dollars ($500,000.00), plus all interest earned on said sum while it is held
in escrow by Escrow Agent in accordance with this Contract.

1.15 EFFECTIVE CLOSING DATE. Notwithstanding the Closing
Date, June 1, 1997 at 12:01 a.m. shall be the Effective Closing Date, as of
which date and time the prorations and adjustments provided for herein shall
be made.

1.16 EFFECTIVE DATE. The date this Contract is fully executed
by all parties hereto and a fully executed counterpart

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thereof is delivered to each party and their counsel.

1.17 EMPLOYEE BENEFIT PLANS. Shall have the meaning given to
it in Section 7.1.18.

1.18 ESCROW AGENT. Ticor Title Insurance Corporation.

1.19 ESCROW AGREEMENT. That certain Escrow Receipt and
Instructions dated as of June 19, 1997 by and among Seller, Buyer and Escrow
Agent with respect to the Deposit.

1.20 INTENTIONALLY OMITTED.

1.21 GOLF COURSES. The existing golf courses located adjacent
to the Hotel, known as The Bear and Spruce Run and the related clubhouse and
amenities; together with the Player Golf Course, the New Clubhouse and any
related amenities.

1.22 GOVERNMENTAL AUTHORITY. Any federal, state, county,
municipal or other governmental department, entity, authority, commission,
board, bureau, court, agency or any instrumentality of any of the foregoing.

1.23 HAZARDOUS MATERIAL. Any flammable or explosive materials,
petroleum or petroleum products, oil, crude oil, natural gas or synthetic gas
usable for fuel, radioactive materials, asbestos, polychlorinated biphenyls
(PCB's), hazardous wastes or substances or toxic wastes or substances,
including, without limitation, any substances now or hereafter defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "toxic materials" or "toxic substances" under any
applicable Legal Requirement.

1.24 HEALTH CLUB. The existing Village Health Club located
and operated within the Hotel, which is also known as the Sports Complex.

1.25 HOTEL. The existing 425 room hotel, together with the
Governor's Hall and the Sports Complex (which is also known as the Village
Health Club), and all amenities thereto located on the Land.

1.26 HOUSING INVENTORY. All of the residential units,
including single family homes and site condominiums, constructed or under
construction on the Land for sale to the public for which the sale has not
been consummated by the Effective Closing Date listed on EXHIBIT 1.26, which
units shall be retained by Seller without an adjustment of the Purchase Price.

1.27 IMPROVEMENTS. The Hotel, together with and including all
other structures, parking areas, residential property owned by Seller
(including single family homes, site

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condominiums, and other condominiums), swimming pools, fixtures or other
improvements on, over or beneath the Land, the Water System, but not including
the Housing Inventory, which is not to be acquired by the Buyer.

1.28 INVESTIGATION PERIOD. The period of time beginning on
June 16, 1997 and ending at 5:00 P.M., Eastern time in effect on August 1,
1997 for the conduct of Buyer's inspection and investigation activities
pursuant to Section 4.2 of this Agreement.

1.29 LAND. The real property more particularly described in
EXHIBIT 1.29 attached hereto and made a part hereof, together with all
property rights, easements, tenements, hereditaments, rights-of-way,
development rights, entitlements, unused densities of dwelling units and/or
F.A.R. (floor area ratio) capacity, privileges and appurtenances thereto; all
leases, rents, and profits derived therefrom; all right, title and interest
of Seller in and to any land lying in the bed of any street, road, highway or
avenue, open or proposed, public or private, in front of or adjoining all or
any part of the Land to the center line thereof; all right, title and
interest of Seller in and to any unpaid award or payment which may now or
hereafter be payable in respect of any taking by condemnation of any portion
of the Land or Improvements by any Governmental Authority; and all right,
title and interest of Seller in and to any unpaid award for damage to the
Land or any part thereof by reason of change of grade of any street, road,
highway or avenue adjacent to the Resort; all strips and gores adjoining and
adjacent to the Land; and all Seller's right, title and interest, if any, to
oil, gas and mineral rights.

1.30 LEGAL REQUIREMENT. Any law, enactment, statute, code,
ordinance, order, rule, regulation, judgment, decree, writ, injunction,
authorization, covenant, condition, restriction or agreement, or other
direction or requirement of any Governmental Authority or any other person,
entity, body or document now existing or hereafter enacted, adopted,
promulgated, entered or issued, which pertains to the Resort or any portion
thereof or to the ownership, use, operation, maintenance, possession,
construction, reconstruction, repair or alteration of the Resort or any
portion thereof in effect and applicable to the Resort as of the operative
date of any representation, warranty or covenant making reference thereto.

1.30.5 MUSIC HOUSE. The property generally referred to by that
name and located on U.S. 31 adjacent to the Resort.

1.31 NAME. Collectively, "Grand Traverse", "Grand Traverse
Resort", "The Bear", and any variation of the foregoing, together with any
additional names used in connection with the ownership and operation of the
Resort, including but not limited

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to those listed on EXHIBIT 1.31 attached hereto and made a part hereof.

1.32 NEW CLUBHOUSE. The new clubhouse contemplated to be
located near the 18th green of The Bear.

1.33 PERMITTED EXCEPTIONS. The title exceptions set forth in
EXHIBIT 1.33 attached hereto and the rights, if any, of the Township of Acme
to the Water System.

1.34 PERMITTED USE. The use of the Resort as a hotel, golf
course, condominium and residential development, and related amenities, in
full compliance with all Legal Requirements.

1.35 PERSONAL PROPERTY. All items of personal property owned
by Seller (including all such items in the name of or under the control of
any management company, related company or other party acting on behalf of or
as agent for Seller in connection with the management and operation of the
Resort) located on or pertaining to the Land, and excluding therefrom the
personal property that belongs to tenants. Such Personal Property shall
include, but not be limited to: (i) all fixtures, furnishings, building
materials, machinery, equipment, all golf, cabana, tennis, pool, health club
recreational and fitness equipment and furnishings, telephones, televisions,
computers, glass, tools, signs, all transferable licenses, permits, telephone
numbers (including without limitation all "800" numbers for the Resort), post
office boxes, tradenames, vans, automobiles, other motor vehicles and boats;
and all other articles of Personal Property now or hereafter attached or
appurtenant to the Land and Improvements or used in connection with the use
or operation thereof including any drawings, as-built plans and
specifications and all guarantees and warranties related to any portion of
the Resort; (ii) all attachments, appliances, fittings, lighting fixtures,
doors, cabinets, elevators, flagpoles, sprinklers, plumbing, gas tanks,
heating, air conditioning, electrical, ventilating, lighting, incinerating,
vacuum cleaning, refrigerating and cooling systems, boilers, vaults, safes,
carpets, floor coverings, together with all parts and supplies pertaining
thereto; (iii) all merchandise, supplies, inventories and other items that
are used for the operation and maintenance of guest rooms, guest services,
restaurants, lounges, swimming pools, health clubs, golf courses, beach,
marinas, and other common areas and recreational areas located within or
relating to the Improvements, including without limitation all food and
beverage (alcoholic and non-alcoholic) inventory, china and silver, office
supplies and stationery, brochures, sales, advertising, marketing and
promotional materials, towels, washcloths, linen and bedding, guest cleaning,
paper and other supplies, napkins and tablecloths, upholstery material,
carpets, rugs, furniture, engineers' supplies, paint and painters' supplies,
employee uniforms, and pool, tennis court and other recreational area
cleaning and

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maintenance supplies (collectively, the "Supplies"); (iv) all copyrights,
trademarks, servicemarks, trade logos and other marks and trade or business
names relating to the ownership, use, operation and management of the Resort,
including without limitation all rights of Seller to use the Name; (v) the
Property Records; (vi) all rights of Seller to receive immediately on and after
Closing water service, sanitary and storm sewer service, electrical service, gas
service, and telephone service on and for the Land and Improvements, free and
clear of all qualifications and encumbrances, and the obligation to pay the
applicable utility company the published rate for utility consumption after
Closing, and the foregoing right shall include, but not be limited to the right
to the present and future use of wastewater, drainage, water and other utility
facilities to the extent such use benefits the Land or Improvements, all
reservations of or commitments covering any such use in the future, and all
wastewater capacity reservations ever issued and relating to the Land or
Improvements; (vii) all Acquired Accounts and Prepaid Assets; (viii) any and all
other items of tangible and intangible personal property used in connection with
the use, operation and maintenance of the Resort; and (ix) the note receivable
and mortgage held by the Seller with respect to the Music House property.

1.36 PLAYER GOLF COURSE. The new Gary Player designed golf
course currently under construction.

1.37 INTENTIONALLY OMITTED.

1.38 PROPERTY. The Personal Property, Land, Space Leases, Club
Memberships and Improvements.

1.39 PROPERTY RECORDS. The Property Records shall include,
but not be limited to, each of the following to the extent in the Seller's
possession or in the possession of any management company, related party or
other party acting on behalf of Seller, or in any instance where either
Seller or such other party has the right to obtain such items:

(a) All Space Leases, Sales Contracts, licenses, leases and occupancy
agreements of any kind of all tenants and concessionaires located in, about
or at the Resort. The foregoing shall include all parties that may have
any possessory rights or interest in the Resort or any portion thereof
subsequent to the date of Closing;

(b) All operating statements (including income and expense
statements), balance sheets, cash flow statements, budgets and financial
statements (including audited financial statements), all capital
expenditure records, and other books and records for the Resort for the
period commencing with the date of Seller's acquisition of the Resort;
provided, however, that as of the Effective Date, audited financial

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statements shall only be required for 1994 and 1995, and the audit or
audits of Seller prepared by Deloitte & Touche for the 12 month period
ending December 31, 1996 shall be delivered as hereinafter provided.

(c) All building, engineering and architectural plans, specifications
and drawings and as-built plans pertaining to the Resort and any proposed
additions or renovations thereto, together with all surveys, plats,
topographical maps, aerial photographs and oil, gas, soil, water and
mineral studies and reports;

(d) All advance reservations, schedules of deposits and trade-out
agreements for hotel rooms, meetings, conventions, and the use of
facilities for banquets, parties, affairs and the like which extend to a
period beyond the Closing Date;

(e) All Club Membership documents, all books and records relating to
the operation of the Country Club including the individual Membership
agreements;

(f) All assignable guaranties and warranties issued or made in
connection with the construction, improvement, alteration, maintenance or
repair of any Improvements or any equipment comprising a portion of or
located on the Property;

(g) All schedules of work currently in progress and expected
completion dates and all schedules regarding FF&E, value, age and
anticipated replacement(s);

(h) All certificates of occupancy, licenses (including, without
limitation, liquor, beer, wine, bar and similar licenses), permits
(including, without limitation, health, swimming pool, boiler, child care
and elevator permits), authorizations, and approvals required by any Legal
Requirement and issued by any Governmental Authority having jurisdiction
over the Resort or any portion thereof, the Seller, or the use of the
Resort or any portion thereof, and all certificates issued by the local
board of fire underwriters (or other body exercising similar functions)
(the "Permits"), which Permits are attached hereto as EXHIBIT 1.39(h);

(i) All employment agreements and a current list of all employees as
well as their salaries, benefits, and accrued vacation time, severance
agreements, bonuses, commissions and other compensation arrangements and
payments, together with all personnel files for all employees;

(j) An existing owner's title insurance policy and existing survey;

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(k) All contracts and agreements which affect the ownership, use or
operation of the Resort, including, but not limited to Service Contracts.

(l) All existing environmental audits, appraisals, engineering
reports, ADA compliance reports, similar studies, examinations, analyses,
notices and information concerning the condition of the Resort or any
portion thereof and any Hazardous Material on or about the Property or any
portion thereof, including any and all franchisor quality inspection
reports submitted by prospective franchisors and/or purchasers;

(m) All existing insurance policies as more particularly described on
EXHIBIT 1.39(m); and

(n) Unless waived by Buyer in writing, all other items on EXHIBIT
1.39(n) (Requested Due Diligence Information) not otherwise included in
this Section 1.38.

1.40 PURCHASE PRICE. The sum of Forty Five Million and No/100
Dollars ($45,000,000.00). Buyer shall deliver to Seller at least ten (10)
days prior to the Closing Date the Purchase Price allocation among the
undeveloped land, hotel and golf operations, including the underlying real
and personal property and intangible assets, and the condominium management
contracts for the Resort, including the classifications required by the
Internal Revenue Code of 1986. The allocation shall reflect approximate
values reasonably attributable to the components of the assets of the
Property as of ten (10) days prior to Closing, and shall be attached to this
Agreement as EXHIBIT 1.40. Buyer and Seller each agree to file Internal
Revenue Service Form 8594 and all federal, state and local tax returns in
accordance with said allocation.

1.41 REAL PROPERTY. The Land and Improvements comprising the
real estate assets of the Resort, and all right title and interest of the
Seller in and to the Music House property, if any.

1.42 RENT ROLL. A complete and correct list of all the Space
Leases, setting forth with respect to each of the Space Leases the following
information: the name of the tenant; the date of the Space Lease; any
modifications or amendments to the Space Lease; the rent (including and
describing base rent and any additional rentals) payable under the Space
Lease; the amount of the security deposit, if any; the square footage of the
leased premises. The Rent Roll for the Resort as of the Effective Closing
Date is attached hereto as EXHIBIT 1.42.

1.43 REQUIRED REPAIRS. The repairs, other than the Governor's
Hall convention center masonry identified in the Law

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Engineering Report, requested by Buyer and agreed to by Seller to be applied in
accordance with Section 24.4 against the Warranty Reserve; provided, however,
that no obligation is implied upon Seller or Buyer to come to agreement on
additional repairs, and provided further that the cost for any Required Repair
shall be determined in the manner customary for such repair and validated by a
mutually acceptable contractor.

1.44 RESORT. The Hotel, together with the Golf Courses,
Clubs, Improvements, Property and all other real and personal property owned
and used by the Seller in conjunction therewith (including the Water System,
subject to the right of the Township of Acme, if any) and all amenities
thereto located on the Land.

1.45 SALES CONTRACTS. All agreements to sell real estate owned
by Seller in connection with Seller's on-going "retail" real estate sales
program, which shall include all exhibits, amendments and modifications
thereof. A schedule of the Sales Contracts as of the Effective Closing Date
is attached as EXHIBIT 1.45.

1.46 SELLER'S ADDRESS. 243 West Congress Street, Suite 480,
Detroit, Michigan 48226. Telephone No. (313) 961-6342; Facsimile No. (313)
961-6559. Seller's taxpayer identification number is set forth on EXHIBIT
1.46.

1.47 SELLER'S AGENT. MIG Realty Advisors.

1.48 SELLER'S ATTORNEY. Clark Hill P.L.C.: Attention: William
B. Dunn, Esq. Seller's Attorney's mailing address is: 500 Woodward Ave.,
Suite 3500, Detroit, Michigan 48226-3435; Telephone No.: (313) 965-8511;
Facsimile No. (313) 962-4348.

1.49 SELLER'S KNOWLEDGE. The present actual knowledge of those
persons identified on EXHIBIT 1.49.

1.50 SERVICE CONTRACTS. All service contracts, vendor
agreements, leases, equipment leases, installment sales contracts,
maintenance agreements, employment agreements, agreements with independent
contractors, brokerage agreements, new and resale listing agreements,
commission agreements, management agreements, utility contracts, airline
agreements, travel agency agreements, cable service agreements, collective
bargaining agreements, yellow pages or other advertising agreements, and any
other agreements affecting the Resort or any portion thereof, and any and all
contracts and agreements for any matters that relate to or could impact
revenues or expenses for the Resort or any portion thereof. A schedule of
the Service Contracts as of the Effective Closing Date is attached hereto as
EXHIBIT 1.50.

1.51 SPACE LEASES. All leases and licenses of space

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located within the Improvements and upon the Land (including all marina leases
or licenses), which shall include all exhibits, amendments and modifications
thereof. A schedule of the Space Leases is included in the Rent Roll attached
as EXHIBIT 1.42.

1.52 STATE. The State of Michigan.

1.53 TITLE COMMITMENT. Ticor Title Insurance Commitment for
title insurance with an effective date of June 3, 1997 at 8:00 a.m., being
Case No. DDT-12273-GT, or such later title commitment as shall be received by
and be acceptable to Buyer, agreeing to issue the Title Policy to Buyer upon
satisfaction of the requirements therein contained subject to the exceptions
stated therein and as shown on Schedules B-I and B-II. A copy of the Title
Commitment is attached hereto as EXHIBIT 1.53.

1.54 TITLE COMPANY. Ticor Title Insurance Corporation.

1.55 TITLE POLICY. An ALTA Owner's Title Insurance Policy in
the amount of the Purchase Price, insuring Buyer's title to the Land and
Improvements, subject only to the Permitted Exceptions.

1.56 TRADEMARKS. All copyrights, trademarks, servicemarks,
trade logos and other marks and trade or business names relating to the
ownership, use, operation and management of the Resort, including without
limitation all rights of Seller to use the Name.

1.57 WARRANTIES. All warranties and guarantees relating to
the Resort, including all warranties and guarantees of the Improvements and
Personal Property by general contractors, subcontractors, suppliers and
manufacturers.

1.58 WATER SYSTEM. The existing system providing potable
water to the Resort and adjacent properties as identified in EXHIBIT 1.58
hereto, which is being acquired by the Buyer, subject to the rights of the
Township of Acme, if any, but excluding the water supply and distribution
system utilized at the Resort to irrigate the Golf Courses and the grounds at
the Resort, which is also being acquired by the Buyer.

2. PURCHASE AND SALE. Seller agrees to sell and convey the Resort
to Buyer and Buyer agrees to purchase and acquire the Resort from Seller on
the terms and conditions hereinafter set forth.

3. PURCHASE PRICE. The Purchase Price shall be paid as follows:

3.1 DEPOSIT. On August 4, 1997 Buyer shall deliver to Escrow
Agent the Deposit, together with a completed and executed

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W-9 Form for the Buyer. The Deposit shall be placed by the Escrow Agent in an
interest-bearing escrow account in accordance with the Escrow Agreement.

3.2 CASH TO CLOSE. At the Closing, Buyer shall pay the Cash
to Close to the Escrow Agent by wire transfer to a depository designated by
Escrow Agent.

4. BUYER'S INSPECTION OF THE RESORT.

4.1 SELLER'S DELIVERY OF PROPERTY RECORDS. Seller has
heretofore delivered or made available to Buyer the Property Records. Seller
shall have a continuing obligation to deliver to Buyer copies of items that
constitute Property Records not previously delivered and to the extent in
Seller's possession and, if Seller obtains or becomes aware of any additional
Property Records, Seller shall immediately deliver such additional Property
Records to Buyer. On or before the Closing Date, Seller shall deliver
audited financial records for 1996. Buyer and Seller shall use their best
efforts and mutually cooperate to have Deloitte & Touche prepare audited
financial statements of Seller on behalf of Buyer for 1997 to better effect
the prorations required hereunder.

4.2 BUYER'S INSPECTION OF THE RESORT. At any time from and
after May 14, 1997, through the Closing Date, Buyer or its authorized agents,
personnel, employees or independent contractors shall be entitled, upon
reasonable notice, during reasonable business hours, to enter upon the Land
for the purpose of making physical inspections and investigations of the
Resort or any portion(s) thereof. Buyer or its authorized agents, personnel,
employees or independent contractors shall be given access during reasonable
business hours, upon reasonable notice, to the Property Records. Buyer may
make any and all inspections and investigations of any portion or all of the
Improvements, including but not limited to all roofs, fences, structures,
docks, pilings, electrical systems, plumbing systems, mechanical systems,
paving, termite infestation, and heating, ventilating and air conditioning
systems. Buyer may also make all inspections and investigations of the Land
which it may deem necessary, including but not limited to soil borings,
percolation tests, engineering, environmental, and topographical studies,
zoning and availability of utilities. All inspections and investigations
shall be made at Buyer's expense. Buyer shall endeavor in good faith to use
reasonable efforts to conduct all such inspections and investigations in a
manner which shall not materially and adversely affect the operations of the
Resort. Buyer shall use its best efforts to complete its inspections and
investigations during the Investigation Period. Any such inspections and
investigations shall be in the presence of a representative of Seller, if
Seller so requests. Seller shall cooperate reasonably with Buyer in
connection with any inspections and investigations, including

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providing notice or waivers to any Governmental Authority to allow Buyer access
to government officials or government records subject to the provisions of this
Contract.

4.3 SERVICE CONTRACTS. Buyer shall assume at Closing the
Service Contracts identified on EXHIBIT 4.3a. To the extent assignable,
Buyer agrees that it will assume at Closing the contracts related to the
construction of the Player Golf Course and New Clubhouse. If Seller desires
to enter into new or renew existing Service Contracts prior to Closing, it
shall notify Buyer in writing, and Buyer shall have five (5) Business Days
from receipt of notice to review and approve or object to Seller's proposed
action. In the event Buyer does not object within such period, the Service
Contract shall be deemed approved. Buyer's approval of proposed Service
Contracts shall not be unreasonably withheld. Notwithstanding the preceding,
the contract for the construction of the New Clubhouse foundation shall be
deemed approved if conforming to the requirements set forth in (b) below.
Seller shall be responsible to terminate at or prior to Closing all of the
Service Contracts not identified as assumed by Buyer in its notice or as
otherwise provided in this Section 4.3; and, except as provided below, shall
be required to pay any and all termination or severance fees in connection
therewith. Buyer and Seller agree that each shall pay one-half (1/2) of the
costs of the architectural contract for the New Clubhouse with Chris
Consultants incurred from the Effective Closing Date to the earlier of the
date of termination of such architectural contract and the Closing Date.
Buyer and Seller agree that each shall pay one-half (1/2) of the total of all
termination fees resulting from the cancellation of (a) the architectural
contract for the New Clubhouse with Chris Consultants, and (b) any contract
executed with respect to the construction of the foundation of the New
Clubhouse without material changes from that draft contract attached hereto
as EXHIBIT 4.3, with price and scope not materially different from those
previously disclosed to Buyer. If, within ninety (90) days after Closing,
Buyer enters in a Service Contract for substantially equivalent purposes,
with a party to which Seller has paid or is paying the required cost of
termination, Buyer shall reimburse Seller for any required cost of
termination or for payments made with respect to such terminated Service
Contract for periods after Closing. Subject to Section 23 hereof, Seller
hereby indemnifies and holds harmless Buyer from any and all claims or
damages relating to any of the Service Contracts terminated by Seller. This
indemnification and agreement to hold harmless shall survive the Closing.

4.4 INTENTIONALLY OMITTED.

4.5 INDEMNIFICATION. Buyer hereby agrees to indemnify Seller
and hold Seller harmless against all claims, demands and liability, including
Attorneys' Fees, for nonpayment for services rendered to Buyer, for
mechanics' liens, or for damage to persons

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or property, any of which arise out of Buyer's inspection and investigation
activities pursuant to Section 4.2 of this Agreement. This indemnification and
agreement to hold harmless shall survive the termination of this Contract or the
Closing.

4.6 BUYER'S RIGHT TO TERMINATE DURING THE INVESTIGATION
PERIOD. Notwithstanding any provision contained herein to the contrary, in
the event that Buyer's investigation of the Resort is unsatisfactory to Buyer
for any reason whatsoever or no reason, in Buyer's sole and absolute
discretion, and Buyer shall not deliver to Escrow Agent and Seller, at any
time prior to 5:00 p.m. Eastern time in effect on the final day of the
Investigation Period, written notice of its election to proceed with the
transaction contemplated hereunder then Seller shall join Buyer in
instructing the Escrow Agent to refund the Deposit to the Buyer, less the
$25,000 non-refundable portion which shall be paid to the Seller. In
addition, Buyer may elect to terminate this Contract at any time, in its sole
and absolute discretion, for any reason whatsoever, before the end of the
Investigation Period by delivery of the termination notice to Seller and to
Escrow Agent. Upon Escrow Agent's timely receipt of a termination notice or
joint notice by the Buyer and Seller, Escrow Agent shall return to Buyer
within three (3) days the Deposit, and thereafter this Contract shall be
terminated; and except as specifically set forth herein to survive
termination of this Contract, neither Buyer nor Seller thereafter shall have
any further rights or obligations hereunder. If Buyer fails to deliver the
notice to proceed or delivers a termination notice as described above, then
the Deposit shall be paid to the Buyer. Subject to Seller's rights to cure
as provided herein, if Seller defaults hereunder, Escrow Agent shall deliver
the Deposit to Buyer in full.

4.7 BUYER'S RIGHT TO REQUEST ADDITIONAL INFORMATION.
During the Investigation Period, Buyer may from time to time request
additional information or documentation concerning the Resort (a "Request for
Additional Information") as it deems appropriate and, to the extent such
information or documentation is available to Seller, Seller shall furnish to
Buyer all items pursuant to a Request for Additional Information within 3
business days of its receipt of a Request for Additional Information.
Notwithstanding the foregoing, the Investigation Period shall not be extended
by any Request for Additional Information, beyond August 1, 1997.

4.8 ACCEPTABILITY OF ACQUIRED PROPERTY. If Buyer shall give
the notice to proceed contemplated by Section 4.6, Buyer shall be
conclusively deemed to be purchasing the Property based upon its own
independent inspections and investigations as it deems necessary or
appropriate. Except and to the extent expressly provided in Section 7 of
this Contract, Seller makes no representations or warranties and specifically
disclaims any representation, warranty or guaranty, oral or written, with

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respect to the condition or any other aspect of the Property or its fitness for
any particular purpose. Subject to the provisions of Section 7, Buyer
acknowledges that the information supplied or made available by Seller, whether
written or oral, pertaining to the Property and all books and records pertaining
to the use and occupancy thereof, income, costs and expenses of the operation
and business conducted with the Property, and all other matters concerning the
condition, suitability, marketability, legal compliance and other attributes and
aspects of the Property is furnished as a courtesy to assist Buyer in conducting
its inspections and investigations. Seller shall not be deemed to have made any
representations or warranties regarding the completeness, accuracy or quality of
any reports regarding the condition of the Real Property, including the
location, size, subsurface or soil condition, character or environmental
condition thereof included in the information, or the competence of the preparer
of such reports. Buyer acknowledges that Buyer is not relying on any, and that
neither Seller nor any of its agents, employees or representatives has made, any
representations or warranties regarding the Property or the condition, operation
or use thereof except as may be expressly contained in Section 7 of the
Contract. The provisions of this Section 4.8 shall survive Closing or earlier
termination of this Contract.

5. EVIDENCE OF TITLE.

5.1 MARKETABLE TITLE. At Closing, Seller shall convey to Buyer
good and marketable fee simple title to the Land and Improvements, subject
only to the Permitted Exceptions. Satisfaction of Seller's obligation to
deliver good and marketable title shall be evidenced by the issuance of the
Title Policy.

5.2 TITLE COMMITMENT. Seller has heretofore delivered to
Buyer, and Buyer acknowledges receipt of, the Title Commitment together with
copies of each of the exceptions referred to therein. The condition of title
disclosed by the Title Commitment, when conforming to the Permitted
Exceptions, is accepted by Buyer. The policy to be issued pursuant to the
Title Commitment, to the extent available from the Title Company, shall
contain no (or insure against) survey exception; shall contain no (or insure
against) creditor's rights exclusion or exception; shall contain no printed
(standard) exceptions; shall affirmatively insure access to the Resort; and
shall contain such other endorsements available in the State and as required
by Buyer or Buyer's counsel. Other than the ALTA 3.1 zoning endorsement with
parking to be paid for by Seller, all endorsements shall be at Buyer's
expense. Seller shall be responsible to satisfy all requirements contained
in the Title Commitment, subject to Permitted Exceptions, as a condition to
delivering good and marketable title to Buyer as set forth in this Paragraph
5. At Closing, Seller shall provide such affidavits or similar documents as
shall be required by law or otherwise typically required by or

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satisfactory to the Title Company to cause the deletion of the printed
(standard) exceptions from the Title Policy.

5.3 ADDITIONAL EXCEPTIONS. If Buyer receives notice of or
otherwise discovers any additional exceptions to record title other than
insubstantial or de minimis exceptions or those disclosed by the Title
Commitment (the "Additional Exceptions") after delivery of the Title
Commitment and prior to the Closing Date, which do not result from or are
caused by an act of Buyer or its agent, contractors, employees or personnel,
Buyer shall notify Seller in writing of the Additional Exceptions to which
Buyer objects within three (3) business days after Buyer receives notice of
such Additional Exceptions (the "objected-to Additional Exceptions"). If
Buyer does not so object, such not objected-to Additional Exceptions shall
become Permitted Exceptions, and title shall be conveyed subject thereto.

5.4 ADDITIONAL EXCEPTIONS CURABLE BY THE PAYMENT OF MONEY.
Seller shall be required to cure or remove prior to or on the scheduled
Closing Date all objected-to Additional Exceptions which can be cured or
removed by the payment of money due to a liquidated claim, judgment or
encumbrance.

5.5 ADDITIONAL EXCEPTIONS NOT CURABLE BY THE PAYMENT OF MONEY.
Seller shall have a period of thirty (30) days after notice from Buyer to
cure any objected-to Additional Exceptions which are not curable by the
payment of money, and the Closing Date shall be postponed, if necessary, to
afford Seller not more than thirty (30) days to cure objected-to Additional
Exceptions. Seller shall exercise due diligence and good faith in
endeavoring to cure the objected-to Additional Exceptions, but which shall
not include the institution of any necessary lawsuits. If Seller is unable
to cure any objected-to Additional Exceptions within the time period
provided, Buyer shall have the following options:

[Intentionally Omitted];

Buyer may waive the uncured objected-to Additional
Exceptions and accept title in its existing condition, without adjustment of the
Purchase Price; or

Buyer may terminate this Contract by sending written notice
to Seller and Escrow Agent; Escrow Agent shall return to Buyer the Deposit in
full; Seller shall pay to Buyer Buyer's Costs up to $200,000; and except as
specifically set forth in this Contract neither Buyer nor Seller shall have any
further rights or obligations hereunder.

5.6 POSTPONEMENT OF CLOSING DATE. If the Closing Date has been
postponed to afford Seller additional time to cure the Additional Exceptions,
the Closing shall take place five (5) days after Seller sends Buyer written
notice that all objected-to

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Additional Exceptions have been eliminated, together with evidence of same.
Seller shall promptly reschedule the Closing Date upon satisfaction or
elimination of such objected-to Additional Exceptions.

6. SURVEY.

6.1 DELIVERY OF SURVEY. Seller has delivered to Buyer any and
all existing surveys of the Land and Improvements in the possession of
Seller. On or before the expiration of the Investigation Period, Buyer at
its expense may cause to be prepared a current "as-built" survey (the
"Survey") of the Land and all Improvements thereon, prepared by a land
surveyor or engineer registered and licensed in the State. Buyer agrees that
an update of existing surveys, performed by the surveyor making the existing
surveys, will satisfy its survey requirements if the Survey shall: show the
legal description of the Land to be the same as that set forth in the Title
Commitment; set forth an accurate metes and bounds description of the Land;
be certified to Buyer and to the Title Company; include a certification that
the map or plat and the survey on which it is based are prepared (i) in
accordance with "Minimum Standard Detail Requirements for Land Title Surveys"
jointly established and adopted by the American Land Title Association and
the American Congress on Surveying and Mapping in 1992, and including, but
not limited to items 1, 2, 8, 10, and 11, of Table A thereof, and (ii)
pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect
on the date of this certification) of an urban survey, and be certified as of
a date subsequent to the Effective Closing Date. Seller shall cooperate with
Buyer and Buyer's agents in the preparation of the Survey.

6.2 SURVEY DEFECTS. Buyer shall have three (3) Business Days
from the date of receiving the Survey to examine same. If the Survey shows
any encroachment on the Land or that any Improvement located on the Land
encroaches on the land of others or if the Survey shows any other defect
which would affect the marketability of the Resort, Buyer shall notify Seller
of such defect within three (3) Business Days after receipt of the Survey and
such encroachment or defect shall be treated in the same manner as title
defects are treated under this Contract.

7. REPRESENTATIONS AND WARRANTIES.

7.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby
represents and warrants (as of the date made as shown on Exhibits or as of
the date this Contract has been signed on behalf of Seller if not so shown,
but otherwise as of the date specified in the following) to Buyer as follows:

7.1.1 SELLER'S EXISTENCE. Each Seller is a corporation,
duly organized under the laws of the state identified

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in the caption hereto, validly existing and in good standing under the laws of
such state and the State of Michigan. Seller has full power and authority to
own and sell its property and to comply with the terms of this Contract.

7.1.2 AUTHORITY. The execution and delivery of this
Contract by each Seller and the consummation by each Seller of the
transaction contemplated by this Contract are within such Seller's capacity
and all requisite action has been taken to make this Contract valid and
binding on each Seller in accordance with its terms.

7.1.3 TITLE.

7.1.3.1 To Seller's knowledge, and based solely on the
Title Commitment, Seller is the sole owner of fee simple marketable title to the
Real Property, subject to the rights of the Township of Acme, if any, to the
Water System, free and clear of all liens, encumbrances and restrictions of any
kind, except those exceptions shown on the Title Commitment. The existing
mortgage indebtedness, if any, encumbering the Property shall be discharged by
Seller.

7.1.3.2 Seller has a right, title or interest in the
Property (other than the Real Property) which can be transferred to Buyer free
and clear of liens and encumbrances on such right, title and interest other than
Permitted Exceptions and lease obligations under equipment leases to be assumed
by Buyer or discharged by Seller as specified in EXHIBIT 8.15.

7.1.4 NO LEGAL BAR. The execution by Seller of this
Contract and the consummation by Seller of the transaction hereby
contemplated does not and on the Closing Date will not (a) to Seller's
knowledge, result in a breach of or default under any indenture, agreement,
instrument or obligation to which Seller is a party and which affects all or
any portion of the Property, or (b) to Seller's knowledge, constitute a
violation of any Legal Requirement.

7.1.5 LITIGATION. Except as set forth on EXHIBIT 7.1.5,
there are no actions, suits, proceedings or investigations (including
condemnation proceedings) pending or, to Seller's knowledge, threatened
against: (i) a Seller which would materially adversely affect Seller's
ability to perform its obligations under this Contract; or (ii) the Property
to the extent that such threatened action, suit proceeding or investigation
would be required to be disclosed on the Seller's audited financial
statements and Seller is not aware of any facts which to Seller's knowledge
might result in any such action, suit or proceeding.

7.1.6 HAZARDOUS MATERIAL. To Seller's knowledge, except
as disclosed in reports regarding environmental condition

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of the Real Property which have been furnished by Seller to Buyer and are set
forth on EXHIBIT 7.1.6 HERETO, (a) Seller has conducted no activity on the
Property involving the generation, treatment, storage or disposal of Hazardous
Material except in compliance with Legal Requirements; (b) no portion of the
Property is now being used or to Seller's knowledge has ever been used to treat,
store, generate or dispose of Hazardous Material, excepting for those materials
ordinarily and customarily used, stored, present, or handled in the regular
operation of the Property in the ordinary course of business and in compliance
with all Legal Requirements; (c) Seller has received no written notice that any
previous owner or tenant conducted any such activity; (d) Seller has received no
written notice of any discharge, spill, or disposal of any Hazardous Material on
or under the Property; (e) Seller has received no written notice from any
Governmental Authority or any other party of any Hazardous Material violations
concerning the Property or any portion thereof, nor is Seller aware of any such
violation; (f) there are no storage tanks or wells (other than water wells)
located on the Land; and any underground storage tanks previously removed from
the Property were removed in accordance with all applicable Legal Requirements;
and (g) Seller has received no written notice as to any locations off the
Property where Hazardous Material generated by or on the Property have been
treated, stored, deposited or disposed of.

7.1.7 NO RIGHTS TO PURCHASE. No tenant or other occupant
under any of the Space Leases, no licensor or other person, firm,
corporation, or other entity has any right or option to acquire the Property
or any portion thereof (other than the Township's right to acquire the Water
System, if any) or lease or occupy any space, except as specified in the
Space Leases. Notwithstanding the foregoing, from the Effective Closing Date
until the Closing Date, Seller shall have the right to continue to sell real
estate in accordance with Sales Contracts as part of its on-going "retail"
real estate sales program at market prices.

7.1.8 COVENANTS, CONDITIONS, RESTRICTIONS OR EASEMENTS.
To Seller's knowledge, there is no default or breach by Seller, or by any
other party thereto, under any covenants, conditions, restrictions,
rights-of-way or easements which may affect the Real Property or any
portion(s) thereof which require performance or compliance by the owner of
the Real Property and no condition or circumstance exists which with the
giving of notice or the passage of time or both would constitute a default or
breach by Seller nor, to Seller's knowledge, any other party thereto, under
any such covenants, conditions, restrictions, rights-of-way or easements.

7.1.9 PERSONAL PROPERTY. To Seller's knowledge the
quantities of fixtures and tangible personal property, consumables and
operating equipment of the Hotel, including physical reserves are sufficient
for the operation of the Hotel in accordance with

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standards heretofore maintained by Seller. Seller has delivered copies of all
leases pursuant to which any items of Personal Property are leased.

7.1.10 SERVICE CONTRACTS. To Seller's knowledge, the
schedule of Service Contracts attached to this Contract as EXHIBIT 1.50
constitutes a list of all of the material Service Contracts affecting the
Resort as of the Effective Closing Date, and, as of the Effective Closing
Date, there are no other material Service Contracts with respect to the
Resort. To Seller's knowledge, all of the material Service Contracts are in
full force and effect, there is no default by any party under any material
Service Contract and, other than this Contract, no event has occurred as of
the Effective Date, that with the giving of notice or passage of time, or
both, would constitute a default thereunder. To Seller's knowledge, Seller
has no interest in any of the parties providing services thereunder. To
Seller's knowledge, Seller has received no notice that any party to any
Service Contract intends to cancel or terminate its Service Contract. To
Seller's knowledge, there are no other agreements (written or oral) other
than the Space Leases, Permitted Exceptions or the Service Contracts,
materially affecting the Resort, any portion thereof or the use thereof, or
which could materially impact the revenues or expenses of the Resort. For
the purposes of this Section 7.1.10, "material Service Contract" shall mean a
service contract obligating Seller to make payments thereunder in excess of
$1,500 per month.

7.1.11 ASSESSED VALUATION. Seller is not currently
contesting the real estate tax assessments for the Resort. The Land is
separately assessed for real property tax assessment purposes and is not
combined with any other real property for tax assessment purposes.

7.1.12 NOTICES. To Seller's knowledge, it has disclosed
any written notice from any Governmental Authority, any tenant under the
Space Leases, any insurer, or any other party asserting that Seller is
required to perform work at the Resort and to Seller's knowledge no such
notices have been issued.

7.1.13 PARTIES IN POSSESSION. To Seller's knowledge,
except for tenants under the Space Leases, employees in employee housing and
Resort guests there are no parties other than Seller in possession of any
portion of the Land or Improvements as lessees, tenants at sufferance or
trespassers.

7.1.14 SPACE LEASES. The Space Leases described on the
Rent Roll comprise all of the Space Leases presently existing and each is in
full force and effect as of date hereof. None of the Space Leases has been
modified, altered, or amended in any respect by or to the knowledge of
Seller, and no tenant has the right to cancel or terminate its Space Lease,
except as set forth

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in the Space Leases. No tenant has any right to renew or extend its Space Lease
except as set forth in the Space Lease or any interest in the Resort other than
a leasehold possessory interest. Except as specified on the Rent Roll and to
Seller's knowledge, Seller has no interest in any of the tenants. To Seller's
knowledge, there are no leases, tenancies or other rights of occupancy or use
for any portion of the Resort other than as set forth in the Rent Roll. To
Seller's knowledge, neither Seller nor any tenant is in a material default under
any Space Lease and no event has occurred that with the giving of notice or
passage of time or both would constitute a material default thereunder. Except
as specified on the Rent Roll each of the tenants under the Space Leases is in
possession of its respective premises. To Seller's knowledge: (a) no tenant has
any offsets, defenses, claims or causes of actions against Seller arising out of
matters occurring prior to Closing; (b) there is no tenant contesting any tax,
percentage rent, operating costs or other escalation payments or occupancy
charges or any other amounts payable under its specific Space Lease; and (c) all
tenants have furnished insurance certificates indicating that the insurance
coverage required by their respective Space Leases is in full force and effect.

7.1.15 LEASING COMMISSIONS. No brokerage or leasing
commissions (including any renewals or residuals) or other compensation are
due or payable by Seller to any person, firm, corporation, or other entity
with respect to or on account of any of the Space Leases except as specified
on the Rent Roll.

7.1.16 SALES AND OTHER TAXES. To Seller's knowledge, all
sales tax, hotel accommodation tax or the equivalent, Single Business Tax,
and any and all taxes with respect to any employee, required to be paid or
collected by Seller in the operation of the Resort has been collected and
paid to the appropriate Governmental Authority.

7.1.17 EMPLOYEES. Seller has provided to Buyer a complete
list of all employees employed by Seller or any related company of Seller.
Except as disclosed on EXHIBIT 7.1.17 there are no collective bargaining
agreements or employment contracts affecting the employees or the Resort.

7.1.18 EMPLOYMENT BENEFIT PLAN AND EMPLOYMENT MATTERS.
Seller does not maintain or contribute to any Employee Benefit Plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), other than the plans listed on the "Employee
Benefit Plans Schedule" attached as EXHIBIT 7.1.18 of this Contract
(collectively referred to as "Employee Benefit Plans").

With respect to each Employee Benefit Plan, (i) there are no actions,
suits, proceedings, investigations or claims pending, or to Seller's knowledge,
threatened, and the Seller does

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not have any knowledge of any facts which could give rise to any such actions,
suits, proceedings, investigations or claims; and (ii) to Seller's knowledge,
the Employee Benefit Plan and the Seller have complied with all applicable
requirements of ERISA.

7.1.19 INTENTIONALLY OMITTED.

7.1.20 NO SPECIAL ASSESSMENTS AND IMPACT FEES. To
Seller's knowledge, no portion of the Property is affected by any outstanding
special assessments or impact fees imposed by any Governmental Authority.

7.1.21 ACCESS TO HIGHWAYS AND ROADS. To Seller's
knowledge, the Land has rightful vehicular and pedestrian access to and from
public highways and roads through existing accessways and, to Seller's
knowledge, there exists no fact or condition which would result in the
termination of such access.

7.1.22 COMMITMENTS TO GOVERNMENTAL AUTHORITIES. Except
for Permitted Exceptions and, as otherwise disclosed by Seller in EXHIBIT
7.1.22, Seller has no knowledge of any commitments relating to the Resort
made by Seller or Seller's predecessor in title to any Governmental
Authority, utility company, school board, church or other religious body or
any homeowner or homeowners association, merchant's association or any other
organization, group or individual which would impose an obligation upon Buyer
or its successors or assigns to make any contribution or dedication of money
or land or to construct, install or maintain any improvements of a public or
private nature on or off the Land; and no Governmental Authority has imposed
any requirement that any owner of the Land pay directly or indirectly any
special fees or contributions or incur any expenses or obligations in
connection with the Land.

7.1.23 ADVERSE INFORMATION. Seller has no knowledge of
any fact or condition which could materially adversely affect the current use
or operation of the Resort, including (a) changes contemplated in any Legal
Requirement, (b) current or pending judicial or administrative action
concerning the Resort, (c) current or pending building, water, sewer or
traffic moratorium which would impact or curtail future development of the
Property in accordance with applicable Legal Requirements, (d) current or
pending action by adjacent landowners, or (e) any other fact or condition of
any kind or character.

7.1.24 COMPLIANCE WITH LAWS. Except as disclosed in
EXHIBIT 7.1.24, Seller has received no notice that the Resort and the present
uses thereof are not in full compliance with all applicable Legal
Requirements and the requirements of any insurance policy, board of fire
underwriters or any board exercising similar functions that are uncured.
Seller has no knowledge that it is not in substantial compliance with all

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material Legal Requirements in connection with its operation, use and management
of the Resort to the extent that any existing non-compliance would have a
material adverse effect on such operation, use or management. All Permits are
in full force and effect and are registered in the name of Seller. True and
correct copies of all Permits are attached hereto as EXHIBIT 1.39(h).

7.1.25 INSURANCE POLICIES. All of the insurance policies
listed in EXHIBIT 1.39(m) are in full force and effect. To Seller's knowledge
no notice has been received by Seller from any insurer of the Resort or any
portion thereof, with respect to any portion of the Resort, or by any board
of fire underwriters (or other body exercising similar functions) requesting
the performance of any repairs, alterations or other work on the Resort.

7.1.26 THE IMPROVEMENTS. To Seller's knowledge, all
material Permits and the requisite certificates of the local board of fire
underwriters (or other body exercising similar functions) have been issued
for the Improvements, have been paid in full and are in full force and
effect. To Seller's knowledge, all necessary Certificates of Occupancy have
been issued for the Improvements and all portions thereof, including, but not
limited to each of the premises which are subject to the Space Leases. To
Seller's knowledge, no additional certificates of occupancy, licenses or
other permits are required for the current use or operation of the Resort.

7.1.27 UTILITIES. To Seller's knowledge all storm and
sanitary sewer, gas, electricity, telephone and other utilities (except for
water service) serving the Resort are supplied directly to the Resort by
facilities of public utilities and the costs of installation of such
utilities have been fully paid. Seller has represented to Buyer that it is
only able to transfer the assets of its Water System pursuant to State
statute which may permit a right of first refusal in favor of the Township.

7.1.28 SALES COMMISSIONS. The schedule of sales
commissions attached to this Contract as EXHIBIT 7.1.28 constitutes all of
the commissions due by Seller to sales persons for the booking of business at
the Resort or the sale of real estate which is expected to occur after the
Closing Date. Seller is current in the payment of all such commissions
payable through the Effective Closing Date.

7.1.29 PARKING. To Seller's knowledge, the parking
facilities at the Resort are sufficient to comply with all material Legal
Requirements and with all parking commitments made by the Seller under any
Space Leases or other documents. To Seller's knowledge, there are no offsite
parking facilities required to be used in connection with the operation of the

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Resort. To Seller's knowledge, Seller does not own or lease any property
adjacent to the Resort except as set forth in EXHIBIT 7.1.29.

7.1.30 AIR/MINERAL RIGHTS. To Seller's knowledge, except
as disclosed in the Title Commitment, neither the air rights over the
Property, any rights to extract minerals or petroleum or sever timber or
harvest any other plant materials nor any "development rights" with respect
to the Property have been granted, sold, assigned, transferred, leased or
encumbered, except as disclosed on EXHIBIT 7.1.30.

7.1.31 INSOLVENCY. To Seller's knowledge, the Seller has
not made an assignment for the benefit of creditors or admitted in writing
its inability to pay its debts as they mature or has been adjudicated as
bankrupt or filed a petition in voluntary bankruptcy or a petition or answer
seeking reorganization or an arrangement with creditors under the federal
bankruptcy law or any other similar law or statute of the United States or
any state and no such petition has been filed against it.

7.1.32 USE OF THE NAME AND TRADEMARKS. To Seller's
knowledge, Seller owns or has the right to use the Name and Trademarks.
Seller has received no notice, nor does Seller have Seller's knowledge, that
the use of the Name or Trademarks infringes upon rights with respect to any
other person, business or entity in such Name or Trademarks, or that such
ownership and use is not valid. Except as disclosed on EXHIBIT 7.1.32, Seller
has not filed any assumed name filings or registrations with respect to any
Names or Trademarks used in connection with the Resort. This includes, but
is not limited to, Names and Trademarks used in connection with any
restaurants, lounges, bars, or any other portion of the Resort.

7.1.33 RELATED PROPERTY. Except for the Housing
Inventory, there are no property interests, buildings, structures, or other
improvements that are owned or held by Seller and which are necessary or
useful for the operation of the Resort for its Permitted Use that are not
being conveyed pursuant to this Contract.

7.1.34 HISTORICAL SITE. To Seller's knowledge, neither
the Resort nor any portion thereof is listed, or eligible to be listed, in
any national, state or local register of historic places or areas, the
subject of any petition, movement or plan to designate the Resort or any
portion thereof as a historical site, or located within any designated
district or area in which the permitted uses of land located therein are
restricted by regulations, rules of laws other than those specified under
local zoning ordinances.

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7.1.35 CLUB MEMBERSHIPS. To Seller's knowledge, no club
member has any offsets, defenses, claims or causes of action against Seller
arising out of any matters occurring prior to July 31, 1997. All Club
Memberships are listed on EXHIBIT 7.1.35. Further, to Seller's knowledge,
all of the Club Memberships are in full force and effect and Seller has
complied with all of its obligations thereunder.

7.1.36 ENVIRONMENTALLY SENSITIVE AREA/ENDANGERED SPECIES.
To Seller's knowledge, no portion of the Property is listed, in any national,
state or local designation or register of environmentally sensitive
properties or areas, the subject of any petition, movement or plan to
designate the Property or any portion thereof as an environmentally sensitive
area, or located within any environmentally sensitive district or area in
which the permitted uses of land located therein are restricted by
regulations or rules of laws other than those specified under local zoning
ordinances. Further, to Seller's knowledge, there is no threat, movement or
petition to designate any species of animals or plants located on the
property as threatened or endangered, the effect of the existence or
designation of which would be to materially affect the use or cost of
operation of the Resort or any portion thereof for the Permitted Use.

7.1.37 ACCURACY OF STATEMENTS. To Seller's knowledge, no
representations or warranties made by the Seller in this Contract, in any
Exhibit attached hereto, in the Property Records or in any letter or
certificate furnished to the Buyer pursuant to the terms hereof, each of
which is incorporated herein by reference and made a part hereof, contains
any materially untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not materially misleading.

Except as specifically set forth herein or in the documents to be delivered
pursuant hereto, Seller has not made and does not make or give any warranties or
representations.

7.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby
represents and warrants the following to Seller:

7.2.1 BUYER'S EXISTENCE. Buyer is a corporation, duly
organized under the laws of the state identified in the caption hereto,
validly existing and in good standing under the laws of such state.

7.2.2 AUTHORITY. Buyer has all requisite power and
authority to execute and deliver this Contract and to consummate the
transactions contemplated hereby pursuant to the terms and conditions hereof
and all requisite action has been taken to make this Contract valid and
binding on Buyer in accordance with its terms.

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7.2.3 NO CONFLICT. The execution and deliver of this
Contract and the consummation of the transactions contemplated hereby will
not conflict with, breach, result in a default under, or violate any
commitment, document or instrument to which Buyer is a party or by which it
is bound.

7.2.4 SOPHISTICATED BUYER. Buyer specializes in the
investment in and ownership and operation of resort hotel properties in
geographically diverse markets. As such, it is a sophisticated real estate
owner, investor and manager with particular experience in the acquisition,
ownership and operation of real estate assets similar to the resort. Buyer
warrants and represents that it has the ability through its own employees, or
through agents, independent contractors, consultants or other experts with
whom it has a relationship, to evaluate fully the investment characteristics
of the resort and to assess fully all issues pertaining to the title to the
purchased assets, the value of the consumables, the value of the purchased
assets, the past performance of the resort, the structural integrity and
soundness of all Improvements located on the Real Property, the environmental
condition of the purchased assets, and the compliance of the purchased assets
and the operation and management thereof with all Legal Requirements.
Accordingly, Buyer warrants and represents that, except for the
representations and warranties expressly made by Seller in this Agreement,
Buyer has not and will not rely upon any warranty, representation, statement
of fact, or other information made by or furnished by or on behalf of Seller
or any affiliate of Seller, but is relying solely on its own investigation,
assessments, evaluations, and those of its own employees, agents, independent
contractors, consultants, and other experts with whom it is dealing.

7.2.5 NO LEGAL BAR. The execution by Buyer of this
Contract and the consummation by Buyer of the transaction hereby contemplated
does not and on the Closing Date will not (a) to Buyer's knowledge, result in
a breach of or default under any indenture, agreement, instrument or
obligation to which Buyer is a party and which affects all or any portion of
the Property, or (b) to Buyer's knowledge, constitute a violation of any
Legal Requirement. For the purposes of Section 7.2.5 and 7.2.6, "Buyer's
knowledge" shall mean the actual, present knowledge of those persons set
forth on EXHIBIT 7.2.5.

7.2.6 LITIGATION. Except as set forth on EXHIBIT 7.2.6,
there are no actions, suits, proceedings or investigations (including
condemnation proceedings) pending or, to Buyer's knowledge, threatened
against Buyer to the extent that such threatened action, suit proceeding or
investigation would be required to be disclosed on the Buyer's audited
financial statements and would materially adversely affect Buyer's ability to
perform its obligations under this Contract, and Buyer is not

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aware of any facts which to Buyer's knowledge might result in any such action,
suit or proceeding.

Except as specifically set forth herein or in the documents to be delivered
pursuant hereto, Buyer has not made and does not make or give any warranties or
representations.

7.3 SURVIVAL OF REPRESENTATIONS. All of the representations
and warranties set forth in this Contract shall be true and correct as of the
Effective Closing Date; shall be deemed to be repeated at and as of the
Closing Date, notwithstanding any reference to any other reference date
contained in any representation or warranty; shall be true and correct as of
the Closing Date; and all of the representations and warranties set forth in
this Contract shall expressly survive the Closing in the case of 7.1.1, 7.1.2
and 7.2.1, 7.2.2, and 7.2.4 without limitation, and in all other cases for a
period of eighteen (18) months after Closing and shall not merge into or be
extinguished by any of the conveyance or other documents delivered at the
Closing. Notwithstanding the foregoing limitation, the representations
contained in Sections 7.1.16 shall expressly survive the Closing until the
date which is ninety (90) days after the date the applicable statute of
limitations for the payment or collection of such tax has expired.

7.4 BUYER'S PRE-CLOSING REMEDIES FOR SELLER'S
MISREPRESENTATIONS. In the event that Buyer becomes aware prior to Closing
that any of Seller's warranties or representations set forth in this Contract
are untrue and misleading in a material respect on the Effective Closing
Date, or become untrue and misleading in a material respect at anytime
thereafter but prior to Closing for reason other than knowledge acquired by
Seller through Buyer's due diligence, and in the event that Seller is unable
to render any such representation or warranty untrue and misleading in a
material respect materially true and correct as of the Closing Date after
written notice by Buyer to Seller and Seller's opportunity to cure for up to
thirty (30) days, Buyer may either: (a) terminate this Contract by written
notice thereof to Seller and Escrow Agent, in which event, Escrow Agent shall
return the Deposit to Buyer in full; Seller shall pay to Buyer Buyer's Costs,
and except as otherwise specifically set forth in this Contract, neither
Buyer nor Seller shall have any further rights or obligations hereunder; or
(b) elect to close under this Contract notwithstanding the failure of any
other representation and warranty. If Buyer elects the option set forth in
clause (b), the Closing shall not be deemed a waiver by Buyer of the breach
of such representation and warranty and Buyer may recover damages from Seller
for such breach. Seller shall have fifteen (15) months from the date of
notice by Buyer of a breach to render a representation or warranty untrue and
misleading in a material respect true and correct in a material respect.

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8. COVENANTS AND AFFIRMATIVE OBLIGATIONS.

The following provisions incorporate covenants and obligations of both
Seller and Buyer.

8.1 MAINTENANCE OF RESORT. From and after the Effective Date,
Seller shall not perform or cause to be performed any construction or cause
the removal of any Improvements, or make any other change or improvement on
or about the Property without the prior written consent of Buyer, except as
otherwise provided in this Section 8.1. From and after the Effective Date,
Seller shall not make any capital expenditures for capital projects of the
Resort without the prior written consent of Buyer, except as provided in
EXHIBIT 8.1 (the "Capital Project Schedule") or in the case of a bona fide
emergency in Seller's reasonable business judgment. Construction of the
Player Golf Course and New Clubhouse shall continue in accordance with the
contracts relating thereto identified in EXHIBIT 1.50, except as otherwise
provided in Section 4.3 hereof; provided, however, that Seller agrees to
provide Buyer the opportunity to review, comment and provide input with
respect to (i) all unexecuted contracts in excess of $25,000 related to the
construction and/or operation of the Player Golf Course and (ii) all
unexecuted contracts related to the construction and/or operation of the New
Clubhouse; provided further that no construction other than site work shall
be undertaken with respect to the New Clubhouse without Buyer's prior written
consent. Buyer shall have five (5) Business Days from its receipt of notice
of any such contracts to review and make comments on the same. If Buyer does
not provide comments, the contract submitted shall be deemed approved.

Between the Effective Date and the Closing Date, Seller shall (a) maintain
and operate the Resort in substantially the same condition and manner as the
Resort was maintained by the Seller on the Effective Closing Date, including,
without limitation using reasonable efforts to keep available the services of
its present employees at the Resort and to preserve its relations with guests,
suppliers and other parties doing business with the Seller with respect to the
Resort; accepting booking contracts for the use of the Resort facilities and
Club Memberships on terms not less favorable than the terms typically arranged
by the Seller as of the Effective Date and using reasonable efforts to retain
such bookings and Club Memberships; and maintaining the current level of
advertising and other promotional activities for the Resort facilities; and (b)
maintain all parts or portions of the Resort in good working order and repair.
All Personal Property shall be delivered and transferred to the Buyer at no
additional cost to the Buyer. The Seller agrees to keep Supplies adequately
stocked, consistent with past business practice, as if the conveyance of the
Resort hereunder were not to occur, in accordance with established budgets for
the Resort, including, without limitation, maintaining linens and bath towels
and

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washcloths at least at a 3-star level for all of the guest rooms in the Resort
and an ordinary inventory of Supplies consistent with Seller's past practice.

8.2 LEASES.

8.2.1 LEASING ACTIVITIES. Seller shall not, from and
after the Effective Date enter into any new Space Leases or modifications,
renewals or terminations of any existing Space Lease, without the prior
written consent of Buyer which shall not be unreasonably withheld. Further,
Seller shall notify Buyer from time to time of any pending Space Lease
negotiations. Prior to the Closing Date, Seller shall perform its
obligations as landlord under the Space Leases and shall advise Buyer of any
notices of default received by Seller from tenants under the Space Leases.
In addition, as to rental management agreements to be assumed by Buyer as
indicated on EXHIBIT 8.2.1, Buyer shall assume the obligations of Seller
under such assumed rental management agreements.

8.2.2 TENANT ESTOPPEL CERTIFICATES. Seller shall deliver
to Buyer on or before the Closing Date a completed and executed tenant
estoppel certificate ("Tenant Estoppel Certificates") in substantially the
form as set forth on EXHIBIT 8.2.2 hereto from each of the tenants, each
dated within thirty (30) days of the Closing Date; provided that Seller shall
use its reasonable best efforts to obtain executed tenant estoppel
certificates dated within fifteen (15) days of the Closing Date. The
information contained in the Tenant Estoppel Certificates shall conform to
the Rent Roll. Buyer shall not be required to accept a Tenant Estoppel
Certificate in the event such Certificate is inconsistent with the Rent Roll
in any material respect.

8.3 SERVICE CONTRACTS. After the Effective Date, Seller shall
not enter into any new Service Contract or extend, replace, renew or
terminate any Service Contract without the prior written consent of Buyer.
If Seller desires to enter into new or renew existing Service Contracts prior
to Closing, it shall notify Buyer in writing, and Buyer shall have five (5)
Business Days from its receipt of such notice to review and approve or object
to Seller's proposed action. In the event Buyer does not object within such
period, the Service Contract shall be deemed approved. Buyer's approval of
proposed Service Contracts shall not be unreasonably withheld. Any Service
Contract approved by Buyer after the Effective Date shall be assumed by Buyer
on the Closing Date, if and when the Closing occurs. Seller shall deliver to
Buyer on or before the Closing Date an estoppel certificate from the lessor
or vendor as to each of the Service Contracts which estoppel certificate
shall be dated a date not later than thirty (30) days prior to the Closing
Date. The form and content of such estoppel certificate shall be reasonably
satisfactory to Buyer. Notwithstanding the foregoing, construction of the
Player Golf

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Course and the New Clubhouse shall continue in accordance with the contracts
relating thereto identified in EXHIBIT 1.50; provided, however, that Seller
agrees to provide Buyer the opportunity to review, comment and provide input
with respect to (i) all unexecuted contracts related to the construction and/or
operation of the New Clubhouse, and (ii) all unexecuted contracts in excess of
$25,000 related to the construction and/or operation of the Player Golf Course.
Buyer shall have five (5) Business Days from its receipt of notice of any
contracts referred to in this Section 8.3 to review and make comments on the
same. In the absence of objection to such contracts by written notice to Buyer,
such contracts shall be deemed approved.

8.4 NO FURTHER ENCUMBRANCES. After the Effective Date, Seller
shall not create, incur or suffer to exist any mortgage, lien, pledge or
other encumbrance affecting the Property or any portion thereof other than
the Permitted Exceptions.

8.5 COMPLIANCE WITH OBLIGATIONS. Seller shall perform all of
its material obligations under the Space Leases, Service Contracts, Permits
and Warranties, and shall use its best efforts to comply with all material
Legal Requirements affecting the Property and its use until the Closing Date.

8.6 INTENTIONALLY OMITTED.

8.7 INSURANCE. Seller shall maintain in full force and effect
all of its existing insurance until the Closing Date.

8.8 PRESS RELEASE. Neither Buyer nor Seller shall issue any
press release or other publicity of any kind whatsoever with respect to this
Contract or any of the transactions contemplated hereby, without the prior
written consent of Buyer or Seller, as the case may be, in each instance.

8.9 EMPLOYEE BENEFIT PLAN AND EMPLOYMENT MATTERS.

8.9.1 FUTURE EMPLOYMENT OF EMPLOYEES. At Closing (12:01
a.m.), the employment by the Seller of all employees whose employment is at
or for the Resort, shall terminate and such employees shall cease to
participate in any Employee Benefit Plans maintained by or for the benefit of
the Seller. Subject to the provisions of Section 8.9.3 of this Contract,
Buyer, in its discretion, may offer employment to each individual whose
employment was so terminated, with no obligation on Buyer's part to extend
offers of employment to any such terminated employees of Seller. The Seller
shall retain responsibility for the payment of any employee benefits or
entitlements, including severance pay, accrued vacation, worker's
compensation, unpaid housing bonuses, unemployment compensation, sick or
holiday pay, to all terminated employees pursuant to any Employee Benefit
Plan, fund, program, contract, policy or arrangement of the Seller or
applicable law or

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regulation as a result of the consummation of the transactions contemplated
hereby. Buyer shall cooperate with Seller to inform Seller as soon as
practicable prior to Closing (and if reasonably possible before the end of the
Investigation Period) of the existing employees of Seller that will be offered
employment by Buyer following the Closing. Nothing in this Contract express or
implied, shall confer upon any employee of the Seller, or any representative of
any such employee, any rights or remedies, including any right to employment,
continued employment for any period, or seniority rights, of any nature
whatsoever.

8.9.2 HEALTH CARE CONTINUATION REQUIREMENTS. The parties
acknowledge that the transactions contemplated hereby will result in
obligations on the part of the Seller and one or more of the Employee Benefit
Plans that is a welfare benefit plan (within the meaning of Section 3(1) of
ERISA) to comply with the health care continuation requirements of Part 6 of
Title 1 of ERISA and Code Section 4980B, as applicable. The Seller and each
of the Employee Benefit Plans that is such a welfare benefits plan shall
comply with the applicable requirements of such laws. As to employees who
are terminated by Seller and not hired by Buyer within one-hundred twenty
(120) days after the Closing Date, the parties expressly agree that Buyer and
Buyer's benefit plans, if any, shall have no responsibility for compliance
with such health care continuation requirements for qualified beneficiaries
who previously elected to receive continued coverage under Seller's ERISA
benefit plans or who between the date of this Contract and the Closing Date
elect to receive continued coverage, except to the extent required by law.
Buyer agrees to provide health care coverage on the first day subsequent to
the Closing Date to employees of Seller hired by Buyer; provided however,
Buyer shall be under no obligation to provide to such employees benefits that
Buyer does not currently provide to its employees meeting Buyer's
qualifications for health care coverage at its other resorts, and Buyer shall
be under no obligation to provide qualified employees benefits Seller may
have provided. The provisions of this paragraph shall expressly survive the
Closing.

8.9.3 EMPLOYMENT CONTRACTS; COMPLIANCE WITH WORKERS
ADJUSTMENT AND RETRAINING NOTIFICATION ACT. Seller shall be responsible to
terminate, as of the Closing Date, all employees and pay any termination or
severance fees in connection therewith and to comply with all Federal, state
and local laws, rules and regulations in respect of the discharge of
employees; provided, however, that Buyer shall rehire employees of Seller to
the extent and for the period after Closing as required to permit Seller to
perform this transaction without requirement that Seller give any notice or
otherwise comply with the Federal Workers Adjustment and Retraining
Notification Act 29 USC Section 2101-2109 (the "WARN Act") and, subject to
Section 23, shall indemnify, defend and hold Seller harmless from and against
all claims and liabilities resulting from Buyer's failure to do so. Subject
to Section 23,

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Seller hereby indemnifies and holds harmless Buyer from any and all claims or
damages otherwise relating to the termination of any employee. The
indemnifications and agreements to hold harmless contained in this Section 8.9.3
shall survive the Closing.

8.9.4 EMPLOYEE BENEFIT PLANS. Except as specifically set
forth in this Contract: (i) the Buyer shall not be obligated to assume,
continue or maintain any of the Employee Benefit Plans; (ii) no assets or
liabilities of the Employee Benefit Plans shall be transferred to, or assumed
by, the Buyer or the Buyer's benefit plans; and (iii) the Seller shall be
responsible for funding and/or paying any benefits under any of the Employee
Benefit Plans, including any termination benefits and other employee
entitlements accrued under such plans by or attributable to employees of the
Seller prior to the Closing Date.

8.9.5 INDEMNIFICATION OF BUYER. Subject to Section 23 of
this Contract, Seller agrees to pay and be liable to Buyer, its affiliates
and their respective officers and employees (herein individually a "Buyer
Indemnified Party" and collectively "Buyer Indemnified Parties") and shall
assume, indemnify, defend and hold harmless the Buyer Indemnified Parties
from and against and in respect of any and all losses, damages, liabilities,
taxes, sanctions that arise under section 4980B of the Code and Part 6 of
Title I of ERISA, interest and penalties, costs and expenses (including,
without limitation, disbursements and reasonable legal fees incurred in
connection therewith and in seeking indemnification therefor, and any amounts
or expenses required to be paid or incurred in connection with any action,
suit, proceedings, claim, appeal, demand, assessment or judgment) imposed
upon, incurred by, or assessed against any Buyer Indemnified Party arising by
reason of or relating to any failure to comply with the health care
continuation coverage requirements of section 4980B of the Code and Part 6 of
Title I of ERISA which failure occurred or occurs (i) on or prior to the
Closing Date with respect to any current or former employee of Seller or any
qualified beneficiary of such employee (as defined in section 4980B(g)(1) of
the Code) or (ii) after the Closing Date with respect to any current or
former employee of Seller who does not at any time become entitled to
coverage under any group health plan, within the meaning of Section
5000(b)(1) of the Code, of Buyer, unless such failure arises out of promises
made by Buyer to the employees.

8.9.6 INDEMNIFICATION OF SELLER. Subject to Section 23
of this Contract Buyer agrees to pay and be liable to Seller, its affiliates
and its property management company and their respective officers and
employees (herein individually a "Seller Indemnified Party" and collectively
"Seller Indemnified Parties") and shall assume, indemnify, defend and hold
harmless the Seller Indemnified Parties from and against and in respect of
any and all losses, damages, liabilities, taxes, sanctions that

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arise under section 4980B of the Code and Part 6 of Title I of ERISA, interest
and penalties, costs and expenses (including, without limitation, disbursements
and reasonable legal fees incurred in connection therewith and in seeking
indemnification therefor, and any amounts or expenses required to be paid or
incurred in connection with any actions, suit, proceedings, claim, appeal,
demand, assessment or judgment) imposed upon, incurred by, or assessed against
any Seller Indemnified Party arising by reason of or relating to any failure to
comply with Section 8.9.2 or with the health care continuation coverage
requirements of section 4980B of the Code and Part 6 of Title I of ERISA which
failure occurs with respect to any current or former employee of Seller actually
hired as an employee of Buyer or any qualified beneficiary of such employee, as
defined in section 4980B(g)(1) of the Code, who after the Closing Date becomes
entitled to coverage under any group health plan, within the meaning of Section
5000(b)(1) of the Code, of Buyer.

For purposes of this Contract, references to the Code shall mean
the Internal Revenue Code of 1986 and references to the Code and ERISA shall
include references to any provision of such statutes as they may be amended from
time to time.

8.10 SHADOW MANAGEMENT. On and after the Effective Date Buyer
shall have access to and the opportunity to interview the managers of the
Resort identified on EXHIBIT 8.10. Seller shall permit Buyer to establish
and maintain a shadow management operation with respect to the Resort,
including access to the Executive Housekeeper, Front Office Manager and
Director of Catering and Convention Services (if not otherwise named on
EXHIBIT 8.10). Personnel from Buyer's shadow management operation shall have
reasonable access during normal business hours to all books, records and
other information in the possession or control of Seller or its agents
concerning the Resort and shall have the right (at Buyer's expense) to
establish duplicate books and records in order to effect a smooth transition
in the ownership and management of the Resort; provided, however, that Buyer
and its shadow management operation and employees shall not unreasonably
interfere with the normal management and operation of the Resort, shall hold
all information acquired from such books and records confidential in
accordance with the provisions of this Contract, shall repair any damage to
the physical condition of the Resort caused by Buyer or its agents in any
such shadow management operation, and shall not be deemed to have assumed
management responsibilities prior to Closing by virtue of such shadow
management.

8.11 RETAIL REAL ESTATE SALES. Seller shall have the right to
continue to sell real estate in accordance with Sales Contracts as part of
its on-going "retail" real estate sales program at market prices.

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8.12 NOTICE OF CHANGES. If prior to Closing Seller is served
with process or receives notice that litigation may be commenced against it,
Seller shall promptly notify Buyer.

8.13 EXCLUSIVE RIGHT. During the Investigation Period and
continuing thereafter through the Closing Date, Buyer shall have the
exclusive right to purchase the Property and Seller shall not engage in any
negotiations with or solicit offers from any other party relating to the sale
of the Property. Notwithstanding the foregoing, during such period Seller
shall have the right to continue to sell real estate as provided in Section
8.11.

8.14 REMOVAL OF PERSONAL PROPERTY. No items of Personal
Property owned or leased by Seller shall be removed from the Resort prior to
Closing, except items used in the ordinary course of business and for which
replacements or substitutions thereof of approximately equal utility and
value are provided to the Resort, except items leased by Seller under leases
which are to be terminated by Seller in connection with Closing, and except
for items sold at auction as described in EXHIBIT 8.14 provided that the
proceeds of such sale shall be deemed revenues attributable to operations of
the Resort.

8.15 EQUIPMENT LEASES. Seller shall, at its sole cost and
expense, pay off and satisfy all equipment leases of any Personal Property
and obtain the appropriate termination of financing statements or termination
of leases, as applicable. As to leases to be assumed by Buyer as indicated
on EXHIBIT 8.15, Buyer shall assume the obligations of Seller under such
assumed leases and Buyer shall deliver to Seller evidence of the approval of
such assumptions from the respective lessors.

8.16 SALES, USE, SINGLE BUSINESS TAX AND OTHER TAXES. Seller
shall be responsible for the payment of any and all taxes, charges, levies,
assessments or similar amounts, including penalties and interest, due and
owing from it or with respect to the property or business covered by this
Agreement, including but not limited to sales taxes, use taxes, single
business taxes, employee income taxes withheld and county and state real
property transfer taxes due and owing prior to the Effective Closing Date,
and for which a lien may be placed on the property or Buyer has exposure to
transferee or successor liability. Seller shall have no liability for
nonpayment of taxes which would ordinarily be payable out of Resort revenues
as ordinary and necessary operating expenses to the extent such taxes relate
to the ordinary operation of the Resort subsequent to the Effective Closing
Date, excluding (a) taxes or portions of taxes (such as, by example, any
Single Business Tax relating to the capital asset disposition recapture or
any real property transfer taxes) relating to Seller's disposition of the
business and assets covered by this Agreement and (b) fines and penalties
assessed by reason of non- or late payment of taxes relating to the Resort
after the Effective

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Closing Date, which shall be and remain the responsibility of the Seller.
Seller shall file all necessary returns, reports, statements or similar
documents required by law with respect to any such tax or other governmental
levy, and no later than thirty (30) days after Closing apply for and process
all such requests for tax clearance as are necessary to obtain for Buyer
assurances available under applicable law that there is no further obligation
with respect to any and all such taxes or other charges including, but
limited to, any taxes or other governmental charges with respect to which a
lien might have been placed against the Property covered by this Agreement or
with respect to which transfer or successor liability could have otherwise
been asserted against Buyer.

8.17 SALES COMMISSIONS. Seller shall pay all sales
commissions due to salespersons for the booking of business at the Resort or
the sale of real estate due and owing with respect to business booked or
transactions closed as of the Effective Closing Date. Seller shall pay all
such commissions through the Closing Date and shall be responsible for the
payment of all commissions due all sales persons for all business or real
estate sales booked or sold prior to the Closing Date, notwithstanding that
the business or closing will occur after the Closing Date. All payments made
by Seller after the Effective Closing Date shall be charged to Buyer in
accordance with the provisions of Section 14.1.

8.18 EVENTS PRIOR TO CLOSING AND OTHER INFORMATION. Seller
will use its reasonable best efforts not to cause or permit any action to be
taken by Seller or its agents, contractors and employees which would cause
any of the representations and warranties of Seller in this Contract to be
untrue and misleading in a material respect as of the Closing Date. Seller
shall notify Buyer in writing as soon as any information comes to Seller's
knowledge, other than knowledge obtained from Buyer or by reason of Buyer's
due diligence, of any event or condition occurring prior to Closing that
causes any representation and warranty to become untrue and misleading in a
material respect.

8.19 CLUB MEMBERSHIPS, SPACE LEASES. Buyer shall assume the
obligations of Seller under the Space Leases and under the Club Memberships
and shall receive a credit for any portion of membership fees listed on
EXHIBIT 8.19.

8.20 WATER SYSTEM. Buyer is acquiring the Water System under
this Agreement, subject to the rights of the Township of Acme, if any. All
title to the real property, fixtures, equipment and personal property of the
Water System described in EXHIBIT 8.20 hereto shall be Property under this
Contract conveyed to Buyer. Buyer and Seller shall mutually cooperate to
satisfy any conditions that may be applicable to the transfer of the Water

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System to the Buyer free of any claim or interest of the Township. All costs
and expenses following the Closing associated with satisfying such conditions
shall be paid by Buyer and Buyer shall indemnify and hold Seller harmless from
and against any and all costs, expenses and liabilities (including legal fees)
resulting from or associated with the transfer of the Water System to the Buyer
free of claims of the Township, if any.

8.21 ZONING. Seller shall not take any action prior to
Closing which would affect the current zoning classification of the Land.

8.22 EXHIBITS. Upon notice or upon obtaining knowledge that
the information provided by Seller in any Exhibit hereto is incomplete or
inaccurate, Seller shall promptly notify Buyer of such omission or inaccuracy
and promptly provide Buyer with accurate and complete information.

9. CONDITIONS.

9.1 CONDITIONS TO BUYER'S OBLIGATION TO CLOSE. Buyer shall not
be obligated to close unless and until each of the following conditions (in
addition to other conditions precedent under this Contract) are either
fulfilled or waived, in writing, by Buyer:

9.1.1 COMPLIANCE WITH COVENANTS. Seller shall have
performed all covenants, agreements and obligations and complied with all
conditions required by this Contract to be performed or complied with by
Seller prior to the Closing Date;

9.1.2 DELIVERY OF DOCUMENTS. Seller shall be prepared to
deliver to Buyer all instruments and documents to be delivered to Buyer at
the Closing pursuant to this Contract;

9.1.3 REPRESENTATIONS AND WARRANTIES. All of Seller's
representations and warranties shall be true and correct in all material
respects as of the Closing Date;

9.1.4 STATUS OF TITLE. The status of title to the
Property shall be as required by this Contract.

9.1.5 NO MATERIAL CHANGE. As of the Closing Date, there
will be no material adverse changes in the physical condition of the Resort
which have occurred after the expiration of the Investigation Period, except
as is provided for in Section 16 of this Contract.

9.1.6 LIQUOR LICENSE. The Buyer shall make and prosecute
an application for approval of the transfer of all liquor licenses and
alcoholic beverage licenses necessary to operate the restaurants, bars and
lounges presently located within

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the Resort, from the Seller to the Buyer or its nominee (or for the issuance of
new licenses in favor of the Buyer or its nominee). To that end, the Seller and
the Buyer shall cooperate each with the other as is customary in such license
transfer situations, and each shall execute such transfer forms, license
applications and other documents as may be necessary to effect such transfer.
If the liquor license is in the name of a third party manager or related party
to Seller, Seller shall cause such party or parties to cooperate in such
transfer. The parties shall execute and file all necessary transfer forms,
applications and papers with the appropriate liquor authorities as soon as
possible after Buyer's commitment to close the transaction pursuant to this
Contract, to the end that the transfer shall take effect as soon as possible
after the Closing Date, if it cannot take effect simultaneously with Closing.
If such licenses cannot be transferred until after the Closing of the
transaction contemplated hereby, Seller will cooperate with the Buyer in keeping
open the bars and lounges and liquor facilities of the Resort between the
Closing Date and the time when such liquor license transfers actually become
effective, by exercising management and supervision of such facilities under the
existing liquor license, which may include entering into lease agreements and
management agreements in form and content reasonably acceptable to both Buyer
and Seller; provided, however that (i) the Buyer shall indemnify and hold the
Seller harmless from any liability, damages or claims encountered in connection
with such operations during said period of time, and the Buyer shall procure and
pay for dram shop liability insurance naming the Buyer and Seller as insured
thereunder, and (ii) the obligation of Seller to cooperate and keep open the
liquor facilities of the Resort shall terminate one hundred eighty (180) days
after the Closing of the transaction contemplated hereby, or earlier, if the
Buyer obtains transfer of the liquor licenses at an earlier date. Buyer shall
not be required to close the transaction if there is any interruption of
Seller's right to operate the restaurants, bars and lounges prior to Closing.

9.1.7 LICENSES AND PERMITS. Except as provided in
Section 9.1.6, Buyer will have obtained, or have been reasonably assured that
it may obtain and may operate the Resort pending the obtaining of, all
necessary licenses, variances, permits, environmental approvals and any other
consents and approvals by Governmental Authorities that will be required as a
condition to Buyer's ownership and operation of the Resort. Buyer shall use
its reasonable efforts to obtain all such approvals and Seller, at Buyer's
expense, shall cooperate and join in as necessary with any required
applications. All such approvals, consents, etc. shall not be deemed in
effect until all applicable appeal periods have expired, or in the event any
appeal is taken, until the entry of a judgment sustaining all such approvals,
consents, licenses, permits, etc. and the expiration of all appeal periods
from that judgment. Notwithstanding anything contained herein to the

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contrary, in the event of an appeal by a third party, of any required approval,
Buyer shall have the right, but not the obligation, to defend such appeal at its
own cost and expense.

9.1.8 CERTAIN ENVIRONMENTAL MATTERS. Seller, at its
sole expense, shall contract to remove certain potentially hazardous
materials identified in the Law Engineering Environmental Report delivered to
Buyer.

9.1.9 1996 AUDIT. The audit or audits of Seller prepared
by Deloitte & Touche for the twelve (12) month period ending December 31,
1996 shall not differ materially from the financial information previously
provided to Buyer.

9.1.10 CERTIFICATES OF OCCUPANCY AND FIRE DEPARTMENT
CLEARANCES Seller shall deliver to Buyer reasonable evidence that the
Certificates of Occupancy and Fire Department Inspections noted on EXHIBIT
9.1.10 are in full force and effect or that the deficiencies noted have been
satisfactorily corrected and approved by the applicable governmental
authorities.

9.2 OPTION TO EXTEND CLOSING DATE. If the conditions to Buyer's
obligations have not been satisfied on or before the Closing Date in all
material respects solely by reason of Seller's failure to fulfill its
obligations under this Section 9, Buyer shall have the option of continuing the
Closing Date for a period not to exceed thirty (30) days to satisfy the
conditions. This option is not an election of remedies; therefore, at any time
after the original scheduled Closing Date if the conditions to Buyer's
obligation to close which are unfulfilled obligations of Seller have not been
satisfied, Buyer can elect to terminate this Contract and pursue its remedies
against Seller for breach as provided in the case of pre-Closing default in this
Contract.

10. CLOSING. Subject to all of the provisions of this Contract,
Buyer and Seller shall close this transaction on the Closing Date commencing
at 10:00 a.m. The Closing shall take place at the office of Buyer's Attorney
or at such other place as may be mutually agreed upon by Buyer and Seller.

11. SELLER'S CLOSING DOCUMENTS.

11.1 DOCUMENTS. At Closing, Seller shall deliver the following
documents ("Seller's Closing Documents") to the Escrow Agent:

11.1.1 DEED. The Deed which shall be duly executed and
acknowledged by Seller so as to convey to Buyer good and marketable fee
simple title to the Land and Improvements free and clear of all liens,
encumbrances and other conditions of title other than the Permitted
Exceptions. The Deed shall be in the form attached as EXHIBIT 1.13.

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11.1.2 SELLER'S AFFIDAVIT. An affidavit from Seller in
form and content reasonably satisfactory to the Title Company to facilitate
the deletion of the construction lien exception, other "standard" exceptions
(other than oil, gas and mineral) and the insuring of the "gap", i.e., the
deleting as an exception to the Title Commitment any matters appearing
between the effective date of the Title Commitment and the effective date of
the Title Policy (which shall be the Closing Date).

11.1.3 BILL OF SALE. An absolute bill of sale, which
shall have attached thereto an inventory prepared by Buyer, if any, with
warranty of title against Seller's own acts or omission only conveying
Seller's interest in the Personal Property to Buyer free and clear of all
liens, encumbrances and security interests. This will also include the
appropriate transfer of any motor vehicles which will be accompanied by the
original certificates of title fully executed and endorsed. Any sales tax
payable in connection with the transfer of the Personal Property shall be
paid by Seller.

11.1.4 ASSIGNMENT OF SPACE LEASES AND CLUB MEMBERSHIPS.
An assignment by Sellers and assumption by Buyer as of the Closing Date of
Space Leases, Club Memberships, security deposits and prepaid rents and fees
assigning to Buyer all of Seller's right, title and interest in and to the
Space Leases and Club Memberships and all security deposits and prepaid rents
and fees thereunder. Subject to Section 23, the Assignment of the Space
Leases and Club Memberships shall contain a mutual indemnification whereby
the Seller shall indemnify Buyer against any action or inaction relating to
the Space Leases, Club Memberships, rents, security deposits and prepaid
rents occurring or related to matters prior to the Closing Date and Buyer
shall indemnify Seller against any action or inaction relating to the
foregoing occurring or related to matters after the Closing Date.

11.1.5 ASSIGNMENT OF SERVICE CONTRACTS. An assignment by
Seller and assumption by Buyer of Service Contracts assigning to Buyer all of
Seller's right, title and interest in and to the Service Contracts. Buyer
shall assume all obligations of Seller under the Service Contracts as of the
Closing Date. Subject to Section 23, the Assignment of Service Contracts
shall contain a mutual indemnification whereby the Seller shall indemnify
Buyer against any action or inaction relating to the Service Contracts
occurring or related to matters prior to the Closing Date and Buyer shall
indemnify Seller against any action or inaction relating to the foregoing
occurring or related to matters after the Closing Date.

11.1.6 GENERAL ASSIGNMENT. An assignment of all Permits,
Warranties, Property Records, intangible Personal Property or rights, if any,
used in the operation of the Resort,

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assigning to Buyer all of Seller's right, title and interest in and to the
foregoing to the extent such rights exist and are assignable.

11.1.7 NOTICE OF CHANGE OF OWNERSHIP. Original letters
signed by Seller to be delivered by Buyer to the tenants and service
providers of the Resort giving notice of the change of ownership of the
Resort. It shall be Buyer's responsibility to deliver the notice to the
appropriate parties.

11.1.8 SERVICE CONTRACTS, PERMITS AND WARRANTIES. To the
extent available, and copies if originals are not available, the originals of
all Service Contracts, Permits and Warranties.

11.1.9 OPINION OF COUNSEL. An Opinion of Counsel for
Seller that each Seller is a duly organized, validly existing entity and in
good standing under the laws of its state of organization and is authorized
to do business in the State, that Seller has the authority to execute,
deliver and perform its obligations under this Contract and all documents to
be delivered at Closing, that the persons who executed the same were duly
authorized to execute the same and to bind Seller by all necessary action of
Seller, that said documents are enforceable against Seller in accordance with
their respective terms.

11.1.10 CLOSING STATEMENT. A closing statement setting
forth the Purchase Price and all credits, adjustments and prorations between
Buyer and Seller, and the net Cash to Close due from Buyer.

11.1.11 AUTHORIZING RESOLUTIONS. Certificates of such
resolutions in form and content as Buyer or the Title Company may reasonably
request evidencing Seller's existence, power and authority to enter into and
execute this Contract and to consummate the transactions herein contemplated.

11.1.12 CERTIFICATE CONCERNING REPRESENTATION AND
WARRANTIES. Seller shall execute a certificate dated as of the Closing Date
certifying that all of the Seller's representations and warranties set forth
in this Contract remain true and correct in all material respects as of the
Closing Date, or if not, specifying the respect in which any such
representation or warranty is not materially true.

11.1.13 EMPLOYMENT AND COLLECTIVE BARGAINING AGREEMENTS.
True copies of all employment and collective bargaining agreements, if
applicable.

11.1.14 SALES, USE, SINGLE BUSINESS TAX AND OTHER TAXES.
Seller shall, (a) within fifteen (15) days following the Closing Date, file
all final returns, reports, statements or similar documents required by law
with respect to, and (b) within

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thirty (30) days following the Closing Date, make payment in full of any and
all, taxes, charges. levies, assessments or similar amounts, including interest
and penalties, due and owing from it or with respect to any of the Property or
the business covered by this Agreement, to the State of Michigan and any city,
county or other governmental entity in the State of Michigan, including but
limited to sales taxes, use taxes, single business taxes, income taxes withheld,
county and state real property transfer taxes, excluding property taxes or
special assessments levied with respect to any of the Property covered by this
Agreement. Seller shall also request the Michigan Department of Treasury and
any other relevant governmental entity in Michigan, within thirty (30) days from
the Closing Date, to provide clearance that it has no further indebtedness with
respect to any and all such charges, levies, assessments or similar amounts,
including penalties and interest, with respect to any time period prior to the
Closing Date, which are or could become a lien against the Property covered by
this Agreement or with respect to which the Buyer under this Agreement could
have successor liability under any applicable statute, rule or similar
provision. In the event that in the tax clearance process, the State of
Michigan or other appropriate governmental entity (a) conducts an audit of the
books and records of the Resort, or (b) conducts an audit of the Seller
involving records in addition to or other than the books and records of the
Resort, Buyer and Seller shall each provide the other with prompt notice of any
notice of any such pending audit. Seller shall have the right to participate in
and, while keeping Buyer fully informed, control the procedures of that portion
of any such audit as regards any potential for a deficiency, claim or assessment
against Seller which can be satisfied from the Holdback Escrow under Section 23.
Buyer and Seller each agree to proceed diligently and to cooperate with the
other in connection with any such audit, including making available such
employees as have access to or understanding of, the financial records and
operating systems in which information concerning the subject of the audit
exists. The reasonable and ordinary expenses with respect to such audits, to
the extent they relate to the books and records of the Resort and involve
employees of the Resort, shall be borne by Buyer, not including post-audit
proceedings; except that Seller may at its own expense retain separate counsel,
accountants or other advisors to assist it in connection with any audit.
Seller's liability for any unpaid taxes, penalties and interest, except as
provided below for post Effective Closing Date liabilities, shall relate to
periods ending on the Effective Closing Date. In the event any such tax,
interest and/or penalty deficiency is finally assessed against Seller which is
or could be made a lien against the Property covered by this Agreement or
asserted against Buyer as a successor to Seller, such deficiency may be paid
directly by Seller or may be paid from the Holdback Escrow under Section 23.
Seller shall have no liability for nonpayment of taxes which would ordinarily be
payable out of Resort revenues as ordinary and necessary operating expenses to

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the extent such taxes relate to the ordinary operation of the Resort subsequent
to the Effective Closing Date, excluding (a) taxes or portions of taxes (such
as, by example, any Single Business Tax relating to the capital asset
disposition recapture or any real property transfer taxes) relating to Seller's
disposition of the business and assets covered by this Agreement and (b) fines
and penalties assessed by reason of non-payment or late payment of taxes
relating to the Resort after the Effective Closing Date, which shall be and
remain the responsibility of the Seller.

11.1.15 ASSIGNMENT OF TELEPHONE NUMBERS. A written
instrument executed by the Seller conveying and transferring to the Buyer all
of the Seller's right, title and interest in any telephone numbers (including
all "800" or other toll free numbers) and TWX numbers relating to the Resort,
and, if the Seller maintains a post office box, conveying to the Buyer all of
its interest in and to such post office box and the number associated
therewith, so as to assure a continuity in operation and communication.

11.1.16 KEYS. Keys to the Improvements and every lock
thereon to the extent available.

11.1.17 SPACE LEASES AND SALES CONTRACTS. The originals
of all Space Leases and Sales Contracts.

11.1.18 RENT ROLL. An updated Rent Roll current to within
thirty-one (31) days of the Closing Date.

11.1.19 FIRPTA. A FIRPTA Non-Foreign Transferor
Certificate in accordance with Section 1445 of the Internal Revenue Code
which may be included in the Seller's Affidavit.

11.1.20 TENANT ESTOPPEL CERTIFICATES. The original Tenant
Estoppel Certificates as required hereunder.

11.1.21 SERVICE CONTRACT ESTOPPEL CERTIFICATES. The
original Service Contract Estoppel Certificates as required hereunder.

11.1.22 PERSONNEL (EMPLOYEE) FILES. The original or
copies of all employee files for rehired employees.

11.1.23 GUEST INFORMATION. To the extent available, a
complete set of all guest registration cards, guest transcripts, guest
histories and all other available guest information.

11.1.24 CERTIFICATE OF TITLE. Certificate(s)/
registration(s) of title for any vehicles or boats owned by the Seller and
used in connection with the Resort.

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11.1.25 OPERATING STATEMENTS. Operating statements for
the Resort through the period ending sixty (60) days prior to the Closing
Date. Seller shall deliver to the Buyer operating statements for the entire
period owned by Seller within forty five (45) days after the Closing Date.

11.1.26 TENANT FILES. The files for each of the tenants
of any portion of the Resort.

11.1.27 MAINTENANCE RECORDS AND OPERATING MANUALS. All
maintenance records and operating manuals pertaining to the Personal Property
or any portion of the Resort.

11.1.28 PROPERTY RECORDS. The originals of each of the
Property Records to the extent not otherwise covered in this Section 11.

11.1.29 ASSIGNMENT OF SALES CONTRACTS. An assignment of
Sales Contracts, earnest money deposits, progress payments and other
installments and fees assigning to Buyer all of Seller's right, title and
interest in and to the Sales Contracts and all earnest money deposits,
progress payments and other installments and fees thereunder. Buyer shall
assume all obligations of Seller under the Sales Contracts as of the Closing
Date. The Assignment of the Sales Contracts shall contain a mutual
indemnification subject to Section 23 whereby the Seller shall indemnify
Buyer against any action or inaction relating to the Sales Contracts, and all
earnest money deposits, progress payments and other installments and fees
thereunder occurring or related to matters prior to the Closing Date and
Buyer shall indemnify Seller against any action or inaction relating to the
foregoing occurring or related to matters after the Closing Date.

11.1.30 ASSIGNMENT OF DEVELOPER'S RIGHTS. An assignment
of all right, title and interest of the developer under all condominium
documents relating to the Resort assigning to Buyer all of Seller's right,
title and interest in and to such developer's rights. Buyer shall assume all
obligations of Seller under the condominium documents as of the Closing Date.
The Assignment of the Developer's Rights shall contain a mutual
indemnification subject to Section 23 whereby the Seller shall indemnify
Buyer against any action or inaction relating to the condominiums occurring
or related to matters prior to the Closing Date and Buyer shall indemnify
Seller against any action or inaction relating to the condominiums occurring
after the Closing Date.

11.1.31 ASSIGNMENT OF TRADEMARKS. An assignment of
Trademarks assigning to Buyer all of Seller's right, title and interest in
and to the Trademarks. The Assignment of the Trademarks shall contain a
mutual indemnification subject to Section 23 whereby the Seller shall
indemnify Buyer against any

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action or inaction relating to the Trademarks prior to the Closing Date and
Buyer shall indemnify Seller against any action or inaction relating to the
Trademarks occurring after the Closing Date.

11.1.32 MUSIC HOUSE. An assignment of the note receivable,
mortgage and any right of first refusal with respect to the Music House
property.

11.2 PRE-CLOSING DELIVERY. Copies of Seller's Closing
Documents shall be delivered to Buyer's Attorney for review not less than ten
(10) days prior to the Closing Date.

12. BUYER'S CLOSING DOCUMENTS.

12.1 DOCUMENTS. At Closing, Buyer shall deliver the following
documents ("Buyer's Closing Documents") to Escrow Agent:

12.1.1 CORPORATE RESOLUTION. Certificate of Resolution
of Buyer in form and content as Seller or the Title Company may reasonably
request authorizing the entering into and execution of this Contract and the
consummation of the transaction herein contemplated.

12.1.2 ASSIGNMENT OF LEASES. Fully executed duplicate
original of the Assignment of Leases.

12.1.3 ASSIGNMENT OF SERVICE CONTRACTS. Fully executed
duplicate original of the Assignment of Service Contracts.

12.1.4 ASSIGNMENT OF SALES CONTRACTS. Fully executed
duplicate original of the Assignment of Sales Contracts.

12.1.5 OPINION OF BORROWER'S COUNSEL. An Opinion of
Counsel for Buyer that Buyer is a duly organized, validly existing entity and
in good standing under the laws of its state of organization and is
authorized to do business in the State, that Buyer has the authority to
execute, deliver and perform its obligations under this Contract and all
documents to be delivered at Closing, that the persons who executed the same
were duly authorized the same and to bind Buyer by all necessary action of
Buyer, that said documents are enforceable against Seller in accordance with
their respective terms.

12.1.6 CLOSING STATEMENT. A closing statement setting
forth the Purchase Price and all credits, adjustments and prorations between
Buyer and Seller, and the net Cash to Close due from Buyer.

12.1.7 CERTIFICATE REGARDING REPRESENTATIONS AND
WARRANTIES. Buyer shall execute a certificate dated as of the

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Closing Date certifying that all of the Buyer's representations and warranties
set forth in this Contract remain true and correct in all material respects as
of the Closing Date, or if not, specifying the respect in which any such
representation or warranty is not materially true.

13. CLOSING PROCEDURE. The Closing shall proceed in the following
manner:

13.1 TRANSFER OF FUNDS. Buyer shall pay the Cash to Close to
the Escrow Agent by wire transfer to a depository designated by Escrow Agent.

13.2 DELIVERY OF DOCUMENTS. Seller shall deliver Seller's
Closing Documents and Buyer shall deliver Buyer's Closing Documents to the
Escrow Agent.

13.3 DISBURSEMENT OF FUNDS AND DOCUMENTS. When the Title
Company has deleted all the requirements, "insured the gap," i.e., endorsed
the Title Commitment to delete the exception for matters appearing between
the effective date of the Title Commitment and the effective date of the
Title Policy and marked up the Title Commitment agreeing to insure Buyer's
ownership subject only to the Permitted Exceptions, then Escrow Agent shall
disburse the Cash to Close and Deposit to Seller; deliver the Seller's
Closing Documents to Buyer; fund the Holdback Escrow; fund the Warranty
Escrow; deliver the Buyer's Closing Documents to Seller; provided, however,
that Escrow Agent shall record the Deed in the Public Records of the county
where the Land is located.

14. PRORATIONS AND ADJUSTMENT; CLOSING COSTS.

14.1 PRORATIONS AND ADJUSTMENT.

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(a) Certain costs and expenses relating to the Resort shall be
adjusted as of the Effective Closing Date between Seller and Buyer (the
"Closing Date Adjustment"). The Closing Date Adjustment shall constitute a
composite accounting of the different items described below in this Section
14.1. Except as otherwise provided herein, the intent is to credit or
charge, as the case may be, Seller with all revenues and expenses
respecting the Resort which are attributable to operations before the
Effective Closing Date and to credit or charge as the case may be, Buyer
with all such revenues and expenses attributable to operations on and after
the Effective Closing Date. Seller shall be responsible for and agrees to
pay all accounts payable and other liabilities of operation of the Resort
and other liabilities of Seller in full in connection with the operation of
the Resort out of revenues of the Resort through the date immediately
preceding the Closing Date. Unless otherwise provided for herein, all
revenues and expenses shall be separately accounted for as between Seller
and Buyer as of the first moment of the Effective Closing Date. Seller,
Buyer and Deloitte & Touche shall prepare a final proration consistent with
the draft attached hereto as EXHIBIT 14.1, and when agreed to by the
Seller, Buyer and such auditor, shall be attached hereto as a replacement
for EXHIBIT 14.1 and utilized as a closing statement to account for the
prorations and adjustments provided for herein. No later than ninety (90)
days after the Closing Date, Seller and Buyer shall review all the amounts
and calculations made in respect of the Closing Date Adjustment and any
final corrections shall be made to the Closing Date Adjustment, and Seller
and Buyer at that time shall settle any funds owed to each other. The
following items, among others, shall be accounted for in calculating the
necessary prorations and adjustments:

(i) A credit shall be provided to Buyer for the net earnings of
the operations of the Seller for the period from the Effective Closing
Date to the Closing Date, using generally accepting accounting
principles (GAAP), determined as follows: Revenues (reduced by 1/2 of
the guest rooms and condominium revenue for May 31), Less - all
operating expenses (excluding depreciation, amortization, real estate
taxes, interest income, interest expense, income taxes, "extra" sales
taxes assessed and paid relative to a prior period, and bonuses,
severance pay, unaccrued vacation pay paid upon termination and
associated payroll taxes and benefits expense that relate to the
termination of employment of individuals at Closing Date; but normal
(defined as similar amounts or methodology used in prior accounting
periods) payroll and payroll benefit

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expenses associated with the accounting period are not excluded; and a
normal provision for bad debts is not excluded);

(ii) The total amount of security and advance deposits, which are
associated with the continuation of the business operation and
relationship, held by Seller under the Space Leases and Club
Memberships shall be credited to Buyer by Seller, measured at Closing
Date;

(iii) All room and other deposits and advance payments under
booking arrangements, all moneys retained and unspent from the retail
marketing fund and accrued but unpaid employee housing bonuses shall
be credited to Buyer, measured at the Closing Date;

(iv) Security deposits, prepaid Service Contracts, and prepaid
rents, to the extent new deposits and prepaids have been paid between
the Effective Closing Date and the Closing Date, such increase will be
paid for by Buyer (subject to reduction with respect to Service
Contracts per Section 4.3). Such deposits and prepaids are associated
with the continuation of the business operation and relationship (for
example: prepaid insurance is not included).

(v) The sum of $100,000 shall be credited to Buyer at Closing.

(vi) With regard to the booking of guest rooms and of
condominiums and the provision of other services at the Resort, the
parties agree that Seller shall be entitled to all of the revenue (net
of any amounts due to the condominium owners) generated for services
rendered by such operations through the night before the Effective
Closing Date; provided that Buyer and Seller shall each be entitled to
one-half of such revenue (excluding applicable sales tax) for the
night before the Effective Closing Date.

(vii) Accounts receivable shall be prorated as follows: If the
actual balance of accounts receivable on the Closing Date exceeds
$1,500,000, Seller shall be credited an amount, at Closing, equal to
the difference between the actual balance of accounts receivable and
$1,500,000, less an adjustment provided below. If the actual balance
of accounts receivable on the Closing Date is $1,500,000 or less,
Buyer shall be credited an amount, at Closing, equal to the difference
between $1,500,000 and the actual balance of accounts receivable, less
an adjustment as provided below. Accounts receivable purchased will
not include accounts

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receivable from any of the several entities constituting the Seller
with the exclusion of the Resort's receivable for the realty company
which is backed by the accounts receivable held in the condominium
escrow accounts. No bad debt adjustment shall be made as to (i)
accounts receivable which are not more than sixty (60) days past due,
and (ii) accounts receivable that are held in condominium escrow
accounts. The bad debt adjustment for accounts receivable more than
sixty (60) days past due shall be a minus ten percent (-10%), and such
adjustments shall be applied to the balance of accounts receivable.

(viii) The Purchase Price shall be increased by the amount of
capital expenditures provided hereunder of Seller subsequent to the
Effective Closing Date and prior to the Closing Date, provided that
Seller has complied with the Capital Project Schedule attached as
EXHIBIT 8.1 and subject to reduction per Section 4.3. Such capital
expenditures shall be calculated on an accrual basis consistent with
GAAP such that Buyer is responsible only for capital expenditures
accrued subsequent to the Effective Closing Date. Seller shall be
responsible for any capital costs incurred subsequent to the Effective
Closing Date which specifically benefit the Housing Inventory
identified on Exhibit 1.2.6.

(ix) All gift certificates previously sold and unredeemed as of
the Closing Date which are shown as a liability on Seller's balance
sheet shall be credited to Buyer; provided that such liabilities will
be credited to Buyer at face value. Additionally, a credit will be
attributed to the Buyer representing the estimated liability of
unbooked gift certificates and tradeouts where the goods have been
received or the services rendered prior to the Effective Closing Date
calculated on a cost basis. The estimated liability of unbooked gift
certificates and tradeouts is set forth on EXHIBIT 14.1(a)(ix). If
subsequent to Closing, but prior to the settlement of the Threshold
Amount (as defined in Section 23.2(b)(ii) hereof), the cost of
redemption (at cost) exceeds the estimated liability by 150%, such
overage will be applied toward the Threshold Amount.

(x) The sum of $300,000 shall be credited to Buyer at Closing to
compensate Buyer for repairs necessary to the masonry exterior of the
Governor's Hall identified in the Law Engineering Report, which money
may be used in any manner Buyer chooses.

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(b) The parties shall arrange for hotel guests to sign new deposit
box or other appropriate receipts on the day before the Closing Date with
respect to baggage, personal property, laundry, valet packages and other
property of hotel guests checked or left in the care of Seller by transient
hotel guests or tenants and, to the extent such receipts are not obtained,
such property shall be sealed, listed in an inventory prepared and signed
jointly by the parties as of the Closing Date, and Buyer shall be
responsible from and after the Closing Date for all such property listed in
said inventory. Notwithstanding the foregoing, to the extent a hotel guest
has not signed a new safe deposit box receipt, Seller shall continue to be
responsible for the contents thereof and shall indemnify and hold Buyer
harmless for any and all losses, misappropriations, thefts, or otherwise
improper removals from said safe deposit boxes. The provisions of this
paragraph shall expressly survive the Closing.

(c) Taxes (as defined in this clause (c)), on a due date basis. The
term "taxes" shall mean all taxes (including, without limitation, real and
personal property taxes), assessments, water charges and sewer rents (on
the basis of the calendar year), vault charges, excises and levies
assessed, levied, charged, confirmed or imposed upon or payable out of
which have become a lien on the Resort or any part thereof or the
sidewalks, streets, or vaults adjacent thereto; but the term "taxes" shall
not include any municipal, state or federal income taxes assessed against
Seller or any municipal, state or federal capital levy, estate, succession,
inheritance, transfer, sales and use taxes imposed with respect to the
Resort or Seller or any franchise taxes imposed upon any corporate owner of
the Resort or any part thereof, or any income, profits or revenues tax,
assessment or charge imposed upon the rent, if any, collected with respect
to the Resort. If, at the time of the Closing, the Resort or any part
thereof shall be or shall have been affected by an assessment or
assessments which are or may become payable in annual installments, of
which the first installment is then a charge or lien, or has been paid,
then for the purposes of this Contract all the unpaid installments of any
such assessment, including those which are to become due and payable after
the Closing, shall be deemed to be due and payable and to be liens upon the
Property affected thereby and shall be paid and discharged by the Seller,
at or prior to the Closing;

(d) Seller shall notify the utility companies servicing the Resort
prior to Closing, or as soon thereafter as practicable, that billing to
Seller for such utilities shall be discontinued at the end of the day
preceding the Closing Date, and Buyer shall arrange with such utilities to

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have such billings for utility services charged to Buyer from and after the
Closing Date and Seller shall be entitled to the refunds of all deposits
therefor;

Except as expressly provided for otherwise herein, prorations hereunder shall be
made on the basis of GAAP and, if necessary, where applicable, be made on the
basis of a 365-day year, and, for any month, on the basis of the number of days
elapsed. If any of the foregoing cannot be apportioned at the Closing Date
because of the unavailability of the amounts which are to be prorated, unless
otherwise provided for herein, such items shall be prorated as soon as
practicable after the Closing Date. Regardless of when the actual Closing Date
occurs, taxes (as defined in clause (b) above) shall be prorated as of the
Effective Closing Date. The provisions of this Section 14 shall survive the
Closing.

14.2 SELLER'S CLOSING COSTS. Seller shall pay for the
following items prior to or at the time of Closing:

(a) Transfer fees (including all documentary stamp tax, surtax,
excise tax or other similar tax or charge) to be affixed to the Deed;

(b) Costs of recording any corrective instruments and those necessary
to satisfy existing encumbrances;

(d) Published premiums for the Owner's Title Insurance Policy
(including the ALTA 3.1 zoning endorsement with parking) to the extent the
cost thereof is to be paid by Seller; and

(e) Real estate and personal property taxes attributable to the
period prior to the Effective Closing Date.

14.3 BUYER'S CLOSING COSTS. Buyer shall pay for the following
items prior to or at the time of Closing:

(a) Costs of recording all closing documents (except corrective
instruments or documents necessary to satisfy any existing encumbrances);

(b) Buyer's share of Owner's Title Insurance Policy premium for
endorsements to be paid by Buyer;

(d) Real estate and personal property taxes attributable to the
period from and after the Effective

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Closing Date.

15. POSSESSION. Buyer shall be granted full possession of the
Resort at Closing subject to the Space Leases, Club Memberships and guests in
occupancy.

16. CONDEMNATION AND DAMAGE BY CASUALTY.

16.1 CONDEMNATION. In the event of the institution of any
proceedings by any Governmental Authority which shall relate to the proposed
taking of any material portion of the Resort by eminent domain prior to
Closing, or in the event of the taking of any material portion of the Resort
by eminent domain prior to Closing, Seller shall promptly notify Buyer and
Buyer shall thereafter have the right and option to terminate this Contract
by giving Seller and Escrow Agent written notice of Buyer's election to
terminate within thirty (30) days after receipt by Buyer of the notice from
Seller. Seller hereby agrees to furnish Buyer with written notice of a
proposed condemnation within two (2) business days after Seller's receipt of
such notification. Should Buyer terminate this Contract, Escrow Agent shall
return to Buyer the Deposit in full, and, except as otherwise provided for
herein, the parties hereto shall be released from their respective
obligations and liabilities hereunder. Should Buyer elect not to terminate,
the parties hereto shall proceed to Closing and Seller shall assign to Buyer
all of its right, title and interest in all awards in connection with such
taking.

16.2 DAMAGE BY CASUALTY.

16.2.1 DAMAGE NOT IN EXCESS OF SET AMOUNTS. If, after
the Effective Date but prior to the Closing Date, any damage occurs from
fire, windstorm or other casualty to the Resort, and the cost to repair such
loss or damage does not exceed $1,000,000.00 and is insured, or does not
exceed $200,000.00 and is uninsured, then in such event the Closing shall be
consummated as provided for herein. Buyer shall be entitled to all insurance
proceeds payable with respect to the loss. Buyer shall be entitled to the
benefit of all business interruption insurance from and after the Effective
Closing Date, and Seller shall execute and deliver to Buyer at Closing any
documents required to assign such rights.

16.2.2 DAMAGE IN EXCESS OF SET AMOUNTS. If the cost to
repair such damage or destruction exceeds $1,000,000.00 and is insured, or
exceeds $200,000.00 and is not insured, then within ten (10) days after
written notice from Seller of such event, Buyer shall have the option by
written notice to Seller, to terminate this Contract, in which event the
Escrow Agent shall return to Buyer the Deposit in full, and except as
otherwise provided for herein, neither Buyer nor Seller shall have any
further rights or obligations hereunder. Unless Buyer timely

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notifies Seller of its election to terminate this Contract, Buyer shall be
required to close this transaction in accordance with the Contract and Seller
shall assign unto Buyer any and all insurance proceeds. In such event, Seller
shall have no additional obligation if such insurance proceeds are insufficient
or unavailable to repair such damage.

17. DEFAULT.

17.1 BUYER'S DEFAULT. In the event that this transaction fails
to close due to a default on the part of Buyer, the Deposit shall be paid to
the Seller as agreed-upon liquidated damages and thereafter, neither Buyer
nor Seller shall have any further obligation under this Contract except for
indemnifications and other provisions which expressly survive termination of
this Contract. Buyer and Seller acknowledge that if Buyer defaults in its
obligation to close this transaction, if any, Seller will suffer damages in
an amount which cannot be ascertained with reasonable certainty on the
Effective Date and that the Deposit most closely approximates the amount
necessary to compensate Seller in the event of such default. Buyer and
Seller agree that this is a bona fide liquidated damages provision and not a
penalty or forfeiture provision. Seller shall not be entitled to any other
remedy against Buyer for breach of its obligation to close this transaction.

17.2 SELLER'S DEFAULT. In the event that this transaction
fails to close due to a default on the part of Seller, Buyer shall have the
right to either (i) terminate the Contract and receive back the Deposit in
full and Seller shall pay to Buyer Buyer's Costs, in which event the parties
shall be released from any and all liability under this Contract, except as
otherwise expressly provided herein; or (ii) waive such default and close the
transaction as set forth herein; or (iii) pursue any and all remedies against
Seller available at law or in equity, including without limitation, specific
performance of Seller's obligations hereunder.

17.3 DEFAULTING PARTY. Prior to the exercise by Buyer or
Seller of their respective rights under this Section 17, the non-defaulting
party shall provide written notice specifying such default to the other party
(the "Defaulting Party") and the Defaulting Party shall have thirty (30) days
following such notice to cure such default; however, this provision shall not
apply to failure by the Defaulting Party to close on the Closing Date, as to
which date time is of the essence.

18. REAL ESTATE COMMISSION. Seller represents and warrants to Buyer
and Buyer represents and warrants to Seller that except as disclosed on
EXHIBIT 18 hereto, there are no brokers, salespersons or finders involved in
this transaction. Buyer shall be responsible for all real estate commissions
due CB Commercial.

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Seller and Buyer agree to indemnify and hold each other harmless from any and
all claims for any brokerage fees or similar commissions asserted to be due to
or by any brokers, salespersons or finders claiming by, through or under the
indemnifying party except as otherwise provided in this Section 18. The
provisions of this Section 18 shall survive the Closing or earlier termination
of this Contract.

19. NOTICES. All notices, demands, requests, consents, approvals
and other communications (herein collectively called "Notices") required or
permitted to be given hereunder, or which are to be given with respect to
this Agreement, shall be in writing and shall be (i) personally delivered,
(ii) sent by registered or certified mail, postage prepaid, return receipt
requested, (iii) sent by overnight express courier, postage prepaid, or (iv)
sent by confirmed facsimile addressed to the party to be so notified as
follows:

IF TO BUYER:

KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Attention: John K. Saer, Jr.
Facsimile No.: 619 or 760/564-4880

WITH A COPY TO:

KSL Recreation Corporation
56-140 PGA Boulevard
La Quinta, California 92253
Attention: Legal Department
Facsimile No.: 619 or 760/564-4880

WITH A COPY TO:

Miller, Canfield, Paddock and Stone, P.L.C.
150 W. Jefferson Avenue
Suite 2500
Detroit, Michigan 48226
Attention: Michael A. Limauro
Facsimile No.: 313/496-8450

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IF TO SELLER:

Mr. Mark Mitchell
MIG Realty Advisors, Inc.
Grand Traverse Resort
P.O. Box 404
100 Grand Traverse Village Boulevard
Acme, MI 49610-0404
Facsimile No.: 616/938-3857

With a copy to:

Ronald Zajac
243 West Congress Street
Suite 480
Detroit, Michigan 48226
Facsimile No.: 313/961-6559

WITH A COPY TO:

Clark Hill P.L.C.
500 Woodward Avenue
Suite 3500
Detroit, Michigan 48226-3435
Attention: William B. Dunn
Facsimile No.: 313/962-4348

IF TO ESCROW AGENT:

Ticor Title Insurance Company
40 Oak Hollow, Suite 350
Southfield, Michigan 48037
Attention: Margo R. Hannum
Facsimile No.: 248/355-0122

Notice mailed by registered or certified mail shall be deemed received by the
addressee three (3) days after mailing thereof. Notice personally delivered
shall be deemed received when delivered. Notice mailed for overnight delivery
by overnight express courier shall be deemed received by the addressee two (2)
days (provided that the second day is a business day, and if not, the next
following business day) after mailing thereof. Notice by facsimile transmission
shall be deemed delivered on the next business day after confirmation. Either
party at any time may change the address for notice to such party by mailing
Notice as aforesaid. All notices given hereunder shall be simultaneously given
to each of the parties hereto.

20. ASSIGNMENT. Seller acknowledges and agrees that it is Buyer's
right to assign this Contract, or any portion thereof, to any subsidiary or
affiliate of Buyer (each a "KSL Assignee") and Seller hereby consents to such
assignment, provided Buyer gives

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Seller five (5) calendar days but no less than three (3) Business days notice of
any such assignment. Any such assignee may enforce any and all obligations of
the Seller hereunder.

21. ESCROW AGENT. The payment of the Deposit, Cash to Close and
all other funds provided hereunder to the Escrow Agent is for the
accommodation of the parties to this Contract. The duties of the Escrow
Agent shall be determined solely by the express provisions of the Escrow
Agreement.

22. MISCELLANEOUS.

22.1 COUNTERPARTS. This Contract may be executed in any number
of counterparts, any one and all of which shall constitute the contract of
the parties and each of which shall be deemed an original.

22.2 SECTION AND PARAGRAPH HEADINGS. The section and paragraph
headings herein contained are for the purposes of identification only and
shall not be considered in construing this Contract.

22.3 AMENDMENT. No modification or amendment of this Contract
shall be of any force or effect unless in writing executed by both Seller and
Buyer.

22.4 THIRD PARTY BENEFICIARY. There are no third party
beneficiaries of this Contract, intended or otherwise.

22.5 NO JOINT VENTURE. Buyer and Seller, by entering into
this Contract or consummating the transactions contemplated hereby, shall not
be considered partners or joint venturers.

22.6 ATTORNEYS' FEES. In the event of any dispute hereunder
the prevailing party shall be entitled to all reasonable costs and Attorney's
Fees in connection therewith.

22.7 GOVERNING LAW. This Contract shall be interpreted in
accordance with the internal laws of the State both substantive and remedial.

22.8 ENTIRE CONTRACT. This Contract sets forth the entire
agreement between Seller and Buyer relating to the Resort and all subject
matter herein except as to matters of escrow contained in the Escrow
Agreement, the Holdback Escrow Instructions, and the Warranty Escrow
Instructions, and supersedes all prior and contemporaneous negotiations,
understandings and agreements, written or oral, between the parties.

22.9 TIME OF THE ESSENCE. Time is of the essence in the
performance of all obligations by Buyer and Seller under this Contract.

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22.10 COMPUTATION OF TIME. Any reference herein to time periods of
less than six (6) days shall exclude Saturdays, Sundays and legal holidays in
the computation thereof. Any time period provided for in this Contract which
ends on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. on the
next full Business Day.

22.11 SUCCESSORS AND ASSIGNS. This Contract shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto.

22.12 INTENTIONALLY OMITTED.

22.13 CONSTRUCTION OF CONTRACT. All of the parties to this
Contract have participated freely in the negotiation and preparation hereof;
accordingly, this Contract shall not be more strictly construed against any
one of the parties hereto.

22.14 GENDER. As used in this Contract, the masculine shall
include the feminine and neuter, neuter shall include the masculine and the
feminine, the singular shall include the plural and the plural shall include
the singular as the context may require.

22.15 FURTHER ACTS. In addition to the acts, deeds, instruments
and agreements recited herein and contemplated to be performed, executed and
delivered by Buyer and Seller, Buyer and Seller shall perform, execute and
deliver or cause to be performed, executed and delivered at the Closing or
after the Closing, any and all further acts, deeds, instruments and
agreements and provide such further assurances as the other party or the
Title Company may reasonably require to consummate the transaction
contemplated hereunder. However, the foregoing shall not be deemed to
require Seller to expend a sum of money which it could not reasonably have
anticipated on the date of execution of this Agreement, or require Buyer to
expend a sum of money which it could not reasonably have anticipated on the
expiration of the Investigation Period.

22.16 JOINT AND SEVERAL OBLIGATION OF SELLER. The obligations of
each Seller under this Contract shall be joint and several obligations of
each named Seller. The Buyer may enforce the obligations of Seller hereunder
against one or more of the Sellers and not pursue another Seller hereunder as
it shall choose in its sole and absolute discretion. The choice of the Buyer
to pursue remedies against one or more Sellers and not pursue others shall
not affect the liability of the Seller hereunder or any of them, provided,
however, the choice of the Buyer to pursue one or more of the Sellers and not
others shall not affect any right of contribution that may exists among the
Sellers.

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22.17 JOINT AND SEVERAL OBLIGATION OF BUYER. If Buyer assigns this
Contract in accordance with Section 20, then the obligations of Buyer and
such assignee under this Contract shall be joint and several obligations.
The Seller may enforce the obligations of Buyer hereunder against one or more
of the Buyers and not pursue another Buyer hereunder as it shall choose in
its sole and absolute discretion. The choice of the Seller to pursue
remedies against one or more Buyers and not pursue others shall not affect
the liability of the Buyer hereunder or any of them, provided, however, the
choice of the Seller to pursue one or more of the Buyers and not others shall
not affect any right of contribution that may exists among the Buyers.

22.18 CONFIDENTIALITY. Each party acknowledges that the
information, observations and data relating to the business of the other
parties hereto of a proprietary and/or confidential nature which such party
possesses or which such party has obtained or will obtain during the course
of the transactions provided for herein are the property of such other
parties ("Confidential Information"). Each party agrees that it or he shall
not, directly or indirectly, use for its or his own purposes or disclose to
any third party, except consultants and attorneys bound by the
confidentiality requirements set forth in this Section 22.18, any of such
Confidential Information without the prior written consent of the other
parties, unless and to the extent that the aforementioned matters (a) become
generally known to and available for use by the hotel and hospitality
industry other than as a result of any party's acts or omissions to act; (b)
are rightfully received by a party from a party who was not subject to any
obligations of confidentiality; (c) are required to be disclosed to
Governmental Authorities in the course of Buyer's due diligence; or (d) to
the extent a party is required by order of a court of competent jurisdiction
(by subpoena or similar process) to disclose or discuss any Confidential
Information (provided that in such case, such party shall promptly inform the
other parties of such event, shall cooperate with such other parties in
attempting to obtain a protective order or to otherwise restrict such
disclosure and shall only disclose Confidential Information to the minimum
extent necessary to comply with any such court order). Notwithstanding the
foregoing, after the Closing, Buyer may use for its own legal and property
purposes or on a need-to-know basis disclose to any third party any
Confidential Information relating solely to the Resort acquired pursuant
hereto without the prior written consent of Seller.

The parties hereto agree that they may each suffer irreparable harm from a
breach by any other party of any of the covenants or agreements contained
herein. In the event of an alleged or threatened breach by any party of any of
the provisions of this Section 22.18, the other parties or their successors or
assigns may, in addition to all other rights and remedies existing in their
favor, apply to any court of competent jurisdiction for

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specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof.

The agreements in this Section 22.17 shall survive the termination of this
Contract and the Closing.

23. INDEMNITIES.

23.1 SURVIVAL. Subject to the completion of the Closing, all
covenants, representations and warranties set forth in this Agreement shall
survive such Closing as follows: as to covenants, representations and
warranties of Seller, in the case of Sections 7.1.1 and 7.1.2 without
limitation, and in all other cases for eighteen (18) months; and as to
covenants of Buyer, until performed, but as to representations and warranties
of Buyer set forth in Section 7.2.1, 7.2.2, 7.2.4, without limitation.
Notwithstanding the foregoing limitation, the representations contained in
Sections 7.1.16 shall expressly survive the Closing until the date which is
ninety (90) days after the date the applicable statute of limitations for the
payment or collection of such tax has expired. Seller's obligation to
indemnify Buyer and Buyer's obligation to indemnify Seller in respect of
breaches thereof shall be subject to the provisions and limitations set forth
below. The provisions of this Section 23 shall apply only AFTER Closing, and
neither Buyer nor Seller shall have any liability or obligation under the
provisions of this Section 23 unless and until the Closing occurs.

23.2 INDEMNIFICATION BY SELLER.

(a) Subject to the limitations set forth in Section 23.2(b) below, as
the exclusive remedy of Buyer under this Contract after Closing, other than
the remedies set forth in Section 24 below, Seller agrees to indemnify
Buyer (who for purposes of this Section 23, shall include the affiliates,
officers, directors, partners, employees, agents, representatives,
successors and permitted assigns) and hold each of them harmless against
and pay on behalf of or reimburse Buyer in respect of any liability
(including, without limitation, interest, penalties, reasonable attorneys
fees and expenses, court costs and amounts paid in investigation, defense
or settlement of any of the foregoing) (collectively, "Losses") which Buyer
may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of the breach by Seller of any
covenant, representation or warranty made by a Seller under this Contract
(a "Seller's Breach").

(b) The indemnification provided for in Section 23.2(a) above is
subject to the following limitations:

(i) Seller will not be liable to Buyer to the extent

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that any of Seller's representations and warranties set forth in this
Contract become untrue or misleading in a material respect at any time
after the Effective Closing Date, but prior to Closing, as a result of
knowledge acquired by Seller through Buyer's due diligence.

(ii) Seller will not be liable for any Losses arising from Seller's
Breach unless and until the aggregate amount of all such Losses
relating to all such Seller's Breaches exceeds $75,000 (the "Threshold
Amount"), in which case Seller shall be liable for the amount of all
such Losses in excess of the Threshold Amount; provided that the
aggregate liability of Seller hereunder shall not exceed Two Million
Five Hundred Thousand Dollars ($2,500,000.00) (the "Cap Amount") in
respect of all Losses for which indemnification is sought by Buyer
pursuant hereto.

23.3 INDEMNIFICATION BY BUYER.

(a) Subject to the limitations set forth in Section 23.3(b) below, as
the exclusive remedy of Seller under this Contract after Closing, Buyer
hereby agrees to indemnify Seller (who for purposes of this Section 23,
shall include affiliates, officers, directors, partners, employees, agents,
representatives, successors and permitted assigns) and hold each of them
harmless against and pay on behalf of or reimburse Seller in respect of any
Losses which Seller may suffer, sustain or become subject to, as a result
of, in connection with, relating or incidental to or by virtue of the
breach by Buyer of any covenant, representation or warranty made by Buyer
under this Contract (a "Buyer's Breach").

(b) The Indemnification provided for in Section 23.3(a) above is
subject to the following limitations:

(i) Buyer will be liable to Seller with respect to a Buyer's Breach
only if (a) Seller had no knowledge of such Buyer's Breach on or
before the Closing Date and (b) if Seller gives Buyer written notice
of such claim at any time after the Closing Date for claims arising
from or relating to Breach of the representations and warranties set
forth in Section 7.2 of this Contract.

(ii) Buyer will not be liable for any Losses arising from a Buyer's
Breach unless and until the aggregate amount of all Losses relating to
all such Buyer's Breaches exceeds the Threshold Amount, in which case
Buyer, shall be liable for the amount of all such Losses in excess of
the Threshold Amount, subject to a

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maximum aggregate liability for all such Losses in the amount of the
Cap Amount provided that the Cap Amount shall not apply to the
obligation of Buyer to perform or otherwise discharge the liabilities
other than Excluded Liabilities.

23.4 PROCEDURES.

(a) If a party hereto seeks indemnification under this Section 23,
such party (the "Indemnified Party) shall give written notice to the other
party (the "Indemnifying Party") of the facts and circumstances giving rise
to the claim. If any suit, action, claim, liability or obligation shall be
brought or asserted by any third party which, if adversely determined,
would entitle the Indemnified Party to indemnity pursuant to this Section
23, the Indemnified Party shall promptly notify the Indemnifying Party of
the same in writing, specifying in detail the basis of such claim and the
facts pertaining thereto and the Indemnifying Party, if it so elects, shall
assume and control the defense thereof (and shall consult with the
Indemnified Party with respect thereto), including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of
all necessary expenses; provided that the Indemnifying Party shall not have
the right to assume control of such defense if the claim which the
Indemnifying Party seeks to assume control (1) seeks non-monetary relief;
or (2) involves criminal or quasi-criminal allegations. In the event that
the Indemnified Party retains control of the defense of such claim, the
Indemnified Party shall use good faith efforts, consistent with prudent
business judgment, to defend such claim. If the Indemnifying Party is
permitted to assume and control the defense and elects to do so, the
Indemnified Party shall have the right to employ counsel separate from
counsel employed by the Indemnifying Party in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel employed by the Indemnified Party shall be at the expense of the
Indemnified Party unless (A) the employment thereof has been specifically
authorized by the Indemnifying Party in writing, (B) the Indemnifying Party
has been advised by counsel that a reasonable likelihood exists of a
conflict of interest between the Indemnifying Party and the Indemnified
Party and such counsel advises the Indemnifying Party of the general nature
of such conflict, (C) the Indemnifying Party has failed to assume the
defense and employ counsel, or (D) the Indemnified Party has reasonably
determined that an adverse outcome could have a material adverse effect on
its business, reputation or could reasonably be expected to have a
materially adverse precedential effect; in which case the fees and expenses
of the Indemnified Party's counsel shall be paid by the Indemnifying Party.
The Indemnifying Party shall not be

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liable for any settlement of any such action or proceeding effected without
the written consent of the Indemnifying Party, however, if there shall be a
final judgment for the plaintiff in any such action, the Indemnifying Party
agrees to indemnify and hold harmless the Indemnified Party from and
against any loss or liability by reason of such judgment.

(b) In the event that the Indemnified Party is entitled to any
indemnification hereunder from the Indemnifying Party, within fifteen (15)
days after a final determination of the amount of such indemnification
pursuant to the terms of this Section 23 (the "Indemnification Amounts"),
the Indemnifying Party shall pay such Indemnification Amount by payment of
immediately available funds to the Indemnified Party.

(c) Nothing in this Section 23 shall limit or restrict any party's
right to maintain or recover on any action based on fraud, but no multiple
recovery for indemnified losses is intended.

23.5 HOLDBACK. To secure Seller's obligations under this
Section 23, at Closing, Buyer and Seller shall establish an escrow account
with the Title Company (or other mutually satisfactory financial institution)
into which shall be deposited from the Purchase Price paid at Closing the sum
of Two Million Dollars ($2,000,000.00) (the "Holdback Amount"). The terms of
the escrow agreement (the "Holdback Escrow Instructions") establishing such
escrow (the "Holdback Escrow") shall be set forth in EXHIBIT 23.5 and shall
provide, in part, that the balance remaining in the Holdback Escrow shall be
paid to Seller eighteen (18) months after the Closing Date unless there shall
be pending as of such date a claim by Buyer for indemnification by Seller (a
"Pending Claim"), in which event, a balance shall be retained in the Holdback
Escrow sufficient to satisfy such Pending Claims (up to the Holdback Amount)
until such Pending Claims have been satisfied or otherwise resolved. In
order to preserve a Pending Claim under this subsection, Buyer must (a) file
a lawsuit asserting its right to indemnification under this Section 23 on or
before the date that is eighteen (18) months after the Closing Date, and (b)
serve Seller (provided, however, that service is a condition only if Seller's
agent for service of process has furnished Buyer with written evidence of its
consent to act as Seller's agent prior to Buyer's filing of the lawsuit).
Seller hereby appoints Ronald Zajac as its agent for accepting service of
process. The prevailing party in such lawsuit shall be entitled to
reimbursement of its actual attorney fees and costs incurred in connection
with such lawsuit.

23.6 CONFLICT. This Section 23 is not intended to exclude or
govern indemnifications expressly made in other Sections of this Contract.

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24. WARRANTY OF CONDITION OF ASSETS.

24.1 COVERAGE. Seller warrants to Buyer that the major
structural components and operating systems of the Improvements, including
but not limited to the roofs, structural walls, foundations, irrigation
systems, heating, ventilation, air conditioning, plumbing and electrical
equipment in the Improvements shall be in good condition and working order,
free from defects (other than the Governor's Hall masonry repairs identified
in the Law Engineering Report), ordinary wear and tear, and adequate in
quantity and quality for the normal operation of the Resort for a period of
twelve (12) months after the Closing Date. Defects that result from (a)
Buyer's failure to properly maintain the above referenced property; (b) acts
or omissions of Buyer, Buyer's principals, agents, employees, contractors,
tenants, licensees, guests, invitees, and other persons upon the Land (except
Seller after the Closing); (c) ordinary wear and tear; or (d) defects that
are covered by insurance maintained by Buyer; shall be excluded from the
warranty provided by this Section 24.

24.2 CAP. The aggregate liability of Seller under this
Section 24 is limited to Two Hundred Thousand Dollars ($200,000) in respect
of all claims based on Seller's breach of warranty, which aggregate liability
shall include the Required Repairs.

24.3 HOLDBACK. To secure Seller's obligations under this
Section 24, at Closing, Buyer and Seller shall establish an escrow account
with the Title Company (or other mutually satisfactory financial institution)
("Warranty Escrow Agent") into which shall be deposited from the Purchase
Price paid at Closing the sum of Two Hundred Thousand Dollars ($200,000) (the
"Warranty Reserve"). The terms of the escrow agreement (the "Warranty Escrow
Instructions") establishing such escrow (the "Warranty Escrow") shall be set
forth in EXHIBIT 24.3 and shall provide, in part, that the balance remaining
in the Warranty Escrow shall be paid to Seller twelve (12) months after the
Closing Date unless there shall be pending as of such date a claim by Buyer
for Seller's breach of warranty (a "Pending Warranty Claim"), in which event,
a balance shall be retained in the Warranty Escrow sufficient to satisfy such
Pending Warranty Claims (up to the Warranty Amount) until such Pending
Warranty Claims have been satisfied or otherwise resolved.

24.4 PROCEDURES.

(a) If Buyer seeks recovery for Seller's breach of the warranties
provided in this Section 24, Buyer shall give written notice ("Buyer's
Notice") to Seller and Warranty Escrow Agent of the facts and circumstances
giving rise to the claim and Buyer's estimate of the amount of loss
suffered

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<PAGE>

by Buyer (the "Estimated Loss"). If Warranty Escrow Agent does not receive
written notice of Seller's objections to the Estimated Loss within ten (10)
days of Warranty Escrow Agent's receipt of Buyer's Notice, Warranty Escrow
Agent shall pay to Buyer from the Warranty Reserve a sum equal to the
Estimated Loss. If Warranty Escrow Agent receives written notice of
Seller's objection to the Estimated Loss within ten (10) days of Warranty
Escrow Agent's receipt of Buyer's Notice, then Buyer and Seller shall
negotiate in good faith a mutually acceptable resolution of the Estimated
Loss. If after thirty (30) days, no mutually acceptable resolution is
obtained by Buyer and Seller, then Buyer and Seller shall submit the
dispute to a mutually acceptable arbitrator for arbitration, whose decision
shall be binding on Buyer and Seller.

Buyer and Seller hereby agree that, notwithstanding the notice provision
set forth immediately above, the Warranty Reserve shall be available to
Buyer for the Required Repairs without necessity of further notice to
Seller.

Buyer and Seller further agree that the Warranty provided in this Section
24 shall not extend to damage to due ordinary wear and tear, and that no
recovery may be obtained from the Warranty Reserve for those losses covered
by insurance procured by Buyer on the Resort.

(b) Nothing in this Section 24 shall limit or restrict any party's
right to maintain or recover on any action based on fraud.

24.5 CONFLICT. This Section 24 is not intended to exclude or
govern indemnifications expressly made in other Sections of this Contract,
but no multiple recovery for indemnified losses is intended.

[SIGNATURES ARE ON FOLLOWING PAGES]

-62-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Contract as of the dates
indicated below.

SELLER:

Witness: Grand Traverse Holding Company,
a Michigan corporation

- ---------------------------
By: /s/ Ronald Gracia
---------------------------------
Name: Ronald Gracia
- --------------------------- Title: President
-----------------------------

Date: August 1 , 1997
-----------------

GRS Grand Hotel Corporation,
a Michigan corporation

- ---------------------------
By: /s/ Ronald Gracia
---------------------------------
Name: Ronald Gracia
- --------------------------- Title: President
-----------------------------

Date: August 1 , 1997
-----------------

General Realty Services, Inc.
a Michigan corporation

- ---------------------------
By: /s/ Mark P. Mitchell
---------------------------------
Name: Mark P. Mitchell
- --------------------------- Title: Secretary
-----------------------------

Date: August 1 , 1997
-----------------

GTR Resort Development, Inc.
a Michigan corporation

- ---------------------------
By: /s/ Mark P. Mitchell
---------------------------------
Name: Mark P. Mitchell
- --------------------------- Title: President
-----------------------------

Date: August 1 , 1997
-----------------

-63-
<PAGE>

Grand Personalty, Inc.,
a _____________________ corporation

- ---------------------------
By: /s/ Mark P. Mitchell
--------------------------------
Name: Mark P. Mitchell
- --------------------------- Title: Secretary
----------------------------

Date: August 1 , 1997
-----------------

BUYER:
KSL Recreation Corporation,
a Delaware corporation

- ---------------------------
By: /s/ John K. Saer, JR.
--------------------------------
Name: John K. Saer, Jr.
- --------------------------- Title: Vice President
----------------------------

Date: August 1 , 1997
-----------------

-64-

<PAGE>

Exhibit 10.15

ASSIGNMENT OF CONTRACT FOR PURCHASE

Whereas, KSL Recreation Corporation, a Delaware corporation ("Assignor"),
is a party to a certain Contract for Purchase and Sale of Grand Traverse Resort
with Grand Traverse Holding Company, a Michigan corporation, GRS Grand Hotel
Corporation, a Michigan corporation, General Realty Services, Inc., a Michigan
corporation, GTR Resort Development, Inc., a Michigan corporation and Grand
Personalty, Inc., a Michigan corporation, dated as of August 1, 1997, (the
"Contract"); and

Whereas, Assignor desires to assign, transfer and convey to KSL Grand
Traverse Holdings, Inc., a Delaware corporation, KSL Grand Traverse Land, Inc.,
a Delaware corporation, KSL Grand Traverse Realty, Inc., a Delaware corporation,
KSL Grand Traverse Resort, Inc., a Delaware corporation, and KSL Water Works,
Inc., a Delaware corporation (collectively, "Assignee") all of the rights,
duties and obligations in and to the Contract, and Assignee is desirous of
acquiring all right, title and interest in and to the Contract;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

1. ASSIGNMENT. Assignor assigns, transfers and conveys to Assignee all
of Assignor's rights, duties and obligations in and to the Contract.

2. ACCEPTANCE. Assignee hereby jointly and severally accepts the
assignment of all of Assignor's rights, duties and obligations in and to the
Contract.

3. BINDING EFFECT. This Assignment will inure to the benefit of and bind
the respective successors and assigns of the parties hereto.

4. HEADINGS. Paragraph or other headings contained in this Assignment
are for reference purposes only and are not intended to affect in any way the
meaning or interpretation of this Assignment.

5. GOVERNING LAW. This Assignment will be interpreted and construed
under the internal laws of the State of Michigan.

IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the
date first above written.

KSL RECREATION CORPORATION

By: /s/ Nola S. Dyal
--------------------------

Its: Vice President
--------------------

-1-
<PAGE>

KSL GRAND TRAVERSE HOLDINGS, INC.
KSL GRAND TRAVERSE LAND, INC.
KSL GRAND TRAVERSE REALTY, INC.
KSL GRAND TRAVERSE RESORT, INC.
KSL WATER WORKS, INC.

By: /s/ Irving J. Kass
--------------------------
Irving J. Kass
Authorized Officer of Each Named Entity

-2-

<PAGE>

Exhibit 11

KSL RECREATION GROUP, INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS (LOSS) PER SHARE

(In thousands, except share and per share data)

YEARS ENDED OCTOBER 31,
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
NET INCOME (LOSS):
Income (loss) before extraordinary item. . . . . . . . . . . . . $ 2,801 $ (12,379) $ (16,172)
Extraordinary gain (loss) on early extinguishment of debt. . . . (3,164) 32,120 -
---------- ----------- -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ (363) $ 19,741 $ (16,172)
---------- ----------- -----------
---------- ----------- -----------

DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT SHARES:
Weighted average number of common shares outstanding . . . . . . 1,000 1,000 1,000
Common equivalent shares . . . . . . . . . . . . . . . . . . . . - - -
---------- ----------- -----------
Weighted average number of common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 1,000
---------- ----------- -----------
---------- ----------- -----------

EARNINGS (LOSS) PER SHARE -- Primary & Fully Diluted
Income (loss) per share before extraordinary item. . . . . . . . $ 2,801 $ (12,379) $ (16,172)
Extraordinary gain (loss) per share. . . . . . . . . . . . . . . (3,164) 32,120 -
---------- ----------- -----------

EARNINGS (LOSS) PER SHARE -- Primary & Fully Diluted . . . . . . . $ (363) $ 19,741 $ (16,172)
---------- ----------- -----------
---------- ----------- -----------

</TABLE>

<PAGE>

Exhibit 21

LIST OF SUBSIDIARIES OF THE COMPANY

State of Incorporation/
Name Organization
---- ------------
KSL Desert Resorts, Inc. Delaware
Casitas Plaza Corporation Delaware
KSL Travel, Inc. Delaware
KSL Real Estate Company (formerly Wild West Desert
Properties, Inc.) Delaware
Las Casitas Corporation (formerly KSL Vacation
Resorts, Inc.) Delaware

KSL Golf Holdings, Inc. Delaware
KSL Fairways Golf Corporation Delaware
The Fairways Group, L.P. Delaware
Mequon Country Club, Inc. Wisconsin
MVCG Corp. Pennsylvania
Monroe Valley Associates, L.P. Pennsylvania
Liberty Golf Park, Inc. Maryland

KSL Grand Traverse Holdings, Inc. Delaware
KSL Grand Traverse Land, Inc. Delaware
KSL Grand Traverse Realty, Inc. Delaware
KSL Grand Traverse Resort, Inc. Delaware
KSL Water Works, Inc. Delaware

KSL Georgia Holdings, Inc. Delaware
KSL Lake Lanier, Inc. Delaware

KSL Florida Holdings, Inc. Delaware
KSL Hotel Corp. Delaware
KSL Silver Properties, Inc. Delaware

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 24,056
<SECURITIES> 0
<RECEIVABLES> 14,907
<ALLOWANCES> 722
<INVENTORY> 7,383
<CURRENT-ASSETS> 53,225
<PP&E> 498,283
<DEPRECIATION> 66,847
<TOTAL-ASSETS> 636,041
<CURRENT-LIABILITIES> 44,498
<BONDS> 361,976
0
0
<COMMON> 0
<OTHER-SE> 168,191
<TOTAL-LIABILITY-AND-EQUITY> 636,041
<SALES> 69,035
<TOTAL-REVENUES> 226,070
<CGS> 23,153
<TOTAL-COSTS> 193,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,193
<INTEREST-EXPENSE> 31,709
<INCOME-PRETAX> 2,801
<INCOME-TAX> 143
<INCOME-CONTINUING> 2,801
<DISCONTINUED> 0
<EXTRAORDINARY> (3,164)
<CHANGES> 0
<NET-INCOME> (363)
<EPS-PRIMARY> (363)
<EPS-DILUTED> (363)

</TABLE>